FIDELITY
(REGISTERED TRADEMARK)
GINNIE MAE
FUND
(FORMERLY FIDELITY GINNIE MAE PORTFOLIO)
SEMIANNUAL REPORT
JANUARY 31, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 14 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 18 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although the markets were fairly positive during 1995, no one can predict
what lies ahead for investors. The previous 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, 1996 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Ginnie Mae Fund 5.78% 14.91% 46.02% 126.69%
Salomon Brothers GNMA Index 6.06% 15.35% 52.52% 151.88%
GNMA Funds Average 6.11% 14.67% 46.79% 125.08%
Consumer Price Index 1.38% 2.86% 14.86% 41.06%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one, five, or 10 years. For
example, if you invested $1,000 in a fund that had a 5% return over the
past year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Salomon Brothers GNMA Index -
a measure of GNMA performance. To measure how the fund's performance
stacked up against its peers, you can compare it to the GNMA funds average,
which reflects the performance of 56 GNMA funds with similar objectives
tracked by Lipper Analytical Services over the past six months. Both
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.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1996 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Ginnie Mae Fund 14.91% 7.87% 8.53%
Salomon Brothers GNMA Index 15.35% 8.81% 9.68%
GNMA Funds Average 14.67% 7.97% 8.44%
Consumer Price Index 2.86% 2.81% 3.50%
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
GNMA Portfolio (015Salomon Brothers GN
01/31/86 10000.00 10000.00
02/28/86 10235.04 10268.27
03/31/86 10441.69 10410.50
04/30/86 10519.05 10500.66
05/31/86 10311.44 10301.09
06/30/86 10468.66 10463.02
07/31/86 10625.99 10653.83
08/31/86 10862.58 10850.33
09/30/86 10836.42 10870.02
10/31/86 11002.33 11009.63
11/30/86 11208.51 11214.88
12/31/86 11242.43 11270.02
01/31/87 11391.62 11413.13
02/28/87 11484.26 11526.91
03/31/87 11443.79 11526.48
04/30/87 11055.00 11174.18
05/31/87 10994.83 11136.11
06/30/87 11159.49 11330.85
07/31/87 11163.66 11356.67
08/31/87 11093.02 11291.90
09/30/87 10780.34 11004.81
10/31/87 11139.59 11372.43
11/30/87 11227.62 11537.42
12/31/87 11372.42 11670.02
01/31/88 11758.07 12148.80
02/29/88 11871.83 12293.22
03/31/88 11847.81 12183.37
04/30/88 11743.99 12094.09
05/31/88 11701.58 12082.28
06/30/88 11951.96 12397.37
07/31/88 11909.88 12348.80
08/31/88 11926.81 12361.49
09/30/88 12164.67 12667.40
10/31/88 12377.30 12963.24
11/30/88 12251.69 12773.74
12/31/88 12187.18 12704.60
01/31/89 12381.05 12937.42
02/28/89 12316.92 12837.64
03/31/89 12331.41 12842.45
04/30/89 12572.12 13073.52
05/31/89 12891.98 13517.72
06/30/89 13238.40 13900.66
07/31/89 13458.18 14213.57
08/31/89 13331.34 14007.44
09/30/89 13362.92 14095.84
10/31/89 13648.33 14424.51
11/30/89 13779.72 14591.25
12/31/89 13874.77 14684.03
01/31/90 13722.74 14554.05
02/28/90 13802.45 14609.63
03/31/90 13829.50 14670.46
04/30/90 13674.02 14504.60
05/31/90 14110.68 14973.30
06/30/90 14308.99 15222.32
07/31/90 14536.53 15489.28
08/31/90 14499.27 15334.79
09/30/90 14589.15 15461.71
10/31/90 14750.50 15632.39
11/30/90 15082.25 16017.51
12/31/90 15331.67 16284.90
01/31/91 15524.69 16514.22
02/28/91 15587.35 16611.82
03/31/91 15695.98 16740.48
04/30/91 15812.25 16915.97
05/31/91 15932.28 17049.45
06/30/91 15951.50 17086.21
07/31/91 16188.00 17375.93
08/31/91 16476.67 17691.03
09/30/91 16719.62 18021.01
10/31/91 16947.16 18292.34
11/30/91 17038.07 18411.38
12/31/91 17411.73 18872.21
01/31/92 17267.31 18661.27
02/29/92 17451.87 18833.26
03/31/92 17349.13 18767.18
04/30/92 17497.46 18929.10
05/31/92 17787.75 19261.71
06/30/92 17986.85 19525.60
07/31/92 18074.14 19673.52
08/31/92 18274.00 19946.17
09/30/92 18405.38 20105.03
10/31/92 18256.60 19966.30
11/30/92 18350.17 20074.84
12/31/92 18578.25 20306.35
01/31/93 18823.46 20589.50
02/28/93 18990.75 20770.24
03/31/93 19094.72 20905.91
04/30/93 19160.08 21012.69
05/31/93 19269.96 21129.54
06/30/93 19458.79 21343.54
07/31/93 19561.01 21429.76
08/31/93 19609.66 21471.77
09/30/93 19610.78 21486.21
10/31/93 19677.83 21534.79
11/30/93 19564.23 21504.16
12/31/93 19713.80 21667.40
01/31/94 19935.67 21854.27
02/28/94 19748.00 21749.67
03/31/94 19252.09 21198.69
04/30/94 19098.11 21072.21
05/31/94 19115.15 21141.79
06/30/94 19050.52 21098.91
07/31/94 19437.17 21488.84
08/31/94 19485.59 21511.16
09/30/94 19214.43 21254.27
10/31/94 19189.77 21231.51
11/30/94 19127.92 21156.67
12/31/94 19320.26 21381.18
01/31/95 19728.06 21837.20
02/28/95 20235.48 22419.69
03/31/95 20335.61 22511.60
04/30/95 20611.19 22823.19
05/31/95 21244.72 23532.60
06/30/95 21367.64 23685.34
07/31/95 21430.54 23748.36
08/31/95 21630.50 23960.61
09/30/95 21844.14 24190.37
10/31/95 22021.64 24396.50
11/30/95 22264.59 24683.59
12/31/95 22528.34 24997.37
01/31/96 22669.01 25188.18
$10,000 OVER 10 YEARS: Let's say you invested $10,000 in Fidelity Ginnie
Mae Fund on January 31, 1986. As the chart shows, by January 31, 1996, the
value of your investment would have grown to $22,669 - a 126.69% increase
on your initial investment. For comparison, look at how the Salomon
Brothers GNMA Index did over the same period. With dividends reinvested the
same $10,000 investment would have grown to $25,188 - a 151.88% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX MONTHS YEARS ENDED JULY 31,
ENDED
JANUARY 31,
1996 1995 1994 1993 1992 1991
Dividend return 3.34% 7.35% 5.24% 6.42% 7.80% 8.66%
Capital appreciation 2.44% 2.91% -5.87% 1.81% 3.85% 2.70%
return
Total return 5.78% 10.26% -0.63% 8.23% 11.65% 11.36%
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
PERIODS ENDED JANUARY 31, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.80(cents) 34.68(cents) 71.19(cents)
Annualized dividend rate 6.28% 6.39% 6.70%
30-day annualized yield 6.65% - -
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 $10.88 over
the past month, $10.76 over the past six months and $10.62 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 Ginnie Mae
Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the six-months ended January 31, 1996, the fund had a total return
of 5.78% as compared to the 6.11% return for the GNMA funds average, as
tracked by Lipper Analytical Services. For the same period, the fund's
benchmark index - the Salomon Brothers GNMA Index - gained 6.06%.
Q. HOW WOULD YOU DESCRIBE THE BOND MARKET OVER THE LAST SIX MONTHS?
A. The bond market over the last six months - and really over the last year
- - represents a classic business cycle. We went from a period of the Federal
Reserve raising short-term interest rates in 1994, to the Fed, reversing
course, cutting rates, and helping to start the rally of 1995. In any
business cycle, the contraction of monetary policy - as we saw in 1994 -
takes a while to be felt in the economy. The slowing of the economy in the
second half of 1995 was the reaction to the Fed's tightening in 1994. Of
course, bonds respond favorably to a slowing economy as inflation - which
has a corrosive effect on the returns of fixed-income investments - becomes
much less of a threat.
Q. WHILE FALLING INTEREST RATES ARE BENEFICIAL FOR BONDS, THEY PRESENT A
CONCERN FOR MORTGAGE SECURITIES: NAMELY, THE RISK THAT MORTGAGE HOLDERS
WILL PREPAY THEIR DEBT, THUS FORCING MORTGAGE INVESTORS TO REINVEST AT
LOWER RATES. WHAT DID YOU DO TO DEAL WITH PREPAYMENT RISK?
A. The investors in the mortgage market are always aware of prepayments and
thus they are built into the prices of existing securities. One way of
dealing with prepayments is to buy "seasoned" mortgages - such as Ginnie
Mae 9 1/2s (9.5% coupon). These securities contain mortgages that have been
through several refinancing periods and the mortgage holders have not shown
a propensity to prepay. As the fixed-income market has discovered this idea
of seasoned mortgages, the prices of these securities have appreciated -
which was to the benefit of the fund during the period.
Q. WHAT OTHER STRATEGIES DID YOU USE TO HELP GUARD AGAINST PREPAYMENTS?
A. I've swapped 30-year premium mortgage securities - whose coupons are
higher than prevailing interest rates - for 15-year lower-coupon
securities. The strategy has several benefits. First, with coupons more in
line with current rates, homeowners would have less of an incentive to
refinance as they would with the higher-coupon, 30-year securities. Second,
should interest rates unexpectedly rise, the price of the 15-year
securities will fall less than the 30-year ones. Finally, should interest
rates continue to fall, the 15-year ones still would have more price
performance left while the 30-year securities may have already enjoyed most
of their price appreciation.
Q. WERE THERE ANY DEVELOPMENTS RELATING TO THE FUND'S POSITION IN FANNIE
MAES AND FREDDIE MACS?
