SPARTAN(Registered trademark)
(Registered trademark)
LIMITED MATURITY GOVERNMENT
FUND
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 15 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 19 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), and the effect of the $5 account
closeout fee. If Fidelity had not reimbursed certain fund expenses, the
fund's five year and life of fund returns would have been lower. 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
Spartan Limited Maturity 2.45% 6.60% 52.04% 58.60%
Government
Lehman Brothers 1-3 Year
Government Bond Index 2.43% 4.94% 51.98% n/a
Average Short U.S. Government
Fund 2.23% 5.37% 51.41% n/a
Consumer Price Index 1.25% 2.52% 20.73% 24.85%
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 May 2, 1988. For example, if you invested $1,000
in a fund that had a 5% return over the past year, you would end up with
$1,050. You can compare these figures to the Lehman Brothers 1-3 Year
Government Bond Index - a broad measure of the performance of short-term
government bonds. To measure how the fund stacked up against its peers, you
can also look at the average short U.S. government fund, which reflects the
perform- ance of 102 funds tracked by Lipper Analytical Services. These
benchmarks include 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.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1994 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 6.60% 8.74% 8.34%
Lehman Brothers 1-3 Year
Government Bond Index 4.94% 8.73% n/a
Average Short U.S. Government 5.37% 8.61% n/a
Fund
Consumer Price Index 2.52% 3.84% 3.93%
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
Spartan Ltd Maturity Gov't (452) Lehman 1-3 Year Gov't
05/31/88 10000.00 10000.00
06/30/88 10089.94 10100.00
07/31/88 10093.29 10105.05
08/31/88 10115.76 10129.30
09/30/88 10224.39 10246.80
10/31/88 10323.96 10350.29
11/30/88 10319.92 10324.42
12/31/88 10358.92 10347.13
01/31/89 10442.02 10428.88
02/28/89 10446.04 10429.92
03/31/89 10499.62 10473.72
04/30/89 10638.18 10644.45
05/31/89 10788.04 10794.53
06/30/89 10980.46 10995.31
07/31/89 11117.12 11156.94
08/31/89 11049.89 11091.12
09/30/89 11106.15 11155.44
10/31/89 11282.19 11328.35
11/30/89 11373.31 11430.31
12/31/89 11431.31 11473.74
01/31/90 11417.20 11487.51
02/28/90 11480.35 11548.40
03/31/90 11507.32 11583.04
04/30/90 11524.31 11610.84
05/31/90 11697.24 11789.65
06/30/90 11809.04 11913.44
07/31/90 11949.45 12057.59
08/31/90 11998.07 12101.00
09/30/90 12094.03 12195.39
10/31/90 12219.34 12330.76
11/30/90 12362.54 12450.36
12/31/90 12475.37 12597.28
01/31/91 12614.52 12716.95
02/28/91 12712.88 12798.34
03/31/91 12817.70 12884.09
04/30/91 12928.05 13007.78
05/31/91 12994.87 13085.82
06/30/91 13046.37 13134.24
07/31/91 13195.74 13247.20
08/31/91 13359.79 13427.36
09/30/91 13495.45 13569.69
10/31/91 13664.14 13716.24
11/30/91 13713.78 13857.52
12/31/91 13961.34 14068.15
01/31/92 13893.60 14049.86
02/29/92 13975.91 14092.01
03/31/92 13959.15 14087.78
04/30/92 14062.83 14215.98
05/31/92 14203.36 14348.19
06/30/92 14313.11 14493.11
07/31/92 14354.42 14659.78
08/31/92 14527.15 14778.52
09/30/92 14627.26 14917.44
10/31/92 14567.22 14832.41
11/30/92 14634.65 14810.16
12/31/92 14766.11 14947.90
01/31/93 14892.84 15104.85
02/28/93 15056.34 15225.69
03/31/93 15135.68 15272.89
04/30/93 15233.61 15366.05
05/31/93 15283.90 15329.18
06/30/93 15444.20 15444.14
07/31/93 15496.70 15478.12
08/31/93 15612.68 15606.59
09/30/93 15666.30 15656.53
10/31/93 15702.11 15690.98
11/30/93 15598.01 15694.11
12/31/93 15713.89 15756.89
01/31/94 15877.46 15854.58
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Limited Maturity Government Fund on May 31, 1988, shortly after the fund
started. As the chart shows, by January 31, 1994, the value of your
investment would have grown to $15,877 - a 58.77% increase on your initial
investment. This assumes you still own the fund on January 31, 1994, and
therefore does not include the effect of the $5 account closeout fee. For
comparison, look at how the Lehman Brothers 1-3 Year Government Bond Index
did over the same period. With dividends reinvested, the same $10,000
investment would have grown to $15,855 - a 58.55% 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 JULY 31,
1994 1993 1992 1991 1990 1989
Income return 2.64% 6.18% 6.98% 8.91% 8.48% 8.63%
Capital gain return 2.25% 0.50% 0.61% 0.21% - -
Change in share price -2.44% 1.26% 1.18% 1.29% -1.01% 1.50%
Total return 2.45% 7.94% 8.77% 10.41% 7.47% 10.13%
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 based 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. Change in share price and total return
figures include the effect of the $5 account closeout fee.
