(2_FIDELITY_LOGOS)FIDELITY
HIGH INCOME
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 32 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 36 NOTES TO THE FINANCIAL STATEMENTS.
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
FIDELITY HIGH INCOME -9.91% -1.77% 60.49% 208.08%
ML HIGH YIELD MASTER -4.03% 1.00% 49.48% 161.10%
HIGH CURRENT YIELD FUNDS AVERAGE -9.09% -3.35% 39.07% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or since the fund started on August 29, 1990. For example, if
you had invested $1,000 in a fund that had a 5% return over the past
year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Merrill Lynch High Yield
Master - a market capitalization weighted index of all domestic and
yankee high-yield bonds. Issues included in the index have maturities
of at least one year and have a credit rating lower than BBB-/Baa3,
but are not in default. To measure how the fund's performance stacked
up against its peers, you can compare it to the high current yield
funds average, which reflects the performance of mutual funds with
similar objectives tracked by Lipper Analytical Services, Inc. The
past six months average represents a peer group of 271 mutual funds.
These benchmarks reflect reinvestment of dividends and capital gains,
if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY HIGH INCOME -1.77% 9.92% 14.75%
ML HIGH YIELD MASTER 1.00% 8.37% 12.45%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
High Income ML High Yield Master
00455 ML002
1990/08/29 10000.00 10000.00
1990/08/31 10064.99 9985.04
1990/09/30 9729.40 9550.77
1990/10/31 9550.63 9307.73
1990/11/30 9776.03 9386.58
1990/12/31 9943.86 9521.83
1991/01/31 10104.29 9656.43
1991/02/28 10720.43 10373.16
1991/03/31 11246.93 10819.17
1991/04/30 11533.41 11204.45
1991/05/31 11681.60 11259.17
1991/06/30 11977.15 11485.66
1991/07/31 12368.43 11760.87
1991/08/31 12468.01 12008.06
1991/09/30 12639.75 12161.01
1991/10/31 13107.55 12522.37
1991/11/30 13259.88 12667.02
1991/12/31 13358.94 12814.18
1992/01/31 13966.03 13262.20
1992/02/29 14480.19 13591.57
1992/03/31 14853.43 13781.21
1992/04/30 14965.58 13881.52
1992/05/31 15143.52 14102.94
1992/06/30 15367.69 14278.16
1992/07/31 15662.69 14567.45
1992/08/31 15936.82 14760.32
1992/09/30 16107.59 14928.50
1992/10/31 15875.43 14739.95
1992/11/30 16009.54 14948.70
1992/12/31 16231.34 15141.18
1993/01/31 16632.02 15514.01
1993/02/28 16980.76 15807.67
1993/03/31 17401.26 16081.73
1993/04/30 17503.26 16197.16
1993/05/31 17715.25 16415.20
1993/06/30 18326.62 16723.60
1993/07/31 18566.28 16903.36
1993/08/31 18721.76 17064.49
1993/09/30 18784.48 17148.69
1993/10/31 19196.15 17471.73
1993/11/30 19487.94 17567.29
1993/12/31 19780.16 17742.95
1994/01/31 20449.02 18131.78
1994/02/28 20445.44 18001.39
1994/03/31 19949.27 17414.78
1994/04/30 19726.67 17211.27
1994/05/31 19808.03 17149.95
1994/06/30 19804.44 17213.07
1994/07/31 19827.53 17334.07
1994/08/31 19829.75 17454.47
1994/09/30 19987.50 17447.87
1994/10/31 20100.14 17492.21
1994/11/30 20036.21 17343.41
1994/12/31 20414.43 17536.33
1995/01/31 20555.12 17784.12
1995/02/28 21041.83 18339.00
1995/03/31 21364.77 18594.22
1995/04/30 21911.37 19029.58
1995/05/31 22334.87 19624.11
1995/06/30 22626.41 19773.99
1995/07/31 23061.97 20000.05
1995/08/31 23348.25 20121.44
1995/09/30 23554.89 20351.65
1995/10/31 23902.63 20495.91
1995/11/30 23793.51 20695.98
1995/12/31 24197.51 21028.19
1996/01/31 24967.11 21360.29
1996/02/29 25192.88 21392.45
1996/03/31 25179.73 21334.36
1996/04/30 25429.54 21344.02
1996/05/31 25723.43 21497.95
1996/06/30 25702.18 21627.09
1996/07/31 25657.68 21773.92
1996/08/31 26078.96 21998.78
1996/09/30 26811.27 22470.77
1996/10/31 26972.74 22717.04
1996/11/30 27347.86 23176.31
1996/12/31 27624.63 23354.65
1997/01/31 27967.02 23534.13
1997/02/28 28531.85 23864.27
1997/03/31 27892.60 23599.22
1997/04/30 28118.21 23867.81
1997/05/31 29091.95 24342.71
1997/06/30 29615.37 24719.53
1997/07/31 30569.24 25312.74
1997/08/31 30709.39 25255.79
1997/09/30 31712.29 25687.00
1997/10/31 31361.95 25857.47
1997/11/30 31736.87 26089.05
1997/12/31 32023.68 26349.89
1998/01/31 32781.15 26735.89
1998/02/28 33302.68 26852.68
1998/03/31 34023.93 27084.10
1998/04/30 34196.73 27212.74
1998/05/31 34105.29 27388.79
1998/06/30 34259.12 27537.91
1998/07/31 34657.53 27694.95
1998/08/31 31047.81 26499.89
1998/09/30 31402.60 26552.74
1998/10/30 30834.44 26109.80
IMATRL PRASUN SHR__CHT 19981031 19981110 111351 R00000000000102
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity High Income Fund on August 29, 1990. As the chart
shows, by October 31, 1998, the value of the investment would have
grown to $30,808 - a 208.08% increase on the initial investment. For
comparison, look at how the Merrill Lynch High Yield Master did over
the same period. With dividends and capital gains, if any, reinvested,
the same $10,000 would have grown to $26,110 - a 161.10% 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
<TABLE>
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SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 3.86% 9.64% 8.76% 10.66% 9.45% 8.93%
CAPITAL RETURNS -13.77% 11.98% 1.81% 5.40% 1.62% 3.77%
</TABLE>
TOTAL RETURNS -9.91% 21.62% 10.57% 16.06% 11.07% 12.70%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 7.65(CENTS) 55.32(CENTS) 113.96(CENTS)
ANNUALIZED DIVIDEND RATE 7.95% 8.68% 8.77%
30-DAY ANNUALIZED YIELD 11.07% - -
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
$11.33 over the past one month, $12.64 over the past six months and
$13.00 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Despite some recent signs of life,
the high-yield bond market posted
lackluster results during the six
months that ended October 31,
1998. While the high-yield market
tends to perform somewhat in line
with the stock market, this was not
the case during the stock market's
recent rally. Although the overall
six-month return of -0.41% for the
Standard & Poor's 500 Index was
weak, the index posted an
impressive 8.13% return during
October. Despite the recent
strength in the stock market, the
Merrill Lynch High Yield Master
Index - a broad measure of the
high-yield market - returned
- -1.64% during October and
- -4.03% for the period. In
comparison, the Lehman Brothers
Aggregate Bond Index - a
popular performance gauge of the
U.S. taxable bond market -
returned 5.55% during the past six
months. The skepticism exhibited
in the high-yield market is a
reflection of its participants.
Whereas stocks and higher-quality
bonds are generally purchased by
individual investors and large
institutions, high-yield bonds are
largely the domain of insurance
companies and pension funds.
These investors have been more
doubtful of the Federal Reserve
Board's ability to prevent an
economic downturn and have
subscribed to the view that a
slowdown due to foreign weakness
may be in the cards.
An interview with Tom Soviero, Portfolio Manager of Fidelity High
Income Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six months that ended October 31, 1998, the fund returned
- -9.91%, while the high current yield funds average tracked by Lipper
Analytical Services lost 9.09%. The overall high-yield market, as
measured by the Merrill Lynch High Yield Master Index, dropped 4.03%
for the same six-month period. For the year that ended October 31,
1998, the fund returned -1.77%, while the peer group and Merrill Lynch
index had returns of -3.35% and 1.00%, respectively.
Q. WHAT WERE THE KEY FACTORS BEHIND THE FUND'S PERFORMANCE OVER THE
PAST SIX MONTHS?
A. During the first half of the year, the high-yield market performed
well. The economy was healthy and inflation was modest, which helped
revenue, earnings and cash flow growth. In addition, the demand for
high-yield bonds was strong, with broad market support for over $100
billion of new issues. Then came July and August. The economy slowed,
stocks dropped and worries about unstable conditions in Asia
resurfaced. To further complicate market conditions, Russia had a
major financial and political crisis. Investors feared that other
emerging and high-yielding markets might also have serious problems
waiting to surface. Volatility increased sharply and there was a
full-fledged flight to quality as investors sought relatively stable
investments, such as U.S. Treasury securities and the household names
of large-cap stocks. Clearly, this was not a trend that benefited
high-yield corporate bonds. The portfolio was structured with a
relatively high proportion of lower quality and deferred-pay bonds,
such as zero-coupon and pay-in-kind bonds that don't provide investors
with any cash payments until the bonds mature. As a result, the fund
underperformed its peer group and the Merrill Lynch index.
Q. WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO DURING THE PERIOD?
A. Going into the period, I was not confident that the U.S. economy
could sustain its growth rate because of concerns that weakness in
Asia would have a negative effect on the level of business activity.
Therefore, I underweighted economically sensitive sectors such as
energy, steel, paper and basic industries. In hindsight, while I was
upgrading the fund's sector composition, I should have upgraded its
structure as well by adding more cash-paying securities.
Q. DO YOU STILL HAVE A POSITIVE OUTLOOK ON THE MEDIA AND
TELECOMMUNICATIONS SECTORS?
A. Yes, I do. The fund had between 35% and 45% of its assets invested
in those two sectors, which were among the first in the market to show
signs of recovery in October. In the media sector, cable television
bonds held up reasonably well because of strong underlying franchise
and asset values. Cablevision Systems (CSC Holdings), one of the
fund's top holdings, performed well, reporting strong financial
results in the midst of the market setback. Based in New York,
Cablevision owns both distribution and programming assets through a
strong cable TV franchise on the East Coast and ownership of Madison
Square Garden and all its broadcast rights. The telecommunications
sector continued to offer good opportunities as business and retail
consumers sought an increasingly broad range of channels for voice and
data communication. The fund's largest holding, Nextel, is a
well-managed company that dominates a niche market sector by providing
nationwide direct-connect wireless service. Unfortunately, Nextel's
market performance was disappointing because its bonds all have a
deferred-pay structure. During the period, prices of this bond type
fell, regardless of companies' fundamental strengths.
Q. WHAT INVESTMENT OPPORTUNITIES DID MARKET CONDITIONS CREATE?
A. Many high-yield bonds dropped further in price than was justified
by their fundamental value. This took place because the market's
perception of risk outstripped reality. For example, the historical
default rate for high-yield bonds is less than 3%, but during August
and September high-yield prices incorporated a default rate of about
9%. The fund used the market's indiscriminate selling to make
opportunistic purchases, including high-quality oil and gas
exploration companies as well as other select cyclical issues. Many of
these bonds were trading at prices below their fundamental value. I
also added to existing positions at attractive prices.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A. I believe there is a lot of value in the high-yield market. While I
expect volatility to continue over the near-term, I am comfortable
with the way the fund is positioned. The high-yield market is not
without risk. However, I'm confident that our powerful research team
is able to identify and understand the risks, providing the means for
me to focus on minimizing the downside by actively managing the
portfolio. Right now is a great opportunity to take a disciplined look
at a lot of fundamentally strong companies that are trading at prices
well below their intrinsic value. After all, when it looked darkest
during the bear market of 1990-1991, it turned out to be the best time
to buy high-yield bonds.
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.
TOM SOVIERO ON THE VALUE
OF FUNDAMENTAL ANALYSIS:
"HIGH-YIELD MARKET VOLATILITY ON THE
SCALE THAT WE EXPERIENCED DURING
THE PAST FEW MONTHS EMPHASIZES THE
IMPORTANCE OF FUNDAMENTAL ANALYSIS
- - IT IS NEVER MORE MEANINGFUL THAN
WHEN PERCEPTION AND REALITY ARE OUT
OF STEP, CREATING ABUNDANT MARKET
INEFFICIENCIES. OPPORTUNITIES ARE
CREATED WHEN BOND PRICES FALL BELOW
THEIR FUNDAMENTAL VALUES. POTENTIAL
LOSSES ARE CREATED WHEN PRICES DON'T
REFLECT DETERIORATING OPERATING OR
FINANCIAL PERFORMANCE.
"WE HAVE 16 EXPERIENCED,
SECTOR-SPECIALIZED RESEARCH ANALYSTS
WHO FACILITATE OUR ABILITY TO IDENTIFY
AND CAPITALIZE ON WHAT WE CONSIDER
MISPRICED SECURITIES. THEY MAKE
RECOMMENDATIONS TO BUY OR SELL A BOND
BASED ON ANALYZING THE COMPANY'S
FUNDAMENTALS - THE INFORMATION
FOUND ON INCOME STATEMENTS AND
BALANCE SHEETS - AS WELL AS BY
ASSESSING THE COMPANY'S MANAGEMENT
TEAM AND COMPETITIVE POSITION WITHIN
ITS INDUSTRY. USING THIS INFORMATION, THE
ANALYST FORECASTS THE COMPANY'S
REVENUES, CASH FLOWS AND EARNINGS. IN
TURN, I COMPARE OUR VALUATION TO THE
MARKET VALUATION, AS REPRESENTED BY
CURRENT TRADING LEVELS, AS WELL AS TO
THOSE OF OTHER, SIMILAR SECURITIES.
FINALLY, I DECIDE TO BUY OR SELL THE BOND
BASED ON THESE RELATIVE VALUES. AS THE
HIGH-YIELD BOND MARKET HAS MATURED,
THE VOLUME OF NEW ISSUES HAS EXPLODED.
IN THE FIRST SIX MONTHS OF 1998, ABOUT
$117 BILLION OF NEW ISSUES WERE PLACED,
NEARLY MATCHING THE RECORD LEVEL OF
$120 BILLION FOR ALL OF 1997. HAVING
UNPARALLELED RESEARCH EXPERTISE IS
ONE OF OUR GREATEST ASSETS. I BELIEVE IT
GIVES US AN INFORMATION ADVANTAGE THAT
HAS ADDED VALUE OVER TIME, BOTH IN
TERMS OF OUR LOWER-THAN-AVERAGE
DEFAULT RATE EXPERIENCE AND OUR ABILITY
TO MAKE MONEY FOR INVESTORS."
FUND FACTS
GOAL: HIGH CURRENT INCOME BY
INVESTING MAINLY IN HIGH-YIELDING
DEBT SECURITIES WITH AN EMPHASIS
ON LOWER-QUALITY SECURITIES
FUND NUMBER: 455
TRADING SYMBOL: SPHIX
START DATE: AUGUST 29, 1990
SIZE: AS OF OCTOBER 31, 1998,
MORE THAN $2.6 BILLION
MANAGER: TOM SOVIERO, SINCE
1996; ALSO MANAGES INSTITUTIONAL
FUNDS; JOINED FIDELITY IN 1989
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
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TOP FIVE HOLDINGS AS OF OCTOBER 31, 1998
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
NEXTEL COMMUNICATIONS, INC. 5.7 6.2
CSC HOLDINGS, INC. 4.8 3.3
PATHMARK STORES INC. 4.0 3.3
IXC COMMUNICATIONS, INC. 3.2 3.0
NTL, INC. 2.6 1.8
</TABLE>
<TABLE>
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TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
MEDIA & LEISURE 31.2 29.4
UTILITIES 19.2 19.9
RETAIL & WHOLESALE 11.6 9.4
BASIC INDUSTRIES 4.3 5.3
FINANCE 4.2 5.1
</TABLE>
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QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 0.0 0.0
BAA 0.3 0.0
BA 12.1 8.7
B 40.6 45.9
CAA, CA, C 17.5 11.3
NOT RATED 5.3 5.2
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED
S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE EQUIVALENT TO BA AND
BELOW AT OCTOBER 31, 1998
AND APRIL 30, 1998 ACCOUNT FOR 5.3% AND 5.2% RESPECTIVELY, OF THE
FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998* AS OF APRIL 30, 1998**
NONCONVERTIBLE
BONDS 71.7%
CONVERTIBLE BONDS,
PREFERRED STOCKS 22.6%
COMMON STOCKS 1.6%
SHORT-TERM
INVESTMENTS 3.0%
OTHER 1.1%
NONCONVERTIBLE
BONDS 67.2%
CONVERTIBLE BONDS,
PREFERRED STOCKS 24.1%
COMMON STOCKS 5.6%
SHORT-TERM
INVESTMENTS 2.6%
OTHER 0.5%
ROW: 1, COL: 1, VALUE: 1.1
ROW: 1, COL: 2, VALUE: 3.0
ROW: 1, COL: 3, VALUE: 1.6
ROW: 1, COL: 4, VALUE: 22.3
ROW: 1, COL: 5, VALUE: 72.0
ROW: 1, COL: 1, VALUE: 0.5
ROW: 1, COL: 2, VALUE: 2.6
ROW: 1, COL: 3, VALUE: 5.6
ROW: 1, COL: 4, VALUE: 24.1
ROW: 1, COL: 5, VALUE: 67.2
* FOREIGN
INVESTMENTS 7.8%
**FOREIGN
INVESTMENTS 5.5%
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
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CORPORATE BONDS - 74.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
CONVERTIBLE BONDS - 3.0%
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.1%
HIH Capital Ltd. euro 7.5% - $ 4,710 $ 3,014
9/25/06
HEALTH - 0.6%
DRUGS & PHARMACEUTICALS - 0.6%
IVAX Corp. 6.5% - 16,030 14,748
11/15/01 (d)
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.8%
International Cabletel, Inc.:
7% 6/15/08 (d) Caa1 2,890 3,833
7% 6/15/08 Caa1 13,020 17,268
21,101
LODGING & GAMING - 0.1%
Signature Resorts, Inc. Caa1 3,420 1,744
5.75% 1/15/07
TOTAL MEDIA & LEISURE 22,845
PRECIOUS METALS - 0.0%
TVX Gold, Inc. 5% 3/28/02 - 1,670 1,019
RETAIL & WHOLESALE - 0.7%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.7%
Sunglass Hut International,
Inc.:
5.25% 6/15/03 (d) B2 20,520 13,543
5.25% 6/15/03 B3 8,960 5,914
19,457
SERVICES - 0.2%
Veterinary Centers of - 5,850 4,651
America, Inc.
5.25% 5/1/06
TECHNOLOGY - 0.4%
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Silicon Graphics, Inc. 5.25% B1 13,470 10,675
9/1/04
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
UTILITIES - 0.1%
CELLULAR - 0.1%
Rogers Communications, B2 $ 2,820 $ 1,770
Inc. 2% 11/26/05
TOTAL CONVERTIBLE BONDS 78,179
NONCONVERTIBLE BONDS - 71.7%
AEROSPACE & DEFENSE - 0.6%
Argo-Tech Corp. 8.625% B3 5,180 4,817
10/1/07
Compass Aerospace Corp. Caa1 7,670 7,593
10.125% 4/15/05 (d)
United Defense Industries, B3 2,820 2,813
Inc. 8.75% 11/15/07
15,223
BASIC INDUSTRIES - 4.1%
CHEMICALS & PLASTICS - 1.6%
AEP Industries, Inc. 9.875% B2 3,960 3,703
11/15/07
Brunner Mond Group PLC B3 4,440 3,818
11% 7/15/08 (d)
Geo Specialty Chemicals, B3 5,390 4,932
Inc.
10.125% 8/1/08 (d)
Huntsman Corp. 9.5% B2 19,240 18,470
7/1/07 (d)
Koppers Industries, Inc. B2 5,180 4,714
9.875% 12/1/07
Moll Industries, Inc. 10.5% B3 3,560 3,346
7/1/08 (d)
Tekni-Plex, Inc. 9.25% B3 3,650 3,559
3/1/08
42,542
IRON & STEEL - 1.2%
AK Steel Corp.:
9.125% 12/15/06 Ba2 670 695
10.75% 4/1/04 Ba2 9,640 10,122
Metallurg Holdings, Inc. 0% Caa1 38,400 12,672
7/15/08 (c)(d)
Pohang Iron & Steel Co. Ltd. Ba1 9,580 7,675
yankee
6.625% 7/1/03
31,164
PACKAGING & CONTAINERS - 0.6%
Gaylord Container Corp.:
9.75% 6/15/07 Caa1 11,480 8,553
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - CONTINUED
Gaylord Container Corp.: -
continued
9.875% 2/15/08 Caa2 $ 13,030 $ 5,994
Huntsman Packaging Corp. B2 2,230 2,130
9.125% 10/1/07
16,677
PAPER & FOREST PRODUCTS - 0.7%
Advance Agro PCL 13% B3 6,690 4,014
11/15/07 (d)
Container Corp. of America B1 7,380 7,159
9.75% 4/1/03
Repap New Brunswick, Inc. Caa1 11,130 7,123
yankee
10.625% 4/15/05
18,296
TOTAL BASIC INDUSTRIES 108,679
CONSTRUCTION & REAL ESTATE - 2.9%
BUILDING MATERIALS - 1.0%
AAF Mcquay, Inc. 8.875% B1 6,180 5,778
2/15/03
Airxcel, Inc. 11% 11/15/07 B3 13,955 12,699
Henry Co. 10% 4/15/08 B3 3,570 3,374
Holmes Products Corp. B3 4,750 4,180
9.875% 11/15/07
26,031
CONSTRUCTION - 1.0%
Beazer Homes USA, Inc. B1 11,140 10,137
8.875% 4/1/08
Great Lakes Dredge & Dock B3 7,920 7,682
Corp.
11.25% 8/15/08 (d)
Webb (Del E.) Corp. B2 10,000 9,450
9.375% 5/1/09
27,269
REAL ESTATE - 0.9%
LNR Property Corp. 9.375% B1 10,400 9,308
3/15/08
Museum Towers LLC 15% - 10,000 12,867
11/7/01 (g)
22,175
TOTAL CONSTRUCTION & REAL ESTATE 75,475
DURABLES - 2.8%
AUTOS, TIRES, & ACCESSORIES - 2.2%
Advance Holding Corp. 0% Caa2 6,400 3,456
4/15/09 (c)(d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES - CONTINUED
Advance Stores Co., Inc. Caa1 $ 10,710 $ 10,282
10.25% 4/15/08 (d)
Breed Technologies, Inc. B3 29,760 23,213
9.25% 4/15/08 (d)
Federal-Mogul Corp. Ba2 17,630 16,847
7.875% 7/1/10
Oshkosh Truck Co. 8.75% B3 4,950 4,604
3/1/08
58,402
CONSUMER ELECTRONICS - 0.2%
Windmere-Durable B3 4,190 3,520
Holdings, Inc. 10%
7/31/08
HOME FURNISHINGS - 0.1%
Omega Cabinets Ltd. 10.5% B3 1,560 1,248
6/15/07
Sealy Mattress Co. 0% B3 2,210 1,238
12/15/07 (c)
2,486
TEXTILES & APPAREL - 0.3%
WestPoint Stevens, Inc. Ba3 8,590 8,697
7.875% 6/15/08
TOTAL DURABLES 73,105
ENERGY - 1.2%
COAL - 0.2%
P&L Coal Holdings Corp. Ba3 3,500 3,518
8.875% 5/15/08 (d)
OIL & GAS - 1.0%
Belden & Blake Corp. B3 16,670 13,336
9.875% 6/15/07
Chesapeake Energy Corp. B1 4,120 3,461
9.625% 5/1/05
Great Lakes Carbon Corp. B3 6,820 6,615
10.25% 5/15/08 (d)
Nuevo Energy Co. 8.875% B1 340 338
6/1/08
YPF Sociedad Anonima Ba3 3,450 3,019
7.75% 8/27/07
26,769
TOTAL ENERGY 30,287
FINANCE - 3.6%
CREDIT & OTHER FINANCE - 3.4%
Aames Financial Corp. B3 1,430 858
9.125% 11/1/03
Anthony Crane Rentals B3 2,490 2,316
LP/Anthony Credit Capital
Corp. 10.375%
8/1/08 (d)
Cellco Finance NV 15% B2 13,800 11,247
8/1/05 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
ContiFinancial Corp. Ba3 $ 6,940 $ 4,199
8.125% 4/1/08
Delta Financial Corp. 9.5% B3 4,930 2,761
8/1/04
Denbury Management, Inc. B3 2,030 1,726
9% 3/1/08
Digital Television Services B3 15,270 15,423
LLC/ DTS Capital, Inc.