A. Mainly, I've tried to take advantage of price inefficiencies in this
sector. Let me give an example. Historically, Ginnie Mae 6 1/2s (6.5%
coupon) have had similar returns to Fannie 6s (6% coupon). In an unusual
development during the period, however, the Fannie Maes became very cheap
relative to the Ginnie Maes. Therefore, I swapped into the Fannie Maes and,
when the market corrected the anomaly in January, I swapped back into the
Ginnie Maes. Thus, the fund enjoyed the price appreciation from the trade.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. There were no major disappointments in any area of the mortgage
securities market in which the fund invests. I would mention, though, that
there is one reality in the mortgage market that goes along with such a
good year. That is that the duration - or price sensitivity to changes in
interest rates - in the mortgage market is much shorter today as interest
rates have decreased from six months ago. On one hand, that's good news in
case interest rates rise unexpectedly. On the other hand, if interest rates
continue to fall, there is no way mortgage investors will be able to attain
the same level of price appreciation as they did in 1995.
Q. WHAT'S YOUR OUTLOOK?
A. Rising wages have historically been the engine that drives inflation. To
date, we have seen no real evidence of wage pressures and, thus, no signs
of inflation. It appears the market has accounted for continued easing by
the Fed. However, as stated above, there is a real question as to how much
price appreciation investors can really expect. That said, I will continue
to watch for market anomalies as they present themselves and I will seek to
take advantage of them to benefit the fund.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide high current
income by investing mainly
in mortgage securities issued
by the Government National
Mortgage Association
(Ginnie Mae)
START DATE: November 8,
1985
SIZE: as of January 31,
1996, more than $814 million
MANAGER: Kevin Grant, since
February 1995; manager,
Fidelity Mortgage Securities
Fund, since 1993; manager,
Spartan Ginnie Mae Fund,
since February 1995; manager,
Fidelity Advisor Intermediate
Bond Fund, since October
1995; manager, Fidelity Advisor
World Limited Term Bond
Fund, since December 1995;
joined Fidelity in 1993
(checkmark)
KEVIN GRANT ON THE SHAPE OF
THE YIELD CURVE AND WHAT IT
MEANS FOR THE SELECTION OF
MORTGAGE SECURITIES:
"The shape of the yield curve
- - or the graphical
representation of the yields of
various bonds of maturities
from three months to 30 years
- - is important in determining
the potential price-performance
of mortgage securities such
as 15-year lower coupon
mortgages. Let me put this in
the context of the current
environment. What has
happened over the past year is
typical of the bond market in
the sense that longer-term
securities outperformed
shorter-term ones as interest
rates have fallen. Not only
have prices on long-term
bonds risen more than short
ones, but their yields have
fallen more as well - that is,
the yield curve has flattened.
This flattening exaggerated
the price appreciation of
long-term issues relative to
intermediate ones. Going
forward, however, if the
Federal Reserve Board were to
continue to ease short-term
interest-rates, the yield curve
could steepen. Therefore,
given that prices have risen
and yields have fallen
significantly in longer-term
securities over the past year,
15-year mortgages could
outperform longer-term
securities because of their
shorter maturities. In other
words, given current
conditions, any remaining
opportunities may lie in
shorter maturities rather than
longer ones."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1996
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
5 - 5.99% 0.5 0.5
6 - 6.99% 21.2 13.3
7 - 7.99% 29.5 31.6
8 - 8.99% 26.1 20.6
9 - 9.99% 11.0 17.7
10 - 10.99% 3.2 3.9
11 - 11.99% 1.0 1.5
12 - 12.99% 0.6 0.7
13% and over 0.2 0.3
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, 1996
6 MONTHS AGO
Years 5.1 6.4
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, 1996
6 MONTHS AGO
Years 2.6 3.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION
AS OF JANUARY 31, 1996 AS OF JULY 31, 1995
Row: 1, Col: 1, Value: 6.7
Row: 1, Col: 2, Value: 2.3
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 45.0
Row: 1, Col: 5, Value: 46.0
Row: 1, Col: 1, Value: 10.0
Row: 1, Col: 2, Value: 3.0
Row: 1, Col: 3, Value: 2.0
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 45.0
Mortgage-backed
securities * 92.3%
U.S. Treasury
obligations 0.0%
Collateralized
mortgage
obligations
(CMOs) 1.0%
Short-term
investments 6.7%
GNMA SECURITIES 75.3%
Mortgage-backed
securities ** 88.2%
U.S. Treasury
obligations 0.3%
Collateralized
mortgage
obligations
(CMOs) 1.6%
Short-term
investments 9.9%
GNMA SECURITIES 73.1%
*
**
INVESTMENTS JANUARY 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 92.3%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.7%
5 1/2%, 8/1/00 to 7/1/02 $ 4,370,653 $ 4,315,996
6 1/2%, 7/1/23 to 7/1/24 19,223,942 19,040,144
8 1/2%, 2/1/04 to 5/1/17 1,518,573 1,585,957
9%, 6/1/10 to 4/1/21 5,582,872 5,913,144
10%, 10/1/04 to 12/1/19 10,152,032 11,104,994
10 1/4%, 2/1/09 to 11/1/16 5,517,113 6,016,624
10 1/2%, 5/1/10 to 12/1/20 8,705,599 9,593,883
11 1/4%, 2/1/10 to 5/1/11 640,573 710,698
11 1/2%, 2/1/12 to 11/1/17 1,418,542 1,593,496
11 3/4%, 11/1/11 201,069 224,894
12%, 6/1/15 to 11/1/15 585,597 670,691
12 1/2%, 11/1/12 to 9/1/13 314,621 1,379,037
62,149,558
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 10.3%
6%, 2/1/24 to 2/1/26 25,260,983 24,478,222
6 1/2%, 1/1/24 to 2/1/26 66,846,584 66,192,404
8 1/2%, 6/1/08 to 4/1/16 1,662,366 1,752,236
9%, 12/1/97 to 10/1/11 420,890 445,883
10 1/4%, 12/1/15 to 10/1/18 1,025,919 1,129,563
11 1/2%, 1/1/01 to 9/1/15 885,216 1,003,366
12 1/2%, 10/1/15 416,285 488,095
14%, 11/1/12 to 10/1/14 64,995 78,100
95,567,869
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 75.3%
6%, 9/15/08 to 6/15/09 54,537,917 54,354,193
6 1/2%, 9/15/23 to 7/15/25 8,736,167 8,673,172
6 1/2%, 2/15/26 (a) 24,000,000 23,865,120
7%, 10/15/07 to 1/15/26 93,852,383 95,245,773
7%, 2/15/26 (a) 60,000,000 60,825,000
7 1/2%, 5/15/17 to 11/15/25 104,481,118 107,709,157
8%, 10/15/01 to 10/15/25 140,611,559 146,841,679
8 1/2%, 2/15/05 to 6/15/25 86,512,347 91,517,289
9%, 12/15/04 to 10/15/25 41,592,989 44,132,879
9 1/2%, 4/15/01 to 11/15/22 47,364,419 51,521,460
10%, 10/15/00 to 10/15/05 278,033 294,279
10 1/2%, 2/15/98 to 11/15/02 1,107,752 1,183,336
11%, 6/15/10 to 12/15/15 1,295,103 1,471,897
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
11 1/4%, 7/15/13 to 1/15/16 $ 765,416 $ 841,039
11 1/2%, 3/15/10 to 4/15/19 3,252,408 3,739,548
11 3/4%, 1/15/16 72,686 82,044
12%, 5/15/99 to 11/15/15 2,373,135 2,736,287
12 1/4%, 3/15/14 80,847 92,267
12 1/2%, 5/15/10 to 6/15/10 123,803 141,600
13%, 1/15/11 to 5/15/15 1,378,765 1,646,982
13 1/2%, 5/15/10 to 1/15/15 551,073 664,020
697,579,021
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $816,582,515) 855,296,448
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.0%
U.S. GOVERNMENT AGENCY - 1.0%
U.S. Dept. Veterans Affairs Vendee Mortgage
Trust sequential pay Series 1992-1 Class 2-B,
7 3/4%, 9/15/10 (Cost $9,285,211) 9,079,503 9,181,648
REPURCHASE AGREEMENTS - 6.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88% dated
1/31/96 due 2/1/96 $ 61,803,093 61,793,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $887,660,726) $ 926,271,096
LEGEND
1. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
INCOME TAX INFORMATION
At January 31, 1996, the aggregate cost of investment securities for income
tax purposes was $904,996,760. Net unrealized appreciation aggregated
$21,274,336, of which $22,353,136 related to appreciated investment
securities and $1,078,800 related to depreciated investment securities.
At July 31, 1995, the fund had a capital loss carryforward of approximately
$23,602,000 all of which will expire on July 31, 2003.