DIVIDENDS AND YIELD
PERIODS ENDED JANUARY 31, 1994 PAST 30 PAST 6 PAST 1
DAYS MONTHS YEAR
Dividends per share n/a 26.64(cents) 57.57(cents)
Annualized dividend rate n/a 5.22% 5.64%
Annualized yield 5.55% 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 $10.13 over
the past six months and $10.20 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
Curtis Hollingsworth, Portfolio
Manager of Spartan Limited
Maturity Government Fund
Q. CURT, HOW HAS THE FUND PERFORMED COMPARED TO OTHER SHORT-TERM GOVERNMENT
FUNDS?
A. Quite well. The best way to measure the fund's performance is by its
total return. This reflects income, or interest payments, plus capital
gains - which occur when the fund profits from selling bonds that have
grown in value - and changes in share price. For the six months and year
ended January 31, 1994, the fund had total returns of 2.45% and 6.60%.
These beat the average short-term government bond fund, which had returns
of 2.23% and 5.37% over the same periods, according to Lipper Analytical
Services.
Q. WHAT'S BEHIND THE FUND'S SUCCESS?
A. Most importantly, I made good sector decisions. The fund invests mainly
in two different sectors - U.S. Treasuries and mortgage securities. My job
is to try to determine the right mix between these sectors and adjust the
mix as market conditions change. I usually do this by looking at the yield
spread.
Q. WHAT DO YOU MEAN BY YIELD SPREAD?
A. It's a fairly complicated concept, but here's a short explanation. U.S.
Treasuries are the safest bond investment, so they pay the lowest yields -
or income. All other types of bonds, including mortgage securities, are
more risky and can pay higher yields. The difference between the yield on
Treasuries and other types of bonds is the yield spread. As market
conditions change, the yield spread varies.
Q. HOW DOES YIELD SPREAD AFFECT YOUR INVESTMENT DECISIONS?
A. When mortgage securities yield much more than Treasuries, the yield
spread is wide. Usually, this is a good time to sell Treasuries and buy
mortgages because you can earn the higher yield on mortgages as long as you
hold them. Also, if the yield spread narrows, the price of mortgages will
increase relative to the price of Treasuries. On the other hand, when
mortgage securities yield only a little more than Treasuries, the yield
spread is narrow. Usually, this is a good time to sell mortgages and buy
Treasuries. That's because the small amount of extra yield you can get from
mortgages isn't worth the added risk inherent in mortgage securities.
Mortgages carry prepayment risk - the risk that homeowners will refinance
their existing mortgages at lower interest rates. Also, if the yield spread
widens, Treasury prices will increase relative to mortgage prices.
Q. HOW HAVE YOU USED THIS CONCEPT OVER THE PAST SIX MONTHS?
A. In August of 1993, there was a wide yield spread between Treasuries and
mortgage securities. I expected the yield spread to narrow and mortgage
prices to increase relative to Treasury prices, so I began increasing my
investment in mortgages. In October, I had 85% of the fund in mortgages. I
increased that number to 100% in November. At the end of January 1994, the
yield spread had narrowed and mortgage prices were peaking. So, I sold some
of the mortgages at a profit and increased my investment in Treasuries with
maturities of five to six years. At the end of January, about 74% of the
fund was in mortgage securities and about 16% was in Treasuries.
