FIDELITY INCOME FUND /MA/, N-30D, 1995-03-14

FIDELITY INCOME FUND /MA/
N-30D, 1995-03-14

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FIDELITY

(registered trademark)
MORTGAGE SECURITIES
PORTFOLIO
SEMIANNUAL REPORT
JANUARY 31, 1995
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 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.

NOTES 19 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, THE FEDERAL
RESERVE BOARD OR
ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF
PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A
BANK. FOR MORE
INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL
1-800-544-8888 FOR
A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE

DEAR SHAREHOLDER:
Although there have been a few positive market indications so far in 1995,
no one can predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in 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 to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1995 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS

Mortgage Securities 2.06% 2.92% 47.92% 136.66%

Salomon Brothers Mortgage Index 1.52% -0.23% 49.61% 169.64%

Average U.S. Mortgage Fund 0.56% -3.41% 40.45% 125.49%

Consumer Price Index 1.28% 2.80% 17.97% 42.46%

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 invested $1,000 in a fund that had a 5% return
over the past year, you would end up with $1,050. To measure how the fund
stacked up against its peers, you can compare these figures to the Salomon
Brothers Mortgage Index - a broad measure of the performance of mortgage
securities. You can also look at the average U.S. mortgage fund, which
currently reflects the performance of 59 U.S. mortgage 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 (CPI) helps show how your fund did compared to inflation. (The
CPI returns begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1995 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

Mortgage Securities 2.92% 8.14% 9.00%

Salomon Brothers Mortgage Index -0.23% 8.39% 10.43%

Average U.S. Mortgage Fund -3.41% 7.01% 8.45%

Consumer Price Index 2.80% 3.36% 3.60%

AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
Mortgage Sec. (040) SB Mortgage Index (S
01/31/85 10000.00 10000.00
02/28/85 9916.21 9765.00
03/31/85 10110.02 10022.80
04/30/85 10281.69 10255.32
05/31/85 10611.28 10851.16
06/30/85 10773.46 11043.22
07/31/85 10748.70 11008.99
08/31/85 10910.15 11207.15
09/30/85 11037.91 11332.67
10/31/85 11212.39 11617.12
11/30/85 11465.65 11942.40
12/31/85 11654.49 12273.21
01/31/86 11744.71 12321.07
02/28/86 11947.16 12661.13
03/31/86 12115.18 12847.25
04/30/86 12178.78 12948.75
05/31/86 12035.38 12702.72
06/30/86 12179.84 12886.91
07/31/86 12358.52 13140.78
08/31/86 12572.01 13399.65
09/30/86 12570.62 13419.75
10/31/86 12735.19 13602.26
11/30/86 12923.33 13883.83
12/31/86 12966.59 13922.70
01/31/87 13120.72 14127.37
02/28/87 13209.44 14257.34
03/31/87 13189.92 14235.95
04/30/87 12834.63 13817.42
05/31/87 12804.33 13773.20
06/30/87 13000.73 14005.97
07/31/87 13020.12 14059.19
08/31/87 12978.45 13995.92
09/30/87 12650.82 13674.02
10/31/87 13025.70 14122.53
11/30/87 13149.92 14321.65
12/31/87 13316.30 14487.78
01/31/88 13764.12 15049.91
02/29/88 13912.56 15230.51
03/31/88 13830.10 15117.80
04/30/88 13744.51 15024.07
05/31/88 13687.34 14991.02
06/30/88 13961.27 15367.30
07/31/88 13928.10 15319.66
08/31/88 13945.79 15351.83
09/30/88 14226.26 15717.20
10/31/88 14492.87 16075.55
11/30/88 14301.24 15845.67
12/31/88 14210.77 15763.28
01/31/89 14468.62 16059.63
02/28/89 14392.01 15937.57
03/31/89 14420.45 15942.35
04/30/89 14686.63 16222.94
05/31/89 15034.23 16755.05
06/30/89 15398.08 17180.63
07/31/89 15673.78 17587.81
08/31/89 15508.23 17329.27
09/30/89 15575.94 17450.57
10/31/89 15884.88 17858.92
11/30/89 16037.95 18051.79
12/31/89 16148.49 18152.88
01/31/90 15999.72 18022.18
02/28/90 16106.30 18096.07
03/31/90 16118.95 18170.27
04/30/90 15979.53 18001.28
05/31/90 16444.10 18548.52
06/30/90 16682.48 18854.57
07/31/90 16924.92 19175.10
08/31/90 16880.16 19017.87
09/30/90 16970.27 19171.91
10/31/90 17144.11 19373.22
11/30/90 17519.26 19805.24
12/31/90 17821.45 20132.03
01/31/91 18006.37 20425.95
02/28/91 18121.66 20556.68
03/31/91 18243.54 20706.74
04/30/91 18441.03 20922.09
05/31/91 18536.90 21102.02
06/30/91 18583.25 21125.24
07/31/91 18850.18 21482.25
08/31/91 19210.40 21875.38
09/30/91 19510.30 22295.38
10/31/91 19740.91 22638.73
11/30/91 19861.60 22794.94
12/31/91 20247.43 23280.47
01/31/92 20150.03 23043.01
02/29/92 20350.53 23259.62
03/31/92 20209.89 23157.27
04/30/92 20399.36 23368.01
05/31/92 20736.06 23802.65
06/30/92 20955.76 24093.04
07/31/92 20919.80 24285.79
08/31/92 21055.12 24613.64
09/30/92 21187.30 24803.17
10/31/92 20976.62 24594.82
11/30/92 21078.01 24695.66
12/31/92 21351.54 24996.95
01/31/93 21546.34 25341.91
02/28/93 21730.88 25575.05
03/31/93 21872.78 25728.50
04/30/93 22025.48 25903.46
05/31/93 22090.70 26022.61
06/30/93 22360.18 26275.03
07/31/93 22483.09 26382.76
08/31/93 22524.95 26490.93
09/30/93 22574.15 26514.77
10/31/93 22614.31 26602.27
11/30/93 22567.04 26554.39
12/31/93 22784.85 26753.54
01/31/94 22994.69 27023.75
02/28/94 22873.43 26856.21
03/31/94 22614.21 26192.86
04/30/94 22515.15 26027.84
05/31/94 22706.82 26116.34
06/30/94 22823.04 26051.05
07/31/94 23187.88 26559.04
08/31/94 23291.77 26614.82
09/30/94 23039.30 26258.18
10/31/94 23086.09 26250.30
11/30/94 23063.05 26155.80
12/31/94 23227.25 26372.89
01/31/95 23666.38 26963.65

$10,000 OVER 10 YEARS: Let's say you invested $10,000 in Fidelity Mortgage
Securities Portfolio on January 31, 1985. As the chart shows, by January
31, 1995, the value of your investment would have grown to $23,666 - a
136.66% increase on your initial investment. For comparison, look at how
the Salomon Brothers Mortgage Index did over the same period. With
dividends reinvested, the same $10,000 investment would have grown to
$26,964 - a 169.64% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED JULY 31,
MONTHS
ENDED
JANUARY
31,

1995 1994 1993 1992 1991 1990

Dividend return 3.39% 5.52% 6.73% 7.64% 8.83% 8.37%

Capital appreciation -1.33% -2.39% 0.74% 3.34% 2.55% -0.39%

return

Total return 2.06% 3.13% 7.47% 10.98% 11.38% 7.98%

</TABLE>

DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by
the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested.
DIVIDENDS AND YIELD

<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED JANUARY 31, 1995 PAST PAST 6 PAST 1
MONTH MONTHS YEAR

Dividends per share 6.40(cents) 35.09(cents) 63.64(cents)

