SPARTAN(REGISTERED TRADEMARK)
(REGISTERED TRADEMARK)
LIMITED MATURITY GOVERNMENT
FUND
ANNUAL REPORT
JULY 31, 1997
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.
REPORT OF INDEPENDENT 24 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 25
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
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
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first seven months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them periodically. The
stock market rebounded strongly from its early spring correction to
continue on its record-setting pace, as seen by the roughly 30%
year-to-date gain by the Standard & Poor's 500 Index. The bond market
posted moderate returns over the past seven months, as positive news on the
inflation front helped soften the effects of a hike in short-term interest
rates by the Federal Reserve Board in late March.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
The longer your investment time frame, the less likely it is that you will
be affected by short-term market volatility. A 10-year investment horizon
appropriate for saving for a college education, for example, enables you to
weather market cycles in a long-term fund, which may have a higher risk
potential, but also has a higher potential rate of return.
An intermediate-length fund could make sense if your investment horizon is
two to four years, while a short-term bond fund could be the right choice
if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund. These funds seek
income and a stable share price by investing in high-quality, short-term
investments. Of course, it's important to remember that there is no
assurance that a money market fund will achieve its goal of maintaining a
stable net asset value of $1.00 per share, and that these types of funds
are neither insured nor guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change or the growth of a hypothetical $10,000 investment. Total return
reflects the change in the value of an investment, assuming reinvestment of
the fund's dividend income and capital gains (the profits earned upon the
sale of securities that have grown in value), and the effect of the $5
account closeout fee on an average sized account. You can also look at the
fund's income, as reflected in its yield, to measure performance. If
Fidelity had not reimbursed certain fund expenses, the total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 8.55% 34.48% 92.84%
Salomon Brothers Treasury/Agency 8.62% 35.28% 106.34%
1-10 Year Index
Short-Intermediate U.S. 7.59% 29.30% n/a
Government Funds Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years or since the fund
started on May 2, 1988. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment would
be $1,050. You can compare the fund's returns to the performance of the
Salomon Brothers Treasury/Agency 1-10 Year Index - a market capitalization
weighted index of U.S. Treasury and U.S. government agency securities with
fixed-rate coupons and weighted average lives between one and 10 years. 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 mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past one year average represents a
peer group of 93 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Spartan Limited Maturity Government 8.55% 6.10% 7.35%
Salomon Brothers Treasury/Agency 8.62% 6.23% 8.14%
1-10 Year Index
Short-Intermediate U.S. 7.59% 5.25% n/a
Government Funds Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970731 19970812 101037 S00000000000001
Spartan Ltd Mat Govt. SB Treas/Agency 1-10year
00452 SB026
1988/05/02 10000.00 10000.00
1988/05/31 9990.13 9965.51
1988/06/30 10079.97 10118.81
1988/07/31 10083.32 10092.37
1988/08/31 10105.76 10103.48
1988/09/30 10214.30 10273.66
1988/10/31 10313.76 10415.85
1988/11/30 10309.73 10330.77
1988/12/31 10348.70 10337.28
1989/01/31 10431.71 10445.36
1989/02/28 10435.74 10404.35
1989/03/31 10489.27 10453.80
1989/04/30 10627.69 10637.38
1989/05/31 10777.41 10860.83
1989/06/30 10969.63 11141.39
1989/07/31 11106.16 11365.99
1989/08/31 11039.00 11210.00
1989/09/30 11095.21 11267.49
1989/10/31 11271.08 11501.67
1989/11/30 11362.10 11614.73
1989/12/31 11420.05 11646.16
1990/01/31 11405.95 11577.17
1990/02/28 11469.04 11611.28
1990/03/31 11495.98 11633.51
1990/04/30 11512.96 11599.79
1990/05/31 11685.71 11840.48
1990/06/30 11797.40 11997.62
1990/07/31 11937.68 12170.86
1990/08/31 11986.24 12120.27
1990/09/30 12082.11 12238.32
1990/10/31 12207.30 12406.96
1990/11/30 12350.35 12589.02
1990/12/31 12463.07 12767.24
1991/01/31 12602.08 12896.40
1991/02/28 12700.34 12958.49
1991/03/31 12805.04 13037.45
1991/04/30 12915.28 13179.26
1991/05/31 12982.04 13249.40
1991/06/30 13033.49 13267.03
1991/07/31 13182.71 13418.80
1991/08/31 13346.60 13662.18
1991/09/30 13482.12 13901.73
1991/10/31 13650.65 14048.91
1991/11/30 13700.23 14217.93
1991/12/31 13947.54 14565.56
1992/01/31 13879.87 14425.66
1992/02/29 13962.10 14472.81
1992/03/31 13945.35 14413.02
1992/04/30 14048.93 14551.38
1992/05/31 14189.32 14756.43
1992/06/30 14298.97 14971.06
1992/07/31 14340.23 15252.77
1992/08/31 14512.80 15421.79
1992/09/30 14612.81 15632.59
1992/10/31 14552.83 15441.72
1992/11/30 14620.19 15375.03
1992/12/31 14751.52 15576.64
1993/01/31 14878.13 15876.74
1993/02/28 15041.48 16099.42
1993/03/31 15120.74 16156.91
1993/04/30 15218.58 16293.36
1993/05/31 15268.81 16242.00
1993/06/30 15428.96 16480.01
1993/07/31 15481.41 16512.97
1993/08/31 15597.26 16758.27
1993/09/30 15650.84 16832.24
1993/10/31 15686.61 16858.30
1993/11/30 15582.61 16777.43
1993/12/31 15698.38 16851.40
1994/01/31 15861.79 17018.13
1994/02/28 15712.86 16791.61
1994/03/31 15511.05 16540.19
1994/04/30 15435.64 16436.32
1994/05/31 15419.66 16453.18
1994/06/30 15414.24 16459.70
1994/07/31 15570.05 16665.52
1994/08/31 15615.97 16714.19
1994/09/30 15582.15 16578.13
1994/10/31 15600.45 16581.58
1994/11/30 15564.56 16501.48
1994/12/31 15549.34 16561.65
1995/01/31 15784.29 16841.82
1995/02/28 16013.53 17156.49
1995/03/31 16089.74 17250.01
1995/04/30 16279.76 17445.86
1995/05/31 16701.40 17937.22
1995/06/30 16803.11 18052.20
1995/07/31 16839.90 18065.23
1995/08/31 16981.68 18208.96
1995/09/30 17105.89 18322.79
1995/10/31 17337.35 18526.31
1995/11/30 17533.23 18758.96
1995/12/31 17715.52 18940.25
1996/01/31 17866.14 19102.37
1996/02/29 17693.11 18913.04
1996/03/31 17594.61 18818.75
1996/04/30 17544.80 18748.61
1996/05/31 17534.84 18752.83
1996/06/30 17703.75 18940.63
1996/07/31 17764.83 18996.59
1996/08/31 17786.88 19021.50
1996/09/30 18013.85 19265.65
1996/10/31 18318.65 19587.21
1996/11/30 18550.17 19813.35
1996/12/31 18448.58 19711.01
1997/01/31 18515.85 19794.18
1997/02/28 18553.56 19816.03
1997/03/31 18433.79 19718.68
1997/04/30 18633.68 19930.24
1997/05/31 18779.40 20084.70
1997/06/30 18943.52 20258.33
1997/07/31 19285.55 20633.55
IMATRL PRASUN SHR__CHT 19970731 19970812 101040 R00000000000114
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Limited Maturity Government Fund on May 2, 1988, when
the fund started. As the chart shows, by July 31, 1997, the value of the
investment would have grown to $19,286 - a 92.86% increase on the initial
investment. This assumes the fund is still owned on July 31, 1997, 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
and capital gains, if any, reinvested, the same $10,000 investment would
have grown to $20,634 - a 106.34% 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
YEARS ENDED JULY 31,
1997 1996 1995 1994 1993
Dividend return 7.11% 6.61% 6.60% 5.22% 6.18%
Capital appreciation return 1.44% -1.13 1.55% -4.66% 1.77%
%
Total return 8.55% 5.48% 8.15% 0.56% 7.95%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid
by the fund 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 JULY 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.46(cents) 32.51(cents) 65.87(cents)
Annualized dividend rate 6.60% 6.79% 6.79%
30-day annualized yield 6.27% - -
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 $9.74 over
the past one month, $9.66 over the past six months and $9.70 over the past
one year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis. If Fidelity had not reimbursed certain fund expenses,
the fund's yield would have been 5.99%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A favorable inflation backdrop
steadied fears of higher interest
rates, buoying the U.S. taxable
bond market for the 12 months that
ended July 31, 1997. The Lehman
Brothers Aggregate Bond Index -
a broad measure of the U.S.