12.5% 8/1/07
GS Escrow Corp. 7.125% Ba1 9,090 8,877
8/1/05 (d)
Macsaver Financial Ba1 16,660 11,995
Services, Inc. 7.6%
8/1/07
Ocwen Capital Trust B2 2,410 1,808
10.875% 8/1/27
PTC International Finance B3 3,610 2,112
BV 0% 7/1/07 (c)
SB Treasury Co. LLC 9.4% Baa1 10,200 9,180
12/29/49 (d)(e)
Trench Electronics B3 10,880 10,010
SA/Trench, Inc.
10.25% 12/15/07
UNICCO Service B3 6,520 5,738
Co./UNICCO Finance
Corp. 9.875% 10/15/07
88,250
SAVINGS & LOANS - 0.2%
Bank United Corp. 8.875% Ba3 6,410 6,282
5/1/07
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP 14% - 286 285
6/10/02 (d)
TOTAL FINANCE 94,817
HEALTH - 2.8%
DRUGS & PHARMACEUTICALS - 0.1%
Leiner Health Products, Inc. B3 1,210 1,222
9.625% 7/1/07
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
CONMED Corp. 9% B3 6,000 5,760
3/15/08
MEDICAL FACILITIES MANAGEMENT - 2.5%
Everest Healthcare Services, B3 5,530 5,267
Inc. 9.75% 5/1/08
Fountain View, Inc. 11.25% Caa1 8,890 6,934
4/15/08
Harborside Healthcare B3 23,380 11,222
Corp. 0% 8/1/08 (c)(d)
Oxford Health Plans, Inc. Caa1 25,490 22,176
11% 5/15/05 (d)
Unilab Corp. 11% 4/1/06 Caa2 20,955 20,955
66,554
TOTAL HEALTH 73,536
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 1.6%
ELECTRICAL EQUIPMENT - 0.6%
Delco Remy International,
Inc.:
8.625% 12/15/07 B1 $ 9,985 $ 9,636
10.625% 8/1/06 B2 5,800 5,858
15,494
INDUSTRIAL MACHINERY & EQUIPMENT - 1.0%
GSI Group, Inc. 10.25% B2 11,380 7,966
11/1/07
International Knife & Saw, B3 2,780 2,738
Inc.
11.375% 11/15/06
Roller Bearing Co. of B3 5,550 5,037
America, Inc.
9.625% 6/15/07
Roller Bearing Holding, Inc. - 22,220 11,554
0% 6/15/09 (c)(d)
27,295
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 42,789
MEDIA & LEISURE - 22.6%
BROADCASTING - 16.7%
ACME Television LLC/ACME B3 9,390 6,949
Financial Corp.
0% 9/30/04 (c)
Adelphia Communications
Corp.:
8.375% 2/1/08 B2 7,560 7,522
9.875% 3/1/07 B2 22,060 23,604
Ascent Entertainment Group, B3 20,890 11,803
Inc. 0% 12/15/04 (c)
Benedek Communications B3 4,455 2,940
Corp. 0% 5/15/06 (c)
CBS Radio, Inc. 11.375% - 4,584 5,318
1/15/09 pay-in-kind
Century Communications
Corp.:
0% 1/15/08 Ba3 24,195 11,614
8.375% 12/15/07 Ba3 9,640 9,953
Citadel Broadcasting Co. B3 16,220 17,112
10.25% 7/1/07
Classic Cable, Inc. 9.875% B3 2,000 2,020
8/1/08 (d)
Classic Communications, Caa1 7,710 4,009
Inc. 0% 8/1/09 unit (c)(d)
Comcast UK Cable Partners B2 27,900 21,762
Ltd.
0% 11/15/07 (c)
CSC Holdings, Inc. 7.625% Ba2 13,880 12,825
7/15/18
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Diamond Cable
Communications PLC:
yankee 0% 12/15/05 (c) Caa1 $ 3,260 $ 2,380
0% 2/15/07 (c) Caa1 9,720 6,051
EchoStar Communications B2 22,038 21,487
Corp. 0% 6/1/04 (c)
Echostar DBS Corp. 12.5% Caa1 8,520 8,712
7/1/02
Echostar Satellite B3 41,660 35,828
Broadcasting Corp.
0% 3/15/04 (c)
Falcon Holdings Group
LP/Falcon Funding:
0% 4/15/10 (c) B2 17,965 11,857
8.375% 4/15/10 B2 8,285 8,181
FrontierVision Holdings Caa1 20,990 16,949
LP/FrontierVision Holdings
Capital Corp. 0%
9/15/07 (c)
Golden Sky Systems, Inc. B3 7,520 7,445
12.375% 8/1/06 (d)
Granite Broadcasting Corp.:
8.875% 5/15/08 B3 7,190 6,219
10.375% 5/15/05 B3 8,320 7,946
International Cabletel, Inc. B3 48,720 37,027
0% 2/1/06 (c)
Iridium Operating B3 5,050 3,788
LLC/Iridium Capital Corp.
10.875% 7/15/05
Lenfest Communications, Inc. B2 2,720 2,727
8.25% 2/15/08
Multicanal SA 10.5% Ba3 11,790 8,253
4/15/18
NTL, Inc.:
0% 4/1/08 (c)(d) B3 76,555 42,105
11.5% 10/1/08 (d) B3 25,780 26,682
Orbital Imaging Corp. - 1,440 1,267
11.625% 3/1/05
Pegasus Communications B3 2,620 2,384
Corp.
9.625% 10/15/05
Renaissance Media Group B3 5,700 3,591
LLC/Renaissance
0% 4/15/08 (c)
Satelites Mexicanos SA de B3 7,380 5,018
CV
10.125% 11/1/04 (d)
TCI Communications Ba2 5,490 6,588
Financing III
9.65% 3/31/27
Telemundo Holdings, Inc. 0% Caa1 22,230 11,115
8/15/08 (c)(d)
Telewest Communications B+ 3,930 4,127
PLC
11.25% 11/1/08 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC:
yankee 0% 10/1/07 (c) B1 $ 11,570 $ 9,140
9.625% 10/1/06 B1 2,560 2,509
436,807
ENTERTAINMENT - 1.7%
Bally Total Fitness Holding B3 7,800 7,137
Corp.
9.875% 10/15/07
Jones International Networks B3 6,430 5,466
Ltd.
11.75% 7/1/05 (d)
SFX Entertainment, Inc. B3 1,390 1,293
9.125% 2/1/08
Town Sports International, B2 5,410 4,842
Inc. 9.75% 10/15/04
United Artists Theatre Co. Caa1 29,950 27,255
9.75% 4/15/08
45,993
LEISURE DURABLES & TOYS - 0.3%
Hedstrom Corp. 10% B3 2,470 2,211
6/1/07
Outboard Marine Corp. B3 5,640 5,189
10.75% 6/1/08 (d)
7,400
LODGING & GAMING - 2.1%
Aladdin Gaming Caa2 14,070 3,869
Holdings/Aladdin Capital
Corp. 0% 3/1/10 (c)
Courtyard by Marriott II B- 460 462
LP/Courtyard II Finance
Co. 10.75% 2/1/08
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 3,755 3,661
7.875% 8/1/08 Ba2 28,680 27,676
KSL Recreation Group, Inc. B3 2,400 2,382
10.25% 5/1/07
Signature Resorts, Inc.:
9.25% 5/15/06 B2 7,400 6,290
9.75% 10/1/07 B3 15,520 11,640
55,980
PUBLISHING - 1.4%
Advanstar Communications, B2 15,960 14,843
Inc.
9.25% 5/1/08 (d)
Garden State Newspapers, B1 10,237 10,083
Inc. 8.75% 10/1/09
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
PUBLISHING - CONTINUED
Perry Judd, Inc. 10.625% B3 $ 1,830 $ 1,830
12/15/07
Von Hoffman Press, Inc. B3 9,320 9,273
10.375% 5/15/07 (d)
36,029
RESTAURANTS - 0.4%
Host Marriott Travel Plazas, Ba3 11,010 11,010
Inc. 9.5% 5/15/05
TOTAL MEDIA & LEISURE 593,219
NONDURABLES - 1.0%
FOODS - 0.7%
Compania de Alimentos B1 4,430 2,614
Fargo SA
13.25% 8/1/08 (d)
Del Monte Corp. 12.25% Caa1 3,050 3,264
4/15/07
Del Monte Foods Co. 0% Caa2 13,440 7,526
12/15/07 (c)
Mastellone Hermanos SA B1 9,880 5,928
11.75% 4/1/08
19,332
HOUSEHOLD PRODUCTS - 0.3%
AKI, Inc. 10.5% 7/1/08 (d) B2 2,510 2,385
Revlon Consumer Products B3 5,190 4,723
Corp.
8.625% 2/1/08
7,108
TOTAL NONDURABLES 26,440
RETAIL & WHOLESALE - 10.2%
APPAREL STORES - 0.1%
Specialty Retailers, Inc. 9% B2 2,490 2,241
7/15/07
GENERAL MERCHANDISE STORES - 1.1%
K mart Corp.:
7.75% 10/1/12 Ba2 5,200 5,148
7.95% 2/1/23 Ba2 5,190 5,119
8.375% 7/1/22 Ba2 4,502 4,468
12.5% 3/1/05 Ba2 10,740 13,425
28,160
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 6.5%
Ameriserve Food B3 $ 4,790 $ 3,976
Distribution, Inc.
10.125% 7/15/07
Disco SA 9.875% Ba3 14,180 9,713
5/15/08 (d)
Fleming Companies, Inc. B3 4,770 4,329
10.625% 7/31/07
Meyer (Fred), Inc. 7.45% Ba2 33,570 35,332
3/1/08
Pathmark Stores, Inc.:
0% 11/1/03 (c) Caa2 87,866 65,021
9.625% 5/1/03 Caa1 37,180 36,436
12.625% 6/15/02 Caa2 2,410 2,302
Star Market Co., Inc. 13% B3 11,470 12,158
11/1/04
169,267
RETAIL & WHOLESALE, MISCELLANEOUS - 2.5%
Amazon.com, Inc. 0% Caa2 50,360 29,335
5/1/08 (c)
Big 5 Corp. 10.875% B2 3,120 3,026
11/15/07
Home Interiors & Gifts, Inc. B2 12,190 11,276
10.125% 6/1/08 (d)
U.S. Office Products Co. B3 23,190 18,320
9.75% 6/15/08 (d)
Zale Corp. 8.5% 10/1/07 Ba3 4,820 4,483
66,440
TOTAL RETAIL & WHOLESALE 266,108
SERVICES - 2.9%
LEASING & RENTAL - 0.9%
AP Holdings, Inc. 0% Caa2 1,870 842
3/15/08 (c)
Apcoa, Inc. 9.25% Caa1 12,050 10,725
3/15/08
Hollywood Entertainment B3 10,330 9,814
Corp.
10.625% 8/15/04
Renters Choice, Inc. 11% B2 3,350 3,241
8/15/08 (d)
24,622
PRINTING - 0.6%
Sullivan Graphics, Inc. Caa1 16,410 16,246
12.75% 8/1/05
SERVICES - 1.4%
AMRESCO, Inc.:
9.875% 3/15/05 Caa3 13,200 7,392
10% 3/15/04 Caa3 3,410 1,841
Iron Mountain, Inc. 8.75% B3 1,360 1,343
9/30/09
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - CONTINUED
SERVICES - CONTINUED
La Petite Academy, Inc./La B3 $ 5,480 $ 5,329
Petite Academy Holding
Co. 10% 5/15/08
MSX International, Inc. Caa1 7,270 6,398
11.375% 1/15/08
SITEL Corp. 9.25% 3/15/06 B2 10,100 7,474
Spin Cycle, Inc. 0% 5/1/05 - 13,000 6,500
unit (c)(d)
36,277
TOTAL SERVICES 77,145
TECHNOLOGY - 2.6%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, B2 3,150 2,079
Inc.
0% 7/15/07 (c)
COMPUTER SERVICES & SOFTWARE - 0.7%
Anacomp, Inc. 10.875% B3 4,800 4,752
4/1/04
Concentric Network Corp. - 1,460 1,321
12.75% 12/15/07
Federal Data Corp. B3 9,170 8,253
10.125% 8/1/05
ICG Services, Inc. 0% - 5,940 2,911
2/15/08 (c)
Inter Act Systems, Inc. 0% - 5,650 1,413
8/1/03 (c)
18,650
ELECTRONIC INSTRUMENTS - 0.3%
Telecommunications B3 9,810 8,339
Techniques Co.
9.75% 5/15/08 (d)
ELECTRONICS - 1.5%
Communications B3 2,610 2,297
Instruments, Inc. 10%
9/15/04
Fairchild Semiconductor
Corp.:
10.125% 3/15/07 B2 14,480 12,598
11.74% 3/15/08 - 6,050 4,810
pay-in-kind (g)
Insilco Corp. 10.25% B3 3,710 3,747
8/15/07
Samsung Electronics Ba1 18,480 15,616
America, Inc.
9.75% 5/1/03 (d)
39,068
TOTAL TECHNOLOGY 68,136
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 3.5%
AIR TRANSPORTATION - 2.1%
Atlas Air, Inc. 9.25% B3 $ 8,850 $ 8,186
4/15/08
Kitty Hawk, Inc. 9.95% B1 14,090 13,526
11/15/04
Northwest Airlines, Inc. Ba2 11,500 10,465
7.875% 3/15/08
US Air, Inc. 9.625% 2/1/01 B1 13,510 13,915
US Airways Group, Inc.:
9.625% 9/1/03 Ba2 5,090 5,179
10.375% 3/1/13 Ba2 4,810 4,978
56,249
RAILROADS - 0.6%
TFM SA de CV:
0% 6/15/09 (c) B2 19,095 9,548
10.25% 6/15/07 B2 6,140 5,188
14,736
SHIPPING - 0.8%
Holt Group, Inc. 9.75% Caa1 7,050 4,653
1/15/06 (d)
International Shipholding Ba3 4,630 4,306
Corp.
7.75% 10/15/07
Stena Line AB 10.625% B1 14,760 12,915
6/1/08
21,874
TOTAL TRANSPORTATION 92,859
UTILITIES - 9.3%
CELLULAR - 3.9%
Cencall Communications B2 13,969 13,271
Corp. 0% 1/15/04 (c)
CTI Holdings SA 0% B3 11,810 4,783
4/15/08 (c)
McCaw International Ltd. 0% Caa1 49,130 21,863
4/15/07 (c)
Nextel Communications, Inc. B2 19,720 20,706
12% 11/1/08 (d)
Nextel International, Inc. 0% Caa1 14,210 5,258
4/15/08 (c)
PageMart Wireless, Inc. 0% Caa2 11,800 5,546
2/1/08 (c)
Paging Network do Brasil - 21,830 9,387
SA 13.5% 6/6/05
Rogers Cantel, Inc. yankee:
9.375% 6/1/08 Ba3 8,230 8,158
9.75% 6/1/16 Ba3 670 680
Rogers Communications, B2 12,750 12,559
Inc. 8.875% 7/15/07
102,211
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 5.4%
Call-Net Enterprises, Inc.:
0% 8/15/08 (c) B1 $ 20,400 $ 11,322
8% 8/15/08 B1 6,570 6,094
Dobson Wireline Co. - 3,330 2,781
12.25% 6/15/08 (d)
Esprit Telecom Group PLC Caa1 2,840 2,528
11.5% 12/15/07
GCI, Inc. 9.75% 8/1/07 B2 2,810 2,627
Global Crossing Holdings - 5,610 5,484
Ltd.
9.625% 5/15/08 (d)
GST Network Funding, Inc. - 13,770 5,921
0% 5/1/08 (c)(d)
GST Equipment Funding, - 17,460 17,111
Inc. 13.25% 5/1/07
GST Telecommunications, - 12,520 10,517
Inc.
12.75% 11/15/07
Hyperion B3 5,930 5,782
Telecommunications, Inc.
12.25% 9/1/04
InterAmericas - 13,060 6,889
Communications Corp.
14% 10/27/07
IXC Communications, Inc. B3 9,350 9,233
9% 4/15/08
McLeodUSA, Inc.:
0% 3/1/07 (c) B2 24,970 17,729
8.375% 3/15/08 B2 5,420 5,217
MetroNet Communications B3 8,500 4,633
Corp.
0% 6/15/08 (c)
Viatel, Inc.:
0% 4/15/08 (c) Caa1 39,440 19,128
11.25% 4/15/08 Caa1 8,750 7,875
140,871
TOTAL UTILITIES 243,082
TOTAL NONCONVERTIBLE BONDS 1,880,900
TOTAL CORPORATE BONDS 1,959,079
(Cost $2,169,933)
</TABLE>
ASSET-BACKED SECURITIES - 0.6%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Airplanes Pass Through Trust Ba2 $ 15,040 $ 15,491
10.875% 3/15/19
(Cost $15,799)
COMMERCIAL MORTGAGE SECURITIES - 0.5%
Resolution Trust Corp. Series Ba3 2,744 2,277
1991-M2
Class A-3, 7.2498%
9/25/20 (e)
Structured Asset Securities - 13,040 11,416
Corp. Series 1996-CFL
Class G, 7.75%
2/25/28 (d)
TOTAL COMMERCIAL MORTGAGE 13,693
SECURITIES
(Cost $13,096)
COMMON STOCKS - 1.6%
SHARES
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Trivest 1992 Special Fund 13.6 1,566
Ltd. (a)(f)
PACKAGING & CONTAINERS - 0.1%
Crown Packaging Holdings 4,576 2
Ltd. warrants
10/15/03 (a)
Gaylord Container Corp. 941,000 2,823
Class A (a)
2,825
TOTAL BASIC INDUSTRIES 4,391
DURABLES - 0.1%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 37,283 63
TEXTILES & APPAREL - 0.1%
Arena Brands Holdings 143,778 3,594
Corp. Class B
Hat Brands, Inc. (a)(g) 1,500,000 0
3,594
TOTAL DURABLES 3,657
ENERGY - 0.0%
OIL & GAS - 0.0%
Chesapeake Energy Corp. 100,000 194
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
Golden State Bancorp, Inc. 87,800 $ 1,685
Golden State Bancorp, Inc. 87,800 428
warrants 1/1/01 (a)
2,113
SECURITIES INDUSTRY - 0.0%
ECM Corp. LP (d) 5,400 475
TOTAL FINANCE 2,588
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.0%
Loral Orion Network 15,350 121
Systems, Inc. warrants
1/15/07
(CV ratio .47) (a)
Orbital Imaging Corp. 1,440 14
warrants 3/1/05 (a)(d)
135
ENTERTAINMENT - 0.0%
Alliance Gaming 17,753 31
Corp. (a)(g)
LODGING & GAMING - 0.2%
Aladdin Gaming 140,700 1
Enterprises, Inc. warrants
3/1/10 (a)(d)
Prime Hospitality Corp. (a) 450,000 4,106
4,107
PUBLISHING - 0.0%
PRIMEDIA, Inc. (a) 33,600 363
TOTAL MEDIA & LEISURE 4,636
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Stroh Brewery Co. warrants 9,400 34
7/1/01 (a)
RETAIL & WHOLESALE - 0.3%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.:
Class A warrants 94,252 24
1/31/08 (a)
Class A (a) 157,963 59
Class B warrants 33,095 8
1/31/08 (a)
91
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.2%
Hannaford Brothers Co. 140,200 $ 6,143
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Metals USA, Inc. (a) 200,000 1,988
TOTAL RETAIL & WHOLESALE 8,222
SERVICES - 0.0%
LEASING & RENTAL - 0.0%
Hollywood Entertainment 8,200 125
Corp. (a)
TECHNOLOGY - 0.0%
COMPUTER SERVICES & SOFTWARE - 0.0%
Concentric Network Corp. 4,460 388
warrants 12/15/07 (a)(d)
Inter Act Systems, Inc. 5,650 1
warrants 8/1/03 (a)(d)
389
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. Class 30,960 0
A warrants 12/15/00 (a)
UTILITIES - 0.7%
CELLULAR - 0.0%
Clearnet Communications, 24,750 99
Inc. warrants 9/15/05 (a)
ESAT Holdings Ltd. warrants 3,900 98
2/1/07 (a)
McCaw International Ltd. 64,950 325
warrants 4/15/07 (a)(d)
Paging Brazil Holding Co. 1,590 0
LLC Class B (a)
Price Communications Corp. 12,074 391
warrants 8/1/07 (a)(g)
913
TELEPHONE SERVICES - 0.7%
Hyperion 48,480 473
Telecommunications, Inc.
Class A (a)
InterAmericas
Communications Corp.:
warrants 10/27/07 (a)(d) 173,250 43
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
InterAmericas
Communications Corp.: -
continued
warrants 10/27/07 (a) 283,850 $ 71
IXC Communications, Inc. 415,400 16,097
16,684
TOTAL UTILITIES 17,597
TOTAL COMMON STOCKS 41,833
(Cost $63,839)
PREFERRED STOCKS - 19.6%
CONVERTIBLE PREFERRED STOCKS - 1.5%
ENERGY - 0.1%
OIL & GAS - 0.1%
Chesapeake Energy Corp. 36,600 714
$3.50 (a)(d)
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT - 0.4%
Laboratory Corp. of 211,000 9,706
America Holdings Series
A, $4.25
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% 389 607
non-cumulative (a)
MEDIA & LEISURE - 0.5%
BROADCASTING - 0.3%
EchoStar Communications 133,000 8,047
Corp. $3.375
Granite Broadcasting Corp. 16,300 428
$1.9375
8,475
LODGING & GAMING - 0.2%
Host Marriott Financial Trust 115,700 4,722
$3.375 QUIPS (d)
TOTAL MEDIA & LEISURE 13,197
UTILITIES - 0.5%
CELLULAR - 0.1%
SkyTel Communications, Inc. 75,900 1,992
$2.25 (a)
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.4%
IXC Communications, Inc.:
$3.375 (a)(d) 98,600 $ 3,543
$3.375 (a) 210,400 7,561
11,104
TOTAL UTILITIES 13,096
TOTAL CONVERTIBLE PREFERRED STOCKS 37,320
NONCONVERTIBLE PREFERRED STOCKS - 18.1%
CONSTRUCTION & REAL ESTATE - 1.0%
REAL ESTATE INVESTMENT TRUSTS - 1.0%
California Federal Preferred 666,190 17,154
Capital Corp. $2.28
Crown America Realty Trust 41,800 2,074
Series A, $5.50
Walden Residential 318,700 7,171
Properties, Inc. $2.30
26,399
FINANCE - 0.4%
INSURANCE - 0.4%
American Annuity Group 10,430 9,286
Capital Trust II 8.75% (a)
SIG Capital Trust I 9.5% 3,120 2,436
11,722
HEALTH - 0.4%
MEDICAL FACILITIES MANAGEMENT - 0.4%
Harborside Healthcare 11,478 10,273
Corp. 13.50% (a)(d)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Ampex Corp. 8% 851 1,328
non-cumulative (a)
MEDIA & LEISURE - 7.0%
BROADCASTING - 5.9%
Adelphia Communications 83,042 9,571
Corp. $13.00
Citadel Broadcasting Co. 69,976 7,907
Series B, 13.25%
pay-in-kind
CSC Holdings, Inc. Series H, 377,114 41,483
11.75% pay-in-kind
CSC Holdings, Inc. 11.125% 641,586 69,612
pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Echostar Communications 6,906 $ 6,492
Corp. 12.125%
pay-in-kind
Granite Broadcasting Corp. 24,597 19,678
12.75% pay-in-kind
154,743
PUBLISHING - 1.1%
PRIMEDIA, Inc.:
$9.20 66,800 6,263
8.625% (a) 92,170 8,480
Series D, $10.00 130,270 12,864
27,607
TOTAL MEDIA & LEISURE 182,350
RETAIL & WHOLESALE - 0.4%
GROCERY STORES - 0.4%
Supermarkets General 524,488 11,539
Holdings Corp. $3.52
pay-in-kind (a)
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.3%
Intermedia Communications, 6,822 6,958
Inc. 13.5% pay-in-kind
UTILITIES - 8.6%
CELLULAR - 4.9%
Nextel Communications,
Inc.:
11.125% pay-in-kind 45,603 38,307
Series D, 13% pay-in-kind 95,258 90,480
128,787
TELEPHONE SERVICES - 3.7%
e.spire Communications, Inc. 4,683 3,184
12.75% pay-in-kind
Hyperion 12,908 8,003
Telecommunication, Inc.
