(2_FIDELITY_LOGOS)FIDELITY
GOVERNMENT SECURITIES
FUND
SEMIANNUAL REPORT
MARCH 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 16 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 20 NOTES TO THE FINANCIAL STATEMENTS.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 4.56% 11.57% 34.57% 125.57%
LB GOVERNMENT BOND 4.88% 12.15% 38.41% 130.15%
SB TREAS/AGENCY 4.95% 12.19% 38.64% 130.57%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 4.34% 11.46% 32.37% 110.27%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one, five or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Lehman Brothers Government Bond Index and the Salomon Brothers
Treasury/Agency Index, both of which are indexes of U.S. government
and government agency securities (other than mortgage securities) with
maturities of one year or more. To measure how the fund's performance
stacked up against its peers, you can compare it to the general U.S.
government funds average, which reflects the performance of mutual
funds with similar objectives tracked by Lipper Analytical Services,
Inc. The past six months average represents a peer group of 197 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 11.57% 6.12% 8.47%
LB GOVERNMENT BOND 12.15% 6.72% 8.69%
SB TREAS/AGENCY 12.19% 6.75% 8.71%
GENERAL U.S. GOVERNMENT FUNDS AVERAGE 11.46% 5.75% 7.68%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Government Securities LB Government Bond
00054 LB003
1988/03/31 10000.00 10000.00
1988/04/30 9971.09 9946.54
1988/05/31 9911.87 9875.68
1988/06/30 10061.20 10093.88
1988/07/31 10042.34 10025.32
1988/08/31 10053.45 10045.28
1988/09/30 10223.70 10264.76
1988/10/31 10371.58 10445.62
1988/11/30 10277.63 10322.06
1988/12/31 10294.33 10361.46
1989/01/31 10421.12 10493.20
1989/02/28 10364.94 10407.76
1989/03/31 10415.33 10471.45
1989/04/30 10614.64 10696.05
1989/05/31 10806.16 10948.28
1989/06/30 11111.23 11313.57
1989/07/31 11312.64 11552.49
1989/08/31 11156.20 11358.08
1989/09/30 11200.08 11406.94
1989/10/31 11429.74 11702.14
1989/11/30 11534.27 11815.46
1989/12/31 11593.30 11835.41
1990/01/31 11443.29 11667.86
1990/02/28 11487.74 11691.14
1990/03/31 11501.74 11688.58
1990/04/30 11461.22 11585.49
1990/05/31 11698.78 11908.57
1990/06/30 11861.37 12097.10
1990/07/31 12012.88 12251.87
1990/08/31 11950.37 12081.24
1990/09/30 12039.79 12197.12
1990/10/31 12219.52 12396.40
1990/11/30 12489.92 12671.13
1990/12/31 12698.52 12867.08
1991/01/31 12790.58 13005.22
1991/02/28 12891.28 13079.66
1991/03/31 12945.22 13146.17
1991/04/30 13065.26 13290.44
1991/05/31 13131.92 13342.12
1991/06/30 13101.27 13323.19
1991/07/31 13263.49 13481.27
1991/08/31 13604.39 13793.87
1991/09/30 13915.19 14083.19
1991/10/31 14034.53 14206.49
1991/11/30 14165.21 14348.97
1991/12/31 14725.29 14837.82
1992/01/31 14473.26 14606.82
1992/02/29 14502.58 14663.87
1992/03/31 14407.70 14578.17
1992/04/30 14497.32 14670.01
1992/05/31 14795.57 14940.65
1992/06/30 15048.13 15154.76
1992/07/31 15510.90 15536.68
1992/08/31 15644.59 15681.47
1992/09/30 15851.85 15903.25
1992/10/31 15594.34 15673.80
1992/11/30 15605.38 15646.68
1992/12/31 15899.02 15910.16
1993/01/31 16275.70 16248.08
1993/02/28 16674.66 16573.47
1993/03/31 16763.16 16628.98
1993/04/30 16928.82 16756.88
1993/05/31 16861.32 16738.46
1993/06/30 17276.51 17109.89
1993/07/31 17387.00 17214.26
1993/08/31 17871.31 17598.49
1993/09/30 17941.79 17665.76
1993/10/31 18034.92 17732.53
1993/11/30 17779.08 17538.12
1993/12/31 17858.03 17605.90
