(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY ADVISOR
MORTGAGE SECURITIES
FUND - CLASS A, CLASS T AND CLASS B
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 15 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 18 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 19 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 23 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 32 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 40 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 41
PROXY VOTING RESULTS 43
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 ADVISOR FUND, INCLUDING CHARGES
AND EXPENSES, CONTACT
YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST OR
SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR MORTGAGE SECURITIES FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class A shares
took place on March 3, 1997. Class A shares bear a 0.15% 12b-1 fee.
Returns prior to March 3, 1997 are those of Initial Class, the
original class of the fund which does not bear a 12b-1 fee. Had Class
A shares' 12b-1 fee been reflected, returns prior to March 3, 1997
would have been lower. If Fidelity had not reimbursed certain class
expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL A 5.65% 44.18% 124.97%
FIDELITY ADV MORTGAGE SECURITIES - CL A 0.63% 37.33% 114.28%
(INCL. 4.75% SALES CHARGE)
LB MORTGAGE 7.30% 41.35% 132.61%
US MORTGAGE FUNDS AVERAGE 6.62% 32.38% 111.59%
CUMULATIVE TOTAL RETURNS show Class A'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 Class A's returns to the performance of the
Lehman Brothers Mortgage-Backed Securities Index - a market
capitalization weighted index of 15- and 30-year fixed-rate securities
backed by mortgage pools of Ginnie Mae (GNMA), Fannie Mae (FNMA) and
Freddie Mac (FHLMC), and FNMA and FHLMC balloon mortgages with
fixed-rate coupons. To measure how Class A's performance stacked up
against its peers, you can compare it to the U.S. mortgage 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 68 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL A 5.65% 7.59% 8.45%
FIDELITY ADV MORTGAGE SECURITIES - CL A 0.63% 6.55% 7.92%
(INCL. 4.75% SALES CHARGE)
LB MORTGAGE 7.30% 7.17% 8.81%
US MORTGAGE FUNDS AVERAGE 6.62% 5.75% 7.77%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' cumulative return
and show you what would have happened if Class A had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
FA Mortgage Sec -CL A LB Mortgage Backed Secs
00237 LB006
1988/10/31 9525.00 10000.00
1988/11/30 9399.06 9854.42
1988/12/31 9339.60 9802.89
1989/01/31 9509.06 9972.74
1989/02/28 9458.71 9909.21
1989/03/31 9477.40 9924.75
1989/04/30 9652.34 10125.14
1989/05/31 9880.79 10438.66
1989/06/30 10119.92 10695.20
1989/07/31 10301.11 10937.30
1989/08/31 10192.31 10795.53
1989/09/30 10236.81 10872.14
1989/10/31 10439.85 11120.50
1989/11/30 10540.45 11241.00
1989/12/31 10613.10 11307.52
1990/01/31 10515.33 11228.46
1990/02/28 10585.37 11294.44
1990/03/31 10593.69 11322.25
1990/04/30 10502.06 11220.56
1990/05/31 10807.38 11568.70
1990/06/30 10964.05 11751.64
1990/07/31 11123.39 11955.56
1990/08/31 11093.97 11828.52
1990/09/30 11153.19 11925.57
1990/10/31 11267.44 12060.80
1990/11/30 11513.99 12313.52
1990/12/31 11712.60 12519.90
1991/01/31 11834.14 12710.20
1991/02/28 11909.91 12817.34
1991/03/31 11990.01 12904.58
1991/04/30 12119.81 13023.45
1991/05/31 12182.81 13137.95
1991/06/30 12213.28 13149.67
1991/07/31 12388.71 13372.14
1991/08/31 12625.45 13615.32
1991/09/30 12822.55 13870.50
1991/10/31 12974.12 14100.33
1991/11/30 13053.44 14202.56
1991/12/31 13307.01 14488.00
1992/01/31 13243.00 14320.61
1992/02/29 13374.77 14456.11
1992/03/31 13282.34 14363.96
1992/04/30 13406.86 14505.18
1992/05/31 13628.15 14766.63
1992/06/30 13772.54 14940.84
1992/07/31 13748.91 15071.43
1992/08/31 13837.84 15267.72
1992/09/30 13924.71 15386.59
1992/10/31 13786.25 15251.64
1992/11/30 13852.88 15299.35
1992/12/31 14032.65 15497.00
1993/01/31 14160.67 15700.65
1993/02/28 14281.96 15859.87
1993/03/31 14375.22 15956.11
1993/04/30 14475.58 16038.44
1993/05/31 14518.44 16129.77
1993/06/30 14695.55 16253.27
1993/07/31 14776.33 16318.16
1993/08/31 14803.84 16395.04
1993/09/30 14836.18 16409.21
1993/10/31 14862.57 16456.65
1993/11/30 14831.51 16424.48
1993/12/31 14974.65 16557.52
1994/01/31 15112.56 16721.65
1994/02/28 15032.87 16604.96
1994/03/31 14862.50 16172.57
1994/04/30 14797.39 16053.44
1994/05/31 14923.36 16116.96
1994/06/30 14999.74 16082.06
1994/07/31 15239.52 16404.03
1994/08/31 15307.80 16455.83
1994/09/30 15141.88 16221.65
1994/10/31 15172.63 16212.38
1994/11/30 15157.49 16161.67
1994/12/31 15265.41 16290.62
1995/01/31 15554.01 16639.31
1995/02/28 15902.23 17064.07
1995/03/31 15969.71 17144.49
1995/04/30 16221.49 17388.22
1995/05/31 16731.88 17936.48
1995/06/30 16859.52 18038.44
1995/07/31 16897.81 18069.52
1995/08/31 17106.32 18256.54
1995/09/30 17283.16 18417.12
1995/10/31 17475.42 18580.97
1995/11/30 17668.90 18793.35
1995/12/31 17863.56 19028.08
1996/01/31 18009.81 19171.48
1996/02/29 17895.06 19012.27
1996/03/31 17830.14 18943.57
1996/04/30 17792.97 18890.13
1996/05/31 17724.08 18835.06
1996/06/30 17968.68 19094.33
1996/07/31 18032.84 19164.39
1996/08/31 18028.86 19164.12
1996/09/30 18314.20 19485.01
1996/10/31 18653.07 19867.23
1996/11/30 18941.25 20151.58
1996/12/31 18834.44 20046.07
1997/01/31 18952.32 20194.93
1997/02/28 19014.10 20262.27
1997/03/31 18832.73 20071.43
1997/04/30 19124.57 20391.49
1997/05/31 19310.73 20591.06
1997/06/30 19533.88 20831.24
1997/07/31 19884.08 21223.83
1997/08/31 19840.72 21173.39
1997/09/30 20071.15 21441.93
1997/10/31 20282.44 21679.66
1997/11/30 20347.20 21750.82
1997/12/31 20504.14 21949.02
1998/01/31 20710.74 22167.39
1998/02/28 20733.24 22214.29
1998/03/31 20797.98 22308.34
1998/04/30 20918.41 22434.57
1998/05/31 21056.42 22583.70
1998/06/30 21157.26 22691.38
1998/07/31 21238.28 22806.43
1998/08/31 21417.29 23013.36
1998/09/30 21616.17 23291.17
1998/10/30 21428.24 23261.18
IMATRL PRASUN SHR__CHT 19981031 19981111 154449 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Mortgage Securities Fund - Class A on
October 31, 1988, and the current 4.75% sales charge was paid. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $21,428 - a 114.28% increase on the initial investment.
For comparison, look at how the Lehman Brothers Mortgage-Backed
Securities Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 would have grown to
$23,261 - a 132.61% 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
YEAR ENDED MARCH 3, 1997
OCTOBER 31, (COMMENCEMENT OF
SALE OF CLASS A
SHARES) TO
OCTOBER 31,
1998 1997
DIVIDEND RETURNS 5.92% 4.18%
CAPITAL RETURNS -0.27% 2.53%
TOTAL RETURNS 5.65% 6.71%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains paid
by the class are reinvested, if any, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.34(CENTS) 31.67(CENTS) 63.76(CENTS)
ANNUALIZED DIVIDEND RATE 5.70% 5.69% 5.78%
30-DAY ANNUALIZED YIELD N/A - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $11.03 over the past one month, $11.04 over the past six months,
and $11.03 over the past one year, you can compare the class' 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. Yield information will be reported once Class A has a longer,
more stable operating history.
FIDELITY ADVISOR MORTGAGE SECURITIES FUND - CLASS T
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class T shares
took place on March 3, 1997. Class T shares bear a 0.25% 12b-1 fee.
Returns prior to March 3, 1997 are those of Initial Class, the
original class of the fund which does not bear a 12b-1 fee. Had Class
T shares' 12b-1 fee been reflected, returns prior to March 3, 1997
would have been lower. If Fidelity had not reimbursed certain class
expenses, the total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL T 5.60% 44.02% 124.72%
FIDELITY ADV MORTGAGE SECURITIES - CL T 1.90% 38.98% 116.86%
(INCL. 3.50% SALES CHARGE)
LB MORTGAGE 7.30% 41.35% 132.61%
US MORTGAGE FUNDS AVERAGE 6.62% 32.38% 111.59%
CUMULATIVE TOTAL RETURNS show Class T'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 Class T's returns to the performance of the
Lehman Brothers Mortgage-Backed Securities Index - a market
capitalization weighted index of 15- and 30-year fixed-rate securities
backed by mortgage pools of the Ginnie Mae (GNMA), Fannie Mae (FNMA)
and Freddie Mac (FHLMC), and FNMA and FHLMC balloon mortgages with
fixed-rate coupons. To measure how Class T's performance stacked up
against its peers, you can compare it to the U.S. mortgage 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 68 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL T 5.60% 7.57% 8.43%
FIDELITY ADV MORTGAGE SECURITIES - CL T 1.90% 6.80% 8.05%
(INCL. 3.50% SALES CHARGE)
LB MORTGAGE 7.30% 7.17% 8.81%
US MORTGAGE FUNDS AVERAGE 6.62% 5.75% 7.77%
AVERAGE ANNUAL TOTAL RETURNS take Class T shares' cumulative return
and show you what would have happened if Class T had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
FA Mortgage Sec -CL T LB Mortgage Backed Secs
00239 LB006
1988/10/31 9650.00 10000.00
1988/11/30 9522.40 9854.42
1988/12/31 9462.16 9802.89
1989/01/31 9633.85 9972.74
1989/02/28 9582.84 9909.21
1989/03/31 9601.77 9924.75
1989/04/30 9779.01 10125.14
1989/05/31 10010.46 10438.66
1989/06/30 10252.72 10695.20
1989/07/31 10436.30 10937.30
1989/08/31 10326.07 10795.53
1989/09/30 10371.15 10872.14
1989/10/31 10576.86 11120.50
1989/11/30 10678.78 11241.00
1989/12/31 10752.38 11307.52
1990/01/31 10653.32 11228.46
1990/02/28 10724.29 11294.44
1990/03/31 10732.71 11322.25
1990/04/30 10639.88 11220.56
1990/05/31 10949.20 11568.70
1990/06/30 11107.93 11751.64
1990/07/31 11269.36 11955.56
1990/08/31 11239.56 11828.52
1990/09/30 11299.56 11925.57
1990/10/31 11415.31 12060.80
1990/11/30 11665.09 12313.52
1990/12/31 11866.31 12519.90
1991/01/31 11989.44 12710.20
1991/02/28 12066.20 12817.34
1991/03/31 12147.36 12904.58
1991/04/30 12278.86 13023.45
1991/05/31 12342.69 13137.95
1991/06/30 12373.56 13149.67
1991/07/31 12551.29 13372.14
1991/08/31 12791.14 13615.32
1991/09/30 12990.83 13870.50
1991/10/31 13144.38 14100.33
1991/11/30 13224.74 14202.56
1991/12/31 13481.64 14488.00
1992/01/31 13416.79 14320.61
1992/02/29 13550.29 14456.11
1992/03/31 13456.65 14363.96
1992/04/30 13582.81 14505.18
1992/05/31 13807.00 14766.63
1992/06/30 13953.29 14940.84
1992/07/31 13929.34 15071.43
1992/08/31 14019.44 15267.72
1992/09/30 14107.45 15386.59
1992/10/31 13967.17 15251.64
1992/11/30 14034.68 15299.35
1992/12/31 14216.80 15497.00
1993/01/31 14346.51 15700.65
1993/02/28 14469.38 15859.87
1993/03/31 14563.87 15956.11
1993/04/30 14665.54 16038.44
1993/05/31 14708.97 16129.77
1993/06/30 14888.41 16253.27
1993/07/31 14970.24 16318.16
1993/08/31 14998.12 16395.04
1993/09/30 15030.88 16409.21
1993/10/31 15057.62 16456.65
1993/11/30 15026.14 16424.48
1993/12/31 15171.17 16557.52
1994/01/31 15310.89 16721.65
1994/02/28 15230.15 16604.96
1994/03/31 15057.55 16172.57
1994/04/30 14991.59 16053.44
1994/05/31 15119.20 16116.96
1994/06/30 15196.59 16082.06
1994/07/31 15439.52 16404.03
1994/08/31 15508.69 16455.83
1994/09/30 15340.59 16221.65
1994/10/31 15371.74 16212.38
1994/11/30 15356.41 16161.67
1994/12/31 15465.74 16290.62
1995/01/31 15758.13 16639.31
1995/02/28 16110.92 17064.07
1995/03/31 16179.29 17144.49
1995/04/30 16434.37 17388.22
1995/05/31 16951.46 17936.48
1995/06/30 17080.78 18038.44
1995/07/31 17119.57 18069.52
1995/08/31 17330.82 18256.54
1995/09/30 17509.97 18417.12
1995/10/31 17704.75 18580.97
1995/11/30 17900.78 18793.35
1995/12/31 18097.99 19028.08
1996/01/31 18246.16 19171.48
1996/02/29 18129.90 19012.27
1996/03/31 18064.13 18943.57
1996/04/30 18026.47 18890.13
1996/05/31 17956.68 18835.06
1996/06/30 18204.49 19094.33
1996/07/31 18269.49 19164.39
1996/08/31 18265.46 19164.12
1996/09/30 18554.54 19485.01
1996/10/31 18897.86 19867.23
1996/11/30 19189.82 20151.58
1996/12/31 19081.61 20046.07
1997/01/31 19201.03 20194.93
1997/02/28 19263.63 20262.27
1997/03/31 19078.45 20071.43
1997/04/30 19372.01 20391.49
1997/05/31 19558.85 20591.06
1997/06/30 19783.65 20831.24
1997/07/31 20137.35 21223.83
1997/08/31 20110.89 21173.39
1997/09/30 20324.19 21441.93
1997/10/31 20536.53 21679.66
1997/11/30 20600.39 21750.82
1997/12/31 20776.73 21949.02
1998/01/31 20971.01 22167.39
1998/02/28 20994.99 22214.29
1998/03/31 21078.80 22308.34
1998/04/30 21179.90 22434.57
1998/05/31 21317.96 22583.70
1998/06/30 21418.31 22691.38
1998/07/31 21498.66 22806.43
1998/08/31 21678.00 23013.36
1998/09/30 21877.51 23291.17
1998/10/30 21685.68 23261.18
IMATRL PRASUN SHR__CHT 19981031 19981203 105622 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Mortgage Securities Fund - Class T on
October 31, 1988, and the current 3.50% sales charge was paid. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $21,686 - a 116.86% increase on the initial investment.
For comparison, look at how the Lehman Brothers Mortgage-Backed
Securities Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 would have grown to
$23,261 - a 132.61% 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
YEAR ENDED MARCH 3, 1997
OCTOBER 31, (COMMENCEMENT OF
SALE OF CLASS T
SHARES) TO
OCTOBER 31,
1998 1997
DIVIDEND RETURNS 5.87% 4.12%
CAPITAL RETURNS -0.27% 2.53%
TOTAL RETURNS 5.60% 6.65%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains paid
by the class are reinvested, if any, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.26(CENTS) 31.14(CENTS) 63.21(CENTS)
ANNUALIZED DIVIDEND RATE 5.61% 5.60% 5.73%
30-DAY ANNUALIZED YIELD 5.72% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $11.03 over the past one month, $11.04 over the past six months,
and $11.03 over the past one year, you can compare the class' 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 class expenses, the
yield would have been 5.67%.
FIDELITY ADVISOR MORTGAGE SECURITIES FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Class B shares
took place on March 3, 1997. Class B shares bear a .90% 12b-1 fee.
