FIDELITY GINNIE MAE FUND
(REGISTERED TRADEMARK)
FIDELITY GOVERNMENT
INCOME FUND
(FORMERLY KNOWN AS FIDELITY GOVERNMENT
SECURITIES FUND)
FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND
(FORMERLY KNOWN AS SPARTAN LIMITED
MATURITY GOVERNMENT FUND)
ANNUAL REPORT
JULY 31, 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES
FIDELITY GINNIE MAE FUND
4 PERFORMANCE
7 FUND TALK: THE MANAGER'S OVERVIEW
10 INVESTMENT CHANGES
11 INVESTMENTS
13 FINANCIAL STATEMENTS
FIDELITY GOVERNMENT INCOME FUND
17 PERFORMANCE
20 FUND TALK: THE MANAGER'S OVERVIEW
23 INVESTMENT CHANGES
24 INVESTMENTS
29 FINANCIAL STATEMENTS
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
33 PERFORMANCE
36 FUND TALK: THE MANAGER'S OVERVIEW
39 INVESTMENT CHANGES
40 INVESTMENTS
46 FINANCIAL STATEMENTS
NOTES 50 NOTES TO THE FINANCIAL STATEMENTS
REPORT OF INDEPENDENT 54 THE AUDITORS' OPINION.
ACCOUNTANTS
PROXY VOTING RESULTS 55
</TABLE>
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 FUNDS. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUNDS 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 FUNDS 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:
So far, 1998 has been a year of considerable volatility in the U.S.
stock and bond markets. In the first quarter, the U.S. stock market
soared as inflation and interest rates remained stable, while the
economy maintained strong growth. By summer, however, investors began
to exercise caution relative to the troublesome Asian economic climate
and reports of concerns about corporate earnings domestically. Market
volatility and low interest rates were also the main stories in the
bond market, with many investors moving assets to highly rated U.S.
Treasuries.
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
FIDELITY GINNIE MAE FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GINNIE MAE FUND 6.81% 36.00% 123.36%
LB GNMA 7.46% 40.29% 142.29%
SB GNMA 7.37% 39.84% 142.68%
GNMA FUNDS AVERAGE 6.81% 34.54% 121.63%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of both
the Lehman Brothers GNMA Index and the Salomon Brothers GNMA Index,
both of which are market capitalization weighted indexes of fixed-rate
securities issued by the Government National Mortgage Association
(GNMA). These securities represent interests in pools of mortgage
loans with original terms of 15 and 30 years. To measure how the
fund's performance stacked up against its peers, you can compare it to
the GNMA funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc.
The past one year average represents a peer group of 53 mutual funds.
These benchmarks include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GINNIE MAE FUND 6.81% 6.34% 8.37%
LB GNMA 7.46% 7.01% 9.25%
SB GNMA 7.37% 6.94% 9.27%
GNMA FUNDS AVERAGE 6.81% 6.11% 8.27%
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
Ginnie Mae LB GNMA
00015 LB020
1988/07/31 10000.00 10000.00
1988/08/31 10014.21 10011.68
1988/09/30 10213.94 10269.83
1988/10/31 10392.46 10497.02
1988/11/30 10287.00 10351.89
1988/12/31 10232.83 10294.65
1989/01/31 10395.62 10460.81
1989/02/28 10341.76 10399.49
1989/03/31 10353.94 10412.63
1989/04/30 10556.05 10636.61
1989/05/31 10824.61 10961.34
1989/06/30 11115.48 11267.96
1989/07/31 11300.02 11502.75
1989/08/31 11193.52 11359.95
1989/09/30 11220.03 11431.78
1989/10/31 11459.68 11696.06
1989/11/30 11569.99 11829.81
1989/12/31 11649.80 11909.82
1990/01/31 11522.15 11809.66
1990/02/28 11589.08 11875.07
1990/03/31 11611.79 11906.03
1990/04/30 11481.24 11800.61
1990/05/31 11847.88 12170.31
1990/06/30 12014.39 12357.79
1990/07/31 12205.44 12586.15
1990/08/31 12174.15 12416.48
1990/09/30 12249.62 12511.97
1990/10/31 12385.10 12666.45
1990/11/30 12663.64 12954.09
1990/12/31 12873.07 13169.31
1991/01/31 13035.14 13366.14
1991/02/28 13087.75 13477.11
1991/03/31 13178.96 13574.35
1991/04/30 13276.58 13701.67
1991/05/31 13377.36 13813.51
1991/06/30 13393.50 13839.80
1991/07/31 13592.08 14076.33
1991/08/31 13834.46 14337.99
1991/09/30 14038.45 14590.59
1991/10/31 14229.50 14831.50
1991/11/30 14305.83 14934.30
1991/12/31 14619.57 15282.39
1992/01/31 14498.31 15093.16
1992/02/29 14653.27 15251.14
1992/03/31 14567.01 15164.41
1992/04/30 14691.56 15303.70
1992/05/31 14935.29 15573.24
1992/06/30 15102.46 15763.64
1992/07/31 15175.76 15901.76
1992/08/31 15343.57 16114.36
1992/09/30 15453.88 16257.74
1992/10/31 15328.96 16135.97
1992/11/30 15407.52 16209.55
1992/12/31 15599.02 16414.85
1993/01/31 15804.92 16621.31
1993/02/28 15945.38 16790.09
1993/03/31 16032.67 16882.08
1993/04/30 16087.55 16943.70
1993/05/31 16179.82 17059.92
1993/06/30 16338.36 17198.63
1993/07/31 16424.19 17271.05
1993/08/31 16465.04 17313.98
1993/09/30 16465.98 17328.88
1993/10/31 16522.28 17358.66
1993/11/30 16426.89 17333.84
1993/12/31 16552.48 17494.74
1994/01/31 16738.77 17632.29
1994/02/28 16581.19 17544.68
1994/03/31 16164.81 17071.02
1994/04/30 16035.53 16954.21
1994/05/31 16049.83 17002.69
1994/06/30 15995.56 16977.86
1994/07/31 16320.21 17309.02
1994/08/31 16360.87 17362.17
1994/09/30 16133.19 17117.74
1994/10/31 16112.48 17090.59
1994/11/30 16060.55 17042.40
1994/12/31 16222.05 17231.63
1995/01/31 16564.45 17588.48
1995/02/28 16990.50 18051.92
1995/03/31 17074.58 18140.40
1995/04/30 17305.96 18409.06
1995/05/31 17837.90 18971.21
1995/06/30 17941.11 19100.28
1995/07/31 17993.92 19140.58
1995/08/31 18161.82 19337.40
1995/09/30 18341.20 19526.63
1995/10/31 18490.23 19686.66
1995/11/30 18694.23 19914.15
1995/12/31 18915.67 20169.96
1996/01/31 19033.79 20310.42
1996/02/29 18890.75 20158.57
1996/03/31 18851.27 20107.17
1996/04/30 18791.04 20054.61
1996/05/31 18714.05 19987.15
1996/06/30 18923.40 20249.68
1996/07/31 18992.27 20325.90
1996/08/31 19005.04 20334.66
1996/09/30 19290.32 20675.15
1996/10/31 19670.58 21093.33
1996/11/30 19944.27 21400.25
1996/12/31 19834.56 21285.77
1997/01/31 19964.45 21449.30
1997/02/28 20018.47 21526.69
1997/03/31 19812.61 21314.39
1997/04/30 20114.26 21663.94
1997/05/31 20302.71 21886.17
1997/06/30 20549.08 22145.49
1997/07/31 20911.86 22547.31
1997/08/31 20872.47 22499.12
1997/09/30 21122.17 22798.15
1997/10/31 21333.81 23035.86
1997/11/30 21368.24 23106.53
1997/12/31 21560.43 23315.03
1998/01/31 21755.04 23540.18
1998/02/28 21790.29 23592.75
1998/03/31 21870.52 23692.62
1998/04/30 22008.73 23830.16
1998/05/31 22167.36 23992.82
1998/06/30 22221.33 24093.86
1998/07/31 22336.44 24229.35
IMATRL PRASUN SHR__CHT 19980731 19980811 133226 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Ginnie Mae Fund on July 31, 1988. As the chart
shows, by July 31, 1998, the value of the investment would have grown
to $22,336 - a 123.36% increase on the initial investment. For
comparison, look at how the Lehman Brothers GNMA Index did over the
same period. With dividends and capital gains, if any, reinvested the
same $10,000 investment would have grown to $24,229 - a 142.29%
increase. The fund will compare its performance to that of the Lehman
Brothers GNMA Index rather than the Salomon Brothers GNMA Index. The
indexes include the same types 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 purposes, 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
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.63% 7.07% 6.58% 7.35% 5.24%
CAPITAL RETURNS 0.18% 3.04% -1.03% 2.91% -5.87%
TOTAL RETURNS 6.81% 10.11% 5.55% 10.26% -0.63%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital 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, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.63(CENTS) 34.78(CENTS) 69.82(CENTS)
ANNUALIZED DIVIDEND RATE 6.10% 6.45% 6.43%
30-DAY ANNUALIZED YIELD 6.37% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.87 over the past one month, $10.88 over the past six months and
$10.86 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis. If Fidelity
had not reimbursed certain fund expenses, the fund's yield would have
been 6.32%.
FIDELITY GINNIE MAE FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S.
bonds amid a sharp sell-off in
Russian bonds, weakness in
overseas markets and concerns
about U.S. corporate profits. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable bond market - returned
7.87% during the 12-month period
that ended July 31, 1998. In the
fourth quarter of 1997 and the first
half of 1998, global market
volatility and low interest rates
were the main stories behind bond
market performance. As investors
moved assets from stocks and
riskier bonds to highly rated
corporate bonds and U.S.
Treasuries, bond yields - which
move in the opposite direction of
bond prices - fell to their lowest
levels in decades. The yield on
the benchmark 30-year bond fell
to 5.70% from 6.50% during the
period. The Lehman Brothers
Corporate Bond Index returned
7.35% for the past 12 months as
corporate bond investors
benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading above
50 indicates an expansion in the
manufacturing economy, while one
below 50 points to a contraction.