Annualized dividend rate 7.32% 6.73% 6.10%

30-day annualized yield 8.47% - -

</TABLE>

DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.29 over
the past month, $10.35 over the past six months and $10.44 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Kevin Grant, Portfolio Manager of Fidelity
Mortgage Securities Portfolio
Q. KEVIN, HOW HAS THE FUND
PERFORMED?
A. Considering the negative bond market backdrop, it was one the fund's
better years, relative to its competitors. The fund had a total return of
2.06% for the six months ended January 31, 1995. That beat the average
U.S. mortgage fund tracked by Lipper Analytical Services, which returned
0.56% during the same period. The fund also topped the performance of the
Salomon Brothers Mortgage Index, which rose 1.52% over the same six-month
period. For the 12 months ended January 31, 1995, the fund returned 2.92%,
compared to -3.41% for the Lipper average and -0.23% for the index.
Q. WHY DO YOU THINK THE FUND PERFORMED BETTER THAN ITS COMPETITORS AND THE
INDEX?
A. As interest rates were rising during most of 1994, there was a lot of
debate in the market about what constituted fair value in securities prices
generally and mortgage prices specifically. Using extensive quantitative
analysis, I was able to find many opportunities in securities that I
believed were undervalued - those whose prices were very low relative to
their fair value. I was able to buy some bonds when they were cheap and
sell them when they recovered.
Q. EVEN THOUGH THE FUND'S RELATIVE PERFORMANCE WAS STRONG, TOTAL RETURN
WASN'T. WHY NOT?
A. I attribute this weakness primarily to the bond market environment in
1994. If you go back to the beginning of 1994, you had interest rates at
historic lows. Remember, bond yields and bond prices move in opposite
directions, so rapidly rising interest rates were accompanied by sharp
drops in bond prices. Because yields started at such a low level in early
1994, they provided very little cushion to help compensate for marked
depreciation in bond prices. That's because if you're receiving a higher
yield, you often can withstand more volatility. With today's higher
interest rates, there's
a completely different risk/return picture than one year ago.
Q. WHAT HAVE THE PAST SIX MONTHS BEEN LIKE FOR THE FUND?
A. Investment opportunities have been slowly diminishing during the past
six months, both in terms of frequency and profitability. It's been a
period where I've tried to keep the fund relatively neutral and wait for
new value opportunities to arise. Interest rates have been a bit more
stable within the past six months, so relatively few surprises have been
unleashed. When interest rates shift a lot, bonds can do things that
people don't expect and can become mispriced. That hasn't happened in the
past few months. I've found fewer value opportunities, but some situations
have been quite appealing.
Q. SUCH AS . . .
A. Mortgages on commercial properties in the form of collateralized
mortgage obligations, or CMOs. These are securities that comprise several
mortgages, which are separated into what are known as tranches. Each
tranche may have a different maturity or credit rating. The tranches I'm
focusing on are higher-yielding, lower-rated commercial mortgages on
high-quality properties, such
as malls, office buildings, apartments or shopping centers. The best
feature of many of these investments is something called
cross-collateralization and cross-default: if one of the loans included in
the mortgage defaults, the other properties in the mortgage serve as
collateral. This factor can help reduce the risk on the investment; if the
borrower lets one mortgage slide, he risks foreclosure on his entire real
estate portfolio. The borrower probably would do everything in his power to
prevent this from happening.
Q. WHAT'S YOUR READ ON THE COMPARATIVE RISK INVOLVED WITH THESE
INVESTMENTS?
A. In general, these securities carry the same overall interest-rate
sensitivity that non-residential mortgages have. In addition to that, they
have credit risk. I'm careful to make sure that the size of the loan
relative to the value of the property is as small as possible; and that the
borrower's monthly mortgage payments relative to his
monthly income is as small as possible. I also try to be sure that the
overall quality of the properties is strong. Above all, I'm most interested
in the market properly reflecting the value of these securities. I believe
1995 or 1996 will be the year the market prices them properly. There are
also other variables that can reduce the fund's risk. First, Fidelity has
a very strong real estate research group that quantifies the risks involved
with these investments. The group visits the properties on a regular basis,
making sure they are well-kept and fully leased, and that tenants are
happy. And second, I'm aiming to limit each investment to around 1% of the
fund, hopefully reducing the chance that one problem could really hurt
performance.
Q. CMOS ARE A TYPE OF DERIVATIVE. WHAT SORT OF GUIDELINES DO YOU TRY TO
FOLLOW WHEN INVESTING IN THESE KINDS OF INSTRUMENTS?
A. I try to follow three rules about investing in derivatives. First, a
derivative's value must be tied to an underlying security that the fund
would own anyway. Second, the derivative should be a much cheaper way to
own the underlying asset than to buy that asset outright. And third, I
have to expect that over a reasonable period the market environment will
change in such a way that investors will begin to price the derivative more
fairly relative to its underlying asset - causing its price to rise more
than the underlying asset. I believe that by trying to follow these rules,
I can add a lot of value to the fund with limited use of derivatives, while
striving to keep risk under control.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. It's impossible to say where interest rates will go. I'm finding fewer
value opportunities now than there were when the interest rate turmoil hit
the market in the first part of 1994. For now, I'll aim to maintain a
neutral structure for the fund, targeting its investments to stay in line
with the Salomon Brothers Mortgage Index. Of course, I'll keep an eye out
for those areas that it seems the market has incorrectly underpriced. For
now, I'm content to wait for opportunities to arise; they usually do.

FUND FACTS
GOAL: high current income
by investing at least 65% of
total assets in mortgage
securities
START DATE: December 31,
1984
SIZE: as of January 31,
1995, more than $357 million
MANAGER: Kevin Grant, since
August 1993; also manages
Fidelity Ginnie Mae Portfolio
and Spartan Ginnie Mae
Fund, both since February
1995; joined Fidelity in 1993
(checkmark)

KEVIN GRANT ON RISK IN THE
MORTGAGE MARKET:
"The mortgage market today
generally has less risk than
it's had in several years. The
main reason is that most
home buyers have refinanced
into mortgages with interest
rates that are low relative to
the current market so that
prepayment risk is very
limited. In January 1995, the
average rate on the
outstanding universe of
mortgages was about 7.5%,
and a new mortgage was
about 9%. There's no
economic incentive for most
people to refinance.
"Historically the mortgage
market has provided returns
above Treasuries of about
1%. This year, I don't think
we'll get much more
or less than that, and the
primary reason is that the
world knows there's little
prepayment risk,
so there are fewer
opportunities within the
mortgage market than there
were last year. Nevertheless,
I believe that 1% return
advantage would be
reasonable."
(solid bullet) The average maturity of the
fund's bonds, as well as the
fund's duration - its sensitivity
to changes in interest rates -
increased over the period. The
overall mortgage market
generally has seen slower
prepayments because of
higher interest rates. This
slowdown typically lengthens
the maturity
of mortgage-backed
securities, as well as the
duration of mortgage bonds
and bond funds.
INVESTMENT CHANGES

COUPON DISTRIBUTION AS OF JANUARY 31, 1995
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO

0 - 5.99% 1.9 0.0

6 - 6.99% 24.8 4.8

7 - 7.99% 26.4 43.5

8 - 8.99% 16.8 3.7

9 - 9.99% 9.7 17.0

10 - 10.99% 5.5 9.5

11 - 11.99% 2.2 1.8

12 - 12.99% 2.8 2.6

13% and over 1.5 1.4

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, 1995
6 MONTHS AGO

Years 8.0 7.2

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 JANUARY 31, 1995
6 MONTHS AGO

Years 4.2 3.9

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
AS OF JANUARY 31, 1995 AS OF JULY 31, 1994
Row: 1, Col: 1, Value: 8.4
Row: 1, Col: 2, Value: 19.9
Row: 1, Col: 3, Value: 30.0
Row: 1, Col: 4, Value: 41.7
Mortgage-backed
securities** 74.0%
CMOs and other
mortgage related
securities 10.3%
Short-term
investments 15.7%

Mortgage-backed
securities* 71.7%
CMOs and other
mortgage related
securities 19.9%
Short-term
investments 8.4%

Row: 1, Col: 1, Value: 15.7
Row: 1, Col: 2, Value: 10.3
Row: 1, Col: 3, Value: 30.0
Row: 1, Col: 4, Value: 44.0
* GNMA SECURITIES - 25.4%
** GNMA SECURITIES - 32.5%
INVESTMENTS JANUARY 31, 1995 (UNAUDITED)