Returns prior to March 3, 1997 are those of Initial Class, the
original class of the fund, which does not bear a 12b-1 fee. Had Class
B shares' 12b-1 fee been reflected, returns prior to March 3, 1997
would have been lower. Class B's contingent deferred sales charges
included in the past one year, past five years and past 10 years total
return figures are 5%, 2% and 0%, respectively. If Fidelity had not
reimbursed certain class expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL B 4.82% 42.33% 122.09%
FIDELITY ADV MORTGAGE SECURITIES - CL B -0.15% 40.33% 122.09%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB MORTGAGE 7.30% 41.35% 132.61%
US MORTGAGE FUNDS AVERAGE 6.62% 32.38% 111.59%
CUMULATIVE TOTAL RETURNS show Class B'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 Class B's returns to the performance of the
Lehman Brothers Mortgage-Backed Securities Index - a market
capitalization weighted index of 15- and 30-year fixed-rate securities
backed by mortgage pools of the Ginnie Mae (GNMA), Fannie Mae (FNMA)
and Freddie Mac (FHLMC), and FNMA and FHLMC balloon mortgages with
fixed-rate coupons. To measure how Class B's performance stacked up
against its peers, you can compare it to the U.S. mortgage 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 68 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - CL B 4.82% 7.31% 8.31%
FIDELITY ADV MORTGAGE SECURITIES - CL B -0.15% 7.01% 8.31%
(INCL. CONTINGENT DEFERRED SALES CHARGE)
LB MORTGAGE 7.30% 7.17% 8.81%
US MORTGAGE FUNDS AVERAGE 6.62% 5.75% 7.77%
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' cumulative return
and show you what would have happened if Class B had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
FA Mortgage Sec -CL B LB Govt/Corp Bond
00238 LB002
1988/10/31 10000.00 10000.00
1988/11/30 9867.78 9887.00
1988/12/31 9805.35 9920.62
1989/01/31 9983.26 10052.56
1989/02/28 9930.40 9976.16
1989/03/31 9950.02 10029.03
1989/04/30 10133.69 10241.65
1989/05/31 10373.53 10493.59
1989/06/30 10624.59 10835.69
1989/07/31 10814.82 11061.07
1989/08/31 10700.59 10889.62
1989/09/30 10747.31 10937.54
1989/10/31 10960.47 11214.26
1989/11/30 11066.09 11315.18
1989/12/31 11142.37 11332.16
1990/01/31 11039.71 11176.91
1990/02/28 11113.25 11201.49
1990/03/31 11121.98 11202.62
1990/04/30 11025.78 11099.55
1990/05/31 11346.33 11421.44
1990/06/30 11510.81 11606.47
1990/07/31 11678.10 11750.39
1990/08/31 11647.21 11580.00
1990/09/30 11709.38 11676.12
1990/10/31 11829.33 11831.41
1990/11/30 12088.18 12089.34
1990/12/31 12296.70 12271.88
1991/01/31 12424.29 12409.33
1991/02/28 12503.84 12516.05
1991/03/31 12587.94 12602.41
1991/04/30 12724.21 12747.34
1991/05/31 12790.36 12807.25
1991/06/30 12822.34 12793.16
1991/07/31 13006.52 12954.36
1991/08/31 13255.07 13252.31
1991/09/30 13462.00 13529.28
1991/10/31 13621.12 13649.69
1991/11/30 13704.40 13786.19
1991/12/31 13970.62 14250.78
1992/01/31 13903.41 14039.87
1992/02/29 14041.75 14114.28
1992/03/31 13944.71 14036.65
1992/04/30 14075.45 14120.87
1992/05/31 14307.77 14394.82
1992/06/30 14459.36 14606.42
1992/07/31 14434.55 14980.35
1992/08/31 14527.91 15113.67
1992/09/30 14619.12 15319.22
1992/10/31 14473.75 15084.83
1992/11/30 14543.70 15071.26
1992/12/31 14732.44 15330.48
1993/01/31 14866.85 15664.69
1993/02/28 14994.18 15990.51
1993/03/31 15092.09 16044.88
1993/04/30 15197.46 16168.43
1993/05/31 15242.45 16160.34
1993/06/30 15428.40 16527.18
1993/07/31 15513.20 16632.96
1993/08/31 15542.09 17015.51
1993/09/30 15576.04 17075.07
1993/10/31 15603.75 17145.08
1993/11/30 15571.13 16951.34
1993/12/31 15721.42 17025.92
1994/01/31 15866.20 17281.31
1994/02/28 15782.54 16904.58
1994/03/31 15603.67 16490.42
1994/04/30 15535.32 16353.55
1994/05/31 15667.57 16324.11
1994/06/30 15747.76 16286.56
1994/07/31 15999.50 16612.30
1994/08/31 16071.19 16618.94
1994/09/30 15896.99 16367.99
1994/10/31 15929.27 16349.99
1994/11/30 15913.38 16320.56
1994/12/31 16026.67 16428.28
1995/01/31 16329.67 16743.70
1995/02/28 16695.25 17132.15
1995/03/31 16766.10 17246.94
1995/04/30 17030.43 17486.67
1995/05/31 17566.28 18219.36
1995/06/30 17700.29 18365.12
1995/07/31 17740.49 18293.49
1995/08/31 17959.39 18527.65
1995/09/30 18145.05 18716.63
1995/10/31 18346.89 18991.77
1995/11/30 18550.03 19305.13
1995/12/31 18754.39 19588.92
1996/01/31 18907.94 19710.37
1996/02/29 18787.46 19292.51
1996/03/31 18719.30 19130.45
1996/04/30 18680.28 18998.45
1996/05/31 18607.96 18966.15
1996/06/30 18864.75 19220.30
1996/07/31 18932.12 19264.51
1996/08/31 18927.94 19218.27
1996/09/30 19227.50 19560.36
1996/10/31 19583.27 20016.11
1996/11/30 19885.82 20384.41
1996/12/31 19773.69 20158.14
1997/01/31 19897.44 20182.33
1997/02/28 19962.31 20224.71
1997/03/31 19759.82 19984.04
1997/04/30 20054.96 20275.81
1997/05/31 20217.36 20464.37
1997/06/30 20457.27 20709.94
1997/07/31 20792.24 21343.67
1997/08/31 20752.47 21104.62
1997/09/30 20961.62 21435.96
1997/10/31 21188.30 21778.94
1997/11/30 21223.65 21894.37
1997/12/31 21393.81 22124.26
1998/01/31 21601.79 22436.21
1998/02/28 21615.78 22391.34
1998/03/31 21670.37 22460.75
1998/04/30 21782.11 22573.05
1998/05/31 21912.09 22814.59
1998/06/30 21983.58 23047.29
1998/07/31 22073.59 23065.73
1998/08/31 22245.39 23515.51
1998/09/30 22438.12 24188.06
1998/10/30 22208.61 24016.32
IMATRL PRASUN SHR__CHT 19981031 19981203 105400 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Mortgage Securities Fund - Class B on
October 31, 1988. As the chart shows, by October 31, 1998, the value
of the investment would have grown to $22,209 - a 122.09% increase on
the initial investment. For comparison, look at how the Lehman
Brothers Mortgage-Backed Securities Index did over the same period.
With dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $23,261 - a 132.61% 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
YEAR ENDED MARCH 3, 1997
OCTOBER 31, (COMMENCEMENT OF
SALE OF CLASS B
SHARES) TO
OCTOBER 31,
1998 1997
DIVIDEND RETURNS 5.19% 3.66%
CAPITAL RETURNS -0.37% 2.52%
TOTAL RETURNS 4.82% 6.18%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains paid
by the class are reinvested, if any, and exclude the effect of sales
charges.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.64(CENTS) 27.48(CENTS) 55.98(CENTS)
ANNUALIZED DIVIDEND RATE 4.95% 4.94% 5.08%
30-DAY ANNUALIZED YIELD N/A - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $11.03 over the past one month, $11.03 over the past six months,
and $11.02 over the past one year, you can compare the class' 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. Yield information will be reported once Class B has a longer,
more stable operating history.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Uncertainty in the global equity
markets, combined with two
interest-rate cuts by the Federal
Reserve Board, provided the
backdrop for strong gains in the
bond market during the 12-month
period ended October 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad measure of the U.S.
taxable investment-grade bond
market - returned 9.34% over the
past year. Global market volatility,
low interest rates and a sharp
decline in stock prices sent U.S.
Treasury yields - which move in the
opposite direction of bond prices -
to their lowest levels in 30 years.
While the extreme flight to quality
helped Treasuries outperform all
other sectors of the bond market,
corporate bond investors benefited
from a stable domestic economy,
low interest rates and low inflation.
The Lehman Brothers Corporate
Bond Index returned 7.99% for the
past 12 months. Despite high
refinancing activity, mortgage bonds
also performed well. The Lehman
Brothers Mortgage-Backed Securities
Index posted a 12-month return of
7.30%. Late in the period, the bond
market stumbled as the Group of
Seven leading industrial nations
eased global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Tom Silvia, Portfolio Manager of Fidelity Advisor
Mortgage Securities Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the 12 months that ended October 31, 1998, the fund's Class A,
Class T and Class B shares returned 5.65%, 5.60% and 4.82%,
respectively. During the same period, the U.S. mortgage funds average,
according to Lipper Analytical Services, returned 6.62%, and the
Lehman Brothers Mortgage-Backed Securities Index returned 7.30%.
Q. HOW WOULD YOU CHARACTERIZE THE MORTGAGE MARKET OVER THE PAST 12
MONTHS?
A. During the first six months of the period, the mortgage market was
surprisingly strong. Low inflation and enormous foreign demand for
U.S. government securities in the wake of the Asian economic crisis
bid Treasury prices up, pushing the 10-year yield down to 5.35% early
in 1998. Falling interest rates usually cause mortgage prices to lag
Treasuries because of increased prepayment risk. As interest rates
fall, many borrowers refinance their home loans, returning the
principal to investors who may have to reinvest at lower rates.
Despite these conditions, investors were attracted by the relatively
high yields offered by mortgage securities. However, the mortgage
market changed direction during the second half of the period.
Emerging monetary and political problems in Russia renewed concern
about the unstable conditions in Asia. Bond-market investors became
less tolerant of risk and sold mortgage securities in favor of
higher-quality, more liquid government securities, flooding the market
with mortgage supply. Interest rates fell to historic low levels,
increasing prepayment risk, which further depressed demand for
mortgage securities. Market liquidity declined substantially and
prices stagnated. Yield spreads reached their widest point in over 10
years as investors required significantly higher rates to choose
mortgages over Treasury securities.
Q. WHAT WAS YOUR INVESTMENT STRATEGY THROUGHOUT THE PERIOD?
A. My overall objective was to limit relative prepayment risk. My
strategy is based on a disciplined process that first evaluates the
Lehman Brothers index, the fund's performance benchmark. Next, I
allocate assets among the agency sectors based on my assessment of
relative value. During the period, I overweighted Ginnie Mae-issued
mortgages, which were experiencing slower prepayment rates relative to
Fannie Mae and Freddie Mac mortgages. In addition, Ginnie Mae loans
are explicitly guaranteed by the U.S. Treasury. Once sector weights
are determined, I select specific securities. For example, as interest
rates fell, I emphasized seasoned mortgages that had weathered several
prepayment cycles, as well as brand-new mortgages issued at lower
rates that I thought would carry less refinancing risk. Finally, I
look at sectors outside of the index, such as non-agency securities,
commercial mortgages, collateralized mortgage obligations and
adjustable-rate mortgages. For much of the year, I had a significant
proportion of the fund's assets invested in commercial mortgage
securities (CMS). The loans underlying CMS usually have prepayment
restrictions built into their structure, so they can help reduce a
fund's prepayment risk when interest rates are falling.
Q. WEREN'T THERE PROBLEMS IN THE COMMERCIAL MORTGAGE SECTOR DURING THE
YEAR?
A. Yes, there were. During the final months of the period, CMS
dramatically underperformed other types of mortgage securities.
Although they have lower prepayment risk, CMS have greater credit
risk. As a result, this sector was hurt when investors shifted their
preference to very liquid, high-quality instruments such as Treasury
securities. In addition, many hedge funds and real estate investment
trusts had borrowed heavily to purchase relatively high-yielding
securities such as CMS. However, as global credit concerns caused the
CMS sector to weaken, these investors were left holding billions of
dollars of securities that could only be sold at higher yields. Forced
selling of this sector to cover loans reduced liquidity, and prices
fell further. Because the fund was overweighted in commercial
mortgages relative to its benchmark and its peers, CMS were the
largest contributor to the fund's disappointing 12-month total return.
Q. DID YOU REDUCE YOUR CMS EXPOSURE?
A. No, I didn't. I believe that the CMS sector has been oversold. I
haven't seen any fundamental reason to withdraw from this market.
Furthermore, this sector continues to offer good protection against
prepayment risk, which is my primary investment strategy.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A. I am taking a cautious approach to the market. As long as interest
rates have the possibility to fall further, prepayment risk will
continue to limit mortgage securities performance. I plan to emphasize
the fund's defensive characteristics until there are conclusive
changes in the economy's direction.
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.
TOM SILVIA ON COMMERCIAL
MORTGAGE SECURITIES (CMS):
"The CMS market has been among
the fastest growing sectors of the
fixed-income market. CMS are bonds
that are collateralized by mortgage
loans on commercial real estate
such as office buildings, shopping
malls, hotels and apartment
buildings. This market sector was
created in the mid 1980s, and
today the amount of commercial
mortgage loans outstanding in the
United States is approximately $1.5
trillion.
"Commercial mortgages differ from
the mortgage securities comprising
the fund's performance benchmark,
the Lehman Brothers
Mortgage-Backed Securities
Index. The index is made up of
single-family home mortgages
issued by one of three housing
agencies - Ginnie Mae (GNMA),
Fannie Mae (FNMA) and Freddie
Mac (FHLMC). Agency mortgage
securities have minimal credit risk
and carry an implied triple-A
rating because of their relationship
with the U.S. Treasury. GNMA
securities are guaranteed by the
government, while FNMA and
FHLMC securities carry an implied
guarantee. CMS are privately
issued and are not supported by the
government. The primary advantage
of investing in commercial versus
agency single-family mortgages is
related to prepayment risk.
Commercial mortgages typically
have some form of prepayment
protection because commercial
borrowers are usually restricted
from early loan payoffs. Thus, CMS
provide an efficient way to reduce
a portfolio's prepayment risk,
particularly in periods when
interest rates are falling."
FUND FACTS
GOAL: high current income by
investing in mortgage-related
securities of all kinds
START DATE: December 31, 1984
SIZE: as of October 31,
1998, more than $510 million
MANAGER: Thomas Silvia, since
1997; joined Fidelity in 1993
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 6% 3.3 0.7
6 - 6.99% 21.3 25.1
7 - 7.99% 47.6 41.7
8 - 8.99% 17.1 11.6
9 - 9.99% 6.5 6.3
10 - 10.99% 2.4 3.0
11% AND OVER 1.6 2.1
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 4.3 5.3
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 OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 1.2
ROW: 1, COL: 2, VALUE: 15.9
ROW: 1, COL: 3, VALUE: 82.90000000000001
MORTGAGE
SECURITIES 83.9%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 15.9%
SHORT-TERM
INVESTMENT 0.2%
ROW: 1, COL: 1, VALUE: 9.5
ROW: 1, COL: 2, VALUE: 18.0
ROW: 1, COL: 3, VALUE: 72.5
MORTGAGE
SECURITIES 72.5%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 18.0%
SHORT-TERM
INVESTMENTS 9.5%
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 83.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
FANNIE MAE - 29.2%
6% 4/1/28 to 10/1/28 $ 6,456,563 $ 6,379,859
6.5% 9/1/10 to 11/1/28 32,901,098 33,180,484
6.5% 12/1/28 (b) 10,000,000 10,078,125
7% 12/1/20 to 11/1/27 105,567 108,126
7% 11/1/28 (b) 40,000,000 40,874,988
7.5% 11/1/17 to 10/1/28 (e) 37,904,484 38,869,484
8% 1/1/07 to 7/1/08 79,684 81,459
8.25% 1/1/13 101,214 105,371
8.5% 11/1/03 to 12/1/26 15,979,410 16,655,234
8.75% 11/1/08 to 7/1/09 185,529 192,778
9% 1/1/08 to 2/1/13 707,837 739,117
9.5% 5/1/03 to 8/1/22 8,347,131 8,770,474
11% 12/1/02 to 8/1/10 1,853,083 2,009,943
12.25% 5/1/13 to 6/1/15 405,209 462,779
12.5% 11/1/14 to 3/1/16 530,317 607,553
12.75% 6/1/13 to 7/1/15 225,290 260,778
13.5% 9/1/13 to 12/1/14 156,598 184,588
14% 11/1/14 42,465 50,626
159,611,766
FREDDIE MAC - 33.9%
5% 7/1/10 3,343,444 3,255,679
6.5% 1/1/24 to 9/1/24 26,287,242 26,512,424
7% 5/1/99 to 1/1/13 50,081,429 51,123,709
7% 12/1/28 (b) 35,500,000 36,221,094
7.5% 10/1/25 to 3/1/28 (e) 4,399,397 4,506,611
8% 10/1/07 to 4/1/21 981,289 1,023,779
8.5% 11/1/03 to 8/1/27 42,473,979 44,232,138
9% 9/1/08 to 5/1/21 11,079,984 11,746,050
10% 1/1/09 to 5/1/19 1,673,726 1,807,321
10.5% 8/1/10 to 12/1/20 (c) 1,868,975 2,068,962
11.5% 4/1/12 80,893 89,938
11.75% 6/1/11 67,156 76,245
12.25% 6/1/14 to 7/1/15 171,771 199,093
12.5% 5/1/12 to 12/1/14 896,074 1,032,860
12.75% 6/1/05 to 3/1/15 157,902 178,189
13% 1/1/11 to 6/1/15 1,487,735 1,751,909
185,826,001
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 20.8%
7% 5/15/23 to 10/15/28 $ 7,859,836 $ 8,041,273
7.5% 7/15/05 to 8/15/28 47,358,203 48,788,911
8% 4/15/02 to 12/15/27 27,565,960 28,582,299
8.5% 7/15/16 to 6/15/18 2,731,346 2,913,379
9% 10/1/04 to 4/20/18 8,424,257 8,985,406
9.5% 6/15/09 to 12/15/24 4,506,291 4,837,048
10% 12/15/17 to 1/15/26 7,770,640 8,380,064
10.5% 8/15/00 to 2/20/18 969,135 1,042,322
11% 1/15/10 to 9/15/19 2,096,015 2,319,280
11.5% 10/15/10 30,471 33,698
13% 10/15/13 88,788 102,356
13.5% 7/15/11 to 10/15/14 71,542 82,994
114,109,030
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES 459,546,797
(Cost $456,530,867)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
U.S. GOVERNMENT AGENCY - 0.0%
Freddie Mac sequential pay Series 1353 Class A, 5.5% 17,705 17,666
11/15/04 (Cost $16,496)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 15.9%
Bankers Trust Remic Trust 1988-1 floater Series 3,890,000 3,798,828
1998-S1A Class D, 6.5023% 11/28/02 (a)(d)
CBM Funding Corp. sequential pay Series 1996-1 2,300,000 2,392,719
Class A-3PI, 7.08% 11/1/07
CS First Boston Mortgage Securities Corp. 1,850,000 1,732,063
Series 1997-C2 Class D, 7.27% 1/17/35
Deutsche Mortgage & Asset Receiving Corp. 10,200,000 9,588,000
Series 1998-C1 Class D, 7.231% 7/15/12
Federal Deposit Insurance Corp. Remic Trust sequential 6,215,768 6,233,250
pay Series 1996-C1 Class 1A, 6.75% 7/25/26
GS Mortgage Securities Corp. II Series 1998-GLII 1,600,000 1,387,872
Class E, 7.1905% 4/13/31 (a)(d)
Nomura Asset Securities Corp. Series 1998-D6 15,000,000 13,981,055
Class A-4, 7.5956% 3/17/28 (d)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
Nomura Depositor Trust floater Series 1998-ST1A:
Class A-4, 6.4898% 2/15/34 (a)(d) $ 7,900,000 $ 7,426,000
Class A-5, 6.8398% 2/15/34 (a)(d) 5,278,196 4,895,527
Structured Asset Securities Corp.:
floater Series 1997-C1 Class C, 5.6694% 14,972,194 14,925,406
6/25/15 (a)(d)
Series 1992-M1 Class C, 7.05% 11/25/02 3,192,522 2,946,099
Thirteen Affiliates of General Growth Properties, Inc. 18,200,000 17,499,300
Series 1 Class D-1, 6.917% 12/15/07 (a)
TOTAL COMMERCIAL MORTGAGE SECURITIES 86,806,119
(Cost $89,728,924)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 0.2%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S. Treasury $ 1,064,500 1,064,000
obligations), in a joint trading account at 5.64%, dated
10/30/98 due 11/2/98
(Cost $1,064,000)
TOTAL INVESTMENT IN SECURITIES - 100% $ 547,434,582
(Cost $547,340,287)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION UNDERLYING UNREALIZED
DATE FACE AMOUNT GAIN/(LOSS)
AT VALUE
SOLD
90 U.S. 5 Yr Treasury Note Contracts Dec. 1998 $ 10,317,657 $ (115,853)
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 1.9%
</TABLE>
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $49,932,933 or 9.8% of net assets.