The report also indicated there
were no new signs of inflationary
pressure. Since inflation erodes
the value of fixed-income holdings
such as bonds, this was positive
news for bond investors.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Ginnie Mae Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 6.81%. To get a sense of how the fund did relative to
its competitors, the GNMA funds average also returned 6.81% for the
same one-year period, according to Lipper Analytical Services.
Additionally, the Lehman Brothers GNMA Index - which tracks the types
of securities in which the fund invests - returned 7.46%.
Q. MORTGAGE-BACKED SECURITIES, INCLUDING GINNIE MAE SECURITIES,
OUTPACED TREASURIES THROUGHOUT MUCH OF THE PAST YEAR, BUT RECENTLY
HAVE LAGGED THEM. WHAT ACCOUNTED FOR THAT SHIFT?
A. Because interest rates fell substantially over the past year, home
sales and mortgage refinancings have occurred at or near record rates
so far this year. Those transactions, in turn, prompted a significant
rise in the prepayment of mortgage-backed securities. As prepayment
activity accelerated, mortgage security prices came under pressure.
While refinancings often put money in consumers' pockets, they take
steady long-term streams of payments away from holders of
mortgage-backed securities. When refinancings step up, many mortgage
security holders must find a new place to put their money - usually at
lower interest rates.
Q. WHICH HOLDINGS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The fund's holdings in securities containing loans that originated
between five and 10 years ago was relatively light throughout the
year, a strategy that proved beneficial for the fund. Those securities
proved to be less immune to prepayment activity in the face of
substantial interest-rate declines than many observers first thought.
On the other hand, the fund's stake in loans originated in early 1998
with coupons - the interest rate the borrower promises to pay - of
7.5% and 8.0% was relatively heavy. In large part because of the
newness of the underlying mortgages and the very slight risk that the
mortgage holders would turn around and refinance just months after
taking out the loan, these securities offered relatively good
protection against prepayment. They were bid up in response.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. I wouldn't point to a specific security that was a disappointment
or that meaningfully detracted from the fund's performance. However,
I'd point to the ever-decreasing number of opportunities to find
securities that offered good protection against prepayment, at a
reasonable price. In previous years, there were occasions when a
particular coupon became cheap, but that hasn't been the case for some
time.
Q. WHAT WERE THE OTHER KEY ELEMENTS TO YOUR STRATEGY?
A. I kept the fund's duration - or interest-rate sensitivity -
neutral. By that I mean I didn't structure the fund to benefit from
interest rates moving higher or lower. I believe that it is extremely
difficult to predict the direction of interest rates with any regular
success over an extended time period. As a result, I kept duration in
line with the market rather than making it more or less sensitive
based on where I think interest rates are headed. Additionally, by
keeping the fund's investments evenly spread across the various
coupons available in the mortgage market, I have attempted to position
the fund to perform well whether interest rates rise, fall or remain
stable.
Q. WHAT'S YOUR OUTLOOK FOR THE GINNIE MAE MARKET?
A. I believe that prepayments will continue at a fairly quick pace
until interest rates stabilize or move higher. As is always the case,
the direction of interest rates will be the main factor that
determines the performance of mortgage securities. But since I'm not
in the business of forecasting interest rates, I won't try to predict
where rates will end up six months or a year from today. I'll continue
to focus on finding securities that I believe will offer the best
total-return potential, whether interest rates are heading higher,
lower or remain the same.
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 HIS
MORTGAGE-BACKED SECURITY
SELECTION:
"Because there are some periods
- - such as the past year - when
significantly falling interest rates
can set off an unexpected wave of
prepayment of mortgages, I spend
a fair amount of time analyzing a
mortgage security's risk of being
called, or redeemed, when the
underlying mortgages are prepaid.
With the help of Fidelity's research
team, I try to identify mortgage
securities that have less of a
chance of being prepaid, and then
look for opportunities to buy them
at attractive prices.
"For example, I try to find
opportunities among mortgage
securities with coupons - or the
interest rate the borrower
promises to pay - that are
significantly higher than current
interest rates. At first glance, it may
appear that mortgages with
coupons that are much higher than
prevailing rates are extremely
susceptible to being prepaid. But
because these mortgages have not
yet been prepaid - despite the
borrowers being presented with
several attractive opportunities to
do so - the likelihood that they
will be prepaid in the future is
rather small."
FUND FACTS
GOAL: to provide high current
income by investing mainly in
mortgage securities issued by
the Government National
Mortgage Association (Ginnie
Mae)
FUND NUMBER: 015
TRADING SYMBOL: FGMNX
START DATE: November 8, 1985
SIZE: as of July 31, 1998,
more than $917 million
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
(checkmark)
FIDELITY GINNIE MAE FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 15.0 7.1
7%
7 - 46.3 38.6
7.99%
8 - 26.2 30.3
8.99%
9 - 5.4 4.9
9.99%
10 - 2.4 2.6
10.99%
11% AND 1.4 1.6
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-
TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 6.1 5.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 2.8 2.6
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998 AS OF JANUARY 31, 1998
ROW: 1, COL: 1, VALUE: 97.0
ROW: 1, COL: 2, VALUE: 3.0
MORTGAGE-BACKED
SECURITIES ** 85.1%
SHORT-TERM
INVESTMENTS 14.9%
GNMA SECURITIES 82.5%
MORTGAGE-BACKED
SECURITIES * 96.7%
SHORT-TERM
INVESTMENTS 3.3%
GNMA SECURITIES 94.3%
ROW: 1, COL: 1, VALUE: 85.0
ROW: 1, COL: 2, VALUE: 15.0
*
**
FIDELITY GINNIE MAE FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 96.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FANNIE MAE - 0.3%
8 1/2%, 6/1/08 to 4/1/16 $ 979 $ 1,020
9%, 10/1/11 190 199
10 1/4%, 12/1/15 to 10/1/18 487 536
11 1/2%, 6/1/13 to 9/1/15 363 412
12 1/2%, 10/1/15 233 272
14%, 11/1/12 9 10
2,449
FREDDIE MAC - 2.1%
8 1/2%, 2/1/04 to 5/1/17 819 852
9%, 6/1/10 to 4/1/21 3,039 3,190
10%, 10/1/04 to 12/1/19 5,853 6,335
10 1/4%, 2/1/09 to 11/1/16 2,936 3,188
10 1/2%, 5/1/10 to 12/1/20 4,341 4,835
11 1/4%, 2/1/10 249 278
11 3/4%, 11/1/11 108 121
12%, 6/1/15 to 11/1/15 307 355
12 1/2%, 11/1/12 to 9/1/13 694 806
19,960
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 94.3%
6%, 10/15/23 to 7/15/28 13,626 13,290
6 1/2%, 5/15/08 to 8/15/28 128,952 128,844
7%, 10/15/07 to 8/15/28 232,064 235,781
7 1/2%, 6/15/02 to 8/15/28 198,427 204,256
8%, 7/15/01 to 8/15/28 189,742 196,985
8 1/2%, 2/15/05 to 10/15/22 47,610 50,538
9%, 12/15/04 to 12/15/24 15,326 16,425
9 1/2%, 4/15/01 to 11/15/22 29,275 31,555
10%, 10/15/00 to 2/15/25 2,078 2,274
10 1/2%, 11/15/98 to 4/15/19 4,901 5,415
11%, 1/15/10 to 8/15/19 3,801 4,267
11 1/2%, 3/15/10 to 4/15/19 4,445 5,007
12%, 5/15/99 to 11/15/15 922 1,050
13%, 2/15/11 to 5/15/15 633 742
13 1/2%, 5/15/10 to 1/15/15 364 428
896,857
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $904,359) 919,266
CASH EQUIVALENTS - 3.3%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.62%, dated 7/31/98
due 8/03/98 (Cost $31,732) $ 31,747 $ 31,732
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $936,091) $ 950,998
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,555,396,000 and $1,463,633,000,
respectively.
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $942,300,000. Net unrealized appreciation
aggregated $8,698,000, of which $10,203,000 related to appreciated
investment securities and $1,505,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $15,435,000 of which $10,681,000, and $4,754,000 will
expire on July 31, 2003 and 2004, respectively.