The fund intends to elect to defer to its fiscal year ending July 31, 1996
approximately $8,345,000 of losses recognized during the period November 1,
1994 to July 31, 1995.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 31, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 926,271,096
agreements of $61,793,000) (cost $887,660,726) -
See accompanying schedule
Commitment to sell securities on a delayed delivery $ (84,690,120)
basis
Receivable for securities sold on a delayed delivery 84,532,500 (157,620)
basis
Receivable for investments sold, regular delivery 805,183
Cash 647,457
Interest receivable 5,195,113
TOTAL ASSETS 932,761,229
LIABILITIES
Payable for investments purchased 116,181,024
Payable for fund shares redeemed 1,020,336
Accrued management fee 301,635
Other payables and accrued expenses 904,739
TOTAL LIABILITIES 118,407,734
NET ASSETS $ 814,353,495
Net Assets consist of:
Paid in capital $ 820,759,884
Undistributed net investment income 875,082
Accumulated undistributed net realized gain (loss) (45,734,221)
on investments
Net unrealized appreciation (depreciation) on 38,452,750
investments
NET ASSETS, for 74,696,310 shares outstanding $ 814,353,495
NET ASSET VALUE, offering price and redemption price per $10.90
share ($814,353,495 (divided by) 74,696,310 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
INVESTMENT INCOME $ 29,321,452
Interest
EXPENSES
Management fee $ 1,768,676
Transfer agent fees 976,115
Accounting fees and expenses 130,153
Non-interested trustees' compensation 2,052
Custodian fees and expenses 97,446
Registration fees 29,209
Audit 21,737
Legal 4,282
Miscellaneous 1,672
Total expenses before reductions 3,031,342
Expense reductions (24,943) 3,006,399
NET INVESTMENT INCOME 26,315,053
REALIZED AND UNREALIZED GAIN (LOSS) 4,230,062
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities 14,430,138
Delayed delivery commitments (157,620) 14,272,518
NET GAIN (LOSS) 18,502,580
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 44,817,633
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED JANUARY JULY 31,
31,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 26,315,053 $ 53,393,526
Net investment income
Net realized gain (loss) 4,230,062 (15,722,380)
Change in net unrealized appreciation (depreciation) 14,272,518 33,458,218
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 44,817,633 71,129,364
FROM OPERATIONS
Distributions to shareholders (25,434,717) (51,095,198)
From net investment income
From net realized gain - -
In excess of net realized gain - (1,475,920)
TOTAL DISTRIBUTIONS (25,434,717) (52,571,118)
Share transactions 99,246,772 128,526,825
Net proceeds from sales of shares
Reinvestment of distributions 21,614,793 44,565,784
Cost of shares redeemed (93,314,265) (192,992,227)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 27,547,300 (19,899,618)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 46,930,216 (1,341,372)
NET ASSETS
Beginning of period 767,423,279 768,764,651
End of period (including under (over) distribution of net $ 814,353,495 $ 767,423,279
investment income of $875,082 and $(5,254),
respectively)
OTHER INFORMATION
Shares
Sold 9,219,993 12,436,702
Issued in reinvestment of distributions 2,001,904 4,326,883
Redeemed (8,666,402) (18,849,263)
Net increase (decrease) 2,555,495 (2,085,678)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED JULY 31,
JANUARY 31, 1996
(UNAUDITED) 1995 1994 C 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650 $ 10.370
beginning of period
Income from .359 .721 .582 .800 .833 .845
Investment
Operations
Net investment
income
Net realized and .248 .292 (.650) .083 .373 .288
unrealized gain
(loss)
Total from investment .607 1.013 (.068) .883 1.206 1.133
operations
Less Distributions (.347) (.713) (.582) (.683) (.796) (.853)
From net investment
income
From net - - (.190) - - -
realized gain
In excess of net - (.020) (.060) - - -
realized gain
Total distributions (.347) (.733) (.832) (.683) (.796) (.853)
Net asset value, end $ 10.900 $ 10.640 $ 10.360 $ 11.260 $ 11.060 $ 10.650
of period
TOTAL RETURN B 5.78% 10.26% (.63) 8.23% 11.65% 11.36%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 814,353 $ 767,423 $ 768,765 $ 975,565 $ 914,187 $ 797,262
period (000 omitted)
Ratio of expenses to .76% .75% .82% .80% .80% .83%
average net assets A
Ratio of net investment 6.64% 7.24% 7.03% 7.26% 7.73% 8.24%
income to average A
net assets
Portfolio turnover rate 105% 210% 303% 259% 114% 125%
A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C EFFECTIVE AUGUST 1 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
On December 14, 1995, the Board of Trustees approved a change in the fund's
name from Fidelity Ginnie Mae Portfolio to Fidelity Ginnie Mae Fund.
Fidelity Ginnie Mae Fund (the fund) is a fund of Fidelity Income Fund (the
trust) and is authorized to issue an unlimited number of shares. The trust
is registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. The financial statements have been prepared
in conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. 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 substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned 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 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 the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of
which is required to be at least equal to the repurchase price. For term
repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a 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. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $494,129,280 and $409,282,993, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. 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 $17,647 for the period.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives account fees and asset-based fees that vary according to
account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.25% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is
based on the level of average net assets for the month plus out-of-pocket
expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the fund's expenses. During the period, the fund's
custody and transfer agent fees were reduced by $8,795 and $16,148,
respectively, under these arrangements.
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)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)MUTUAL FUND
ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, 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
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
56 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
1271 Avenue of the
Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, 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
2701 Drexel Drive
Houston, TX
1010 Lamar Street
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
511 Pine Street
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
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
Kevin Grant, Vice President
Fred L. Henning Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, 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 Bond
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 Bond
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)
MORTGAGE SECURITIES
FUND
(FORMERLY FIDELITY MORTGAGE
SECURITIES PORTFOLIO)
SEMIANNUAL REPORT
JANUARY 31, 1996
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, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although the markets were fairly positive during 1995, no one can predict
what lies ahead for investors. The previous 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, 1996 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Mortgage Securities 6.58% 15.79% 52.19% 133.32%
Salomon Brothers Mortgage Index 6.06% 15.09% 52.01% 151.99%
U.S. Mortgage Funds Average 6.15% 14.88% 43.61% 118.21%
Consumer Price Index 1.38% 2.86% 14.86% 41.06%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one, five, or 10 years. For
example, if you invested $1,000 in a fund that had a 5% return over the
past year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Salomon Brothers Mortgage
Index - a measure of the performance of mortgage securities. To measure how
the fund's performance stacked up against its peers, you can compare it to
the U.S. mortgage funds average, which reflects the performance of 56 U.S.
mortgage funds with similar objectives tracked by Lipper Analytical
Services over the past six months. 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.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1996 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Mortgage Securities 15.79% 8.76% 8.84%
Salomon Brothers Mortgage Index 15.09% 8.74% 9.68%
U.S. Mortgage Funds Average 14.88% 7.49% 8.10%
Consumer Price Index 2.86% 2.81% 3.50%
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)Salomon Brothers Mo
01/31/86 10000.00 10000.00
02/28/86 10172.38 10276.32
03/31/86 10315.43 10427.16
04/30/86 10369.58 10509.24
05/31/86 10247.49 10310.27
06/30/86 10370.50 10459.39
07/31/86 10522.63 10665.66
08/31/86 10704.40 10875.81
09/30/86 10703.22 10891.71
10/31/86 10843.34 11040.40
11/30/86 11003.53 11268.59
12/31/86 11040.37 11300.82
01/31/87 11171.59 11467.13
02/28/87 11247.14 11572.41
03/31/87 11230.52 11555.22
04/30/87 10928.00 11214.87
05/31/87 10902.20 11179.20
06/30/87 11069.42 11368.29
07/31/87 11085.94 11411.26
08/31/87 11050.46 11359.69
09/30/87 10771.50 11098.41
10/31/87 11090.69 11462.40
11/30/87 11196.46 11623.98
12/31/87 11338.12 11759.35
01/31/88 11719.42 12215.73
02/29/88 11845.80 12362.27
03/31/88 11775.59 12270.73
04/30/88 11702.72 12194.24
05/31/88 11654.05 12167.60
06/30/88 11887.28 12473.57
07/31/88 11859.04 12435.32
08/31/88 11874.10 12461.54
09/30/88 12112.91 12758.06
10/31/88 12339.92 13048.56
11/30/88 12176.75 12861.19
12/31/88 12099.72 12794.59
01/31/89 12319.26 13035.24
02/28/89 12254.03 12936.40
03/31/89 12278.24 12939.84
04/30/89 12504.89 13168.03
05/31/89 12800.85 13600.34
06/30/89 13110.65 13946.28
07/31/89 13345.40 14277.18
08/31/89 13204.44 14066.61
09/30/89 13262.09 14164.59
10/31/89 13525.13 14495.49
11/30/89 13655.46 14652.34
12/31/89 13749.59 14733.99
01/31/90 13622.91 14627.42
02/28/90 13713.66 14686.72
03/31/90 13724.44 14746.45
04/30/90 13605.72 14609.37
05/31/90 14001.27 15053.72
06/30/90 14204.24 15302.54
07/31/90 14410.67 15562.53
08/31/90 14372.56 15434.46
09/30/90 14449.28 15559.52
10/31/90 14597.30 15722.82
11/30/90 14916.71 16073.49
12/31/90 15174.02 16338.63
01/31/91 15331.48 16577.14
02/28/91 15429.63 16682.42
03/31/91 15533.41 16804.04
04/30/91 15701.56 16979.37
05/31/91 15783.19 17126.34
06/30/91 15822.66 17144.82
07/31/91 16049.93 17434.46
08/31/91 16356.64 17754.19
09/30/91 16611.99 18095.40
10/31/91 16808.35 18375.16
11/30/91 16911.11 18501.07
12/31/91 17239.62 18895.57
01/31/92 17156.69 18703.48
02/29/92 17327.41 18879.24
03/31/92 17207.66 18795.87
04/30/92 17368.98 18967.77
05/31/92 17655.67 19319.72
06/30/92 17842.73 19555.65
07/31/92 17812.11 19711.65
08/31/92 17927.33 19977.22
09/30/92 18039.87 20131.93
10/31/92 17860.48 19962.61
11/30/92 17946.81 20045.12
12/31/92 18179.71 20289.21
01/31/93 18345.57 20568.54
02/28/93 18502.69 20758.49
03/31/93 18623.52 20882.68
04/30/93 18753.53 21023.64
05/31/93 18809.06 21119.90
06/30/93 19038.52 21325.31
07/31/93 19143.17 21413.84
08/31/93 19178.81 21501.93
09/30/93 19220.71 21520.41
10/31/93 19254.90 21592.61
11/30/93 19214.65 21554.36
12/31/93 19400.10 21716.37
01/31/94 19578.76 21934.68
02/28/94 19475.52 21797.59
03/31/94 19254.80 21259.99
04/30/94 19170.46 21125.91
05/31/94 19333.65 21197.25
06/30/94 19432.61 21144.82
07/31/94 19743.25 21557.37
08/31/94 19831.71 21601.63
09/30/94 19616.75 21312.42
10/31/94 19656.58 21306.83
11/30/94 19636.97 21230.34
12/31/94 19776.78 21406.10
01/31/95 20150.68 21885.26
02/28/95 20601.80 22443.06
03/31/95 20689.23 22534.59
04/30/95 21015.41 22836.70
05/31/95 21676.64 23576.71
06/30/95 21842.00 23701.76
07/31/95 21891.61 23749.03
08/31/95 22161.74 23966.91
09/30/95 22390.84 24181.35
10/31/95 22639.91 24403.95
11/30/95 22890.58 24690.16
12/31/95 23142.77 24995.70
01/31/96 23332.24 25199.40
$10,000 OVER 10 YEARS: Let's say you invested $10,000 in Fidelity Mortgage
Securities Fund on January 31, 1986. As the chart shows, by January 31,
1996, the value of your investment would have grown to $23,332 - a 133.32%
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 $25,199 - a
151.99% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield of
a fund that invests in bonds
will vary. That means if you
sell your shares during a
market downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX YEARS ENDED JULY 31,
MONTHS
ENDED
JANUARY
31,
1996 1995 1994 1993 1992 1991
Dividend return 3.52% 7.46% 5.52% 6.73% 7.64% 8.83%
Capital appreciation 3.06% 3.42% -2.39% 0.74% 3.34% 2.55%
return
Total return 6.58% 10.88% 3.13% 7.47% 10.98% 11.38%
</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
PERIODS ENDED JANUARY 31, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 6.08(cents) 37.28(cents) 75.92(cents)
Annualized dividend rate 6.46% 6.73% 6.99%
30-day annualized yield 6.79% - -
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $11.09 over
the past month, $10.99 over the past six months and $10.86 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 Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the six-months ended January 31, 1996, the fund had a total return
of 6.58% as compared to the 6.15% return for the U.S. mortgage funds
average, as tracked by Lipper Analytical Services. For the same period, the
fund's benchmark index - the Salomon Brothers Mortgage Index - gained
6.06%.