taxable bond market - returned
10.76% over the period. For the
first eight months of the period,
bonds suffered from increasing
expectations of economic growth
and inflation. In his February
testimony before Congress,
Federal Reserve Board Chairman
Alan Greenspan indicated that the
Fed was inclined to raise the rate
banks charge each other for
overnight loans - known as the
fed funds target rate - to head off
inflation that might be caused by a
tight labor market. On March 25,
the Fed followed through by
raising the target rate by 0.25% to
5.50%. However, this move largely
had been priced into the market.
Weakening economic and inflation
signals - combined with the Fed's
shift to a more favorable stance
indicating no intention to raise
rates in the short term - helped
spark a rally in all debt markets
from April through the end of the
period. Relative interest-rate
stability provided a positive setting
for mortgage-backed securities.
For the 12 months that ended July
31, 1997, the Salomon Brothers
Mortgage Index returned 10.60%.
Sustained economic growth and
demand from yield-hungry
investors helped corporate bonds,
with the Lehman Brothers
Corporate Bond Index returning
12.55% over the same period.
An interview with Curt Hollingsworth, Portfolio Manager of Spartan Limited
Maturity Government
Q. HOW DID THE FUND PERFORM, CURT?
A. Overall, I'm pleased with the fund's performance. For the one-year
period that ended July 31, 1997, the fund had a total return of 8.55%. This
compares favorably to the short-intermediate U.S. government funds average,
monitored by Lipper Analytical Services, which had a total return of 7.59%
over the same timeframe. Additionally, the Salomon Brothers Treasury/Agency
1-10 year Index returned 8.62%.
Q. WHAT HELPED THE FUND OUTPERFORM ITS PEER GROUP DURING THE PERIOD?
A. I'd point to three strategies in order of their impact on performance:
management of the fund's sector weightings, individual bond selection and
the implementation of "yield curve" strategies. With regard to sector
weightings, I chose to significantly underweight the fund in lower-yielding
Treasuries and overweight higher-yielding agencies and mortgage-related
securities. Because they are of the highest credit quality, agency
securities allowed the fund to outperform its peers without taking on added
credit risk - which is the risk that an issuer will default on its debt.
The strong agency performance during the period can be attributed to the
fact that they offered higher yields than comparable Treasuries. Individual
bond selection also generally helped the fund. Finally, yield curve
strategies involved comparing the yields of bonds with similar quality, but
different maturities.
Q. WHICH AGENCY SECURITIES DID YOU FOCUS ON?
A. I emphasized agency securities that are non-callable - that is, the
issuer does not have the option of redeeming the bond prior to maturity.
Because of this call protection, the fund won't be faced with having to
turn around and reinvest cash from a callable bond in what may be an
unfavorable interest-rate environment. I also focused on agency issues
known as "amortizing notes," which were solid performers. These notes make
regular principal payments, are non-callable and are indirectly backed by
the full faith and credit of the U.S. government. These securities not only
served to reduce the portfolio's call risk relative to the fund's benchmark
index, but they also offered more attractive yields than comparable
Treasuries.
Q. HOW DID YOU FOCUS THE FUND'S MORTGAGE SECURITY INVESTMENTS?
A. Mortgage-related securities are subject to prepayment risk, meaning the
risk that mortgage holders will prepay their debt. If prepayment occurs,
bond holders may be forced to reinvest in other mortgage securities with
lower coupons. One way of dealing with prepayment is to focus on owning
bonds with very low coupons and very high coupons, both of which are less
likely to be subject to prepayment uncertainty. Additionally, I emphasized
"seasoned" mortgage securities, which contain mortgages that have been
through several refinancing periods and the mortgage holders haven't shown
a propensity to prepay.
Q. CURT, WE UNDERSTAND THAT THE FUND HAS HAD AN INVESTMENT POLICY CHANGE
REGARDING ITS INVESTMENT IN MORTGAGE SECURITIES. . .
A. Yes. Effective September 22, 1997, the fund will adopt a policy that
limits investments in mortgage securities to 40% of the fund's assets. I do
not expect the new policy to have an impact on the fund; at the end of the
period, the fund had only 28.1% invested in mortgage-backed securities.
Going forward, I will continue to manage the fund as a broad government
fund that invests in Treasury and agency securities as well as mortgage
securities.
Q. WHAT'S YOUR OUTLOOK?
A. At the end of the period, none of the three sectors the fund targets -
the Treasury, agency and mortgage sectors - appeared to be unusually cheap
or expensive. That's because the past year was characterized by relatively
low volatility in the bond markets in general. Increased volatility could
create more opportunities to find securities that are cheap relative to
other mortgages. But it may be that we're in for a continued stretch of low
volatility.
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
with preservation of capital
by investing mainly in U.S.
government and agency
securities while maintaining
an average maturity of 10
years or less
FUND NUMBER: 452
TRADING SYMBOL: FSTGX
START DATE: May 2, 1988
SIZE: as of July 31, 1997,
more than $704 million
MANAGER: Curt
Hollingsworth, since 1988;
manager, various Fidelity
and Spartan government
funds
(checkmark)
CURT HOLLINGSWORTH ON
SELECTING INDIVIDUAL SECURITIES:
"The direction of interest rates
is the primary factor that
determines the performance
of fixed-income securities.
Many investors try to pick
securities that will do well
based on where they feel
interest rates are headed.
In contrast, I try to identify
those securities I believe will
offer the best total return
potential whether rates climb,
drop or stay constant.