Showing Percentage of Total Value of Investment in Securities

U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 71.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 10.5%
8%, 10/1/07 to 12/1/18 $ 1,327,160 $ 1,295,835
8 1/2%, 7/1/09 to 12/1/18 3,933,607 3,907,758
9%, 9/1/08 to 5/1/21 13,873,561 14,141,028
9%, 3/1/09 to 4/1/17 2,893,975 2,936,334
10%, 1/1/09 to 5/1/19 4,386,899 4,607,875
10 1/2%, 8/1/10 to 12/1/20 5,000,679 5,199,172
11 1/2%, 8/1/19 1,178,721 1,272,453
11 3/4%, 6/1/11 to 4/1/12 101,402 108,863
12 1/4%, 6/1/14 to 7/1/15 343,481 372,482
12 1/2%, 5/1/12 to 12/1/14 2,126,258 2,415,989
12 3/4%, 6/1/05 to 4/1/15 441,677 501,303
13%, 1/1/11 to 6/1/15 3,117,504 3,577,338
40,336,430
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 35.8%
6%, 9/1/08 to 1/1/24 30,103,844 26,041,038
6 1/2%, 12/1/23 to 8/1/24 36,066,708 32,305,050
7%, 2/1/99 to 12/1/24 59,827,453 56,369,140
7 1/2%, 3/1/22 to 11/1/22 3,977,982 3,779,151
8%, 1/1/07 to 7/1/08 268,089 263,135
8 1/4%, 1/1/13 255,375 249,966
8 1/2%, 11/1/03 to 11/1/18 3,817,232 3,813,328
8 3/4%, 11/1/08 to 7/1/09 453,957 454,813
9%, 1/1/08 to 6/1/09 1,458,972 1,478,986
9 1/2%, 11/1/09 to 12/1/20 2,654,462 2,755,040
11%, 12/1/02 to 8/1/10 5,022,010 5,412,149
12 1/4%, 5/1/13 to 6/1/15 1,107,507 1,214,404
12 1/2%, 2/1/13 to 10/1/15 1,436,489 1,580,136
12 3/4%, 6/1/13 to 7/1/15 720,551 790,805
13 1/2%, 9/1/13 to 12/1/14 268,347 307,259
14%, 5/1/12 to 11/1/14 190,816 220,392
137,034,792
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 25.4%
6 1/2%, 2/1/23 (c) $ 22,190,000 $ 19,561,816
7 1/2%, 9/15/16 to 6/15/24 38,122,544 35,988,806
8%, 2/15/21 to 12/15/23 36,940,405 35,905,706
8 1/2%, 7/15/16 to 12/15/21 3,714,283 3,730,602
9%, 9/15/16 to 4/15/18 392,156 396,564
9 1/2%, 11/15/97 to 8/15/20 1,063,219 1,125,240
11 1/2%, 10/15/10 to 7/15/18 138,824 152,706
13%, 10/15/13 159,152 182,030
13 1/2%, 7/15/11 to 10/15/14 137,857 159,053
97,202,523
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $276,240,123) 274,573,745
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5%
U.S. GOVERNMENT AGENCY - 1.2%
Federal Home Loan Mortgage Corporation Z bond
Series 9-Z class E, 9.05%, 8/15/19 4,526,038 4,568,470
PRIVATE SPONSOR - 0.3%
Maryland National Bank pass thru Series 1990-1 class A,
9 1/2%, 10/25/20 1,219,497 1,212,637
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $6,256,935) 5,781,107
COMMERCIAL MORTGAGE SECURITIES - 12.1%
ACP Mortgage LP (a)(f):
commercial floater Series E, 6.9148%, 2/28/28 5,530,862 3,424,488
commercial floater Series F, 6.9148%, 2/28/28 2,918,728 2,006,158
CBA Mortgage Corp. commercial Series 1993-C1 class E,
7.158%, 12/25/03 (a) 3,183,000 2,571,267
CS First Boston Mortgage Securities Corp. commercial
Series 1994-M1 class E, 12.60%, 12/25/02 (a) 4,000,000 3,873,125
Federal Home Loan Mortgage Corporation sequential pay
Series 1352 class A, 5 1/2%, 11/15/04 316,645 297,201
New England Mutual Life Insurance Co. commercial
Series 1993-1 class D, 8%, 12/15/23 (a) 5,001,395 3,785,431
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
Resolution Trust Corp.:
commercial Series 1991-M5 class A, 9%, 3/25/07 $ 6,357,835 $ 6,430,355
commercial Series 1992-N2 class 4, 10%, 12/15/04 (a) 3,000,000 2,962,500
commercial Series 1992-N2 class 5-A, 10 5/8%,
12/15/04 (a) 3,200,000 3,066,000
commercial Series 1994-C1 class E, 8%, 6/25/26 6,427,334 5,021,355
commercial Series 1994-C2 class E, 8%, 4/25/25 7,151,641 5,853,171
commercial Series 1994-N2 class 5-B, 10 5/8%,
12/15/04 (a) 1,000,000 958,125
SML, Inc.:
commercial Series 1994-C1 class B-3, 11.69%, 9/18/99 1,845,000 1,627,059
commercial Series 1994-C1 class C, 9.28%, 9/18/99 (b) 3,280,000
2,146,350
Structured Asset Securities Corp. commercial
Series 1992-M1 class C, 7.05%, 11/25/02 3,192,522 2,309,590
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $45,860,814) 46,332,175
COMPLEX MORTGAGE SECURITIES - 6.3%
INTEREST ONLY STRIPS - 6.3%
Federal National Mortgage Association:
Series A class 2, 605%, 8/25/10 (e). 87,167 1,368,515
trust 47, 10%, 10/25/18 (d) 7,833,394 2,594,812
trust 49, 10%, 2/25/19 (d) 4,947,865 1,620,426
trust 249, 6 1/2%, 10/25/23 (d) 47,769,076 17,137,156
SML, Inc. commercial Series 1994-C1 class S,
0.81%, 9/18/99 (d) 51,554,000 1,443,512
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $21,961,540) 24,164,421
REPURCHASE AGREEMENTS - 8.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.81%
dated 1/31/95 due 2/1/95 $ 32,088,178 32,083,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $382,402,412) $ 382,934,448
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 $22,647,094 or 6.3% of net
assets.
(b) Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
SML, Inc.
commercial Series
1994-C1 class C,
9.28%, 9/18/99 8/11/94 $2,132,820
(c) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
(d) Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
(e) Security represents right to receive monthly interest payments on an
underlying pool of mortgages and the principal amount shown. Coupon
reflects that the underlying pool of mortgages is larger than the principal
to be received.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At January 31, 1995, the aggregate cost of investment securities for income
tax purposes was $382,402,412. Net unrealized appre-
ciation aggregated $532,036, of which $5,087,130 related to appreciated
investment securities and $4,555,094 related to depreciated investment
securities.
The fund intends to elect to defer to its fiscal year ending July 31,1995
$4,378,000 of losses recognized during the period November 1, 1993 to July
31, 1994.
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 31, 1995 (UNAUDITED)

ASSETS

Investment in securities, at value (including repurchase $ 382,934,448
agreements of $32,083,000) (cost $382,402,412) -
See accompanying schedule

Cash 707

Receivable for investments sold 15,256,175

Interest receivable 2,752,613

TOTAL ASSETS 400,943,943

LIABILITIES

Payable for investments purchased $ 23,740,613
Regular delivery

Delayed delivery 19,240,579

Payable for fund shares redeemed 235,929

Dividends payable 318,074

Accrued management fee 133,922

Other payables and accrued expenses 150,978

TOTAL LIABILITIES 43,820,095

NET ASSETS $ 357,123,848

Net Assets consist of:

Paid in capital $ 366,216,791

Undistributed net investment income 538,810

Accumulated undistributed net realized gain (loss) (10,163,789)
on investments

Net unrealized appreciation (depreciation) on 532,036
investments

NET ASSETS, for 34,369,588 shares outstanding $ 357,123,848

NET ASSET VALUE, offering price and redemption price per $10.39
share ($357,123,848 (divided by) 34,369,588 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1995 (UNAUDITED)

INVESTMENT INCOME $ 14,599,862
Interest

EXPENSES

Management fee $ 809,940

Transfer agent fees 386,321

Accounting fees and expenses 72,127

Non-interested trustees' compensation 932

Custodian fees and expenses 109,178

Registration fees 11,284

Audit 11,954

Legal 2,543

TOTAL EXPENSES 1,404,279

NET INVESTMENT INCOME 13,195,583

REALIZED AND UNREALIZED GAIN (LOSS) (5,411,924)
Net realized gain (loss) on investment securities

Change in net unrealized appreciation (depreciation) on:

Investment securities (1,001,764)

Delayed delivery commitments 162,588 (839,176)

NET GAIN (LOSS) (6,251,100)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 6,944,483
FROM OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED JANUARY JULY 31,
31, 1994
1995
(UNAUDITED)

INCREASE (DECREASE) IN NET ASSETS

Operations $ 13,195,583 $ 25,299,446
Net investment income

Net realized gain (loss) (5,411,924) (6,701,766)

Change in net unrealized appreciation (depreciation) (839,176) (6,853,567)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 6,944,483 11,744,113
FROM OPERATIONS

Distributions to shareholders: (11,981,081) (20,745,350)
From net investment income

From net realized gain (1,718,507) (1,532,937)

In excess of net realized gain - (1,074,645)

TOTAL DISTRIBUTIONS (13,699,588) (23,352,932)

Share transactions 64,629,990 75,437,490
Net proceeds from sales of shares

Reinvestment of distributions 11,413,159 19,136,884

Cost of shares redeemed (77,964,946) (136,632,161)

Net increase (decrease) in net assets resulting from (1,921,797) (42,057,787)
share transactions

TOTAL INCREASE (DECREASE) IN NET ASSETS (8,676,902) (53,666,606)

NET ASSETS

Beginning of period 365,800,750 419,467,356

End of period (including under (over) distribution $ 357,123,848 $ 365,800,750
of net investment income of $538,810 and
$(675,692), respectively)

OTHER INFORMATION

Shares 6,260,613 7,107,385
Sold

Issued in reinvestment of distributions 1,100,422 1,793,385

Redeemed (7,551,287) (12,806,427)

Net increase (decrease) (190,252) (3,905,657)

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED JULY 31,
ENDED
JANUARY
31, 1995

(UNAUDITED 1994 1993 1992 1991 1990
)

SELECTED PER-SHARE DATA

Net asset value, beginning $ 10.580 $ 10.910 $ 10.830 $ 10.480 $ 10.220 $ 10.260
of period

Income from Investment .386 .570 C .788 .808 .861 .896
Operations
Net investment income

Net realized and (.175) (.242) (.007) .313 .255 (.119)
unrealized gain (loss)

Total from investment .211 .328 .781 1.121 1.116 .777
operations

Less Distributions (.351) (.588) (.701) (.771) (.856) (.817)
From net investment
income

From net realized gain (.050) (.040) - - - -
on investments

In excess of net realized - (.030) - - - -
gain on investments

Total distributions (.401) (.658) (.701) (.771) (.856) (.817)

Net asset value, $ 10.390 $ 10.580 $ 10.910 $ 10.830 $ 10.480 $ 10.220
end of period

TOTAL RETURN B 2.06% 3.13 7.47 10.98 11.38 7.98
% % % % %

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 357 $ 366 $ 419 $ 441 $ 410 $ 387
(in millions)

Ratio of expenses to .79% .79 .76 .80 .82 .82
average net assets A % % % % %

Ratio of net investment 7.37% 6.73 7.18 7.57 8.39 8.78
income to average A % % % % %
net assets

Portfolio turnover rate 265% 563 278 146 209 110
A % % % % %

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C EFFECTIVE AUGUST 1, 1993, THE FUND BEGAN REFLECTING IN NET INVESTMENT
INCOME PER SHARE CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES IN ACCORDANCE WITH NEW GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1995 (Unaudited)