12.875% pay-in-kind
IXC Communications, Inc. 45,538 46,449
12.5% pay-in-kind
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
NEXTLINK Communications, 771,807 $ 36,275
Inc. 14% pay-in-kind
Viatel, Inc. 10% (a)(d) 24,186 1,451
95,362
TOTAL UTILITIES 224,149
TOTAL NONCONVERTIBLE PREFERRED 474,718
STOCKS
TOTAL PREFERRED STOCKS 512,038
(Cost $560,350)
CASH EQUIVALENTS - 3.0%
Investments in repurchase 79,489 79,477
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.39%,
dated 10/30/98 due
11/2/98
(Cost $79,477)
TOTAL INVESTMENT IN SECURITIES $ 2,621,611
- - 100%
(Cost $2,902,494)
SECURITY TYPE ABBREVIATIONS
QUIPS - Quarterly Income Preferred
Securities
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(d) 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 $506,799,000 or 19.2% of net assets.
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) Share amount represents number of units held.
(g) Restricted securities - Investment in securities not registered
under the Securities Act of 1933 (see Note 2 of Notes to Financial
Statements).
SECURITY ACQUISTION DATE ACQUISITION COST (000S)
Alliance Gaming 7/28/98 $ -
Corp.
Fairchild 4/3/97 to 9/15/98 $ 5,411
Semiconductor
Corp. 11.74%
3/15/08
pay-in-kind
Hat Brands, Inc. 2/22/94 $ 1,500
Museum Towers 11/7/96 $ 10,000
LLC 15%
11/7/01
Price 7/31/97 $ 118
Communications
Corp. warrants
8/1/07
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 0.0%
Baa 0.3% BBB 0.4%
Ba 12.1% BB 13.5%
B 40.4% B 40.7%
Caa 17.5% CCC 14.1%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 5.3%. FMR has
determined that unrated debt securities that are lower quality account
for 5.3% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $2,902,804,000. Net unrealized depreciation
aggregated $281,193,000, of which $53,299,000 related to appreciated
investment securities and $334,492,000 related to depreciated
investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,621,611
AGREEMENTS OF $79,477) (COST $2,902,494) -
SEE ACCOMPANYING SCHEDULE
CASH 56
RECEIVABLE FOR INVESTMENTS SOLD 34,554
RECEIVABLE FOR FUND SHARES SOLD 8,401
DIVIDENDS RECEIVABLE 112
INTEREST RECEIVABLE 44,159
REDEMPTION FEES RECEIVABLE 5
OTHER RECEIVABLES 1,145
TOTAL ASSETS 2,710,043
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 65,290
PAYABLE FOR FUND SHARES REDEEMED 3,461
DISTRIBUTIONS PAYABLE 4,274
ACCRUED MANAGEMENT FEE 1,719
OTHER PAYABLES AND ACCRUED EXPENSES 35
TOTAL LIABILITIES 74,779
NET ASSETS $ 2,635,264
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,907,058
UNDISTRIBUTED NET INVESTMENT INCOME 31,346
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (22,257)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (280,883)
NET ASSETS, FOR 229,105 SHARES OUTSTANDING $ 2,635,264
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $11.50
PER SHARE ($2,635,264 (DIVIDED BY) 229,105 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 30,923
DIVIDENDS
INTEREST 118,004
TOTAL INCOME 148,927
EXPENSES
MANAGEMENT FEE $ 12,115
NON-INTERESTED TRUSTEES' COMPENSATION 6
TOTAL EXPENSES BEFORE REDUCTIONS 12,121
EXPENSE REDUCTIONS (37) 12,084
NET INVESTMENT INCOME 136,843
REALIZED AND UNREALIZED GAIN (LOSS) (20,931)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (437,399)
INVESTMENT SECURITIES
NET GAIN (LOSS) (458,330)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (321,487)
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 136,843 $ 206,812
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (20,931) 113,076
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (437,399) 133,806
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (321,487) 453,694
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (132,858) (198,653)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (70,850) (53,156)
TOTAL DISTRIBUTIONS (203,708) (251,809)
SHARE TRANSACTIONS 617,454 1,343,139
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 170,864 213,041
COST OF SHARES REDEEMED (768,567) (510,542)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 19,751 1,045,638
FROM SHARE TRANSACTIONS
REDEMPTION FEES 2,094 1,071
TOTAL INCREASE (DECREASE) IN NET ASSETS (503,350) 1,248,594
NET ASSETS
BEGINNING OF PERIOD 3,138,614 1,890,020
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,635,264 $ 3,138,614
INCOME OF $31,346 AND $27,361, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 48,662 100,971
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 13,311 16,196
REDEEMED (62,890) (38,546)
NET INCREASE (DECREASE) (917) 78,621
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998
(UNAUDITED) 1998 1997 1996 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 13.640 $ 12.480 $ 12.510 $ 11.990 $ 11.880 $ 12.220
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .573 D 1.133 D 1.054 D 1.099 1.076 1.101
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND (1.869) 1.431 .192 .723 .139 .357
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT (1.296) 2.564 1.246 1.822 1.215 1.458
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.553) (1.100) (1.033) (1.190) (.927) (.976)
INCOME
IN EXCESS OF NET - - - - (.109) (.078)
INVESTMENT INCOME
FROM NET REALIZED GAIN (.300) (.310) (.250) (.087) (.080) (.790)
IN EXCESS OF NET - - - (.033) - -
REALIZED GAIN
TOTAL DISTRIBUTIONS (.853) (1.410) (1.283) (1.310) (1.116) (1.844)
REDEMPTION FEES ADDED .009 .006 .007 .008 .011 .046
TO PAID IN CAPITAL
NET ASSET VALUE, $ 11.500 $ 13.640 $ 12.480 $ 12.510 $ 11.990 $ 11.880
END OF PERIOD
TOTAL RETURN B, C (9.91)% 21.62% 10.57% 16.06% 11.07% 12.70%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 2,635 $ 3,139 $ 1,890 $ 1,355 $ 810 $ 641
PERIOD (IN MILLIONS)
RATIO OF EXPENSES TO .80% A .80% .80% .80% .80% .75%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .79% A, E .80% .80% .79% E .80% .75%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 8.98% A 8.57% 8.51% 8.85% 8.41% 8.07%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 74% A 85% 102% 170% 172% 213%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE FORMER ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity High Income Fund (the fund) (formerly Spartan High Income
Fund) is a fund of Fidelity Fixed-Income Trust (the trust) and is
authorized to issue an unlimited number of shares. The trust is
registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. The financial statements have been
prepared in conformity with generally accepted accounting principles
which require management to make certain estimates and assumptions at
the date of the financial statements. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market
(sales prices if the principal market is an exchange) in which such
securities are normally traded. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
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. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if
any, are recorded at the fair market value of the securities received.
Interest income, which includes accretion of original issue discount,
is accrued as earned. Investment income is recorded net of foreign
taxes withheld where recovery of such taxes is uncertain. The fund may
place a debt obligation on non-accrual status and reduce related
interest income by ceasing current accruals and writing off interest
receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures, under the
general supervision of the Board of Trustees of the fund. A debt
obligation is removed from non-accrual status when the issuer resumes
interest payments or when collectibility of interest is reasonably
assured.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for litigation proceeds, paydown gains/losses on certain
securities, foreign currency transactions, market discount,
partnerships and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
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.
SHORT-TERM TRADING (REDEMPTION) FEES. Shares held in the fund less
than 270 days are subject to a short-term trading fee equal to 1% of
the proceeds of the redeemed shares. The fee, which is retained by the
fund, is accounted for as an addition to paid in capital.
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $18,099,000 or 0.7% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,073,998,000 and $1,150,274,000, 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 .80% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $4,000 for the period. Effective June 27, 1998, these
transaction fees were eliminated.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $3,200 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 credits realized as a
result of uninvested cash balances were used to reduce a portion of
the fund's expenses. During the period, the fund's expenses were
reduced by $37,000 under these arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
Thomas Soviero, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(Registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
* INDEPENDENT TRUSTEES
(2_FIDELITY_LOGOS)FIDELITY
INVESTMENT GRADE BOND
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 22 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 26 NOTES TO THE FINANCIAL STATEMENTS.
DISTRIBUTIONS 30
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
FIDELITY INVESTMENT GRADE BOND 4.33% 8.06% 30.75% 133.28%
LB AGGREGATE BOND 5.55% 9.34% 40.39% 137.66%
INTERMEDIATE INVESTMENT GRADE DEBT 4.58% 7.94% 34.43% 121.41%
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Lehman Brothers 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 intermediate investment grade debt funds average, which reflects
the performance of mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past six months average
represents a peer group of 239 mutual funds. These benchmarks reflect
reinvestment of dividends and capital gains, if any, and exclude the
effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY INVESTMENT GRADE BOND 8.06% 5.51% 8.84%
LB AGGREGATE BOND 9.34% 7.02% 9.04%
INTERMEDIATE INVESTMENT GRADE DEBT 7.94% 6.09% 8.25%
FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Investment Grade Bond LB Aggregate Bond
00026 LB001
1988/10/31 10000.00 10000.00
1988/11/30 9910.44 9878.00
1988/12/31 9939.28 9888.87
1989/01/31 10043.32 10031.27
1989/02/28 10025.17 9959.04
1989/03/31 10085.43 10001.86
1989/04/30 10268.23 10210.90
1989/05/31 10484.70 10479.45
1989/06/30 10810.00 10798.03
1989/07/31 11060.80 11028.02
1989/08/31 10888.08 10864.81
1989/09/30 10921.01 10920.22
1989/10/31 11141.91 11188.86
1989/11/30 11220.88 11295.15
1989/12/31 11231.42 11325.65
1990/01/31 11079.75 11190.87
1990/02/28 11108.32 11226.68
1990/03/31 11108.00 11234.54
1990/04/30 11019.16 11131.18
1990/05/31 11318.81 11460.67
1990/06/30 11490.22 11645.18
1990/07/31 11661.30 11805.89
1990/08/31 11505.59 11647.69
1990/09/30 11572.96 11744.36
1990/10/31 11467.62 11893.52
1990/11/30 11714.66 12149.23
1990/12/31 11912.66 12338.76
1991/01/31 12035.54 12491.76
1991/02/28 12224.53 12597.94
1991/03/31 12381.89 12684.86
1991/04/30 12541.56 12821.86
1991/05/31 12630.33 12896.23
1991/06/30 12628.89 12889.78
1991/07/31 12796.72 13068.95
1991/08/31 13115.99 13351.23
1991/09/30 13397.65 13622.26
1991/10/31 13531.16 13773.47
1991/11/30 13662.84 13900.19
1991/12/31 14165.87 14313.02
1992/01/31 13988.51 14118.37
1992/02/29 14100.15 14210.14
1992/03/31 14075.93 14130.56
1992/04/30 14125.25 14232.30
1992/05/31 14416.68 14501.29
1992/06/30 14585.32 14701.41
1992/07/31 15020.36 15001.32
1992/08/31 15155.14 15152.83
1992/09/30 15289.29 15333.15
1992/10/31 15079.78 15129.22
1992/11/30 15093.73 15132.24
1992/12/31 15343.70 15372.85
1993/01/31 15703.20 15668.00
1993/02/28 16097.31 15942.19
1993/03/31 16246.23 16009.15
1993/04/30 16332.37 16121.22
1993/05/31 16419.05 16142.17
1993/06/30 16849.38 16434.35
1993/07/31 17108.89 16528.02
1993/08/31 17582.17 16817.26
1993/09/30 17632.67 16862.67
1993/10/31 17841.97 16925.06
1993/11/30 17691.19 16781.20
1993/12/31 17833.79 16871.82
1994/01/31 18112.59 17099.59
1994/02/28 17521.74 16802.05
1994/03/31 17008.30 16387.04
1994/04/30 16878.97 16255.95
1994/05/31 16908.82 16254.32
1994/06/30 16814.73 16218.56
1994/07/31 17079.48 16541.31
1994/08/31 17131.53 16561.16
1994/09/30 16987.98 16317.71
1994/10/31 16920.86 16303.02
1994/11/30 16972.63 16267.16
1994/12/31 16879.29 16379.40
1995/01/31 17075.21 16703.71
1995/02/28 17312.79 17101.26
1995/03/31 17413.29 17205.58
1995/04/30 17660.46 17446.46
1995/05/31 18289.99 18121.64
1995/06/30 18412.12 18253.92
1995/07/31 18359.09 18213.77
1995/08/31 18540.24 18434.15
1995/09/30 18718.51 18612.96
1995/10/31 18976.89 18854.93
1995/11/30 19234.04 19137.76
1995/12/31 19497.33 19405.68
1996/01/31 19630.28 19533.76
1996/02/29 19277.81 19193.87
1996/03/31 19144.86 19059.52
1996/04/30 19006.49 18952.78
1996/05/31 18977.67 18914.88
1996/06/30 19193.87 19168.34
1996/07/31 19247.16 19220.09
1996/08/31 19217.33 19187.42
1996/09/30 19517.30 19521.28
1996/10/31 19930.62 19954.65
1996/11/30 20286.66 20295.88
1996/12/31 20086.83 20107.12
1997/01/31 20138.80 20169.46
1997/02/28 20181.34 20219.88
1997/03/31 19948.28 19995.44
1997/04/30 20227.09 20295.37
1997/05/31 20395.61 20488.18
1997/06/30 20648.47 20731.99
1997/07/31 21195.68 21291.75
1997/08/31 21012.97 21110.77
1997/09/30 21298.25 21423.21
1997/10/31 21588.59 21733.85
1997/11/30 21642.40 21833.82
1997/12/31 21875.76 22054.34
1998/01/31 22163.51 22336.64
1998/02/28 22172.18 22318.77
1998/03/31 22252.21 22394.65
1998/04/30 22359.95 22511.11
1998/05/31 22561.38 22724.96
1998/06/30 22731.46 22918.12
1998/07/31 22780.15 22966.25
1998/08/31 22984.12 23340.60
1998/09/30 23498.57 23886.77
1998/10/30 23327.69 23766.17
IMATRL PRASUN SHR__CHT 19981031 19981104 150813 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Investment Grade Bond Fund on October 31, 1988.
As the chart shows, by October 31, 1998, the value of the investment
would have grown to $23,328 - a 133.28% increase on the initial
investment. 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 would have grown to $23,766 - a
137.66% 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 2.96% 6.55% 6.70% 6.77% 6.99% 6.92%
CAPITAL RETURNS 1.37% 3.99% -0.28% 0.85% -2.36% -3.57%
</TABLE>
TOTAL RETURNS 4.33% 10.54% 6.42% 7.62% 4.63% 3.35%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 3.55(CENTS) 21.27(CENTS) 42.92(CENTS)
ANNUALIZED DIVIDEND RATE 5.63% 5.73% 5.86%
30-DAY ANNUALIZED YIELD 5.47% - -
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 $7.43
over the past one month, $7.36 over the past six months and $7.33 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite direction
of bond prices - to their lowest
levels in 30 years. Investors' fears
resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and the
lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well. During
the six-month period, the Lehman
Brothers Corporate Bond Index
returned 4.00%, while the Lehman
Brothers Mortgage Backed Securities
Index returned 3.68%. Late in the
period, the Group of Seven leading
industrial nations eased global
market concerns with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries avert financial
crises. In response, equity markets
rallied and a reduced demand for
safety caused the bond market to
stumble. Despite weakness during
October, the yield on the benchmark
30-year Treasury closed at 5.15%.
An interview with Kevin Grant, Portfolio Manager of Fidelity
Investment Grade Bond Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the six months that ended October 31, 1998, the fund had a
total return of 4.33%. In comparison, the intermediate investment
grade debt funds average tracked by Lipper Analytical Services
returned 4.58%. The fund also lagged the Lehman Brothers Aggregate
Bond Index, which returned 5.55% during the same period. For the
12-month period that ended October 31, 1998, the fund posted a total
return of 8.06%, while the Lipper average returned 7.94% and the
Lehman Brothers index returned 9.34%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE OF THE
LEHMAN BROTHERS INDEX?
A. Historically, the fund is overweighted in corporate bonds as well
as in mortgage and asset-backed securities compared to Treasury bonds.
The Lehman Brothers Aggregate Bond Index tends to have over 20% of its
assets in short- and intermediate-maturity Treasuries. For many years,
we've been able to replace the short-term Treasuries that the fund
would ordinarily hold with short-term, high-grade corporate bonds.
Over the long haul, the yield advantage of the short-term corporate
bonds helps generate higher total return than government bonds.
However, in an environment like we experienced in August and
September, the markets seemed to care only about government-guaranteed
bonds, and Treasuries benefited from a massive flight to quality.
While this situation was good for Treasury bonds, it caused the fund
to underperform the Lehman Brothers Aggregate Bond Index.
Q. WHAT OTHER FACTORS INFLUENCED THE FUND'S PERFORMANCE?
A. During most of the period, we witnessed an extreme demand for
safety that we haven't seen since the 1987 market crash. Toward the
end of the period, however, two interest-rate cuts by the Federal
Reserve Board, most notably the surprise rate cut on October 15, were
instrumental in changing market sentiment. The market seemed to
believe that the Fed would not let the economy slide into recession
and it was willing to act aggressively to prevent an economic
downturn. At the end of the period, the federal funds rate - the
overnight interbank loan rate - stood at 5.00%, yet the yield on the
two-year Treasury dropped to approximately 4.25%, while their prices
went up. This yield spread - or divergence - in interest rates told us
that the bond market believed the Federal Reserve would cut rates
further. This may or may not come to pass, but it's clear that the
market is very concerned about the potential for recession over the
next few quarters.
Q. WHAT WAS YOUR STRATEGY DURING THE PERIOD?
A. During most of the year, I felt the mortgage securities market was
expensive relative to Treasuries and I kept the fund's position close
to the index. As it turns out, we experienced a massive re-pricing of
these securities and the mortgage market was much cheaper as the
period drew to a close. In fact, over the past eight to 10 years,
mortgage rates have ranged anywhere from 80 to 130 basis points higher
than the 10-year Treasury bond. At the end of September, the yield
spread between Ginnie Mae Mortgage bonds and the 10-year Treasury was
over 200 basis points.
Q. DID YOU TAKE ANY ACTION AT THAT POINT?
A. I did. As a result, I increased the fund's position in mortgage
securities to take advantage of the interest-rate advantage over
Treasuries. Additionally, the fund held approximately 35% of its
investments in corporate bonds during the period. This sector was
contributing to performance until we had the massive flight to quality
- - and to Treasuries - at the end of the summer. The fund's
overweighted position in corporate bonds relative to the index hurt
performance.
Q. WHAT'S YOUR OUTLOOK?
A. I think we need to take a cautious view. However, with the federal
funds rate now at 5.00%, combined with the Federal Reserve Board's
recent bias to ease rates, there are more reasons to be optimistic. At
the same time, I have positioned the fund relatively defensively
because I believe it may take some time before corporate America
returns to a solid growth path. The underlying economy seems to be in
good shape, however, and we are beginning to see a light at the end of
the tunnel. Corporate bonds will continue to be a focus for the fund.
While the corporate bond market did not rebound overnight in reaction
to the rate cuts, liquidity has improved and these bonds have
recovered somewhat relative to Treasuries. Over the longer term, we
may experience a continuation of this trend, which can create
opportunities for the fund. I will continue to look closely at
mortgage securities and may look to add to the fund's position. I see
value in the mortgage market, particularly in those bonds with
high-quality Aaa ratings. While there is prepayment or refinancing
risk with mortgages, at current interest rate levels we are better
compensated for prepayment risk than at any time in recent years.
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.
KEVIN GRANT ON THE FUND'S
BENCHMARK, THE LEHMAN
BROTHERS AGGREGATE BOND
INDEX AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"THE LEHMAN BROTHERS AGGREGATE
BOND INDEX - A MARKET VALUE
WEIGHTED BENCHMARK OF
INVESTMENT-GRADE FIXED-RATE DEBT
ISSUES WITH MATURITIES OF AT LEAST
ONE YEAR - PLAYS A VERY IMPORTANT
ROLE IN THE MANAGEMENT OF THE
FUND. IT'S THE FUND'S BENCHMARK
INDEX AND INCLUDES MOST OF THE
UNIVERSE OF INVESTMENT-GRADE
BONDS WITH MATURITIES OF ONE
YEAR OR MORE. I USE THE INDEX AS A
GUIDELINE FOR THE STRUCTURE OF THE
OVERALL BOND MARKET, MANAGING THE
FUND TO BE GENERALLY AS SENSITIVE
TO CHANGES IN INTEREST RATES AS THE
INDEX. IN ADDITION, I REFER TO THE
INDEX WHEN DECIDING HOW TO
ALLOCATE ASSETS AMONG DIFFERENT
MATURITIES AND MARKET SECTORS -
SUCH AS CORPORATE, MORTGAGE OR
GOVERNMENT SECURITIES - BASED ON
MY VIEW OF THE RELATIVE VALUE OF
EACH MATURITY OR SECTOR."
