FIDELITY
(registered trademark)
GINNIE MAE
PORTFOLIO
SEMIANNUAL REPORT
JANUARY 31, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on minimizing taxes.
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 last six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 14 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 18 Footnotes 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. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
No one wants to pay more taxes than they have to. But a recent survey of
500 U.S. households, conducted by Fidelity and Yankelovich Partners,
showed that few people took steps to reduce their taxes under the new tax
laws that went into effect last year. In fact, many people were not
completely aware of the changes until they filed their 1993 tax returns.
Whether or not you're someone whose tax bill increased as a result of
these changes, it may make sense to consider ways to keep more of what you
earn.
First, if your employer offers a 401(k) or 403(b) retirement savings plan,
consider enrolling. These plans are set up so you can make regular
contributions -
before taxes - to a retirement savings plan. They offer a disciplined
savings strategy, the ability to accumulate earnings tax-deferred, and
immediate tax savings. For example, if you earn $40,000 a year and
contribute 7% of your salary to your 401(k) plan, your annual contribution
is $2,800. That reduces your taxable income to $37,200 and, if you're in
the
28% tax bracket, saves you $784 in federal taxes. In addition, you pay no
taxes on any earnings until withdrawal.
It may be a good idea to contact your benefits office as soon as possible
to find out when you can enroll or increase your contribution. Most
employers allow employees to make changes only a few times each year.
Second, consider an IRA. Many people are eligible to make an IRA
contribution (up to $2,000) that is fully tax deductible. That includes
people who are not covered by company pension plans, or those within
certain income brackets. Even if you don't qualify for a fully deductible
contribution, any IRA earnings will grow tax-deferred until withdrawal.
Third, consider tax-free investments like municipal bonds and municipal
bond funds. Often these can provide higher after-tax yields than
comparable taxable investments. For example, if you're in the new 36%
federal income tax bracket and invest $10,000 in a taxable investment
yielding 7%, you'll pay $252 in federal taxes and receive $448 in income.
That same $10,000 invested in a tax-free bond fund yielding 5.5% would
allow you to keep $550 in income.
These are three investment strategies that could help lower your tax bill
in 1994. If you're interested in learning more, please call us at
1-800-544-8888 or visit a Fidelity Investor Center. We look forward to
talking with you.
Best regards,
Edward C. Johnson 3d, Chairman
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You
can look at the total percentage change in value, the average annual
percentage change, or the growth of a hypothetical $10,000 investment.
Each figure includes changes in a fund's share price, plus reinvestment of
any dividends (or income) and capital gains (the profits the fund earns
when it sells bonds that have grown in value). You can also look at the
fund's income.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1994 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Ginnie Mae 1.92% 5.91% 61.02% 112.48%
Salomon Brothers GNMA
Pass-through Index 1.98% 6.14% 68.88% n/a
Average GNMA Fund 1.95% 5.88% 60.83% n/a
Consumer Price Index 1.25% 2.52% 20.73% 34.50%
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 November 8, 1985. For example, if you invested
$1,000 in a fund that had a 5% return over the past year, you would end up
with $1,050. You can compare these figures to the Salomon Brothers GNMA
Pass-through Index - a broad measure of GNMA performance. To measure how
the fund stacked up against its peers you can compare it to the average
GNMA fund, which reflects the performance of over 49 GNMA funds tracked by
Lipper Analytical Services. This benchmark includes reinvested dividends
and capital gains, if any. Comparing the fund's performance to the
consumer price index helps show how your fund did compared to inflation.