FIDELITY GINNIE MAE FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 950,998
AGREEMENTS OF $31,732) (COST $936,091) -
SEE ACCOMPANYING SCHEDULE
CASH 1
RECEIVABLE FOR INVESTMENTS SOLD 89,802
RECEIVABLE FOR FUND SHARES SOLD 2,217
INTEREST RECEIVABLE 5,658
TOTAL ASSETS 1,048,676
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 129,314
PAYABLE FOR FUND SHARES REDEEMED 1,019
DISTRIBUTIONS PAYABLE 565
ACCRUED MANAGEMENT FEE 297
OTHER PAYABLES AND ACCRUED EXPENSES 251
TOTAL LIABILITIES 131,446
NET ASSETS $ 917,230
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 925,829
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (1,862)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (21,644)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 14,907
NET ASSETS, FOR 84,363 SHARES OUTSTANDING $ 917,230
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $10.87
SHARE ($917,230 (DIVIDED BY) 84,363 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME $ 63,051
INTEREST
EXPENSES
MANAGEMENT FEE $ 3,763
TRANSFER AGENT FEES 1,933
ACCOUNTING FEES AND EXPENSES 278
NON-INTERESTED TRUSTEES' COMPENSATION 13
CUSTODIAN FEES AND EXPENSES 180
REGISTRATION FEES 46
AUDIT 50
LEGAL 34
REPORTS TO SHAREHOLDERS 77
TOTAL EXPENSES BEFORE REDUCTIONS 6,374
EXPENSE REDUCTIONS (143) 6,231
NET INVESTMENT INCOME 56,820
REALIZED AND UNREALIZED GAIN (LOSS) 14,559
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (13,818)
INVESTMENT SECURITIES
NET GAIN (LOSS) 741
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 57,561
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
FMR REIMBURSEMENT $ 120
CUSTODIAN CREDITS 1
TRANSFER AGENT CREDITS 22
$ 143
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 56,820 $ 53,630
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 14,559 2,497
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (13,818) 20,073
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 57,561 76,200
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (55,500) (52,899)
SHARE TRANSACTIONS 349,964 195,577
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 48,330 45,337
COST OF SHARES REDEEMED (305,260) (232,014)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 93,034 8,900
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 95,095 32,201
NET ASSETS
BEGINNING OF PERIOD 822,135 789,934
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET $ 917,230 $ 822,135
INVESTMENT INCOME OF $1,862 AND $1,202, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 32,197 18,325
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 4,446 4,249
REDEEMED (28,087) (21,758)
NET INCREASE (DECREASE) 8,556 816
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260
OF PERIOD
INCOME FROM INVESTMENT .714 B .720 B .688 .721 .582
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .004 .310 (.107) .292 (.650)
GAIN (LOSS)
TOTAL FROM INVESTMENT .718 1.030 .581 1.013 (.068)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.698) (.710) (.691) (.713) (.582)
FROM NET REALIZED GAIN - - - - (.190)
IN EXCESS OF NET REALIZED GAIN - - - (.020) (.060)
TOTAL DISTRIBUTIONS (.698) (.710) (.691) (.733) (.832)
NET ASSET VALUE, END OF PERIOD $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360
TOTAL RETURN A 6.81% 10.11% 5.55% 10.26% (.63)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 917 $ 822 $ 790 $ 767 $ 769
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .72% D .76% .76% .75% .82%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET .72% .75% C .75% C .75% .82%
ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 6.58% 6.75% 6.69% 7.24% 7.03%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 172% 98% 107% 210% 303%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FIDELITY GOVERNMENT SECURITIES FUND
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 JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 7.67% 33.00% 130.27%
LB GOVERNMENT BOND 8.35% 37.43% 135.99%
SB TREASURY/AGENCY 8.40% 37.54% 136.42%
GENERAL US GOVERNMENT FUNDS AVERAGE 7.32% 31.41% 115.07%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
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 one year average represents a peer group of 185 mutual
funds. These benchmarks include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY GOVERNMENT SECURITIES 7.67% 5.87% 8.70%
LB GOVERNMENT BOND 8.35% 6.57% 8.97%
SB TREASURY/AGENCY 8.40% 6.58% 8.99%
GENERAL US GOVERNMENT FUNDS AVERAGE 7.32% 5.60% 7.93%
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
1988/07/31 10000.00 10000.00
1988/08/31 10011.06 10019.90
1988/09/30 10180.60 10238.83
1988/10/31 10327.85 10419.23
1988/11/30 10234.30 10295.99
1988/12/31 10250.93 10335.28
1989/01/31 10377.18 10466.69
1989/02/28 10321.24 10381.47
1989/03/31 10371.42 10445.00
1989/04/30 10569.89 10669.03
1989/05/31 10760.61 10920.62
1989/06/30 11064.39 11284.99
1989/07/31 11264.95 11523.31
1989/08/31 11109.17 11329.39
1989/09/30 11152.86 11378.12
1989/10/31 11381.56 11672.58
1989/11/30 11485.64 11785.61
1989/12/31 11544.43 11805.52
1990/01/31 11395.05 11638.39
1990/02/28 11439.32 11661.61
1990/03/31 11453.25 11659.05
1990/04/30 11412.90 11556.22
1990/05/31 11649.47 11878.49
1990/06/30 11811.36 12066.55
1990/07/31 11962.23 12220.92
1990/08/31 11899.99 12050.73
1990/09/30 11989.03 12166.31
1990/10/31 12168.01 12365.08
1990/11/30 12437.27 12639.13
1990/12/31 12644.99 12834.58
1991/01/31 12736.65 12972.37
1991/02/28 12836.93 13046.62
1991/03/31 12890.65 13112.96
1991/04/30 13010.18 13256.87
1991/05/31 13076.56 13308.41
1991/06/30 13046.04 13289.53
1991/07/31 13207.57 13447.22
1991/08/31 13547.04 13759.03
1991/09/30 13856.52 14047.61
1991/10/31 13975.36 14170.60
1991/11/30 14105.50 14312.72
1991/12/31 14663.22 14800.34
1992/01/31 14412.25 14569.93
1992/02/29 14441.44 14626.83
1992/03/31 14346.96 14541.35
1992/04/30 14436.21 14632.95
1992/05/31 14733.20 14902.91
1992/06/30 14984.69 15116.48
1992/07/31 15445.51 15497.44
1992/08/31 15578.64 15641.86
1992/09/30 15785.02 15863.08
1992/10/31 15528.60 15634.20
1992/11/30 15539.60 15607.15
1992/12/31 15831.99 15869.97
1993/01/31 16207.09 16207.04
1993/02/28 16604.36 16531.60
1993/03/31 16692.49 16586.97
1993/04/30 16857.45 16714.55
1993/05/31 16790.24 16696.18
1993/06/30 17203.68 17066.67
1993/07/31 17313.71 17170.78
1993/08/31 17795.97 17554.03
1993/09/30 17866.15 17621.14
1993/10/31 17958.89 17687.73
1993/11/30 17704.12 17493.81
1993/12/31 17782.75 17561.43
1994/01/31 18069.07 17801.79
1994/02/28 17532.93 17424.92
1994/03/31 17065.76 17032.99
1994/04/30 16903.19 16899.03
1994/05/31 16888.73 16877.34
1994/06/30 16799.31 16838.56
1994/07/31 17174.37 17148.07
1994/08/31 17164.14 17151.39
1994/09/30 16828.02 16909.75
1994/10/31 16762.55 16896.99
1994/11/30 16747.70 16866.12
1994/12/31 16857.05 16968.69
1995/01/31 17173.52 17284.58
1995/02/28 17574.16 17656.60
1995/03/31 17671.73 17767.34
1995/04/30 17892.20 17999.54
1995/05/31 18605.76 18725.47
1995/06/30 18736.07 18869.13
1995/07/31 18663.00 18799.72
1995/08/31 18877.88 19020.69
1995/09/30 19051.80 19203.90
1995/10/31 19346.77 19496.31
1995/11/30 19641.28 19800.21
1995/12/31 19902.72 20080.89
1996/01/31 20009.24 20204.13
1996/02/29 19580.74 19792.55
1996/03/31 19416.59 19627.21
1996/04/30 19264.68 19501.93
1996/05/31 19233.13 19469.27
1996/06/30 19459.22 19720.60
1996/07/31 19509.68 19769.33
1996/08/31 19452.25 19725.19
1996/09/30 19780.32 20052.56
1996/10/31 20196.55 20493.74
1996/11/30 20527.02 20850.20
1996/12/31 20317.69 20637.39
1997/01/31 20339.68 20660.36
1997/02/28 20353.32 20688.68
1997/03/31 20133.48 20469.75
1997/04/30 20416.47 20765.23
1997/05/31 20576.13 20944.35
1997/06/30 20795.69 21179.35
1997/07/31 21386.88 21780.51
1997/08/31 21153.72 21565.16
1997/09/30 21483.28 21889.46
1997/10/31 21811.82 22268.12
1997/11/30 21917.37 22382.18
1997/12/31 22132.54 22616.16
1998/01/31 22461.03 22954.50
1998/02/28 22399.45 22892.25
1998/03/31 22462.33 22957.06
1998/04/30 22543.28 23060.40
1998/05/31 22764.78 23297.19
1998/06/30 23008.63 23562.04
1998/07/31 23027.20 23598.53
IMATRL PRASUN SHR__CHT 19980731 19980817 114923 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Government Securities Fund on July 31, 1988. As
the chart shows, by July 31, 1998, the value of the investment would
have grown to $23,027 - a 130.27% 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 $23,599 -
a 135.99% increase. 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 17.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.04% 7.22% 6.58% 6.78% 5.93%
CAPITAL RETURNS 1.63% 2.40% -2.04% 1.89% -6.73%
TOTAL RETURNS 7.67% 9.62% 4.54% 8.67% -0.80%
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, if any, paid by the fund, are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.81(CENTS) 27.84(CENTS) 57.26(CENTS)
ANNUALIZED DIVIDEND RATE 5.66% 5.64% 5.79%
30-DAY ANNUALIZED YIELD 5.32% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.00 over the past one month, $9.96 over the past six months and
$9.89 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.
FIDELITY GOVERNMENT SECURITIES FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S. bonds
amid a sharp sell-off in Russian
bonds, weakness in overseas
markets and concerns about U.S.
corporate profits. The Lehman
Brothers Aggregate Bond Index -
a broad gauge of the U.S. taxable
bond market - returned 7.87%
during the 12-month period that
ended July 31, 1998. In the fourth
quarter of 1997 and the first half
of 1998, global market volatility
and low interest rates were the
main stories behind bond market
performance. As investors moved
assets from stocks and riskier bonds
to highly rated corporate bonds
and U.S. Treasuries, bond yields -
which move in the opposite
direction of bond prices - fell to
their lowest levels in decades. The
yield on the benchmark 30-year
bond fell to 5.70% from 6.50%
during the period. The Lehman
Brothers Corporate Bond Index
returned 7.35% for the past 12
months as corporate bond
investors benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading
above 50 indicates an expansion in
the manufacturing economy,
while one below 50 points to a
contraction. The report also
indicated there were no new signs
of inflationary pressure. Since
inflation erodes the value of
fixed-income holdings such as
bonds, this was positive news for
bond investors.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Government Securities Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 7.67%. To get a sense of how the fund did relative to
its competitors, the general U.S. government funds average returned
7.32% for the same one-year 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 8.35%.