1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Mortgage Securities 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 of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted securities) for
which 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 is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities and losses deferred due to excise tax
regulations. 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 and may
affect net investment income per share. Accumulated undistributed net
investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
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.
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 SEC), the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the
SEC, the fund, along with other registered investment companies having
management contracts with FMR, may participate in an interfund lending
program. This
program provides an alternative credit facility allowing the fund to borrow
from, or lend money to, other participating funds.
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
market value of the securities purchased or sold on a when-issued or
forward commitment basis are identified as such in the fund's schedule of
investments. 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 privately placed
restricted securities. These securities 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 $2,146,350 or 0.6% of net assets.
3. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $473,955,227 and $478,787,219, 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 .1200% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during those periods,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject
to the approval of the Board of Trustees, the Plan also authorizes payments
to third parties that assist in the sale of
the fund's shares or render shareholder support services. FMR or FDC has
informed the fund that payments made to third parties under the Plan
amounted to $8,568 for the period.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
During the period August 1, 1994 to December 31, 1994, FSC received fees
based on the type, size, number of accounts and the number of transactions
made by shareholders. Effective January 1, 1995, the Board of Trustees
approved a revised transfer agent contract pursuant
to which 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.
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. INTERFUND LENDING
PROGRAM.
The fund participated in the interfund lending program as a lender. The
maximum loan and the average daily loan balances during the periods for
which loans were outstanding amounted to $32,105,000 and $11,823,143,
respectively. The weighted average interest rate was 5.0%. Interest earned
from the interfund lending program amounted to $11,542 and is included in
interest income on the Statement of Operations.
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)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(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)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC
(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO WRITE FIDELITY

If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and send
you written confirmation upon completion of your request.
(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
SELLING SHARES
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
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 02210-0193
(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc. London, England
Fidelity Management & Research
(Far East) Inc. Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Arthur S. Loring, Secretary
Stephen P. Jonas, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
Gerald C. McDonough*
Thomas R. Williams*
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
(registered trademark)
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
THE FIDELITY
TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE

FIDELITY

(registered trademark)
GINNIE MAE
PORTFOLIO
SEMIANNUAL REPORT
JANUARY 31, 1995
CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over time.

FUND TALK 7 The manager's review of fund
performance, strategy and outlook.

INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.

INVESTMENTS 11 A complete list of the fund's
investments with their market
values.

FINANCIAL STATEMENTS 13 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.

NOTES 17 Notes to the financial statements.

Ginnie Mae Portfolio 1.50% -1.04% 43.76% 110.27%

Salomon Brothers GNMA 1.62% -0.08% 50.00%
Mortgage Pass-Through Index n/a

Average GNMA Fund 1.06% -1.59% 42.64% n/a

Consumer Price Index 1.28% 2.80% 17.97% 38.27%

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
Mortgage Pass-Through Index - a broad measure of GNMA performance. To
measure how the fund's performance stacked up against its peers, you can
compare it to the average GNMA fund, which currently reflects the
performance of 52 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 (CPI) helps
show how your fund did compared to inflation. (The CPI returns begin on the
month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND

Ginnie Mae Portfolio -1.04% 7.53% 8.38%

Salomon Brothers GNMA Mortgage -0.08% 8.45%
Pass-Through Index n/a

Average GNMA Fund -1.59% 7.36% n/a

Consumer Price Index 2.80% 3.36% 3.56%

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 Portfolio (015)SB GNMA Index (SB19)
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 18157.94 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 20292.71 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
02/28/94 20594.31 22454.02
03/31/94 20077.15 21885.93
04/30/94 19916.58 21754.62
05/31/94 19934.34 21826.41
06/30/94 19866.94 21782.76
07/31/94 20270.17 22185.74
08/31/94 20320.66 22207.92
09/30/94 20037.88 21943.65
10/31/94 20012.16 21919.51
11/30/94 19947.66 21842.79
12/31/94 20148.24 22074.33
01/31/95 20573.51 22544.51
$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, 1995, the value of your investment would
have grown to $20,574 - a 105.74% increase on your initial investment. For
comparison, look at how the Salomon Brothers GNMA Mortgage Pass-Through
Index did over the same period. With dividends reinvested the same $10,000
investment would have grown to $22,545 - a 125.45% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX MONTHS
ENDED
JANUARY 31, YEARS ENDED JULY 31,

1995 1994 1993 1992 1991 1990

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dividend return 3.43% 5.24% 6.42% 7.80% 8.66% 8.49%

Capital appreciation -1.93% -5.87% 1.81% 3.85% 2.70% -0.48%
return

Total return 1.50% -0.63% 8.23% 11.65% 11.36% 8.01%

</TABLE>

DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested.
DIVIDENDS AND YIELD

<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED JANUARY 31, 1995 PAST PAST 6 PAST 1
MONTH MONTHS YEAR

Dividends per share 6.09(cents) 34.79(cents) 65.18(cents)

Annualized dividend rate 7.15% 6.85% 6.35%

30-day annualized yield 7.38% - -

</TABLE>

DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.03 over
the past month, $10.08 over the past six months and $10.26 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW

NOTE TO SHAREHOLDERS:
On February 13, 1995, Kevin Grant (right photo) became portfolio manager of
Fidelity Ginnie Mae Portfolio. The following is an interview with Bob Ives
- who managed the fund during the period covered by this report - with some
comments from Kevin Grant on his outlook and strategy:
Q. BOB, HOW HAS THE FUND PERFORMED?
B.I. In one of the worst years for bonds ever, the fund had total returns
of 1.50% and -1.04% for the six months and one year ended January 31, 1995,
respectively. According to Lipper Analytical Services, the average GNMA
fund had returns of 1.06% and -1.59% over the same periods. The Salomon
Brothers Mortgage Pass-Through GNMA index returned 1.62% and -0.08% during
the same periods.
Q. WHAT HELPED THE FUND BEAT THE AVERAGE GNMA FUND?
B.I. First, Ginnie Maes generally outperformed Treasury bonds and other
sectors of the mortgage-backed securities market over the past six months.
Other GNMA fund managers may have kept core positions in Treasury bonds,
while I had most of the fund invested in Ginnie Maes. Second, I focused
the fund's investments on seasoned - or older - mortgages, and they
generally did well during the period. Finally, the fund's duration - its
sensitivity to changes in interest rates - was probably a bit longer than
the duration of other GNMA funds, meaning the fund was more sensitive to
interest rate changes. That longer duration probably made a difference in
January, when longer-term interest rates for mortgage-backed securities
actually dropped. As these rates dropped, the prices of the fund's bonds
rose - more so, it appears, than others, because the fund had a longer
duration.
Q. DESCRIBE THE MORTGAGE-BACKED SECURITIES ENVIRONMENT OVER THE PAST SIX
MONTHS.
B.I. In general, mortgage securities have performed better than Treasuries
and other parts of the bond market, in part because mortgage bonds
generally offer higher yields and shorter durations - a good combination in
the rising interest rate environment of the past six months. Mortgage
bonds typically pay higher yields than Treasuries to help compensate
investors for prepayment risk - the risk that mortgage holders will pay off
their loans before they are due. During the period, mortgage-backed
securities offered attractive yields and were less susceptible to
prepayment risk. That's because the rise in interest rates helped create
an environment in which mortgage holders were less likely to prepay.
Q. WHAT'S YOUR READ ON WHY THE PERFORMANCE OF GINNIE MAES IMPROVED DURING
THE PAST SIX MONTHS?
B.I. They were priced fairly cheaply at the beginning of the period,
because many investors were concerned about rising interest rates. The
duration of Ginnie Maes tends to be longer than other mortgage-backed
securities. That's because Ginnie Mae borrowers tend to prepay - or pay
off their loan's principal - more slowly than borrowers in other mortgage
programs. Rising interest rates made it even less likely that Ginnie Mae
borrowers would prepay. So as interest rates were rising, investors didn't
want to lose value by holding longer-duration Ginnie Maes. However,
investors gradually came to appreciate the inherent value offered by Ginnie
Maes. This increased investor interest helped drive prices up.
Q. WHAT HAS BEEN THE EFFECT OF TALK IN THE NEWS LATELY ABOUT POSSIBLE
REDUCTIONS IN THE SUPPLY OF GINNIE MAES?
B.I. It's one reason Ginnie Maes have outperformed other segments of the
market. The possible changes are a result of Washington's move toward
reducing the role of government. If the change comes about, there probably
would be a reduction in the supply of Ginnie Maes going forward. The
possibility that this might occur has helped increase investor interest in
the sector, especially among those who are required to invest in, or
attracted to, bonds that are backed by the full faith and credit of the
U.S. government, such as Ginnie Maes. If the most drastic scenario comes
about, and the program is cut back significantly, it is likely to help
Ginnie Mae securities in the short term because there will be less supply
going forward, causing Ginnie Mae prices to rise.
Q. YOU HAD MENTIONED SEASONED MORTGAGES EARLIER . . .
B.I. This is a sector I've been active in throughout my tenure on the fund.
A mortgage security's age can help indicate how prepayment risk is likely
to change under different conditions. On average, I believe that risk has
not always been priced all that efficiently relative to the more actively
traded sectors of the market, which are the newer issues. My strategy has
been to try to purchase very seasoned bonds at cheaper prices, then sell
them when the market realizes their value.
Q. TURNING TO YOU, KEVIN: AS YOU PREPARE TO TAKE OVER THE FUND ON FEBRUARY
13, WHAT'S YOUR OUTLOOK FOR THE YEAR AHEAD?
K.G. The mortgage market today generally has less risk than it's had in
about five years. The main reason is that most home buyers have refinanced
into mortgages with interest rates that are low relative to the current
market. At the end of the period, the average rate on the outstanding
universe of mortgages is about 7.5%, and a new mortgage is about 9%.
There's no economic incentive for most people to refinance. Historically
the mortgage market has provided returns above Treasuries of about 1%. I
think that may be the case this year. I don't think we'll get much more or
less than that, and the primary reason is that the world knows there's
little prepayment risk, so there are fewer opportunities within the
mortgage market than there were last year. Nevertheless, I think that 1%
return advantage is pretty bankable.