Q. WERE THERE OTHER REASONS THE FUND BEAT ITS COMPETITORS?
A. Yes. I tried to pick mortgages with low prepayment risk. As I noted
earlier, a prepayment happens when homeowners refinance their existing
mortgages at lower interest rates. Once the original mortgage is paid off,
the mortgage holder - in this case, the fund - loses the higher interest
payments it had. To replace the old mortgage, it has to buy a newer
mortgage with a lower current interest rate. Recently, because interest
rates have been low, there's been a high risk of prepayment. To reduce that
risk, I invested in older mortgages that were about 10 years old and
offered rates of 11% or higher. I also bought brand new mortgages with
coupon rates of 7% and 7.5%. Many people who have older mortgages have
already refinanced their homes or can't refinance them because they have a
bad credit history. On the other hand, people with brand new mortgages
rarely want to refinance their houses right away. I avoided three- to
five-year-old mortgage securities, which have the highest risk of
prepayment.
Q. DO YOU HAVE ANY REGRETS ABOUT YOUR INVESTMENT DECISIONS?
A. Just one. I wish I'd invested more of the fund in Treasuries and less in
mortgage securities in the third quarter. As a result of a higher level of
prepayments than I expected, Treasuries outperformed mortgages during that
period.
Q. WHERE DO YOU THINK INTEREST RATES ARE HEADED OVER THE NEXT SIX MONTHS?
A. I expect interest rates to remain fairly stable. I think the Federal
Reserve's move this February to slightly increase interest rates reflects
their resolve to hold down inflation. Contrary to most people, I see this
move as good for bonds over the long term. There would have been cause for
concern if the Fed hadn't reacted at all with the economy growing as
quickly as it was.
Q. IF YOU'RE RIGHT AND INTEREST RATES DO STAY STABLE, WHAT EFFECT WILL THIS
HAVE ON YOUR STRATEGY?
A. When interest rates are stable, mortgage securities usually perform
well. That's because there's a smaller risk of prepayment, and, without
that risk, mortgage securities usually outperform Treasuries. Right now, I
have 74% of the fund in mortgages because I expect them to have a good
year.
Q. WHAT CAN SHAREHOLDERS EXPECT GOING FORWARD?
A. I think bonds will continue to outperform cash and cash equivalent
instruments, such as CDs, even if interest rates rise slightly. However,
the really big opportunities for price gains that we've seen over the past
several years are behind us. We'll probably see more modest returns over
the next year.
FUND FACTS
GOAL: to provide a high level
of current income while
preserving capital by
investing primarily in U.S.
government securities
START DATE: May 2, 1988
SIZE: as of January 31,
1994, over $1.3 billion
MANAGER: Curtis
Hollingsworth, since May
1988; manager, Spartan
Long-Term Government Bond
Fund, since October 1993;
Fidelity Advisor Government
Investment Portfolio, since
January 1992; Spartan
Short-Intermediate
Government Fund, since
December 1992; Fidelity
Short-Intermediate
Government Fund, since
October 1991; Fidelity
Government Securities Fund,
since February 1990
(checkmark)
CURT HOLLINGSWORTH ON
DURATION:
"Bonds are very sensitive to
changes in interest rates.
When interest rates increase,
bond prices fall. If interest
rates go down, the prices of
bonds go up. One way to tell
how sensitive a bond is to
changes in interest rates is to
look at its duration. Duration
factors in the bond's maturity,
or how much time remains
until the issuer is scheduled to
pay off the principal, as well
as the frequency and amount
of interest payments. The
longer the average duration of
a fund, the more the fund's
share price will move up as
rates fall or down as rates
rise."
(bullet) On January 31, 1994, the
fund's duration was 2.6 years.
That means if interest rates
rose 1%, its share price -
$10.06 on January 31 -
would fall roughly 2.6% to
$9.80. If rates fell 1%, the
fund's share price would rise
about 2.6% to $10.32.
(bullet) The fund uses a method
called duration averaging to
manage duration. Duration
averaging is similar to
dollar-cost averaging, a
disciplined strategy of
investing equal amounts of
money in stock funds at
regular intervals regardless of
share price. In the same way,
duration averaging forces you
to become more aggressive
after bond prices have fallen
and less aggressive after
they've risen.