Because I tend to have a
value orientation, I choose
securities that I find to be
cheap relative to other
securities with the idea that
they will appreciate when the
market starts to favor them."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Less than 4% 5.2 2.1
4 - 4.99% 8.0 8.2
5 - 5.99% 7.1 6.5
6 - 6.99% 14.7 19.9
7 - 7.99% 16.3 8.2
8 - 8.99% 12.5 20.6
9 - 9.99% 10.2 11.1
10 - 10.99% 5.1 6.9
11 - 11.99% 10.7 4.7
12 - 12.99% 4.2 8.6
13% and over 1.3 1.5
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING
SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1997
6 MONTHS AGO
Years 4.4 5.1
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 JULY 31, 1997
6 MONTHS AGO
Years 3.0 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 (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1997 AS OF JANUARY 31, 1997
Row: 1, Col: 1, Value: 4.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 67.2
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 28.1
Mortgage-backed
securities 28.8%
U.S. government
and government
agency obligations 69.5%
Short-term
investments 1.7%
Mortgage-backed
securities 28.1%
U.S. government
and government
agency obligations 67.2%
Short-term
investments 4.7%
Row: 1, Col: 1, Value: 2.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 69.0
Row: 1, Col: 5, Value: 28.8
INVESTMENTS JULY 31, 1997
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 67.2%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 18.9%
9 1/4%, 8/15/98 $ 20,790,000 $ 21,540,311
8 7/8%, 2/15/99 11,600,000 12,140,096
8%, 8/15/99 10,820,000 11,284,935
7 3/4%, 12/31/99 17,000,000 17,751,740
8 1/2%, 2/15/00 70,000 74,451
11 3/4%, 2/15/01 29,115,000 34,574,063
7 7/8%, 8/15/01 33,000,000 35,356,530
TOTAL U.S. TREASURY OBLIGATIONS 132,722,126
U.S. GOVERNMENT AGENCY OBLIGATIONS - 48.3%
Federal Agricultural Mortgage Corporation:
7.63%, 1/16/01 6,000,000 6,306,540
6.92%, 2/10/01 1,400,000 1,440,908
7.04%, 8/10/05 1,000,000 1,047,030
Federal Farm Credit Bank:
6.55%, 2/7/04 1,340,000 1,368,475
9.15%, 2/14/05 500,000 584,845
Federal Home Loan Bank:
6.37%, 6/30/03 1,060,000 1,072,254
5.77%, 2/3/04 2,000,000 1,961,240
9 1/2%, 2/25/04 220,000 258,878
6 3/4%, 4/5/04 870,000 896,370
7.87%, 10/20/04 1,280,000 1,404,198
8.09%, 12/28/04 3,220,000 3,572,171
7.59%, 3/10/05 1,940,000 2,100,360
6.45%, 6/8/05 6,000,000 6,065,640
6.34%, 6/13/05 3,500,000 3,514,770
Federal Home Loan Mortgage Corporation:
7 1/4%, 4/28/04 12,000,000 12,697,440
8%, 1/26/05 970,000 1,068,057
8.115%, 1/31/05 7,350,000 8,153,870
6.783%, 8/18/05 15,000,000 15,473,400
Federal National Mortgage Association:
7.49%, 3/2/05 5,480,000 5,897,850
7.16%, 5/11/05 9,005,000 9,486,227
Financing Corporation stripped principal:
0%, 2/8/02 6,339,000 4,823,028
0%, 5/2/02 3,667,000 2,749,663
0%, 6/27/02 9,425,000 7,006,922
0%, 6/6/04 8,575,000 5,613,367
0%, 9/26/04 4,472,000 2,868,564
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Loan Trusts (assets of Trust guaranteed by
U.S. Government through Agency for International
Development) 8 1/2%, 4/1/06 $ 11,490,000 $ 12,657,865
Government Trust Certificates (assets of Trust guaranteed
by U.S. Government through Defense Security
Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 4,093,642 4,368,038
Class 2-E, 9.40%, 5/15/02 12,510,109 13,344,908
Class T-3, 9 5/8%, 5/15/02 5,811,882 6,198,663
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 1,582,756 1,527,421
Series 1993-D, 5.23%, 5/15/05 1,177,872 1,138,901
Series 1994-A, 7.12%, 4/15/06 6,230,259 6,417,166
Series 1994-C, 6.61%, 9/15/99 319,359 321,389
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1993-A, 4.86%, 4/1/98 1,990,000 1,984,846
Series 1994-B, 7 1/2%, 1/26/06 889,329 937,145
Israel Export Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank)
Series 1994-1, 6.88%, 1/26/03 1,164,706 1,187,313
Overseas Private Investment Corp. (U.S. Government
guaranteed participation certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) 7,220,000 7,189,315
Series 1996-A1, 6.726%, 9/15/10 (callable) 4,000,000 4,074,160
Private Export Funding Corp. secured:
5.65%, 3/15/03 2,478,000 2,456,318
5.48%, 9/15/03 3,185,000 3,123,275
5.80%, 2/1/04 3,845,000 3,804,820
6.86%, 4/30/04 2,355,733 2,404,238
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
4 7/8%, 9/15/98 55,030,000 54,482,452
7 1/8%, 8/15/99 3,247,000 3,325,525
7 3/4%, 11/15/99 7,584,000 7,873,330
5 3/4%, 3/15/00 4,040,000 4,024,002
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
0%, 11/15/00 $ 8,165,000 $ 6,716,202
0%, 11/15/01 8,485,000 6,598,021
8%, 11/15/01 15,680,000 16,814,762
6 1/4%, 8/15/02 6,492,000 6,552,564
6 1/8%, 3/15/03 2,437,000 2,431,541
6 5/8%, 8/15/03 4,210,000 4,325,017
5 5/8%, 9/15/03 11,550,000 11,288,046
6 5/8%, 2/15/04 1,460,000 1,498,573
6 3/4%, 8/15/04 350,000 361,407
7 5/8%, 8/15/04 1,320,000 1,428,852
5.89%, 8/15/05 9,430,000 9,232,338
6.60%, 2/15/08 3,095,000 3,153,774
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank):
8.17%, 1/15/07 6,111,667 6,589,110
6.69%, 1/15/09 (a) 3,610,000 3,676,677
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1996-A, 6.59%, 8/1/00 1,340,000 1,360,757
Series 1996-A, 6.98%, 8/1/05 8,000,000 8,330,880
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 340,631,678
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $464,072,677) 473,353,804
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 28.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 11.4%
6 1/2%, 5/1/08 3,101,960 3,103,325
7%, 6/1/01 to 8/1/01 2,443,236 2,465,934
7 1/2%, 11/1/97 to 1/1/98 156,831 157,183
8 1/2%, 5/1/10 to 1/1/22 6,165,800 6,439,439
9%, 11/1/09 to 11/1/16 1,590,114 1,673,461
9 1/2%, 7/1/16 to 8/1/21 9,324,313 10,066,335
10%, 12/1/00 to 2/1/23 15,923,905 17,376,129
10 1/2%, 9/1/09 to 5/1/21 10,293,628 11,378,715
10 3/4%, 7/1/13 157,725 174,047
11%, 8/1/00 to 9/1/20 1,135,884 1,265,836
11 1/4%, 2/1/10 to 10/1/14 1,203,853 1,335,573
11 1/2%, 10/1/15 to 8/1/19 690,922 776,859
11 3/4%, 1/1/10 to 10/1/15 316,561 352,679
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - CONTINUED
12%, 1/1/00 to 11/1/19 $ 2,794,973 $ 3,179,557
12 1/4%, 2/1/11 to 8/1/15 1,105,253 1,263,743
12 1/2%, 10/1/09 to 6/1/19 13,408,168 15,502,253
12 3/4%, 2/1/10 to 8/1/11 212,726 245,107
13%, 9/1/10 to 5/1/17 1,976,270 2,320,116
13 1/4%, 11/1/10 to 12/1/14 189,270 216,395
13 1/2%, 11/1/10 to 10/1/14 436,543 516,772
13 3/4%, 10/1/14 29,815 34,210
14%, 11/1/12 to 4/1/16 55,548 66,348
14 1/2%, 12/1/10 to 9/1/12 106,444 127,233
14 3/4%, 3/1/10 35,690 42,660
16 1/4%, 7/1/11 7,291 8,759
80,088,668
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 9.6%
5 1/2%, 1/1/09 to 2/1/09 11,237,950 10,886,764
6%, 10/1/08 to 12/1/08 23,907,324 23,642,454
8%, 10/1/00 17,395 17,578
8 1/4%, 12/1/01 5,462,289 5,857,595
8 1/2%, 9/1/07 to 12/1/22 2,218,816 2,316,423
9%, 11/1/97 to 2/1/13 1,297,054 1,366,086
10%, 1/1/20 182,745 199,135