(The CPI begins on the month end nearest the fund's start.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Ginnie Mae 5.91% 10.00% 9.58%
Salomon Brothers GNMA
Pass-through Index 6.14% 11.05% n/a
Average GNMA Fund 5.88% 9.96% n/a
Consumer Price Index 2.52% 3.84% 3.65%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
GNMA (015) SB GNMA Pass-through
11/30/85 10000.00 10000.00
12/31/85 10380.25 10296.00
01/31/86 10428.54 10327.92
02/28/86 10673.66 10604.71
03/31/86 10889.17 10752.11
04/30/86 10969.85 10844.58
05/31/86 10753.34 10638.53
06/30/86 10917.30 10805.56
07/31/86 11081.37 11002.22
08/31/86 11328.10 11204.66
09/30/86 11300.82 11224.83
10/31/86 11473.85 11369.63
11/30/86 11688.87 11581.10
12/31/86 11724.24 11637.85
01/31/87 11879.82 11785.65
02/28/87 11976.44 11903.51
03/31/87 11934.24 11902.32
04/30/87 11528.78 11538.11
05/31/87 11466.03 11498.88
06/30/87 11637.75 11700.11
07/31/87 11642.10 11727.02
08/31/87 11568.43 11660.17
09/30/87 11242.34 11362.84
10/31/87 11616.99 11742.36
11/30/87 11708.79 11912.62
12/31/87 11859.79 12049.62
01/31/88 12261.98 12543.65
02/29/88 12380.62 12692.92
03/31/88 12355.56 12579.95
04/30/88 12247.30 12488.12
05/31/88 12203.07 12475.63
06/30/88 12464.18 12801.25
07/31/88 12420.30 12751.32
08/31/88 12437.96 12764.07
09/30/88 12686.02 13080.62
10/31/88 12907.75 13385.40
11/30/88 12776.77 13189.97
12/31/88 12709.49 13118.75
01/31/89 12911.67 13360.13
02/28/89 12844.78 13257.26
03/31/89 12859.90 13262.56
04/30/89 13110.92 13501.29
05/31/89 13444.49 13960.33
06/30/89 13805.76 14355.41
07/31/89 14034.96 14678.41
08/31/89 13902.68 14465.57
09/30/89 13935.61 14556.70
10/31/89 14233.25 14895.87
11/30/89 14370.26 15068.67
12/31/89 14469.39 15163.60
01/31/90 14310.83 15030.16
02/28/90 14393.97 15087.27
03/31/90 14422.17 15149.13
04/30/90 14260.03 14977.95
05/31/90 14715.41 15461.73
06/30/90 14922.21 15718.40
07/31/90 15159.50 15993.47
08/31/90 15120.64 15833.54
09/30/90 15214.38 15964.95
10/31/90 15382.64 16140.57
11/30/90 15728.61 16537.63
12/31/90 15988.72 16813.80
01/31/91 16190.01 17050.88
02/28/91 16255.35 17151.48
03/31/91 16368.63 17283.55
04/30/91 16489.89 17465.02
05/31/91 16615.06 17603.00
06/30/91 16635.10 17639.96
07/31/91 16881.74 17939.84
08/31/91 17182.79 18264.55
09/30/91 17436.15 18606.10
10/31/91 17673.45 18885.19
11/30/91 17768.26 19007.95
12/31/91 18157.93 19483.14
01/31/92 18007.33 19264.93
02/29/92 18199.79 19442.17
03/31/92 18092.65 19374.12
04/30/92 18247.34 19540.74
05/31/92 18550.06 19884.66
06/30/92 18757.68 20157.08
07/31/92 18848.72 20310.27
08/31/92 19057.14 20590.55
09/30/92 19194.15 20755.28
10/31/92 19039.00 20612.07
11/30/92 19136.58 20723.37
12/31/92 19374.43 20961.69
01/31/93 19630.15 21255.15
02/28/93 19804.60 21442.20
03/31/93 19913.03 21581.57
04/30/93 19981.19 21691.64
05/31/93 20095.79 21813.11
06/30/93 20292.70 22033.43
07/31/93 20399.31 22121.56
08/31/93 20450.04 22165.80
09/30/93 20451.21 22181.32
10/31/93 20521.13 22232.34
11/30/93 20402.67 22201.21
12/31/93 20558.65 22369.94
01/31/94 20790.03 22562.32
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Ginnie Mae Portfolio on November 30, 1985, soon after the fund started. As
the chart shows, by January 31, 1994, the value of your investment would
have grown to $20,790 - a 107.90% increase on your initial investment. For
comparison, look at how the Salomon Brothers GNMA Pass-through Index did
over the same period. With dividends reinvested the same $10,000
investment would have grown to $22,562 - a 125.62% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
INCOME
SIX MONTHS
ENDED
JANUARY 31, YEARS ENDED JANUARY 31,
1994 1993 1992 1991 1990 1989
Income return 2.52% 6.42% 7.80% 8.66% 8.49% 9.01%
Capital gain return 2.24% 0.00% 0.00% 0.00% 0.00% 0.00%
Change in share price -2.84% 1.81% 3.85% 2.70% -0.48% 3.99%
Total return 1.92% 8.23% 11.65% 11.36% 8.01% 13.00%
INCOME returns, capital gain returns, and changes in share price are all
part of a bond fund's total return. An income return reflects the
dividends paid by the fund. A capital gain return reflects the amount paid
by the fund to shareholders base on the profits it has from selling bonds
that have grown in value. Both returns assume the dividends or gains are
reinvested. Changes in the fund's share price include changes in the
prices of the bonds owned by the fund.