FUND FACTS
GOAL: HIGH CURRENT INCOME, BY
INVESTING MAINLY IN
INVESTMENT-GRADE DEBT
SECURITIES
FUND NUMBER: 026
TRADING SYMBOL: FBNDX
START DATE: AUGUST 6, 1971
SIZE: AS OF OCTOBER 31,
1998, MORE THAN $2.1 BILLION
MANAGER: KEVIN GRANT, SINCE
1997; ALSO MANAGER OF SEVERAL
FIDELITY INVESTMENT-GRADE
TAXABLE BOND FUNDS; JOINED
FIDELITY IN 1993
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 59.0 58.5
AA 3.8 4.7
A 8.2 9.1
BAA 21.2 20.4
BA AND BELOW 1.7 0.9
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED
S&P RATINGS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 8.6 8.8
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 OCTOBER 31, 1998
6 MONTHS AGO
YEARS 4.4 4.4
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998 **
CORPORATE BONDS 34.8%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 55.3%
FOREIGN GOVERNMENT
OBLIGATIONS 0.5%
OTHER 3.3%
SHORT-TERM
INVESTMENTS 6.1%
CORPORATE BONDS 35.8%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 54.4%
FOREIGN GOVERNMENT
OBLIGATIONS 0.5%
OTHER 2.9%
SHORT-TERM
INVESTMENTS 6.4%
ROW: 1, COL: 1, VALUE: 34.6
ROW: 1, COL: 2, VALUE: 55.0
ROW: 1, COL: 3, VALUE: 1.0
ROW: 1, COL: 4, VALUE: 3.3
ROW: 1, COL: 5, VALUE: 6.1
ROW: 1, COL: 1, VALUE: 35.5
ROW: 1, COL: 2, VALUE: 54.2
ROW: 1, COL: 3, VALUE: 1.0
ROW: 1, COL: 4, VALUE: 2.9
ROW: 1, COL: 5, VALUE: 6.4
* FOREIGN
INVESTMENTS 4.9%
* *FOREIGN
INVESTMENTS 4.6%
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE BONDS - 31.8%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
BASIC INDUSTRIES - 0.8%
PACKAGING & CONTAINERS - 0.8%
Owens-Illinois, Inc.:
7.15% 5/15/05 Ba1 $ 6,000 $ 5,969
7.35% 5/15/08 Ba1 5,650 5,566
7.8% 5/15/18 Ba1 6,950 6,578
18,113
CONSTRUCTION & REAL ESTATE - 0.7%
REAL ESTATE INVESTMENT TRUSTS - 0.7%
CenterPoint Properties Trust Baa2 2,490 2,383
6.75% 4/1/05
EOP Operating LP:
6.625% 2/15/05 Baa1 7,250 7,071
6.75% 2/15/08 Baa1 5,560 5,303
14,757
DURABLES - 0.4%
TEXTILES & APPAREL - 0.4%
Levi Strauss & Co. 7% Baa2 10,000 9,250
11/1/06 (c)
ENERGY - 0.6%
OIL & GAS - 0.6%
Oryx Energy Co. 8.125% Ba1 4,285 4,597
10/15/05
Petroleum Geo-Services Baa3 8,350 7,553
ASA 7.125% 3/30/28
12,150
FINANCE - 14.0%
BANKS - 5.8%
ABN-Amro Bank NV, Aa3 7,000 7,270
Chicago 6.625%
10/31/01
BankAmerica Corp. 10% Aa3 800 923
2/1/03
BankBoston Companies A3 4,000 4,152
6.625% 2/1/04
BanPonce Corp.:
5.75% 3/1/99 A3 2,520 2,524
6.378% 4/8/99 A3 2,880 2,892
Barclays Bank PLC yankee:
5.875% 7/15/00 A1 10,500 10,609
5.95% 7/15/01 A1 12,350 12,551
Capital One Bank:
6.375% 2/15/03 Baa3 5,550 5,604
6.42% 11/12/99 Baa3 14,000 14,087
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Capital One Financial Corp. Ba1 $ 5,490 $ 5,312
7.125% 8/1/08
Central Fidelity Banks, Inc. A1 4,000 4,401
8.15% 11/15/02
Crestar Finanical Corp. Baa1 4,750 5,352
8.75% 11/15/04
First Maryland Bancorp A3 3,000 3,274
8.375% 5/15/02
First Tennessee National Baa1 1,650 1,759
Corp. 6.75% 11/15/05
Kansallis-Osake-Pankki, A3 1,780 2,029
New York 10% 5/1/02
MBNA Corp.:
6.34% 6/2/03 Baa2 1,800 1,757
6.875% 11/15/02 Baa2 8,300 8,742
Midland American Capital Aa3 920 922
Corp. gtd. 12.75%
11/15/03
NB Capital Trust IV 8.25% Aa2 10,040 10,835
4/15/27
Provident Bank 6.375% Baa2 3,100 3,194
1/15/04
Summit Bancorp 8.625% BBB+ 5,500 6,131
12/10/02
Union Planters Corp. 6.75% Baa2 3,000 2,958
11/1/05
Union Planters National A3 4,000 4,105
Bank 6.81% 8/20/01
Zions Bancorp 8.625% Baa1 5,000 5,545
10/15/02
126,928
CREDIT & OTHER FINANCE - 6.4%
Associates Corp. of North
America:
6% 4/15/03 Aa3 5,500 5,613
6% 7/15/05 Aa3 19,000 19,067
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 3,000 3,042
6.41% 8/13/99 Baa3 8,000 8,078
Bank of New York Co., Inc. A1 6,000 6,351
Capital I 7.97%
12/31/26
BankBoston Capital Trust II A2 7,170 6,994
7.75% 12/15/26
BanPonce Trust I 8.327% A3 7,910 7,521
2/1/27
Chase Capital I 7.67% Aa3 14,620 14,793
12/1/26
ERP Operating LP 6.55% A3 1,900 1,900
11/15/01
First Security Capital I A3 1,900 2,086
8.41% 12/15/26
First Union Institutional BBB+ 3,000 3,221
Capital I 8.04% 12/1/26
Fleet Mortgage Group, Inc. A2 250 252
6.5% 9/15/99
Ford Motor Credit Co. A1 5,000 5,090
6.05% 12/27/00
General Electric Capital Aaa 7,250 7,301
Corp. 6.94% 4/13/09 (b)
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
GS Escrow Corp. 7.125% Ba1 $ 9,700 $ 9,472
8/1/05 (c)
Household Finance Corp. A2 12,000 12,148
6% 5/8/00
KeyCorp Institutional Capital A1 4,500 4,717
A 7.826% 12/1/26
Morgan (J.P.) Capital Trust II Aa3 8,480 8,807
7.95% 2/1/27
PNC Institutional Capital A2 4,000 4,297
Trust 8.315% 5/15/27 (c)
Spieker Properties LP 6.75% Baa2 8,000 7,602
1/15/08
138,352
INSURANCE - 0.8%
Executive Risk Capital Trust Baa3 10,500 10,402
8.675% 2/1/27
Nationwide Mutual A1 1,500 1,562
Insurance Co. 6.5%
2/15/04 (c)
SunAmerica, Inc. 6.2% Baa1 5,500 5,555
10/31/99
17,519
SAVINGS & LOANS - 1.0%
Ahmanson (H.F.) & Co. Baa1 2,600 2,838
7.875% 9/1/04
Great Western Finance Trust A3 15,500 16,189
II 8.206% 2/1/27
Long Island Savings Bank Baa3 3,550 3,546
FSB 6.2% 4/2/01
22,573
TOTAL FINANCE 305,372
INDUSTRIAL MACHINERY & EQUIPMENT - 1.9%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.8%
Tyco International Group SA Baa1 16,000 16,324
yankee 6.125% 6/15/01
POLLUTION CONTROL - 1.1%
WMX Technologies, Inc.:
6.25% 4/1/99 Baa3 8,100 8,131
6.25% 10/15/00 Baa3 3,150 3,183
7.1% 8/1/26 Baa3 12,600 13,252
24,566
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 40,890
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
MEDIA & LEISURE - 3.7%
BROADCASTING - 2.2%
Clear Channel Baa3 $ 4,000 $ 3,656
Communications, Inc.
7.25% 10/15/27
Continental Cablevision,
Inc.:
8.3% 5/15/06 Baa3 1,365 1,497
9% 9/1/08 Baa3 4,480 5,245
TCI Communications, Inc.:
8.25% 1/15/03 Baa3 510 563
8.75% 8/1/15 Baa3 13,020 15,799
9.8% 2/1/12 Baa3 5,030 6,511
Time Warner, Inc.:
6.875% 6/15/18 Baa3 5,130 5,104
7.95% 2/1/00 Baa3 7,000 7,194
9.125% 1/15/13 Baa3 2,000 2,415
47,984
ENTERTAINMENT - 0.4%
Viacom, Inc. 7.75% 6/1/05 Baa3 6,600 7,114
PUBLISHING - 1.0%
News America Holdings, Baa3 1,000 1,028
Inc. 8% 10/17/16
News America, Inc.:
6.625% 1/9/08 Baa3 2,610 2,597
7.25% 5/18/18 Baa3 10,000 9,634
Time Warner Entertainment Baa2 8,000 8,967
Co. LP 9.625% 5/1/02
22,226
RESTAURANTS - 0.1%
Darden Restaurants, Inc. Baa1 2,070 2,015
6.375% 2/1/06
TOTAL MEDIA & LEISURE 79,339
NONDURABLES - 1.1%
FOODS - 0.4%
ConAgra, Inc. 7.125% Baa1 7,685 8,050
10/1/26
TOBACCO - 0.7%
Philip Morris Companies, A2 16,000 16,754
Inc. 6.95% 6/1/06
TOTAL NONDURABLES 24,804
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
RETAIL & WHOLESALE - 1.6%
GENERAL MERCHANDISE STORES - 0.8%
Dayton Hudson Corp. 6.4% A3 $ 1,500 $ 1,555
2/15/03
Federated Department Baa2 14,000 15,410
Stores, Inc. 8.5%
6/15/03
16,965
GROCERY STORES - 0.8%
American Stores Co.:
7.2% 6/9/03 Baa3 5,000 5,399
7.5% 5/1/37 Baa2 4,000 4,446
Kroger Co. 6% 7/1/00 Baa3 7,950 8,073
17,918
TOTAL RETAIL & WHOLESALE 34,883
TECHNOLOGY - 0.8%
COMPUTERS & OFFICE EQUIPMENT - 0.8%
Comdisco, Inc.:
6.375% 11/30/01 Baa1 16,000 15,969
9.25% 7/6/00 Baa2 2,000 2,138
18,107
TRANSPORTATION - 1.3%
AIR TRANSPORTATION - 0.1%
Delta Air Lines, Inc. 9.875% Baa3 2,000 2,119
5/15/00
RAILROADS - 1.2%
Burlington Northern Santa Baa2 15,000 15,563
Fe Corp. 6.53% 7/15/37
Norfolk Southern Corp. Baa1 9,930 10,669
7.05% 5/1/37
26,232
TOTAL TRANSPORTATION 28,351
UTILITIES - 4.9%
CELLULAR - 0.9%
360 Degrees
Communications Co.:
7.125% 3/1/03 Baa1 1,990 2,122
7.5% 3/1/06 Baa1 4,100 4,548
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
UTILITIES - CONTINUED
CELLULAR - CONTINUED
AirTouch Communications, Baa2 $ 5,385 $ 5,609
Inc. 6.35% 6/1/05
Cable & Wireless Baa1 7,760 7,911
Communications PLC
6.375% 3/6/03
20,190
ELECTRIC UTILITY - 2.1%
Avon Energy Partners
Holdings:
6.46% 3/4/08 (c) Baa2 7,200 7,255
7.05% 12/11/07 (c) Baa2 8,000 8,439
British Columbia Hydro & Aa2 2,620 2,763
Power Authority yankee
12.5% 1/15/14
DR Investments UK PLC A2 8,000 8,404
yankee 7.1% 5/15/02 (c)
Israel Electric Corp. Ltd.:
yankee 7.25% A3 2,000 1,993
12/15/06 (c)
7.75% 12/15/27 (c) A3 12,790 11,803
Texas Utilities Co. 6.375% Baa3 4,990 5,084
1/1/08
45,741
GAS - 0.5%
Mitchell Energy & Baa3 10,065 10,276
Development Corp. 8%
7/15/99
TELEPHONE SERVICES - 1.4%
MCI WorldCom, Inc.:
6.4% 8/15/05 Baa2 13,870 14,411
7.75% 4/1/07 Baa2 2,690 3,006
8.875% 1/15/06 Baa2 8,854 9,703
9.375% 1/15/04 Baa2 3,068 3,192
30,312
TOTAL UTILITIES 106,519
TOTAL NONCONVERTIBLE BONDS 692,535
(Cost $680,424)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 12.9%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.7%
Fannie Mae 5.75% Aaa $ 7,100 $ 7,405
6/15/05
Federal Home Loan Bank:
7.18% 4/21/04 Aaa 6,250 6,889
7.36% 7/1/04 Aaa 6,000 6,700
7.46% 9/9/04 Aaa 1,500 1,688
7.59% 3/10/05 Aaa 7,850 8,937
7.87% 10/20/04 Aaa 7,000 8,038
Financing Corp. stripped Aaa 11,375 8,381
principal 0% 3/7/05
Freddie Mac:
8% 1/26/05 Aaa 6,570 7,614
8.115% 1/31/05 Aaa 2,100 2,447
Guaranteed Export Trust Aaa 131 132
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-Import Bank) Series
1994-C, 6.61% 9/15/99
58,231
U.S. TREASURY OBLIGATIONS - 10.2%
U.S. Treasury Bonds:
6.125% 11/15/27 Aaa 27,715 31,188
6.875% 8/15/25 Aaa 31,170 37,750
7.625% 2/15/25 Aaa 23,400 30,767
8.75% 5/15/17 Aaa 13,540 18,912
8.875% 8/15/17 Aaa 13,715 19,383
U.S. Treasury Notes:
5.875% 11/30/01 Aaa 23,775 24,797
7% 7/15/06 Aaa 49,180 56,634
7.25% 8/15/04 Aaa 2,800 3,194
222,625
TOTAL U.S. GOVERNMENT AND 280,856
GOVERNMENT AGENCY OBLIGATIONS
(Cost $272,130)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE
SECURITIES - 42.4%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FANNIE MAE - 39.6%
5.5% 2/1/11 to 9/1/13 Aaa $ 20,825 $ 20,586
6% 5/1/01 to 11/1/28 (e) Aaa 124,813 125,002
6% 11/1/13 (d) Aaa 94,700 95,114
6.5% 5/1/03 to 5/1/24 Aaa 371,125 374,046
6.5% 11/1/28 (d) Aaa 65,000 65,508
7% 11/1/23 to 11/1/28 Aaa 80,387 82,125
7% 11/1/28 (d) Aaa 24,200 24,729
7.5% 1/1/28 to Aaa 25,827 26,483
10/1/28 (e)
8% 3/1/24 to 12/1/27 Aaa 4,055 4,206
8.5% 11/1/26 to 2/1/28 Aaa 36,728 38,254
9.5% 1/1/17 to 2/1/25 Aaa 4,440 4,780
12.5% 7/1/11 to 7/1/15 Aaa 313 360
861,193
FREDDIE MAC - 0.6%
7% 5/1/01 to 7/1/01 Aaa 1,776 1,794
8.5% 9/1/22 to 9/1/27 Aaa 10,570 11,001
12,795
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.2%
6% 10/15/08 to 5/15/09 Aaa 5,864 5,943
7.5% 10/15/05 to Aaa 33,248 34,296
11/15/28
8% 9/15/24 to 10/15/25 Aaa 1,225 1,270
9% 4/15/16 to 4/15/23 Aaa 3,909 4,190
10% 11/15/09 to 9/15/25 Aaa 2,658 2,866
48,565
TOTAL U.S. GOVERNMENT AGENCY - 922,553
MORTGAGE SECURITIES
(Cost $911,014)
</TABLE>
ASSET-BACKED SECURITIES - 3.0%
Capital Equipment Baa2 4,700 4,801
Receivables Trust 6.48%
10/15/06
Chevy Chase Auto Aaa 3,324 3,346
Receivables Trust 5.91%
12/15/04
Ford Credit Auto Owner
Trust:
6.2% 12/15/02 Baa3 4,050 4,119
6.4% 5/15/02 A1 4,710 4,831
6.4% 12/15/02 Baa3 2,370 2,374
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Ford Credit Grantor Trust Aaa $ 1,071 $ 1,073
5.9% 10/15/00
Green Tree Financial Corp. Aaa 1,949 1,950
6.1% 4/15/27
Key Auto Finance Trust:
6.3% 10/15/03 A2 5,121 5,145
6.65% 10/15/03 Baa3 1,506 1,529
KeyCorp Auto Grantor Trust A3 78 78
5.8% 7/15/00
MBNA Master Credit Card Aaa 15,000 15,885
Trust II 6.55% 1/15/07
PNC Student Loan Trust I Aaa 18,100 18,323
6.314% 1/25/01
Premier Auto Trust 6% Aaa 1,226 1,227
5/6/00
Union Acceptance Corp. Baa2 321 322
7.075% 7/10/02
TOTAL ASSET-BACKED SECURITIES 65,003
(Cost $63,403)
COMMERCIAL MORTGAGE SECURITIES - 2.4%
CS First Boston Mortgage
Securities Corp.:
Series 1997-C2 Class D, Baa2 5,740 5,374
7.27% 1/17/35
Series 1998 FLI Class E, Baa2 12,080 11,744
6.1938% 1/10/13 (c)(f)
Equitable Life Assurance
Society of the United
States (The):
Series 174 Class B1, Aa2 3,400 3,540
7.33% 5/15/06 (c)
Series 1996-1 Class C1, A2 3,500 3,591
7.52% 5/15/06 (c)
GS Mortgage Securities Baa3 5,000 4,337
Corp. II Series 1998-GLII
Class E, 7.1905%
4/13/31 (c)(f)
Morgan Stanley Capital I,
Inc. Series 1998 - CF1:
Class D, 7.35% 1/15/12 Baa2 5,312 5,050
Class E, 7.35% 12/15/12 Baa3 1,836 1,619
Structured Asset Securities AAA 3,429 3,447
Corp. sequential pay
Series 1996 Class A-2A,
7.75% 2/25/28
Thirteen Affiliates of General Aaa 8,000 8,188
Growth Properties, Inc.
sequential pay Series A-2,
6.602% 12/15/10 (c)
Wells Fargo Capital Markets Aaa 4,620 4,731
Apartment Financing Trust
Series APT Class 1, 6.56%
12/29/05 (c)
TOTAL COMMERCIAL MORTGAGE 51,621
SECURITIES
(Cost $52,579)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 0.5%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Manitoba Province yankee Aa3 $ 3,000 $ 3,174
6.875% 9/15/02 (g)
Quebec Province:
7% 1/30/07 (g) A2 5,000 5,367
7.5% 7/15/23 (g) A2 2,000 2,187
TOTAL FOREIGN GOVERNMENT AND 10,728
GOVERNMENT AGENCY OBLIGATIONS
(Cost $10,397)
</TABLE>
SUPRANATIONAL OBLIGATIONS - 0.7%
Inter American Development Aaa 15,000 15,959
Bank yankee 6.29%
7/16/27
(Cost $14,906)
CERTIFICATES OF DEPOSIT - 0.2%
Canadian Imperial Bank of Aa3 15,000 5,082
Commerce, New York
yankee 6.2% 8/1/00
(Cost $5,008)
CASH EQUIVALENTS - 6.1%
MATURITY
AMOUNT (000S)
Investments in repurchase
agreements (U.S. Treasury
obligations), in a joint
trading account at:
5.4%, dated 10/30/98 $ 4,058 $ 4,056
due 11/2/98
5.64%, dated 10/30/98 129,985 129,924
due 11/2/98
TOTAL CASH EQUIVALENTS 133,980
(Cost $133,980)
TOTAL INVESTMENT IN SECURITIES $ 2,178,317
- - 100%
(Cost $2,143,841)
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(c) 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 $98,606,000 or 4.7% of net assets.
(d) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(e) A portion of these securities were sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 70.8% AAA, AA, A 69.7%
Baa 20.8% BBB 20.5%
Ba 1.7% BB 1.7%
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
for the sovereign credit of the issuing government.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $2,144,151,000. Net unrealized appreciation
aggregated $34,166,000, of which $44,291,000 related to appreciated
investment securities and $10,125,000 related to depreciated
investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) OCTOBER 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,178,317
AGREEMENTS OF $133,980) (COST $2,143,841) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (90,097)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 89,398 (699)
RECEIVABLE FOR INVESTMENTS SOLD, REGULAR DELIVERY 151,734
RECEIVABLE FOR FUND SHARES SOLD 4,356
INTEREST RECEIVABLE 24,772
TOTAL ASSETS 2,358,480
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 58,851
REGULAR DELIVERY
DELAYED DELIVERY 184,211
PAYABLE FOR FUND SHARES REDEEMED 3,963
DISTRIBUTIONS PAYABLE 704
ACCRUED MANAGEMENT FEE 758
OTHER PAYABLES AND ACCRUED EXPENSES 552
TOTAL LIABILITIES 249,039
NET ASSETS $ 2,109,441
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,066,198
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (4,265)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 13,731
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 33,777
NET ASSETS, FOR 284,971 SHARES OUTSTANDING $ 2,109,441
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $7.40
SHARE ($2,109,441 (DIVIDED BY) 284,971 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 63,978
INTEREST
EXPENSES
MANAGEMENT FEE $ 4,278
TRANSFER AGENT FEES 2,216
ACCOUNTING FEES AND EXPENSES 250
NON-INTERESTED TRUSTEES' COMPENSATION 4
CUSTODIAN FEES AND EXPENSES 44
REGISTRATION FEES 96
AUDIT 27
LEGAL 2
MISCELLANEOUS 4
TOTAL EXPENSES BEFORE REDUCTIONS 6,921
EXPENSE REDUCTIONS (68) 6,853
NET INVESTMENT INCOME 57,125
REALIZED AND UNREALIZED GAIN (LOSS) 14,497
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 13,440
DELAYED DELIVERY COMMITMENTS (699) 12,741
NET GAIN (LOSS) 27,238
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 84,363
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 57,125 $ 98,914
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 14,497 33,061
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 12,741 24,039
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 84,363 156,014
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (56,939) (99,040)
SHARE TRANSACTIONS 676,781 928,499
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 53,188 90,352
COST OF SHARES REDEEMED (557,153) (608,391)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 172,816 410,460
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 200,240 467,434
NET ASSETS
BEGINNING OF PERIOD 1,909,201 1,441,767
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 2,109,441 $ 1,909,201
OF NET INVESTMENT INCOME OF $4,265 AND
$4,451, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 91,772 127,833
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 7,211 12,633
REDEEMED (75,640) (84,127)
NET INCREASE (DECREASE) 23,343 56,339
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998
(UNAUDITED) 1998 1997 1996 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 7.300 $ 7.020 $ 7.040 $ 7.010 $ 7.300 $ 7.570
BEGINNING OF PERIOD
INCOME FROM INVEST- .213 D .441 D .460 D .484 .464 .522
MENT OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED AND .100 .282 (.020) .047 (.147) (.254)
UNREALIZED GAIN
(LOSS)
TOTAL FROM INVEST- .313 .723 .440 .531 .317 .268
MENT OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.213) (.443) (.460) (.471) (.487) (.525)
INCOME
IN EXCESS OF NET - - - - - (.013)
INVESTMENT INCOME
FROM NET REALIZED - - - - (.120) -
GAIN
IN EXCESS OF NET - - - (.030) - -
REALIZED GAIN
TOTAL DISTRIBUTIONS (.213) (.443) (.460) (.501) (.607) (.538)
NET ASSET VALUE, END $ 7.400 $ 7.300 $ 7.020 $ 7.040 $ 7.010 $ 7.300
OF PERIOD
TOTAL RETURN B, C 4.33% 10.54% 6.42% 7.62% 4.63% 3.35%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 2,109 $ 1,909 $ 1,442 $ 1,358 $ 1,087 $ 943
PERIOD (IN MILLIONS)
RATIO OF EXPENSES TO .70% A .72% .76% .77% .75% .74%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .69% A, E .71% E .75% E .76% E .75% .74%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 5.75% A 6.12% 6.53% 6.58% 7.00% 6.94%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 203% A 207% 120% 134% 90% 61%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Investment Grade Bond Fund (the fund) is a fund of Fidelity
Fixed Income Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities
and other assets and liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing rates of exchange at
period end. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
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. The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation
2. OPERATING POLICIES -
CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
for interest forgone in the purchase of a delayed delivery security.