1994/01/31 18145.56 17846.87
1994/02/28 17607.15 17469.05
1994/03/31 17138.01 17076.13
1994/04/30 16974.75 16941.83
1994/05/31 16960.23 16920.09
1994/06/30 16870.43 16881.20
1994/07/31 17247.07 17191.50
1994/08/31 17236.81 17194.82
1994/09/30 16899.26 16952.57
1994/10/31 16833.52 16939.78
1994/11/30 16818.60 16908.83
1994/12/31 16928.42 17011.66
1995/01/31 17246.23 17328.35
1995/02/28 17648.57 17701.32
1995/03/31 17746.54 17812.34
1995/04/30 17967.95 18045.12
1995/05/31 18684.52 18772.89
1995/06/30 18815.39 18916.91
1995/07/31 18742.01 18847.33
1995/08/31 18957.80 19068.86
1995/09/30 19132.45 19252.53
1995/10/31 19428.68 19545.69
1995/11/30 19724.43 19850.35
1995/12/31 19986.98 20131.74
1996/01/31 20093.95 20255.30
1996/02/29 19663.64 19842.68
1996/03/31 19498.79 19676.92
1996/04/30 19346.24 19551.31
1996/05/31 19314.56 19518.57
1996/06/30 19541.60 19770.54
1996/07/31 19592.28 19819.40
1996/08/31 19534.60 19775.15
1996/09/30 19864.06 20103.35
1996/10/31 20282.05 20545.64
1996/11/30 20613.92 20903.00
1996/12/31 20403.71 20689.66
1997/01/31 20425.79 20712.68
1997/02/28 20439.49 20741.07
1997/03/31 20218.71 20521.59
1997/04/30 20502.91 20817.81
1997/05/31 20663.24 20997.39
1997/06/30 20883.73 21232.99
1997/07/31 21477.42 21835.67
1997/08/31 21243.27 21619.77
1997/09/30 21574.23 21944.90
1997/10/31 21904.16 22324.52
1997/11/30 22010.16 22438.86
1997/12/31 22226.24 22673.44
1998/01/31 22556.12 23012.64
1998/02/28 22494.28 22950.22
1998/03/31 22557.42 23015.19
IMATRL PRASUN SHR__CHT 19980331 19980408 122511 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Government Securities Fund on March 31, 1988. As
the chart shows, by March 31, 1998, the value of the investment would
have grown to $22,557 - a 125.57% increase on the initial investment.
For comparison, look at how the Lehman Brothers Government Bond Index
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $23,015 -
a 130.15% increase. Beginning with this report, the fund will compare
its performance to that of the Lehman Brothers Government Bond Index
rather than the Salomon Brothers Treasury/Agency Index. The indexes
include the same type of bonds, and their performance is not
materially different. The fund is changing to the Lehman Brothers
index mainly because Lehman Brothers indexes are used by most other
Fidelity bond funds. For comparison, both indexes are shown on page 4.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31,
1998 1997 1996 1995 1994 1993
DIVIDEND
RETURN 2.92% 7.15% 6.55% 6.98% 5.76% 7.06%
CAPITAL
RETURN 1.64% 1.46% -2.73% 6.23% -11.57% 6.12%
TOTAL
RETURN 4.56% 8.61% 3.82% 13.21% -5.81% 13.18%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund, if any, are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.79(CENTS) 28.13(CENTS) 59.69(CENTS)
ANNUALIZED DIVIDEND RATE 5.68% 5.70% 6.12%
30-DAY ANNUALIZED YIELD 5.45% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $9.93
over the past one month, $9.90 over the past six months and $9.76 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A continued lack of inflationary
pressure resulted in a relatively
favorable investing climate for
bonds during the six months that
ended March 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable investment-grade bond
market - returned 4.54% during
this period. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in Asia
came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower
volatility, helping the U.S. bond
market - especially U.S.