(b) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(c) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $122,103.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $547,406,748. Net unrealized appreciation
aggregated $27,834, of which $4,839,095 related to appreciated
investment securities and $4,811,261 related to depreciated investment
securities.
The fund hereby designates approximately $752,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 547,434,582
AGREEMENTS OF $1,064,000) (COST $547,340,287) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (60,499,844)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 60,683,156 183,312
RECEIVABLE FOR INVESTMENTS SOLD, REGULAR DELIVERY 101,280,009
CASH 936,653
RECEIVABLE FOR FUND SHARES SOLD 944,568
INTEREST RECEIVABLE 2,958,171
RECEIVABLE FOR DAILY VARIATION ON FUTURES CONTRACTS 61,875
TOTAL ASSETS 653,799,170
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 991,921
REGULAR DELIVERY
DELAYED DELIVERY 140,657,751
PAYABLE FOR FUND SHARES REDEEMED 1,267,570
DISTRIBUTIONS PAYABLE 450,094
ACCRUED MANAGEMENT FEE 184,768
DISTRIBUTION FEES PAYABLE 9,617
OTHER PAYABLES AND ACCRUED EXPENSES 179,760
TOTAL LIABILITIES 143,741,481
NET ASSETS $ 510,057,689
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 499,911,833
UNDISTRIBUTED NET INVESTMENT INCOME 1,699,376
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 8,284,726
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 161,754
NET ASSETS $ 510,057,689
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $10.96
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,864,970 (DIVIDED BY) 170,190 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $10.96) $11.51
CLASS T: $10.96
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($19,103,366 (DIVIDED BY) 1,742,507 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $10.96) $11.36
CLASS B: $10.95
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($7,839,643 (DIVIDED BY) 715,697 SHARES) A
INITIAL CLASS: $10.97
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($459,211,792 (DIVIDED BY) 41,871,652 SHARES)
INSTITUTIONAL CLASS: $10.95
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($22,037,918 (DIVIDED BY) 2,012,831 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 36,042,335
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,226,557
TRANSFER AGENT FEES 1,011,170
DISTRIBUTION FEES 73,203
ACCOUNTING FEES AND EXPENSES 205,166
NON-INTERESTED TRUSTEES' COMPENSATION 2,383
CUSTODIAN FEES AND EXPENSES 87,723
REGISTRATION FEES 102,179
AUDIT 53,821
LEGAL 15,166
REPORTS TO SHAREHOLDERS 54,367
MISCELLANEOUS 1,982
TOTAL EXPENSES BEFORE REDUCTIONS 3,833,717
EXPENSE REDUCTIONS (124,644) 3,709,073
NET INVESTMENT INCOME 32,333,262
REALIZED AND UNREALIZED GAIN (LOSS) 8,605,529
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES (11,708,820)
FUTURES CONTRACTS (115,853)
DELAYED DELIVERY COMMITMENTS 183,312 (11,641,361)
NET GAIN (LOSS) (3,035,832)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 29,297,430
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, JULY 31,
1998 1997 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 32,333,262 $ 8,459,090 $ 32,193,238
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 8,605,529 1,110,586 4,296,274
CHANGE IN NET UNREALIZED APPRECIATION (11,641,361) 1,347,376 14,164,021
(DEPRECIATION)
NET INCREASE (DECREASE) IN NET ASSETS 29,297,430 10,917,052 50,653,533
RESULTING FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (30,575,427) (8,349,402) (32,649,725)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (1,430,037) (3,850,848) (5,039,533)
TOTAL DISTRIBUTIONS (32,005,464) (12,200,250) (37,689,258)
SHARE TRANSACTIONS - (19,139,888) (703,316) 32,765,543
NET INCREASE (DECREASE)
TOTAL INCREASE (DECREASE) (21,847,922) (1,986,514) 45,729,818
IN NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 531,905,611 533,892,125 488,162,307
END OF PERIOD (INCLUDING UNDISTRIBUTED $ 510,057,689 $ 531,905,611 $ 533,892,125
NET INVESTMENT INCOME OF
$1,699,376, $290,731 AND
$230,506, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .669 .170 .268
NET REALIZED AND UNREALIZED GAIN (LOSS) (.061) .048 .224
TOTAL FROM INVESTMENT OPERATIONS .608 .218 .492
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.638) (.168) (.272)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.668) (.248) (.272)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.65% 2.00% 4.61%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 1,865 $ 1,648 $ 1,586
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% A, F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.01% 6.18% A 6.09% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .665 .167 .255
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .048 .233
TOTAL FROM INVESTMENT OPERATIONS .602 .215 .488
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.632) (.165) (.268)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.662) (.245) (.268)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.60% 1.98% 4.57%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 19,103 $ 14,649 $ 12,193
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.00% F 1.00% A, F 1.00% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.05% 6.10% A 5.99% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS T
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .584 .142 .234
NET REALIZED AND UNREALIZED GAIN (LOSS) (.064) .065 .214
TOTAL FROM INVESTMENT OPERATIONS .520 .207 .448
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.560) (.147) (.238)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.590) (.227) (.238)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.020 $ 11.040
TOTAL RETURN B, C 4.82% 1.90% 4.20%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,840 $ 1,587 $ 823
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.65% F 1.65% A, F 1.65% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.37% 5.32% A 5.34% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEAR ENDED THREE MONTHS YEARS ENDED JULY 31,
OCTOBER 31, ENDED
OCTOBER 31,
1998 1997 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580 $ 10.910
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .700 D .176 D .678 D .729 .772 .570
NET REALIZED AND (.056) .047 .391 (.015) .325 (.242)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .644 .223 1.069 .714 1.097 .328
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.664) (.173) (.689) (.724) (.737) (.588)
INCOME
FROM NET REALIZED GAIN (.030) (.080) (.110) (.100) - (.040)
IN EXCESS OF NET - - - - (.050) (.030)
REALIZED GAIN
TOTAL DISTRIBUTIONS (.694) (.253) (.799) (.824) (.787) (.658)
NET ASSET VALUE, $ 10.970 $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580
END OF PERIOD
TOTAL RETURN B, C 5.99% 2.05% 10.34% 6.72% 10.88% 3.13%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 459,212 $ 494,304 $ 506,113 $ 488,162 $ 416,241 $ 365,801
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .71% .72% A .73% .74% .77% .79%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .71% .72% A .73% .73% E .77% .79%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 6.34% 6.36% A 6.26% 6.75% 7.37% 6.73%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 262% 125% A 149% 221% 329% 563%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.010 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .693 .172 .263
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .050 .226
TOTAL FROM INVESTMENT OPERATIONS .630 .222 .489
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.660) (.172) (.279)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.690) (.252) (.279)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.010 $ 11.040
TOTAL RETURN B, C 5.86% 2.05% 4.59%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 22,038 $ 19,718 $ 13,177
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% A, F .75% A, F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .75% .75% A .70% A, G
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% 6.35% A 6.29% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Mortgage Securities Fund (the fund) is a fund of
Fidelity Income Fund (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust.
The fund offers Class A, Class T, Class B, Initial Class, and
Institutional Class shares, each of which has equal rights as to
assets and voting privileges. Each class has exclusive voting rights
with respect to matters that affect that class. Class B shares will
automatically convert to Class A shares after a holding period of
seven years from the initial date of purchase. Interest income,
realized and unrealized capital gains and losses, the common expenses
of the fund, and certain fund-level expense reductions, if any, are
allocated on a pro rata basis to each class based on the relative net
assets of each class to the total net assets of the fund. Each class
of shares differs in its respective distribution, transfer agent, and
certain other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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 quotations are
not readily available are valued primarily using dealer-supplied
valuations or 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
among 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
the ex-dividend date. Income dividends and capital gain distributions
are declared separately for each class.
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, futures
transactions and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the 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
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,299,705,940 and $1,306,435,411,
respectively.
The market value of futures contracts opened and closed during the
period amounted to $10,201,804 and $0, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
The rates ranged from .1100% to .3700% for the period. The annual
individual fund fee rate is .30%. In the event that these rates were
lower than the contractual rates in effect during the period, FMR
voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. For the period, the management fee was
equivalent to an annual rate of .44% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 1,249 $ 189
CLASS T 36,423 13,984
CLASS B 35,531 25,811
$ 73,203 $ 39,984
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class' shares. The
Plans also authorize payments to third parties that assist in the sale
of each class' shares or render shareholder support services. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 107
CLASS T 6,184
CLASS B 415
INSTITUTIONAL CLASS 2,793
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase. The Class B charge is based on declining rates ranging from
5% to 1% of the lesser of the cost of shares at the initial date of
purchase or the net asset value of the redeemed shares, excluding any
reinvested dividends and capital gains. In addition, purchases of
Class A and Class T shares that were subject to a finder's fee bear a
contingent deferred sales charge on assets that do not remain in the
fund for at least one year. The Class A and Class T contingent
deferred sales charge is based on 0.25% of the lesser of the cost of
shares at the initial date of purchase or the net asset value of the
redeemed shares, excluding any reinvested dividends and capital gains.
A portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 15,729 $ 5,230
CLASS T 32,042 9,363
CLASS B 7,660 7,660 *
$ 55,431 $ 22,253
* WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent (collectively referred to
as the transfer agent) for the fund's Class A, Class T, Class B, and
Institutional Class. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the transfer agent for the Initial Class. FIIOC
and FSC pay for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the following
amounts were paid to FIIOC or FSC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 4,707 .56
CLASS T 63,902 .44
CLASS B 11,324 .29
INITIAL CLASS 879,955 .19
INSTITUTIONAL CLASS 51,282 .24
$ 1,011,170
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 22,721
CLASS T 1.00% 49,933
CLASS B 1.65% 22,078
INSTITUTIONAL CLASS .75% 23,746
$ 118,478
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $6,166 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER, 31 ENDED JULY 31,
1998 OCTOBER, 31 1997A
1997
FROM NET INVESTMENT INCOME
CLASS A $ 47,643 $ 24,437 $ 21,750
CLASS T 835,552 197,984 64,445
CLASS B 198,305 15,690 8,241
INITIAL CLASS 28,222,031 7,870,955 32,474,399
INSTITUTIONAL CLASS 1,271,896 240,336 80,890
TOTAL $ 30,575,427 $ 8,349,402 $ 32,649,725
FROM NET REALIZED GAIN
CLASS A $ 4,543 $ 11,558 $ -
CLASS T 41,653 92,775 -
CLASS B 4,898 7,487 -
INITIAL CLASS 1,324,784 3,640,130 5,039,533
INSTITUTIONAL CLASS 54,159 98,898 -
TOTAL $ 1,430,037 $ 3,850,848 $ 5,039,533
TOTAL $ 32,005,464 $ 12,200,250 $ 37,689,258
A DISTRIBUTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE FOR THE
PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY 31,
1997.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED THREE MONTHS YEAR ENDED YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31, OCTOBER 31, ENDED JULY 31,
1998 OCTOBER 31, 1997A 1998 OCTOBER 31, 1997A
1997 1997
CLASS A 191,569 3,210 141,575 $ 2,113,314 $ 35,261 $ 1,531,983
SHARES SOLD
REINVESTMENT OF 3,475 3,274 1,989 38,300 35,846 21,750
DISTRIBUTIONS
SHARES (174,371) (531) - (1,919,263) (5,834) -
REDEEMED
NET INCREASE 20,673 5,953 143,564 $ 232,351 $ 65,273 $ 1,553,733
(DECREASE)
CLASS T 1,214,468 312,588 1,114,285 $ 13,402,368 $ 3,429,256 $ 12,183,453
SHARES SOLD
REINVESTMENT OF 72,903 25,415 5,597 803,861 278,358 61,712
DISTRIBUTIONS
SHARES (874,013) (112,534) (16,202) (9,643,136) (1,233,884) (177,848)
REDEEMED
NET INCREASE 413,358 225,469 1,103,680 $ 4,563,093 $ 2,473,730 $ 12,067,317
(DECREASE)
CLASS B 623,528 68,692 73,891 $ 6,874,797 $ 753,079 $ 801,025
SHARES SOLD
REINVESTMENT OF 14,736 1,666 687 162,453 18,237 7,506
DISTRIBUTIONS
SHARES (66,613) (890) - (734,102) (9,750) -
REDEEMED
NET INCREASE 571,651 69,468 74,578 $ 6,303,148 $ 761,566 $ 808,531
(DECREASE)
INITIAL CLASS 5,885,198 1,426,619 14,636,021 $ 64,970,201 $ 15,655,743 $ 158,564,289
SHARES SOLD
REINVESTMENT OF 2,196,325 854,187 2,769,613 24,230,109 9,354,223 29,925,102
DISTRIBUTIONS
SHARES (11,046,014) (3,241,358) (16,911,618) (121,871,170) (35,550,337) (183,183,589)
REDEEMED
NET INCREASE (2,964,491) (960,552) (494,016) $ (32,670,860) $ (10,540,371) $ (5,305,802)
DECREASE)
INSTITUTIONAL 1,131,767 671,412 1,216,421 $ 12,463,547 $ 7,350,245 $ 13,282,379
CLASS
SHARES SOLD
REINVESTMENT OF 61,639 11,919 3,516 679,028 130,486 38,560
DISTRIBUTIONS
SHARES (971,330) (86,048) (26,465) (10,710,195) (944,245) (290,779)
REDEEMED
NET INCREASE 222,076 597,283 1,193,472 $ 2,432,380 $ 6,536,486 $ 13,030,160
(DECREASE)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE
FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY
31, 1997.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 20,111
CLASS T 20,363
CLASS B 20,208
INITIAL CLASS 19,734
INSTITUTIONAL CLASS 21,763
$ 102,179
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Advisor Mortgage Securities 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 Advisor Mortgage Securities Fund (a fund of Fidelity Income
Fund) at October 31, 1998, the results of its operations, 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 Advisor Mortgage Securities 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 October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Mortgage Securities Fund
voted to pay to shareholders of record at the opening of business on
record date, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived
from net investment income:
CLASS A
PAY DATE 12/14/98
RECORD DATE 12/11/98
SHORT-TERM
CAPITAL GAINS $.05
LONG-TERM
CAPITAL GAINS $.10
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate -
20% rate 100%
CLASS T
PAY DATE 12/14/98
RECORD DATE 12/11/98
SHORT-TERM
CAPITAL GAINS $.05
LONG-TERM
CAPITAL GAINS $.10
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate -
20% rate 100%
CLASS B
PAY DATE 12/14/98
RECORD DATE 12/11/98
SHORT-TERM
CAPITAL GAINS $.05
LONG-TERM
CAPITAL GAINS $.10
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate -
20% rate 100%
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on July 15,
1998. The results of votes taken among shareholders on proposals
before them are reported below. Each vote reported represents one
dollar of net asset value held on the record date for the meeting.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
VOTES CAST VOTES CAST
RALPH F. COX
AFFIRMATIVE 1,651,958,203.91 97.164
WITHHELD 48,220,916.99 2.836
TOTAL 1,700,179,120.90 100.000
PHYLLIS BURKE DAVIS