Q. WHAT FACTORS HELPED THE FUND OUTPACE ITS PEERS?
A. I think it came down to two factors. First, I managed the fund to
have approximately the same sensitivity to interest-rate movements as
the market for government securities, as represented by the Lehman
Brothers Government Bond Index. By doing so, I avoided the mistake of
positioning the fund based on a potentially incorrect prediction of
where interest rates were headed. The second reason for the fund's
outperformance was its heavy exposure, compared to the index, to
agency and mortgage securities, and its relatively small position in
U.S. Treasury securities. Primarily because of their yield advantage,
mortgage and agency securities outpaced their U.S. Treasury
counterparts throughout much of the period.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. For the last couple of months or so of the period, agency and
mortgage securities lagged their Treasury counterparts. Treasuries
posted significant gains mainly because international investors
scooped them up as protection against the Asian economic crisis. A
similar rally was prevented in the agency market, however, because
demand wasn't as strong. Mortgage securities, meanwhile, suffered from
an accelerated rate of prepayments. As interest rates fell, homeowners
refinanced their mortgages at the fastest pace since 1993. As this
happened, mortgage-backed securities returned their principal to
investors. The timing of that return of principal was inopportune
because some investors had to plow their returned principal into their
investments at a time when interest rates were near historic lows.
Q. HOW DO YOU TRY TO DEAL WITH PREPAYMENT OF MORTGAGE SECURITIES?
A. I try to minimize prepayment activity by emphasizing "seasoned"
securities, as well as those with very high and very low coupons, or
interest rates. Seasoned securities have been through several
refinancing periods, but the mortgage holders haven't refinanced even
after being presented several attractive opportunities to do so.
Mortgage securities with very high and very low coupons are often less
likely than those with coupons around the current interest rate to
experience dramatic changes in prepayment activity.
Q. WHAT CHOICES DID YOU MAKE IN THE TREASURY SECTOR?
A. I emphasized securities that were issued some time ago, known as
"off-the-run" Treasuries. That's because they were more attractively
priced than newly issued Treasuries, which command a premium for being
more liquid, or easily traded.
Q. AND WHICH CHOICES DID YOU MAKE IN THE AGENCY SECTOR?
A. I focused almost exclusively on agency securities that are
non-callable - those that can't be redeemed by their issuers before
maturity. Bonds typically are called when interest rates fall so
significantly that issuers can save money by issuing new bonds at
lower rates. A call is a positive for issuers because it cuts their
borrowing costs. But holders of callable bonds are often at a
disadvantage because they may have to reinvest the proceeds from the
called securities in new, lower-yielding bonds. Non-callable bonds
generally perform better than callable ones 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. WHAT DO YOU SEE ON THE HORIZON FOR THE GOVERNMENT SECURITIES
MARKET?
A. The direction of interest rates, as always, will be the prime
determinant of government bond performance, and I'm not willing to
speculate on where interest rates will be six months or a year from
now. I will say, however, that I believe that interest rates could
remain volatile as investors struggle with the dueling forces of a
strong U.S. economy and an ever-weakening Asia. I'll try to identify
those securities that I believe will offer the best total-return
potential in any type of interest-rate environment.
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
MANAGING THE FUND'S DURATION:
"A cornerstone of my investment
strategy - which I stick to whether
interest rates rise, fall or remain
stable - is keeping the fund's
`duration' in line with that of the
Lehman Brothers Government
Bond Index. Essentially, keeping
the fund's duration approximately
the same as that index means that
the fund will be no more or less
sensitive to changes in interest
rates than the market for
government securities as
measured by its index. It's my view
that it is impossible to pinpoint the
direction and magnitude of
interest-rate changes with any
accuracy and consistency over
time. In fact, positioning the fund
to bet on the direction of interest
rates can seriously backfire if that
bet proves to be a losing one."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: April 4, 1979
SIZE: as of July 31, 1998,
more than $1.2 billion
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
(checkmark)
FIDELITY GOVERNMENT SECURITIES FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 4 MONTHS AGO
ZERO 0.1 10.9
COUPON
BONDS
5 - 9.9 12.2
5.99%
6 - 28.5 18.5
6.99%
7 - 11.4 4.6
7.99%
8 - 24.2 13.5
8.99%
9 - 19.2 26.2
9.99%
10 - 4.2 4.4
10.99%
11% AND 2.0 1.3
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-
TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF JULY 31, 1998
4 MONTHS AGO
YEARS 8.7 8.7
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
4 MONTHS AGO
YEARS 5.2 5.2
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998 AS OF MARCH 31, 1998
ROW: 1, COL: 1, VALUE: 18.1
ROW: 1, COL: 2, VALUE: 24.1
ROW: 1, COL: 3, VALUE: 56.8
ROW: 1, COL: 4, VALUE: 1.0
ROW: 1, COL: 1, VALUE: 13.5
ROW: 1, COL: 2, VALUE: 33.0
ROW: 1, COL: 3, VALUE: 45.1
ROW: 1, COL: 4, VALUE: 8.4
MORTGAGE-BACKED
SECURITIES 18.1%
U.S. TREASURY
OBLIGATIONS 24.1%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 57.3%
SHORT-TERM
INVESTMENTS 0.5%
MORTGAGE-BACKED
SECURITIES 13.5%
U.S. TREASURY
OBLIGATIONS 33.0%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 45.1%
SHORT-TERM
INVESTMENTS 8.4%
FIDELITY GOVERNMENT SECURITIES FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 81.4%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 24.1%
8 3/4%, 5/15/17 $ 61,000 $ 81,378
8 7/8%, 8/15/17 110,560 149,342
9%, 11/15/18 49,400 67,995
TOTAL U.S. TREASURY OBLIGATIONS 298,715
U.S. GOVERNMENT AGENCY OBLIGATIONS - 57.3%
Fannie Mae:
6.18%, 1/31/00 40,000 40,300
8 1/4%, 12/18/00 15,000 15,837
5.44%, 1/24/01 11,700 11,625
6.74%, 5/13/04 3,720 3,884
7.40%, 7/1/04 2,200 2,372
Farm Credit System Financial Assistance Corporation:
9 3/8%, 7/21/03 11,437 13,187
8.80%, 6/10/05 8,485 9,898
Federal Agriculture Mortgage Corporation 8.07%, 7/17/06 3,000 3,415
Federal Farm Credit Bank:
6 1/4%, 9/24/04 7,300 7,475
6.19%, 11/03/04 2,000 2,039
6.20%, 11/12/04 6,900 7,039
6.14%, 11/22/04 22,440 22,801
8.06%, 1/4/05 7,600 8,506
8.12%, 2/01/05 8,635 9,702
7.35%, 3/24/05 1,000 1,083
Federal Home Loan Bank:
9 1/2%, 2/25/04 1,850 2,173
7.31%, 6/16/04 8,240 8,849
6.58%, 6/24/04 4,325 4,491
7.36%, 7/1/04 7,110 7,658
7.66%, 7/20/04 6,460 7,059
7.38%, 8/5/04 3,770 4,067
7.46%, 9/9/04 6,015 6,526
7.58%, 9/13/04 4,000 4,365
6.56%, 9/17/04 1,585 1,648
6.26%, 9/24/04 1,800 1,844
7.87%, 10/20/04 1,280 1,416
6.21%, 11/04/04 11,330 11,564
8.09%, 12/28/04 2,140 2,398
5.79%, 2/09/05 26,900 26,866
7.59%, 3/10/05 1,895 2,074
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal Home Loan Bank: - continued
6.23%, 10/24/05 $ 17,175 $ 17,583
6.07%, 5/02/06 1,500 1,522
Freddie Mac:
7 1/4%, 4/28/04 2,000 2,142
6.51%, 7/01/04 5,000 5,174
6.80%, 3/19/07 29,700 31,482
7.10%, 4/10/07 9,000 9,751
Financing Corp. stripped principal:
0%, 8/3/05 1,082 724
0%, 8/3/05 907 607
Government Loan Trusts (assets of Trust guaranteed by
U.S. Government through Agency for International
Development) 8 1/2%, 4/1/06 3,920 4,314
Government Trust Certificates (assets of Trust guaranteed by
U.S. Government through Defense Security Assistance Agency)
Class T-3, 9 5/8%, 5/15/02 18,538 19,536
Class 1-C, 9 1/4%, 11/15/01 51,139 54,119
Class 2-E, 9.40%, 5/15/02 18,574 19,575
Guaranteed Export Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 5,162 5,365
Series 1995-A, 6.28%, 6/15/04 10,408 10,537
Series 1995-B, 6.13%, 6/15/04 25,828 26,038
Series 1996-A, 6.55%, 6/15/04 15,723 16,036
Guaranteed Trade Trust Certificates (assets of Trust guaranteed
by U.S. Government through export-Import Bank):
Series 1994-A, 7.39%, 6/26/06 34,667 36,671
Series 1994-B, 7 1/2%, 1/26/06 8,189 8,704
Israel Export Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank):
Series 1994-1, 6.88%, 1/26/03 9,302 9,526
Overseas Private Investment Corp. U.S. Government
guaranteed guaranteed participation certificate:
Series 1994-195, 6.08%, 8/15/04 (callable) 9,400 9,456
5.926%, 6/15/05 15,392 15,417
Private Exporting Funding Corp. 5.82%, 6/15/03 (a) 19,000 19,008
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
5 3/4%, 3/15/00 1,600 1,603
6 5/8%, 8/15/03 9,530 9,861
5 5/8%, 9/15/03 40,680 40,365
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
State of Israel (guaranteed by U.S. Government through
Agency for International Development): - continued
6 3/4%, 8/15/04 $ 7,500 $ 7,879
7 5/8%, 8/15/04 30,170 33,021
6.60%, 2/15/08 25,515 26,682
Student Loan Marketing Association:
8.14%, 5/17/04 1,500 1,671
6 1/8%, 12/01/05 4,190 4,265
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank)
8.17%, 1/15/07 5,295 5,719
U.S. Department of Housing and Urban Development
government guaranteed participation certificates
Series 1995-A, 8.24%, 8/1/02 3,000 3,246
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 709,760
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $994,199) 1,008,475
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 16.4%
FANNIE MAE - 4.7%
5 1/2%, 5/1/09 to 3/1/24 8,813 8,403
6%, 7/1/20 2,450 2,396
8%, 1/1/22 1,211 1,257
9 1/2%, 11/1/09 to 10/1/28 19,611 21,024
10%, 8/1/10 1,473 1,556
11%, 3/1/10 1,080 1,146
11 1/2%, 6/1/19 to 5/1/28 20,039 23,114
58,896
FREDDIE MAC - 2.3%
8%, 1/1/10 to 6/1/11 1,035 1,072
8 1/2%, 8/1/08 to 12/1/10 1,912 1,989
9%, 8/1/09 to 12/1/10 1,137 1,199
9 3/4%, 8/1/14 1,130 1,221
10 1/2%, 7/1/20 to 12/1/20 20,287 22,639
28,120
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 9.4%
6%, 7/15/08 to 12/15/10 $ 50,051 $ 49,967
9 1/2%, 9/15/09 to 2/15/25 35,396 38,225
10%, 8/15/15 to 1/15/26 25,685 28,170
116,362
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $203,929) 203,378
COLLATERALIZED MORTGAGE OBLIGATIONS - 1.7%
U.S. GOVERNMENT AGENCY - 1.7%
Freddie Mac planned amortization class
Series 1698, Class E 6% 10/15/06
(Cost $21,291) 21,250 21,277
CASH EQUIVALENTS - 0.5%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligation), in a joint
account at 5.62%, dated 7/31/98
due 8/03/98 (Cost $5,555) $ 5,558 5,555
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,224,974) $ 1,238,685
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
$19,008,000 or 1.5% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $2,972,602,000 and $2,788,867,000,
respectively.