DIVIDENDS AND YIELD
PERIODS ENDED JANUARY 31, 1994 PAST 30 PAST 6 PAST 1
DAYS MONTHS YEAR
Dividends per share n/a 27.76(cents) 60.93(cents)
Annualized dividend rate n/a 5.01% 5.49%
Annualized yield 5.30% n/a n/a
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 $11.00 over
the past six months or $11.10 over the past year, you can compare the
fund's income over these two 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
An interview with Robert Ives,
Portfolio Manager of Fidelity Ginnie Mae Portfolio
Q. BOB, HOW DID THE FUND PERFORM?
A. The fund had a total return of 1.92% for the six months ended January
31, 1994. That was slightly lower than the total return for the average
GNMA fund tracked by Lipper Analytical Services during the same period,
which was 1.95%. The fund also lagged the Salomon Brothers Pass-through
GNMA index, which returned 1.98%. For the 12 months ended January 31, the
fund returned 5.91%. That pretty much matched the average fund's 5.88%
return, but again trailed the Salomon index, which returned 6.14%.
Q. WHY DID THE FUND TRAIL THE AVERAGE IN THE SECOND HALF OF THE YEAR?
A. In late summer, the fund's duration was shorter than many of its
competitors. Duration measures how much the fund's share price will vary
in response to changing interest rates. When rates are rising and bond
prices are falling, it pays to have a shorter average duration. But when
rates fall and bond prices go up, as they did in late summer, funds with a
longer average duration usually perform better.
Q. CAN YOU GIVE US AN EXAMPLE?
A. Sure. At the end of July the fund's average duration was 2.2 years.
That meant if rates had fallen 1%, the fund's share price would have risen
roughly 2.2%. Conversely, if rates had risen 1%, the fund's share price
would have fallen about 2.2%. If duration had been a bit longer heading
into fall, the fund would have been better positioned to take advantage of
falling rates. I did lengthen the duration to 3.2 years by the end of
September - in time to catch part of the rally - but, shortly after,
interest rates ticked back up again. Later in the year, the fund would
have been better off with a shorter duration. The fund finished January
with a duration of 3.7 years.
Q. HOW HAVE MORTGAGE REFINANCINGS AFFECTED THE FUND RECENTLY?
A. When homeowners refinance their existing mortgages, as millions did
when interest rates fell in 1993, they pay off their old mortgages before
the due dates. These prepayments mean investors lose the higher paying
interest rates on the mortgages that are paid off early. In their place,
investors have to buy newer mortgage bonds with lower rates. That's what
happened this year, as refinancings took place at a rapid pace until
January. When investors buy GNMAs, the prepayment risk - or the risk that
a mortgage security will be paid off early - is usually factored into the
price of the bond. So prepayments are, in effect, only damaging when they
happen more quickly, or in some cases more slowly, than the investor
expected. That said, I employed some strategies that effectively limited
some of the harmful effects of prepayments.