10 1/4%, 10/1/09 to 10/1/18 631,862 692,350
11%, 8/1/10 to 1/1/16 6,422,540 7,130,383
11 1/4%, 11/1/10 to 1/1/16 1,423,125 1,578,708
11 1/2%, 9/1/11 to 12/1/15 2,481,801 2,795,081
11 3/4%, 7/1/13 to 4/1/14 156,984 177,243
12 1/4%, 10/1/10 to 6/1/15 1,516,502 1,729,394
12 1/2%, 9/1/07 to 5/1/21 3,815,927 4,426,209
12 3/4%, 10/1/11 to 6/1/15 1,555,839 1,803,511
13%, 6/1/11 to 7/1/15 1,718,785 2,002,469
13 1/4%, 9/1/11 to 9/1/13 727,367 851,262
13 1/2%, 5/1/11 to 12/1/14 51,692 61,410
14%, 6/1/11 to 12/1/14 155,917 183,219
14 1/2%, 7/1/14 19,588 23,555
15%, 4/1/12 24,271 29,186
67,770,015
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 7.1%
8%, 9/15/06 to 11/15/07 $ 1,127,403 $ 1,177,971
8 1/2%, 4/15/16 to 4/15/17 115,717 122,840
9%, 11/15/04 to 5/15/17 1,927,340 2,064,141
9 1/2%, 6/15/09 to 1/15/17 9,655,561 10,452,740
10%, 12/15/09 to 10/15/20 2,125,577 2,341,463
10 1/2%, 8/15/15 to 1/15/18 3,667,113 4,081,358
11%, 8/15/98 to 1/15/19 4,733,114 5,382,801
11 1/2%, 3/15/10 to 1/15/21 17,470,444 20,012,350
12%, 11/15/12 to 6/15/15 1,030,080 1,193,493
12 1/4%, 1/15/14 51,626 58,280
12 1/2%, 6/15/14 66,461 77,800
13%, 1/15/11 to 12/15/14 1,343,703 1,591,060
13 1/4%, 9/15/13 to 10/15/14 199,017 228,746
13 1/2%, 5/15/10 to 12/15/14 638,117 751,866
13 3/4%, 9/15/14 35,471 40,947
14%, 6/15/11 to 12/15/14 95,684 114,666
16%, 9/15/11 to 4/15/13 177,862 219,992
17%, 12/15/11 3,411 4,175
49,916,689
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $193,590,241) 197,775,372
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 $305,565) 327,958 326,010
CASH EQUIVALENTS - 4.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.77%, dated
7/31/97 due 8/1/97 $ 33,351,345 33,346,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $691,314,483) $ 704,801,186
LEGEND
1. 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 $3,676,677 or 0.5% of net
assets.
INCOME TAX INFORMATION
At July 31, 1997, the aggregate cost of investment securities for income
tax purposes was $691,350,993. Net unrealized appreciation aggregated
$13,450,193 of which $15,877,353 related to appreciated investment
securities and $2,427,160 related to depreciated investment securities.
At July 31, 1997, the fund had a capital loss carryforward of approximately
$59,613,000 of which $49,727,000, 6,634,000 and 3,252,000 will expire on
July 31, 2003, 2004, and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JULY 31, 1997
ASSETS
Investment in securities, at value (including repurchase $ 704,801,186
agreements of $33,346,000) (cost $691,314,483) -
See accompanying schedule
Cash 181
Receivable for investments sold 725,899
Interest receivable 12,114,885
TOTAL ASSETS 717,642,151
LIABILITIES
Payable for investments purchased $ 11,881,271
Payable for fund shares redeemed 482,491
Distributions payable 648,241
Accrued management fee 218,888
Other payables and accrued expenses 12,733
TOTAL LIABILITIES 13,243,624
NET ASSETS $ 704,398,527
Net Assets consist of:
Paid in capital $ 750,701,672
Distributions in excess of net investment income (140,444)
Accumulated undistributed net realized gain (loss) (59,649,404)
on investments
Net unrealized appreciation (depreciation) on 13,486,703
investments
NET ASSETS, for 71,933,344 shares outstanding $ 704,398,527
NET ASSET VALUE, offering price and redemption price per $9.79
share ($704,398,527 (divided by) 71,933,344 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED JULY 31, 1997
INVESTMENT INCOME $ 52,650,627
Interest
EXPENSES
Management fee $ 4,549,114
Non-interested trustees' compensation 14,872
Total expenses before reductions 4,563,986
Expense reductions (787,642) 3,776,344
NET INVESTMENT INCOME 48,874,283
REALIZED AND UNREALIZED GAIN (LOSS) (3,334,493)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 12,958,452
investment securities
NET GAIN (LOSS) 9,623,959
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 58,498,242
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 48,874,283 $ 55,084,926
Net investment income
Net realized gain (loss) (3,334,493) 971,606
Change in net unrealized appreciation (depreciation) 12,958,452 (13,098,063)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 58,498,242 42,958,469
FROM OPERATIONS
Distributions to shareholders from net investment income (47,691,995) (51,913,908)
Share transactions 147,916,359 141,362,428
Net proceeds from sales of shares
Reinvestment of distributions 39,233,703 42,680,423
Cost of shares redeemed (233,303,762) (252,416,028)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (46,153,700) (68,373,177)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (35,347,453) (77,328,616)
NET ASSETS
Beginning of period 739,745,980 817,074,596
End of period (including under (over) distribution $ 704,398,527 $ 739,745,980
of net investment income of $(140,444) and
$1,047,280, respectively)
OTHER INFORMATION
Shares
Sold 15,241,896 14,329,830
Issued in reinvestment of distributions 4,045,268 4,348,999
Redeemed (24,039,746) (25,709,360)
Net increase (decrease) (4,752,582) (7,030,531)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED JULY 31,
1997 1996 1995 1994 D 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 9.650 $ 9.760 $ 9.610 $ 10.310 $ 10.180
of period
Income from Investment .675 C .678 .610 .470 .872
Operations
Net investment income
Net realized and unrealized .124 (.150) .143 (.410) (.087)
gain (loss)
Total from investment .799 .528 .753 .060 .785
operations
Less Distributions
From net investment income (.659) (.638) (.603) (.540) (.605)
From net realized gain - - - - (.050)
In excess of net - - - (.220) -
realized gain
Total distributions (.659) (.638) (.603) (.760) (.655)
Net asset value, $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310
end of period
TOTAL RETURN A, B 8.56% 5.49% 8.16% .57% 7.96%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 704,399 $ 739,746 $ 817,075 $ 1,018,117 $ 1,529,181
(000 omitted)
Ratio of expenses to average .54% .63% .65% .65% .65%
net assets E E
Ratio of expenses to average .54% .62% .65% .65% .65%
net assets after F
expense reductions
Ratio of net investment income 6.96% 6.89% 7.18% 7.37% 8.05%
to average net assets
Portfolio turnover rate 105% 105% 210% 391% 324%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Limited Maturity Government Fund (the fund) is a fund of Fidelity
Income Fund (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The 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. Securities (including
restricted securities) for which market quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the Board
of Trustees. Short-term securities with remaining maturities of sixty days
or less for which quotations are not readily available are valued at
amortized cost or original cost plus accrued interest, both of which
approximate current value.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net 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.