Q. HOW WOULD YOU DESCRIBE THE BOND MARKET OVER THE LAST SIX MONTHS?
A. The bond market over the last six months - and really over the last year
- - represents a classic business cycle. We went from a period of the Federal
Reserve raising short-term interest rates in 1994, to the Fed reversing
course, cutting rates, and helping to start the rally of 1995. In any
business cycle, the contraction of monetary policy - as we saw in 1994 -
takes a while to be felt in the economy. The slowing of the economy in the
second half of 1995 was the reaction to the Fed's tightening in 1994. Of
course, bonds respond favorably to a slowing economy as inflation - which
has a corrosive effect on the returns of fixed-income investments - becomes
much less of a threat.
Q. WHILE FALLING INTEREST RATES ARE BENEFICIAL FOR BONDS, THEY PRESENT
CONCERNS FOR MORTGAGE SECURITIES: NAMELY, THE RISK THAT MORTGAGE HOLDERS
WILL PREPAY THEIR DEBT, THUS FORCING MORTGAGE INVESTORS TO REINVEST AT
LOWER RATES. WHAT DID YOU DO TO DEAL WITH PREPAYMENT RISK?
A. The market is always aware of prepayments and, thus, they are built into
the prices of existing securities. One way of dealing with prepayments is
to buy "seasoned" mortgages. These securities contain mortgages that have
been through several refinancing periods and the mortgage holders have not
shown a propensity to prepay. As the fixed-income market discovered this
idea of buying seasoned mortgages, the prices of these securities have
appreciated - which was to the benefit of the fund during the period.
Q. WHAT OTHER STRATEGIES DID YOU USE TO HELP GUARD AGAINST PREPAYMENTS?
A. I've swapped 30-year premium mortgage securities - whose coupons are
higher than prevailing interest rates - for 15-year lower-coupon
securities. The strategy has several benefits. First, with coupons more in
line with current rates, homeowners would have less of an incentive to
refinance than they would with the higher-coupon, 30-year securities.
Second, should interest rates unexpectedly rise, the price of the 15-year
securities will fall less than the 30-year ones. Finally, should interest
rates continue to fall, the 15-year securities still would have more price
performance left while the 30-year ones would have already enjoyed most of
their price appreciation.
Q. SHIFTING GEARS A BIT, WHAT HAVE YOU DONE WITH THE FUND'S POSITION IN
FANNIE MAES AND FREDDIE MACS?
A. Mainly, I've tried to take advantage of price inefficiencies in these
securities. Let me give an example. For example, historically, Ginnie Mae 6
1/2s (6.5% coupon) have had similar returns to Fannie 6s (6% coupon). In an
unusual development during the period, however, the Fannie Maes became very
cheap relative to the Ginnie Maes. Therefore, I swapped into the Fannie
Maes and, when the market corrected the anomaly in January, I swapped back
into the Ginnie Maes. Thus, the fund enjoyed the price appreciation from
the trade.
Q. WERE THERE ANY OTHER DEVELOPMENTS RELATING TO FANNIE MAES AND FREDDIE
MACS?
A. I've been buying five-year and seven-year balloon mortgages in the
Fannie Mae and Freddie Mac sector which are at historically cheap levels.
Balloons are mortgages that are constructed with a normal 30-year
amortization schedule, but the homeowner agrees to pay the outstanding
balance on the balloon date. These securities capture the same benefits for
an investor as I discussed with the 15-year, lower coupon mortgages.
Usually, there is a steady demand for balloon mortgage securities from
banks because of their federal guarantee. In 1995, however, steady lending
activity kept banks out of this market. Therefore, in the fourth quarter of
1995 I began to add to the fund's position in order to take advantage of
this unique opportunity.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Not really. I would mention, though, that there is one reality in the
mortgage market that goes along with such a good year. That is, as interest
rates have decreased, the duration - or price sensitivity to changes in
interest rates - in the mortgage market is much shorter today than it was
six months ago. On one hand, that's good news should interest rates rise
unexpectedly. On the other hand, if interest rates continue to fall, there
is probably no way mortgage investors will be able to attain the same level
of price appreciation as they did in 1995.
Q. WHAT'S YOUR OUTLOOK?
A. Rising wages historically have been the engine that drives inflation. To
date, I have seen no real evidence of wage pressures and, thus, no signs of
inflation. It appears the market has priced-in continued easing by the Fed.
However, as stated above, there is a real question as to how much price
appreciation investors can really expect. That said, I will continue to
watch for market anomalies as they present themselves and I will seek to
take advantage of them to benefit the fund.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high current income
by investing mainly in
mortgage securities of all
kinds
START DATE: December 31, 1984
SIZE: as of January 31,
1996, more than $490 million
MANAGER: Kevin Grant, since
1993; manager, Fidelity
Ginnie Mae Fund and
Spartan Ginnie Mae Portfolio,
since February 1995; manager,
Fidelity Advisor Limited Term
Bond Fund, since October
1995; manager, Fidelity Advisor
World Limited Term Bond
Fund, since December 1995;
joined Fidelity in 1993
(checkmark)
KEVIN GRANT ON THE SHAPE OF
THE YIELD CURVE AND WHAT IT
MEANS FOR THE SELECTION OF
MORTGAGE SECURITIES:
"The shape of the yield curve
- - or the graphical
representation of the yields of
various bonds of maturities
from three months to 30 years
- - is important in determining
the potential
price-performance of
mortgage securities such as
five-year and seven-year
balloons. Let me put this in
the context of the current
environment. What has
happened over the past year
is typical of the bond market in
the sense that longer-term
securities outperformed
shorter-term ones as interest
rates have fallen. Going
forward, however, if the
Federal Reserve Board were
to continue to ease short-term
interest-rates, the yield curve
could steepen. Therefore,
given that prices have risen
and yields have fallen
significantly in longer-term
securities over the past year,
balloon mortgages could
outperform longer-term
securities because of their
shorter maturities. In other
words, given current
conditions, any remaining
opportunities may lie in
shorter maturities rather than
longer ones. Not only have
prices on long-term bonds
risen more than short ones,
but their yields have fallen
more as well - that is, the
yield curve has flattened. This
flattening exaggerated the
price appreciation of
long-term issues relative to
intermediate ones."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1996
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
0 - 5.99% 7.9 1.8
6 - 6.99% 29.6 26.0
7 - 7.99% 18.6 22.4
8 - 8.99% 11.1 7.6
9 - 9.99% 5.1 20.3
10 - 10.99% 6.7 4.8
11 - 11.99% 1.6 2.3
12 - 12.99% 2.0 2.6
13% and over 0.6 0.8
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, 1996
6 MONTHS AGO
Years 4.2 5.8
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF JANUARY 31, 1996
6 MONTHS AGO
Years 2.9 3.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES R"ISE 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, 1996 AS OF JULY 31, 1995
Row: 1, Col: 1, Value: 16.8
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 11.1
Row: 1, Col: 4, Value: 72.09999999999999
Mortgage-backed
securities ** 72.8%
CMOs and other
mortgage related
securities 15.4%
U.S. treasury
obligations 0.4%
Short-term
investments 11.4%
GNMA SECURITIES 19.4%
Mortgage-backed
securities * 72.1%
CMOs and other
mortgage related
securities 11.1%
U.S. treasury
obligations 0.0%
Short-term
investments 16.8%
GNMA SECURITIES 30.9%
Row: 1, Col: 1, Value: 11.4
Row: 1, Col: 2, Value: 0.4
Row: 1, Col: 3, Value: 15.4
Row: 1, Col: 4, Value: 72.8
*
**
INVESTMENTS JANUARY 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 72.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 12.1%
5%, 7/1/10 $ 4,668,132 $ 4,437,643
5 1/2%, 12/1/00 to 7/1/02 2,460,206 2,429,453
6 1/2%, 1/1/24 to 7/1/24 4,806,643 4,760,067
7%, 2/1/00 to 2/1/01 (d) 28,000,000 28,315,000
8%, 10/1/07 to 12/1/18 1,133,643 1,178,539
8 1/2%, 11/1/03 to 1/1/20 3,317,406 3,475,216
9%, 9/1/08 to 3/1/25 14,342,760 15,247,229
10%, 1/1/09 to 12/1/18 3,569,308 3,904,527
10 1/2%, 8/1/10 to 12/1/20 4,029,090 4,379,028
11 1/2%, 4/1/12 275,897 311,989
11 3/4%, 6/1/11 72,169 80,994
12 1/4%, 6/1/14 to 7/1/15 334,407 382,164
12 1/2%, 5/1/12 to 4/1/15 1,841,837 2,133,809
12 3/4%, 6/1/05 to 3/1/15 387,201 442,071
13%, 1/1/11 to 6/1/15 2,525,832 2,963,872
74,441,601
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 28.9%
5 1/2%, 7/1/00 to 1/1/03 31,174,766 30,770,141
5 1/2%, 1/1/11 (d) 10,000,000 9,756,300
6%, 5/1/01 to 2/1/26 42,754,279 41,982,812
6%, 2/1/08 (d) 670,000 665,183
6 1/2%, 9/1/10 to 12/1/25 68,969,568 68,341,131
7%, 2/1/24 147,815 149,934
7 1/2%, 3/1/22 to 12/1/22 3,905,461 4,010,149
8%, 1/1/07 to 9/1/07 223,406 233,198
8 1/4%, 1/1/13 210,731 220,180
8 1/2%, 11/1/03 to 11/1/18 3,087,575 3,248,730
8 3/4%, 11/1/08 to 7/1/09 366,849 386,811
9%, 1/1/08 to 2/1/13 1,685,421 1,778,717
9 1/2%, 11/1/09 to 8/1/22 6,970,344 7,513,852
11%, 12/1/02 to 8/1/10 4,065,327 4,501,580
12 1/4%, 1/1/14 to 6/1/15 937,567 1,077,878
12 1/2%, 2/1/13 to 10/1/15 1,172,187 1,373,594
12 3/4%, 6/1/13 to 7/1/15 633,029 735,747
13 1/2%, 9/1/13 to 12/1/14 262,754 315,058
14%, 5/1/12 to 11/1/14 141,674 171,293
177,232,288
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 31.1%