AFFIRMATIVE 1,652,223,467.94 97.179
WITHHELD 47,955,652.96 2.821
TOTAL 1,700,179,120.90 100.000
ROBERT M. GATES
AFFIRMATIVE 1,651,224,161.42 97.121
WITHHELD 48,954,959.48 2.879
TOTAL 1,700,179,120.90 100.000
EDWARD C. JOHNSON 3D
AFFIRMATIVE 1,652,007,241.03 97.167
WITHHELD 48,171,879.87 2.833
TOTAL 1,700,179,120.90 100.000
E. BRADLEY JONES
AFFIRMATIVE 1,649,145,998.05 96.998
WITHHELD 51,033,122.85 3.002
TOTAL 1,700,179,120.90 100.000
DONALD J. KIRK
AFFIRMATIVE 1,653,199,972.08 97.237
WITHHELD 46,979,148.82 2.763
TOTAL 1,700,179,120.90 100.000
# OF % OF
VOTES CAST VOTES CAST
PETER S. LYNCH
AFFIRMATIVE 1,653,387,884.55 97.248
WITHHELD 46,791,236.35 2.752
TOTAL 1,700,179,120.90 100.000
WILLIAM O. MCCOY
AFFIRMATIVE 1,653,375,663.18 97.247
WITHHELD 46,803,457.72 2.753
TOTAL 1,700,179,120.90 100.000
GERALD C. MCDONOUGH
AFFIRMATIVE 1,649,195,994.06 97.001
WITHHELD 50,983,126.84 2.999
TOTAL 1,700,179,120.90 100.000
MARVIN L. MANN
AFFIRMATIVE 1,652,881,436.93 97.218
WITHHELD 47,297,683.97 2.782
TOTAL 1,700,179,120.90 100.000
ROBERT C. POZEN
AFFIRMATIVE 1,652,699,192.82 97.207
WITHHELD 47,479,928.08 2.793
TOTAL 1,700,179,120.90 100.000
THOMAS R. WILLIAMS
AFFIRMATIVE 1,651,939,558.10 97.163
WITHHELD 48,239,562.80 2.837
TOTAL 1,700,179,120.90 100.000
PROPOSAL 2
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 258,409,014.99 95.832
AGAINST 3,123,322.75 1.159
ABSTAIN 8,114,398.12 3.009
TOTAL 269,646,735.86 100.000
PROPOSAL 3
To authorize the Trustees to adopt an Amended and Restated Declaration
of Trust.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 1,513,079,756.37 89.970
AGAINST 62,655,788.85 3.725
ABSTAIN 106,028,282.98 6.305
TOTAL 1,681,763,828.20 100.000
BROKER 18,415,292.70
NON-VOTES
PROPOSAL 4
To approve an Agreement and Plan providing for the reorganization of
the fund from a separate series of one Massachusetts business trust to
another.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 236,671,377.62 91.446
AGAINST 8,084,689.97 3.123
ABSTAIN 14,055,021.19 5.431
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
PROPOSAL 5
To approve an amended management contract for the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 247,542,193.38 91.802
AGAINST 8,411,341.87 3.120
ABSTAIN 13,693,200.61 5.078
TOTAL 269,646,735.86 100.000
PROPOSAL 6
To amend the fund's fundamental investment limitation concerning
diversification.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 231,752,982.35 89.545
AGAINST 13,071,689.21 5.051
ABSTAIN 13,986,417.22 5.404
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
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
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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 Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
AMOR-ANN-1298 67058
1.704047.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
FIDELITY
MORTGAGE SECURITIES FUND
(INITIAL CLASS OF FIDELITY ADVISOR MORTGAGE
SECURITIES FUND)
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 15 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 24 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 32 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 33
PROXY VOTING RESULTS 34
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:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY MORTGAGE SECURITIES FUND - INITIAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - INITIAL CL 5.99% 44.81% 125.96%
LB MORTGAGE 7.30% 41.35% 132.61%
US MORTGAGE FUNDS AVERAGE 6.62% 32.38% 111.59%
CUMULATIVE TOTAL RETURNS show Initial Class' 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 Initial Class' returns to the performance of
the Lehman Brothers Mortgage- Backed Securities Index - a market
capitalization weighted index of 15- and 30-year fixed-rate securities
backed by mortgage pools of Ginnie Mae (GNMA), Fannie Mae (FNMA) and
Freddie Mac (FHLMC), and FNMA and FHLMC balloon mortgages with
fixed-rate coupons. To measure how Initial Class' performance stacked
up against its peers, you can compare it to the U.S. mortgage 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 68 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - INITIAL CL 5.99% 7.69% 8.49%
LB MORTGAGE 7.30% 7.17% 8.81%
US MORTGAGE FUNDS AVERAGE 6.62% 5.75% 7.77%
AVERAGE ANNUAL TOTAL RETURNS take Initial Class' cumulative return and
show you what would have happened if Initial Class had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
Mortgage Secs -Initial Cl LB Mortgage Backed Secs
00040 LB006
1988/10/31 10000.00 10000.00
1988/11/30 9867.78 9854.42
1988/12/31 9805.35 9802.89
1989/01/31 9983.26 9972.74
1989/02/28 9930.40 9909.21
1989/03/31 9950.02 9924.75
1989/04/30 10133.69 10125.14
1989/05/31 10373.53 10438.66
1989/06/30 10624.59 10695.20
1989/07/31 10814.82 10937.30
1989/08/31 10700.59 10795.53
1989/09/30 10747.31 10872.14
1989/10/31 10960.47 11120.50
1989/11/30 11066.09 11241.00
1989/12/31 11142.37 11307.52
1990/01/31 11039.71 11228.46
1990/02/28 11113.25 11294.44
1990/03/31 11121.98 11322.25
1990/04/30 11025.78 11220.56
1990/05/31 11346.33 11568.70
1990/06/30 11510.81 11751.64
1990/07/31 11678.10 11955.56
1990/08/31 11647.21 11828.52
1990/09/30 11709.38 11925.57
1990/10/31 11829.33 12060.80
1990/11/30 12088.18 12313.52
1990/12/31 12296.70 12519.90
1991/01/31 12424.29 12710.20
1991/02/28 12503.84 12817.34
1991/03/31 12587.94 12904.58
1991/04/30 12724.21 13023.45
1991/05/31 12790.36 13137.95
1991/06/30 12822.34 13149.67
1991/07/31 13006.52 13372.14
1991/08/31 13255.07 13615.32
1991/09/30 13462.00 13870.50
1991/10/31 13621.12 14100.33
1991/11/30 13704.40 14202.56
1991/12/31 13970.62 14488.00
1992/01/31 13903.41 14320.61
1992/02/29 14041.75 14456.11
1992/03/31 13944.71 14363.96
1992/04/30 14075.45 14505.18
1992/05/31 14307.77 14766.63
1992/06/30 14459.36 14940.84
1992/07/31 14434.55 15071.43
1992/08/31 14527.91 15267.72
1992/09/30 14619.12 15386.59
1992/10/31 14473.75 15251.64
1992/11/30 14543.70 15299.35
1992/12/31 14732.44 15497.00
1993/01/31 14866.85 15700.65
1993/02/28 14994.18 15859.87
1993/03/31 15092.09 15956.11
1993/04/30 15197.46 16038.44
1993/05/31 15242.45 16129.77
1993/06/30 15428.40 16253.27
1993/07/31 15513.20 16318.16
1993/08/31 15542.09 16395.04
1993/09/30 15576.04 16409.21
1993/10/31 15603.75 16456.65
1993/11/30 15571.13 16424.48
1993/12/31 15721.42 16557.52
1994/01/31 15866.20 16721.65
1994/02/28 15782.54 16604.96
1994/03/31 15603.67 16172.57
1994/04/30 15535.32 16053.44
1994/05/31 15667.57 16116.96
1994/06/30 15747.76 16082.06
1994/07/31 15999.50 16404.03
1994/08/31 16071.19 16455.83
1994/09/30 15896.99 16221.65
1994/10/31 15929.27 16212.38
1994/11/30 15913.38 16161.67
1994/12/31 16026.67 16290.62
1995/01/31 16329.67 16639.31
1995/02/28 16695.25 17064.07
1995/03/31 16766.10 17144.49
1995/04/30 17030.43 17388.22
1995/05/31 17566.28 17936.48
1995/06/30 17700.29 18038.44
1995/07/31 17740.49 18069.52
1995/08/31 17959.39 18256.54
1995/09/30 18145.05 18417.12
1995/10/31 18346.89 18580.97
1995/11/30 18550.03 18793.35
1995/12/31 18754.39 19028.08
1996/01/31 18907.94 19171.48
1996/02/29 18787.46 19012.27
1996/03/31 18719.30 18943.57
1996/04/30 18680.28 18890.13
1996/05/31 18607.96 18835.06
1996/06/30 18864.75 19094.33
1996/07/31 18932.12 19164.39
1996/08/31 18927.94 19164.12
1996/09/30 19227.50 19485.01
1996/10/31 19583.27 19867.23
1996/11/30 19885.82 20151.58
1996/12/31 19773.69 20046.07
1997/01/31 19897.44 20194.93
1997/02/28 19962.31 20262.27
1997/03/31 19775.14 20071.43
1997/04/30 20083.42 20391.49
1997/05/31 20281.55 20591.06
1997/06/30 20519.08 20831.24
1997/07/31 20890.19 21223.83
1997/08/31 20867.11 21173.39
1997/09/30 21093.52 21441.93
1997/10/31 21318.64 21679.66
1997/11/30 21388.88 21750.82
1997/12/31 21577.20 21949.02
1998/01/31 21784.77 22167.39
1998/02/28 21833.76 22214.29
1998/03/31 21907.19 22308.34
1998/04/30 22036.38 22434.57
1998/05/31 22184.54 22583.70
1998/06/30 22295.28 22691.38
1998/07/31 22383.72 22806.43
1998/08/31 22575.85 23013.36
1998/09/30 22789.73 23291.17
1998/10/30 22596.09 23261.18
IMATRL PRASUN SHR__CHT 19981031 19981203 110109 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Mortgage Securities Fund - Initial Class
on October 31, 1988. As the chart shows, by October 31, 1998, the
value of the investment would have grown to $22,596 - a 125.96%
increase on the initial investment. For comparison, look at how the
Lehman Brothers Mortgage-Backed Securities Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 would have grown to $23,261 - a 132.61% 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 OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.17% 6.60% 6.66% 7.86% 5.61%
CAPITAL RETURNS -0.18% 2.26% 0.08% 7.32% -3.52%
TOTAL RETURNS 5.99% 8.86% 6.74% 15.18% 2.09%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains paid
by the class are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.55(CENTS) 32.81(CENTS) 66.39(CENTS)
ANNUALIZED DIVIDEND RATE 5.92% 5.90% 6.01%
30-DAY ANNUALIZED YIELD 6.25% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $11.04 over the past one month, $11.04 over the past six months and
$11.04 over the past one year, you can compare the class' 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
Uncertainty in the global equity
markets, combined with two
interest-rate cuts by the Federal
Reserve Board, provided the
backdrop for strong gains in the
bond market during the 12-month
period ended October 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad measure of the U.S.
taxable investment-grade bond
market - returned 9.34% over the
past year. Global market volatility,
low interest rates and a sharp
decline in stock prices sent U.S.
Treasury yields - which move in the
opposite direction of bond prices -
to their lowest levels in 30 years.
While the extreme flight to quality
helped Treasuries outperform all
other sectors of the bond market,
corporate bond investors benefited
from a stable domestic economy,
low interest rates and low inflation.
The Lehman Brothers Corporate
Bond Index returned 7.99% for the
past 12 months. Despite high
refinancing activity, mortgage bonds
also performed well. The Lehman
Brothers Mortgage-Backed Securities
Index posted a 12-month return of
7.30%. Late in the period, the bond
market stumbled as the Group of
Seven leading industrial nations
eased global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Tom Silvia, Portfolio Manager of Fidelity Advisor
Mortgage Securities Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the 12 months that ended October 31, 1998, the fund's Initial
Class shares returned 5.99%. During the same period, the U.S. mortgage
funds average, according to Lipper Analytical Services, returned
6.62%, and the Lehman Brothers Mortgage-Backed Securities Index
returned 7.30%.
Q. HOW WOULD YOU CHARACTERIZE THE MORTGAGE MARKET OVER THE PAST 12
MONTHS?
A. During the first six months of the period, the mortgage market was
surprisingly strong. Low inflation and enormous foreign demand for
U.S. government securities in the wake of the Asian economic crisis
bid Treasury prices up, pushing the 10-year yield down to 5.35% early
in 1998. Falling interest rates usually cause mortgage prices to lag
Treasuries because of increased prepayment risk. As interest rates
fall, many borrowers refinance their home loans, returning the
principal to investors who may have to reinvest at lower rates.
Despite these conditions, investors were attracted by the relatively
high yields offered by mortgage securities. However, the mortgage
market changed direction during the second half of the period.
Emerging monetary and political problems in Russia renewed concern
about the unstable conditions in Asia. Bond-market investors became
less tolerant of risk and sold mortgage securities in favor of
higher-quality, more liquid government securities, flooding the market
with mortgage supply. Interest rates fell to historic low levels,
increasing prepayment risk, which further depressed demand for
mortgage securities. Market liquidity declined substantially and
prices stagnated. Yield spreads reached their widest point in over 10
years as investors required significantly higher rates to choose
mortgages over Treasury securities.
Q. WHAT WAS YOUR INVESTMENT STRATEGY THROUGHOUT THE PERIOD?
A. My overall objective was to limit relative prepayment risk. My
strategy is based on a disciplined process that first evaluates the
Lehman Brothers index, the fund's performance benchmark. Next, I
allocate assets among the agency sectors based on my assessment of
relative value. During the period, I overweighted Ginnie Mae-issued
mortgages, which were experiencing slower prepayment rates relative to
Fannie Mae and Freddie Mac mortgages. In addition, Ginnie Mae loans
are explicitly guaranteed by the U.S. Treasury. Once sector weights
are determined, I select specific securities. For example, as interest
rates fell, I emphasized seasoned mortgages that had weathered several
prepayment cycles, as well as brand-new mortgages issued at lower
rates that I thought would carry less refinancing risk. Finally, I
look at sectors outside of the index, such as non-agency securities,
commercial mortgages, collateralized mortgage obligations and
adjustable-rate mortgages. For much of the year, I had a significant
proportion of the fund's assets invested in commercial mortgage
securities (CMS). The loans underlying CMS usually have prepayment
restrictions built into their structure, so they can help reduce a
fund's prepayment risk when interest rates are falling.
Q. WEREN'T THERE PROBLEMS IN THE COMMERCIAL MORTGAGE SECTOR DURING THE
YEAR?
A. Yes, there were. During the final months of the period, CMS
dramatically underperformed other types of mortgage securities.
Although they have lower prepayment risk, CMS have greater credit
risk. As a result, this sector was hurt when investors shifted their
preference to very liquid, high-quality instruments such as Treasury
securities. In addition, many hedge funds and real estate investment
trusts had borrowed heavily to purchase relatively high-yielding
securities such as CMS. However, as global credit concerns caused the
CMS sector to weaken, these investors were left holding billions of
dollars of securities that could only be sold at higher yields. Forced
selling of this sector to cover loans reduced liquidity, and prices
fell further. Because the fund was overweighted in commercial
mortgages relative to its benchmark and its peers, CMS were the
largest contributor to the fund's disappointing 12-month total return.
Q. DID YOU REDUCE YOUR CMS EXPOSURE?
A. No, I didn't. I believe that the CMS sector has been oversold. I
haven't seen any fundamental reason to withdraw from this market.
Furthermore, this sector continues to offer good protection against
prepayment risk, which is my primary investment strategy.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A. I am taking a cautious approach to the market. As long as interest
rates have the possibility to fall further, prepayment risk will
continue to limit mortgage securities performance. I plan to emphasize
the fund's defensive characteristics until there are conclusive
changes in the economy's direction.
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.
TOM SILVIA ON COMMERCIAL
MORTGAGE SECURITIES (CMS):
"The CMS market has been among
the fastest growing sectors of the
fixed-income market. CMS are bonds
that are collateralized by mortgage
loans on commercial real estate
such as office buildings, shopping
malls, hotels and apartment
buildings. This market sector was
created in the mid 1980s, and
today the amount of commercial
mortgage loans outstanding in the
United States is approximately $1.5
trillion.
"Commercial mortgages differ from
the mortgage securities comprising
the fund's performance benchmark,
the Lehman Brothers
Mortgage-Backed Securities
Index. The index is made up of
single-family home mortgages
issued by one of three housing
agencies - Ginnie Mae (GNMA),
Fannie Mae (FNMA) and Freddie
Mac (FHLMC). Agency mortgage
securities have minimal credit risk
and carry an implied triple-A
rating because of their relationship
with the U.S. Treasury. GNMA
securities are guaranteed by the
government, while FNMA and
FHLMC securities carry an implied
guarantee. CMS are privately
issued and are not supported by the
government. The primary advantage
of investing in commercial versus
agency single-family mortgages is
related to prepayment risk.
Commercial mortgages typically
have some form of prepayment
protection because commercial
borrowers are usually restricted
from early loan payoffs. Thus, CMS
provide an efficient way to reduce
a portfolio's prepayment risk,
particularly in periods when
interest rates are falling."