COUPON DISTRIBUTION AS OF JANUARY 31, 1995
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO

6 - 6.99% 4.2 6.6

7 - 7.99% 41.3 36.4

8 - 8.99% 26.6 20.4

9 - 9.99% 12.7 20.9

10 - 10.99% 4.6 5.1

11 - 11.99% 2.0 1.9

12 - 12.99% 2.2 2.3

13% and over 0.4 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, 1995
6 MONTHS AGO

Years 9.0 8.4

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 JANUARY 31, 1995
6 MONTHS AGO

Years 5.1 4.9

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
AS OF JANUARY 31, 1995 AS OF JULY 31, 1994
Row: 1, Col: 1, Value: 6.0
Row: 1, Col: 2, Value: 1.3
Row: 1, Col: 3, Value: 40.0
Row: 1, Col: 4, Value: 52.7
Row: 1, Col: 1, Value: 6.0
Row: 1, Col: 2, Value: 1.8
Row: 1, Col: 3, Value: 42.2
Row: 1, Col: 4, Value: 50.0
42.3
Mortgage-backed
securities 92.2%
U.S. government
and agency
obligations 1.8%
Short-term
investments 6.0%
Mortgage-backed
securities 92.7%
U.S. government
and agency
obligations 1.3%
Short-term
investments 6.0%
INVESTMENTS JANUARY 31, 1995 (UNAUDITED)

Showing Percentage of Total Value of Investment in Securities

U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 92.2%

FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.3%
8 1/2%, 2/1/04 to 5/1/17 $ 1,883 $ 1,881
9%, 6/1/10 to 4/1/21 6,790 6,901
10%, 10/1/04 to 12/1/19 12,493 13,114
10 1/4%, 2/1/09 to 11/1/16 6,672 7,002
10 1/2%, 5/1/10 to 12/1/20 10,890 11,449
11 1/4%, 2/1/10 to 5/1/11 824 878
11 1/2%, 2/1/12 to 8/1/19 3,220 3,459
11 3/4%, 11/1/11 209 225
12%, 6/1/15 to 11/1/15 640 695
12 1/2%, 11/1/12 to 9/1/13 1,506 1,713
47,317
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.7%
8 1/2%, 6/1/08 to 4/1/16 2,126 2,122
9%, 12/1/97 to 10/1/11 522 531
10 1/4%, 12/1/15 to 10/1/18 1,129 1,192
11 1/2%, 1/1/01 to 9/1/15 1,116 1,212
12 1/2%, 10/1/15 473 521
14%, 11/1/12 to 10/1/14 68 79
5,657
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 85.2%
6 1/4%, 8/15/23 to 6/15/24 35,743 31,509
7%, 10/15/07 to 8/15/24 183,538 169,328
7 1/2%, 12/15/21 to 11/15/23 139,673 131,822
8%, 8/15/16 to 9/15/23 99,844 97,268
8 1/2%, 2/15/05 to 1/15/25 97,977 98,458
9%, 12/15/04 to 1/15/25 33,410 34,126
9 1/2%, 4/15/01 to 8/15/21 51,194 53,777
10%, 10/15/00 to 10/15/05 423 443
10 1/2%, 2/15/98 to1/15/16 1,591 1,683
11%, 11/15/13 to10/15/15 364 391
11 1/4%, 7/15/13 to1/15/16 960 1,034
11 1/2%, 3/15/10 to 4/15/19 4,016 4,418
11 3/4%, 1/15/16 129 140
12%, 5/15/99 to 11/15/15 2,984 3,285
12 1/4%, 3/15/14 82 90
12 1/2%, 3/15/10 to 11/15/15 9,319 10,434
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - CONTINUED

GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
13%, 1/15/11 to 5/15/15 $ 1,705 $ 1,951
13 1/2%, 5/15/10 to 1/15/15 630 727
640,884
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $693,314) 693,858
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.8%
U.S. GOVERNMENT AGENCY - 1.8%
Federal National Mortgage Association
Series 1987-2, Z tranche, 11%, 11/25/17 3,288 3,538
U.S. Dept. Veterans Affairs Vendee Mortgage Trust
sequential pay series 1992-1 class 2-B,
7 3/4%, 9/15/10 10,000 9,872
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $13,787) 13,410
REPURCHASE AGREEMENTS - 6.0%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.81%
dated 1/31/95 due 2/1/95 $ 44,983 44,976
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $752,077) $ 752,244
INCOME TAX INFORMATION
At January 31, 1995, the aggregate cost of investment securities for income
tax purposes was $753,407,000. Net unrealized depreciation aggregated
$1,163,000, of which $8,281,000 related to appreciated investment
securities and $9,444,000 related to depreciated investment securities.
The fund has elected to defer to its fiscal year ending July 31, 1995,
$20,625,000 of losses recognized during the period November 1, 1993 to July
31, 1994.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
(EXCEPT PER-SHARE AMOUNTS) JANUARY 31, 1995 (UNAUDITED)

ASSETS

Investment in securities, at value (including repurchase $ 752,244
agreements of $44,976) (cost $752,077) - See
accompanying schedule

Cash 482

Receivable for investments sold 6,003

Interest receivable 5,005

TOTAL ASSETS 763,734

LIABILITIES

Payable for investments purchased $ 47,684

Dividends payable 626

Accrued management fee 268

Other payables and accrued expenses 286

TOTAL LIABILITIES 48,864

NET ASSETS $ 714,870

Net Assets consist of:

Paid in capital $ 775,758

Undistributed net investment income 1,486

Accumulated undistributed net realized gain (loss) (62,541)
on investments

Net unrealized appreciation (depreciation) on 167
investments

NET ASSETS, for 70,493 shares outstanding $ 714,870

NET ASSET VALUE, offering price and redemption price per $10.14
share ($714,870 (divided by) 70,493 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1995 (UNAUDITED)

INVESTMENT INCOME $ 29,979
Interest

EXPENSES

Management fee $ 1,663

Transfer agent fees 756

Accounting fees and expenses 114

Non-interested trustees' compensation 2

Custodian fees and expenses 181

Registration fees 3

Audit 32

Legal 5

TOTAL EXPENSES 2,756

NET INVESTMENT INCOME 27,223

REALIZED AND UNREALIZED GAIN (LOSS) (26,617)
Net realized gain (loss) on investment securities

Change in net unrealized appreciation (depreciation) on 9,445
investment securities

NET GAIN (LOSS) (17,172)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 10,051
FROM OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED JULY 31, 1994
JANUARY 31, 1995
(UNAUDITED)

INCREASE (DECREASE) IN NET ASSETS

Operations $ 27,223 $ 60,757
Net investment income

Net realized gain (loss) (26,617) (42,174)

Change in net unrealized appreciation (depreciation) 9,445 (24,038)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 10,051 (5,455)
FROM OPERATIONS

Distributions to shareholders: (25,129) (46,661)
From net investment income

From net realized gain - (16,166)

In excess of net realized gain (1,476) (5,195)

TOTAL DISTRIBUTIONS (26,605) (68,022)

Share transactions 49,816 219,226
Net proceeds from sales of shares

Reinvestment of distributions 22,542 58,534

Cost of shares redeemed (109,699) (411,083)

Net increase (decrease) in net assets resulting from (37,341) (133,323)
share transactions

TOTAL INCREASE (DECREASE) IN NET ASSETS (53,895) (206,800)

NET ASSETS

Beginning of period 768,765 975,565

End of period (including under (over) distribution of net $ 714,870 $ 768,765
investment income of $1,486 and $(608),
respectively)

OTHER INFORMATION
Shares

Sold 4,938 20,365

Issued in reinvestment of distributions 2,231 5,427

Redeemed (10,902) (38,221)

Net increase (decrease) (3,733) (12,429)

</TABLE>

FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED JULY 31,
ENDED
JANUARY 31,
1995

(UNAUDITED) 1994 1993 1992 1991 1990

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA

Net asset value, $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370 $ 10.420
beginning of period

Income from Investment .377 .582 B .800 .833 .845 .891
Operations
Net investment income

Net realized and (.229) (.650) .083 .373 .288 (.099)
unrealized gain
(loss)

Total from investment .148 (.068) .883 1.206 1.133 .792
operations

Less Distributions (.348) (.582) (.683) (.796) (.853) (.842)
From net investment
income

From net realized gain - (.190) - - - -
on investments

In excess of net (.020) (.060) - - - -
realized
gain on investments

Total distributions (.368) (.832) (.683) (.796) (.853) (.842)

Net asset value, end $ 10.140 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370
of period