The fund participated in the bank borrowing program. The maximum loan
and average daily balance during the period for which the loan was
outstanding amounted to $14,411,000. The weighted average interest
rate was 5.9% (see Note 6 of Notes to Financial Statements).
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $1,224,974,000. Net unrealized appreciation
aggregated $13,711,000, of which $17,053,000 related to appreciated
investment securities and $3,342,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $6,321,000 of which $1,847,000, and, $4,474,000 will
expire on July 31, 2004, and 2005, respectively.
A total of 71.79% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax. (unaudited)
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
FIDELITY GOVERNMENT SECURITIES FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 1,238,685
AGREEMENTS OF $5,555) (COST $1,224,974) -
SEE ACCOMPANYING SCHEDULE
CASH 1,389
RECEIVABLE FOR INVESTMENTS SOLD 819
RECEIVABLE FOR FUND SHARES SOLD 2,949
INTEREST RECEIVABLE 18,909
TOTAL ASSETS 1,262,751
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 6,122
PAYABLE FOR FUND SHARES REDEEMED 2,472
DISTRIBUTIONS PAYABLE 474
ACCRUED MANAGEMENT FEE 460
OTHER PAYABLES AND ACCRUED EXPENSES 312
TOTAL LIABILITIES 9,840
NET ASSETS $ 1,252,911
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 1,241,016
UNDISTRIBUTED NET INVESTMENT INCOME 4,504
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (6,320)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 13,711
NET ASSETS, FOR 125,546 SHARES OUTSTANDING $ 1,252,911
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.98
SHARE ($1,252,911 (DIVIDED BY) 125,546 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS TEN MONTHS ENDED JULY 31, 1998
INVESTMENT INCOME $ 64,531
INTEREST
EXPENSES
MANAGEMENT FEE $ 4,322
TRANSFER AGENT FEES 1,825
ACCOUNTING FEES AND EXPENSES 287
NON-INTERESTED TRUSTEES' COMPENSATION 9
CUSTODIAN FEES AND EXPENSES 7
REGISTRATION FEES 170
AUDIT 34
LEGAL 38
INTEREST 2
REPORTS TO SHAREHOLDERS 146
MISCELLANEOUS 5
TOTAL EXPENSES BEFORE REDUCTIONS 6,845
EXPENSE REDUCTIONS (74) 6,771
NET INVESTMENT INCOME 57,760
REALIZED AND UNREALIZED GAIN (LOSS) 28,818
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (5,599)
ON INVESTMENT SECURITIES
NET GAIN (LOSS) 23,219
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 80,979
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
CUSTODIAN CREDITS $ 7
TRANSFER AGENT CREDITS 67
$ 74
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS TEN MONTHS ENDED YEAR ENDED
JULY 31, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 57,760 $ 63,391
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 28,818 (622)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (5,599) 18,125
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 80,979 80,894
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (56,286) (66,908)
SHARE TRANSACTIONS 835,669 378,207
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 50,449 57,722
COST OF SHARES REDEEMED (680,613) (376,059)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 205,505 59,870
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 230,198 73,856
NET ASSETS
BEGINNING OF PERIOD 1,022,713 948,857
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 1,252,911 $ 1,022,713
INCOME OF $4,504 AND $581, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 84,090 39,114
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 5,076 5,974
REDEEMED (68,444) (38,946)
NET INCREASE (DECREASE) 20,722 6,142
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
TEN MONTHS ENDED YEARS ENDED
JULY 31, SEPTEMBER 30,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.760 $ 9.620 $ 9.890 $ 9.330 $ 10.870
OF PERIOD
INCOME FROM INVESTMENT .481 D .625 D .670 .625 .626
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .208 .175 (.299) .564 (1.225)
GAIN (LOSS)
TOTAL FROM INVESTMENT .689 .800 .371 1.189 (.599)
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.469) (.660) (.641) (.609) (.631)
FROM NET REALIZED GAIN - - - - (.310)
IN EXCESS OF NET REALIZED GAIN - - - (.020) -
TOTAL DISTRIBUTIONS (.469) (.660) (.641) (.629) (.941)
NET ASSET VALUE, END OF PERIOD $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330
TOTAL RETURN B, C 7.19% 8.61% 3.82% 13.21% (5.81)%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 1,253 $ 1,023 $ 949 $ 897 $ 614
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .69% A .73% .72% .71% .69%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE .68% A, E .72% E .71% E .71% .69%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 5.82% A 6.48% 6.52% 6.36% 6.26%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 289% A 199% 124% 391% 402%
</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 (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
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
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY INTERMEDIATE GOV'T INCOME 6.78% 33.02% 104.23%
LB INT GOVERNMENT BOND 6.83% 33.48% 118.39%
SB TREASURY/AGENCY 1-10 YR 6.90% 33.58% 118.56%
SHORT-INTERMEDIATE US 5.67% 27.74% 104.03%
GOVERNMENT FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 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 Lehman Brothers
Intermediate Government Bond Index - a market value weighted index of
U.S. government fixed-rate debt issues with maturities between one and
10 years - and the Salomon Brothers Treasury/Agency 1-10 Year Index -
a market capitalization weighted index of U.S. Treasury and U.S.
government agency securities with fixed-rate coupons and maturities
between one and 10 years. To measure how the fund's performance
stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 100 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY INTERMEDIATE GOV'T INCOME 6.78% 5.87% 7.40%
LB INT GOVERNMENT BOND 6.83% 5.95% 8.12%
SB TREASURY/AGENCY 1-10 YR 6.90% 5.96% 8.13%
SHORT-INTERMEDIATE US 5.67% 5.00% 7.38%
GOVERNMENT FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Intermediate Govt Income LB Govt Intermediate
00452 LB008
1988/07/31 10000.00 10000.00
1988/08/31 10022.26 10013.41
1988/09/30 10129.89 10186.45
1988/10/31 10228.54 10326.86
1988/11/30 10224.54 10238.06
1988/12/31 10263.19 10247.93
1989/01/31 10345.52 10350.13
1989/02/28 10349.51 10305.86
1989/03/31 10402.59 10354.18
1989/04/30 10539.87 10563.15
1989/05/31 10688.35 10767.05
1989/06/30 10878.99 11041.54
1989/07/31 11014.39 11265.94
1989/08/31 10947.78 11113.64
1989/09/30 11003.53 11166.77
1989/10/31 11177.94 11401.03
1989/11/30 11268.22 11513.86
1989/12/31 11325.69 11547.76
1990/01/31 11311.71 11475.92
1990/02/28 11374.27 11518.42
1990/03/31 11400.99 11532.08
1990/04/30 11417.83 11493.37
1990/05/31 11589.15 11739.53
1990/06/30 11699.92 11893.85
1990/07/31 11839.04 12060.56
1990/08/31 11887.20 12017.05
1990/09/30 11982.27 12124.57
1990/10/31 12106.43 12293.31
1990/11/30 12248.30 12478.50
1990/12/31 12360.09 12651.29
1991/01/31 12497.95 12781.32
1991/02/28 12595.40 12858.73
1991/03/31 12699.24 12929.82
1991/04/30 12808.56 13063.40
1991/05/31 12874.77 13137.02
1991/06/30 12925.80 13147.90
1991/07/31 13073.79 13290.33
1991/08/31 13236.31 13542.55
1991/09/30 13370.71 13772.77
1991/10/31 13537.85 13930.38
1991/11/30 13587.03 14093.81
1991/12/31 13832.30 14436.35
1992/01/31 13765.19 14297.46
1992/02/29 13846.73 14341.99
1992/03/31 13830.12 14284.81
1992/04/30 13932.84 14413.07
1992/05/31 14072.08 14628.11
1992/06/30 14180.82 14838.85
1992/07/31 14221.74 15123.46
1992/08/31 14392.88 15278.03
1992/09/30 14492.06 15488.51
1992/10/31 14432.58 15302.57
1992/11/30 14499.38 15240.34
1992/12/31 14629.63 15436.65
1993/01/31 14755.19 15723.54
1993/02/28 14917.19 15955.27
1993/03/31 14995.80 16013.96
1993/04/30 15092.83 16139.19
1993/05/31 15142.65 16095.17
1993/06/30 15301.47 16328.17
1993/07/31 15353.49 16361.06
1993/08/31 15468.38 16604.69
1993/09/30 15521.52 16672.23
1993/10/31 15556.99 16711.70
1993/11/30 15453.85 16628.97
1993/12/31 15568.66 16697.78
1994/01/31 15730.72 16862.73
1994/02/28 15583.03 16631.25
1994/03/31 15382.89 16388.64
1994/04/30 15308.09 16282.64
1994/05/31 15292.25 16294.27
1994/06/30 15286.87 16297.56
1994/07/31 15441.39 16511.59
1994/08/31 15486.94 16559.65
1994/09/30 15453.40 16422.79
1994/10/31 15471.54 16426.08
1994/11/30 15435.95 16352.96
1994/12/31 15420.86 16406.34
1995/01/31 15653.87 16673.24
1995/02/28 15881.21 16994.79
1995/03/31 15956.79 17088.39
1995/04/30 16145.24 17286.48
1995/05/31 16563.40 17773.98
1995/06/30 16664.26 17887.07