Q. WHAT WERE THEY?
A. First, I looked to avoid bonds with the highest prepayment risk. An
example would be GNMAs that are a few years old, ones with 8.5% coupons -
or the interest rate received by the investor. When rates on 30-year
mortgages fell to 7% and below in the fall, homeowners rushed to
refinance. That caused a high percentage of these bonds to prepay quickly.
Q. AND SECOND?
A. Moving a larger percentage of the fund's investments into brand new
mortgage bonds, those with coupons lower than 8%, helped the fund. On
January 31, 35% of the fund's investments were in these bonds, up from 18%
six months ago. Generally, these bonds were much less susceptible to
prepayments because the mortgages were so new. Homeowners had just
obtained them, either by buying new homes or refinancing. They offered the
fund a steady stream of dependable income.
Q. DID YOU MAKE ANY OTHER STRUCTURAL CHANGES TO THE FUND?
A. Over the past six months, I reduced the fund's stake in mortgage bonds
with coupons of 9 to 9.99% from 35% to 18%. For those I did buy, I used
our computer model here at Fidelity to search out the ones that had the
best chance of prepaying more slowly than the market expected. In other
words, more slowly than the expectations already factored into the bond's
price.
Q. WHAT ABOUT THOSE WITH COUPONS OF 10% OR ABOVE, 16% OF THE FUND ON
JANUARY 31?
A. Many of these are older bonds, and the thinking is, if the homeowner
hasn't refinanced by now, he or she probably won't. In some cases, it's
because there's only a small balance left on the loan, and refinancing
wouldn't make sense. In others, the homeowner may be facing some type of
financial dilemma - possibly the loss of a job or a decline in the home's
value - that makes it more difficult to refinance anytime soon. Many of
the higher yielding issues available were Fannie Maes - 4% of the fund on
January 31 - and Freddie Macs - 8% of the fund.
Q. HOW ARE THE NEXT SIX MONTHS SHAPING UP?
A. I think GNMAs face better times ahead. Late in '93, after interest
rates had moved back up a little, we saw what I'm hoping was the last
major round of prepayments for a while. In fact, in January, prepayments
slowed for the first time in many months. As for interest rates, the
Federal Reserve hiked short-term rates during the first week in February.
They did it by inching up the federal funds rate - the rate banks charge
each other for overnight loans - from 3.00% to 3.25%. I think the Fed
wants to take proactive steps to keep inflation under control. That's
good, because a dramatic rise in rates triggered by rising inflation could
hurt the fund. So I believe that the signs are good for Ginnie Mae
investors. I'm optimistic about the next six months.
FUND FACTS
GOAL: to provide high current
income by investing primarily
in GNMA securities.
START DATE: November 8, 1985
SIZE: as of January 31,
1994, over $874 million
MANAGER: Robert Ives, since
January 1993; manager,
Spartan Ginnie Mae Fund,
since January 1993; Fidelity
Mortgage Securities Portfolio,
January 1993-August 1993;
institutional mortgage-backed
funds, since May 1991
(checkmark)
BOB IVES ON INVESTING IN
GNMAS VS. TREASURIES:
"Over the past year and a
half, or so, long-term Treasury
bonds have generally
outperformed their GNMA
counterparts. Interest rates
mostly fell during that time,
which boosted the prices of
Treasuries. For mortgage
bonds, falling interest rates
meant a period of high
prepayments. Sure, the price
of a GNMA goes up if rates
fall, just like a Treasury.
However, if the homeowner
refinances and the mortgage
bond is prepaid, the investor
is forced to take the principal
and reinvest it, most often in a
lower-yielding bond than the
previous one. That's why
Ginnie Maes don't benefit as
much from falling rates as
their Treasury cousins.
However, I think the interest
rate landscape is changing.
As rates stabilize, the
performance of GNMAs
should improve relative to
Treasuries, as Ginnie Maes
normally carry higher yields
than Treasuries of
comparable maturities."
(bullet) The fund had an 8.6%
stake in 30-year Treasury
bonds on January 31, up from
4.0% at the end of December.
They were added to the fund
in anticipation that long-term
interest rates have room to
fall a bit further, which would
boost the prices of these
bonds.