With respect to purchase commitments, the fund identifies securities
as segregated in its custodial records with a value at least equal to
the amount of the commitment. Losses may arise due to changes in the
market value of the underlying securities or if the counterparty does
not perform under the contract.
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 $2,120,185,000 and $1,960,853,000, respectively, of which
U.S. government and government agency obligations aggregated
$1,802,012,000 and $1,722,598,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .43% of average net
assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .22% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$5,000 and $63,000, respectively, under these arrangements.
DISTRIBUTIONS
The Board of Trustees of Fidelity Investment Grade Bond Fund voted to
pay on December 7, 1998, to shareholders of record at the opening of
business on December 4, 1998, a distribution of $.01 per share derived
from capital gains realized from sales of portfolio securities.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Kevin E. Grant, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)FIDELITY
SHORT-TERM BOND
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 24 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 28 NOTES TO THE FINANCIAL STATEMENTS.
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
FIDELITY SHORT-TERM BOND 3.56% 6.48% 25.01% 93.37%
LB 1-3 YEAR GOVT/CORP BOND 4.53% 7.56% 33.94% 103.77%
SHORT INVESTMENT GRADE DEBT 3.27% 6.02% 29.85% 96.80%
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Lehman Brothers 1-3 Year Government/Corporate Bond Index - a
market value weighted performance benchmark for government and
corporate fixed-rate debt issues with maturities between one and three
years. To measure how the fund's performance stacked up against its
peers, you can compare it to the short investment grade debt funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past six
months average represents a peer group of 104 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY SHORT-TERM BOND 6.48% 4.57% 6.82%
LB 1-3 YEAR GOVT/CORP BOND 7.56% 6.02% 7.38%
SHORT INVESTMENT GRADE DEBT 6.02% 5.36% 6.99%
FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Short-Term Bond LB 1-3 Year Govt/Corp
00450 LB013
1988/10/31 10000.00 10000.00
1988/11/30 9965.82 9976.19
1988/12/31 9996.59 9999.11
1989/01/31 10082.78 10079.48
1989/02/28 10101.14 10081.86
1989/03/31 10131.93 10122.64
1989/04/30 10260.99 10286.95
1989/05/31 10417.00 10433.10
1989/06/30 10591.96 10625.69
1989/07/31 10724.76 10784.05
1989/08/31 10697.92 10723.02
1989/09/30 10742.20 10786.13
1989/10/31 10919.67 10954.31
1989/11/30 10994.27 11052.24
1989/12/31 11047.77 11096.00
1990/01/31 11026.43 11107.61
1990/02/28 11076.46 11166.54
1990/03/31 11117.61 11201.96
1990/04/30 11141.21 11229.94
1990/05/31 11327.54 11403.48
1990/06/30 11409.05 11524.04
1990/07/31 11541.36 11663.64
1990/08/31 11523.84 11705.02
1990/09/30 11543.75 11792.83
1990/10/31 11515.07 11914.57
1990/11/30 11575.24 12030.96
1990/12/31 11686.71 12171.75
1991/01/31 11670.55 12281.89
1991/02/28 11804.79 12370.59
1991/03/31 12034.85 12460.49
1991/04/30 12199.00 12582.53
1991/05/31 12323.41 12661.11
1991/06/30 12368.61 12708.14
1991/07/31 12467.11 12819.76
1991/08/31 12676.48 12993.60
1991/09/30 12807.58 13133.50
1991/10/31 12955.97 13274.89
1991/11/30 13090.03 13409.14
1991/12/31 13325.80 13611.85
1992/01/31 13380.50 13597.86
1992/02/29 13496.58 13641.02
1992/03/31 13589.15 13638.04
1992/04/30 13663.05 13762.76
1992/05/31 13794.62 13891.65
1992/06/30 13923.33 14033.64
1992/07/31 14088.28 14198.24
1992/08/31 14211.56 14312.84
1992/09/30 14329.00 14448.28
1992/10/31 14227.61 14361.36
1992/11/30 14214.15 14341.12
1992/12/31 14310.24 14476.56
1993/01/31 14546.15 14631.05
1993/02/28 14708.50 14750.41
1993/03/31 14799.58 14798.33
1993/04/30 14872.28 14891.20
1993/05/31 14897.81 14857.27
1993/06/30 15059.92 14969.79
1993/07/31 15147.08 15004.02
1993/08/31 15313.57 15129.63
1993/09/30 15370.25 15178.45
1993/10/31 15468.43 15213.87
1993/11/30 15499.55 15218.34
1993/12/31 15616.76 15279.95
1994/01/31 15718.50 15377.29
1994/02/28 15581.79 15284.12
1994/03/31 15284.95 15205.54
1994/04/30 15167.67 15147.79
1994/05/31 15251.56 15168.33
1994/06/30 15111.06 15208.22
1994/07/31 15224.79 15346.63
1994/08/31 15287.26 15398.42
1994/09/30 15312.08 15364.19
1994/10/31 15304.41 15399.32
1994/11/30 15327.99 15334.72
1994/12/31 14977.54 15363.89
1995/01/31 15091.89 15574.94
1995/02/28 15251.02 15790.45
1995/03/31 15348.07 15880.04
1995/04/30 15496.28 16023.81
1995/05/31 15772.44 16301.24
1995/06/30 15867.22 16389.94
1995/07/31 15911.64 16455.42
1995/08/31 16012.48 16555.14
1995/09/30 16094.97 16637.00
1995/10/31 16200.68 16775.12
1995/11/30 16340.68 16919.48
1995/12/31 16448.34 17047.77
1996/01/31 16574.48 17193.63
1996/02/29 16528.08 17128.14
1996/03/31 16490.60 17115.64
1996/04/30 16506.75 17132.91
1996/05/31 16541.28 17172.50
1996/06/30 16648.57 17298.11
1996/07/31 16719.45 17365.38
1996/08/31 16771.86 17429.38
1996/09/30 16919.00 17588.93
1996/10/31 17089.99 17787.47
1996/11/30 17219.52 17920.82
1996/12/31 17233.81 17923.80
1997/01/31 17305.87 18010.42
1997/02/28 17350.46 18055.07
1997/03/31 17323.16 18041.08
1997/04/30 17473.49 18189.02
1997/05/31 17587.65 18316.12
1997/06/30 17698.84 18443.52
1997/07/31 17895.74 18648.31
1997/08/31 17909.35 18665.87
1997/09/30 18042.77 18809.64
1997/10/31 18159.47 18945.08
1997/11/30 18188.15 18992.71
1997/12/31 18303.50 19118.02
1998/01/31 18481.93 19302.57
1998/02/28 18505.44 19321.92
1998/03/31 18580.94 19397.23
1998/04/30 18673.01 19493.38
1998/05/31 18767.70 19599.35
1998/06/30 18859.90 19700.55
1998/07/31 18954.48 19792.23
1998/08/31 19090.26 20019.94
1998/09/30 19333.59 20289.33
1998/10/30 19337.10 20289.33
IMATRL PRASUN SHR__CHT 19981031 19981104 152700 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Term Bond Fund on October 31, 1988. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $19,337 - a 93.37% increase on the initial investment.
For comparison, look at how the Lehman Brothers 1-3 Year
Government/Corporate Bond Index, did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $20,377 - a 103.77% 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 2.99% 6.40% 6.55% 6.52% 6.13% 6.51%
CAPITAL RETURNS 0.57% 0.46% -0.69% 0.00% -3.96% -4.52%
</TABLE>
TOTAL RETURNS 3.56% 6.86% 5.86% 6.52% 2.17% 1.99%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.16(CENTS) 25.56(CENTS) 51.90(CENTS)
ANNUALIZED DIVIDEND RATE 5.59% 5.81% 5.95%
30-DAY ANNUALIZED YIELD 4.96% - -
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 $8.77
over the past one month, $8.72 over the past six months and $8.72 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses the yield would have been 4.95%
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite direction
of bond prices - to their lowest
levels in 30 years. Investors' fears
resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and the
lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well. During
the six-month period, the Lehman
Brothers Corporate Bond Index
returned 4.00%, while the Lehman
Brothers Mortgage Backed Securities
Index returned 3.68%. Late in the
period, the Group of Seven leading
industrial nations eased global
market concerns with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries avert financial
crises. In response, equity markets
rallied and a reduced demand for
safety caused the bond market to
stumble. Despite weakness during
October, the yield on the benchmark
30-year Treasury closed at 5.15%.
An interview with Andrew Dudley, Portfolio Manager of Fidelity
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended October 31, 1998, the fund had a
total return of 3.56%. That outperformed the 3.27% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 4.53%. For the 12 months that
ended October 31, 1998, the fund had a total return of 6.48%, while
the Lipper funds average returned 6.02% and the Lehman Brothers index
returned 7.56%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE? WHY DID THE
FUND UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. During most of the period, the performance of the Treasury market
was solid due to a widespread flight to quality from stocks and
riskier bond investments. At the same time, the broader bond market
was stricken by growing concerns of economic slowdown and a subsequent
extremely negative supply/demand environment. Essentially, rumors
began that a number of highly leveraged hedge funds were already, or
were going to be, forced sellers of certain bonds. This potential
deluge of supply created a huge dislocation in bond markets - creating
a collapse in liquidity in both corporate and mortgage securities -
pushing the yield spreads relative to Treasuries to much wider levels.
In the pursuit of high current income, the fund has historically taken
on a higher level of exposure to the non-Treasury sectors than the
Lehman Brothers 1-3 Year Government/Corporate Bond Index. Since the
fund was underweighted in government securities relative to the index,
the extreme flight to quality into Treasuries caused the fund to
underperform the Lehman Brothers index. The recent performance of much
of the short-term bond fund universe - as represented by the Lipper
peer group - suggests that many managers faced similar issues.
Q. HOW DID THE FEDERAL RESERVE BOARD'S RECENT BIAS TO EASE INTEREST
RATES AFFECT THE MARKETS?
A. The extreme flight to quality we saw earlier in the period
subsided, and investors were starting to look more closely at
valuations and credit quality. Following two interest-rate cuts by the
Fed, the market seemed to feel much better. Moreover, the Fed can now
move a bit slower as the markets have returned to more normal
liquidity conditions. Clearly, a central bank that is biased toward
easing rates is positive for bonds. While prices for corporate bonds
didn't rebound overnight, it had the effect of reassuring the markets,
allowing for new issues, improving liquidity and helping corporate
bonds to recover relative to Treasuries. While the corporate bond
market did not respond to the interest-rate cuts as dramatically as
the equity markets, corporate bonds may experience similar enthusiasm
over the longer term, which can create opportunities and benefit the
fund.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED DURING THE PERIOD?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 40% and 18%, respectively of the fund's investments, on
average, during the period. Asset-backed securities performed better
on average than their corporate counterparts. Most of the fund's
holdings in asset-backed securities were rated Aaa, the highest
quality, and thus suffered to a lesser extent relative to corporate
bonds. By comparison, corporate bonds suffered more severely relative
to Treasuries. There were some bright spots within our corporate
holdings that outperformed the general corporate market; namely, the
cable, telecommunications and media holdings. Mortgage securities
accounted for roughly another 17% of the fund's allocation. Similar to
corporate bonds, mortgage securities were hurt relative to U.S.
government bonds during the extreme flight to quality along with the
increasing fear of a new refinancing and prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining investments in the fund - around 25% - were mostly in
U.S. government and agency obligations. U.S. Treasuries and agency
bonds performed the best of all the bond sectors. Unfortunately, the
fund suffered relative to the index due to its underweighted position
in this sector.
Q. WHAT'S YOUR OUTLOOK?
A. I remain comfortable with our current holdings and feel that there
will be more opportunities over time. In the short term, I'm somewhat
cautious. Over the longer term, however, the non-Treasury sectors
should stabilize or rebound to the fund's benefit. Within the
corporate bond sector, I feel the best issues are going to be
less-cyclical, domestically focused businesses that have improving
credit profiles as the market will continue to focus on high-quality,
non-cyclical corporate debt in the face of global market turmoil. The
commodity-related industries like energy, precious metals and paper
most likely will continue to suffer in this volatile environment. Over
the longer term, solid companies in the media, telecommunications and
domestic regional-banking sectors could be rewarded for improving
business and credit fundamentals. There are also opportunities within
the mortgage sector.
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.
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"THE LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX PLAYS AN IMPORTANT ROLE IN
THE MANAGEMENT OF THE FUND. IT'S
THE FUND'S BENCHMARK INDEX AND
INCLUDES MOST OF THE UNIVERSE OF
INVESTMENT-GRADE BONDS WITH
MATURITIES BETWEEN ONE AND THREE
YEARS. I USE THE INDEX AS A
GUIDELINE ABOUT THE STRUCTURE OF
THE OVERALL BOND MARKET, AND
MANAGE THE FUND TO BE GENERALLY AS
SENSITIVE TO CHANGES IN INTEREST
RATES AS THE INDEX. IN ADDITION, I
REFER TO THE INDEX WHEN DECIDING
HOW TO ALLOCATE ASSETS AMONG
DIFFERENT MATURITIES AND MARKET
SECTORS - SUCH AS CORPORATE OR
GOVERNMENT SECURITIES - BASED
ON MY VIEW OF THE RELATIVE VALUE OF
EACH MATURITY OR SECTOR."
FUND FACTS
GOAL: HIGH CURRENT INCOME,
CONSISTENT WITH PRESERVATION OF
CAPITAL, BY INVESTING PRIMARILY
IN INVESTMENT-GRADE,
FIXED-INCOME SECURITIES WHILE
MAINTAINING AN AVERAGE
MATURITY OF THREE YEARS OR LESS
FUND NUMBER: 450
TRADING SYMBOL: FSHBX
START DATE: SEPTEMBER 15, 1986
SIZE: AS OF OCTOBER 31, 1998,
MORE THAN $876 MILLION
MANAGER: ANDREW DUDLEY,
SINCE 1997; MANAGER, SPARTAN
SHORT-TERM BOND FUND AND
FIDELITY ADVISOR SHORT
FIXED-INCOME FUND, SINCE
1997; JOINED FIDELITY IN 1996
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 41.9 39.1
AA 8.4 8.8
A 14.5 14.4
BAA 28.8 28.8
BA AND BELOW 1.6 4.7
NOT RATED 0.9 1.4
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED
S&P RATINGS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 1.8 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 * AS OF APRIL 30, 1998 * *
CORPORATE BONDS 58.7%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 16.5%
MORTGAGE SECURITIES 17.4%
SHORT-TERM
INVESTMENTS 3.9%
OTHER 3.5%
CORPORATE BONDS 66.0%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 15.0%
MORTGAGE SECURITIES 12.0%
SHORT-TERM
INVESTMENTS 2.8%
OTHER 4.2%
ROW: 1, COL: 1, VALUE: 58.7
ROW: 1, COL: 2, VALUE: 16.5
ROW: 1, COL: 3, VALUE: 17.4
ROW: 1, COL: 4, VALUE: 3.9
ROW: 1, COL: 5, VALUE: 3.5
ROW: 1, COL: 1, VALUE: 66.0
ROW: 1, COL: 2, VALUE: 15.0
ROW: 1, COL: 3, VALUE: 12.0
ROW: 1, COL: 4, VALUE: 2.8
ROW: 1, COL: 5, VALUE: 4.2
* FOREIGN INVESTMENTS 6.8%
* * FOREIGN INVESTMENTS 6.7%
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE BONDS - 40.9%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.3%
CHEMICALS & PLASTICS - 0.9%
Methanex Corp. yankee A2 $ 8,440 $ 8,704
8.875% 11/15/01
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. 7.15% Ba1 3,430 3,412
5/15/05
TOTAL BASIC INDUSTRIES 12,116
CONSTRUCTION & REAL ESTATE - 1.7%
REAL ESTATE INVESTMENT TRUSTS - 1.7%
Camden Property Trust Baa2 6,600 6,521
6.625% 2/15/01
CenterPoint Properties Trust Baa2 1,100 1,053
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 2,920 2,869
6.376% 2/15/02 Baa1 2,200 2,173
Weeks Realty LP 6.875% Baa2 3,000 2,796
3/15/05
15,412
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp. Baa3 1,570 1,587
6.09% 11/29/99
Oryx Energy Co.:
8.125% 10/15/05 Ba1 370 397
8.375% 7/15/04 Ba1 950 1,011
2,995
FINANCE - 17.5%
BANKS - 6.9%
Banc One Corp. 6.7% Aa3 3,700 3,764
3/24/00
Banco Latinoamericano
Exportaciones SA euro:
6.45% 9/13/99 (b) Baa2 2,880 2,938
6.9% 12/4/99 (b) Baa2 1,700 1,712
BanPonce Corp. 6.488% A3 3,450 3,509
3/3/00
BanPonce Financial Corp.:
6.88% 6/16/00 A3 1,450 1,486
7.65% 5/3/00 A3 3,750 3,889
Barclays Bank PLC yankee A1 5,600 5,658
5.875% 7/15/00
Capital One Bank:
6.42% 11/12/99 Baa3 6,000 6,037
7.35% 6/20/00 Baa3 6,150 6,246
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
First USA Bank 6.5% Aa2 $ 5,400 $ 5,468
12/23/99
KeyCorp. 7.45% 4/5/00 A1 3,250 3,360
NationsBank Corp. 5.75% Aa2 7,700 7,818
3/15/01
Popular, Inc. 6.4% 8/25/00 A3 2,270 2,276
Providian National Bank:
6.25% 5/7/01 Baa3 3,200 3,231
6.7% 3/15/03 Baa3 5,000 5,013
62,405
CREDIT & OTHER FINANCE - 9.5%
Abbey National PLC 6.69% Aa3 5,400 5,563
10/17/05
Aristar, Inc. 6% 8/1/01 A3 4,500 4,518
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 5,690 5,769
6.25% 5/15/01 Baa3 7,310 7,253
Chrysler Financial Corp.:
5.25% 5/4/01 A2 6,400 6,394
8.42% 2/1/99 A3 2,500 2,517
Chrysler Financial LLC A2 5,460 5,527
6.375% 1/28/00
Edison Mission Energy Baa1 5,117 5,300
Funding Corp. 6.77%
9/15/03 (b)
ERP Operating LP 6.55% A3 800 800
11/15/01
Finova Capital Corp. 6.27% Baa1 1,650 1,655
9/29/00
Ford Motor Credit Co. A1 3,400 3,378
5.125% 10/15/01
General Electric Capital Aaa 2,600 2,672
Corp. 6.01% 4/30/01
General Motors Acceptance A2 14,820 14,966
Corp. 5.85% 4/20/00
GS Escrow Corp. 6.75% Ba1 5,400 5,286
8/1/01 (b)
Heller Financial, Inc. 6.25% A3 4,000 4,024
3/1/01
MCN Investment Corp. Baa3 3,640 3,642
5.84% 2/1/99
Money Store, Inc. 7.3% A2 1,870 1,983
12/1/02
North American Mortgage Baa2 2,250 2,247
Co. 5.8% 11/2/98
Salton Sea Funding Corp. Baa2 2,121 2,141
7.02% 5/30/00
85,635
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 0.8%
Long Island Savings Bank
FSB:
6.2% 4/2/01 Baa3 $ 3,500 $ 3,496
7% 6/13/02 Baa3 3,080 3,155
6,651
SECURITIES INDUSTRY - 0.3%
Amvescap PLC yankee A3 2,800 2,868
6.375% 5/15/03
TOTAL FINANCE 157,559
INDUSTRIAL MACHINERY & EQUIPMENT - 1.1%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Tyco International Group SA Baa1 5,500 5,611
yankee 6.125% 6/15/01
POLLUTION CONTROL - 0.5%
WMX Technologies, Inc. Baa3 4,435 4,481
6.25% 10/15/00
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 10,092
MEDIA & LEISURE - 6.3%
BROADCASTING - 3.4%
Continental Cablevision,
Inc.:
8.3% 5/15/06 Baa3 820 899
8.5% 9/15/01 Baa3 5,755 6,109
TCI Communications, Inc.:
6.375% 9/15/99 Baa3 9,675 9,761
8.25% 1/15/03 Baa3 725 801
9% 1/2/02 Ba1 2,300 2,544
Time Warner, Inc.:
7.95% 2/1/00 Baa3 8,775 9,018
7.975% 8/15/04 Baa3 1,650 1,825
30,957
ENTERTAINMENT - 2.1%
Paramount Communications, Baa3 2,620 2,741
Inc. 7.5% 1/15/02
Viacom, Inc.:
6.75% 1/15/03 Baa3 11,320 11,671
7.75% 6/1/05 Baa3 4,300 4,635
19,047
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.8%
News America Holdings, Baa3 $ 4,300 $ 4,723
Inc. 8.5% 2/15/05
Time Warner Entertainment Baa2 1,900 2,130
Co. LP 9.625% 5/1/02
6,853
TOTAL MEDIA & LEISURE 56,857
NONDURABLES - 1.8%
FOODS - 0.7%
Dole Food, Inc. 6.75% Baa2 6,300 6,343
7/15/00
TOBACCO - 1.1%
Philip Morris Companies,
Inc.:
7.125% 12/1/99 A2 7,000 7,130
7.25% 9/15/01 A2 2,545 2,654
9,784
TOTAL NONDURABLES 16,127
RETAIL & WHOLESALE - 1.7%
GENERAL MERCHANDISE STORES - 1.7%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 4,870 5,043
9.75% 7/1/02 A3 2,980 3,388
10% 12/1/00 A3 2,380 2,594
Federated Department Baa2 4,380 4,679
Stores, Inc. 8.125%
10/15/02
15,704
TECHNOLOGY - 3.8%
COMPUTER SERVICES & SOFTWARE - 0.2%
Computer Associates Baa1 1,760 1,756
International, Inc. 6.25%
4/15/03
COMPUTERS & OFFICE EQUIPMENT - 3.6%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 1,090 1,100
6.1% 6/5/01 Baa1 14,210 14,532
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Comdisco, Inc.:
6.55% 2/4/00 Baa1 $ 12,400 $ 12,645
7.75% 9/1/99 Baa1 4,000 4,048
32,325
TOTAL TECHNOLOGY 34,081
TRANSPORTATION - 1.5%
AIR TRANSPORTATION - 0.4%
Continental Airlines, Inc. Baa1 2,500 2,506
Pass Through Trust
Certificates 7.08%
11/1/04
Delta Air Lines, Inc. 9.875% Baa3 1,150 1,218
5/15/00
3,724
RAILROADS - 1.1%
CSX Corp.:
7.05% 5/1/02 Baa2 3,850 4,007
9.5% 8/1/00 Baa2 3,200 3,407
Norfolk Southern Corp. Baa1 2,300 2,402
6.95% 5/1/02
9,816
TOTAL TRANSPORTATION 13,540
UTILITIES - 3.9%
ELECTRIC UTILITY - 2.2%
Avon Energy Partners Baa2 2,800 2,901
Holdings yankee 6.73%
12/11/02 (b)
Indiana Michigan Power Co. Baa1 5,500 5,604
6.4% 3/1/00
Niagara Mohawk Power Ba1 2,000 2,056
Corp. 6.875% 3/1/01
Ohio Edison Co. 7.375% Baa2 2,900 3,051
9/15/02
Philadelphia Electric Co.:
5.625% 11/1/01 Baa1 2,200 2,211
6.5% 5/1/03 Baa1 1,550 1,614
Texas Utilities Electric Co. Baa1 2,700 2,757
7.375% 11/1/99
20,194
GAS - 0.3%
Arkla, Inc. 8.875% Baa1 2,500 2,572
7/15/99
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 1.4%
MCI WorldCom, Inc.:
6.125% 8/15/01 Baa2 $ 6,765 $ 6,917
8.875% 1/15/06 Baa2 1,881 2,061
9.375% 1/15/04 Baa2 3,333 3,468
12,446
TOTAL UTILITIES 35,212
TOTAL NONCONVERTIBLE BONDS 369,695
(Cost $367,511)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 16.5%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.9%
Government Trust Aaa 898 952
Certificates (assets of Trust
guaranteed by U.S.