1995/07/31 16700.76 17895.67
1995/08/31 16841.36 18043.41
1995/09/30 16964.54 18164.34
1995/10/31 17194.09 18363.44
1995/11/30 17388.35 18587.33
1995/12/31 17569.14 18770.74
1996/01/31 17718.51 18929.11
1996/02/29 17546.91 18729.00
1996/03/31 17449.23 18643.49
1996/04/30 17399.83 18589.10
1996/05/31 17389.95 18579.49
1996/06/30 17557.46 18768.21
1996/07/31 17618.04 18826.40
1996/08/31 17639.91 18847.91
1996/09/30 17865.00 19091.53
1996/10/31 18167.29 19404.47
1996/11/30 18396.89 19638.74
1996/12/31 18296.14 19532.99
1997/01/31 18362.86 19608.13
1997/02/28 18400.25 19640.00
1997/03/31 18281.47 19528.18
1997/04/30 18479.72 19748.53
1997/05/31 18624.23 19902.35
1997/06/30 18786.99 20072.61
1997/07/31 19126.20 20442.72
1997/08/31 19075.64 20364.55
1997/09/30 19296.01 20585.91
1997/10/31 19499.03 20825.74
1997/11/30 19559.89 20871.53
1997/12/31 19704.17 21041.54
1998/01/31 19949.31 21316.03
1998/02/28 19943.63 21293.51
1998/03/31 20005.39 21359.80
1998/04/30 20105.98 21461.75
1998/05/31 20232.10 21609.24
1998/06/30 20357.32 21754.71
1998/07/31 20422.57 21838.44
IMATRL PRASUN SHR__CHT 19980731 19980824 103006 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Intermediate Government Income Fund on July 31,
1988. As the chart shows, by July 31, 1998, the value of the
investment would have grown to $20,423 - a 104.23% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Intermediate Government Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $21,839 - a 118.39% increase. The fund will
compare its performance to that of the Lehman Brothers Intermediate
Government Bond Index rather than the Salomon Brothers Treasury/Agency
1-10 Year 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 funds. For comparison purposes, both indexes
are shown on page 33.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN THE
OPPOSITE DIRECTION OF INTEREST
RATES. IN TURN, THE SHARE PRICE,
RETURN AND YIELD OF A FUND THAT
INVESTS IN BONDS WILL VARY. THAT
MEANS IF YOU SELL YOUR SHARES
DURING A MARKET DOWNTURN,
YOU MIGHT LOSE MONEY. BUT IF
YOU CAN RIDE OUT THE MARKET'S
UPS AND DOWNS, YOU MAY
HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 6.88% 7.11% 6.62% 6.60% 5.22%
CAPITAL RETURNS -0.10% 1.45% -1.13% 1.56% -4.65%
TOTAL RETURNS 6.78% 8.56% 5.49% 8.16% 0.57%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital 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, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED JULY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.14(CENTS) 30.01(CENTS) 65.38(CENTS)
ANNUALIZED DIVIDEND RATE 6.18% 6.18% 6.68%
30-DAY ANNUALIZED YIELD 5.89% - -
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 $9.80
over the past one month, $9.80 over the past six months and $9.79 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses, the fund's yield would have been
5.60%.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Investors worldwide flocked to the
perceived safe haven of U.S.
bonds amid a sharp sell-off in
Russian bonds, weakness in
overseas markets and concerns
about U.S. corporate profits. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable bond market - returned
7.87% during the 12-month period
that ended July 31, 1998. In the
fourth quarter of 1997 and the first
half of 1998, global market
volatility and low interest rates
were the main stories behind bond
market performance. As investors
moved assets from stocks and
riskier bonds to highly rated
corporate bonds and U.S.
Treasuries, bond yields - which
move in the opposite direction of
bond prices - fell to their lowest
levels in decades. The yield on
the benchmark 30-year bond fell
to 5.70% from 6.50% during the
period. The Lehman Brothers
Corporate Bond Index returned
7.35% for the past 12 months as
corporate bond investors
benefited from domestic
economic stability and high
demand for yield. The period
ended on a positive note for bonds
when the National Association of
Purchasing Management's July
index fell to 49.1, below the 49.8
reading expected. A reading above
50 indicates an expansion in the
manufacturing economy, while one
below 50 points to a contraction.
The report also indicated there
were no new signs of inflationary
pressure. Since inflation erodes
the value of fixed-income holdings
such as bonds, this was positive
news for bond investors.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Intermediate Government Income Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended July 31, 1998, the fund had a
total return of 6.78%. To get a sense of how the fund did relative to
its competitors, the short-intermediate U.S. government funds average
returned 5.67% for the same one-year period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers Intermediate
Government Bond Index - which tracks the types of securities in which
the fund invests - returned 6.83%.
Q. ALTHOUGH IT CONTINUED TO POST GOOD RETURNS, THE INTERMEDIATE
GOVERNMENT MARKET DIDN'T PERFORM AS WELL IN THE MOST RECENT SIX-MONTH
PERIOD AS IT DID IN THE PRIOR SIX. WHY WAS THAT?
A. Returns were smaller in the second half of the period because bond
yields, which move in the opposite direction of bond prices, didn't
fall as much in the second half as they did in the first. The yield on
the 10-year Treasury bond - which serves as a good proxy for the
intermediate market - dropped by 52 basis points (0.52%) in the first
six months, when inflation fears were waning. In the second half of
the period, however, the 10-year bond yield fell by only about 9 basis
points. Intermediate bond prices saw larger gains in response to the
more emphatic decline in yields in the first half.
Q. WHY DID THE FUND OUTPACE THE SHORT-INTERMEDIATE U.S. GOVERNMENT
FUNDS AVERAGE?
A. The fund had a larger weighting in both agency and mortgage
securities, and a smaller exposure to U.S. Treasuries throughout the
period than the Lipper average. In large part due to their higher
yields, agency and mortgage securities generally outpaced Treasuries
during much of the past year and helped the fund to outpace its Lipper
peer group. That said, agency and mortgage securities lagged the
Treasury market during the final months of the period and, while they
helped the fund's performance for the year, they modestly detracted
from its more recent performance. Treasuries' strong performance was
largely due to heavy buying from domestic and international investors
seeking a haven from the economic turmoil in Southeast Asia. Agency
securities, on the other hand, didn't enjoy the same demand and lagged
Treasuries as a result.
Q. WHY DID MORTGAGE-BACKED SECURITIES STRUGGLE DURING THE PAST FEW
MONTHS?
A. As interest rates moved lower - to their lowest levels since 1993 -
homeowners rushed to replace old high-rate mortgages with cheaper
loans. That caused the rate of home mortgage refinancings, and the
prepayment of mortgage loans, to rise substantially. Although
refinancings are good for mortgage holders, they can be difficult for
investors in mortgage securities. As the refinancings occur and
mortgage securities are prepaid, investors must find a new place to
put their money, usually at a lower interest rate. Generally speaking,
I focus on finding those mortgage securities that I think are less
susceptible to a pick-up or slowdown in the pace of refinancings.
However, in periods of interest-rate volatility - whether rates move
substantially up or down - prepayment patterns become more difficult
to predict and mortgage security prices can suffer as a result.
Q. WHAT WAS YOUR APPROACH TO SELECTING VARIOUS AGENCY SECURITIES?
A. While the majority of the fund's agency holdings were well-known
securities such as Fannie Mae and Freddie Mac, I looked for
opportunities among agencies that received less attention from market
participants. Because of a lack of attention, I was able to buy many
of these securities - including Government Trust Certificates and
Government Loan Trusts Notes - at cheap prices relative to comparable,
better-known securities.
Q. WHAT'S YOUR OUTLOOK?
A. The direction of interest rates, as always, will be the prime
determinant of bond performance, and I'm not willing to speculate on
where interest rates will be six months or a year from now. I will
say, however, that I believe that interest rates could remain volatile
as investors struggle with the dueling forces of a strong U.S. economy
and an ever-weakening Asia. I'll try to identify those securities that
I believe will offer the best total-return potential in any type of
interest-rate environment.