Distributions in excess of 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 for U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the
value of the underlying securities remains in accordance with the market
value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $716,488,754 and $760,505,409, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses,
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and extraordinary
expenses. FMR receives a fee that is computed daily at an annual rate of
.65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund. To
offset the cost of providing these services, FMR or its affiliates collect
certain transaction fees from the fund's shareholders which amounted to
$8,861 for the period.
5. EXPENSE REDUCTIONS.
Effective March 1, 1997, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of .38% of the fund's average
net assets. For the period, the reimbursement reduced the expenses by
$774,894.
5. EXPENSE REDUCTIONS -
CONTINUED
In addition, FMR has entered into arrangements on behalf of the fund with
the fund's custodian and transfer agent whereby credits realized as a
result of uninvested cash balances were used to reduce a portion of the
fund's expenses. During the period, the fund's expenses were reduced by
$12,748 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of Spartan
Limited Maturity Government Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of Spartan
Limited Maturity Government Fund (a fund of Fidelity Income Fund) at July
31, 1997, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Spartan Limited
Maturity Government Fund 's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at July 31, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 9, 1997
DISTRIBUTIONS
A total of 24.48% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
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research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT
IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and send
you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
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527 North Brand Boulevard
Glendale, CA
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GEORGIA
3525 Piedmont Road, N.E.
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1000 Abernathy Road
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HAWAII
700 Bishop Street
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ILLINOIS
215 East Erie Street
Chicago, IL
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Chicago, IL
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3232 Lake Avenue
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INDIANA
4729 East 82nd Street
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LOUISIANA
201 St. Charles Avenue
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MAINE
3 Canal Plaza
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MARYLAND
7401 Wisconsin Avenue
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1 West Pennsylvania Ave.
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MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
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416 Belmont Street
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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
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NEW JERSEY
150 Essex Street
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56 South Street
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501 Route 17, South
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NEW YORK
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1271 Avenue of the Americas
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NORTH CAROLINA
4611 Sharon Road
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2200 West Main Street
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OHIO
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121 S.W. Morrison Street
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1735 Market Street
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400 East Las Colinas Blvd.
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14100 San Pedro
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19740 IH 45 North
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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
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
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
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curt Hollingsworth, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
FIDELITY
(REGISTERED TRADEMARK)
GINNIE MAE
FUND
ANNUAL REPORT
JULY 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 13 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 17 Notes to the financial statements.
REPORT OF INDEPENDENT 20 The auditors' opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Through the first seven months of 1997, stock and bond markets experienced
the kind of short-term volatility that can affect them periodically. The
stock market rebounded strongly from its early spring correction to
continue on its record-setting pace, as seen by the roughly 30%
year-to-date gain by the Standard & Poor's 500 Index. The bond market
posted moderate returns over the past seven months, as positive news on the
inflation front helped soften the effects of a hike in short-term interest
rates by the Federal Reserve Board in late March.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
The longer your investment time frame, the less likely it is that you will
be affected by short-term market volatility. A 10-year investment horizon
appropriate for saving for a college education, for example, enables you to
weather market cycles in a long-term fund, which may have a higher risk
potential, but also has a higher potential rate of return.
An intermediate-length fund could make sense if your investment horizon is
two to four years, while a short-term bond fund could be the right choice
if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund. These funds seek
income and a stable share price by investing in high-quality, short-term
investments. Of course, it's important to remember that there is no
assurance that a money market fund will achieve its goal of maintaining a
stable net asset value of $1.00 per share, and that these types of funds
are neither insured nor guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change or the growth of a hypothetical $10,000 investment. Total return
reflects the change in the value of an investment, assuming reinvestment of
the fund's dividend income and capital gains (the profits earned upon the
sale of securities that have grown in value). You can also look at the
fund's income, as reflected in its yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Ginnie Mae Fund 10.11% 37.80% 123.10%
Salomon Brothers GNMA Index 10.70% 41.87% 145.76%
GNMA Funds Average 10.15% 36.13% 122.33%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years or 10 years. For
example, if you had invested $1,000 in a fund that had a 5% return over the
past year, the value of your investment would be $1,050. You can compare
the fund's returns to the performance of the Salomon Brothers GNMA Index -