(bullet) The fund's average
duration was 3.7 years on
January 31, up from 2.2 years
six months ago.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1994
% OF FUND INVESTMENTS % OF FUND INVESTMENTS
6 MONTHS AGO
6 - 6.99% 10.3 -
7 - 7.99% 24.2 18.3
8 - 8.99% 24.8 24.3
9 - 9.99% 17.7 35.1
10 - 10.99% 7.2 9.9
11 - 11.99% 5.8 5.4
12 - 12.99% 2.2 2.5
Over 13% 0.3 0.4
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS.
AVERAGE YEARS TO MATURITY AS OF JANUARY 31, 1994
6 MONTHS AGO
Years 7.3 4.6
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON
THE FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 1994
6 MONTHS AGO
Years 3.7 2.2
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION
WILL LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION
AS OF JANUARY 31, 1994 AS OF JULY 31, 1993
Row: 1, Col: 1, Value: 7.5
Row: 1, Col: 2, Value: 8.6
Row: 1, Col: 3, Value: 30.0
Row: 1, Col: 4, Value: 30.0
Row: 1, Col: 5, Value: 23.9
Mortgage-related
securities 94.9%
U.S. government
and agency
obligations 1.0%
Other 4.1%
Mortgage-related
securities 83.9%
U.S. government
and agency
obligations 8.6%
Other 7.5%
Row: 1, Col: 1, Value: 4.1
Row: 1, Col: 2, Value: 1.0
Row: 1, Col: 3, Value: 14.9
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 40.0
INVESTMENTS JANUARY 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. TREASURY OBLIGATIONS - 8.6%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
8%, 11/15/21 (Cost $83,177) $ 69,800 $ 84,316
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 80.5%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 5.5%
8 1/2%, 2/1/04 to 5/1/17 2,944 3,101
9%, 6/1/10 to 4/1/21 9,122 9,730
10%, 5/1/05 to 3/1/21 20,227 22,078
10 1/4%, 2/1/09 to 11/1/16 9,344 10,144
10 1/2%, 11/1/17 1,397 1,530
11 1/4%, 2/1/10 to 5/1/11 1,152 1,275
11 1/2%, 2/1/12 to 8/1/19 4,537 5,067
11 3/4%, 11/1/11 296 328
12%, 6/1/15 to 11/1/15 954 1,081
54,334
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.9%
8 1/2%, 6/1/08 to 4/1/16 2,708 2,881
9%, 10/1/11 to 9/1/22 4,784 5,118
10%, 7/1/04 1,354 1,446
10 1/5%, 11/1/05 4,342 4,646
10 1/4%, 12/1/15 to 10/1/18 1,825 2,009
11%, 3/1/16 to 8/1/20 9,611 10,788
11 1/2%, 1/1/01 to 9/1/15 1,680 1,894
14%, 11/1/12 to 10/1/14 162 188
28,970
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 72.1%
6 1/2%, 6/15/23 to 12/15/23 60,279 60,492
6 1/2%, 2/15/24 (c) 40,000 40,162
7%, 12/15/22 to 11/15/23 72,626 74,670
7%, 2/15/24 (a) 70,200 72,197
7 1/2%, 4/15/23 to 11/15/23 76,639 80,160
8%, 2/15/22 (c) 6,000 6,347
8%, 2/15/23 to 1/15/24 113,329 119,845
8 1/2%, 2/15/02 to 12/15/18 15,392 16,396
8 1/2%, 2/15/23 (c) 9,500 10,097
9%, 6/15/01 to 8/15/20 95,053 102,271
9 1/2%, 4/15/01 to 12/15/20 31,760 34,475
10%, 5/15/01 to 12/15/18 23,708 26,181
10 1/2%, 1/15/99 to 11/15/02 2,448 2,673
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
11%, 11/15/09 to 12/15/15 $ 22,839 $ 26,030
11 1/4%, 7/15/13 to 1/15/16 1,356 1,503
11 1/2%, 4/15/10 to 5/15/19 8,840 10,188
11 3/4%, 1/15/16 306 342
12%, 12/15/99 to 6/15/15 3,547 4,074
12 1/4%, 3/15/14 180 204
12 1/2%, 5/15/10 to 11/15/15 13,551 15,845
13%, 1/15/11 to 4/15/15 1,845 2,196
13 1/2%, 5/15/10 to 1/15/15 914 1,097
707,445
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $786,560) 790,749
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 3.4%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.9%
9 1/2%, 3/15/20 10,890 12,074
9 1/4%, 7/15/21 6,121 6,696
18,770
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.4%
9 1/2%, 12/25/20 3,347 3,760
U.S. DEPARTMENT OF VETERANS AFFAIRS - 1.1%
Vendee Mortgage Trust 1992-1, 7 3/4%, 9/15/10 10,000 10,675
TOTAL U.S. GOVERNMENT AGENCY - COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $33,076) 33,205
MORTGAGE-BACKED SECURITIES - 0.0%
FIRST BOSTON MORTGAGE SECURITIES CORP. - 0.0%
10.965%, 5/25/17 (b) (Cost $22) 90 19
REPURCHASE AGREEMENTS - 7.5%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.19%
dated 1/31/94 due 2/1/94 $ 73,293 $ 73,287
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $976,122) $ 981,576
LEGEND
(a) Security purchased on a delayed delivery basis. Interest rate to be
determined at settlement date (see Note 2 of Notes to Financial