TOTAL RETURN C 1.50% (.63) 8.23 11.65 11.36 8.01
% % % % %

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 715 $ 769 $ 976 $ 914 $ 797 $ 658
(in millions)

Ratio of expenses to .75% .82% .80 .80 .83 .83
average net assets A % % % %

Ratio of net investment 7.41% 7.03% 7.26 7.73 8.24 8.71
income to average A % % % %
net assets

Portfolio turnover rate 208% 303% 259 114 125 96
A % % % %

</TABLE>

A ANNUALIZED
B EFFECTIVE AUGUST 1, 1993, THE FUND BEGAN REFLECTING IN NET INVESTMENT
INCOME PER SHARE CERTAIN RECLASSIFICATIONS RELATED TO BOOK
TO TAX DIFFERENCES IN ACCORDANCE WITH NEW GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1995 (Unaudited)

6. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Ginnie 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 of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for
mortgage-backed securities, futures transactions, and losses deferred due
to wash sales and excise tax regulations. 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 and may
affect net investment income per share. Undistributed net investment income
may include temporary book and tax basis differences which will reverse in
a subsequent period. Any taxable 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.
7. 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 SEC), the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
8. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $789,560,000 and $825,223,000, respectively.
9. 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 .1200% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during those periods,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annualized rate of .45%
of average net assets.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $26,000 for the
period.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
During the period August 1, 1994 to December 31, 1994, FSC received fees
based on the type, size, number of accounts and the number of transactions
made by shareholders. Effective January 1, 1995, the Board of Trustees
approved a revised transfer agent contract pursuant to which 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.
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.
TO CALL FIDELITY

For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
4611 Sharon Road
Charlotte, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
215 South State Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI

INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
U.K. Inc. (FMR U.K.)
London, England
Fidelity Management & Research
Far East Inc., (FMR Far East)
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Arthur S. Loring, Secretary
Stephen P. Jonas, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
Gerald C. McDonough*
Thomas R. Williams*
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(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Long-Term Government Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Income
THE FIDELITY
TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE

SPARTAN(registered trademark)

(registered trademark)
LIMITED MATURITY GOVERNMENT
FUND
SEMIANNUAL REPORT
JANUARY 31, 1995
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 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.

NOTES 19 Notes to the financial statements.

There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in 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 to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1995 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND

Spartan Limited Maturity 1.37% -0.50% 38.37% 57.82%
Government

Lehman Brothers 1-3 Year
Government Bond Index 1.47% 1.25% 39.68% n/a

Average Short U.S. Government 0.89% -1.10% 36.48% n/a
Fund

Consumer Price Index 1.28% 2.80% 17.97% 28.35%

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's performance stacked up against
its peers, you can also look at the average short U.S. government fund,
which currently reflects the performance of 134 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 (CPI) helps show how your fund did compared to inflation. (The
CPI returns begin on the month end closest to the fund's start date.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1995 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND

Spartan Limited Maturity Government -0.50% 6.71% 6.99%

Lehman Brothers 1-3 Year
Government Bond Index 1.25% 6.91% n/a

Average Short U.S. Government -1.10% 6.40% n/a
Fund

Consumer Price Index 2.80% 3.36% 3.76%

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 Limited Matu1-3 Year Government
05/31/88 10000.00 10000.00
06/30/88 10089.94 10127.60
07/31/88 10093.29 10132.56
08/31/88 10115.76 10157.64
09/30/88 10224.39 10275.33
10/31/88 10323.96 10379.40
11/30/88 10319.92 10353.69
12/31/88 10358.92 10376.30
01/31/89 10442.02 10458.37
02/28/89 10446.04 10459.30
03/31/89 10499.62 9886.65
04/30/89 10638.18 10674.86
05/31/89 10788.04 10796.27
06/30/89 10980.46 10997.27
07/31/89 11117.12 11158.94
08/31/89 11049.89 11093.60
09/30/89 11106.15 11158.33
10/31/89 11282.19 11330.83
11/30/89 11373.31 11434.28
12/31/89 11431.31 11478.26
01/31/90 11417.20 11491.58
02/28/90 11480.35 11551.04
03/31/90 11507.32 11585.73
04/30/90 11524.31 11613.29
05/31/90 11697.24 11791.69
06/30/90 11809.04 11915.57
07/31/90 11949.45 12059.28
08/31/90 11998.07 12103.26
09/30/90 12094.03 12198.34
10/31/90 12219.34 12333.37
11/30/90 12362.54 12452.92
12/31/90 12475.37 12599.42
01/31/91 12614.52 12718.35
02/28/91 12712.88 12799.80
03/31/91 12817.70 12885.90
04/30/91 12928.05 13009.17
05/31/91 12994.87 13086.91
06/30/91 13046.37 13135.53
07/31/91 13195.74 13248.58
08/31/91 13359.79 13429.45
09/30/91 13495.45 13571.92
10/31/91 13664.14 13718.72
11/30/91 13713.78 13859.64
12/31/91 13961.34 14069.93
01/31/92 13893.60 14051.04
02/29/92 13975.91 14093.47
03/31/92 13959.15 14088.83
04/30/92 14062.83 14217.36
05/31/92 14203.36 14348.67
06/30/92 14313.11 14493.31
07/31/92 14354.42 14672.94
08/31/92 14527.15 14779.17
09/30/92 14627.26 14917.62
10/31/92 14567.22 14832.14
11/30/92 14634.65 14810.46
12/31/92 14766.11 14948.59
01/31/93 14892.84 15104.99
02/28/93 15056.34 15225.16
03/31/93 15135.68 15271.93
04/30/93 15233.61 15364.84
05/31/93 15283.90 15327.68
06/30/93 15444.20 15441.96
07/31/93 15496.70 15475.41
08/31/93 15612.68 15603.94
09/30/93 15666.30 15653.80
10/31/93 15702.11 15688.80
11/30/93 15598.01 15691.28
12/31/93 15713.89 15753.53
01/31/94 15877.46 15852.02
02/28/94 15728.39 15755.70
03/31/94 15526.39 15676.10
04/30/94 15450.89 15616.33
05/31/94 15434.90 15637.39
06/30/94 15429.48 15676.72
07/31/94 15585.44 15817.64
08/31/94 15631.41 15869.67
09/30/94 15597.56 15833.75
10/31/94 15615.87 15869.98
11/30/94 15579.95 15804.01
12/31/94 15564.72 15834.68
01/31/95 15799.90 16050.24

$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, 1995, the value of your
investment would have grown to $15,800 - a 58.00% increase on your initial
investment. This assumes you still own the fund on January 31, 1995, 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 $16,050 - a 60.50% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX MONTHS
ENDED
JANUARY 31, YEARS ENDED JULY 31,

1995 1994 1993 1992 1991 1990

Dividend return 3.14% 5.22% 6.18% 6.98% 8.91% 8.48%

Capital appreciation -1.77% -4.66% 1.77% 1.79% 1.50% -1.01%
return

Total return 1.37% 0.56% 7.95% 8.77% 10.41% 7.47%

DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested. Capital appreciation and total returns include the effect of
the $5 account closeout fee.
DIVIDENDS AND YIELD

<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED JANUARY 31, 1995 PAST PAST 6 PAST 1
MONTH MONTHS YEAR

Dividends per share 5.13(cents) 29.90(cents) 56.30(cents)

Annualized dividend rate 6.44% 6.26% 5.87%

30-day annualized yield 7.17% - -

</TABLE>

DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $9.38 over
the past month, $9.47 over the past six months and $9.59 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW

An interview with Curt Hollingsworth, Portfolio Manager of Spartan Limited
Maturity Government Fund
Q. CURT, HOW HAS THE FUND PERFORMED?
A. I'm pleased that the fund posted a six-month positive return and beat
most of its competitors in a difficult environment, one in which interest
rates were rising. The fund had a total return of 1.37% for the six months
ended January 31, 1995. That beat the average short-term government bond
fund tracked by Lipper Analytical Services, which returned 0.89% during the
same period. For the 12 months ended January 31, the fund returned -0.50%,
while the average short-term government bond fund returned -1.10%
Q. WHAT HELPED YOU BEAT THE AVERAGE OVER THE PAST SIX MONTHS?
A. I think the fund's security selection, particularly in mortgage-backed
bonds, helped. Mortgage-backed securities were generally some of the
better performing government bonds during the period. That's because
mortgage yield spreads - the difference in yield between these investments
and Treasury bonds with the same maturity - were wide at the beginning, but
narrowed during the period. That caused the fund's mortgage bonds to
outperform Treasury bonds.
Q. GRANTED, THE FUND OUTPERFORMED ITS COMPETITORS. BUT IT STILL POSTED ONLY
MODEST GAINS OVER THE PAST SIX MONTHS. WHY IS THAT?
A. The bond market had one of its worst years ever, as interest rates rose
sharply. Bond prices fell and yields rose, largely in response to
short-term interest rate increases instituted by the Federal Reserve Board.
The Fed increased the federal funds rate - the rate banks charge each other
for overnight loans - six times during the period, hoping to head off
future inflation that might be triggered by an improving U.S. economy. With
interest rates on the rise, overall bond performance was weak, and bond
funds, in general, suffered. Still, as I said, I'm pleased with the fund's
relative performance in the face of such a broad, negative market
environment.
Q. YOU MENTIONED MORTGAGE SECURITIES HAVE PERFORMED WELL. WHAT DO YOU LOOK
FOR WHEN YOU INVEST IN THESE BONDS?
A. In order to keep the fund's share price as stable as possible, I look
for mortgage bonds with higher coupons, that is, annual interest rate
payments. It's important to note that a mortgage-backed security is merely
a pool - or group - of mortgage loans taken out by individuals when they
buy their houses, and the investment performance of a mortgage security
depends in part on the behavior of the individual mortgage borrowers within
the pool. For example, how many of these individual borrowers will pay off
their mortgages early, in order to refinance at a lower interest rate, or
because they're buying a new house? When they do, the prepayment is passed
through to us, the mortgage security holder. Because prepayments affect
investment results, I spend a lot of time focusing on them.
Q. DO YOU FOCUS ON A PARTICULAR SEGMENT OF THE MORTGAGE MARKET?
A. Yes. I mostly buy mortgage securities backed by loans whose annual
interest rates are above today's mortgage rates. I focus on these loans
because they usually are prepaid faster. As a result, they have shorter
remaining maturities and more stable prices than mortgage securities with
lower coupons.
Q. HOW DO YOU DECIDE WHICH SECURITIES TO BUY?
A. A lot depends on their price, their coupon rate and how much prepayment
activity I am expecting. Of course, higher coupon loans often have higher
prices. If I buy at a premium - or for more than the face value of the
bond that will be redeemed when it matures - I instead want to buy loans
that are LESS likely to prepay than others paying the same annual interest.
That's because the fund earns a higher total return when the loans prepay
more slowly.
Q. HOW CAN YOU TELL WHETHER CERTAIN BONDS WILL PREPAY MORE SLOWLY THAN
OTHERS?
A. I invest in seasoned - or older - mortgages. The age can indicate how
prepayment risk is likely to change under different conditions. For
example, the fund might invest in 11% mortgages issued 15 years ago, bought
at a premium. It's easy to see that the interest the fund would earn from
an 11% mortgage would be good for its income. However, it's likely I'd
have to buy these kinds of mortgages at a premium.
Q. WHY WOULDN'T THESE MORTGAGE HOLDERS PREPAY TO REFINANCE AT TODAY'S LOWER
PREVAILING RATES?
A. Most of them have. The borrowers left in such mortgage pools have had
ample opportunities to refinance at lower rates over the past few years,
but haven't. I could suggest a few reasons. It could be they were
building an addition on their house and ran out of money. No bank is going
to grant them a new loan. It could be that the borrowers had a poor credit
history. Banks routinely don't refinance a mortgage for someone in that
position. Maybe the people have been in their house for 20 years and only
have a small amount to pay off, and it seems like too much trouble to
refinance. For whatever reason, these people haven't refinanced. At
Fidelity, we have researchers who work exclusively on evaluating prepayment
risk. When I have to pay a premium to buy high-coupon bonds, I aim to
locate homeowners who will prepay more slowly than people who have taken
out mortgages recently with the same interest rates.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. Interest rates have risen quite a bit, with most of the rise occurring
on the short-term end of the maturity spectrum. Although it's nearly
impossible to forecast where interest rates will go from here, it's clear
that 2-year Treasury notes, which are yielding 7.25% on January 31, are
more attractive than they were a year ago, when they were yielding only
4.1%. This seems particularly true given that inflation has accelerated
only modestly to 2.8% today from 2.5% a year ago. At the moment, short-
and intermediate-term securities are attractive, because they're yielding
just about as much as longer-term securities.

COUPON DISTRIBUTION AS OF JANUARY 31, 1995
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO

4 - 4.99% 15.9 0.3

5 - 5.99% 12.8 14.8

6 - 6.99% 9.6 1.9

7 - 7.99% 3.1 25.9

8 - 8.99% 15.4 8.3

9 - 9.99% 9.5 17.3

10 - 10.99% 6.2 4.5

11 - 11.99% 6.0 5.3

12 - 12.99% 15.8 15.6

13% and over 2.2 1.7

Zero Coupon Bonds 2.0 0.0

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, 1995
6 MONTHS AGO

Years 4.5 4.5

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 JANUARY 31, 1995
6 MONTHS AGO

Years 2.9 2.7

Mortgage-backed
securities 43.4%
U.S. government
and government
agency obligations 52.0%
CMOs and other
mortgage related
securities 3.1%
Short-term
investments 1.5%
Mortgage-backed
securities 48.8%
U.S. government
and government
agency obligations 46.0%
CMOs and other
mortgage related
securities 0.8%
Short-term
investments 4.4%
Row: 1, Col: 1, Value: 1.6
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 52.0
Row: 1, Col: 4, Value: 43.4
Row: 1, Col: 1, Value: 4.4
Row: 1, Col: 2, Value: 1.0
Row: 1, Col: 3, Value: 46.0
Row: 1, Col: 4, Value: 48.8
INVESTMENTS JANUARY 31, 1995 (UNAUDITED)

Showing Percentage of Total Value of Investment in Securities

U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 52.0%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 27.1%
4 1/4%, 5/15/96 $ 2,360 $ 2,279
8 3/4%, 10/15/97 45,350 46,824
7 3/8%, 11/15/97 15,100 15,104
5 3/8%, 1/31/98 29,260 27,852
5 1/8%, 3/31/98 15,900 14,881
5 3/8%, 5/31/98 43,500 40,836
9 1/4%, 8/15/98 12,440 13,111
6 3/4%, 6/30/99 45,200 43,821
Stripped Coupon, 11/15/97 20,600 16,829
221,537
U.S. GOVERNMENT AGENCY OBLIGATIONS - 24.9%
Federal Home Loan Bank (a):
4.37%, 2/24/97 59,100 55,828
5.95%, 6/22/98 180 170
4.55%, 8/3/98 21,700 19,910
Federal Home Loan Mortgage Corp.:
4.80%, 7/7/98 (a) 3,520 3,290
5.40%, 11/1/00 1,500 1,323
Government Trust Certificates:
Class 1-B (assets of Trust guaranteed by U.S. Government
through Defense Security Assistance Agency)
9 1/8%, 11/15/96 2,300 2,336
Class T-2 (assets of Trust guaranteed by U.S. Government
through Defense Security Assistance Agency)
9 5/8%, 5/15/02 1,800 1,907
Series 1992-A (assets of Trust guaranteed by U.S. Government
through Export-Import Bank) 7.02%, 9/01/04 3,565 3,430
Series 1994-F (assets of Trust guaranteed by U.S. Government
through Export-Import Bank) 8.178%, 12/15/04 35,639 35,784
State of Israel (guaranteed by U.S. Government through Agency
for International Development):
5 1/4%, 3/15/98 5,185 4,828
4 7/8%, 9/15/98 53,810 48,898
6%, 2/15/99 18,905 17,765
7 3/4%, 11/15/99 3,300 3,293
5 3/4%, 3/15/00 1,750 1,598
8%, 11/15/01 930 936
Tennessee Valley Authority:
8 1/4%, 11/15/96 2,125 2,153
6%, 1/15/97 800 775
204,224
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $427,963) 425,761
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - 43.4%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 19.8%
6 1/2%, 5/1/08 $ 4,412 $ 4,103
7 1/2%, 10/1/96 to 1/1/98 1,312 1,295
8%, 2/1/96 to 12/1/96 879 884
8 1/2%, 2/1/96 to 1/1/22 10,240 10,224
9%, 5/1/97 to 10/1/21 23,938 24,396
9 1/2%, 7/1/16 to 8/1/21 16,498 17,047
10%, 12/1/00 to 2/1/23 26,149 27,612
10 1/2%, 9/1/09 to 12/1/20 16,001 16,895
10 3/4%, 7/1/13 208 222
11%, 8/1/00 to 9/1/20 1,990 2,124
11 1/4%, 2/1/10 to 10/1/14 2,186 2,327
11 1/2%, 3/1/07 to 8/1/19 12,329 13,292
11 3/4%, 1/1/10 to 10/1/15 407 438
12%, 1/1/00 to 12/1/15 4,417 4,801
12 1/4%, 7/1/10 to 8/1/15 2,349 2,555
12 1/2%, 10/1/09 to 6/1/19 24,041 27,305
12 3/4%, 2/1/10 to 8/1/11 315 358
13%, 9/1/10 to 5/1/17 3,700 4,218
13 1/4%, 8/1/13 to 12/1/14 347 397
13 1/2%, 11/1/10 to 12/1/13 627 724
13 3/4%, 10/1/14 41 47
14%, 11/1/12 to 4/1/16 265 306
14 1/2%, 12/1/10 to 9/1/12 138 159
14 3/4%, 3/1/10 59 68
16 1/4%, 7/1/11 12 14
161,811
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 8.2%
6%, 8/1/08 to 5/1/09 5,704 5,173
7 1/2%, 2/1/99 to 5/1/00 2,680 2,628
8%, 4/1/98 to 2/1/10 16,778 16,628
8 1/4%, 12/1/01 5,596 5,687
8 1/2%, 1/1/98 to 12/1/22 4,758 4,768
9%, 11/1/97 to 5/1/98 731 746
10 1/4%, 10/1/09 to 10/1/18 872 921
11%, 8/1/10 to 9/1/15 3,972 4,289
11 1/4%, 11/1/10 to 1/1/16 2,998 3,230
11 1/2%, 9/1/11 to12/1/15 3,046 3,319
11 3/4%, 7/1/13 to 4/1/14 452 492
12 1/4%, 4/1/09 to 6/1/15 2,730 2,996
12 1/2%, 9/1/07 to 5/1/21 7,453 8,198
12 3/4%, 4/1/12 to 6/1/15 2,409 2,644
13%, 6/1/11 to 7/1/15 3,259 3,724
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
13 1/4%, 9/1/11 to 9/1/13 $ 1,143 $ 1,303
13 1/2%, 5/1/11 to 1/1/15 177 203
14%, 6/1/11 to 12/1/14 302 349
14 1/2%, 7/1/14 20 23
15%, 4/1/12 35 39
67,360
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 15.4%
7 1/2%, 11/15/23 3 2
8%, 9/15/06 to 4/15/23 1,810 1,754
8 1/2%, 4/15/16 to 4/15/17 168 169
9%, 11/15/04 to 5/15/17 3,148 3,240
9 1/2%, 6/15/09 to 1/15/17 14,652 15,416
10 1/2%, 10/15/11 to 7/15/17 4,445 4,786
11%, 8/15/98 to 10/15/15 613 662
11 1/2%, 3/15/10 to 1/15/21 12,684 13,952
11 3/4%, 1/15/14 133 145
12%, 12/15/12 to 6/15/15 1,973 2,171
12 1/4%, 1/15/14 170 187
12 1/2%, 4/15/10 to 4/15/19 68,719 76,956
13%, 1/15/11 to 5/15/15 2,274 2,615
13 1/4%, 9/15/13 to 10/15/14 596 667
13 1/2%, 5/15/10 to 12/15/14 1,186 1,361
13 3/4%, 8/15/14 to 9/15/14 74 84
14%, 6/15/11 to 12/15/14 307 357
15%, 7/15/11 to 9/15/12 1,289 1,523
16%, 9/15/11 to 4/15/13 183 217
17%, 12/15/11 17 20
126,284
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $362,400) 355,455
COLLATERALIZED MORTGAGE OBLIGATIONS - 3.0%
U.S. GOVERNMENT AGENCY - 3.0%
Federal Home Loan Mortgage Corp. planned amortization
class Series 1404-C, 6.40%, 2/15/05 5,500 5,207
Federal National Mortgage Association planned
amortization class:
Series 1992 Class155-D, 6.20%, 11/25/01 1,600 1,527
Series 1993-28 Class PD, 5 1/4%, 10/25/01 3,400 3,234
Series 1993 Class II-C, 5 3/4%, 4/25/02 9,400 9,065
COLLATERALIZED MORTGAGE OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY - CONTINUED
Federal National Mortgage Association Z-Bond z tranche
Series 1987-2, 11%, 11/25/17 $ 4,164 $ 4,482
Resolution Trust Corp. pass through Series 1991 Class 11-6,
12.647%, 10/25/21 1,060 1,105
24,620
PRIVATE SPONSOR - 0.0%
DLJ Acceptance Trust planned amortization class,
Series 1989 Class 1-F, 11%, 8/1/19 332 358
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $24,840) 24,978
COMMERCIAL MORTGAGE SECURITIES - 0.1%
PRIVATE SPONSOR - 0.1%
Federal Home Loan Mortgage Corporation sequential pay
Series 1353 Class A, 5 1/2%, 11/15/04 (cost $738) 792 743
REPURCHASE AGREEMENTS - 1.5%
MATURITY
AMOUNT
(000S)
Investment in repurchase agreements
(U.S. Treasury obligations) in a
joint trading account at 5.81%
dated 1/31/95 due 2/1/95 $ 12,434 12,432
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $828,373) $ 819,369