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1994
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
5 - 5.99% 1.4 0.0
6 - 6.99% 3.2 14.0
7 - 7.99% 27.6 10.5
8 - 8.99% 21.0 25.1
9 - 9.99% 5.0 9.5
10 - 10.99% 2.5 2.8
11 - 11.99% 15.6 16.9
12 - 12.99 12.9 14.2
13% and Over 1.4 1.6
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 3.1 3.7
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 2.6 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: 8.4
Row: 1, Col: 2, Value: 1.1
Row: 1, Col: 3, Value: 16.2
Row: 1, Col: 4, Value: 74.3
Mortgage-backed
securities 72.2%
U.S. government
and agency
obligations 22.3%
Collateralized
mortgage obligations
(CMOs) 0.1%
Short-term
investments 5.4%
Mortgage-backed
securities 74.3%
U.S. government
and agency
obligations 16.2%
Collateralized
mortgage obligations
(CMOs) 0.1%
Short-term
investments 9.4%
Row: 1, Col: 1, Value: 5.4
Row: 1, Col: 2, Value: 1.6
Row: 1, Col: 3, Value: 22.3
Row: 1, Col: 4, Value: 72.2
INVESTMENTS JANUARY 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investments in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.2%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 14.9%
8 1/2%, 11/15/00 $ 190,000 $ 224,200
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.3%
Agency for International Development
(guaranteed by U.S. government):
5 3/4%, 3/15/00 6,750 6,868
5 1/4%, 9/15/00 13,715 13,544
20,412
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $242,775) 244,612
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 74.3%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.9%
5 1/2%, 6/1/98 687 698
6%, 9/1/97 to 7/1/98 3,413 3,503
6 1/2%, 10/1/97 to 7/1/00 3,678 3,796
7%, 2/1/97 to 5/1/98 4,093 4,240
7 1/2%, 10/1/96 to 1/1/98 1,904 1,977
8%, 2/1/96 to 12/1/96 1,396 1,454
8 1/2%, 2/1/96 to 1/1/22 4,280 4,521
9%, 1/1/10 to 7/1/21 7,095 7,587
10%, 12/1/00 307 328
10 1/2%, 10/1/10 to 1/1/21 3,694 4,078
10 3/4%, 7/1/13 257 280
11%, 8/1/00 to 9/1/20 3,276 3,619
11 1/4%, 2/1/10 to 10/1/14 3,311 3,655
11 1/2%, 3/1/07 to 8/1/19 17,920 19,931
11 3/4%, 1/1/10 to 10/1/15 563 624
12%, 1/1/00 to 12/1/15 6,238 7,055
12 1/4%, 9/1/08 to 8/1/15 3,186 3,609
12 1/2%, 10/1/09 to 4/1/19 23,492 27,243
12 3/4%, 2/1/10 to 8/1/11 355 411
13%, 9/1/10 to 5/1/17 2,976 3,482
13 1/4%, 11/1/10 to 12/1/14 435 508
13 1/2%, 11/1/10 to 10/1/14 729 854
13 3/4%, 6/1/11 to 10/1/14 80 93
14%, 11/1/12 to 4/1/16 302 354
14 1/2%, 12/1/10 to 9/1/12 216 252
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - CONTINUED
14 3/4%, 3/1/10 $ 84 $ 98
16 1/4%, 7/1/11 22 26
104,276
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.5%
6%, 7/1/00 889 907
6 1/2%, 11/1/99 to 1/1/24 38,535 38,757
7%, 1/1/99 to 1/1/24 47,398 48,667
7 1/2%, 2/1/99 to 2/1/23 3,445 3,600
8%, 4/1/98 to 7/1/22 20,401 21,377
8 1/2%, 1/1/98 to 12/1/22 14,106 14,897
9%, 11/1/97 to 12/1/06 7,181 7,619
10%, 7/1/04 to 10/1/04 5,002 5,342
10 1/4%, 10/1/09 to 10/1/18 1,301 1,432
10 1/2%, 4/1/01 to 11/1/05 12,222 13,078
11%, 4/1/10 to 8/1/20 19,248 21,606
11 1/4%, 11/1/10 to 1/1/16 4,430 4,961
11 1/2%, 9/1/11 to 2/1/16 4,092 4,614
11 3/4%, 7/1/13 to 4/1/14 512 576
12%, 7/1/09 to 5/1/20 15,759 17,838
12 1/4%, 4/1/09 to 6/1/15 3,942 4,452
12 1/2%, 9/1/07 to 5/1/21 10,218 11,594
12 3/4%, 10/1/11 to 10/1/14 3,303 3,739
13%, 6/1/11 to 7/1/15 4,443 5,104
13 1/4%, 9/1/11 to 9/1/13 1,514 1,735
13 1/2%, 5/1/11 to 1/1/15 249 287
14%, 9/1/10 to 12/1/14 402 467
14 1/2%, 7/1/14 48 56
15%, 4/1/12 52 61
232,766
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 51.9%
6 1/2%, 12/15/23 1,413 1,418
7%, 6/15/23 to 2/15/24 76,748 78,905
7%, 2/15/24 (a) 103,400 106,341
7 1/2%, 2/15/22 to 11/15/23 117,263 122,943
7 1/2%, 4/15/23 (b) 46,000 47,804
8%, 9/15/16 to 11/15/23 4,036 4,443
8%, 1/15/23 (b) 43,000 45,298
8 1/2%, 4/15/16 to 4/15/17 199 211
9%, 1/15/05 to 9/15/17 48,089 51,791
9 1/2%, 6/15/09 to 4/15/16 8,080 8,774
10%, 11/15/09 to 12/15/13 4,614 5,097
10 1/2%, 1/15/13 to 7/15/17 6,945 7,802
11%, 8/15/98 to 3/15/16 132,089 150,555
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
11 1/2%, 3/15/10 to 1/15/21 $ 21,525 $ 24,807
11 3/4%, 1/15/14 134 151
12%, 1/15/13 to 7/15/15 1,867 2,166
12 1/4%, 1/15/14 172 195
12 1/2%, 4/15/10 to 4/15/19 98,026 114,685
13%, 1/15/11 to 5/15/15 2,595 3,086
13 1/4%, 9/15/13 to 10/15/14 1,000 1,164