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
MANAGING THE FUND'S DURATION:
"A cornerstone of my investment
strategy - which I stick to whether
interest rates rise, fall or remain
stable - is keeping the fund's
`duration' in line with that of the
Lehman Brothers Government
Bond Index. Essentially, keeping
the fund's duration approximately
the same as that index means that
the fund will be no more or less
sensitive to changes in interest
rates than the market for
government securities as
measured by its index. It's my view
that it is impossible to pinpoint the
direction and magnitude of
interest-rate changes with any
accuracy and consistency over
time. In fact, positioning the fund
to bet on the direction of interest
rates can seriously backfire if that
bet proves to be a losing one."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: April 4, 1979
SIZE: as of July 31, 1998,
more than $1.2 billion
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government funds; joined
Fidelity in 1983
(checkmark)
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JULY 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 0.0 5.2
5%
5 - 14.5 12.7
5.99%
6 - 31.6 35.9
6.99%
7 - 8.5 7.8
7.99%
8 - 9.1 10.3
8.99%
9 - 16.9 12.9
9.99%
10 - 3.8 4.1
10.99%
11 - 4.7 4.6
11.99%
12% AND 4.3 4.5
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 JULY 31, 1998
6 MONTHS AGO
YEARS 4.7 4.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JULY 31, 1998
6 MONTHS AGO
YEARS 3.1 3.1
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JULY 31, 1998 AS OF JANUARY 31, 1998
ROW: 1, COL: 1, VALUE: 6.6
ROW: 1, COL: 2, VALUE: 66.2
ROW: 1, COL: 3, VALUE: 3.5
ROW: 1, COL: 4, VALUE: 23.7
ROW: 1, COL: 1, VALUE: 23.3
ROW: 1, COL: 2, VALUE: 19.3
ROW: 1, COL: 3, VALUE: 55.4
ROW: 1, COL: 4, VALUE: 2.0
MORTGAGE-BACKED
SECURITIES 23.7%
U.S. TREASURY
OBLIGATIONS 3.5%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 66.2%
SHORT-TERM
INVESTMENTS 6.6%
MORTGAGE-BACKED
SECURITIES 23.3%
U.S. TREASURY
OBLIGATIONS 19.3%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 55.4%
SHORT-TERM
INVESTMENTS 2.0%
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENTS JULY 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 69.7%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 3.5%
7 7/8%, 8/15/01 $ 10,000 $ 10,641
6 1/2%, 8/31/01 13,700 14,061
TOTAL U.S. TREASURY OBLIGATIONS 24,702
U.S. GOVERNMENT AGENCY OBLIGATIONS - 66.2%
Fannie Mae:
8 1/4%, 12/18/00 9,600 10,135
6.29%, 2/11/02 25,000 25,414
5.89%, 11/06/02 15,000 15,059
6.74%, 5/13/04 2,150 2,245
7 7/8%, 2/24/05 5,455 6,062
7.49%, 3/02/05 5,980 6,523
Farm Credit System Financial Assistance Corporation
9 3/8%, 7/21/03 25,570 29,481
Federal Agricultural Mortgage Corporation
7.04%, 8/10/05 2,050 2,192
Federal Farm Credit Bank:
5.54%, 9/10/03 1,300 1,290
9.15%, 2/14/05 500 590
Federal Home Loan Bank:
6.26%, 9/24/04 3,500 3,585
8.09%, 12/28/04 3,500 3,922
7.59%, 3/10/05 1,940 2,124
6 1/2%, 11/29/05 3,000 3,127
6 3/4%, 4/10/06 1,000 1,056
Freddie Mac:
6.51%, 7/01/04 3,200 3,311
6.08%, 12/17/04 14,275 14,494
8.12%, 1/31/05 7,350 8,255
6.78%, 8/18/05 15,000 15,827
5.83%, 2/09/06 4,250 4,252
6.99%, 7/05/06 1,000 1,070
6.80%, 3/19/07 7,300 7,738
7.10%, 4/10/07 2,700 2,925
Government Loan Trusts (assets of Trust guaranteed by
U.S. Government through Agency for International
Development) 8 1/2%, 4/1/06 11,490 12,645
Government Trust Certificates (assets of Trust guaranteed by U.S.
Government through Defense Security Assistance Agency)
Class T-3, 9 5/8%, 5/15/02 4,306 4,538
Class 1-C, 9 1/4%, 11/15/01 41,309 43,717
Class 2-E, 9.40%, 5/15/02 9,678 10,200
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Guaranteed Export Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 $ 1,364 $ 1,341
Series 1993-D, 5.23%, 5/15/05 1,031 1,012
Series 1994-A, 7.12%, 4/15/06 5,693 5,917
Series 1994-C, 6.61%, 9/15/99 173 174
Series 1996-A, 6.55%, 6/15/04 8,704 8,877
Guaranteed Trade Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank):
Series 1992-A, 7.02%, 9/1/04 6,781 7,001
Series 1997-A, 6.104%, 7/15/03 12,861 12,926
Series 1994-B, 7 1/2%, 1/26/06 811 862
Israel Export Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank)
Series 1994-1, 6.88%, 1/26/03 5,453 5,584
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate:
Series 1994-195, 6.08%, 8/15/04 (callable) 6,787 6,827
Series 1996-A1, 6.726%, 9/15/10 (callable) 4,000 4,178
Private Exporting Funding Corp. secured:
8.35%, 1/31/01 3,800 4,032
5.65%, 3/15/03 2,065 2,058
5.82%, 6/15/03 (a) 36,700 36,715
5.48%, 9/15/03 2,695 2,673
5.80%, 2/1/04 4,590 4,595
6.86%, 4/30/04 2,499 2,565
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
7 3/4%, 11/15/99 4,200 4,306
5 1/4%, 9/15/00 11,550 11,458
6 3/8%, 8/15/01 1,433 1,459
6 1/4%, 8/15/02 7,300 7,435
6 5/8%, 8/15/03 12,860 13,307
5 5/8%, 9/15/03 11,550 11,461
6 3/4%, 8/15/04 350 368
7 5/8%, 8/15/04 8,820 9,653
6.60%, 2/15/08 27,910 29,186
Tennessee Valley Authority 6%, 11/01/00 4,060 4,082
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1996-A, 6.59%, 8/1/00 $ 1,340 $ 1,362
Series 1995-A, 8.24%, 8/1/02 5,000 5,415
Series 1996-A, 6.98%, 8/1/05 8,000 8,536
U.S. Trade Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank)
8.17%, 1/15/07 5,468 5,907
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 463,049
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $483,817) 487,751
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 23.4%
FANNIE MAE - 8.8%
5 1/2%, 1/1/09 to 2/1/09 9,709 9,503
6%, 10/1/08 to 12/1/08 20,178 20,049
8%, 10/1/00 8 9
8 1/4%, 12/1/01 5,399 5,825
8 1/2%, 9/1/07 to 12/1/22 1,402 1,464
9%, 2/1/13 939 999
9 1/2%, 11/1/09 3,422 3,663
10%, 1/1/20 133 145
10 1/4%, 10/1/09 to 10/1/18 320 351
11%, 8/1/10 to 1/1/16 5,161 5,750
11 1/4%, 1/1/10 to 1/1/16 1,019 1,147
11 1/2%, 9/1/11 to 6/1/19 3,538 4,038
11 3/4%, 7/1/13 to 4/1/14 137 156
12 1/4%, 10/1/10 to 6/1/15 1,070 1,239
12 1/2%, 9/1/07 to 5/1/21 2,850 3,335
12 3/4%, 10/1/11 to 6/1/15 1,182 1,395
13%, 6/1/11 to 7/1/15 1,336 1,575
13 1/4%, 9/1/11 to 9/1/13 611 729
13 1/2%, 5/1/11 to 12/1/14 34 41
14%, 6/1/11 to 12/1/14 103 123
14 1/2%, 7/1/14 19 24
15%, 4/1/12 23 28
61,588
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
FREDDIE MAC - 8.6%
6 1/2%, 5/1/08 $ 2,451 $ 2,472
7%, 6/1/01 to 8/1/01 1,491 1,505
8 1/2%, 5/1/10 to 1/1/22 4,552 4,751
9%, 11/1/09 to 8/1/16 1,168 1,226
9 1/2%, 7/1/16 to 8/1/21 6,913 7,435
10%, 12/1/00 to 2/1/23 11,620 12,662
10 1/2%, 9/1/09 to 1/1/21 7,809 8,677
10 3/4%, 7/1/13 122 137
11%, 8/1/00 to 9/1/20 876 986
11 1/4%, 2/1/10 to 10/1/14 1,006 1,128
11 1/2%, 10/1/15 to 8/1/19 559 633
11 3/4%, 1/1/10 to 10/1/15 208 234
12%, 1/1/00 to 11/1/19 2,043 2,343
12 1/4%, 2/1/11 to 8/1/15 828 958
12 1/2%, 10/1/09 to 6/1/19 10,247 11,914
12 3/4%, 2/1/10 to 1/1/11 192 222
13%, 9/1/10 to 5/1/17 1,563 1,842
13 1/4%, 11/1/10 to 12/1/14 141 164
13 1/2%, 11/1/10 to 10/1/14 311 369
13 3/4%, 10/1/14 13 14
14%, 11/1/12 to 4/1/16 47 56
14 1/2%, 12/1/10 to 9/1/12 91 109
14 3/4%, 3/1/10 29 35
16 1/4%, 7/1/11 7 9
59,881
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.0%
8%, 9/15/06 to 11/15/07 938 975
8 1/2%, 4/15/16 to 4/15/17 94 100
9%, 11/15/04 to 5/15/17 1,408 1,499
9 1/2%, 6/15/09 to 11/15/20 11,922 12,861
10%, 12/15/09 to 10/15/20 1,680 1,837
10 1/2%, 8/15/15 to 1/15/18 2,573 2,827
11%, 4/15/00 to 8/15/19 3,584 4,012
11 1/2%, 3/15/10 to 1/15/21 12,973 14,631
12%, 11/15/12 to 6/15/15 791 902
12 1/4%, 1/15/14 51 57
12 1/2%, 6/15/14 65 76
13%, 1/15/11 to 12/15/14 1,017 1,190
13 1/4%, 9/15/13 to 10/15/14 195 225
13 1/2%, 5/15/10 to 12/15/14 528 617
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED
14%, 6/15/11 to 12/15/14 $ 87 $ 103
16%, 4/15/13 164 198
17%, 12/15/11 3 4
42,114
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $160,225) 163,583
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.3%
U.S. GOVERNMENT AGENCY - 0.3%
Fannie Mae planned amortization class Series 1988-21,
Class G, 9 1/2%, 8/25/18 1,662 1,776
Freddie Mac sequential pay Series 1353
Class A, 5 1/2%, 11/15/04 101 100
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,895) 1,876
CASH EQUIVALENTS - 6.6%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligation),
in a joint account at:
5.62%, dated 7/31/98 due 8/03/98 $ 39,747 39,728
5.63%, dated 7/31/98 due 8/03/98 6,447 6,444
TOTAL CASH EQUIVALENTS
(Cost $46,172) 46,172
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $692,109) $ 699,382
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
$36,715,000 or 5.2% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,329,943,000 and $1,349,279,000,
respectively.