6%, 1/15/11 (d) $ 36,000,000 $ 35,887,760
6%, 2/15/11 5,000,000 4,984,320
6 1/2%, 7/15/23 to 8/15/25 552,783 536,660
6 1/2%, 2/15/23 to 2/15/26 (e) 20,200,000 20,086,476
7%, 10/15/22 to 1/15/26 9,056,179 9,170,106
7%, 2/15/26 (e) 22,000,000 22,302,500
7 1/2%, 9/15/16 to 11/15/25 31,231,558 32,179,836
8%, 4/15/02 to 12/15/25 32,159,791 33,517,898
8%, 2/15/26 (e) 8,000,000 8,333,760
8 1/2%, 7/15/16 to 6/15/18 2,425,319 2,571,061
9%, 9/15/16 to 4/15/18 327,664 348,635
9 1/2%, 9/15/17 to 7/15/22 383,535 416,717
10%, 1/15/18 to 1/15/26 16,916,658 18,682,544
10 1/2%, 10/15/98 to 12/15/00 679,029 718,707
11%, 12/15/09 to 10/15/15 560,474 637,066
11 1/2%, 10/15/10 to 7/15/18 125,802 144,160
13%, 10/15/13 138,584 165,608
13 1/2%, 7/15/11 to 10/15/14 122,883 148,765
190,832,579
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $432,823,067) 442,506,468
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
U.S. GOVERNMENT AGENCY - 0.0%
Federal Home Loan Mortgage Corporation
sequential pay Series 1353 Class A, 5 1/2%,
11/15/04 (Cost $229,759) 246,597 244,594
COMMERCIAL MORTGAGE SECURITIES - 10.5%
ACP Mortgage LP commercial floater Series F,
7.620237%, 2/28/28 (c)(f) 2,377,444 1,991,109
CBA Mortgage Corp. commercial Series 1993-C1
Class E, 7.153921%, 12/25/03 (c)(f) 3,183,000 2,563,807
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
CS First Boston Mortgage Securities Corp. commercial Series
1994-M1 Class E, 12.60%, 2/15/02 (c) $ 4,000,000 $ 3,985,000
Kearny Street Mortgage commercial floater Series 1995-1:
Class E, 7.73631%, 2/20/30 (c)(f) 2,000,000 1,662,500
Class F, 7.73652%, 2/20/30 (c)(f) 2,070,000 1,487,171
Lennar Central Partners LP commercial Series:
1994-1 Class D, 9.89%, 9/15/04 (c) 4,000,000 4,030,000
1995-1 Class F, 11.70%, 5/15/05 (c) 4,000,000 4,040,000
Morgan Stanley Capital I commercial Series
1995-TNE Class D2, 8.24%, 12/15/23 (c) 2,000,222 1,772,697
Resolution Trust Corp. commercial Series:
1994-N2 Class 4, 10%, 12/15/04 (a)(c) 5,000,000 5,078,125
1994-N2 Class 5-A, 10 5/8%, 12/15/04 (a)(c) 4,200,000 4,272,188
1994-N2 Class 5-B, 10 5/8%, 12/15/04 (a)(c) 1,250,000 1,251,563
1994-C2 Class E, 8%, 4/25/25 6,776,759 6,476,040
1994-C2 Class G, 8%, 4/25/25 1,358,293 1,103,613
1994-C1 Class E, 8%, 6/25/26 6,082,399 5,276,481
1995-C1 Class C, 6.90%, 2/25/27 1,565,000 1,545,927
1995-C1 Class F, 6.90%, 2/25/27 3,123,832 2,755,317
SKW Real Estate commerial Class F, 12.80%, 4/15/05 (c) 2,310,750
2,330,969
Structured Asset Securities Corp. commercial Series:
1992-M1 Class C, 7.05%, 11/25/02 3,192,522 2,645,803
1995-C1 Class D, 7 3/8%, 9/25/24 4,000,000 3,920,000
1995-C1 Class E, 7 3/8%, 9/25/24 (c) 5,000,000 3,831,250
SML, Inc. commercial Series
1994-C1 Class C, 9.20%, 9/18/99 (b) 3,280,000 2,181,200
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $59,567,397) 64,200,760
COMPLEX MORTGAGE SECURITIES - 0.6%
INTEREST ONLY STRIPS - 0.6%
Federal National Mortgage Association:
Trust 47, 10%, 10/25/18 (g) 6,646,059 1,578,439
Trust 49, 10%, 2/25/19 (g) 4,184,495 993,818
SML, Inc. commercial Series
1994-C1 Class S, 0.81%, 9/18/99 (g) 51,554,000 1,127,725
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $3,769,961) 3,699,982
REPURCHASE AGREEMENTS - 16.8%
MATURITY VALUE
AMOUNT (NOTE1)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88% dated
1/31/96 due 2/1/96 $ 103,087,835 $ 103,071,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $599,461,184) $ 613,722,804
LEGEND
6. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
7. 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,
9.20%, 9/18/99 8/11/94 $2,132,820
8. 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
$38,296,379 or 7.8% of net assets.
9. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
10. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
11. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
12. Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
INCOME TAX INFORMATION
At January 31, 1996, the aggregate cost of investment securities for income
tax purposes was $599,496,504. Net unrealized appre- ciation aggregated
$14,226,300, of which $14,809,266 related to appreciated investment
securities and $582,966 related to depreciated investment securities.
The fund intends to elect to defer to its fiscal year ending July 31, 1996
approximately $1,329,000 of losses recognized during the period November 1,
1994 to July 31, 1995.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 31, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 613,722,804
agreements of $103,071,000) (cost $599,461,184) -
See accompanying schedule
Commitment to sell securities on a delayed delivery $ (50,722,736)
basis
Receivable for securities sold on a delayed delivery 50,657,250 (65,486)
basis
Receivable for investments sold, regular delivery 41,852,278
Cash 203,621
Interest receivable 2,786,626
TOTAL ASSETS 658,499,843
LIABILITIES
Payable for investments purchased 92,553,139
Regular delivery
Delayed delivery 74,631,629
Distributions payable 406,875
Accrued management fee 181,985
Other payables and accrued expenses 140,463
TOTAL LIABILITIES 167,914,091
NET ASSETS $ 490,585,752
Net Assets consist of:
Paid in capital $ 471,942,465
Undistributed net investment income 992,073
Accumulated undistributed net realized gain (loss) on 3,455,080
investments
Net unrealized appreciation (depreciation) on 14,196,134
investments
NET ASSETS, for 44,120,228 shares outstanding $ 490,585,752
NET ASSET VALUE, offering price and redemption price per $11.12
share ($490,585,752 (divided by) 44,120,228 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
INVESTMENT INCOME $ 17,547,710
Interest
EXPENSES
Management fee $ 1,023,122
Transfer agent fees 468,467
Accounting fees and expenses 91,834
Non-interested trustees' compensation 8,874
Custodian fees and expenses 51,179
Registration fees 25,121
Audit 9,572
Legal 2,306
Miscellaneous 1,250
TOTAL EXPENSES BEFORE REDUCTIONS 1,681,725
EXPENSE REDUCTIONS (14,049) 1,667,676
NET INVESTMENT INCOME 15,880,034
REALIZED AND UNREALIZED GAIN (LOSS) 6,413,285
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities 6,744,907
Delayed delivery commitments (91,736) 6,653,171
NET GAIN (LOSS) 13,066,456
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 28,946,490
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED JULY 31,
JANUARY 31,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 15,880,034 $ 27,686,914
Net investment income
Net realized gain (loss) 6,413,285 5,690,972
Change in net unrealized appreciation (depreciation) 6,653,171 6,171,751
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 28,946,490 39,549,637
FROM OPERATIONS
Distributions to shareholders (15,464,535) (26,269,823)
From net investment income
From net realized gain (4,055,956) -
In excess of net realized gain - (1,718,507)
TOTAL DISTRIBUTIONS (19,520,491) (27,988,330)
Share transactions 141,806,176 166,536,217
Net proceeds from sales of shares
Reinvestment of distributions 16,400,746 23,325,421
Cost of shares redeemed (93,288,214) (150,982,650)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 64,918,708 38,878,988
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 74,344,707 50,440,295
NET ASSETS
Beginning of period 416,241,045 365,800,750
End of period (including undistributed net $ 490,585,752 $ 416,241,045
investment income of $992,073 and $576,574,
respectively)
OTHER INFORMATION
Shares
Sold 12,896,169 15,766,198
Issued in reinvestment of distributions 1,489,496 2,208,784
Redeemed (8,478,204) (14,322,055)
Net increase (decrease) 5,907,461 3,652,927
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED JULY 31,
ENDED JANUARY
31, 1996
(UNAUDITED) 1995 1994 C 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 10.890 $ 10.580 $ 10.910 $ 10.830 $ 10.480 $ 10.220
beginning of period
Income from .380 .772 .570 .788 .808 .861
Investment
Operations
Net investment
income
Net realized and .323 .325 (.242) (.007) .313 .255
unrealized gain
(loss)
Total from .703 1.097 .328 .781 1.121 1.116
investment
operations
Less Distributions (.373) (.737) (.588) (.701) (.771) (.856)
From net investment
income
From net realized (.100) - (.040) - - -
gain
In excess of net - (.050) (.030) - - -
realized gain
Total distributions (.473) (.787) (.658) (.701) (.771) (.856)
Net asset value, $ 11.120 $ 10.890 $ 10.580 $ 10.910 $ 10.830 $ 10.480
end of period
TOTAL RETURN B 6.58% 10.88% 3.13% 7.47% 10.98% 11.38%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 491 $ 416 $ 366 $ 419 $ 441 $ 410
period (in millions)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Ratio of expenses to .73% A .77% .79% .76% .80% .82%
average net assets
Ratio of net 6.93% A 7.37% 6.73% 7.18% 7.57% 8.39%
investment income
to average net
assets
Portfolio turnover rate 277% A 329% 563% 278% 146% 209%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C EFFECTIVE AUGUST 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
On December 14, 1995, the Board of Trustees approved a change in the fund's
name from Fidelity Mortgage Securities Portfolio to Fidelity Mortgage
Securities Fund.
Fidelity Mortgage Securities Fund (the fund) is a fund of Fidelity Income
Fund (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements have
been prepared in conformity with generally accepted accounting principles
which permit management to make certain estimates and assumptions at the
date of the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. 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 substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned 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 wash sales.