13 1/2%, 5/15/10 to 12/15/14 1,478 1,760
13 3/4%, 8/15/14 to 9/15/14 149 175
14%, 6/15/11 to 12/15/14 433 524
15%, 7/15/11 to 9/15/12 762 922
16%, 9/15/11 to 4/15/13 197 239
17%, 12/15/11 17 21
781,277
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $1,108,341) 1,118,319
U.S. GOVERNMENT AGENCY - COLLATERALIZED MORTGAGE OBLIGATIONS - 0.1%
RESOLUTION TRUST CORP. - 0.1%
Series 1991-11, Class 6-A,
12.647%, 10/25/21 (Cost $1,615) 1,498 1,608
REPURCHASE AGREEMENTS - 9.4%
MATURITY
AMOUNT
(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 $141,452 141,439
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,494,170) $ 1,505,978
LEGEND
1. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
2. 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 $1,494,221,000. Net unrealized appreciation aggregated
$11,757,000, of which $13,551,000 related to appreciated investment
securities and $1,794,000 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 $ 1,505,978
agreements of $141,439) (cost $1,494,170) (Notes 1
and 2) - See accompanying schedule
Commitment to sell securities on a delayed delivery $ (93,102)
basis
Receivable for securities sold on a delayed delivery 93,102 -
basis (Note 2)
Receivable for investments sold 22,673
Cash 87
Interest receivable 11,557
TOTAL ASSETS 1,540,295
LIABILITIES
Payable for investments purchased $ 93,813
Regular delivery
Delayed delivery (Note 2) 105,479
Payable for fund shares redeemed 2,253
Dividends payable 723
Accrued management fee 730
TOTAL LIABILITIES 202,998
NET ASSETS $ 1,337,297
Net Assets consist of (Note 1):
Paid in capital $ 1,331,619
Undistributed net investment income 21,290
Accumulated undistributed net realized gain (loss) on (27,420)
investments
Net unrealized appreciation (depreciation) on investment 11,808
securities
NET ASSETS, for 132,897 shares outstanding $ 1,337,297
NET ASSET VALUE, offering price and redemption price per $10.06
share ($1,337,297 (divided by) 132,897 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, 1994 (UNAUDITED)
INVESTMENT INCOME $ 59,112
Interest (Note 1)
EXPENSES
Management fee (Note 4) $ 4,750
Non-interested trustees' compensation 5
Interest (Note 5) 18
TOTAL EXPENSES 4,773
NET INVESTMENT INCOME 54,339
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (18,480)
(NOTES 1 AND 3)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on (1,663)
investment securities
NET GAIN (LOSS) (20,143)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 34,196
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 $ 54,339 $ 133,147
Net investment income
Net realized gain (loss) on investments (18,480) (8,178)
Change in net unrealized appreciation (depreciation) (1,663) 1,723
on investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 34,196 126,692
FROM OPERATIONS
Distributions to shareholders (38,442) (97,834)
From net investment income
From net realized gain (8,923) (8,578)
In excess of net realized gain (24,349) -
TOTAL DISTRIBUTIONS (71,714) (106,412)
Share transactions 284,466 772,524
Net proceeds from sales of shares
Reinvestment of distributions 63,520 93,230
Cost of shares redeemed (502,352) (1,126,871)
Net increase (decrease) in net assets resulting from (154,366) (261,117)
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (191,884) (240,837)
NET ASSETS
Beginning of period 1,529,181 1,770,018
End of period (including undistributed net investment $ 1,337,297 $ 1,529,181
income of $21,290 and $64,376, respectively)
OTHER INFORMATION
Shares
Sold 28,118 75,607
Issued in reinvestment of distributions 6,273 9,112
Redeemed (49,749) (110,358)
Net increase (decrease) (15,358) (25,639)
</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, beginning $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030 $ 9.880
of period
Income from Investment .390 .872 .836 .853 .816 .806
Operations
Net investment
income
Net realized and (.144) (.087) .021 .142 (.100) .150
unrealized gain
(loss) on
investments
Total from investment .246 .785 .857 .995 .716 .956
operations
Less Distributions (.266) (.605) (.677) (.845) (.816) (.806)
From net interest
income
From net realized (.060) (.050) (.060) (.020) - -
gain on
investments
In excess of net (.170) - - - - -
realized gain on
investments
Total distributions (.496) (.655) (.737) (.865) (.816) (.806)