a market capitalization weighted index of 15- and 30-year fixed-rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA). 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 mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past one year average represents a
peer group of 51 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Ginnie Mae Fund 10.11% 6.62% 8.36%
Salomon Brothers GNMA Index 10.70% 7.24% 9.41%
GNMA Funds Average 10.15% 6.36% 8.31%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19970731 19970811 104810 S00000000000001
Ginnie Mae SB GNMA
00015 SB019
1987/07/31 10000.00 10000.00
1987/08/31 9936.72 9942.97
1987/09/30 9656.63 9690.17
1987/10/31 9978.44 10013.87
1987/11/30 10057.30 10159.15
1987/12/31 10187.00 10275.92
1988/01/31 10532.45 10697.50
1988/02/29 10634.36 10824.66
1988/03/31 10612.84 10727.94
1988/04/30 10519.84 10649.33
1988/05/31 10481.85 10638.92
1988/06/30 10706.13 10916.38
1988/07/31 10668.43 10873.60
1988/08/31 10683.60 10884.78
1988/09/30 10896.67 11154.14
1988/10/31 11087.13 11414.64
1988/11/30 10974.62 11247.78
1988/12/31 10916.83 11186.90
1989/01/31 11090.50 11391.91
1989/02/28 11033.04 11304.05
1989/03/31 11046.03 11308.29
1989/04/30 11261.65 11511.75
1989/05/31 11548.17 11902.89
1989/06/30 11858.47 12240.08
1989/07/31 12055.35 12515.61
1989/08/31 11941.73 12334.10
1989/09/30 11970.02 12411.95
1989/10/31 12225.68 12701.35
1989/11/30 12343.37 12848.17
1989/12/31 12428.52 12929.87
1990/01/31 12292.33 12815.41
1990/02/28 12363.73 12864.35
1990/03/31 12387.96 12917.92
1990/04/30 12248.69 12771.87
1990/05/31 12639.84 13184.59
1990/06/30 12817.47 13403.85
1990/07/31 13021.29 13638.92
1990/08/31 12987.92 13502.89
1990/09/30 13068.43 13614.64
1990/10/31 13212.96 13764.93
1990/11/30 13510.13 14104.05
1990/12/31 13733.55 14339.50
1991/01/31 13906.45 14541.43
1991/02/28 13962.58 14627.36
1991/03/31 14059.88 14740.66
1991/04/30 14164.04 14895.18
1991/05/31 14271.55 15012.72
1991/06/30 14288.77 15045.09
1991/07/31 14500.62 15300.19
1991/08/31 14759.20 15577.65
1991/09/30 14976.83 15868.21
1991/10/31 15180.65 16107.13
1991/11/30 15262.08 16211.95
1991/12/31 15596.79 16617.73
1992/01/31 15467.43 16431.98
1992/02/29 15632.74 16583.43
1992/03/31 15540.72 16525.24
1992/04/30 15673.59 16667.82
1992/05/31 15933.61 16960.69
1992/06/30 16111.96 17193.06
1992/07/31 16190.16 17323.31
1992/08/31 16369.19 17563.39
1992/09/30 16486.87 17703.28
1992/10/31 16353.60 17581.12
1992/11/30 16437.42 17676.69
1992/12/31 16641.72 17880.54
1993/01/31 16861.37 18129.87
1993/02/28 17011.22 18289.02
1993/03/31 17104.35 18408.48
1993/04/30 17162.90 18502.50
1993/05/31 17261.33 18605.39
1993/06/30 17430.48 18793.83
1993/07/31 17522.04 18869.75
1993/08/31 17565.62 18906.74
1993/09/30 17566.62 18919.46
1993/10/31 17626.68 18962.24
1993/11/30 17524.92 18935.26
1993/12/31 17658.91 19079.00
1994/01/31 17857.64 19243.55
1994/02/28 17689.54 19151.45
1994/03/31 17245.32 18666.28
1994/04/30 17107.39 18554.91
1994/05/31 17122.65 18616.18
1994/06/30 17064.76 18578.42
1994/07/31 17411.11 18921.77
1994/08/31 17454.48 18941.43
1994/09/30 17211.59 18715.22
1994/10/31 17189.50 18695.18
1994/11/30 17134.10 18629.29
1994/12/31 17306.39 18826.97
1995/01/31 17671.68 19228.52
1995/02/28 18126.20 19741.43
1995/03/31 18215.90 19822.35
1995/04/30 18462.75 20096.72
1995/05/31 19030.25 20721.39
1995/06/30 19140.35 20855.88
1995/07/31 19196.69 20911.37
1995/08/31 19375.82 21098.27
1995/09/30 19567.19 21300.58
1995/10/31 19726.18 21482.08
1995/11/30 19943.81 21734.87
1995/12/31 20180.06 22011.18
1996/01/31 20306.07 22179.19
1996/02/29 20153.47 22025.43
1996/03/31 20111.35 21975.72
1996/04/30 20047.09 21874.76
1996/05/31 19964.96 21838.54
1996/06/30 20188.30 22112.14
1996/07/31 20261.78 22201.16
1996/08/31 20275.40 22211.56
1996/09/30 20579.76 22574.57
1996/10/31 20985.43 23025.05
1996/11/30 21277.42 23350.29
1996/12/31 21160.37 23240.08
1997/01/31 21298.94 23447.01
1997/02/28 21356.57 23485.55
1997/03/31 21136.95 23287.86
1997/04/30 21458.76 23639.31
1997/05/31 21659.82 23870.91
1997/06/30 21922.65 24150.67
1997/07/31 22309.68 24576.11
IMATRL PRASUN SHR__CHT 19970731 19970811 104814 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Ginnie Mae Fund on July 31, 1987. As the chart shows, by July
31, 1997, the value of the investment would have grown to $22,310 - a
123.10% increase on the initial investment. For comparison, look at how the
Salomon Brothers GNMA Index did over the same period. With dividends and
capital gains, if any, reinvested the same $10,000 investment would have
grown to $24,576 - a 145.76% 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
YEARS ENDED JULY 31,
1997 1996 1995 1994 1993
Dividend return 7.07% 6.58% 7.35% 5.24% 6.42%
Capital appreciation return 3.04% -1.03% 2.91% -5.87% 1.81%
Total return 10.11% 5.55% 10.26% -0.63% 8.23%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid
by the fund are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 5.93(cents) 35.71(cents) 70.99(cents)
Annualized dividend rate 6.46% 6.75% 6.66%
30-day annualized yield 6.70% - -
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 $10.80 over
the past one month, $10.67 over the past six months and $10.66 over the
past one year, you can compare the fund's income over these three periods.
The 30-day annualized YIELD is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A favorable inflation backdrop
steadied fears of higher interest
rates, buoying the U.S. taxable
bond market for the 12 months that
ended July 31, 1997. The Lehman
Brothers Aggregate Bond Index -
a broad measure of the U.S.
taxable bond market - returned
10.76% over the period. For the
first eight months of the period,
bonds suffered from increasing
expectations of economic growth
and inflation. In his February
testimony before Congress,
Federal Reserve Board Chairman
Alan Greenspan indicated that the
Fed was inclined to raise the rate
banks charge each other for
overnight loans - known as the
fed funds target rate - to head off
inflation that might be caused by a
tight labor market. On March 25,
the Fed followed through by
raising the target rate by 0.25% to
5.50%. However, this move largely
had been priced into the market.
Weakening economic and inflation
signals - combined with the Fed's
shift to a more favorable stance
indicating no intention to raise
rates in the short term - helped
spark a rally in all debt markets
from April through the end of the
period. Relative interest-rate
stability provided a positive setting
for mortgage-backed securities.
For the 12 months that ended July
31, 1997, the Salomon Brothers
Mortgage Index returned 10.60%.
Sustained economic growth, a
surging stock market and demand
from yield-hungry investors helped
corporate bonds, with the Lehman
Brothers Corporate Bond Index
returning 12.55% over the same
period.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity Ginnie
Mae Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. It's been a relatively good period for the Ginnie Mae market and the
fund's performance reflects that. For the 12 months that ended July 31,
1997, the fund had a total return of 10.11%. That was in line with the
10.15% return of the GNMA funds average tracked by Lipper Analytical
Services over the same period. The Salomon Brothers GNMA Index returned
10.70% over the past 12 months.