The fund also used earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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 the per-share
allocation between net investment income and realized and unrealized gain
(loss). Undistributed net investment income and accumulated undistributed
net realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the following
year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase, and are collateralized
by U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
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. The fund
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSATIONS - CONTINUED
may receive compensation for interest forgone in the purchase of a delayed
delivery security. Losses may arise due to changes in the market value of
the underlying securities or if the counterparty does not perform under the
contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $2,181,200 or
0.4% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $667,922,361 and $605,338,679, respectively, of which U.S.
government and government agency obligations aggregated $659,683,794 and
$593,275,480, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. 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. 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 $6,456 for the period.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
reports, except proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .20% of average net assets.
ACCOUNTING FEES. FSC, maintains the fund's accounting records. The fee is
based on the level of average net assets for the month plus out-of-pocket
expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into certain arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custody and transfer agent fees were reduced by $8,104 and $5,945,
respectively, under these arrangements.
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)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)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.
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
Kevin Grant, Vice President
Fred L. Henning, Jr., Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, 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 Bond
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 Bond
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, 1996
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 17 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 21 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although the markets were fairly positive during 1995, no one can predict
what lies ahead for investors. The previous 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), and the effect of the $5 account
closeout fee on an average sized account. If Fidelity had not reimbursed
certain fund expenses, the fund's total returns would have been lower. You
can also look at the fund's income to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Spartan Limited Maturity Government 6.09% 13.19% 41.77% 78.66%
Salomon Brothers Treasury/Agency 1-10 5.74% 13.42% 48.12% 91.03%
Year Index
Short-Intermediate U.S. 5.20% 11.65% 40.71% n/a
Government Funds Average
Consumer Price Index 1.38% 2.86% 14.86% 32.02%
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, the value of your
investment would be $1,050. You can compare the fund's returns to the
performance of the Salomon Brothers Treasury/Agency 1-10 Year Index - a
measure of the performance of government bonds. To measure how the fund's
performance stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of 88 funds with similar objectives tracked by Lipper
Analytical Services over the past six months. 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, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 13.19% 7.23% 7.77%
Salomon Brothers Treasury/Agency 1-10 13.42% 8.17% 8.70%
Year Index
Short-Intermediate U.S. 11.65% 7.06% n/a
Government Funds Average
Consumer Price Index 2.86% 2.81% 3.65%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan Ltd Mat Govt. SB Treas/Agency 1-10yearernment
19880502 10000.00 10000.00
19880531 9990.13 9965.51
19880630 10079.97 10118.81
19880731 10083.32 10092.37
19880831 10105.76 10103.48
19880930 10214.30 10273.66
19881031 10313.76 10415.85
19881130 10309.73 10330.77
19881231 10348.70 10337.28
19890131 10431.71 10445.36
19890228 10435.74 10404.35
19890331 10489.27 10453.80
19890430 10627.69 10637.38
19890531 10777.41 10860.83
19890630 10969.63 11141.39
19890731 11106.16 11365.99
19890831 11039.00 11210.00
19890930 11095.21 11267.49
19891031 11271.08 11501.67
19891130 11362.10 11614.73
19891231 11420.05 11646.16
19900131 11405.95 11577.17
19900228 11469.04 11611.28
19900331 11495.98 11633.51
19900430 11512.96 11599.79
19900531 11685.71 11840.48
19900630 11797.40 11997.62
19900731 11937.68 12170.86
19900831 11986.24 12120.27
19900930 12082.11 12238.32
19901031 12207.30 12406.96
19901130 12350.35 12589.02
19901231 12463.07 12767.24
19910131 12602.08 12896.40
19910228 12700.34 12958.49
19910331 12805.04 13037.45
19910430 12915.28 13179.26
19910531 12982.04 13249.40
19910630 13033.49 13267.03
19910731 13182.71 13418.80
19910831 13346.60 13662.18
19910930 13482.12 13901.73
19911031 13650.65 14048.91
19911130 13700.23 14217.93
19911231 13947.54 14565.56
19920131 13879.87 14425.66
19920229 13962.10 14472.81
19920331 13945.35 14413.02
19920430 14048.93 14551.38
19920531 14189.32 14756.43
19920630 14298.97 14971.06
19920731 14340.23 15252.77
19920831 14512.80 15421.79
19920930 14612.81 15632.59
19921031 14552.83 15441.72
19921130 14620.19 15375.03
19921231 14751.52 15576.64
19930131 14878.13 15876.74
19930228 15041.48 16099.42
19930331 15120.74 16156.91
19930430 15218.58 16293.36
19930531 15268.81 16242.00
19930630 15428.96 16480.01
19930731 15481.41 16512.97
19930831 15597.26 16758.27
19930930 15650.84 16832.24
19931031 15686.61 16858.30
19931130 15582.61 16777.43
19931231 15698.38 16851.40
19940131 15861.79 17018.13
19940228 15712.86 16791.61
19940331 15511.05 16540.19
19940430 15435.64 16436.32
19940531 15419.66 16453.18
19940630 15414.24 16459.70
19940731 15570.05 16665.52
19940831 15615.97 16714.19
19940930 15582.15 16578.13
19941031 15600.45 16581.58
19941130 15564.56 16501.48
19941231 15549.34 16561.65
19950131 15784.29 16841.82
19950228 16013.53 17156.49
19950331 16089.74 17250.01
19950430 16279.76 17445.86
19950531 16701.40 17937.22
19950630 16803.11 18052.20
19950731 16839.90 18065.23
19950831 16981.68 18208.96
19950930 17105.89 18322.79
19951031 17337.35 18526.31
19951130 17533.23 18758.96
19951231 17715.52 18940.25
19960131 17866.14 19102.76
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Limited Maturity Government Fund on May 2, 1988. As the chart shows, by
January 31, 1996, the value of your investment would have grown to $17,866
- - a 78.66% increase on your initial investment. This assumes you still own
the fund on January 31, 1996, and therefore does not include the effect of
the $5 account closeout fee on an average sized account. For comparison,
look at how the Salomon Brothers Treasury/Agency 1-10 Year Index did over
the same period. With dividends reinvested, the same $10,000 investment
would have grown to $19,103 - a 91.03% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, generally move in
the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can ride
out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX YEARS ENDED JULY 31,
MONTHS
ENDED
JANUARY
31,
1996 1995 1994 1993 1992 1991
Dividend return 3.33% 6.60% 5.22% 6.18% 6.98% 8.91%
Capital appreciation 2.76% 1.55% -4.66% 1.77% 1.79% 1.50%
return
Total return 6.09% 8.15% 0.56% 7.95% 8.77% 10.41%
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 on an average sized account.
DIVIDENDS AND YIELD
PERIODS ENDED JANUARY 31, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.50(cents) 31.67(cents) 62.07(cents)
Annualized dividend rate 6.48% 6.36% 6.36%
30-day annualized yield 5.65% - -
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 $9.99 over
the past month, $9.88 over the past six months and $9.76 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. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period ended January 31, 1996, the fund had a total
return of 6.09% while the short-intermediate U.S. government funds average,
as tracked by Lipper Analytical Services, returned 5.20%. Additionally, the
fund's benchmark index, the Salomon Brothers Treasury/Agency 1-10 year
Index, gained 5.74%.
Q. WHAT IS MEANT BY TOTAL RETURN?
A. Total return is simply the "total" amount of return to the fund's
shareholders, and reflects a sum of income and changes in share price.
Interest income is the main source of return for a bond fund over the long
term. However, over the shorter term, changes in a bond fund's share price
can play a significant role. Fortunately, total return is easy to explain
using a "dollars in, dollars out" example. If someone invested $100 in this
fund six months ago and reinvested the dividends and capital gains, the
investment would have been worth $106.09 as of January 31, 1996. That is
what is meant by a total return of 6.09%.
Q. WHY DO YOU BELIEVE THE FUND PERFORMED SO WELL?
A. If you look at the bonds in the fund's index, about 90% are U.S.
Treasuries and 10% are federal agencies; there are no mortgage-backed
securities. While the fund's duration - or price sensitivity to changes in
interest rates - is managed to mirror the index, its asset allocation may
differ from the index. Therefore, I was able to add value by overweighting
agency and mortgage securities while underweighting lower-yielding Treasury
securities. At the end of January, about 42% of the portfolio was invested
in federal agencies, about 25% in mortgage securities and about 30% in
Treasuries. Additionally, I focused on security selection, which means I
tried to buy the most attractive individual bonds in each of these three
market sectors.
Q. YOU MENTIONED SECURITY SELECTION. WHAT WERE SOME OF YOUR STRATEGIES?
A. In the first half of the year, I built up a major position in three and
four year callable agency notes. At that time, these notes were very
inexpensive because a large seller had created a big supply in the market.
Since then, as supply has been absorbed in the market, these notes have
appreciated in price. Additionally, the fund was able to enjoy the price
appreciation of these notes without worrying about their callability.
Typically, bond investors worry that a bond will be redeemed or called
because a call creates reinvestment risk - or the risk one might have to
reinvest at lower rates. The notes came with 4% and 5% coupons, so it
wasn't until late in 1995 that interest rates had fallen enough to make the
call feature an issue.
Q. WHAT DID YOU DO WITH THE PROCEEDS FROM THE SALE OF THE AGENCY NOTES?
A. I bought amortizing notes. These federal agency notes make regular
principal payments and the size and timing of the payments are spelled out
in the notes' prospectus. There are two major advantages to these
securities: they are non-callable and they are backed by the full faith and
credit of the U.S. government. These bonds will not only reduce the
portfolio's call risk relative to the index, but they also offer attractive
yields above comparable Treasuries.
Q. WHAT HAVE YOU DONE WITH THE MORTGAGE-BACKED SECURITIES PORTION OF THE
PORTFOLIO?
A. I've bought a combination of mortgage securities with very high coupons
as well as very low coupons, relative to current interest rates. On the one
hand, the majority of the high-coupon securities are "seasoned" mortgages.
Seasoned securities contain mortgage loans that have been through several
refinancing periods without being prepaid and thus are less likely to be
prepaid in the near future. On the other hand, the lower-coupon securities
are low enough that homeowners currently have no incentive to prepay their
mortgages.