Statements).
(b) Interest Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities are subject to the risk of accelerated principal paydowns. The
principal amount represents the notional amount on which current interest
is calculated.
(c) Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At January 31, 1994, the aggregate cost of investment securities for
income tax purposes was $976,817,000. Net unrealized appreciation
aggregated $4,759,000, of which $7,600,000 related to appreciated
investment securities and $2,841,000 related to depreciated investment
securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) JANUARY 31, 1994 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 981,576
agreements of $73,287) (cost $976,122) (Notes 1 and 2) -
See accompanying schedule
Commitment to sell securities on a delayed delivery basis $ (56,606)
Receivable for securities sold on a delayed basis delivery (Note 55,799 (807)
2)
Receivable for investments sold regular delivery 123,980
Cash 1
Receivable for fund shares sold 1,170
Interest receivable 6,991
TOTAL ASSETS 1,112,911
LIABILITIES
Payable for investments purchased $ 163,450
Regular delivery
Delayed delivery (Note 2) 71,611
Payable for fund shares redeemed 2,454
Dividends payable 492
Accrued management fee 338
Other payables and accrued expenses 350
TOTAL LIABILITIES 238,695
NET ASSETS $ 874,216
Net Assets consist of (Note 1):
Paid in capital $ 872,350
Undistributed net investment income 8,618
Accumulated undistributed net realized gain (loss) on (11,399)
investments
Net unrealized appreciation (depreciation) on: 5,454
Investment securities
Delayed delivery (807)
NET ASSETS, for 79,885 shares outstanding $ 874,216
NET ASSET VALUE, offering price and redemption price per $10.94
share ($874,216 (divided by) 79,885 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, 1994 (UNAUDITED)
INVESTMENT INCOME $ 36,502
Interest
EXPENSES
Management fee (Note 4) $ 2,150
Transfer agent fees (Note 4) 1,203
Accounting fees and expenses (Note 4) 157
Non-interested trustees' compensation 2
Custodian fees and expenses 125
Registration fees 29
Audit 28
Legal 5
Miscellaneous 9
TOTAL EXPENSES 3,708
NET INVESTMENT INCOME 32,794
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (5,232)
(NOTES 1, 2 AND 3)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on: (9,306)
Investment securities
Delayed delivery commitments (807) (10,113)
NET GAIN (LOSS) (15,345)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 17,449
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED JULY 31,
JANUARY 31, 1994 1993
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 32,794 $ 69,222
Net investment income
Net realized gain (loss) on investments (5,232) 16,513
Change in net unrealized appreciation (depreciation) (10,113) (10,388)
on
investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 17,449 75,347
FROM OPERATIONS
Distributions to shareholders: (23,465) (58,428)
From net investment income
From net realized gain (21,361) -
TOTAL DISTRIBUTIONS (44,826) (58,428)
Share transactions 102,282 307,342
Net proceeds from sales of shares
Reinvestment of distributions from: 19,818 48,972
Net investment income
Net realized gain 19,118 -
Cost of shares redeemed (215,190) (311,855)
Net increase (decrease) in net assets resulting from (73,972) 44,459
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (101,349) 61,378
NET ASSETS
Beginning of period 975,565 914,187
End of period (including undistributed net investment $ 874,216 $ 975,565
income of $8,618 and $23,765, respectively)
OTHER INFORMATION
Shares
Sold 9,285 27,604
Issued in reinvestment of distributions from: 1,803 4,395
Net investment income
Net realized gain 1,740 -
Redeemed (19,598) (28,022)
Net increase (decrease) (6,770) 3,977
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED JULY 31,
ENDED
JANUARY 31,
1994
(UNAUDITED) 1993 1992 1991 1990 1989
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420 $ 10.020
beginning of
period
Income from .394 .800 .833 .845 .891 .916
Investment
Operations
Net investment
income
Net realized and (.186) .083 .373 .288 (.099) .322
unrealized gain
(loss) on