FUND FACTS
GOAL: high current income by
investing in mortgage-related
securities of all kinds
START DATE: December 31, 1984
SIZE: as of October 31,
1998, more than $510 million
MANAGER: Thomas Silvia, since
1997; joined Fidelity in 1993
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 6% 3.3 0.7
6 - 6.99% 21.3 25.1
7 - 7.99% 47.6 41.7
8 - 8.99% 17.1 11.6
9 - 9.99% 6.5 6.3
10 - 10.99% 2.4 3.0
11% AND OVER 1.6 2.1
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 4.3 5.3
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 OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 1.2
ROW: 1, COL: 2, VALUE: 15.9
ROW: 1, COL: 3, VALUE: 82.90000000000001
MORTGAGE
SECURITIES 83.9%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 15.9%
SHORT-TERM
INVESTMENT 0.2%
ROW: 1, COL: 1, VALUE: 9.5
ROW: 1, COL: 2, VALUE: 18.0
ROW: 1, COL: 3, VALUE: 72.5
MORTGAGE
SECURITIES 72.5%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 18.0%
SHORT-TERM
INVESTMENTS 9.5%
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 83.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
FANNIE MAE - 29.2%
6% 4/1/28 to 10/1/28 $ 6,456,563 $ 6,379,859
6.5% 9/1/10 to 11/1/28 32,901,098 33,180,484
6.5% 12/1/28 (b) 10,000,000 10,078,125
7% 12/1/20 to 11/1/27 105,567 108,126
7% 11/1/28 (b) 40,000,000 40,874,988
7.5% 11/1/17 to 10/1/28 (e) 37,904,484 38,869,484
8% 1/1/07 to 7/1/08 79,684 81,459
8.25% 1/1/13 101,214 105,371
8.5% 11/1/03 to 12/1/26 15,979,410 16,655,234
8.75% 11/1/08 to 7/1/09 185,529 192,778
9% 1/1/08 to 2/1/13 707,837 739,117
9.5% 5/1/03 to 8/1/22 8,347,131 8,770,474
11% 12/1/02 to 8/1/10 1,853,083 2,009,943
12.25% 5/1/13 to 6/1/15 405,209 462,779
12.5% 11/1/14 to 3/1/16 530,317 607,553
12.75% 6/1/13 to 7/1/15 225,290 260,778
13.5% 9/1/13 to 12/1/14 156,598 184,588
14% 11/1/14 42,465 50,626
159,611,766
FREDDIE MAC - 33.9%
5% 7/1/10 3,343,444 3,255,679
6.5% 1/1/24 to 9/1/24 26,287,242 26,512,424
7% 5/1/99 to 1/1/13 50,081,429 51,123,709
7% 12/1/28 (b) 35,500,000 36,221,094
7.5% 10/1/25 to 3/1/28 (e) 4,399,397 4,506,611
8% 10/1/07 to 4/1/21 981,289 1,023,779
8.5% 11/1/03 to 8/1/27 42,473,979 44,232,138
9% 9/1/08 to 5/1/21 11,079,984 11,746,050
10% 1/1/09 to 5/1/19 1,673,726 1,807,321
10.5% 8/1/10 to 12/1/20 (c) 1,868,975 2,068,962
11.5% 4/1/12 80,893 89,938
11.75% 6/1/11 67,156 76,245
12.25% 6/1/14 to 7/1/15 171,771 199,093
12.5% 5/1/12 to 12/1/14 896,074 1,032,860
12.75% 6/1/05 to 3/1/15 157,902 178,189
13% 1/1/11 to 6/1/15 1,487,735 1,751,909
185,826,001
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 20.8%
7% 5/15/23 to 10/15/28 $ 7,859,836 $ 8,041,273
7.5% 7/15/05 to 8/15/28 47,358,203 48,788,911
8% 4/15/02 to 12/15/27 27,565,960 28,582,299
8.5% 7/15/16 to 6/15/18 2,731,346 2,913,379
9% 10/1/04 to 4/20/18 8,424,257 8,985,406
9.5% 6/15/09 to 12/15/24 4,506,291 4,837,048
10% 12/15/17 to 1/15/26 7,770,640 8,380,064
10.5% 8/15/00 to 2/20/18 969,135 1,042,322
11% 1/15/10 to 9/15/19 2,096,015 2,319,280
11.5% 10/15/10 30,471 33,698
13% 10/15/13 88,788 102,356
13.5% 7/15/11 to 10/15/14 71,542 82,994
114,109,030
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES 459,546,797
(Cost $456,530,867)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
U.S. GOVERNMENT AGENCY - 0.0%
Freddie Mac sequential pay Series 1353 Class A, 5.5% 17,705 17,666
11/15/04 (Cost $16,496)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 15.9%
Bankers Trust Remic Trust 1988-1 floater Series 3,890,000 3,798,828
1998-S1A Class D, 6.5023% 11/28/02 (a)(d)
CBM Funding Corp. sequential pay Series 1996-1 2,300,000 2,392,719
Class A-3PI, 7.08% 11/1/07
CS First Boston Mortgage Securities Corp. 1,850,000 1,732,063
Series 1997-C2 Class D, 7.27% 1/17/35
Deutsche Mortgage & Asset Receiving Corp. 10,200,000 9,588,000
Series 1998-C1 Class D, 7.231% 7/15/12
Federal Deposit Insurance Corp. Remic Trust sequential 6,215,768 6,233,250
pay Series 1996-C1 Class 1A, 6.75% 7/25/26
GS Mortgage Securities Corp. II Series 1998-GLII 1,600,000 1,387,872
Class E, 7.1905% 4/13/31 (a)(d)
Nomura Asset Securities Corp. Series 1998-D6 15,000,000 13,981,055
Class A-4, 7.5956% 3/17/28 (d)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
Nomura Depositor Trust floater Series 1998-ST1A:
Class A-4, 6.4898% 2/15/34 (a)(d) $ 7,900,000 $ 7,426,000
Class A-5, 6.8398% 2/15/34 (a)(d) 5,278,196 4,895,527
Structured Asset Securities Corp.:
floater Series 1997-C1 Class C, 5.6694% 14,972,194 14,925,406
6/25/15 (a)(d)
Series 1992-M1 Class C, 7.05% 11/25/02 3,192,522 2,946,099
Thirteen Affiliates of General Growth Properties, Inc. 18,200,000 17,499,300
Series 1 Class D-1, 6.917% 12/15/07 (a)
TOTAL COMMERCIAL MORTGAGE SECURITIES 86,806,119
(Cost $89,728,924)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 0.2%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S. Treasury $ 1,064,500 1,064,000
obligations), in a joint trading account at 5.64%, dated
10/30/98 due 11/2/98
(Cost $1,064,000)
TOTAL INVESTMENT IN SECURITIES - 100% $ 547,434,582
(Cost $547,340,287)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION UNDERLYING UNREALIZED
DATE FACE AMOUNT GAIN/(LOSS)
AT VALUE
SOLD
90 U.S. 5 Yr Treasury Note Contracts Dec. 1998 $ 10,317,657 $ (115,853)
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 1.9%
</TABLE>
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $49,932,933 or 9.8% of net assets.
(b) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(c) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $122,103.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $547,406,748. Net unrealized appreciation
aggregated $27,834, of which $4,839,095 related to appreciated
investment securities and $4,811,261 related to depreciated investment
securities.
The fund hereby designates approximately $752,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 547,434,582
AGREEMENTS OF $1,064,000) (COST $547,340,287) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (60,499,844)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 60,683,156 183,312
RECEIVABLE FOR INVESTMENTS SOLD, REGULAR DELIVERY 101,280,009
CASH 936,653
RECEIVABLE FOR FUND SHARES SOLD 944,568
INTEREST RECEIVABLE 2,958,171
RECEIVABLE FOR DAILY VARIATION ON FUTURES CONTRACTS 61,875
TOTAL ASSETS 653,799,170
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 991,921
REGULAR DELIVERY
DELAYED DELIVERY 140,657,751
PAYABLE FOR FUND SHARES REDEEMED 1,267,570
DISTRIBUTIONS PAYABLE 450,094
ACCRUED MANAGEMENT FEE 184,768
DISTRIBUTION FEES PAYABLE 9,617
OTHER PAYABLES AND ACCRUED EXPENSES 179,760
TOTAL LIABILITIES 143,741,481
NET ASSETS $ 510,057,689
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 499,911,833
UNDISTRIBUTED NET INVESTMENT INCOME 1,699,376
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 8,284,726
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 161,754
NET ASSETS $ 510,057,689
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $10.96
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,864,970 (DIVIDED BY) 170,190 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $10.96) $11.51
CLASS T: $10.96
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($19,103,366 (DIVIDED BY) 1,742,507 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $10.96) $11.36
CLASS B: $10.95
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($7,839,643 (DIVIDED BY) 715,697 SHARES) A
INITIAL CLASS: $10.97
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($459,211,792 (DIVIDED BY) 41,871,652 SHARES)
INSTITUTIONAL CLASS: $10.95
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($22,037,918 (DIVIDED BY) 2,012,831 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 36,042,335
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,226,557
TRANSFER AGENT FEES 1,011,170
DISTRIBUTION FEES 73,203
ACCOUNTING FEES AND EXPENSES 205,166
NON-INTERESTED TRUSTEES' COMPENSATION 2,383
CUSTODIAN FEES AND EXPENSES 87,723
REGISTRATION FEES 102,179
AUDIT 53,821
LEGAL 15,166
REPORTS TO SHAREHOLDERS 54,367
MISCELLANEOUS 1,982
TOTAL EXPENSES BEFORE REDUCTIONS 3,833,717
EXPENSE REDUCTIONS (124,644) 3,709,073
NET INVESTMENT INCOME 32,333,262
REALIZED AND UNREALIZED GAIN (LOSS) 8,605,529
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES (11,708,820)
FUTURES CONTRACTS (115,853)
DELAYED DELIVERY COMMITMENTS 183,312 (11,641,361)
NET GAIN (LOSS) (3,035,832)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 29,297,430
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, JULY 31,
1998 1997 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 32,333,262 $ 8,459,090 $ 32,193,238
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 8,605,529 1,110,586 4,296,274
CHANGE IN NET UNREALIZED APPRECIATION (11,641,361) 1,347,376 14,164,021
(DEPRECIATION)
NET INCREASE (DECREASE) IN NET ASSETS 29,297,430 10,917,052 50,653,533
RESULTING FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (30,575,427) (8,349,402) (32,649,725)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (1,430,037) (3,850,848) (5,039,533)
TOTAL DISTRIBUTIONS (32,005,464) (12,200,250) (37,689,258)
SHARE TRANSACTIONS - (19,139,888) (703,316) 32,765,543
NET INCREASE (DECREASE)
TOTAL INCREASE (DECREASE) (21,847,922) (1,986,514) 45,729,818
IN NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 531,905,611 533,892,125 488,162,307
END OF PERIOD (INCLUDING UNDISTRIBUTED $ 510,057,689 $ 531,905,611 $ 533,892,125
NET INVESTMENT INCOME OF
$1,699,376, $290,731 AND
$230,506, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .669 .170 .268
NET REALIZED AND UNREALIZED GAIN (LOSS) (.061) .048 .224
TOTAL FROM INVESTMENT OPERATIONS .608 .218 .492
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.638) (.168) (.272)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.668) (.248) (.272)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.65% 2.00% 4.61%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 1,865 $ 1,648 $ 1,586
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% A, F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.01% 6.18% A 6.09% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .665 .167 .255
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .048 .233
TOTAL FROM INVESTMENT OPERATIONS .602 .215 .488
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.632) (.165) (.268)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.662) (.245) (.268)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.60% 1.98% 4.57%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 19,103 $ 14,649 $ 12,193
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.00% F 1.00% A, F 1.00% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.05% 6.10% A 5.99% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS T
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .584 .142 .234
NET REALIZED AND UNREALIZED GAIN (LOSS) (.064) .065 .214
TOTAL FROM INVESTMENT OPERATIONS .520 .207 .448
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.560) (.147) (.238)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.590) (.227) (.238)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.020 $ 11.040
TOTAL RETURN B, C 4.82% 1.90% 4.20%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,840 $ 1,587 $ 823
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.65% F 1.65% A, F 1.65% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.37% 5.32% A 5.34% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEAR ENDED THREE MONTHS YEARS ENDED JULY 31,
OCTOBER 31, ENDED
OCTOBER 31,
1998 1997 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580 $ 10.910
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .700 D .176 D .678 D .729 .772 .570
NET REALIZED AND (.056) .047 .391 (.015) .325 (.242)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .644 .223 1.069 .714 1.097 .328
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.664) (.173) (.689) (.724) (.737) (.588)
INCOME
FROM NET REALIZED GAIN (.030) (.080) (.110) (.100) - (.040)
IN EXCESS OF NET - - - - (.050) (.030)
REALIZED GAIN
TOTAL DISTRIBUTIONS (.694) (.253) (.799) (.824) (.787) (.658)
NET ASSET VALUE, $ 10.970 $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580
END OF PERIOD
TOTAL RETURN B, C 5.99% 2.05% 10.34% 6.72% 10.88% 3.13%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 459,212 $ 494,304 $ 506,113 $ 488,162 $ 416,241 $ 365,801
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .71% .72% A .73% .74% .77% .79%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .71% .72% A .73% .73% E .77% .79%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 6.34% 6.36% A 6.26% 6.75% 7.37% 6.73%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 262% 125% A 149% 221% 329% 563%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.010 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .693 .172 .263
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .050 .226
TOTAL FROM INVESTMENT OPERATIONS .630 .222 .489
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.660) (.172) (.279)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.690) (.252) (.279)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.010 $ 11.040
TOTAL RETURN B, C 5.86% 2.05% 4.59%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 22,038 $ 19,718 $ 13,177
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% A, F .75% A, F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .75% .75% A .70% A, G
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% 6.35% A 6.29% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Mortgage Securities Fund (the fund) is a fund of
Fidelity Income Fund (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust.
The fund offers Class A, Class T, Class B, Initial Class, and
Institutional Class shares, each of which has equal rights as to
assets and voting privileges. Each class has exclusive voting rights
with respect to matters that affect that class. Class B shares will
automatically convert to Class A shares after a holding period of
seven years from the initial date of purchase. Interest income,
realized and unrealized capital gains and losses, the common expenses
of the fund, and certain fund-level expense reductions, if any, are
allocated on a pro rata basis to each class based on the relative net
assets of each class to the total net assets of the fund. Each class
of shares differs in its respective distribution, transfer agent, and
certain other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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 quotations are
not readily available are valued primarily using dealer-supplied
valuations or 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
among 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
the ex-dividend date. Income dividends and capital gain distributions
are declared separately for each class.
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, futures
transactions and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the 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
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,299,705,940 and $1,306,435,411,
respectively.
The market value of futures contracts opened and closed during the
period amounted to $10,201,804 and $0, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
The rates ranged from .1100% to .3700% for the period. The annual
individual fund fee rate is .30%. In the event that these rates were
lower than the contractual rates in effect during the period, FMR
voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. For the period, the management fee was
equivalent to an annual rate of .44% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 1,249 $ 189
CLASS T 36,423 13,984
CLASS B 35,531 25,811
$ 73,203 $ 39,984
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class' shares. The
Plans also authorize payments to third parties that assist in the sale
of each class' shares or render shareholder support services. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 107
CLASS T 6,184
CLASS B 415
INSTITUTIONAL CLASS 2,793
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase. The Class B charge is based on declining rates ranging from
5% to 1% of the lesser of the cost of shares at the initial date of
purchase or the net asset value of the redeemed shares, excluding any
reinvested dividends and capital gains. In addition, purchases of
Class A and Class T shares that were subject to a finder's fee bear a
contingent deferred sales charge on assets that do not remain in the
fund for at least one year. The Class A and Class T contingent
deferred sales charge is based on 0.25% of the lesser of the cost of
shares at the initial date of purchase or the net asset value of the
redeemed shares, excluding any reinvested dividends and capital gains.
A portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 15,729 $ 5,230
CLASS T 32,042 9,363
CLASS B 7,660 7,660 *
$ 55,431 $ 22,253
* WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent (collectively referred to
as the transfer agent) for the fund's Class A, Class T, Class B, and
Institutional Class. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the transfer agent for the Initial Class. FIIOC
and FSC pay for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the following
amounts were paid to FIIOC or FSC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 4,707 .56
CLASS T 63,902 .44
CLASS B 11,324 .29
INITIAL CLASS 879,955 .19
INSTITUTIONAL CLASS 51,282 .24
$ 1,011,170
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 22,721
CLASS T 1.00% 49,933
CLASS B 1.65% 22,078
INSTITUTIONAL CLASS .75% 23,746
$ 118,478
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $6,166 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER, 31 ENDED JULY 31,
1998 OCTOBER, 31 1997A
1997
FROM NET INVESTMENT INCOME
CLASS A $ 47,643 $ 24,437 $ 21,750
CLASS T 835,552 197,984 64,445
CLASS B 198,305 15,690 8,241
INITIAL CLASS 28,222,031 7,870,955 32,474,399
INSTITUTIONAL CLASS 1,271,896 240,336 80,890
TOTAL $ 30,575,427 $ 8,349,402 $ 32,649,725
FROM NET REALIZED GAIN
CLASS A $ 4,543 $ 11,558 $ -
CLASS T 41,653 92,775 -
CLASS B 4,898 7,487 -
INITIAL CLASS 1,324,784 3,640,130 5,039,533
INSTITUTIONAL CLASS 54,159 98,898 -
TOTAL $ 1,430,037 $ 3,850,848 $ 5,039,533
TOTAL $ 32,005,464 $ 12,200,250 $ 37,689,258
A DISTRIBUTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE FOR THE
PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY 31,
1997.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED THREE MONTHS YEAR ENDED YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31, OCTOBER 31, ENDED JULY 31,
1998 OCTOBER 31, 1997A 1998 OCTOBER 31, 1997A
1997 1997
CLASS A 191,569 3,210 141,575 $ 2,113,314 $ 35,261 $ 1,531,983
SHARES SOLD
REINVESTMENT OF 3,475 3,274 1,989 38,300 35,846 21,750
DISTRIBUTIONS
SHARES (174,371) (531) - (1,919,263) (5,834) -
REDEEMED
NET INCREASE 20,673 5,953 143,564 $ 232,351 $ 65,273 $ 1,553,733
(DECREASE)
CLASS T 1,214,468 312,588 1,114,285 $ 13,402,368 $ 3,429,256 $ 12,183,453
SHARES SOLD
REINVESTMENT OF 72,903 25,415 5,597 803,861 278,358 61,712
DISTRIBUTIONS
SHARES (874,013) (112,534) (16,202) (9,643,136) (1,233,884) (177,848)
REDEEMED
NET INCREASE 413,358 225,469 1,103,680 $ 4,563,093 $ 2,473,730 $ 12,067,317
(DECREASE)
CLASS B 623,528 68,692 73,891 $ 6,874,797 $ 753,079 $ 801,025
SHARES SOLD
REINVESTMENT OF 14,736 1,666 687 162,453 18,237 7,506
DISTRIBUTIONS
SHARES (66,613) (890) - (734,102) (9,750) -
REDEEMED
NET INCREASE 571,651 69,468 74,578 $ 6,303,148 $ 761,566 $ 808,531
(DECREASE)
INITIAL CLASS 5,885,198 1,426,619 14,636,021 $ 64,970,201 $ 15,655,743 $ 158,564,289
SHARES SOLD
REINVESTMENT OF 2,196,325 854,187 2,769,613 24,230,109 9,354,223 29,925,102
DISTRIBUTIONS
SHARES (11,046,014) (3,241,358) (16,911,618) (121,871,170) (35,550,337) (183,183,589)
REDEEMED
NET INCREASE (2,964,491) (960,552) (494,016) $ (32,670,860) $ (10,540,371) $ (5,305,802)
DECREASE)
INSTITUTIONAL 1,131,767 671,412 1,216,421 $ 12,463,547 $ 7,350,245 $ 13,282,379
CLASS
SHARES SOLD
REINVESTMENT OF 61,639 11,919 3,516 679,028 130,486 38,560
DISTRIBUTIONS
SHARES (971,330) (86,048) (26,465) (10,710,195) (944,245) (290,779)
REDEEMED
NET INCREASE 222,076 597,283 1,193,472 $ 2,432,380 $ 6,536,486 $ 13,030,160
(DECREASE)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE
FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY
31, 1997.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 20,111
CLASS T 20,363
CLASS B 20,208
INITIAL CLASS 19,734
INSTITUTIONAL CLASS 21,763
$ 102,179
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Advisor Mortgage Securities 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 Advisor Mortgage Securities Fund (a fund of Fidelity Income
Fund) at October 31, 1998, the results of its operations, 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 Advisor Mortgage Securities 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 October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Mortgage Securities Fund
voted to pay to shareholders of record at the opening of business on
record date, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived
from net investment income:
INITIAL CLASS
PAY DATE 12/14/98
RECORD DATE 12/11/98
SHORT-TERM
CAPITAL GAINS $.05
LONG-TERM
CAPITAL GAINS $.10
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate -
20% rate 100%
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on July 15,
1998. The results of votes taken among shareholders on proposals
before them are reported below. Each vote reported represents one
dollar of net asset value held on the record date for the meeting.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
VOTES CAST VOTES CAST
RALPH F. COX
AFFIRMATIVE 1,651,958,203.91 97.164
WITHHELD 48,220,916.99 2.836
TOTAL 1,700,179,120.90 100.000
PHYLLIS BURKE DAVIS
AFFIRMATIVE 1,652,223,467.94 97.179
WITHHELD 47,955,652.96 2.821
TOTAL 1,700,179,120.90 100.000
ROBERT M. GATES
AFFIRMATIVE 1,651,224,161.42 97.121
WITHHELD 48,954,959.48 2.879
TOTAL 1,700,179,120.90 100.000
EDWARD C. JOHNSON 3D
AFFIRMATIVE 1,652,007,241.03 97.167
WITHHELD 48,171,879.87 2.833
TOTAL 1,700,179,120.90 100.000
E. BRADLEY JONES
AFFIRMATIVE 1,649,145,998.05 96.998
WITHHELD 51,033,122.85 3.002
TOTAL 1,700,179,120.90 100.000
DONALD J. KIRK
AFFIRMATIVE 1,653,199,972.08 97.237
WITHHELD 46,979,148.82 2.763
TOTAL 1,700,179,120.90 100.000
# OF % OF
VOTES CAST VOTES CAST
PETER S. LYNCH
AFFIRMATIVE 1,653,387,884.55 97.248
WITHHELD 46,791,236.35 2.752
TOTAL 1,700,179,120.90 100.000
WILLIAM O. MCCOY
AFFIRMATIVE 1,653,375,663.18 97.247
WITHHELD 46,803,457.72 2.753
TOTAL 1,700,179,120.90 100.000
GERALD C. MCDONOUGH
AFFIRMATIVE 1,649,195,994.06 97.001
WITHHELD 50,983,126.84 2.999
TOTAL 1,700,179,120.90 100.000
MARVIN L. MANN
AFFIRMATIVE 1,652,881,436.93 97.218
WITHHELD 47,297,683.97 2.782
TOTAL 1,700,179,120.90 100.000
ROBERT C. POZEN
AFFIRMATIVE 1,652,699,192.82 97.207
WITHHELD 47,479,928.08 2.793
TOTAL 1,700,179,120.90 100.000
THOMAS R. WILLIAMS
AFFIRMATIVE 1,651,939,558.10 97.163
WITHHELD 48,239,562.80 2.837
TOTAL 1,700,179,120.90 100.000
PROPOSAL 2
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 258,409,014.99 95.832
AGAINST 3,123,322.75 1.159
ABSTAIN 8,114,398.12 3.009
TOTAL 269,646,735.86 100.000
PROPOSAL 3
To authorize the Trustees to adopt an Amended and Restated Declaration
of Trust.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 1,513,079,756.37 89.970
AGAINST 62,655,788.85 3.725
ABSTAIN 106,028,282.98 6.305
TOTAL 1,681,763,828.20 100.000
BROKER 18,415,292.70
NON-VOTES
PROPOSAL 4
To approve an Agreement and Plan providing for the reorganization of
the fund from a separate series of one Massachusetts business trust to
another.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 236,671,377.62 91.446
AGAINST 8,084,689.97 3.123
ABSTAIN 14,055,021.19 5.431
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
PROPOSAL 5
To approve an amended management contract for the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 247,542,193.38 91.802
AGAINST 8,411,341.87 3.120
ABSTAIN 13,693,200.61 5.078
TOTAL 269,646,735.86 100.000
PROPOSAL 6
To amend the fund's fundamental investment limitation concerning
diversification.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 231,752,982.35 89.545
AGAINST 13,071,689.21 5.051
ABSTAIN 13,986,417.22 5.404
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
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 Xpress(registered trademark) provides 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.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
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.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
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 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 500
Merrimack, NH 03054-0500
(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 500
Merrimack, NH 03054-0500
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
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Campbell, CA
527 North Brand Boulevard
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501 Route 17, South
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1055 Franklin Avenue
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1271 Avenue of the Americas
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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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511 Pine Street
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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
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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
MOR-ANN-1298 67056
1.538542.101
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
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Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003SM
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FIDELITY ADVISOR
MORTGAGE SECURITIES
FUND - INSTITUTIONAL CLASS
ANNUAL REPORT
OCTOBER 31, 1998
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 15 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 24 NOTES TO FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 32 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 33
PROXY VOTING RESULTS 34
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 ADVISOR FUND, INCLUDING CHARGES
AND EXPENSES, CONTACT YOUR
INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
Remember to contact your investment professional if you need help with
your investments.
Best regards,
Edward C. Johnson 3d
FIDELITY ADVISOR MORTGAGE SECURITIES FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 class' dividend income and capital gains
(the profits earned upon the sale of securities that have grown in
value). You can also look at the class' income, as reflected in its
yield, to measure performance. The initial offering of Institutional
Class shares took place on March 3, 1997. Returns prior to March 3,
1997 are those of Initial Class, the original class of the fund. If
Fidelity had not reimbursed certain class expenses, the total returns
and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - INST CL 5.86% 44.49% 125.47%
LB MORTGAGE 7.30% 41.35% 132.61%
US MORTGAGE FUNDS AVERAGE 6.62% 32.38% 111.59%
CUMULATIVE TOTAL RETURNS show Institutional Class' 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 Institutional Class' returns to the
performance of the Lehman Brothers Mortgage-Backed Securities Index -
a market capitalization weighted index of 15- and 30-year fixed-rate
securities backed by mortgage pools of the Ginnie Mae (GNMA), Fannie
Mae (FNMA) and Freddie Mac (FHLMC), and FNMA and FHLMC balloon
mortgages with fixed-rate coupons. To measure how Institutional Class'
performance stacked up against its peers, you can compare it to the
U.S. mortgage 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 68 mutual
funds. These benchmarks reflect reinvestment of dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY ADV MORTGAGE SECURITIES - INST CL 5.86% 7.64% 8.47%
LB MORTGAGE 7.30% 7.17% 8.81%
US MORTGAGE FUNDS AVERAGE 6.62% 5.75% 7.77%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' cumulative
return and show you what would have happened if Institutional Class
had performed at a constant rate each year.
$10,000 OVER 10 YEARS
FA Mortgage Sec -CL I LB Mortgage Backed Secs
00240 LB006
1988/10/31 10000.00 10000.00
1988/11/30 9867.78 9854.42
1988/12/31 9805.35 9802.89
1989/01/31 9983.26 9972.74
1989/02/28 9930.40 9909.21
1989/03/31 9950.02 9924.75
1989/04/30 10133.69 10125.14
1989/05/31 10373.53 10438.66
1989/06/30 10624.59 10695.20
1989/07/31 10814.82 10937.30
1989/08/31 10700.59 10795.53
1989/09/30 10747.31 10872.14
1989/10/31 10960.47 11120.50
1989/11/30 11066.09 11241.00
1989/12/31 11142.37 11307.52
1990/01/31 11039.71 11228.46
1990/02/28 11113.25 11294.44
1990/03/31 11121.98 11322.25
1990/04/30 11025.78 11220.56
1990/05/31 11346.33 11568.70
1990/06/30 11510.81 11751.64
1990/07/31 11678.10 11955.56
1990/08/31 11647.21 11828.52
1990/09/30 11709.38 11925.57
1990/10/31 11829.33 12060.80
1990/11/30 12088.18 12313.52
1990/12/31 12296.70 12519.90
1991/01/31 12424.29 12710.20
1991/02/28 12503.84 12817.34
1991/03/31 12587.94 12904.58
1991/04/30 12724.21 13023.45
1991/05/31 12790.36 13137.95
1991/06/30 12822.34 13149.67
1991/07/31 13006.52 13372.14
1991/08/31 13255.07 13615.32
1991/09/30 13462.00 13870.50
1991/10/31 13621.12 14100.33
1991/11/30 13704.40 14202.56
1991/12/31 13970.62 14488.00
1992/01/31 13903.41 14320.61
1992/02/29 14041.75 14456.11
1992/03/31 13944.71 14363.96
1992/04/30 14075.45 14505.18
1992/05/31 14307.77 14766.63
1992/06/30 14459.36 14940.84
1992/07/31 14434.55 15071.43
1992/08/31 14527.91 15267.72
1992/09/30 14619.12 15386.59
1992/10/31 14473.75 15251.64
1992/11/30 14543.70 15299.35
1992/12/31 14732.44 15497.00
1993/01/31 14866.85 15700.65
1993/02/28 14994.18 15859.87
1993/03/31 15092.09 15956.11
1993/04/30 15197.46 16038.44
1993/05/31 15242.45 16129.77
1993/06/30 15428.40 16253.27
1993/07/31 15513.20 16318.16
1993/08/31 15542.09 16395.04
1993/09/30 15576.04 16409.21
1993/10/31 15603.75 16456.65
1993/11/30 15571.13 16424.48
1993/12/31 15721.42 16557.52
1994/01/31 15866.20 16721.65
1994/02/28 15782.54 16604.96
1994/03/31 15603.67 16172.57
1994/04/30 15535.32 16053.44
1994/05/31 15667.57 16116.96
1994/06/30 15747.76 16082.06
1994/07/31 15999.50 16404.03
1994/08/31 16071.19 16455.83
1994/09/30 15896.99 16221.65
1994/10/31 15929.27 16212.38
1994/11/30 15913.38 16161.67
1994/12/31 16026.67 16290.62
1995/01/31 16329.67 16639.31
1995/02/28 16695.25 17064.07
1995/03/31 16766.10 17144.49
1995/04/30 17030.43 17388.22
1995/05/31 17566.28 17936.48
1995/06/30 17700.29 18038.44
1995/07/31 17740.49 18069.52
1995/08/31 17959.39 18256.54
1995/09/30 18145.05 18417.12
1995/10/31 18346.89 18580.97
1995/11/30 18550.03 18793.35
1995/12/31 18754.39 19028.08
1996/01/31 18907.94 19171.48
1996/02/29 18787.46 19012.27
1996/03/31 18719.30 18943.57
1996/04/30 18680.28 18890.13
1996/05/31 18607.96 18835.06
1996/06/30 18864.75 19094.33
1996/07/31 18932.12 19164.39
1996/08/31 18927.94 19164.12
1996/09/30 19227.50 19485.01
1996/10/31 19583.27 19867.23
1996/11/30 19885.82 20151.58
1996/12/31 19773.69 20046.07
1997/01/31 19897.44 20194.93
1997/02/28 19962.31 20262.27
1997/03/31 19774.37 20071.43
1997/04/30 20084.04 20391.49
1997/05/31 20281.60 20591.06
1997/06/30 20518.72 20831.24
1997/07/31 20870.48 21223.83
1997/08/31 20846.93 21173.39
1997/09/30 21072.68 21441.93
1997/10/31 21297.49 21679.66
1997/11/30 21368.18 21750.82
1997/12/31 21555.92 21949.02
1998/01/31 21762.46 22167.39
1998/02/28 21791.58 22214.29
1998/03/31 21883.27 22308.34
1998/04/30 21992.81 22434.57
1998/05/31 22141.01 22583.70
1998/06/30 22249.87 22691.38
1998/07/31 22338.07 22806.43
1998/08/31 22529.29 23013.36
1998/09/30 22761.83 23291.17
1998/10/30 22546.51 23261.18
IMATRL PRASUN SHR__CHT 19981031 19981203 105852 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Advisor Mortgage Securities Fund - Institutional
Class on October 31, 1988. As the chart shows, by October 31, 1998,
the value of the investment would have grown to $22,547 - a 125.47%
increase on the initial investment. For comparison, look at how the
Lehman Brothers Mortgage-Backed Securities Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 would have grown to $23,261 - a 132.61% 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
YEAR ENDED MARCH 3, 1997
OCTOBER 31, (COMMENCEMENT OF
SALE OF INSTITUTIONAL
CLASS SHARES) TO
OCTOBER 31,
1998 1997
DIVIDEND RETURNS 6.13% 4.30%
CAPITAL RETURNS -0.27% 2.43%
TOTAL RETURNS 5.86% 6.73%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
class. A capital return reflects both the amount paid by the class to
shareholders as capital gain distributions and changes in the class'
share price. Both returns assume the dividends or capital gains paid
by the class are reinvested, if any.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.49(CENTS) 32.52(CENTS) 65.97(CENTS)
ANNUALIZED DIVIDEND RATE 5.87% 5.85% 5.99%
30-DAY ANNUALIZED YIELD 6.19% - -
DIVIDENDS per share show the income paid by the class for a set
period. If you annualize this number, based on an average share price
of $11.02 over the past one month, $11.03 over the past six months,
and $11.02 over the past one year, you can compare the class' 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
Uncertainty in the global equity
markets, combined with two
interest-rate cuts by the Federal
Reserve Board, provided the
backdrop for strong gains in the
bond market during the 12-month
period ended October 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad measure of the U.S.
taxable investment-grade bond
market - returned 9.34% over the
past year. Global market volatility,
low interest rates and a sharp
decline in stock prices sent U.S.
Treasury yields - which move in the
opposite direction of bond prices -
to their lowest levels in 30 years.
While the extreme flight to quality
helped Treasuries outperform all
other sectors of the bond market,
corporate bond investors benefited
from a stable domestic economy,
low interest rates and low inflation.
The Lehman Brothers Corporate
Bond Index returned 7.99% for the
past 12 months. Despite high
refinancing activity, mortgage bonds
also performed well. The Lehman
Brothers Mortgage-Backed Securities
Index posted a 12-month return of
7.30%. Late in the period, the bond
market stumbled as the Group of
Seven leading industrial nations
eased global market fears with
announcements that the International
Monetary Fund would establish a
precautionary line of credit to help
certain countries resolve their
financial crises. In spite of weakness
toward the end of the period, the
yield on the benchmark 30-year
Treasury closed at 5.15%.
An interview with Tom Silvia, Portfolio Manager of Fidelity Advisor
Mortgage Securities Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the 12 months that ended October 31, 1998, the fund's
Institutional Class shares returned 5.86%. During the same period, the
U.S. mortgage funds average, according to Lipper Analytical Services,
returned 6.62%, and the Lehman Brothers Mortgage-Backed Securities
Index returned 7.30%.
Q. HOW WOULD YOU CHARACTERIZE THE MORTGAGE MARKET OVER THE PAST 12
MONTHS?
A. During the first six months of the period, the mortgage market was
surprisingly strong. Low inflation and enormous foreign demand for
U.S. government securities in the wake of the Asian economic crisis
bid Treasury prices up, pushing the 10-year yield down to 5.35% early
in 1998. Falling interest rates usually cause mortgage prices to lag
Treasuries because of increased prepayment risk. As interest rates
fall, many borrowers refinance their home loans, returning the
principal to investors who may have to reinvest at lower rates.
Despite these conditions, investors were attracted by the relatively
high yields offered by mortgage securities. However, the mortgage
market changed direction during the second half of the period.
Emerging monetary and political problems in Russia renewed concern
about the unstable conditions in Asia. Bond-market investors became
less tolerant of risk and sold mortgage securities in favor of
higher-quality, more liquid government securities, flooding the market
with mortgage supply. Interest rates fell to historic low levels,
increasing prepayment risk, which further depressed demand for
mortgage securities. Market liquidity declined substantially and
prices stagnated. Yield spreads reached their widest point in over 10
years as investors required significantly higher rates to choose
mortgages over Treasury securities.