Treasuries - surge. The Lehman
Brothers Corporate Bond Index
returned 4.49% for the six-month
period. Corporate bonds
benefited from continued
economic growth and demand for
yield, although they faltered
somewhat in January 1998.
Investors feared a slowdown in
demand in Asia would eat into
corporate earnings. In spite of
record new issuance in February
1998, corporates rebounded due
in part to increased demand on the
part of yield-hungry investors.
Mortgage-backed bonds
performed well during the period,
even though lower interest rates
resulted in more mortgage
prepayment activity. The Lehman
Brothers Mortgage-Backed
Securities Index generated a
six-month return of 4.04%.
High-yield and emerging-market
issues performed very well
throughout the first quarter of
1998.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Government Securities Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended March 31, 1998, the fund
provided a total return of 4.56%. To get a sense of how the fund did
compared to its competitors, the general U.S. government funds average
returned 4.34% for the same six-month period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers Government Bond
Index - which tracks the types of securities in which the fund invests
- - returned 4.88% for the same six-month period. For the 12-month
period that ended March 31, 1998, the fund had a total return of
11.57%. That performance compared to the general U.S. government funds
average's 11.46% return and the Lehman Brothers Government Bond
Index's 12.15% return.
Q. WHAT WAS YOUR STRATEGY DURING THE PAST SIX MONTHS?
A. The most notable change is that the fund had 13.5% of investments
in mortgage-backed securities at the end of the period, compared to
nothing invested in them at the beginning of the period. In November
1997, the fund adopted a change in its investment policies, allowing
it to invest in mortgage securities. These securities offered an
attractive yield advantage over Treasury securities throughout the
period, so I sold some Treasury securities and replaced them with
mortgage securities. Since a bond's - and ultimately the fund's -
total return is based on both its yield and its price appreciation or
depreciation, adding mortgage securities generally helped the fund's
performance because they added to its yield.
Q. YOU'VE ALSO MADE SOME CHANGES IN THE WAY THE FUND'S INVESTMENTS ARE
DIVIDED AMONG VARIOUS AGENCY SECURITIES . . .
A. That's true, because shareholders approved an investment policy
change that allowed the fund to invest in securities whose interest is
not exempt from state and local income taxes. Generally speaking, many
of these non-exempt agency securities offered higher yields than
agency securities whose interest is exempt. For example, I bought
securities issued by the Government Trust Corporation. In adding
agency securities, I continued to emphasize those that are
non-callable - those that can't be redeemed by their issuers before
maturity. Securities typically are "called" - or redeemed - when
interest rates fall enough so that issuers can save money by offering
new securities at lower rates. A call is a positive for issuers
because it provides an opportunity for them to cut their interest
rates. But holders of callable bonds are often at a disadvantage
because they may have to reinvest the proceeds from the called bonds
in new, lower-yielding bonds. I prefer non-callable securities because
they generally perform better than callable bonds when interest rates
fall and bond prices rally, and generally fare no worse than callable
bonds when interest rates rise and bond prices fall.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. The only real disappointment was one of timing. After I had built
up the fund's stake in agency securities, they lagged U.S. Treasury
securities in the fourth quarter of 1997. Had I waited until their
yields rose and prices weakened relative to Treasury securities in the
fourth quarter, I could have bought some agency holdings at slightly
lower prices. But, because they continued to yield more than U.S.
Treasury securities with comparable maturities, the fund's agency
holdings generally benefited its performance throughout the entire
period.
Q. LET'S TALK ABOUT TREASURY SECURITIES AND THE CHOICES YOU MADE THERE
. . .
A. Within the Treasury sector, I preferred to own securities that were
issued some time ago. Newly issued Treasuries, which are known as
"on-the-run" securities, typically are priced higher than older
Treasuries with similar maturities. That's because on-the-run
securities command a premium price for being more easily traded, or
liquid.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET AND THE FUND?