Government through
Defense Security
Assistance Agency) Class
T-3, 9.625% 5/15/02
Guaranteed Export Trust
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-C, 6.61% Aaa 142 143
9/15/99
Series 1995-A, 6.28% Aaa 4,235 4,380
6/15/04
Israel Export Trust Aaa 1,398 1,455
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-Import Bank) Series
1994-1, 6.88% 1/26/03
Private Export Funding Aaa 1,029 1,081
Corp. secured 6.86%
4/30/04
8,011
U.S. TREASURY OBLIGATIONS - 15.6%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 30,110 30,787
5.5% 3/31/00 Aaa 63,500 64,447
5.625% 11/30/99 Aaa 4,270 4,324
5.75% 10/31/00 Aaa 3,000 3,081
5.875% 2/15/00 Aaa 3,190 3,248
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - CONTINUED
U.S. Treasury Notes: -
continued
5.875% 7/31/99 Aaa $ 3,430 $ 3,465
6.25% 2/28/02 Aaa 8,220 8,685
6.875% 3/31/00 Aaa 22,600 23,359
141,396
TOTAL U.S. GOVERNMENT AND 149,407
GOVERNMENT AGENCY OBLIGATIONS
(Cost $149,339)
</TABLE>
U.S. GOVERNMENT AGENCY - MORTGAGE
SECURITIES - 8.7%
FANNIE MAE - 4.9%
6.5% 1/1/13 to 2/1/13 Aaa 16,108 16,345
6.5% 11/1/28 (c) Aaa 13,500 13,605
7% 11/1/28 (c) Aaa 12,500 12,773
11.5% 11/1/15 Aaa 1,085 1,208
43,931
FREDDIE MAC - 0.7%
7% 5/1/01 to 8/1/01 Aaa 1,874 1,893
8.5% 6/1/24 to 7/1/28 Aaa 4,480 4,670
12% 11/1/19 Aaa 273 313
6,876
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 3.1%
7.5% 9/15/22 to Aaa 13,542 13,946
8/15/28 (d)
9.5% 3/15/16 to Aaa 4,316 4,658
12/15/20
11% 12/15/09 to 8/15/20 Aaa 5,028 5,533
11.5% 4/15/13 to Aaa 1,726 1,923
8/15/13
12% 2/15/16 Aaa 1,597 1,795
27,855
TOTAL U.S. GOVERNMENT AGENCY - 78,662
MORTGAGE SECURITIES
(Cost $78,732)
ASSET-BACKED SECURITIES - 17.8%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Aesop Funding II LLC 6.22% Aaa $ 4,500 $ 4,582
10/20/01 (b)
Arcadia Automobile Aaa 3,700 3,715
Receivables Trust 5.67%
1/15/04
Boatmens Auto Trust 6.35% A2 1,375 1,377
10/15/01
Capital Equipment
Receivables Trust:
6.45% 8/15/02 Aa3 5,100 5,259
6.57% 3/15/01 Aa3 2,230 2,272
Case Equipment Loan Trust:
5.85% 2/15/03 Aa2 1,770 1,765
6.15% 9/15/02 Aaa 3,907 3,931
6.45% 11/10/02 Aaa 3,000 3,081
Caterpillar Financial Asset A3 1,080 1,085
Trust 6.55% 5/25/02
Chase Manhattan Marine Aaa 4,400 4,489
Owner Trust 6.25%
4/16/07
Chevy Chase Auto
Receivables Trust:
5.97% 10/20/04 Aaa 4,620 4,654
6.2% 3/20/04 Aaa 1,929 1,946
Citibank Credit Card Master Aaa 4,100 4,158
Trust I 5.75% 1/15/03
Contimortgage Home Equity
Loan Trust:
6.26% 7/15/12 Aaa 8,800 8,800
6.3% 7/15/12 Aaa 3,300 3,321
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 2,515 2,519
6.7% 2/15/02 Aaa 836 841
CS First Boston Mortgage Aaa 2,200 2,234
Securities Corp. 7%
3/15/27
Discover Card Master Trust I A2 12,199 12,104
6.0006% 7/18/05 (e)
Fidelity Funding Auto Trust Aaa 1,024 1,043
6.99% 11/15/02 (b)
Ford Credit Auto Owner A2 4,900 4,912
Trust 6.15% 9/15/02
Ford Credit Grantor Trust Aaa 2,191 2,197
5.9% 10/15/00
General Motors Acceptance Aaa 988 988
Corp. Grantor Trust 7.15%
3/15/00
Green Tree Financial Corp.:
5.5% 1/31/00 Aaa 116 116
5.8% 2/15/27 Aaa 538 538
6.1% 4/15/27 Aaa 1,956 1,957
6.45% 5/15/27 Aaa 1,388 1,391
6.5% 6/15/27 Aaa 915 915
Key Auto Finance Trust Baa3 814 826
6.65% 10/15/03
KeyCorp Auto Grantor Trust A3 87 87
5.8% 7/15/00
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Newcourt Equipment Trust Aaa $ 5,000 $ 4,994
Securities sequential pay
Series 1998-1 Class A3,
5.24% 12/20/02
Norwest Automobile Trust A2 3,375 3,406
6.3% 5/15/03
Olympic Automobile
Receivables Trust:
6.125% 11/15/04 Aaa 1,696 1,731
6.4% 9/15/01 Aaa 3,800 3,861
Onyx Acceptance Grantor
Trust:
5.95% 7/15/04 Aaa 5,194 5,237
6.2% 6/15/03 Aaa 2,899 2,922
Petroleum Enhanced Trust Baa2 4,923 4,917
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (b)(e)
Premier Auto Trust:
5.7% 10/6/02 Aaa 9,500 9,601
6% 5/6/00 Aaa 1,031 1,032
6.35% 7/6/00 A3 4,610 4,623
Reliance Auto Receivables Aaa 1,222 1,222
Corp., Inc. 6.1%
7/15/02 (b)
SCFC Recreational Vehicle Aaa 223 221
Loan Trust 7.25%
9/15/06
Sears Credit Account Master Aaa 3,800 3,870
Trust II 6.2% 2/16/06
TMS Auto Grantor Trust Aaa 479 481
5.9% 9/15/02
Tranex Auto Receivables Aaa 2,550 2,586
Owner Trust 6.334%
8/15/03 (b)
UFSB Grantor Trust 8.2% Baa2 221 221
1/10/01
Union Acceptance Corp. Baa2 354 355
7.075% 7/10/02
Western Financial Grantor Aaa 1,899 1,928
Trust 5.875% 3/1/02
WFS Financial Owner Trust:
6.4% 7/20/02 Aaa 6,840 7,069
6.9% 12/20/03 Aaa 5,020 5,227
7.05% 11/20/03 Aaa 7,410 7,716
TOTAL ASSET-BACKED SECURITIES 160,323
(Cost $158,542)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.7%
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
PRIVATE SPONSOR - 1.0%
GE Capital Mortgage Aaa $ 2,155 $ 2,163
Services, Inc. planned
amortization class Series
1994-2 Class A-4, 6%
1/25/09
Residential Funding Aa1 6,730 6,797
Mortgage Securities I, Inc.
planned amortization
class Series 1994-S12
Class A-2, 6.5% 4/25/09
8,960
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES Aaa 5,852 5,973
sequential pay Series
1995 - M1 Class A,
6.65% 7/25/10
TOTAL COLLATERALIZED MORTGAGE 14,933
OBLIGATIONS
(Cost $14,778)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 7.0%
Allied Capital Commercial Aaa 4,141 4,134
Mortgage Trust sequential
pay Series 1998-1 Class
A, 6.31% 1/25/28 (b)
Bankers Trust Remic Trust Baa2 6,715 6,558
1988-1 floater Series
1998-S1A Class D,
6.5023% 11/28/02 (b)(e)
BKB Commercial Mortgage AA 1,516 1,512
Trust Series 1997 C1,
Class B, 7.218%
2/25/43 (b)(e)
CBM Funding Corp.
sequential pay Series
1996-1:
Class A 1, 7.55% 7/1/99 AA 144 144
Class A-2, 6.88% 7/1/02 AA 2,170 2,227
CS First Boston Mortgage
Securities Corp.:
sequential pay Series - 6,604 6,612
1997-SPICE Class A,
6.653% 8/20/36 (b)
Series 1998 FLI Class E, Baa2 6,500 6,319
6.1938%
1/10/13 (b)(e)
DLJ Commercial Mortgage A2 2,740 2,726
Corp. floater Series
1998-STFA Class A-3,
6.0075% 1/8/11 (b)(e)
Equitable Life Assurance
Society of the United
States (The):
floater Series 174 Class Baa2 2,300 2,258
D-2, 6.7063%
5/15/03 (b)(e)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Equitable Life Assurance
Society of the United
States (The): - continued
sequential pay Series 174 Aaa $ 2,500 $ 2,673
Class A1, 7.24%
5/15/06 (b)
Federal Deposit Insurance
Corp. Remic Trust:
sequential pay Series Aaa 1,060 1,061
1994-C1 Class II-A2,
7.85% 9/25/25
sequential pay Series Aaa 4,335 4,347
1996-C1 Class 1A,
6.75% 7/25/26
FMAC Loan Receivables Aaa 1,308 1,322
Trust 1998-C sequential
pay Series 1998-C Class
A1 Notes, 5.99%
9/15/20 (b)
Franchise Loan Trust 1998-1 Aaa 3,812 3,854
sequential pay Series
1998-I Class A1 Notes,
6.24% 7/15/20 (b)
Kidder Peabody Acceptance Aa2 940 938
Corp. I sequential pay
Series 1993-M1 Class
A-2, 7.15% 4/25/25
Nomura Asset Securities - 2,006 2,007
Corp. floater Series
1994-MD-II Class A-6,
6.9095% 7/7/03 (e)
Nomura Depositor Trust Baa2 5,400 5,076
floater Series 1998-ST1A
Class A-4, 6.4898%
2/15/34 (b)(e)
Resolution Trust Corp.:
floater Series 1994-C1 AAA 434 434
Class A-3, 5.8625%
6/25/26 (e)
sequential pay Series Aaa 2,925 2,921
1995 C-1 Class A2C,
6.9% 2/25/27
Structured Asset Securities
Corp.:
floater Series 1998-C2A A3 5,218 5,205
Class C, 5.6494%
1/25/13 (b)(e)
Series 1996-C3 Class A, AAA 1,078 1,073
6.75% 6/25/30 (b)(e)
TOTAL COMMERCIAL MORTGAGE 63,401
SECURITIES
(Cost $64,052)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 0.9%
Ontario Province:
euro:
global 6.125% Aa3 2,700 2,760
6/28/00 (f)
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Ontario Province: -
continued
8.5% 2/28/01 (f) Aa3 $ 2,500 $ 2,675
5.75% 11/7/00 (f) Aa3 2,740 2,770
TOTAL FOREIGN GOVERNMENT AND 8,205
GOVERNMENT AGENCY OBLIGATIONS
(Cost $8,126)
</TABLE>
SUPRANATIONAL OBLIGATIONS - 1.8%
African Development Bank:
7.75% 12/15/01 Aa1 5,090 5,437
9.3% 7/1/00 Aa1 10,270 10,896
TOTAL SUPRANATIONAL OBLIGATIONS 16,333
(Cost $16,396)
CERTIFICATES OF DEPOSIT - 0.8%
Canadian Imperial Bank of Aa3 6,885 6,997
Commerce,
New York yankee 6.2%
8/1/00
(Cost $6,900)
CASH EQUIVALENTS - 3.9%
MATURITY
AMOUNT (000S)
Investments in repurchase 34,873
agreements (U.S. Treasury $ 34,873,000
obligations), in a joint
trading account at 5.64%,
dated 10/30/98 due
11/2/98
(Cost $34,873)
TOTAL INVESTMENT IN SECURITIES $ 902,829
- - 100%
(Cost $899,249)
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) 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 $81,809,000 or 9.3% of net assets.
(c) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(d) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
(e) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(f) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 64.2% AAA, AA, A 60.2%
Baa 28.8% BBB 29.3%
Ba 1.6% BB 1.1%
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
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1%.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost
of investment securities for income tax purposes was $899,255,000. Net
unrealized appreciation aggregated $3,574,000, of which $7,184,000
related to appreciated investment securities and $3,610,000 related to
depreciated investment securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $166,788,000 of which $2,771,000, $2,248,000,
$18,091,000, $55,095,000, $74,079,000, $6,241,000 and $8,263,000 will
expire on April 30, 1999, 2000, 2002, 2003, 2004, 2005 and 2006,
respectively. Of the loss carryforwards expiring in 2000, 2002 and
2003, $2,248,000, $13,718,000, and $15,805,000, respectively, were
acquired in a merger and are available to offset future capital gains
of the fund to the extent provided by regulations.
The fund intends to elect to defer to its fiscal year ending April 30,
1999 approximately $308,000 of losses recognized during the period
November 1, 1997 to April 30, 1998.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) OCTOBER 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 902,829
AGREEMENTS OF $34,873) (COST $899,249) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (13,901)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 13,926 25
RECEIVABLE FOR INVESTMENTS SOLD, REGULAR DELIVERY 8,477
RECEIVABLE FOR FUND SHARES SOLD 490
INTEREST RECEIVABLE 9,797
OTHER RECEIVABLES 3
TOTAL ASSETS 921,621
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 16,002
REGULAR DELIVERY
DELAYED DELIVERY 26,267
PAYABLE FOR FUND SHARES REDEEMED 2,197
DISTRIBUTIONS PAYABLE 465
ACCRUED MANAGEMENT FEE 317
OTHER PAYABLES AND ACCRUED EXPENSES 233
TOTAL LIABILITIES 45,481
NET ASSETS $ 876,140
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 1,042,828
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (3,570)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (166,723)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 3,605
NET ASSETS, FOR 100,126 SHARES OUTSTANDING $ 876,140
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $8.75
SHARE ($876,140 (DIVIDED BY) 100,126 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 27,473
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,799
TRANSFER AGENT FEES 830
ACCOUNTING FEES AND EXPENSES 134
CUSTODIAN FEES AND EXPENSES 23
REGISTRATION FEES 8
AUDIT 24
LEGAL 1
MISCELLANEOUS 2
TOTAL EXPENSES BEFORE REDUCTIONS 2,821
EXPENSE REDUCTIONS (57) 2,764
NET INVESTMENT INCOME 24,709
REALIZED AND UNREALIZED GAIN (LOSS) 426
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 3,933
DELAYED DELIVERY COMMITMENTS 25 3,958
NET GAIN (LOSS) 4,384
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 29,093
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 24,709 $ 55,294
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 426 (2,546)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 3,958 6,400
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 29,093 59,148
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (24,252) (54,671)
SHARE TRANSACTIONS 224,528 337,273
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 21,688 49,278
COST OF SHARES REDEEMED (183,705) (504,130)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 62,511 (117,579)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 67,352 (113,102)
NET ASSETS
BEGINNING OF PERIOD 808,788 921,890
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET $ 876,140 $ 808,788
INVESTMENT INCOME OF $3,570 AND $4,027, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 25,696 38,753
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 2,485 5,662
REDEEMED (21,039) (57,922)
NET INCREASE (DECREASE) 7,142 (13,507)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998
(UNAUDITED) 1998 1997 1996 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080 $ 9.510
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .130 D .546 D .558 D .579 .344 .588
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED AND UN- .176 .033 (.061) (.020) (.156) (.392)
REALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .306 .579 .497 .559 .188 .196
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.256) (.539) (.552) (.504) (.430) (.592)
INCOME
IN EXCESS OF NET - - - - - (.034)
INVESTMENT INCOME
RETURN OF CAPITAL - - (.005) (.055) (.118) -
TOTAL DISTRIBUTIONS (.256) (.539) (.557) (.559) (.548) (.626)
NET ASSET VALUE, END OF $ 8.750 $ 8.700 $ 8.660 $ 8.720 $ 8.720 $ 9.080
PERIOD
TOTAL RETURN B, C 3.56% 6.86% 5.86% 6.52% 2.17% 1.99%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 876 $ 809 $ 922 $ 1,048 $ 1,304 $ 1,962
PERIOD (IN MILLIONS)
RATIO OF EXPENSES TO .67% A, E .70% .70% .69% .69% .80%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .66% A, F .70% .70% .68% F .69% .80%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 5.92% A 6.26% 6.41% 6.37% 6.37% 6.70%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 103% A 117% 104% 151% 113% 73%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Term Bond Fund (the fund) is a fund of Fidelity
Fixed-Income Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in
a foreign currency are translated into U.S. dollars at the prevailing
rates of exchange at period end. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars
at the prevailing exchange rate on the respective dates of the
transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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, expiring capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS -
CONTINUED
amount of the repurchase agreement (including accrued interest). FMR,
the fund's investment adviser, is responsible for determining that the
value of the underlying securities remains in accordance with the
market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS.
The fund may purchase or sell securities on a delayed delivery basis.
Payment and delivery may take place a month or more after the date of
the transaction. The price of the underlying securities and the date
when the securities will be delivered and paid for are fixed at the
time the transaction is negotiated. The market values of the
securities purchased or sold on a delayed delivery basis are
identified as such in the fund's schedule of investments. The fund may
receive compensation for interest forgone in the purchase of a delayed
delivery security. With respect to purchase commitments, the fund
identifies securities as segregated in its custodial records with a
value at least equal to the amount of the commitment. Losses may arise
due to changes in the market value of the underlying securities or if
the counterparty does not perform under the contract.
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 $485,845,000 and $417,440,000, respectively, of which U.S.
government and government agency obligations aggregated $302,171,000
and $221,648,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus
a fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .43% of average net
assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .20% 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.
Effective June 27, 1998, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of .65% of the funds
average net assets. For the period, the reimbursement reduced expenses
by $38,000.
In addition, the fund has entered into arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's custodian and transfer agent
fees were reduced by $7,000 and $12,000, respectively, under these
arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Andrew J. Dudley, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(registered trademark)
(2_FIDELITY_LOGOS)SPARTAN(REGISTERED TRADEMARK)
GOVERNMENT INCOME
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 16 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 20 NOTES TO THE FINANCIAL STATEMENTS.
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
SPARTAN GOVERNMENT INCOME 6.72% 10.44% 38.21% 132.63%
LB GOVERNMENT BOND 7.46% 11.28% 40.10% N/A
GENERAL US GOVERNMENT FUNDS AVERAGE 5.74% 9.06% 33.17% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or since the fund started on December 20, 1988. For example, if
you had invested $1,000 in a fund that had a 5% return over the past
year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Lehman Brothers
Government Bond Index - an index of U.S. government and government
agency securities (other than mortgage securities) with maturities of
one year or more. To measure how the fund's performance stacked up
against its peers, you can compare it to the general U.S. government
funds average, which reflects the performance of mutual funds with
similar objectives tracked by Lipper Analytical Services, Inc. The
past six months average represents a peer group of 191 mutual funds.
These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN GOVERNMENT INCOME 10.44% 6.69% 8.93%
LB GOVERNMENT BOND 11.28% 6.98% N/A
GENERAL US GOVERNMENT FUNDS AVERAGE 9.06% 5.88% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan Govt. Income LB Government Bond
00453 LB003
1988/12/31 10000.00 10000.00
1989/01/31 10175.40 10127.14
1989/02/28 10097.78 10044.69
1989/03/31 10104.09 10106.16
1989/04/30 10313.82 10322.92
1989/05/31 10606.35 10566.35
1989/06/30 10945.29 10918.90
1989/07/31 11196.70 11149.49
1989/08/31 10999.20 10961.86
1989/09/30 11064.30 11009.01
1989/10/31 11349.30 11293.91
1989/11/30 11477.32 11403.28
1989/12/31 11522.54 11422.54
1990/01/31 11374.73 11260.83
1990/02/28 11423.41 11283.30
1990/03/31 11432.64 11280.83
1990/04/30 11290.09 11181.34
1990/05/31 11644.08 11493.15
1990/06/30 11829.42 11675.10
1990/07/31 12017.08 11824.47
1990/08/31 11838.33 11659.80
1990/09/30 11934.42 11771.63
1990/10/31 12100.99 11963.96
1990/11/30 12373.83 12229.11
1990/12/31 12578.78 12418.22
1991/01/31 12724.51 12551.54
1991/02/28 12819.09 12623.38
1991/03/31 12879.73 12687.57
1991/04/30 13014.49 12826.81
1991/05/31 13078.93 12876.68
1991/06/30 13080.97 12858.41
1991/07/31 13251.79 13010.99
1991/08/31 13535.40 13312.68
1991/09/30 13808.89 13591.90
1991/10/31 13957.32 13710.90
1991/11/30 14056.63 13848.41
1991/12/31 14478.81 14320.21
1992/01/31 14300.45 14097.27
1992/02/29 14396.79 14152.33
1992/03/31 14350.80 14069.62
1992/04/30 14452.94 14158.25
1992/05/31 14693.76 14419.45
1992/06/30 14881.82 14626.10
1992/07/31 15120.94 14994.69
1992/08/31 15198.57 15134.43
1992/09/30 15326.07 15348.48
1992/10/31 15148.13 15127.02
1992/11/30 15271.79 15100.85
1992/12/31 15509.70 15355.14
1993/01/31 15678.96 15681.27
1993/02/28 15894.57 15995.31
1993/03/31 15936.89 16048.88
1993/04/30 16060.25 16172.32
1993/05/31 16126.36 16154.55
1993/06/30 16393.88 16513.02
1993/07/31 16488.97 16613.75
1993/08/31 16710.04 16984.57
1993/09/30 16688.57 17049.50
1993/10/31 16720.09 17113.94
1993/11/30 16522.81 16926.31
1993/12/31 16648.09 16991.73
1994/01/31 16896.96 17224.29
1994/02/28 16548.56 16859.65
1994/03/31 16104.37 16480.43
1994/04/30 15876.77 16350.82
1994/05/31 15892.09 16329.84
1994/06/30 15850.93 16292.31
1994/07/31 16166.65 16591.78
1994/08/31 16192.46 16594.99
1994/09/30 15955.78 16361.19
1994/10/31 15947.83 16348.85
1994/11/30 15923.85 16318.97
1994/12/31 16051.03 16418.22
1995/01/31 16365.74 16723.86
1995/02/28 16727.41 17083.82
1995/03/31 16810.12 17190.96
1995/04/30 17039.33 17415.63
1995/05/31 17682.39 18118.01
1995/06/30 17826.75 18257.01
1995/07/31 17766.76 18189.85
1995/08/31 17969.09 18403.65
1995/09/30 18151.91 18580.92
1995/10/31 18441.89 18863.84
1995/11/30 18694.17 19157.88
1995/12/31 18967.41 19429.45
1996/01/31 19066.72 19548.70
1996/02/29 18698.76 19150.48
1996/03/31 18551.13 18990.50
1996/04/30 18420.29 18869.28
1996/05/31 18400.33 18837.67
1996/06/30 18612.90 19080.85
1996/07/31 18662.12 19128.01
1996/08/31 18615.75 19085.30
1996/09/30 18922.61 19402.05
1996/10/31 19328.85 19828.91
1996/11/30 19659.33 20173.81
1996/12/31 19462.38 19967.91
1997/01/31 19473.93 19990.12
1997/02/28 19494.31 20017.53
1997/03/31 19311.92 19805.70
1997/04/30 19572.52 20091.59
1997/05/31 19720.32 20264.91
1997/06/30 19943.39 20492.28
1997/07/31 20485.79 21073.94
1997/08/31 20294.77 20865.57
1997/09/30 20597.39 21179.36
1997/10/31 20924.10 21545.74
1997/11/30 21026.24 21656.09
1997/12/31 21256.60 21882.48
1998/01/31 21568.04 22209.85
1998/02/28 21503.18 22149.61
1998/03/31 21568.64 22212.32
1998/04/30 21653.86 22312.31
1998/05/31 21867.07 22541.41
1998/06/30 22099.01 22797.68
1998/07/31 22127.73 22832.98
1998/08/31 22595.68 23426.98
1998/09/30 23231.37 24058.51
1998/10/30 23108.56 23976.55
IMATRL PRASUN SHR__CHT 19981031 19981110 111212 R00000000000121
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Government Income Fund on December 31, 1988,
shortly after the fund started. As the chart shows, by October 31,
1998, the value of the investment would have grown to $23,109 - a
131.09% increase on the initial investment. For comparison, look at
how the Lehman Brothers Government Bond Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 would have grown to $23,977 - a 139.77% 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
<TABLE>
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SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 3.08% 6.55% 6.76% 6.69% 7.82% 5.10%
CAPITAL RETURNS 3.64% 4.08% -0.50% 1.41% -0.50% -6.24%
TOTAL RETURNS 6.72% 10.63% 6.26% 8.10% 7.32% -1.14%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.22(CENTS) 31.34(CENTS) 62.28(CENTS)
ANNUALIZED DIVIDEND RATE 5.66% 5.85% 5.90%
30-DAY ANNUALIZED YIELD 5.07% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.86 over the past one month, $10.63 over the past six months and
$10.55 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis. If Fidelity
had not reimbursed certain fund expenses the yield would have been
5.00%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite direction
of bond prices - to their lowest
levels in 30 years. Investors' fears
resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and the
lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well. During
the six-month period, the Lehman
Brothers Corporate Bond Index
returned 4.00%, while the Lehman
Brothers Mortgage Backed Securities
Index returned 3.68%. Late in the
period, the Group of Seven leading
industrial nations eased global
market concerns with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries avert financial
crises. In response, equity markets
rallied and a reduced demand for
safety caused the bond market to
stumble. Despite weakness during
October, the yield on the benchmark
30-year Treasury closed at 5.15%.