Q. ARE THERE ANY OTHER BENEFITS TO THIS STRATEGY?
A. Yes. Both the high- and low-coupon mortgage securities have good
convexity characteristics. In other words, they don't have too much call
risk, so they should perform more like non-callable Treasuries rather than
mortgage securities with coupons that are closer to current interest rate
levels.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. While the fund performed well and I believe the fund took advantage of
some good opportunities, in hindsight, there were some opportunities I
missed in the mortgage market. Shareholders should understand that the
mortgage market is very large with many asset classes. Additionally, many
times the value of a security is not readily apparent.
Q. CURT, I NOTICED THE FUND HAS A NEW LIPPER CATEGORY. WHAT'S THE
DIFFERENCE BETWEEN THE OLD LIPPER CATEGORY AND THE NEW ONE?
A. The fund's old Lipper category - short U.S. government funds - was more
broadly defined, thus it contained more funds. The short U.S. government
category was made up of funds with average maturities of five years or
less. Recently, Lipper split this category into two new categories: short
U.S. government funds and short-intermediate U.S. government funds. The
short U.S. government category contains funds with average maturities of
less than three years. The second category, short-intermediate U.S.
government funds, has funds with average maturities of three to five years.
It is in the latter category that Lipper has placed Spartan Limited
Maturitiy Government Fund.
Q. WHAT'S YOUR OUTLOOK?
A. It appears the market has priced-in continued easing by the Fed.
However, if the economy rebounds, bond investors could be disappointed.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: high current income
by investing mainly in
mortgage securities of all
kinds
START DATE: December 31, 1984
SIZE: as of January 31,
1996, more than $490 million
MANAGER: Kevin Grant, since
1993; manager, Fidelity
Ginnie Mae Fund and
Spartan Ginnie Mae Portfolio,
since February 1995; manager,
Fidelity Advisor Limited Term
Bond Fund, since October
1995; manager, Fidelity Advisor
World Limited Term Bond
Fund, since December 1995;
joined Fidelity in 1993
(checkmark)
KEVIN GRANT ON THE SHAPE OF
THE YIELD CURVE AND WHAT IT
MEANS FOR THE SELECTION OF
MORTGAGE SECURITIES:
"The shape of the yield curve
- - or the graphical
representation of the yields of
various bonds of maturities
from three months to 30 years
- - is important in determining
the potential
price-performance of
mortgage securities such as
five-year and seven-year
balloons. Let me put this in
the context of the current
environment. What has
happened over the past year
is typical of the bond market in
the sense that longer-term
securities outperformed
shorter-term ones as interest
rates have fallen. Going
forward, however, if the
Federal Reserve Board were
to continue to ease short-term
interest-rates, the yield curve
could steepen. Therefore,
given that prices have risen
and yields have fallen
significantly in longer-term
securities over the past year,
balloon mortgages could
outperform longer-term
securities because of their
shorter maturities. In other
words, given current
conditions, any remaining
opportunities may lie in
shorter maturities rather than
longer ones. Not only have
prices on long-term bonds
risen more than short ones,
but their yields have fallen
more as well - that is, the
yield curve has flattened. This
flattening exaggerated the
price appreciation of
long-term issues relative to
intermediate ones."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1996
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
under 5% 14.1 23.1
5 - 5.99% 4.2 5.4
6 - 6.99% 9.5 6.3
7 - 7.99% 9.0 10.5
8 - 8.99% 13.2 11.7
9 - 9.99% 14.5 9.4
10 - 10.99% 5.6 5.3
11 - 11.99% 17.1 15.0
12 - 12.99% 8.3 8.0
13% and over 2.0 4.5
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, 1996
6 MONTHS AGO
Years 5.3 5.0
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, 1996
6 MONTHS AGO
Years 3.1 3.1
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, 1996 AS OF JULY 31, 1995
Mortgage-backed
securities 25.4%
U.S. government
and government
agency obligations 71.0%
Collateralized
mortgage obligations
(CMOs) 1.1%
Short-term
investments 2.5%
Mortgage-backed
securities 25.2%
U.S. government
and government
agency obligations 70.8%
Collateralized
mortgage obligations
(CMOs) 3.2%
Short-term
investments 0.8%
Row: 1, Col: 1, Value: 3.5
Row: 1, Col: 2, Value: 2.1
Row: 1, Col: 3, Value: 69.01000000000001
Row: 1, Col: 4, Value: 25.4
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 4.0
Row: 1, Col: 3, Value: 68.8
Row: 1, Col: 4, Value: 25.2
INVESTMENTS JANUARY 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 71.0%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. TREASURY OBLIGATIONS - 29.8%
8 1/2%, 5/15/97 $ 10,880,000 $ 11,359,373
9%, 5/15/98 14,890,000 16,158,032
9 1/4%, 8/15/98 17,545,000 19,288,447
8 7/8%, 11/15/98 6,800,000 7,464,088
9 1/8%, 5/15/99 18,262,000 20,441,935
7 3/4%, 12/31/99 36,080,000 39,321,427
11 7/8%, 11/15/03 35,565,000 49,613,175
12 3/8%, 5/15/04 9,580,000 13,847,603
11 3/4%, 2/15/10 39,860,000 56,682,116
12 3/4%, 11/15/10 7,160,000 10,885,420
13 7/8%, 5/15/11 1,880,000 3,052,951
TOTAL U.S. TREASURY OBLIGATIONS 248,114,567
U.S. GOVERNMENT AGENCY OBLIGATIONS - 41.2%
Federal Agricultural Mortgage Corporation:
6.92%, 2/10/01 1,400,000 1,488,368
9.45%, 11/21/03 1,000,000 1,108,590
7.04%, 8/10/05 1,000,000 1,089,310
Federal Farm Credit Bank:
6.56%, 8/5/02 1,690,000 1,771,796
6.32%, 9/9/02 1,410,000 1,464,671
6.20%, 9/23/02 2,180,000 2,244,092
6.40%, 10/3/02 690,000 717,600
Federal Home Loan Bank:
4 3/4%, 2/24/97 (callable) 61,200,000 60,999,264
6.20%, 7/17/02 2,240,000 2,304,837
6.37%, 6/30/03 1,060,000 1,099,709
Federal Home Loan Mortgage Corporation:
4.78%, 2/10/97 (callable) 1,060,000 1,055,528
6.55%, 10/2/02 1,680,000 1,766,888
Federal National Mortgage Association:
7%, 7/13/98 1,530,000 1,594,308
6.33%, 8/11/00 2,960,000 3,065,287
7.40%, 7/1/04 2,970,000 3,272,346
Government Trust Certificates:
(assets of Trust guaranteed by U.S. Government
through Defense Security Assistance Agency):
Class 1-B, 9 1/8%, 11/15/96 972,565 984,402
Class 1-C, 9 1/4%, 11/15/01 3,126,000 3,483,239
Class 2-E, 9.40%, 5/15/02 7,160,000 8,013,186
Class T-2, 9 5/8%, 5/15/02 5,332,000 5,958,510
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Trust Certificates - continued
(assets of Trust guaranteed by U.S. Government
through Export-Import Bank)
Series 1992-A, 7.02%, 9/1/04 $ 3,208,500 $ 3,388,404
Series 1993-A, 4.86%, 4/1/98 975,000 957,070
Series 1993-C, 5.20%, 10/15/04 1,910,222 1,874,406
Series 1993-D, 5.23%, 5/15/05 1,398,723 1,366,378
Series 1994-A, 7.39%, 6/26/06 341,250 367,462
Series 1994-B, 7 1/2%, 1/26/06 995,844 1,083,534
Series 1994-C, 6.61%, 9/15/99 494,110 504,846
Series 1994-F, 8.178%, 12/15/04 33,176,976 36,278,360
Series 1995-A, 6.28%, 6/15/04 9,340,000 9,570,698
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-Import
Bank) Series 1994-A, 7.12%, 4/15/06 1,243,846 1,318,866
Israel Export Trust Certificate Series 1994-1 (assets of Trust
guaranteed by U.S. Government through Export-Import
Bank) 6.88%, 1/26/03 1,588,235 1,648,699
Private Export Funding Corp.:
5 3/4%, 4/30/98 1,765,000 1,784,925
9.10%, 10/30/98 310,000 339,785
9 1/2%, 3/31/99 4,398,000 4,896,601
Series LL 7.90%, 3/31/00 3,890,000 4,243,484
8.35%, 1/31/01 1,250,000 1,400,338
Series II, 8.40%, 7/31/01 310,000 350,595
5.65%, 3/15/03 2,347,500 2,364,167
8 3/4%, 6/30/03 4,635,000 5,432,364
5.48%, 9/15/03 440,000 440,508
5.80%, 2/1/04 410,000 414,235
6.86%, 4/30/04 1,047,200 1,096,366
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
5 1/4%, 3/15/98 7,315,000 7,337,896
7 3/4%, 4/1/98 1,692,903 1,738,561
4 7/8%, 9/15/98 55,030,000 54,617,275
6%, 2/15/99 19,485,000 19,905,116
7 1/8%, 8/15/99 3,880,000 4,099,946
7 3/4%, 11/15/99 7,584,000 8,149,615
5 3/4%, 3/15/00 5,860,000 5,929,617
6.05%, 8/15/00 10,765,000 11,042,522
8%, 11/15/01 14,070,000 15,674,684
6 1/4%, 8/15/02 7,253,000 7,512,476
6 1/8%, 3/15/03 2,437,000 2,494,879
5 5/8%, 9/15/03 4,650,000 4,609,313
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S. Government through
Agency for International Development): - continued
6 5/8%, 2/15/04 $ 250,000 $ 262,500
8 1/2%, 4/1/06 9,580,000 11,005,025
Student Loan Marketing Association 7.56%, 12/9/96 2,690,000 2,742,853
Twelve Federal Land Banks 7.95%, 10/21/96 990,000 1,009,028
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 342,735,328
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $566,580,119) 590,849,895
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 25.4%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 13.4%
6 1/2%, 5/1/08 3,908,003 3,943,410
7 1/2%, 10/1/96 to 1/1/98 1,213,260 1,226,818
8 1/2%, 5/1/10 to 1/1/22 7,954,743 8,350,295
9%, 11/1/09 to 11/1/16 2,639,972 2,794,730
9 1/2%, 4/1/18 to 8/1/21 13,802,547 14,893,594
10%, 12/1/00 to 3/1/21 22,411,880 24,594,823
10 1/2%, 9/1/09 to 5/1/21 15,025,941 16,651,595
10 3/4%, 7/1/13 192,982 213,502
11%, 8/1/00 to 9/1/20 1,547,834 1,725,221
11 1/4%, 2/1/10 to 10/1/14 1,665,819 1,854,519
11 1/2%, 11/1/15 to 8/1/19 626,882 712,680
11 3/4%, 1/1/10 to 10/1/15 380,917 427,029
12%, 1/1/00 to 11/1/19 3,932,386 4,477,334
12 1/4%, 7/1/10 to 8/1/15 1,815,943 2,071,620
12 1/2%, 10/1/09 to 6/1/19 19,467,145 22,516,987
12 3/4%, 2/1/10 to 8/1/11 268,388 308,178
13%, 9/1/10 to 5/1/17 2,944,674 3,456,787
13 1/4%, 11/1/10 to 12/1/14 298,555 346,205
13 1/2%, 11/1/10 to 10/1/14 523,349 618,827
13 3/4%, 10/1/14 35,422 40,979
14%, 11/1/12 to 4/1/16 224,077 266,096
14 1/2%, 12/1/10 to 9/1/12 119,969 142,439