A. At the end of the period, bonds were selling at prices that
reflected the best-case scenario - low inflation and falling interest
rates. To illustrate, the yield on a Treasury security with a two-year
maturity was virtually the same as the yield on very-short-maturity
securities. In my opinion, that suggests that many investors were
expecting the Federal Reserve Board to lower interest rates. If the
Fed surprises investors by hiking interest rates instead, bonds could
suffer. But no matter what the direction of interest rates, I'll
continue to manage the fund with approximately the same interest-rate
sensitivity as the government bond market, as reflected by Lehman
Brothers Government Bond Index. By doing so, I can avoid positioning
the fund based on an incorrect prediction of where interest rates are
headed. Instead, I'll focus on finding securities that I find to be
cheap relative to other securities, with the idea that they will
appreciate when the market realizes their full value.
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.
CURT HOLLINGSWORTH ON SELECTING
MORTGAGE-BACKED SECURITIES:
"MORTGAGE SECURITIES ARE POOLS OF
INDIVIDUAL HOME LOANS. CERTIFICATES
BACKED BY THESE LOANS ARE SOLD TO
INVESTORS, WHO COLLECT INTEREST AND
PRINCIPAL WHEN HOMEOWNERS MAKE
MONTHLY MORTGAGE PAYMENTS. RECENTLY,
FALLING INTEREST RATES HAVE INCITED A
WAVE OF HOME MORTGAGE REFINANCINGS,
SUBJECTING SOME MORTGAGE-BACKED
SECURITIES TO HIGHER `PREPAYMENT RISK'
- - THE RISK THAT MORTGAGE HOLDERS WILL
PAY OFF THEIR MORTGAGES, LEAVING THOSE
WHO HOLD THE PREPAID SECURITIES TO
REINVEST AT LOWER INTEREST RATES.
"THE LIKELIHOOD THAT A MORTGAGE
SECURITY WILL BE PREPAID IS ONE OF THE
MOST IMPORTANT FACTORS I CONSIDER IN
CHOOSING MORTGAGE SECURITIES FOR THE
FUND, SINCE PREPAYMENT ACTIVITY CAN
DRAMATICALLY AFFECT MORTGAGE
SECURITIES' PRICES. I FOCUS ON FINDING
THOSE SECURITIES THAT I THINK ARE LESS
SUSCEPTIBLE TO A PICKUP OR SLOWDOWN
IN THE PACE OF REFINANCINGS, SUCH AS
`SEASONED' MORTGAGE SECURITIES.
SEASONED SECURITIES HAVE BEEN
THROUGH SEVERAL REFINANCING PERIODS,
BUT THE MORTGAGE HOLDERS HAVEN'T
SHOWN A PROPENSITY TO PREPAY IN SPITE
OF BEING PRESENTED WITH SEVERAL
ATTRACTIVE OPPORTUNITIES TO DO SO.
ADDITIONALLY, I ALSO TRY TO OWN BONDS
WITH VERY LOW AND VERY HIGH COUPONS,
WHICH IS THE INTEREST RATE BORROWERS
PROMISE TO PAY. MORTGAGES WITH EITHER
VERY HIGH COUPONS ISSUED YEARS AGO, OR
VERY LOW COUPONS, ARE OFTEN LESS LIKELY
TO EXPERIENCE DRAMATIC CHANGES IN
PREPAYMENT ACTIVITY."