Net asset value, end of $ 10.060 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
period
TOTAL RETURN (dagger) (double dagger) 2.46% 7.96 8.78 10.43 7.49 10.14
% % % % %
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,337 $ 1,529 $ 1,770 $ 880 $ 132 $ 125
(in millions)
Ratio of expenses to .65%* .65 .61 .50 .83 .68
average net assets % % % % %
Ratio of expenses to .65%* .65 .65 .69 .83 1.13
average net assets % % % % %
before expense
reductions
Ratio of net interest 7.37%* 8.05 8.24 8.63 8.28 8.20
income to average net % % % % %
assets
Portfolio turnover rate 372%* 324 330 288 270 806
% % % % %
</TABLE>
* ANNUALIZED
(dagger) THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
(double dagger) TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND
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.
Spartan Limited Maturity Government Fund (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.
Interest income includes $ 1,079,000 received for entering into delayed
delivery transactions.
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. Mortgage security paydown gains
(losses) are taxable as ordinary income and, therefore, increase (decrease)
taxable ordinary income available for distribution.
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. 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.
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
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 August 1, 1993 have been
reclassified to reflect a decrease in paid in capital of $6,430,000, a
decrease in undistributed net investment income of $58,983,000 and a
decrease in accumulated net realized (loss) on investments of $65,413,000.
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 $2,824,157,000 and $2,968,584,000, respectively.
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (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. For
the period, FMR or its affiliates collected certain transaction fees from
shareholders which aggregated $48,000.
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
- CONTINUED
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use 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 $200 for the
period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the periods for
which loans were outstanding amounted to $23,526,000 and $15,016,000,
respectively. The weighted average interest rate was 3.52%.
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 WRITE FIDELITY
Please locate the address that is closest to you. We'll give your
correspondence immediate attention and send you written confirmation upon
completion of your request. Please send ALL correspondence about retirement
accounts to Dallas.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 2269
Boston, MA 02107-2269
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30280
Salt Lake City, UT 84130-0280
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
Additional Payments
P.O. Box 2656
Boston, MA 02293-0656
Fidelity Investments
Additional Payments
P.O. Box 620024
Dallas, TX 75262-0024
Fidelity Investments
Additional Payments
P.O. Box 31455
Salt Lake City, UT 84131-0455
OVERNIGHT EXPRESS
Fidelity Investments
Additional Payments
World Trade Center
164 Northern Avenue
Boston, MA 02210
SELLING SHARES
Fidelity Investments
P.O. Box 193
Boston, MA 02103-0878
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30281
Salt Lake City, UT 84130-0281
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions
World Trade Center
164 Northern Avenue
Boston, MA 02210
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02101-0193
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 620024
Dallas, TX 75262-0024
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Curtis Hollingsworth, Vice President
Gary L. French, Treasurer
John H . Costello, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Short-Term World Income
Spartan 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 Bond
THE FIDELITY
TELEPHONE CONNECTION
MUTUAL 24-HOUR SERVICE
Account Assistance 1-800-544-6666
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
FAST 1-800-544-6600
Mutual Quotes 1-800-544-8544
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.)
Tax Reporting 1-800-544-1877
TDD Service 1-800-544-0118
(9 a.m. - 9 p.m. Eastern time)