14 3/4%, 3/1/10 49,256 58,522
16 1/4%, 7/1/11 11,801 14,054
111,706,244
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 7.0%
5 1/2%, 1/1/09 to 2/1/09 $ 4,791,306 $ 4,671,524
6%, 2/1/08 5,340,000 5,301,605
8%, 4/1/98 to 10/1/00 871,369 899,119
8 1/4%, 12/1/01 5,546,338 5,976,180
8 1/2%, 1/1/98 to 12/1/22 3,802,774 3,990,661
9%, 11/1/97 to 2/1/13 1,739,742 1,829,649
10%, 1/1/20 421,703 462,819
10 1/4%, 10/1/09 to 10/1/18 786,624 865,725
11%, 8/1/10 to 1/1/16 9,335,599 10,507,883
11 1/4%, 11/1/10 to 1/1/16 2,335,613 2,628,964
11 1/2%, 9/1/11 to 12/1/15 3,676,244 4,196,100
11 3/4%, 7/1/13 to 4/1/14 359,055 409,750
12 1/4%, 4/1/09 to 6/1/15 2,175,087 2,509,255
12 1/2%, 9/1/07 to 5/1/21 5,978,638 7,002,378
12 3/4%, 10/1/11 to 6/1/15 2,008,897 2,350,097
13%, 6/1/11 to 7/1/15 2,422,444 2,854,403
13 1/4%, 9/1/11 to 9/1/13 969,565 1,144,939
13 1/2%, 5/1/11 to 1/1/15 83,181 99,480
14%, 6/1/11 to 12/1/14 278,275 333,881
14 1/2%, 7/1/14 19,921 24,086
15%, 4/1/12 32,744 39,323
58,097,821
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.0%
8%, 9/15/06 to 11/15/07 1,551,012 1,637,993
8 1/2%, 4/15/16 to 4/15/17 144,434 153,097
9%, 11/15/04 to 5/15/17 2,652,603 2,843,732
9 1/2%, 6/15/09 to 1/15/17 12,434,236 13,541,873
10%, 12/15/09 to 10/15/20 2,954,719 3,269,607
10 1/2%, 8/15/15 to 4/15/16 279,380 311,279
11%, 8/15/98 to 1/15/19 1,395,729 1,568,337
11 1/2%, 3/15/10 to 1/15/21 10,470,842 12,041,047
11 3/4%, 1/15/14 71,037 80,716
12%, 1/15/13 to 6/15/15 1,490,944 1,734,438
12 1/4%, 1/15/14 105,874 120,829
12 1/2%, 6/15/14 67,942 79,428
13%, 1/15/11 to 12/15/14 1,753,078 2,075,293
13 1/4%, 9/15/13 to 10/15/14 397,789 459,942
13 1/2%, 5/15/10 to 12/15/14 966,630 1,158,263
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
13 3/4%, 8/15/14 to 9/15/14 $ 72,909 $ 84,666
14%, 6/15/11 to 12/15/14 214,268 263,053
16%, 9/15/11 to 4/15/13 181,417 214,072
17%, 12/15/11 15,776 18,615
41,656,280
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $205,638,884) 211,460,345
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.1%
U.S. GOVERNMENT AGENCY - 1.1%
Resolution Trust Corp. Series 1991-11 Class 6-A,
12.647%, 10/25/21 844,308 886,524
Federal Home Loan Mortgage Corporation:
sequential pay Series 1353 Class A, 5 1/2%, 11/15/04 616,491 611,486
Z Bond Series 9, Class E, 9.05%, 8/15/19 3,962,233 4,180,156
Federal National Mortgage Association planned amortization
class Series 1993-28 Class PD, 5 1/4%, 10/25/01 3,400,000 3,380,875
TOTAL U.S. GOVERNMENT AGENCY 9,059,041
PRIVATE SPONSOR - 0.0%
DLJ Acceptance Trust planned amortization class,
Series 1989 Class 1-F, 11%, 8/1/19 256,474 282,121
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $9,127,964) 9,341,162
REPURCHASE AGREEMENTS - 2.5%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.88% dated
1/31/96 due 2/1/96 $ 20,818,400 20,815,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $802,161,967) $ 832,466,402
INCOME TAX INFORMATION
At January 31, 1996, the aggregate cost of investment securities for income
tax purposes was $802,180,499. Net unrealized appreciation aggregated
$30,285,903, of which $30,525,215 related to appreciated investment
securities and $239,312 related to depreciated investment securities.
At January 31, 1996, the fund had a capital loss carryforward of
approximately $49,726,000 which will expire on July 31, 2003.
The fund intends to elect to defer to its fiscal year ending July 31, 1996
approximately $9,752,000 of losses recognized during the period November 1,
1994 to July 31, 1995.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 31, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 832,466,402
agreements of $20,815,000) (cost $802,161,967) -
See accompanying schedule
Cash 189
Receivable for investments sold 1,172,823
Interest receivable 15,585,711
TOTAL ASSETS 849,225,125
LIABILITIES
Payable for investments purchased $ 15,073,577
Payable for fund shares redeemed 4,037,619
Distributions payable 774,013
Accrued management fee 448,255
TOTAL LIABILITIES 20,333,464
NET ASSETS $ 828,891,661
Net Assets consist of:
Paid in capital $ 854,896,288
Distributions in excess of net investment income (478,550)
Accumulated undistributed net realized gain (loss) on (55,830,512)
investments
Net unrealized appreciation (depreciation) on 30,304,435
investments
NET ASSETS, for 82,669,158 shares outstanding $ 828,891,661
NET ASSET VALUE, offering price and redemption price per $10.03
share ($828,891,661 (divided by) 82,669,158 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
INVESTMENT INCOME $ 30,652,699
Interest
EXPENSES
Management fee $ 2,668,620
Non-interested trustees' compensation 1,408
Total expenses before reductions 2,670,028
Expense reductions (132,623) 2,537,405
NET INVESTMENT INCOME 28,115,294
REALIZED AND UNREALIZED GAIN (LOSS) 3,686,633
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 16,678,121
investment securities
NET GAIN (LOSS) 20,364,754
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 48,480,048
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED JANUARY JULY 31,
31,1996 1995
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 28,115,294 $ 62,602,530
Net investment income
Net realized gain (loss) 3,686,633 (17,523,543)
Change in net unrealized appreciation (depreciation) 16,678,121 19,639,558
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 48,480,048 64,718,545
FROM OPERATIONS
Distributions to shareholders from net investment income (26,361,743) (54,852,545)
Share transactions 77,205,297 113,876,634
Net proceeds from sales of shares
Reinvestment of distributions 21,555,762 45,254,545
Cost of shares redeemed (109,062,299) (370,039,092)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (10,301,240) (210,907,913)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 11,817,065 (201,041,913)
NET ASSETS
Beginning of period 817,074,596 1,018,116,509
End of period (including distributions in excess of net $ 828,891,661 $ 817,074,596
investment income of $(478,550) and $(2,232,101),
respectively)
OTHER INFORMATION
Shares
Sold 7,801,977 11,937,664
Issued in reinvestment of distributions 2,174,686 4,736,018
Redeemed (11,023,962) (38,896,556)
Net increase (decrease) (1,047,299) (22,222,874)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED JULY 31,
ENDED JANUARY
31, 1996
(UNAUDITED) 1995 1994 D 1993 1992 1991
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060 $ 9.930
beginning
of period
Income from .338 .610 .470 .872 .836 .853
Investment
Operations
Net investment
income
Net realized and .249 .143 (.410) (.087) .021 .142
unrealized
gain (loss)
Total from invest- .587 .753 .060 .785 .857 .995
ment
operations
Less Distributions (.317) (.603) (.540) (.605) (.677) (.845)
From net invest-
ment income
From net - - - (.050) (.060) (.020)
realized gain
In excess of net - - (.220) - - -
realized gain
Total distributions (.317) (.603) (.760) (.655) (.737) (.865)
Net asset value, $ 10.030 $ 9.760 $ 9.610 $ 10.310 $ 10.180 $ 10.060
end of period
TOTAL RETURN B, C 6.09% 8.16% .57% 7.96% 8.78% 10.43%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 828,892 $ 817,075 $ 1,018,117 $ 1,529,181 $ 1,770,018 $ 880,371
period (000
omitted)
Ratio of expenses .61% A, .65% .65% .65% .61% .50%
to average net E E E
assets
Ratio of net invest- 6.81% A 7.18% 7.37% 8.05% 8.24% 8.63%
ment income to
average net
assets
Portfolio turnover 95% A 210% 391% 324% 330% 288%
rate
</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 EFFECTIVE AUGUST 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1996 (Unaudited)
6. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Limited Maturity Government Fund (the fund) is a fund of Fidelity
Income Fund (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements have
been prepared in conformity with generally accepted accounting principles
which permit management to make certain estimates and assumptions at the
date of the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. 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 substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment interest income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, market discount, capital loss
carryforwards and losses deferred due to wash sales 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 the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax basis differences that will
reverse in a subsequent period.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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.
7. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a 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. Losses
may arise due to changes in the market value of the underlying securities
or if the counterparty does not perform under the contract.
8. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $386,070,382 and $399,236,731, respectively.
9. 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
$9,313 for the period.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. 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.
10. EXPENSE REDUCTIONS.
FMR agreed to reimburse a portion of the fund's expenses. For the period,
the reimbursement reduced expenses by $132,623.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISER
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
Fred L. Henning, Jr., Vice President
Curt Hollingsworth, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, 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
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
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 Bond
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 Bond
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)