FUND FACTS
GOAL: HIGH CURRENT INCOME
WITH PRESERVATION OF CAPITAL
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: APRIL 4, 1979
SIZE: AS OF MARCH 31, 1998,
MORE THAN $1.2 BILLION
MANAGER: CURT HOLLINGSWORTH,
SINCE 1997; MANAGER, VARIOUS
FIDELITY AND SPARTAN
GOVERNMENT AND MORTGAGE
FUNDS; JOINED FIDELITY IN 1983
(CHECKMARK)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
ZERO 10.9 12.6
COUPON
BONDS
UNDER 6% 12.2 3.2
6 - 18.5 21.7
6.99%
7 - 4.6 8.9
7.99%
8 - 13.5 26.2
8.99%
9 - 26.2 7.5
9.99%
10 - 4.4 1.6
10.99%
11% AND 1.3 11.5
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING
SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1998
6 MONTHS AGO
YEARS 8.7 8.0
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF MARCH 31, 1998
6 MONTHS AGO
YEARS 5.2 4.9
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF MARCH 31, 1998 AS OF SEPTEMBER 30, 1997
ROW: 1, COL: 1, VALUE: 8.4
ROW: 1, COL: 2, VALUE: 45.1
ROW: 1, COL: 3, VALUE: 33.0
ROW: 1, COL: 4, VALUE: 13.5
MORTGAGE-BACKED
SECURITIES 13.5%
U.S. TREASURY
OBLIGATIONS 33.0%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 45.1%
SHORT-TERM
INVESTMENTS 8.4%
MORTGAGE-BACKED
SECURITIES 0.0%
U.S. TREASURY
OBLIGATIONS 45.3%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 47.9%
SHORT-TERM
INVESTMENTS 6.8%
ROW: 1, COL: 1, VALUE: 6.8
ROW: 1, COL: 2, VALUE: 47.9
ROW: 1, COL: 3, VALUE: 45.3
ROW: 1, COL: 4, VALUE: 0.0
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 78.1%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 33.0%
5 7/8%, 8/31/99 $ 68,000 $ 68,244
6 1/2%, 8/31/01 8,650 8,872
11 3/4%, 2/15/10 10,500 13,983
8 7/8%, 8/15/17 89,075 118,066
9%, 11/15/18 143,405 193,574
402,739
U.S. GOVERNMENT AGENCY OBLIGATIONS - 45.1%
Fannie Mae 5.80%, 12/10/03 3,680 3,664
Farm Credit System Financial Assistance Corporation:
9 3/8%, 7/21/03 7,437 8,604
8.80%, 6/10/05 8,485 9,853
Federal Agricultural Mortgage Corporation 8.07%, 7/17/06 3,000 3,395
Federal Farm Credit Bank:
6 1/4%, 9/24/04 7,300 7,424
6.19%, 11/3/04 2,000 2,024
6.20%, 11/12/04 6,900 6,987
6.14%, 11/22/04 22,440 22,689
8.06%, 1/4/05 7,600 8,475
8.12%, 2/1/05 8,635 9,667
7.35%, 3/24/05 1,000 1,076
Federal Home Loan Bank:
7.31%, 6/16/04 7,640 8,175
6.575%, 6/24/04 4,325 4,466
7.36%, 7/1/04 4,110 4,408
7.66%, 7/20/04 6,460 7,032
7.38%, 8/5/04 3,770 4,051
7.46%, 9/9/04 5,015 5,420
6.56%, 9/17/04 1,585 1,638
7.87%, 10/20/04 1,280 1,411
6.21%, 11/4/04 11,330 11,479
8.09%, 12/28/04 2,140 2,389
5.785%, 2/9/05 26,900 26,635
7.59%, 3/10/05 1,895 2,065
7.485%, 4/7/05 2,000 2,168
6.225%, 10/24/05 17,175 17,403
6.07%, 5/2/06 1,500 1,512
Stripped principal 0%, 2/25/04 1,800 1,277
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Financing Corp.:
0%, 4/5/04 $ 1,196 $ 840
0%, 11/11/04 2,256 1,527
0%, 9/7/06 3,152 1,903
Stripped principal:
0%, 3/26/00 11,270 10,054
0%, 4/5/00 14,000 12,498
0%, 6/6/00 19,199 16,976
0%, 11/2/00 8,046 6,930
0%, 5/2/02 1,158 913
0%, 8/3/02 3,669 2,858
0%, 11/2/02 8,343 6,392
0%, 3/7/03 2,971 2,233
0%, 4/5/03 12,160 9,100
0%, 4/6/03 3,000 2,238
0%, 5/2/03 9,632 7,155
0%, 5/30/03 2,811 2,079
0%, 6/6/03 4,500 3,335