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Government Income Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended October 31, 1998, the fund
provided a total return of 6.72%. To get a sense of how the fund did
relative to its competitors, the general U.S. government funds average
returned 5.74% for the same six-month period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers Government Bond
Index - which tracks the types of securities in which the fund invests
- - returned 7.46% for the same period. For the 12-month period that
ended October 31, 1998, the fund had a total return of 10.44%. For
that same one-year period, the general U.S. government funds average
returned 9.06% and the Lehman Brothers Government Bond Index returned
11.28%.
Q. WHAT FACTORS HELPED THE FUND BEAT ITS PEERS OVER THE PAST SIX
MONTHS?
A. The fund had a smaller stake in both agency and mortgage
securities, which lagged U.S. Treasuries over the past six months. Due
to growing uncertainty about the health of the global economy,
investors flocked to Treasuries in droves and made them the
single-best performing securities in the investment-grade bond market
during the past six months. At the same time, they shunned other types
of bonds, including agency and mortgage securities. Treasuries are
backed directly by the full faith and credit of the U.S. government,
while agency securities carry the implicit, or indirect, backing of
the U.S. government. As a result, agency securities are not perceived
to be as safe as Treasuries.
Q. EVEN THOUGH THE FUND OUTPACED ITS PEERS, IT LAGGED THE LEHMAN
BROTHERS GOVERNMENT BOND INDEX OVER THE PAST SIX MONTHS. WHAT MADE THE
DIFFERENCE?
A. Those best-performing U.S. Treasury securities comprised roughly
83% of the Lehman Brothers Government Bond Index but only about 25% of
the fund at the end of period. Alternatively, the fund's holdings in
agency securities - which generally lagged Treasuries - exceeded their
index weighting. Finally, the fund's stake in mortgage securities -
which were not contained in the index - caused the fund to lose ground
relative to its benchmark index.
Q. WHAT PROBLEMS DID MORTGAGE SECURITIES FACE?
A. Mortgage securities give investors an interest in a pool of
mortgages. Homeowners' monthly payments - which include both interest
and principal - are passed through to the mortgage-bond holders. Their
problems occurred when interest rates fell and many of these loans
were prepaid by homeowners refinancing their mortgages. That wave of
refinancing left some mortgage-bond holders to find a new place to put
their money - usually at a lower interest rate. Not wanting to
potentially be forced to forfeit their relatively high-yielding
mortgage securities, investors generally shunned them during the final
months of the period.
Q. DID YOU ALTER YOUR INVESTMENT APPROACH GIVEN ALL THE PROBLEMS THE
MARKET EXPERIENCED?
A. No, and I believe the fact that I didn't really helped the fund in
what proved to be a very turbulent period. I continually manage the
fund to have approximately the same interest-rate sensitivity as the
market for government bonds other than mortgage securities, as
represented by the Lehman Brothers Government Bond Index. By doing so,
I avoid the potential for making the fund too interest-rate sensitive
at the wrong time - such as when interest rates are on the rise - or
vice versa. Instead of trying to predict the direction of interest
rates, I spend my time trying to identify securities that I believe
will perform well no matter what the interest-rate environment.
Q. WHICH AGENCY SECURITIES DID YOU EMPHASIZE?
A. I continued to favor non-callable securities - those that can't be
redeemed by their issuers before maturity. Some agency securities can
be "called" - or redeemed - by their issuers as a way to reduce their
debt costs. Because they can't be redeemed prior to maturity,
non-callable securities tend to perform better than their callable
counterparts when interest rates fall, and generally keep pace with
callable bonds when interest rates rise.
Q. WHAT'S YOUR OUTLOOK?
A. The direction of interest rates, as always, will be the primary
factor determining the performance of the government bond market.
Further interest-rate cuts would likely provide a favorable backdrop
for agency bonds and Treasury securities. If the Federal Reserve Board
decides to hold rates stable, the bond market could be in for a period
of readjustment. I'm likely to continue to place a relatively large
emphasis on agency securities, because I think they offer better total
return potential than mortgage securities or Treasuries at this point
in time.
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.
CURT HOLLINGSWORTH ON
YIELD SPREADS:
"WHEN ANALYZING THE ATTRACTIVENESS
OF DIFFERENT TYPES OF BONDS I CONSIDER
THE YIELD SPREAD, WHICH REFLECTS THE
DIFFERENCE BETWEEN THE YIELD ON
TREASURIES AND THE YIELD ON OTHER
BONDS. AN AGENCY SECURITY, FOR
EXAMPLE, TYPICALLY WILL HAVE A
HIGHER YIELD THAN A TREASURY SECURITY
BECAUSE IT IS PERCEIVED TO CARRY
SLIGHTLY MORE RISK THAN A TREASURY.
OVER TIME, TREASURY AND AGENCY
YIELDS WILL MOVE AROUND, CAUSING THE
YIELD ADVANTAGE OFFERED BY AGENCIES
TO FLUCTUATE. I TRY TO BUY AGENCY
SECURITIES WHEN I THINK THAT THEIR
YIELD ADVANTAGE OVER TREASURIES WILL
DIMINISH, A PROCESS KNOWN AS
YIELD-SPREAD TIGHTENING. AS THAT
TIGHTENING OCCURS, THE PRICE
PERFORMANCE OF AN AGENCY SECURITY
WILL BE BETTER THAN A TREASURY."
NOTE TO SHAREHOLDERS: EFFECTIVE
DECEMBER 7, 1998, THOMAS J. SILVIA
WILL BECOME PORTFOLIO MANAGER OF
SPARTAN GOVERNMENT INCOME FUND.
MR. SILVIA CURRENTLY MANAGES OTHER
FIDELITY AND SPARTAN TAXABLE BOND
FUNDS. MR. SILVIA JOINED FIDELITY
IN 1993.
FUND FACTS
GOAL: HIGH CURRENT INCOME
FUND NUMBER: 453
TRADING SYMBOL: SPGVX
START DATE: DECEMBER 20, 1988
SIZE: AS OF OCTOBER 31, 1998,
MORE THAN $564 MILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1997; MANAGER, VARIOUS
FIDELITY AND SPARTAN GOVERNMENT
AND MORTGAGE FUNDS; JOINED
FIDELITY IN 1983
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
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COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO COUPON BONDS 0.0 6.2
4 - 4.99% 0.6 0.0
5 - 5.99% 13.3 6.7
6 - 6.99% 30.8 28.6
7 - 7.99% 3.9 7.4
8 - 8.99% 31.5 16.4
9 - 9.99% 12.0 23.8
10 - 10.99% 0.5 4.6
11% AND OVER 1.0 1.9
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 8.4 8.9
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 OCTOBER 31, 1998
6 MONTHS AGO
YEARS 5.4 5.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 6.4
ROW: 1, COL: 2, VALUE: 51.1
ROW: 1, COL: 3, VALUE: 25.8
ROW: 1, COL: 4, VALUE: 16.7
MORTGAGE-BACKED
SECURITIES 16.9%
U.S. TREASURY
OBLIGATIONS 27.4%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 51.3%
SHORT-TERM
INVESTMENTS 4.4%
MORTGAGE-BACKED
SECURITIES 16.7%
U.S. TREASURY
OBLIGATIONS 25.8%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 51.1%
SHORT-TERM
INVESTMENTS 6.4%
ROW: 1, COL: 1, VALUE: 4.4
ROW: 1, COL: 2, VALUE: 51.3
ROW: 1, COL: 3, VALUE: 27.4
ROW: 1, COL: 4, VALUE: 16.9
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 76.9%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 51.1%
Fannie Mae:
6.48% 6/28/04 $ 530,000 $ 567,429
6.5% 7/16/07 8,770,000 9,508,609
6.7% 6/19/07 500,000 546,875
6.74% 5/13/04 970,000 1,043,381
6.77% 9/1/05 1,000,000 1,099,060
6.82% 8/23/05 1,000,000 1,101,560
6.85% 8/22/05 1,000,000 1,104,690
7.65% 3/10/05 2,870,000 3,283,911
Federal Agricultural 700,000 774,704
Mortgage Corp.
7.01% 2/10/05
Federal Farm Credit
Bank:
5.8% 6/17/05 17,370,000 18,075,048
6.05% 1/13/06 3,425,000 3,621,938
6.8% 10/18/06 1,000,000 1,099,060
7.08% 11/30/05 1,000,000 1,120,940
Federal Home Loan
Bank:
4.66% 10/15/01 3,700,000 3,680,908
5.195% 9/11/01 4,500,000 4,550,625
5.35% 2/7/01 9,000,000 9,109,710
5.81% 8/26/05 6,800,000 7,111,304
6.23% 10/25/05 1,000,000 1,070,160
6.33% 10/17/05 3,000,000 3,227,340
6.43% 9/19/05 1,000,000 1,080,620
7.59% 3/10/05 260,000 295,994
8.09% 12/28/04 2,000,000 2,327,500
Freddie Mac:
6.13% 2/27/06 3,000,000 3,189,840
6.485% 10/3/05 4,500,000 4,878,990
6.505% 7/1/04 1,250,000 1,343,750
6.51% 1/8/07 1,610,000 1,736,031
6.75% 8/1/05 2,000,000 2,197,180
6.99% 7/5/06 20,000,000 22,184,400
8% 1/26/05 1,760,000 2,039,682
Government Loan Trusts 2,088,164 2,370,504
(assets of Trust
guaranteed by U.S.
Government through
Agency for
International
Development) 8.5%
4/1/06
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS -
CONTINUED
Government Trust
Certificates (assets of
Trust
guaranteed by U.S.
Government through
Defense Security
Assistance Agency):
Class 1-C, 9.25% $ 9,006,406 $ 9,600,289
11/15/01
Class 2-E, 9.4% 707,163 750,370
5/15/02
Class T-3, 9.625% 10,104,039 10,704,219
5/15/02
Guaranteed Export Trust
Certificates
(assets of Trust
guaranteed by U.S.
Government through
Export-Import Bank):
Series 1993-C, 161,067 162,184
5.2% 10/15/04
Series 1993-D, 2,303,617 2,319,051
5.23% 5/15/05
Series 1994-A, 9,604,605 10,376,815
7.12% 4/15/06
Series 1994-C, 37,119 37,388
6.61% 9/15/99
Series 1995-A, 9,945,882 10,284,739
6.28% 6/15/04
Series 1996-A, 3,211,754 3,344,046
6.55% 6/15/04
Guaranteed Trade Trust
Certificates
(assets of Trust
guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994-B, 239,487 260,811
7.5% 1/26/06
Series 1997-A, 4,666,667 4,793,600
6.104%
7/15/03
Israel Export Trust 360,000 374,724
Certificates (assets of
Trust guaranteed by
U.S. Government
through Export-
Import Bank) Series
1994-1, 6.88%
1/26/03
Knoxville Tennessee 1,000,000 1,141,500
U.S. Government
Guaranteed Notes
Series 1990-A, 9.2%
8/1/02
Overseas Private
Investment Corp. U.S.
Government
guaranteed
participation
certificate:
Series 1994-195, 9,936,000 10,330,658
6.08% 8/15/04
(callable)
Series 1996-A1, 2,000,000 2,134,300
6.726%
9/15/10
(callable)
Private Export Funding
Corp.:
secured: 7,500,000 7,615,425
5.5% 3/15/01
5.65% 3/15/03 703,179 714,816
6.31% 9/30/04 26,000,000 27,658,280
6.86% 4/30/04 13,818,933 14,535,131
5.82% 6/15/03 (a) 16,700,000 17,221,875
8.35% 1/31/01 2,500,000 2,688,275
State of Israel
(guaranteed by U.S.
Government through
Agency for
International
Development):
5.25% 9/15/00 6,900,000 6,958,236
6.05% 8/15/00 8,080,000 8,253,639
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS -
CONTINUED
State of Israel
(guaranteed by U.S.
Government through
Agency for
International
Development): -
continued
6.6% 2/15/08 $ 17,850,000 $ 19,415,981
6.625% 8/15/03 2,010,000 2,164,268
U.S. Department of
Housing and Urban
Development
government
guaranteed
participation
certificates:
Series 1996-A, 1,000,000 1,090,820
6.98% 8/1/05
8.15% 8/1/00 6,650,000 6,996,665
U.S. Trade Trust 718,958 803,148
Certificates (assets of
Trust guaranteed by
U.S. government
through Export-Import
Bank) 8.17%
1/15/07
298,072,996
U.S. TREASURY OBLIGATIONS - 25.8%
U.S. Treasury Bonds:
8.875% 8/15/17 81,800,000 115,606,303
9% 11/15/18 24,200,000 34,855,502
150,461,805
TOTAL U.S. GOVERNMENT AND 448,534,8
01
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $435,980,046)
U.S. GOVERNMENT AGENCY - MORTGAGE
SECURITIES - 15.1%
FANNIE MAE - 2.1%
5.5% 1/1/09 4,000,324 4,001,924
6.345% 3/1/99 966,868 965,055
6.5% 2/1/10 to 529,543 533,451
1/1/24
7% 11/1/06 250,276 256,874
8.25% 12/1/01 1,928,121 2,158,762
9.5% 11/1/06 to 2,522,585 2,674,672
11/15/09
11% 8/1/10 449,147 492,270
11.25% 5/1/14 152,588 169,706
11.5% 6/1/19 689,518 768,895
12.5% 3/1/16 68,302 78,333
13% 9/1/13 43,881 51,200
13.5% 5/1/11 to 145,617 170,043
1/1/15
12,321,185
U.S. GOVERNMENT AGENCY - MORTGAGE
SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FREDDIE MAC - 11.4%
6.5% 5/1/08 $ 611,334 $ 621,066
6.775% 11/15/03 5,101,732 5,411,024
7.5% 6/1/07 353,883 363,073
8% 1/1/07 1,154,328 1,181,097
8.5% 12/1/21 to 46,134,508 48,032,484
7/1/28
9% 8/1/08 to 4/1/20 1,123,107 1,190,470
9.5% 6/1/09 to 6,283,085 6,729,315
8/1/21
10% 7/1/09 to 1,661,449 1,797,671
8/1/21
10.5% 10/1/15 to 59,441 65,753
1/1/16
12% 9/1/03 to 106,136 119,685
12/1/15
12.25% 3/1/11 to 263,164 298,691
7/1/14
12.5% 2/1/14 to 525,505 604,586
6/1/19
13% 8/1/10 to 196,072 228,540
6/1/15
13.5% 10/1/11 1,084 1,288
66,644,743
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.6%
7.5% 8/15/06 to 2,799,496 2,901,853
6/15/07
9.5% 6/15/09 to 2,358,710 2,540,685
10/15/20
10% 1/15/16 3,835 4,139
10.5% 8/15/13 to 953,379 1,034,431
1/15/18
11% 1/15/10 to 878,705 970,357
9/15/19
11.5% 3/15/10 to 1,683,621 1,875,008
6/15/19
13.5% 7/15/11 49,862 57,704
9,384,177
TOTAL U.S. GOVERNMENT 88,350,1
AGENCY - 05
MORTGAGE SECURITIES
(Cost $87,554,869)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY - 1.1%
Fannie Mae $ 2,870,000 $ 2,935,136
REMIC
planned
amortization
class
Series
1993-134
Class GA,
6.5%
2/25/07
Freddie Mac:
planned 3,445,613 3,456,380
amortization
class Series
1515 Class
D,
6%
9/15/05
sequential pay 11,803 11,777
Series 1353
Class A,
5.5%
11/15/04
TOTAL U.S. 6,403,293
GOVERNMENT AGENCY
(Cost $5,968,593)
COMMERCIAL MORTGAGE SECURITIES
- - 0.5%
Fannie Mae 2,745,183 2,851,696
Multifamily
REMIC Trust
sequential pay
Series
1996-M5
Class A1,
7.141%
7/25/10
(Cost
$2,769,368)
CASH EQUIVALENTS - 6.4%
MATURITY
AMOUNT
Investments in $ 37,414,582 37,397,000
repurchase
agreements
(U.S. Government
obligations), in a joint
trading account at
5.64%, dated
10/30/98 due
11/2/98
TOTAL INVESTMENT IN $ 583,536,8
SECURITIES - 100% 95
(Cost $569,669,876)
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $17,221,875 or 3.1% of net assets.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $569,669,876. Net unrealized appreciation
aggregated $13,867,019, of which $14,789,547 related to appreciated
investment securities and $922,528 related to depreciated investment
securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $8,660,000 of which $5,106,000, $1,392,000 and
$2,162,000 will expire on April 30, 2003, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
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OCTOBER 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 583,536,895
AGREEMENTS OF $37,397,000) (COST $569,669,876) -
SEE ACCOMPANYING SCHEDULE
CASH 76,925
RECEIVABLE FOR INVESTMENTS SOLD 1,514,213
RECEIVABLE FOR FUND SHARES SOLD 1,238,455
INTEREST RECEIVABLE 7,984,855
TOTAL ASSETS 594,351,343
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 25,790,745
PAYABLE FOR FUND SHARES REDEEMED 3,994,712
DISTRIBUTIONS PAYABLE 312,897
ACCRUED MANAGEMENT FEE 236,132
OTHER PAYABLES AND ACCRUED EXPENSES 5,235
TOTAL LIABILITIES 30,339,721
NET ASSETS $ 564,011,622
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 555,692,016
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (155,468)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (5,391,945)
(LOSS) ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 13,867,019
NET ASSETS, FOR 52,070,456 SHARES OUTSTANDING $ 564,011,622
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $10.83
PER SHARE ($564,011,622 (DIVIDED BY) 52,070,456 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
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<S> <C> <C>
SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 14,016,714
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $2,046)
EXPENSES
MANAGEMENT FEE $ 1,309,377
NON-INTERESTED TRUSTEES' COMPENSATION 170
TOTAL EXPENSES BEFORE REDUCTIONS 1,309,547
EXPENSE REDUCTIONS (191,505) 1,118,042
NET INVESTMENT INCOME 12,898,672
REALIZED AND UNREALIZED GAIN (LOSS) 3,271,741
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 11,517,498
INVESTMENT SECURITIES
NET GAIN (LOSS) 14,789,239
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 27,687,911
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 12,898,672 $ 17,291,024
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 3,271,741 9,225,282
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 11,517,498 309,451
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 27,687,911 26,825,757
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (12,626,783) (16,889,044)
SHARE TRANSACTIONS 359,989,881 158,873,071
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 11,187,723 14,574,759
COST OF SHARES REDEEMED (144,730,855) (118,664,652)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 226,446,749 54,783,178
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 241,507,877 64,719,891
NET ASSETS
BEGINNING OF PERIOD 322,503,745 257,783,854
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 564,011,622 $ 322,503,745
OF NET INVESTMENT INCOME OF $155,468 AND
$427,357, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 33,618,160 15,233,923
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 1,045,852 1,407,854
REDEEMED (13,466,378) (11,433,725)
NET INCREASE (DECREASE) 21,197,634 5,208,052
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998
(UNAUDITED) 1998 1997 1996 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 10.450 $ 10.040 $ 10.090 $ 9.950 $ 10.000 $ 10.930
BEGINNING OF PERIOD
INCOME FROM INVEST- .320 C .647 C .672 C .672 .640 .624
MENT OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED AND .373 .396 (.057) .132 .055 (.720)
UNREALIZED GAIN
(LOSS)
TOTAL FROM INVESTMENT .693 1.043 .615 .804 .695 (.096)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.313) (.633) (.665) (.664) (.700) (.574)
INCOME
IN EXCESS OF NET - - - - (.045) -
INVESTMENT INCOME
FROM NET REALIZED - - - - - (.100)
GAIN
IN EXCESS OF NET - - - - - (.160)
REALIZED GAIN
TOTAL DISTRIBUTIONS (.313) (.633) (.665) (.664) (.745) (.834)
NET ASSET VALUE, END $ 10.830 $ 10.450 $ 10.040 $ 10.090 $ 9.950 $ 10.000
OF PERIOD
TOTAL RETURN B 6.72% 10.63% 6.26% 8.10% 7.32% (1.14)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 564,012 $ 322,504 $ 257,784 $ 233,597 $ 239,899 $ 286,654
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .52% A, D .60% D .60% D .65% .65% .65%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .52% A .60% .60% .62% E .65% .65%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 5.97% A 6.27% 6.65% 6.55% 7.34% 6.79%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 228% A 173% 135% 114% 303% 354%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Government Income Fund (the fund) is a fund of Fidelity
Fixed-Income Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the, trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $699,903,192 and $471,710,963, 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 .60% of the fund's average net assets. Effective
June 27, 1998, the fund's management fee was changed from .65% to .60%
of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $608 for the period. Effective June 26, 1998, these
transaction fees were eliminated.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
At period end, there were no loans outstanding.
6. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .50% of average net assets. For the
period, the reimbursement reduced the expenses by $188,887. Effective
June 27, 1998, the fund's expense limitation was changed from .60% to
.50% of average net assets.
In addition, FMR has entered into an arrangement on behalf of the fund
with the fund's custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's expenses were reduced by
$2,618 under this arrangement.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(Registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress(Registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)SPARTAN(REGISTERED TRADEMARK)
SHORT-INTERMEDIATE
GOVERNMENT
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 14 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 18 NOTES TO THE FINANCIAL STATEMENTS.