LEGEND
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At January 31, 1995, the aggregate cost of investment securities for income
tax purposes was $828,391,000. Net unrealized depreciation aggregated
$9,022,000, of which $2,767,000 related to appreciated investment
securities and $11,789,000 related to depreciated investment securities.
The fund has elected to defer to its fiscal year ending July 31, 1995
$47,440,000 of losses recognized during the period November 1, 1993 to July
31, 1994.
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
(EXCEPT PER-SHARE AMOUNTS) JANUARY 31, 1995 (UNAUDITED)

ASSETS

Investment in securities, at value (including repurchase $ 819,369
agreements of $12,432) (cost $828,373) - See
accompanying schedule

Cash 1

Receivable for investments sold 51,871

Interest receivable 12,225

TOTAL ASSETS 883,466

LIABILITIES

Payable for investments purchased $ 59,625

Payable for fund shares redeemed 1,057

Dividends payable 702

Accrued management fee 447

TOTAL LIABILITIES 61,831

NET ASSETS $ 821,635

Net Assets consist of:

Paid in capital $ 897,648

Undistributed net investment income 1,981

Accumulated undistributed net realized gain (loss) on (68,990)
investments

Net unrealized appreciation (depreciation) on (9,004)
investments

NET ASSETS, for 87,072 shares outstanding $ 821,635

NET ASSET VALUE, offering price and redemption price per $9.44
share ($821,635 (divided by) 87,072 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1995 (UNAUDITED)

INVESTMENT INCOME $ 37,356
Interest

EXPENSES

Management fee $ 2,978

Non-interested trustees' compensation 2

Interest 7

TOTAL EXPENSES 2,987

NET INVESTMENT INCOME 34,369

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities (20,559)

Change in net unrealized appreciation (depreciation) on:

Investment securities (2,981)

Delayed delivery commitments (9) (2,990)

NET GAIN (LOSS) (23,549)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 10,820
FROM OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED JANUARY JULY 31, 1994
31, 1995
(UNAUDITED)

INCREASE (DECREASE) IN NET ASSETS

Operations $ 34,369 $ 96,160
Net investment income

Net realized gain (loss) (20,559) (68,416)

Change in net unrealized appreciation (depreciation) (2,990) (19,485)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 10,820 8,259
FROM OPERATIONS

Distributions to shareholders (28,844) (71,409)
From net investment income

From net realized gain - -

In excess of net realized gain - (31,339)

TOTAL DISTRIBUTIONS (28,844) (102,748)

Share transactions 52,083 379,642
Net proceeds from sales of shares

Reinvestment of distributions 23,885 89,915

Cost of shares redeemed (254,425) (886,133)

Net increase (decrease) in net assets resulting from (178,457) (416,576)
share transactions

TOTAL INCREASE (DECREASE) IN NET ASSETS (196,481) (511,065)

NET ASSETS

Beginning of period 1,018,116 1,529,181

End of period (including under (over) distribution $ 821,635 $ 1,018,116
of net investment income of $1,981 and
$(3,544), respectively)

OTHER INFORMATION
Shares

Sold 5,514 37,868

Issued in reinvestment of distributions 2,523 8,997

Redeemed (26,904) (89,181)

Net increase (decrease) (18,867) (42,316)

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED JULY 31,
ENDED
JANUARY 31, 1995

(UNAUDITED) 1994 1993 1992 1991 1990

SELECTED PER-SHARE DATA

Net asset value, $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930 $ 10.030
beginning of period

Income from .355 .470 E .872 .836 .853 .816
Investment
Operations
Net investment
income

Net realized and (.226) (.410) (.087) .021 .142 (.100)
unrealized gain
(loss)

Total from .129 .060 .785 .857 .995 .716
investment
operations

Less Distributions (.299) (.540) (.605) (.677) (.845) (.816)
From net D
investment
income

From net realized - - (.050) (.060) (.020) -
gain on
investments

In excess of net - (.220) - - - -
realized gain on
investments

Total distributions (.299) (.760) (.655) (.737) (.865) (.816)

Net asset value, end $ 9.440 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930
of period

TOTAL RETURN B, C 1.38% .57% 7.96% 8.78% 10.43% 7.49%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of $ 822 $ 1,018 $ 1,529 $ 1,770 $ 880 $ 132
period (in millions)

Ratio of expenses to .65% .65% .65% .61% .50% .83%
average net assets A

Ratio of expenses to .65% .65% .65% .65% .69% .83%
average net assets A
before expense
reductions

Ratio of net 7.44% 7.37% 8.05% 8.24% 8.63% 8.28%
investment income A
to average net
assets

Portfolio turnover rate 201% 391% 324% 330% 288% 270%
A

</TABLE>

A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO
TAX DIFFERENCES.
E EFFECTIVE AUGUST 1, 1993, THE FUND BEGAN REFLECTING IN NET INVESTMENT
INCOME PER SHARE CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES IN ACCORDANCE WITH NEW GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1995 (Unaudited)

10. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Limited Maturity Government Fund (the fund) is a fund of Fidelity
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 following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which market quotations are not
readily available are valued at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for market
discount, mortgage-backed securities 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 and may
affect net investment income per share. Accumulated undistributed net
investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
11. 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 SEC), the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and 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 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 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.
12. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $920,094,000 and $1,068,632,000, respectively.
13. 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
$19,000 for the period.
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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
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. No payments were made to third parties under
the Plan during the period.
14. 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 $9,503,000 and $8,339,000,
respectively. The weighted average interest rate was 5.17%. Interest
expense includes $7,000 paid under the bank borrowing program.

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OVERNIGHT EXPRESS
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Fidelity Investments
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Cincinnati, OH 45277-0003
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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
Curt Hollingsworth, Vice President
Arthur S. Loring, Secretary
Stephen P. Jonas, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Phyllis Burke Davis*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Marvin L. Mann*
Gerald C. McDonough*
Thomas R. Williams*
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
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MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)