0%, 6/27/03 1,000 739
0%, 10/6/03 10,100 7,314
0%, 11/11/03 2,822 2,037
0%, 4/6/04 3,926 2,749
0%, 5/11/04 1,420 991
0%, 6/6/04 4,541 3,156
0%, 4/6/05 8,741 5,754
0%, 5/2/05 7,418 4,862
0%, 6/6/05 2,284 1,493
0%, 8/3/05 1,082 698
0%, 8/3/05 907 587
0%, 3/26/06 3,972 2,457
0%, 4/6/06 3,915 2,418
0%, 5/11/06 6,100 3,757
0%, 8/8/06 2,385 1,442
0%, 10/5/06 2,274 1,365
0%, 12/6/06 4,500 2,674
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Loan Trusts (assets of Trust guaranteed by
U.S. Government through Agency for International
Development) 8 1/2%, 4/1/06 $ 3,720 $ 4,098
Government Trust Certificates (assets of Trust guaranteed by
U.S. Government through Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 27,308 28,891
Class 2-E, 9.40%, 5/15/02 21,400 22,601
Class T-3, 9 5/8%, 5/15/02 17,247 18,207
Guaranteed Export Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 5,408 5,619
Series 1995-A, 6.28%, 6/15/04 7,785 7,877
Series 1995-B, 6.13%, 6/15/04 8,335 8,362
Series 1996-A, 6.55%, 6/15/04 17,033 17,372
Israel Export Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank)
Series 1994-1, 6.88%, 1/26/03 2,335 2,381
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate Series 1994-195,
6.08%, 8/15/04 960 962
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
6 3/8%, 8/15/01 9,614 9,775
6 5/8%, 8/15/03 9,530 9,870
5 5/8%, 9/15/03 40,680 40,312
6 3/4%, 8/15/04 7,500 7,844
7 5/8%, 8/15/04 12,900 14,081
6.60%, 2/15/08 15,515 16,069
Student Loan Marketing Associates 8.14%, 5/17/04 1,500 1,667
Tennessee Valley Authority 5.98%, 4/1/36 7,000 7,102
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank)
8.17%, 1/15/07 5,606 6,084
U.S. Trade Trust 6 3/4%, 8/15/08 5,311 5,471
551,556
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $939,106) 954,295
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 13.5%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FANNIE MAE - 1.3%
5 1/2, 5/1/09 $ 2,831 $ 2,728
6%, 7/1/20 2,720 2,642
8%, 1/1/22 1,417 1,468
9 1/2%, 7/1/10 to 10/1/20 5,163 5,443
10%, 8/1/10 1,657 1,743
11%, 3/1/10 1,229 1,315
15,339
FREDDIE MAC - 2.4%
8 1/2%, 4/1/28 2,700 2,821
9 3/4%, 8/1/14 1,235 1,334
10 1/2%, 7/1/20 to 12/1/20 22,945 25,639
29,794
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 9.8%
6%, 7/15/08 to 12/15/10 53,146 52,896
9 1/2%, 4/15/16 to 4/15/28 37,613 40,908
10%, 1/15/16 to 6/15/20 23,444 26,018
119,822
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $165,020) 164,955
CASH EQUIVALENTS - 8.4%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.92%, dated
3/31/98 due 4/1/98 $ 102,376 102,359
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,206,485) $ 1,221,609
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $1,206,485,000. Net unrealized appreciation
aggregated $15,124,000, of which $17,722,000 related to appreciated
investment securities and $2,598,000 related to depreciated investment
securities.
At September 30, 1997, the fund had a capital loss carryforward of
approximately $30,325,000 of which $17,606,000, $8,245,000, and
$4,474,000 will expire on September 30, 2003, 2004, and 2005,
respectively.