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 a year ago and reinvested the dividends and capital gains, the
investment would have been worth $110.11 as of July 31, 1997. That is what
is meant by a total return of 10.11%.
Q. WHAT WAS YOUR STRATEGY DURING THE PAST SIX MONTHS?
A. I kept the fund's duration - or interest rate sensitivity - neutral. By
that I mean I didn't structure the fund to benefit from interest rates
moving higher or lower. That strategy is a constant for me because I
believe that it is extremely difficult to predict the direction of interest
rates with any regular success over an extended time period. On the other
hand, I have made some modifications to the fund's investments over the
past six months.
Q. DID YOU CHANGE THE WAY THE FUND'S INVESTMENTS WERE ALLOCATED AMONG BONDS
WITH VARIOUS INTEREST RATES OR COUPONS?
A. Yes, by the end of the period, the fund's investments were spread more
evenly over the various coupons available in the marketplace. That's in
contrast to a year ago, when the fund was concentrated in discount
mortgages, or those with coupons well below current mortgage rates. By
spreading the fund's investments more evenly across various coupons, I have
attempted to position the fund to perform well whether interest rates rise,
fall or remain stable.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. The past six months were quite good for Ginnie Mae securities, so I
can't really single out a specific holding as a disappointment or a
detractor from the fund's performance. However, Ginnie Mae securities were
priced extremely efficiently, more efficiently than they had been in
previous years, making it more difficult to find attractively priced bonds.
In previous periods, for example, there were times when a particular coupon
became very cheap compared to another. But that wasn't the case over the
past six months. Looking back, it was disappointing that there weren't more
opportunities to exploit anomalies that can pop up due to the inefficient
pricing of Ginnie Mae securities.
Q. WHAT'S YOUR OUTLOOK?
A. Right now there are no sectors in the mortgage market that appear to be
unusually cheap or expensive, mainly because the past year was
characterized by relatively low volatility in the bond markets in general.
Increased volatility could create more opportunities to find securities
that are cheap relative to other mortgages. But it may be that we're in for
a continued stretch of low volatility.
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
with preservation of capital
by investing mainly in U.S.
government and agency
securities while maintaining
an average maturity of 10
years or less
FUND NUMBER: 452
TRADING SYMBOL: FSTGX
START DATE: May 2, 1988
SIZE: as of July 31, 1997,
more than $704 million
MANAGER: Curt
Hollingsworth, since 1988;
manager, various Fidelity
and Spartan government
funds
(checkmark)
CURT HOLLINGSWORTH ON
SELECTING INDIVIDUAL SECURITIES:
"The direction of interest rates
is the primary factor that
determines the performance
of fixed-income securities.
Many investors try to pick
securities that will do well
based on where they feel
interest rates are headed.
In contrast, I try to identify
those securities I believe will
offer the best total return
potential whether rates climb,
drop or stay constant.
Because I tend to have a
value orientation, I choose
securities that I find to be
cheap relative to other
securities with the idea that
they will appreciate when the
market starts to favor them."
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
Less 0.0 0.0
than 6%
6 - 6.99 12.0 12.0
%
7 - 7.99 35.2 37.4
%
8 - 8.99 30.3 28.6
%
9 - 9.99 7.8 11.7
%
10 - 10.9 3.3 3.8
9%
11% and 2.0 1.9
over
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1997
6 MONTHS AGO
Years 6.4 6.8
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 JULY 31, 1997
6 MONTHS AGO
Years 3.4 4.1
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 (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1997 AS OF JANUARY 31,1997
Row: 1, Col: 1, Value: 9.5
Row: 1, Col: 2, Value: 40.5
Row: 1, Col: 3, Value: 50.0
Row: 1, Col: 1, Value: 4.6
Row: 1, Col: 2, Value: 45.4
Row: 1, Col: 3, Value: 50.0
Mortgage-backed
securities * 90.6%
Short-term
investments 9.4%
GNMA SECURITIES 81.0%
Mortgage-backed
securities ** 95.4%
Short-term
investments 4.6%
GNMA SECURITIES 84.4%
*
**
INVESTMENTS JULY 31, 1997
Showing Percentage of Total Value of Investment in Securities
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 90.6%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.8%
6 1/2%, 7/1/23 to 7/1/24 $ 17,401,478 $ 17,135,922
8 1/2%, 2/1/04 to 5/1/17 1,170,054 1,212,947
9%, 6/1/10 to 4/1/21 4,012,643 4,228,128
10%, 10/1/04 to 12/1/19 7,508,376 8,185,459
10 1/4%, 2/1/09 to 11/1/16 3,796,227 4,110,953
10 1/2%, 5/1/10 to 12/1/20 5,909,274 6,541,012
11 1/4%, 2/1/10 355,851 392,799
11 3/4%, 11/1/11 168,374 186,887
12%, 6/1/15 to 11/1/15 365,362 420,166
12 1/2%, 11/1/12 to 9/1/13 837,653 967,103
43,381,376
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.8%
6 1/2%, 1/1/24 to 2/1/26 41,236,323 40,426,727
8 1/2%, 6/1/08 to 4/1/16 1,227,057 1,280,516
9%, 10/1/11 269,508 282,927
10 1/4%, 12/1/15 to 10/1/18 795,909 872,670
11 1/2%, 6/1/13 to 9/1/15 530,261 598,304
12 1/2%, 10/1/15 278,079 322,633
14%, 11/1/12 8,774 10,499
43,794,276
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 81.0%
6%, 7/15/08 to 12/15/10 33,619,229 33,230,610
6 1/2%, 9/15/23 to 1/15/26 7,777,752 7,665,677
6 1/2%, 8/15/27 (a) 11,000,000 10,804,063
7%, 10/15/07 to 4/15/26 81,894,055 82,449,048
7%, 8/15/27 (a) 71,650,000 71,784,344
7 1/2%, 5/15/03 to 7/15/27 163,870,085 167,000,172
8%, 7/15/01 to 7/15/27 193,753,001 200,414,754
8 1/2%, 2/15/05 to 4/15/26 59,832,376 63,431,770
8 1/2%, 9/15/27 (a) 9,600,000 10,014,000
9%, 12/15/04 to 12/15/25 6,122,001 6,642,219
9%, 9/15/27 (b) 18,500,000 19,653,359
9 1/2%, 6/15/01 to 11/15/22 37,086,766 40,177,097
10%, 5/15/01 to 2/15/25 2,797,467 3,083,336
10 1/2%, 2/15/98 to 9/15/19 6,907,145 7,666,838
11%, 6/15/10 to 12/15/15 4,958,185 5,655,495
11 1/2%, 3/15/10 to 4/15/19 6,052,127 6,895,841
12%, 5/15/99 to 11/15/15 1,258,525 1,444,414
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
13%, 1/15/11 to 5/15/15 $ 917,766 $ 1,086,986
13 1/2%, 5/15/10 to 1/15/15 409,958 486,982
739,587,005
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $798,038,144) $ 826,762,657
CASH EQUIVALENTS - 9.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.77%,
dated 7/31/97 due 8/1/97 $ 86,242,821 86,229,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $884,267,144) $ 912,991,657
LEGEND
2. Security purchased on a delayed delivery or when-issued basis (see Note
2 of Notes to Financial Statements).