investments
Total from .208 .883 1.206 1.133 .792 1.238
investment
operations
Less Distributions (.278) (.683) (.796) (.853) (.842) (.838)
From net interest
income
From net realized (.250) - - - - -
gain on
investments
Total distributions (.528) (.683) (.796) (.853) (.842) (.838)
Net asset value, end $ 10.940 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
of period
TOTAL RETURN (dagger) 1.92% 8.23 11.65 11.36 8.01 13.00
% % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 874 $ 976 $ 914 $ 797 $ 658 $ 651
period (in millions)
Ratio of expenses to .79%* .80 .80 .83 .83 .85
average net % % % % %
assets
Ratio of net interest 7.00%* 7.26 7.73 8.24 8.71 9.03
income to average % % % % %
net assets
Portfolio turnover 253%* 259 114 125 96 291
rate % % % % %
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1994 (Unaudited)
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Ginne Mae Portfolio (the fund) is a fund of Fidelity Income Fund
(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 following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
Securities for which market quotations are not readily available are
valued at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year.
The schedule of investments includes information regarding income taxes
under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments
for mortgage-backed securities, market discount and losses deferred due to
wash sales and futures and options. 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.
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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective August
1, 1993, the fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of July 31, 1993, have been reclassified to
reflect an increase in paid in capital of $10,000, a decrease in
undistributed net investment income of $24,476,000 and a decrease in
accumulated net realized loss on investments of $24,466,000.
2. OPERATING POLICIES.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at
least 102% of the resale price at the time of purchase. The fund's
investment adviser, Fidelity Management & Research Company (FMR), is
responsible for determining that the value of these underlying securities
remains at least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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 fund
may receive compensation for interest forgone in a delayed delivery
transaction. The fund identifies securities as segregated in its custodial
records with a value at least equal to the amount of the purchase
commitment.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,188,872,000 and $1,208,301,000, 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
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 ranging
from .14% to .37% and is based on the monthly average net assets of all
the mutual funds advised by FMR. The annual individual fund fee rate is
.30%. For the period, the management fee was equivalent to an annualized
rate of .46% of average net assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .1325% to .3700%. Effective November 1, 1993, FMR has
voluntarily agreed to implement this new group fee rate schedule as it
results in the same or a lower management fee.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments
to third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $52,000 for the
period.
TRANSFER AGENT FEE. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives fees based on the type, size, number of accounts and the
number of transactions made by shareholders. FSC pays for typesetting,
printing and mailing of all shareholder reports, except proxy statements.
ACCOUNTING FEE. 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.
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios(registered trademark).
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. FOR MORE
INFORMATION ON ANY
FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888
FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
2249 Galiano Street
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
175 East 400 South Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