The fund intends to elect to defer to its fiscal year ending September
30, 1998 approximately $1,796,000 of losses recognized during the
period November 1, 1996 to September 30, 1997.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 1,221,609
AGREEMENTS OF $102,359) (COST $1,206,485) -
SEE ACCOMPANYING SCHEDULE
CASH 106
RECEIVABLE FOR INVESTMENTS SOLD 27,029
RECEIVABLE FOR FUND SHARES SOLD 2,063
INTEREST RECEIVABLE 14,795
TOTAL ASSETS 1,265,602
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 37,921
PAYABLE FOR FUND SHARES REDEEMED 7,283
DISTRIBUTIONS PAYABLE 492
ACCRUED MANAGEMENT FEE 445
OTHER PAYABLES AND ACCRUED EXPENSES 265
TOTAL LIABILITIES 46,406
NET ASSETS $ 1,219,196
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 1,215,292
UNDISTRIBUTED NET INVESTMENT INCOME 665
ACCUMULATED UNDISTRIBUTED NET REALIZED (11,885)
GAIN (LOSS) ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 15,124
NET ASSETS, FOR 122,934 SHARES OUTSTANDING $ 1,219,196
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.92
SHARE ($1,219,196 (DIVIDED BY) 122,934 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 36,509
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,504
TRANSFER AGENT FEES 1,028
ACCOUNTING FEES AND EXPENSES 168
NON-INTERESTED TRUSTEES' COMPENSATION 2
CUSTODIAN FEES AND EXPENSES 6
REGISTRATION FEES 84
AUDIT 24
LEGAL 17
INTEREST 2
REPORTS TO SHAREHOLDERS 73
MISCELLANEOUS 5
TOTAL EXPENSES BEFORE REDUCTIONS 3,913
EXPENSE REDUCTIONS (43) 3,870
NET INVESTMENT INCOME 32,639
REALIZED AND UNREALIZED GAIN (LOSS) 20,803
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (4,186)
INVESTMENT SECURITIES
NET GAIN (LOSS) 16,617
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 49,256
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 32,639 $ 63,391
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 20,803 (622)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (4,186) 18,125
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 49,256 80,894
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (32,555) (66,908)
SHARE TRANSACTIONS 606,839 378,207
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 28,969 57,722
COST OF SHARES REDEEMED (456,026) (376,059)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 179,782 59,870
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 196,483 73,856
NET ASSETS
BEGINNING OF PERIOD 1,022,713 948,857
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 1,219,196 $ 1,022,713
INCOME OF $665 AND $581, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 61,126 39,114
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 2,921 5,974
REDEEMED (45,937) (38,946)
NET INCREASE (DECREASE) 18,110 6,142
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870 $ 10.500
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .282 D .625 D .670 .625 .626 .672
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .159 .175 (.299) .564 (1.225) .627
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .441 .800 .371 1.189 (.599) 1.299
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.281) (.660) (.641) (.609) (.631) (.679)
INCOME
FROM NET REALIZED GAIN - - - - (.310) (.250)
IN EXCESS OF NET - - - (.020) - -
REALIZED GAIN
TOTAL DISTRIBUTIONS (.281) (.660) (.641) (.629) (.941) (.929)
NET ASSET VALUE, $ 9.920 $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870
END OF PERIOD
TOTAL RETURN B, C 4.56% 8.61% 3.82% 13.21% (5.81)% 13.18%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 1,219 $ 1,023 $ 949 $ 897 $ 614 $ 729
(IN MILLIONS)
RATIO OF EXPENSES TO .68% A .73% .72% .71% .69% .69%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .68% A .72% E .71% E .71% .69% .69%
AVERAGE NET ASSETS AFTER
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT 5.71% A 6.48% 6.52% 6.36% 6.26% 6.40%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 343% A 199% 124% 391% 402% 323%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
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 FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Government Securities Fund (the fund) is a fund of Fidelity
Income Fund (the trust) (formerly a fund of Fidelity Government
Securities Fund) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. The financial
statements have been prepared in conformity with generally accepted
accounting principles which 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 for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its
taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for market discount, capital loss carryforwards and losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
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.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,986,208,000 and $1,908,743,000,
respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. 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 annualized rate of .44% of average net
assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .18% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $14,411,000. The weighted average interest rate was 5.875%.
6. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$5,000 and $38,000, respectively, under these arrangements.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Securities
Intermediate Bond
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