Q. WHAT WAS YOUR INVESTMENT STRATEGY THROUGHOUT THE PERIOD?
A. My overall objective was to limit relative prepayment risk. My
strategy is based on a disciplined process that first evaluates the
Lehman Brothers index, the fund's performance benchmark. Next, I
allocate assets among the agency sectors based on my assessment of
relative value. During the period, I overweighted Ginnie Mae-issued
mortgages, which were experiencing slower prepayment rates relative to
Fannie Mae and Freddie Mac mortgages. In addition, Ginnie Mae loans
are explicitly guaranteed by the U.S. Treasury. Once sector weights
are determined, I select specific securities. For example, as interest
rates fell, I emphasized seasoned mortgages that had weathered several
prepayment cycles, as well as brand-new mortgages issued at lower
rates that I thought would carry less refinancing risk. Finally, I
look at sectors outside of the index, such as non-agency securities,
commercial mortgages, collateralized mortgage obligations and
adjustable-rate mortgages. For much of the year, I had a significant
proportion of the fund's assets invested in commercial mortgage
securities (CMS). The loans underlying CMS usually have prepayment
restrictions built into their structure, so they can help reduce a
fund's prepayment risk when interest rates are falling.
Q. WEREN'T THERE PROBLEMS IN THE COMMERCIAL MORTGAGE SECTOR DURING THE
YEAR?
A. Yes, there were. During the final months of the period, CMS
dramatically underperformed other types of mortgage securities.
Although they have lower prepayment risk, CMS have greater credit
risk. As a result, this sector was hurt when investors shifted their
preference to very liquid, high-quality instruments such as Treasury
securities. In addition, many hedge funds and real estate investment
trusts had borrowed heavily to purchase relatively high-yielding
securities such as CMS. However, as global credit concerns caused the
CMS sector to weaken, these investors were left holding billions of
dollars of securities that could only be sold at higher yields. Forced
selling of this sector to cover loans reduced liquidity, and prices
fell further. Because the fund was overweighted in commercial
mortgages relative to its benchmark and its peers, CMS were the
largest contributor to the fund's disappointing 12-month total return.
Q. DID YOU REDUCE YOUR CMS EXPOSURE?
A. No, I didn't. I believe that the CMS sector has been oversold. I
haven't seen any fundamental reason to withdraw from this market.
Furthermore, this sector continues to offer good protection against
prepayment risk, which is my primary investment strategy.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS?
A. I am taking a cautious approach to the market. As long as interest
rates have the possibility to fall further, prepayment risk will
continue to limit mortgage securities performance. I plan to emphasize
the fund's defensive characteristics until there are conclusive
changes in the economy's direction.
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.
TOM SILVIA ON COMMERCIAL
MORTGAGE SECURITIES (CMS):
"The CMS market has been among
the fastest growing sectors of the
fixed-income market. CMS are bonds
that are collateralized by mortgage
loans on commercial real estate
such as office buildings, shopping
malls, hotels and apartment
buildings. This market sector was
created in the mid 1980s, and
today the amount of commercial
mortgage loans outstanding in the
United States is approximately $1.5
trillion.
"Commercial mortgages differ from
the mortgage securities comprising
the fund's performance benchmark,
the Lehman Brothers
Mortgage-Backed Securities
Index. The index is made up of
single-family home mortgages
issued by one of three housing
agencies - Ginnie Mae (GNMA),
Fannie Mae (FNMA) and Freddie
Mac (FHLMC). Agency mortgage
securities have minimal credit risk
and carry an implied triple-A
rating because of their relationship
with the U.S. Treasury. GNMA
securities are guaranteed by the
government, while FNMA and
FHLMC securities carry an implied
guarantee. CMS are privately
issued and are not supported by the
government. The primary advantage
of investing in commercial versus
agency single-family mortgages is
related to prepayment risk.
Commercial mortgages typically
have some form of prepayment
protection because commercial
borrowers are usually restricted
from early loan payoffs. Thus, CMS
provide an efficient way to reduce
a portfolio's prepayment risk,
particularly in periods when
interest rates are falling."
FUND FACTS
GOAL: high current income by
investing in mortgage-related
securities of all kinds
START DATE: December 31, 1984
SIZE: as of October 31,
1998, more than $510 million
MANAGER: Thomas Silvia, since
1997; joined Fidelity in 1993
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 6% 3.3 0.7
6 - 6.99% 21.3 25.1
7 - 7.99% 47.6 41.7
8 - 8.99% 17.1 11.6
9 - 9.99% 6.5 6.3
10 - 10.99% 2.4 3.0
11% AND OVER 1.6 2.1
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF OCTOBER 31, 1998
6 MONTHS AGO
YEARS 4.3 5.3
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 OCTOBER 31, 1998
6 MONTHS AGO
YEARS 2.4 2.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998 AS OF APRIL 30, 1998
ROW: 1, COL: 1, VALUE: 1.2
ROW: 1, COL: 2, VALUE: 15.9
ROW: 1, COL: 3, VALUE: 82.90000000000001
MORTGAGE
SECURITIES 83.9%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 15.9%
SHORT-TERM
INVESTMENT 0.2%
ROW: 1, COL: 1, VALUE: 9.5
ROW: 1, COL: 2, VALUE: 18.0
ROW: 1, COL: 3, VALUE: 72.5
MORTGAGE
SECURITIES 72.5%
CMOS AND
OTHER MORTGAGE
RELATED SECURITIES 18.0%
SHORT-TERM
INVESTMENTS 9.5%
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - 83.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT
FANNIE MAE - 29.2%
6% 4/1/28 to 10/1/28 $ 6,456,563 $ 6,379,859
6.5% 9/1/10 to 11/1/28 32,901,098 33,180,484
6.5% 12/1/28 (b) 10,000,000 10,078,125
7% 12/1/20 to 11/1/27 105,567 108,126
7% 11/1/28 (b) 40,000,000 40,874,988
7.5% 11/1/17 to 10/1/28 (e) 37,904,484 38,869,484
8% 1/1/07 to 7/1/08 79,684 81,459
8.25% 1/1/13 101,214 105,371
8.5% 11/1/03 to 12/1/26 15,979,410 16,655,234
8.75% 11/1/08 to 7/1/09 185,529 192,778
9% 1/1/08 to 2/1/13 707,837 739,117
9.5% 5/1/03 to 8/1/22 8,347,131 8,770,474
11% 12/1/02 to 8/1/10 1,853,083 2,009,943
12.25% 5/1/13 to 6/1/15 405,209 462,779
12.5% 11/1/14 to 3/1/16 530,317 607,553
12.75% 6/1/13 to 7/1/15 225,290 260,778
13.5% 9/1/13 to 12/1/14 156,598 184,588
14% 11/1/14 42,465 50,626
159,611,766
FREDDIE MAC - 33.9%
5% 7/1/10 3,343,444 3,255,679
6.5% 1/1/24 to 9/1/24 26,287,242 26,512,424
7% 5/1/99 to 1/1/13 50,081,429 51,123,709
7% 12/1/28 (b) 35,500,000 36,221,094
7.5% 10/1/25 to 3/1/28 (e) 4,399,397 4,506,611
8% 10/1/07 to 4/1/21 981,289 1,023,779
8.5% 11/1/03 to 8/1/27 42,473,979 44,232,138
9% 9/1/08 to 5/1/21 11,079,984 11,746,050
10% 1/1/09 to 5/1/19 1,673,726 1,807,321
10.5% 8/1/10 to 12/1/20 (c) 1,868,975 2,068,962
11.5% 4/1/12 80,893 89,938
11.75% 6/1/11 67,156 76,245
12.25% 6/1/14 to 7/1/15 171,771 199,093
12.5% 5/1/12 to 12/1/14 896,074 1,032,860
12.75% 6/1/05 to 3/1/15 157,902 178,189
13% 1/1/11 to 6/1/15 1,487,735 1,751,909
185,826,001
U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 20.8%
7% 5/15/23 to 10/15/28 $ 7,859,836 $ 8,041,273
7.5% 7/15/05 to 8/15/28 47,358,203 48,788,911
8% 4/15/02 to 12/15/27 27,565,960 28,582,299
8.5% 7/15/16 to 6/15/18 2,731,346 2,913,379
9% 10/1/04 to 4/20/18 8,424,257 8,985,406
9.5% 6/15/09 to 12/15/24 4,506,291 4,837,048
10% 12/15/17 to 1/15/26 7,770,640 8,380,064
10.5% 8/15/00 to 2/20/18 969,135 1,042,322
11% 1/15/10 to 9/15/19 2,096,015 2,319,280
11.5% 10/15/10 30,471 33,698
13% 10/15/13 88,788 102,356
13.5% 7/15/11 to 10/15/14 71,542 82,994
114,109,030
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES 459,546,797
(Cost $456,530,867)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
U.S. GOVERNMENT AGENCY - 0.0%
Freddie Mac sequential pay Series 1353 Class A, 5.5% 17,705 17,666
11/15/04 (Cost $16,496)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 15.9%
Bankers Trust Remic Trust 1988-1 floater Series 3,890,000 3,798,828
1998-S1A Class D, 6.5023% 11/28/02 (a)(d)
CBM Funding Corp. sequential pay Series 1996-1 2,300,000 2,392,719
Class A-3PI, 7.08% 11/1/07
CS First Boston Mortgage Securities Corp. 1,850,000 1,732,063
Series 1997-C2 Class D, 7.27% 1/17/35
Deutsche Mortgage & Asset Receiving Corp. 10,200,000 9,588,000
Series 1998-C1 Class D, 7.231% 7/15/12
Federal Deposit Insurance Corp. Remic Trust sequential 6,215,768 6,233,250
pay Series 1996-C1 Class 1A, 6.75% 7/25/26
GS Mortgage Securities Corp. II Series 1998-GLII 1,600,000 1,387,872
Class E, 7.1905% 4/13/31 (a)(d)
Nomura Asset Securities Corp. Series 1998-D6 15,000,000 13,981,055
Class A-4, 7.5956% 3/17/28 (d)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT
Nomura Depositor Trust floater Series 1998-ST1A:
Class A-4, 6.4898% 2/15/34 (a)(d) $ 7,900,000 $ 7,426,000
Class A-5, 6.8398% 2/15/34 (a)(d) 5,278,196 4,895,527
Structured Asset Securities Corp.:
floater Series 1997-C1 Class C, 5.6694% 14,972,194 14,925,406
6/25/15 (a)(d)
Series 1992-M1 Class C, 7.05% 11/25/02 3,192,522 2,946,099
Thirteen Affiliates of General Growth Properties, Inc. 18,200,000 17,499,300
Series 1 Class D-1, 6.917% 12/15/07 (a)
TOTAL COMMERCIAL MORTGAGE SECURITIES 86,806,119
(Cost $89,728,924)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 0.2%
MATURITY
AMOUNT
Investments in repurchase agreements (U.S. Treasury $ 1,064,500 1,064,000
obligations), in a joint trading account at 5.64%, dated
10/30/98 due 11/2/98
(Cost $1,064,000)
TOTAL INVESTMENT IN SECURITIES - 100% $ 547,434,582
(Cost $547,340,287)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION UNDERLYING UNREALIZED
DATE FACE AMOUNT GAIN/(LOSS)
AT VALUE
SOLD
90 U.S. 5 Yr Treasury Note Contracts Dec. 1998 $ 10,317,657 $ (115,853)
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 1.9%
</TABLE>
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $49,932,933 or 9.8% of net assets.
(b) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(c) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $122,103.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) A portion of the security was sold on a delayed delivery or
when-issued basis (see Note 2 of Notes to Financial Statements).
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $547,406,748. Net unrealized appreciation
aggregated $27,834, of which $4,839,095 related to appreciated
investment securities and $4,811,261 related to depreciated investment
securities.
The fund hereby designates approximately $752,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 547,434,582
AGREEMENTS OF $1,064,000) (COST $547,340,287) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON A DELAYED DELIVERY BASIS $ (60,499,844)
RECEIVABLE FOR SECURITIES SOLD ON A DELAYED DELIVERY BASIS 60,683,156 183,312
RECEIVABLE FOR INVESTMENTS SOLD, REGULAR DELIVERY 101,280,009
CASH 936,653
RECEIVABLE FOR FUND SHARES SOLD 944,568
INTEREST RECEIVABLE 2,958,171
RECEIVABLE FOR DAILY VARIATION ON FUTURES CONTRACTS 61,875
TOTAL ASSETS 653,799,170
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED 991,921
REGULAR DELIVERY
DELAYED DELIVERY 140,657,751
PAYABLE FOR FUND SHARES REDEEMED 1,267,570
DISTRIBUTIONS PAYABLE 450,094
ACCRUED MANAGEMENT FEE 184,768
DISTRIBUTION FEES PAYABLE 9,617
OTHER PAYABLES AND ACCRUED EXPENSES 179,760
TOTAL LIABILITIES 143,741,481
NET ASSETS $ 510,057,689
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 499,911,833
UNDISTRIBUTED NET INVESTMENT INCOME 1,699,376
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 8,284,726
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 161,754
NET ASSETS $ 510,057,689
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES - CONTINUED
OCTOBER 31, 1998
CALCULATION OF MAXIMUM OFFERING PRICE $10.96
CLASS A:
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($1,864,970 (DIVIDED BY) 170,190 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/95.25 OF $10.96) $11.51
CLASS T: $10.96
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
($19,103,366 (DIVIDED BY) 1,742,507 SHARES)
MAXIMUM OFFERING PRICE PER SHARE (100/96.50 OF $10.96) $11.36
CLASS B: $10.95
NET ASSET VALUE AND OFFERING PRICE PER SHARE
($7,839,643 (DIVIDED BY) 715,697 SHARES) A
INITIAL CLASS: $10.97
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($459,211,792 (DIVIDED BY) 41,871,652 SHARES)
INSTITUTIONAL CLASS: $10.95
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE ($22,037,918 (DIVIDED BY) 2,012,831 SHARES)
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 36,042,335
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,226,557
TRANSFER AGENT FEES 1,011,170
DISTRIBUTION FEES 73,203
ACCOUNTING FEES AND EXPENSES 205,166
NON-INTERESTED TRUSTEES' COMPENSATION 2,383
CUSTODIAN FEES AND EXPENSES 87,723
REGISTRATION FEES 102,179
AUDIT 53,821
LEGAL 15,166
REPORTS TO SHAREHOLDERS 54,367
MISCELLANEOUS 1,982
TOTAL EXPENSES BEFORE REDUCTIONS 3,833,717
EXPENSE REDUCTIONS (124,644) 3,709,073
NET INVESTMENT INCOME 32,333,262
REALIZED AND UNREALIZED GAIN (LOSS) 8,605,529
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES (11,708,820)
FUTURES CONTRACTS (115,853)
DELAYED DELIVERY COMMITMENTS 183,312 (11,641,361)
NET GAIN (LOSS) (3,035,832)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 29,297,430
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED THREE MONTHS ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, JULY 31,
1998 1997 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 32,333,262 $ 8,459,090 $ 32,193,238
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 8,605,529 1,110,586 4,296,274
CHANGE IN NET UNREALIZED APPRECIATION (11,641,361) 1,347,376 14,164,021
(DEPRECIATION)
NET INCREASE (DECREASE) IN NET ASSETS 29,297,430 10,917,052 50,653,533
RESULTING FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (30,575,427) (8,349,402) (32,649,725)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (1,430,037) (3,850,848) (5,039,533)
TOTAL DISTRIBUTIONS (32,005,464) (12,200,250) (37,689,258)
SHARE TRANSACTIONS - (19,139,888) (703,316) 32,765,543
NET INCREASE (DECREASE)
TOTAL INCREASE (DECREASE) (21,847,922) (1,986,514) 45,729,818
IN NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 531,905,611 533,892,125 488,162,307
END OF PERIOD (INCLUDING UNDISTRIBUTED $ 510,057,689 $ 531,905,611 $ 533,892,125
NET INVESTMENT INCOME OF
$1,699,376, $290,731 AND
$230,506, RESPECTIVELY)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS A
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .669 .170 .268
NET REALIZED AND UNREALIZED GAIN (LOSS) (.061) .048 .224
TOTAL FROM INVESTMENT OPERATIONS .608 .218 .492
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.638) (.168) (.272)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.668) (.248) (.272)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.65% 2.00% 4.61%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 1,865 $ 1,648 $ 1,586
RATIO OF EXPENSES TO AVERAGE NET ASSETS .90% F .90% A, F .90% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.01% 6.18% A 6.09% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS A
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS T
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.050 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .665 .167 .255
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .048 .233
TOTAL FROM INVESTMENT OPERATIONS .602 .215 .488
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.632) (.165) (.268)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.662) (.245) (.268)
NET ASSET VALUE, END OF PERIOD $ 10.960 $ 11.020 $ 11.050
TOTAL RETURN B, C 5.60% 1.98% 4.57%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 19,103 $ 14,649 $ 12,193
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.00% F 1.00% A, F 1.00% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.05% 6.10% A 5.99% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS T
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS B
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .584 .142 .234
NET REALIZED AND UNREALIZED GAIN (LOSS) (.064) .065 .214
TOTAL FROM INVESTMENT OPERATIONS .520 .207 .448
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.560) (.147) (.238)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.590) (.227) (.238)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.020 $ 11.040
TOTAL RETURN B, C 4.82% 1.90% 4.20%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 7,840 $ 1,587 $ 823
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.65% F 1.65% A, F 1.65% A, F
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.37% 5.32% A 5.34% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS DO NOT INCLUDE THE CONTINGENT DEFERRED SALES CHARGE
AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF CLASS B
SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INITIAL CLASS
YEAR ENDED THREE MONTHS YEARS ENDED JULY 31,
OCTOBER 31, ENDED
OCTOBER 31,
1998 1997 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580 $ 10.910
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .700 D .176 D .678 D .729 .772 .570
NET REALIZED AND (.056) .047 .391 (.015) .325 (.242)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .644 .223 1.069 .714 1.097 .328
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.664) (.173) (.689) (.724) (.737) (.588)
INCOME
FROM NET REALIZED GAIN (.030) (.080) (.110) (.100) - (.040)
IN EXCESS OF NET - - - - (.050) (.030)
REALIZED GAIN
TOTAL DISTRIBUTIONS (.694) (.253) (.799) (.824) (.787) (.658)
NET ASSET VALUE, $ 10.970 $ 11.020 $ 11.050 $ 10.780 $ 10.890 $ 10.580
END OF PERIOD
TOTAL RETURN B, C 5.99% 2.05% 10.34% 6.72% 10.88% 3.13%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 459,212 $ 494,304 $ 506,113 $ 488,162 $ 416,241 $ 365,801
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .71% .72% A .73% .74% .77% .79%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .71% .72% A .73% .73% E .77% .79%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 6.34% 6.36% A 6.26% 6.75% 7.37% 6.73%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 262% 125% A 149% 221% 329% 563%
</TABLE>
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31,
OCTOBER 31,
1998 1997 1997 E
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.010 $ 11.040 $ 10.830
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME D .693 .172 .263
NET REALIZED AND UNREALIZED GAIN (LOSS) (.063) .050 .226
TOTAL FROM INVESTMENT OPERATIONS .630 .222 .489
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.660) (.172) (.279)
FROM NET REALIZED GAIN (.030) (.080) -
TOTAL DISTRIBUTIONS (.690) (.252) (.279)
NET ASSET VALUE, END OF PERIOD $ 10.950 $ 11.010 $ 11.040
TOTAL RETURN B, C 5.86% 2.05% 4.59%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 22,038 $ 19,718 $ 13,177
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% F .75% A, F .75% A, F
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER .75% .75% A .70% A, G
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 6.30% 6.35% A 6.29% A
PORTFOLIO TURNOVER RATE 262% 125% A 149%
</TABLE>
A ANNUALIZED
B 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).