3. Security sold on a delayed delivery or when-issued basis (see Note 2 of
Notes to Financial Statements).
INCOME TAX INFORMATION
At July 31, 1997, the aggregate cost of investment securities for income
tax purposes was $895,680,620. Net unrealized appreciation aggregated
$17,311,037, of which $18,948,168 related to appreciated investment
securities and $1,637,131 related to depreciated investment securities.
At July 31, 1997, the fund had a capital loss carryforward of approximately
$25,746,000 of which $20,992,000 and 4,754,000 will expire on July 31, 2003
and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
JULY 31, 1997
ASSETS
Investment in securities, at value (including repurchase $ 912,991,657
agreements of $86,229,000) (cost $884,267,144) -
See accompanying schedule
Commitment to sell securities on a delayed delivery $ (19,653,359)
basis
Receivable for securities sold on a delayed delivery 19,653,359 -
basis
Receivable for investments sold 1,880,681
Cash 485
Interest receivable 5,046,591
TOTAL ASSETS 919,919,414
LIABILITIES
Payable for investments purchased $ 4,835,669
Regular delivery
Delayed delivery 91,274,992
Payable for fund shares redeemed 505,553
Distributions payable 589,042
Accrued management fee 297,119
Other payables and accrued expenses 281,685
TOTAL LIABILITIES 97,784,060
NET ASSETS $ 822,135,354
Net Assets consist of:
Paid in capital $ 832,801,310
Distribution in excess of net investment income (1,201,739)
Accumulated undistributed net realized gain (loss) (38,188,730)
on investments
Net unrealized appreciation (depreciation) on 28,724,513
investments
NET ASSETS, for 75,806,725 shares outstanding $ 822,135,354
NET ASSET VALUE, offering price and redemption price $10.85
per share ($822,135,354 (divided by) 75,806,725 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED JULY 31, 1997
INVESTMENT INCOME $ 59,610,484
Interest
EXPENSES
Management fee $ 3,511,216
Transfer agent fees 1,931,151
Accounting fees and expenses 267,829
Non-interested trustees' compensation 18,137
Custodian fees and expenses 174,686
Registration fees 37,069
Audit 59,226
Legal 9,630
Miscellaneous 4,935
Total expenses before reductions 6,013,879
Expense reductions (33,284) 5,980,595
NET INVESTMENT INCOME 53,629,889
REALIZED AND UNREALIZED GAIN (LOSS) 2,497,490
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 20,073,014
investment securities
NET GAIN (LOSS) 22,570,504
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 76,200,393
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 53,629,889 $ 52,905,813
Net investment income
Net realized gain (loss) 2,497,490 5,534,152
Change in net unrealized appreciation (depreciation) 20,073,014 (15,528,733)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 76,200,393 42,911,232
FROM OPERATIONS
Distributions to shareholders from net investment income (52,898,937) (51,089,342)
Share transactions 195,576,516 204,264,563
Net proceeds from sales of shares
Reinvestment of distributions 45,336,707 43,439,959
Cost of shares redeemed (232,013,817) (217,015,199)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,899,406 30,689,323
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 32,200,862 22,511,213
NET ASSETS
Beginning of period 789,934,492 767,423,279
End of period (including distribution in excess $ 822,135,354 $ 789,934,492
of net investment income of $1,201,739 and
$213,819, respectively)
OTHER INFORMATION
Shares
Sold 18,325,132 19,100,352
Issued in reinvestment of distributions 4,249,034 4,060,954
Redeemed (21,757,983) (20,311,579)
Net increase (decrease) 816,183 2,849,727
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED JULY 31,
1997 1996 1995 1994 B 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 10.530 $ 10.640 $ 10.360 $ 11.260 $ 11.060
of period
Income from Investment .720 D .688 .721 .582 .800
Operations
Net investment income
Net realized and unrealized .310 (.107) .292 (.650) .083
gain (loss)
Total from investment 1.030 .581 1.013 (.068) .883
operations
Less Distributions
From net investment income (.710) (.691) (.713) (.582) (.683)
From net realized gain - - - (.190) -
In excess of net realized - - (.020) (.060) -
gain
Total distributions (.710) (.691) (.733) (.832) (.683)
Net asset value, $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260
end of period
TOTAL RETURN A 10.11% 5.55% 10.26% (.63)% 8.23%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 822,135 $ 789,934 $ 767,423 $ 768,765 $ 975,565
(000 omitted)
Ratio of expenses to average .76% .76% .75% .82% .80%
net assets
Ratio of expenses to average .75% .75% .75% .82% .80%
net assets after C C
expense reductions
Ratio of net investment income 6.75% 6.69% 7.24% 7.03% 7.26%
to average net assets
Portfolio turnover rate 98% 107% 210% 303% 259%
</TABLE>
G THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
H 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.
I FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
J NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1997
6. SIGNIFICANT ACCOUNTING POLICIES.
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. Securities for which
market quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are not
readily available are valued at amortized cost or original cost plus
accrued interest, both of which approximate current value.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned 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, capital loss carryforwards, losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include temporary
book and tax basis differences which will reverse in a subsequent period.
Any taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
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 for U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a delayed delivery basis. Payment and delivery may take place a month or
more after the date of the transaction. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. The market values of
the securities purchased or sold on a delayed delivery basis are identified
as such in the fund's schedule of investments. The fund may receive
compensation for interest forgone in the purchase of a delayed delivery
security. With respect to purchase commitments, the fund identifies
securities as segregated in its custodial records with a value at least
equal to the amount of the commitment. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does
not perform under the contract.
8. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $812,589,338 and $775,455,246, respectively.
9. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. The annual individual
fund fee rate is .30%. In the event
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
MANAGEMENT FEE - CONTINUED
that these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted in
the same or a lower management fee. For the period, the management fee was
equivalent to an annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, is the fund's transfer, dividend disbursing and shareholder servicing
agent. FSC receives account fees and asset-based fees that vary according
to account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annual rate of .24%
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.
10. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of the fund's expenses. During the period, the
fund's custodian and transfer agent fees were reduced by $15,180 and
$18,104, respectively, under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of Fidelity
Ginnie Mae Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Ginnie Mae Fund, a fund of Fidelity Income Fund at July 31, 1997,
the results of its operations for the year then ended, and the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of Fidelity Ginnie Mae Fund 's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation
of securities at July 31, 1997 by correspondence with the custodian and the
application of alternative auditing procedures where securities purchased
were not yet received by the custodian, provide a reasonable basis for the
opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
September 5, 1997
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT
IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
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251 University Avenue
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1760 Challenge Way
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Denver, CO
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Honolulu, HI
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Chicago, IL
One North Franklin Street
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1415 West 22nd Street
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INDIANA
4729 East 82nd Street
Indianapolis, IN
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201 St. Charles Avenue
New Orleans, LA
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3 Canal Plaza
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MARYLAND
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1 West Pennsylvania Ave.
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MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
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44 Mall Road
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416 Belmont Street
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MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
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
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
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
1900 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
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Curt Hollingsworth, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