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past five years and life of
fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 4.59% 7.40% 32.64% 40.15%
LB 1-5 YEAR US GOVERNMENT BOND 5.45% 8.54% 34.92% N/A
SHORT-INTERMEDIATE US GOVERNMENT 4.45% 7.17% 29.45% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months , one year, five
years or since the fund started on December 18, 1992. For example, if
you had invested $1,000 in a fund that had a 5% return over the past
year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Lehman Brothers 1-5 Year
U.S. Government Bond Index - a market value weighted index of U.S.
Treasury and U.S. government agency securities with fixed-rate coupons
and weighted average lives between one and five years. To measure how
the fund's performance stacked up against its peers, you can compare
it to the short-intermediate US government funds average, which
reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 102 mutual funds. These benchmarks
reflect reinvestment of dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN SHORT-INTERMEDIATE GOVERNMENT 7.40% 5.81% 5.92%
LB 1-5 YEAR US GOVERNMENT BOND 8.54% 6.17% N/A
SHORT-INTERMEDIATE US GOVERNMENT 7.17% 5.27% N/A
FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
Spartan Sht-Int Govt. LB 1-5 Year U.S. Govt
00474 LB069
1992/12/31 10000.00 10000.00
1993/01/31 10120.93 10156.20
1993/02/28 10208.15 10275.02
1993/03/31 10247.68 10310.78
1993/04/30 10301.41 10388.17
1993/05/31 10297.86 10354.83
1993/06/30 10377.82 10464.76
1993/07/31 10413.09 10483.75
1993/08/31 10480.38 10607.82
1993/09/30 10496.09 10642.38
1993/10/31 10523.26 10668.24
1993/11/30 10502.89 10645.61
1993/12/31 10568.05 10687.84
1994/01/31 10658.95 10775.54
1994/02/28 10563.57 10668.24
1994/03/31 10376.92 10563.98
1994/04/30 10330.94 10502.95
1994/05/31 10338.65 10514.06
1994/06/30 10346.79 10530.03
1994/07/31 10479.56 10645.61
1994/08/31 10503.93 10678.75
1994/09/30 10454.19 10621.77
1994/10/31 10473.12 10635.10
1994/11/30 10457.15 10581.96
1994/12/31 10513.02 10605.20
1995/01/31 10660.02 10766.25
1995/02/28 10847.55 10948.51
1995/03/31 10902.60 11009.34
1995/04/30 11012.59 11122.49
1995/05/31 11255.21 11377.10
1995/06/30 11321.07 11443.38
1995/07/31 11342.01 11469.85
1995/08/31 11422.19 11549.06
1995/09/30 11476.32 11613.72
1995/10/31 11579.72 11725.06
1995/11/30 11695.99 11846.71
1995/12/31 11804.75 11947.95
1996/01/31 11901.25 12055.04
1996/02/29 11832.42 11973.61
1996/03/31 11792.48 11937.64
1996/04/30 11775.13 11927.94
1996/05/31 11772.59 11936.02
1996/06/30 11866.88 12039.28
1996/07/31 11912.70 12082.53
1996/08/31 11941.78 12113.04
1996/09/30 12060.96 12244.58
1996/10/31 12221.23 12412.50
1996/11/30 12341.39 12528.29
1996/12/31 12308.65 12497.58
1997/01/31 12353.54 12554.15
1997/02/28 12377.65 12578.00
1997/03/31 12339.83 12540.21
1997/04/30 12431.55 12660.85
1997/05/31 12510.32 12752.18
1997/06/30 12613.42 12850.59
1997/07/31 12788.01 13035.48
1997/08/31 12784.01 13020.53
1997/09/30 12889.11 13138.94
1997/10/31 12996.31 13261.80
1997/11/30 13029.98 13287.87
1997/12/31 13122.32 13386.68
1998/01/31 13255.15 13540.25
1998/02/28 13268.92 13537.83
1998/03/31 13301.39 13584.10
1998/04/30 13345.81 13649.37
1998/05/31 13425.12 13731.01
1998/06/30 13477.79 13809.00
1998/07/31 13532.67 13868.41
1998/08/31 13701.96 14081.19
1998/09/30 13916.60 14394.21
1998/10/30 13958.46 14337.21
IMATRL PRASUN SHR__CHT 19981031 19981106 142200 R00000000000073
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Intermediate Government Fund on December 31,
1992, shortly after the fund started. As the chart shows, by October
31, 1998, the value of the investment would have grown to $13,958 - a
39.58% increase on the initial investment. For comparison, look at how
the Lehman Brothers 1-5 Year U.S. Government Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $14,394 - a 43.94% increase.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1998 1997 1996 1995 1994
DIVIDEND RETURNS 3.10% 6.06% 6.95% 7.34% 7.13% 6.15%
CAPITAL RETURNS 1.49% 1.29% -1.38% -0.42% -0.53% -5.86%
</TABLE>
TOTAL RETURNS 4.59% 7.35% 5.57% 6.92% 6.60% 0.29%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.87(CENTS) 28.50(CENTS) 54.52(CENTS)
ANNUALIZED DIVIDEND RATE 6.01% 6.00% 5.79%
30-DAY ANNUALIZED YIELD 4.85% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $9.54
over the past one month, $9.43 over the past six months and $9.42 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Volatility in overseas markets,
combined with two interest-rate cuts
by the Federal Reserve Board,
provided the backdrop for solid
gains in the bond market during the
six months that ended October 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable
investment-grade bond market -
returned 5.55% during the period.
Global market volatility, low interest
rates and a sharp decline in stock
prices sent U.S. Treasury yields -
which move in the opposite direction
of bond prices - to their lowest
levels in 30 years. Investors' fears
resulted in an extreme flight to
quality that helped Treasuries
outperform all other sectors of the
bond market. Despite signs of
strength in the U.S. economy and the
lack of inflationary pressures,
corporate and mortgage-bond
investors did not fare as well. During
the six-month period, the Lehman
Brothers Corporate Bond Index
returned 4.00%, while the Lehman
Brothers Mortgage Backed Securities
Index returned 3.68%. Late in the
period, the Group of Seven leading
industrial nations eased global
market concerns with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries avert financial
crises. In response, equity markets
rallied and a reduced demand for
safety caused the bond market to
stumble. Despite weakness during
October, the yield on the benchmark
30-year Treasury closed at 5.15%.
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended October 31, 1998, the fund
provided a total return of 4.59%. To get a sense of how the fund did
relative to its competitors, the short-intermediate U.S. government
funds average returned 4.45% for the same six-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers 1-5
Year U.S. Government Bond Index - which tracks the types of securities
in which the fund invests - returned 5.45% for the same period. For
the 12-month period that ended October 31, 1998, the fund had a total
return of 7.40%. For that same one-year period, the short-intermediate
U.S. government funds average returned 7.17% and the Lehman Brothers
1-5 Year U.S. Government Bond Index returned 8.54%
Q. THE FUND BEAT ITS PEERS DURING THE PAST SIX MONTHS, BUT WHY DID IT
LAG THE LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX?
A. The fund lagged its benchmark because of the way its holdings were
invested among various types of government securities. During the past
six months, the fund had fewer of the market's best-performing
Treasuries and more of the market's poorer-performing agency
securities than the index. In addition, the fund held some mortgage
securities - which also lagged Treasuries - while the index did not.
Although their higher yields helped agency and mortgage securities
outpace Treasuries early on in the period, a global flight to quality
hurt them more recently.
Q. WHY DIDN'T AGENCY SECURITIES - WHICH ALSO CARRY THE BACKING OF THE
U.S. GOVERNMENT - AND MORTGAGE SECURITIES ENJOY THE SAME BENEFITS FROM
THE FLIGHT TO SAFETY THAT BOOSTED TREASURIES?
A. Treasuries are backed directly by the full faith and credit of the
U.S. government while agency securities carry the implicit, or
indirect, backing of the U.S. government. Even though this appears to
be only a minor distinction, agency securities are not perceived to be
as safe as Treasuries. That helps explain why, in times of
uncertainty, Treasuries - not agency securities - tend to be the safe
haven of choice for many investors. Mortgage securities suffered along
with agency securities, but for much different reasons. A rapid rise
in the number of homeowners who refinanced their mortgages to take
advantage of falling interest rates set off a very large wave of
mortgage prepayments. As homeowners' loans were prepaid, mortgage
securities made up of those loans were retired before their maturity.
Many investors sold or avoided mortgage securities because they felt
that falling interest rates would precipitate even more prepayments
and, in turn, potentially force them to invest proceeds from any
prepaid mortgages at lower, prevailing interest rates.
Q. HOW DID YOU RESPOND TO THESE CHANGING MARKET CONDITIONS?
A. Initially, I added more agency securities when several of the
fund's mortgage securities were prepaid. At that time I felt that
agencies offered more attractive value. That's because the spread - or
difference in yield - between Treasury and agency securities widened
to nearly 0.50%, a historically wide margin and an indication that
investors were demanding more compensation for accepting the slightly
higher risk of buying agency securities versus Treasuries. Because I
believed that the spread would narrow back in to a more historical
norm, and agencies would outpace Treasuries as a result, I added to
the fund's agency holdings. Later, however, I began adding back
mortgage securities, which I felt had gotten very inexpensive. That
said, the fund continued to have a fairly large stake in agency
securities relative to the Lehman Brothers 1-5 Year U.S. Government
Bond Index at the end of the period.
Q. WHICH AGENCY SECURITIES DID THE FUND EMPHASIZE?
A. I continued to favor non-callable securities - those that can't be
redeemed by their issuers before maturity. Some agency securities can
be "called" - or redeemed - by their issuers as a way to reduce their
debt costs. Because they can't be redeemed prior to maturity,
non-callable securities tend to perform better than their callable
counterparts when interest rates fall, and generally keep pace with
callable bonds when interest rates rise.
Q. WHAT'S YOUR OUTLOOK?
A. As always, interest rates will be the primary determinant of the
government bond market. In light of a slowing global economy, it
appears that the Federal Reserve Board is poised to lower interest
rates further, which would bode well for bonds. But no matter what the
direction of interest rates, I'll continue to manage the fund with
approximately the same interest-rate sensitivity as the
short-intermediate part of the government market. In addition, I'm
likely to continue to place a relatively large weighting on agency
securities, because I think they offer better total return potential
than mortgage securities or Treasuries.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
NOTE TO SHAREHOLDERS: EFFECTIVE
DECEMBER 7, 1998, AFTER THE PERIOD
ENDED, ANDREW DUDLEY WILL BECOME
PORTFOLIO MANAGER OF SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND. MR. DUDLEY MANAGES VARIOUS
FIDELITY AND SPARTAN TAXABLE BOND
FUNDS AND JOINED FIDELITY IN 1996.
ADDITIONAL NOTES TO
SHAREHOLDERS: EFFECTIVE THE
CLOSE OF BUSINESS ON JUNE 26, 1998,
SPARTAN SHORT-INTERMEDIATE
GOVERNMENT FUND SHARES ARE NO
LONGER AVAILABLE TO NEW ACCOUNTS.
SHAREHOLDERS OF THE FUND ON THAT
DATE MAY CONTINUE TO PURCHASE
SHARES IN ACCOUNTS EXISTING ON THAT
DATE. FURTHER, ON OCTOBER 15, 1998,
THE BOARD OF TRUSTEES OF SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND VOTED TO PRESENT A PROPOSAL TO
SHAREHOLDERS TO MERGE SPARTAN
SHORT-INTERMEDIATE GOVERNMENT
FUND INTO FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND. A
SHAREHOLDER MEETING IS SCHEDULED TO
BE HELD ON APRIL 14, 1999. ON OR
ABOUT FEBRUARY 16, 1999,
SHAREHOLDERS WILL BE SENT PROXY
MATERIALS ASKING THEM TO VOTE ON
THIS AND ANY OTHER PROPOSALS.
FUND FACTS
GOAL: HIGH CURRENT INCOME
WITH PRESERVATION OF CAPITAL
FUND NUMBER: 474
TRADING SYMBOL: SPSIX
START DATE: DECEMBER 18, 1992
SIZE: AS OF OCTOBER 31, 1998,
MORE THAN $76 MILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1992; MANAGER, VARIOUS
FIDELITY AND SPARTAN
GOVERNMENT AND MORTGAGE
FUNDS; JOINED FIDELITY IN 1983
(CHECKMARK)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO COUPON BONDS 0.0 13.6
5 - 5.99% 23.4 30.8
6 - 6.99% 19.6 18.0
7 - 7.99% 10.7 8.9
8 - 8.99% 12.8 1.8
9 - 9.99% 14.4 9.9
10 - 10.99% 4.4 5.8
11% AND OVER 5.0 6.6
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 3.0 3.2
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.3 2.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 16.5
ROW: 1, COL: 2, VALUE: 7.9
ROW: 1, COL: 3, VALUE: 65.90000000000001
ROW: 1, COL: 4, VALUE: 9.699999999999999
ROW: 1, COL: 5, VALUE: 0.0
ROW: 1, COL: 6, VALUE: 0.0
MORTGAGE-BACKED
SECURITIES 17.7%
U.S. TREASURY
OBLIGATIONS 26.6%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 51.1%
SHORT-TERM
INVESTMENTS 4.6%
MORTGAGE-BACKED
SECURITIES 16.5%
U.S. TREASURY
OBLIGATIONS 7.9%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 65.9%
SHORT-TERM
INVESTMENTS 9.7%
ROW: 1, COL: 1, VALUE: 17.7
ROW: 1, COL: 2, VALUE: 26.6
ROW: 1, COL: 3, VALUE: 51.1
ROW: 1, COL: 4, VALUE: 4.6
ROW: 1, COL: 5, VALUE: 0.0
INVESTMENTS OCTOBER 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 73.8%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT AGENCY OBLIGATIONS - 65.9%
Fannie Mae:
5.75% 4/15/03 $ 1,800,000 $ 1,875,303
6.69% 8/7/01 1,700,000 1,782,603
6.74% 5/13/04 230,000 247,400
8.25% 12/18/00 6,160,000 6,589,289
Farm Credit Systems 4,200,000 5,002,578
Financial Assistance Corp.
9.375% 7/21/03
Federal Home Loan Bank:
5.35% 2/7/01 3,375,000 3,416,141
5.595% 3/27/01 3,000,000 3,055,770
Government Trust
Certificates (assets of Trust
guaranteed by U.S.
Government through
Defense Security
Assistance Agency):
Class 1-C, 9.25% 4,965,422 5,292,842
11/15/01
Class 2-E, 9.4% 5/15/02 707,163 750,370
Guaranteed Export Trust
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-
Import Bank):
Series 1994-A, 7.12% 1,316,586 1,422,440
4/15/06
Series 1994-F, 8.187% 1,172,885 1,265,085
12/15/04
Series 1995-A, 6.28% 1,249,412 1,291,979
6/15/04
Guaranteed Trade Trust 1,208,333 1,241,200
Certificates (assets of Trust
guaranteed by U.S.
Government through
Export-
Import Bank) Series
1997-A, 6.104%
7/15/03
Overseas Private Investment 772,800 803,496
Corp. U.S. Government
guaranteed participation
certificate Series
1994-195, 6.08%
8/15/04 (callable)
Private Export Funding
Corp.:
secured 5.8% 2/1/04 600,000 614,790
5.82% 6/15/03 (a) 1,900,000 1,959,375
State of Israel (guaranteed
by U.S. Government
through Agency for
International
Development):
5.25% 9/15/00 1,500,000 1,512,660
5.625% 9/15/03 3,314,000 3,430,189
6.625% 8/15/03 4,300,000 4,630,025
7.75% 11/15/99 800,000 823,000
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing
and Urban Development
government guaranteed
participation certificates
Series 1996-A:
6.44% 8/1/99 $ 5,500,000 $ 5,556,760
6.59% 8/1/00 140,000 143,702
52,706,997
U.S. TREASURY OBLIGATIONS - 7.9%
U.S. Treasury Notes 7.875% 5,800,000 6,329,250
8/15/01
TOTAL U.S. GOVERNMENT AND 59,036,2
GOVERNMENT AGENCY 47
OBLIGATIONS
(Cost $58,122,747)
U.S. GOVERNMENT AGENCY - MORTGAGE
SECURITIES - 16.5%
FANNIE MAE - 0.1%
11.5% 8/1/14 67,361 74,972
FREDDIE MAC - 6.6%
5.5% 1/1/03 to 5/1/03 2,883,183 2,877,560
8.5% 7/1/28 2,300,000 2,393,438
5,270,998
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 9.8%
9.5% 9/15/17 to 8/15/20 408,046 440,317
10% 2/15/10 to 7/15/20 1,565,327 1,686,001
10.5% 9/15/15 to 1,616,526 1,761,868
2/15/25
10.75% 3/15/10 58,745 63,948
11% 1/15/10 to 1/20/21 1,163,045 1,279,780
11.5% 3/15/10 to 2,129,188 2,367,569
8/15/19
12% 3/20/14 to 2/15/16 167,200 187,721
13% 9/15/14 34,104 38,995
7,826,199
TOTAL U.S. GOVERNMENT AGENCY 13,172,1
- - 69
MORTGAGE SECURITIES
(Cost $13,177,510)
CASH EQUIVALENTS - 9.7%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase $ 7,755,645 $ 7,752,000
agreements (U.S.
Government obligations),
in a joint trading account
at 5.64%, dated
10/30/98 due 11/2/98
TOTAL INVESTMENT IN SECURITIES $ 79,960,41
- - 100% 6
(Cost $79,052,257)
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $1,959,375 or 2.6% of net assets.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $79,052,257. Net unrealized appreciation
aggregated $908,159, of which $1,129,614 related to appreciated
investment securities and $221,455 related to depreciated investment
securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $4,460,000 of which $168,000, $2,327,000, $582,000,
$681,000 and $702,000 will expire on April 30, 2002, 2003, 2004, 2005
and 2006, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
OCTOBER 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 79,960,416
AGREEMENTS OF $7,752,000) (COST $79,052,257) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 5,280,295
RECEIVABLE FOR FUND SHARES SOLD 2,459
INTEREST RECEIVABLE 1,166,651
TOTAL ASSETS 86,409,821
LIABILITIES
PAYABLE TO CUSTODIAN BANK $ 1,483,006
PAYABLE FOR INVESTMENTS PURCHASED 8,079,605
PAYABLE FOR FUND SHARES REDEEMED 69,449
DISTRIBUTIONS PAYABLE 62,108
ACCRUED MANAGEMENT FEE 41,615
OTHER PAYABLES AND ACCRUED EXPENSES 384
TOTAL LIABILITIES 9,736,167
NET ASSETS $ 76,673,654
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 79,367,240
UNDISTRIBUTED NET INVESTMENT INCOME 280,814
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (3,882,559)
INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 908,159
NET ASSETS, FOR 8,045,773 SHARES OUTSTANDING $ 76,673,654
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.53
SHARE ($76,673,654 (DIVIDED BY) 8,045,773 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 2,664,229
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $455)
EXPENSES
MANAGEMENT FEE $ 247,378
NON-INTERESTED TRUSTEES' COMPENSATION 143
TOTAL EXPENSES BEFORE REDUCTIONS 247,521
EXPENSE REDUCTIONS (406) 247,115
NET INVESTMENT INCOME 2,417,114
REALIZED AND UNREALIZED GAIN (LOSS) 578,106
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 441,501
INVESTMENT SECURITIES
NET GAIN (LOSS) 1,019,607
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 3,436,721
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30,
(UNAUDITED) 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 2,417,114 $ 4,539,289
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 578,106 (400,542)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 441,501 930,896
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 3,436,721 5,069,643
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (2,301,220) (4,234,397)
SHARE TRANSACTIONS 12,527,345 44,531,545
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 1,972,785 3,711,179
COST OF SHARES REDEEMED (14,463,084) (42,525,402)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 37,046 5,717,322
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,172,547 6,552,568
NET ASSETS
BEGINNING OF PERIOD 75,501,107 68,948,539
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 76,673,654 $ 75,501,107
INCOME OF $280,814 AND $164,920, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 1,329,570 4,745,167
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 208,807 395,744
REDEEMED (1,535,054) (4,534,660)
NET INCREASE (DECREASE) 3,323 606,251
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998
(UNAUDITED) 1998 1997 1996 1995 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490 $ 10.090
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .299 C .584C .658C .688 .665 .616
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .126 .082 (.149) (.045) (.065) (.579)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .425 .666 .509 .643 .600 .037
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.285) (.546) (.639) (.683) (.650) (.617)
INCOME
IN EXCESS OF NET - - - - - (.010)
INVESTMENT INCOME
IN EXCESS OF NET - - - - - (.010)
REALIZED GAIN
TOTAL DISTRIBUTIONS (.285) (.546) (.639) (.683) (.650) (.637)
NET ASSET VALUE, END OF $ 9.530 $ 9.390 $ 9.270 $ 9.400 $ 9.440 $ 9.490
PERIOD
TOTAL RETURN B 4.59% 7.35% 5.57% 6.92% 6.60% .29%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 76,674 $ 75,501 $ 68,949 $ 78,278 $ 93,888 $ 53,726
(000 OMITTED)
RATIO OF EXPENSES TO .65% A .65% .65% .45%D .10%D .10%D
AVERAGE NET ASSETS
RATIO OF NET INVESTMENT 6.30% A 6.23% 7.04% 7.16% 7.35% 7.33%
INCOME TO AVERAGE NET
ASSETS
PORTFOLIO TURNOVER RATE 362% A 166% 104% 161% 282% 271%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Intermediate Government Fund (the fund) is a fund of
Fidelity Fixed-Income Trust (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $129,130,614 and $127,980,804, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $195 for the period. Effective June 26, 1998, these
transaction fees were eliminated.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as
5. SECURITY LENDING -
CONTINUED
collateral against the loaned securities, in an amount at least equal
to 102% of the market value of the loaned securities at the inception
of each loan. This collateral must be maintained at not less than 100%
of the market value of the loaned securities during the period of the
loan. At period end, there were no loans outstanding.
6. EXPENSE REDUCTIONS.
FMR has entered into arrangements on behalf of the fund with the
fund's custodian and transfer agent whereby credits realized as a
result of uninvested cash balances were used to reduce a portion of
the fund's expenses. During the period, the fund's expenses were
reduced by $406 under these arrangements.
7. PROPOSED REORGANIZATION.
The Board of Trustees of the fund has approved an Agreement and Plan
of Reorganization ("Agreement") between the fund and Fidelity
Intermediate Government Income Fund ("Reorganization"). The Agreement
provides for the transfer of all of the assets of the fund to Fidelity
Intermediate Government Income Fund in exchange solely for the number
of shares of Fidelity Intermediate Government Income Fund having the
same aggregate net asset value as the outstanding shares of the fund
as of the close of business of the New York Stock Exchange on the day
that the Reorganization is effective and the assumption by Fidelity
Intermediate Government
Income Fund of all of the liabilities of the fund. The Reorganization
can be consummated only if, among other things, it is approved by the
vote of a majority (as defined by the 1940 Act) of outstanding voting
securities of the fund. A Special Meeting of Shareholders ("Meeting")
of the fund will be held on April 14, 1999 to vote on the Agreement. A
detailed description of the proposed transaction and voting
information will be sent to shareholders of the fund in February 1999.
If the Agreement is approved at the Meeting, the Reorganization is
expected to become effective on or about April 22, 1999.
Effective June 26, 1998, the fund's shares are no longer available for
purchase or exchange to new accounts of the fund pending the proposed
Reorganization. However, existing shareholders of the fund can
continue to purchase shares of the fund.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
Longwood, FL
8880 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
16850 SW 72 Avenue
Tigard, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(registered trademark)