C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF INSTITUTIONAL
CLASS SHARES) TO JULY 31, 1997.
F FMR AGREED TO REIMBURSE A PORTION OF THE CLASS' EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE CLASS' EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE CLASS' EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Mortgage Securities Fund (the fund) is a fund of
Fidelity Income Fund (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust.
The fund offers Class A, Class T, Class B, Initial Class, and
Institutional Class shares, each of which has equal rights as to
assets and voting privileges. Each class has exclusive voting rights
with respect to matters that affect that class. Class B shares will
automatically convert to Class A shares after a holding period of
seven years from the initial date of purchase. Interest income,
realized and unrealized capital gains and losses, the common expenses
of the fund, and certain fund-level expense reductions, if any, are
allocated on a pro rata basis to each class based on the relative net
assets of each class to the total net assets of the fund. Each class
of shares differs in its respective distribution, transfer agent, and
certain other class-specific fees, expenses, and expense reductions.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require 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 quotations are
not readily available are valued primarily using dealer-supplied
valuations or 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
among 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
the ex-dividend date. Income dividends and capital gain distributions
are declared separately for each class.
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, futures
transactions and losses deferred due to wash sales. The fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the 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
2. OPERATING POLICIES - CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,299,705,940 and $1,306,435,411,
respectively.
The market value of futures contracts opened and closed during the
period amounted to $10,201,804 and $0, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
The rates ranged from .1100% to .3700% for the period. The annual
individual fund fee rate is .30%. In the event that these rates were
lower than the contractual rates in effect during the period, FMR
voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. For the period, the management fee was
equivalent to an annual rate of .44% of average net assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the
1940 Act, the Trustees have adopted separate distribution plans with
respect to each class of shares (collectively referred to as "the
Plans"). Under certain of the Plans, the class pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution
and service fee. A portion of this fee may be reallowed to securities
dealers, banks and other financial institutions for the distribution
of each class of shares and providing shareholder support services.
For the period, this fee was based on the following annual rates of
the average net assets of each applicable class:
CLASS A .15%
CLASS T .25%
CLASS B .90%*
* .65% REPRESENTS A DISTRIBUTION FEE AND .25% REPRESENTS A SHAREHOLDER
SERVICE FEE.
For the period, each class paid FDC the following amounts, a portion
of which was retained by FDC:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 1,249 $ 189
CLASS T 36,423 13,984
CLASS B 35,531 25,811
$ 73,203 $ 39,984
Under the Plans, FMR may use its resources to pay administrative and
promotional expenses related to the sale of each class' shares. The
Plans also authorize payments to third parties that assist in the sale
of each class' shares or render shareholder support services. For the
period, the following amounts were paid to third parties under the
Plans:
CLASS A $ 107
CLASS T 6,184
CLASS B 415
INSTITUTIONAL CLASS 2,793
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares, and 3.50% for selling Class T shares of the
fund. FDC receives the proceeds of contingent deferred sales charges
levied on Class B share redemptions occurring within six years of
purchase. The Class B charge is based on declining rates ranging from
5% to 1% of the lesser of the cost of shares at the initial date of
purchase or the net asset value of the redeemed shares, excluding any
reinvested dividends and capital gains. In addition, purchases of
Class A and Class T shares that were subject to a finder's fee bear a
contingent deferred sales charge on assets that do not remain in the
fund for at least one year. The Class A and Class T contingent
deferred sales charge is based on 0.25% of the lesser of the cost of
shares at the initial date of purchase or the net asset value of the
redeemed shares, excluding any reinvested dividends and capital gains.
A portion of the sales charges paid to FDC are paid to securities
dealers, banks and other financial institutions.
For the period, sales charge amounts paid to and retained by FDC were
as follows:
PAID TO RETAINED
FDC BY FDC
CLASS A $ 15,729 $ 5,230
CLASS T 32,042 9,363
CLASS B 7,660 7,660 *
$ 55,431 $ 22,253
* WHEN CLASS B SHARES ARE INITIALLY SOLD, FDC PAYS COMMISSIONS FROM
ITS OWN RESOURCES TO SECURITIES DEALERS,
BANKS, AND OTHER FINANCIAL INSTITUTIONS THROUGH WHICH THE SALES ARE
MADE.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations
Company, Inc., (FIIOC), an affiliate of FMR, is the transfer, dividend
disbursing and shareholder servicing agent (collectively referred to
as the transfer agent) for the fund's Class A, Class T, Class B, and
Institutional Class. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the transfer agent for the Initial Class. FIIOC
and FSC pay for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the following
amounts were paid to FIIOC or FSC:
AMOUNT % OF
AVERAGE
NET ASSETS
CLASS A $ 4,707 .56
CLASS T 63,902 .44
CLASS B 11,324 .29
INITIAL CLASS 879,955 .19
INSTITUTIONAL CLASS 51,282 .24
$ 1,011,170
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above the following annual rates or range of annual rates of average
net assets for each of the following classes:
FMR REIMBURSEMENT
EXPENSE
LIMITATIONS
CLASS A .90% $ 22,721
CLASS T 1.00% 49,933
CLASS B 1.65% 22,078
INSTITUTIONAL CLASS .75% 23,746
$ 118,478
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of expenses. During the period,
the fund's custodian fees were reduced by $6,166 under the custodian
arrangement.
6. DISTRIBUTIONS TO SHAREHOLDERS.
Distributions to shareholders of each class were as follows:
YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER, 31 ENDED JULY 31,
1998 OCTOBER, 31 1997A
1997
FROM NET INVESTMENT INCOME
CLASS A $ 47,643 $ 24,437 $ 21,750
CLASS T 835,552 197,984 64,445
CLASS B 198,305 15,690 8,241
INITIAL CLASS 28,222,031 7,870,955 32,474,399
INSTITUTIONAL CLASS 1,271,896 240,336 80,890
TOTAL $ 30,575,427 $ 8,349,402 $ 32,649,725
FROM NET REALIZED GAIN
CLASS A $ 4,543 $ 11,558 $ -
CLASS T 41,653 92,775 -
CLASS B 4,898 7,487 -
INITIAL CLASS 1,324,784 3,640,130 5,039,533
INSTITUTIONAL CLASS 54,159 98,898 -
TOTAL $ 1,430,037 $ 3,850,848 $ 5,039,533
TOTAL $ 32,005,464 $ 12,200,250 $ 37,689,258
A DISTRIBUTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE FOR THE
PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY 31,
1997.
7. SHARE TRANSACTIONS.
Share transactions for each class of shares were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SHARES DOLLARS
YEAR ENDED THREE MONTHS YEAR ENDED YEAR ENDED THREE MONTHS YEAR ENDED
OCTOBER 31, ENDED JULY 31, OCTOBER 31, ENDED JULY 31,
1998 OCTOBER 31, 1997A 1998 OCTOBER 31, 1997A
1997 1997
CLASS A 191,569 3,210 141,575 $ 2,113,314 $ 35,261 $ 1,531,983
SHARES SOLD
REINVESTMENT OF 3,475 3,274 1,989 38,300 35,846 21,750
DISTRIBUTIONS
SHARES (174,371) (531) - (1,919,263) (5,834) -
REDEEMED
NET INCREASE 20,673 5,953 143,564 $ 232,351 $ 65,273 $ 1,553,733
(DECREASE)
CLASS T 1,214,468 312,588 1,114,285 $ 13,402,368 $ 3,429,256 $ 12,183,453
SHARES SOLD
REINVESTMENT OF 72,903 25,415 5,597 803,861 278,358 61,712
DISTRIBUTIONS
SHARES (874,013) (112,534) (16,202) (9,643,136) (1,233,884) (177,848)
REDEEMED
NET INCREASE 413,358 225,469 1,103,680 $ 4,563,093 $ 2,473,730 $ 12,067,317
(DECREASE)
CLASS B 623,528 68,692 73,891 $ 6,874,797 $ 753,079 $ 801,025
SHARES SOLD
REINVESTMENT OF 14,736 1,666 687 162,453 18,237 7,506
DISTRIBUTIONS
SHARES (66,613) (890) - (734,102) (9,750) -
REDEEMED
NET INCREASE 571,651 69,468 74,578 $ 6,303,148 $ 761,566 $ 808,531
(DECREASE)
INITIAL CLASS 5,885,198 1,426,619 14,636,021 $ 64,970,201 $ 15,655,743 $ 158,564,289
SHARES SOLD
REINVESTMENT OF 2,196,325 854,187 2,769,613 24,230,109 9,354,223 29,925,102
DISTRIBUTIONS
SHARES (11,046,014) (3,241,358) (16,911,618) (121,871,170) (35,550,337) (183,183,589)
REDEEMED
NET INCREASE (2,964,491) (960,552) (494,016) $ (32,670,860) $ (10,540,371) $ (5,305,802)
(DECREASE)
INSTITUTIONAL 1,131,767 671,412 1,216,421 $ 12,463,547 $ 7,350,245 $ 13,282,379
CLASS
SHARES SOLD
REINVESTMENT OF 61,639 11,919 3,516 679,028 130,486 38,560
DISTRIBUTIONS
SHARES (971,330) (86,048) (26,465) (10,710,195) (944,245) (290,779)
REDEEMED
NET INCREASE 222,076 597,283 1,193,472 $ 2,432,380 $ 6,536,486 $ 13,030,160
(DECREASE)
</TABLE>
A SHARE TRANSACTIONS FOR CLASS A, T, B, AND INSTITUTIONAL CLASS ARE
FOR THE PERIOD MARCH 3, 1997 (COMMENCEMENT OF SALE OF SHARES) TO JULY
31, 1997.
8. REGISTRATION FEES.
For the period, each class paid the following amounts to register its
shares for sale:
REGISTRATION
FEES
CLASS A $ 20,111
CLASS T 20,363
CLASS B 20,208
INITIAL CLASS 19,734
INSTITUTIONAL CLASS 21,763
$ 102,179
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Advisor Mortgage Securities 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 Advisor Mortgage Securities Fund (a fund of Fidelity Income
Fund) at October 31, 1998, the results of its operations, 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 Advisor Mortgage Securities 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 October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Advisor Mortgage Securities Fund
voted to pay to shareholders of record at the opening of business on
record date, the following distributions derived from capital gains
realized from sales of portfolio securities, and dividends derived
from net investment income:
INSTITUTIONAL CLASS
PAY DATE 12/14/98
RECORD DATE 12/11/98
SHORT-TERM
CAPITAL GAINS $.05
LONG-TERM
CAPITAL GAINS $.10
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate -
20% rate 100%
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on July 15,
1998. The results of votes taken among shareholders on proposals
before them are reported below. Each vote reported represents one
dollar of net asset value held on the record date for the meeting.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
VOTES CAST VOTES CAST
RALPH F. COX
AFFIRMATIVE 1,651,958,203.91 97.164
WITHHELD 48,220,916.99 2.836
TOTAL 1,700,179,120.90 100.000
PHYLLIS BURKE DAVIS
AFFIRMATIVE 1,652,223,467.94 97.179
WITHHELD 47,955,652.96 2.821
TOTAL 1,700,179,120.90 100.000
ROBERT M. GATES
AFFIRMATIVE 1,651,224,161.42 97.121
WITHHELD 48,954,959.48 2.879
TOTAL 1,700,179,120.90 100.000
EDWARD C. JOHNSON 3D
AFFIRMATIVE 1,652,007,241.03 97.167
WITHHELD 48,171,879.87 2.833
TOTAL 1,700,179,120.90 100.000
E. BRADLEY JONES
AFFIRMATIVE 1,649,145,998.05 96.998
WITHHELD 51,033,122.85 3.002
TOTAL 1,700,179,120.90 100.000
DONALD J. KIRK
AFFIRMATIVE 1,653,199,972.08 97.237
WITHHELD 46,979,148.82 2.763
TOTAL 1,700,179,120.90 100.000
# OF % OF
VOTES CAST VOTES CAST
PETER S. LYNCH
AFFIRMATIVE 1,653,387,884.55 97.248
WITHHELD 46,791,236.35 2.752
TOTAL 1,700,179,120.90 100.000
WILLIAM O. MCCOY
AFFIRMATIVE 1,653,375,663.18 97.247
WITHHELD 46,803,457.72 2.753
TOTAL 1,700,179,120.90 100.000
GERALD C. MCDONOUGH
AFFIRMATIVE 1,649,195,994.06 97.001
WITHHELD 50,983,126.84 2.999
TOTAL 1,700,179,120.90 100.000
MARVIN L. MANN
AFFIRMATIVE 1,652,881,436.93 97.218
WITHHELD 47,297,683.97 2.782
TOTAL 1,700,179,120.90 100.000
ROBERT C. POZEN
AFFIRMATIVE 1,652,699,192.82 97.207
WITHHELD 47,479,928.08 2.793
TOTAL 1,700,179,120.90 100.000
THOMAS R. WILLIAMS
AFFIRMATIVE 1,651,939,558.10 97.163
WITHHELD 48,239,562.80 2.837
TOTAL 1,700,179,120.90 100.000
PROPOSAL 2
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 258,409,014.99 95.832
AGAINST 3,123,322.75 1.159
ABSTAIN 8,114,398.12 3.009
TOTAL 269,646,735.86 100.000
PROPOSAL 3
To authorize the Trustees to adopt an Amended and Restated Declaration
of Trust.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 1,513,079,756.37 89.970
AGAINST 62,655,788.85 3.725
ABSTAIN 106,028,282.98 6.305
TOTAL 1,681,763,828.20 100.000
BROKER 18,415,292.70
NON-VOTES
PROPOSAL 4
To approve an Agreement and Plan providing for the reorganization of
the fund from a separate series of one Massachusetts business trust to
another.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 236,671,377.62 91.446
AGAINST 8,084,689.97 3.123
ABSTAIN 14,055,021.19 5.431
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
PROPOSAL 5
To approve an amended management contract for the fund.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 247,542,193.38 91.802
AGAINST 8,411,341.87 3.120
ABSTAIN 13,693,200.61 5.078
TOTAL 269,646,735.86 100.000
PROPOSAL 6
To amend the fund's fundamental investment limitation concerning
diversification.
# OF % OF
VOTES CAST VOTES CAST
AFFIRMATIVE 231,752,982.35 89.545
AGAINST 13,071,689.21 5.051
ABSTAIN 13,986,417.22 5.404
TOTAL 258,811,088.78 100.000
BROKER 10,835,647.08
NON-VOTES
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
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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 Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FOCUS FUNDS
Fidelity Advisor Consumer
Industries Fund
Fidelity Advisor Cyclical
Industries Fund
Fidelity Advisor Financial
Services Fund
Fidelity Advisor Health Care Fund
Fidelity Advisor Natural
Resources Fund
Fidelity Advisor Technology Fund
Fidelity Advisor Utilities Growth Fund
GROWTH FUNDS
Fidelity Advisor International Capital Appreciation Fund
Fidelity Advisor Overseas Fund
Fidelity Advisor TechnoQuantSM
Growth Fund
Fidelity Advisor Small Cap Fund
Fidelity Advisor Mid Cap Fund
Fidelity Advisor Equity Growth Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
Fidelity Advisor Large Cap Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Growth & Income Fund
Fidelity Advisor Equity Income Fund
Fidelity Advisor Balanced Fund
AMORI-ANN-1298 67056
1.538544.101
TAXABLE INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Mortgage
Securities Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Intermediate Bond Fund
Fidelity Advisor Short Fixed-Income Fund
MUNICIPAL FUNDS
Fidelity Advisor Municipal Income Fund
Fidelity Advisor Intermediate Municipal Income Fund
MONEY MARKET FUNDS
Prime Fund
Treasury Fund
Tax-Exempt Fund
(FIDELITY_LOGO_GRAPHIC)(registered trademark)