INCOME TAX INFORMATION
At July 31, 1998, the aggregate cost of investment securities for
income tax purposes was $692,118,000. Net unrealized appreciation
aggregated $7,264,000, of which $8,962,000 related to appreciated
investment securities and $1,698,000 related to depreciated investment
securities.
At July 31, 1998, the fund had a capital loss carryforward of
approximately $55,905,000 of which $45,999,000, $6,634,000, and
$3,272,000 will expire on July 31, 2003, 2004 and 2005, respectively.
A total of 22.63% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax. (unaudited)
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JULY 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 699,382
AGREEMENTS OF $46,172) (COST $692,109) -
SEE ACCOMPANYING SCHEDULE
CASH 1
RECEIVABLE FOR INVESTMENTS SOLD 864
RECEIVABLE FOR FUND SHARES SOLD 368
INTEREST RECEIVABLE 10,264
OTHER RECEIVABLES 63
TOTAL ASSETS 710,942
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 5,630
PAYABLE FOR FUND SHARES REDEEMED 602
DISTRIBUTIONS PAYABLE 633
ACCRUED MANAGEMENT FEE 226
OTHER PAYABLES AND ACCRUED EXPENSES 20
TOTAL LIABILITIES 7,111
NET ASSETS $ 703,831
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 750,604
UNDISTRIBUTED NET INVESTMENT INCOME 1,867
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (55,913)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 7,273
NET ASSETS, FOR 71,942 SHARES OUTSTANDING $ 703,831
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.78
SHARE ($703,831 (DIVIDED BY) 71,942 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JULY 31, 1998
INVESTMENT INCOME $ 51,759
INTEREST
EXPENSES
MANAGEMENT FEE $ 4,789
NON-INTERESTED TRUSTEES' COMPENSATION 3
TOTAL EXPENSES BEFORE REDUCTIONS 4,792
EXPENSE REDUCTIONS (1,994) 2,798
NET INVESTMENT INCOME 48,961
REALIZED AND UNREALIZED GAIN (LOSS) 5,968
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (6,214)
INVESTMENT SECURITIES
NET GAIN (LOSS) (246)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 48,715
FROM OPERATIONS
OTHER INFORMATION
EXPENSE REDUCTIONS:
FMR REIMBURSEMENT $ 1,987
CUSTODIAN CREDITS 5
TRANSFER AGENT CREDITS 2
$ 1,994
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JULY 31, JULY 31,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 48,961 $ 48,874
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 5,968 (3,334)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (6,214) 12,958
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 48,715 58,498
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (49,186) (47,692)
SHARE TRANSACTIONS 255,811 147,916
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 40,988 39,235
COST OF SHARES REDEEMED (296,896) (233,304)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (97) (46,153)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (568) (35,347)
NET ASSETS
BEGINNING OF PERIOD 704,399 739,746
END OF PERIOD (INCLUDING UNDER (OVER) DISTRIBUTIONS OF NET $ 703,831 $ 704,399
INVESTMENT INCOME OF $1,867 AND $(140), RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 26,122 15,242
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 4,188 4,045
REDEEMED (30,301) (24,040)
NET INCREASE (DECREASE) 9 (4,753)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED JULY 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310
OF PERIOD
INCOME FROM INVESTMENT .652 C .675 C .678 .610 .470
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED (.008) .124 (.150) .143 (.410)
GAIN (LOSS)
TOTAL FROM INVESTMENT .644 .799 .528 .753 .060
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.654) (.659) (.638) (.603) (.540)
FROM NET REALIZED GAIN - - - - -
IN EXCESS OF NET REALIZED GAIN - - - - (.220)
TOTAL DISTRIBUTIONS (.654) (.659) (.638) (.603) (.760)
NET ASSET VALUE, END OF PERIOD $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610
TOTAL RETURN A, B 6.78% 8.56% 5.49% 8.16% .57%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 704 $ 704 $ 740 $ 817 $ 1,018
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .38% D .54% D .63% D .65% .65%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE .38% .54% .62% E .65% .65%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 6.65% 6.96% 6.89% 7.18% 7.37%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 188% 105% 105% 210% 391%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE FORMER ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS)
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
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Ginnie Mae Fund, Fidelity Government Securities Fund
(formerly a fund of Fidelity Government Securities Trust) and Fidelity
Intermediate Government Income Fund (formerly Spartan Limited Maturity
Government Fund) (the funds) are funds of Fidelity Income Fund (the
trust). 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. Each fund is
authorized to issue an unlimited number of shares. 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. On
June 19, 1997, the Board of Trustees approved a change in the fiscal
year-end of the Fidelity Government Securities Fund to July 31.
Accordingly, the financial statements of Fidelity Government
Securities Fund are presented for the ten-month period ended July 31,
1998. On June 17, 1998, the Board of Trustees approved a change in the
name of Fidelity Government Securities Fund to Fidelity Government
Income Fund effective on or about September 21, 1998. The following
summarizes the significant accounting policies of the funds:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, each fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for the fiscal year. The schedules of investments
include 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 the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
gains/losses on certain securities, market discount, capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income or distributions in excess of net
investment income and accumulated undistributed net realized gain
(loss) on investments may include temporary book and tax basis
differences that will reverse in a subsequent period. 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 funds, 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 funds, 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 funds' 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. Each 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. With respect to purchase commitments, each fund identifies
securities as segregated in its custodial records with a value at
least equal to the amount of the commitment. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
RESTRICTED SECURITIES. Certain funds are 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
2. OPERATING POLICIES -
CONTINUED
RESTRICTED SECURITIES - CONTINUED
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the funds had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Information regarding purchases and sales of securities (other than
short-term securities), is included under the caption "Other
Information" at the end of each applicable fund's schedule of
investments.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE.
As the investment adviser for Fidelity Ginnie Mae Fund and Fidelity
Government Securities Fund, 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 each 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 annual rate of .44% of average net assets for Fidelity Ginnie
Mae Fund. For the period, the management fee was equivalent to an
annualized rate of .44% of average net assets for Fidelity Government
Securities Fund.
For Fidelity Intermediate Government Income Fund, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets. FMR also
bears the cost of providing shareholder services to the fund. To
offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $9,300 for the period. Effective June 27, 1998, these
transaction fees were eliminated.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the transfer, dividend disbursing and shareholder
servicing agent for Fidelity Ginnie Mae Fund and Fidelity Government
Securities Fund. 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 fee was
equivalent to an annual rate of .22% of average net assets for
Fidelity Ginnie Mae Fund. For the period, the transfer agent fee was
equivalent to an annualized rate of .18% of average net assets for
Fidelity Government Securities Fund.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
ACCOUNTING FEES. FSC maintains the accounting records for Fidelity
Ginnie Mae Fund and Fidelity Government Securities Fund. The fee is
based on the level of each fund's average net assets for the month
plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
For Fidelity Intermediate Government Income Fund, FMR voluntarily
agreed to reimburse the fund's operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) above an
annual rate of .38% of average net assets. Effective June 27, 1998,
FMR voluntarily agreed to reimburse operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses)
above an annual rate of .65% of Fidelity Ginnie Mae Fund's average net
assets.
In addition, Fidelity Ginnie Mae Fund, Fidelity Government Securities
Fund, and FMR on behalf of Fidelity Intermediate Government Income
Fund, have entered into arrangements with their custodian and transfer
agent whereby credits realized on uninvested cash balances were used
to offset a portion of certain of each fund's expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on each applicable fund's
Statement of Operations.
6. BANK BORROWINGS.
Each fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. Each fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, each 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. Information regarding a fund's
participation in the program is included under the caption "Other
Information" at the end of each applicable fund's schedule of
investments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Income Fund and the Shareholders of
Fidelity Ginnie Mae Fund, Fidelity Government Securities Fund and
Fidelity Intermediate Government Income Fund (formerly Spartan Limited
Maturity Government Fund):
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Ginnie Mae Fund, Fidelity Government Securities Fund and
Fidelity Intermediate Government Income Fund (formerly Spartan Limited
Maturity Government Fund) (funds of Fidelity Income Fund) at July 31,
1998, the results of their operations, the changes in their 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 Income
Fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at July 31,
1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 8, 1998
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 listed below.
PROPOSAL 1
To elect as Trustees the following twelve nominees.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
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
DOLLARS VOTED DOLLARS VOTED
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 Fidelity Ginnie Mae Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 412,010,357.66 92.982
AGAINST 18,489,458.62 4.172
ABSTAIN 12,608,871.54 2.846
TOTAL 443,108,687.82 100.000
PROPOSAL 3
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Fidelity Government Securities Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 607,828,848.81 96.733
AGAINST 4,696,869.43 0.747
ABSTAIN 15,832,594.27 2.520
TOTAL 628,358,312.51 100.000
PROPOSAL 4
To ratify the selection of PricewaterhouseCoopers LLP as independent
accountants of Spartan Limited Maturity Government Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 346,807,581.09 96.586
AGAINST 3,225,006.92 0.898
ABSTAIN 9,032,796.70 2.516
TOTAL 359,065,384.71 100.000
PROPOSAL 5
To authorize the Trustees to adopt an Amended and Restated Declaration
of Trust.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
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 6
To approve an amended management contract for Fidelity Ginnie Mae
Fund.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 394,250,682.02 88.974
AGAINST 27,055,043.48 6.106
ABSTAIN 21,802,962.32 4.920
TOTAL 443,108,687.82 100.000
PROPOSAL 7
To amend Fidelity Ginnie Mae Fund's fundamental investment limitation
concerning diversification.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 366,461,526.11 82.702
AGAINST 27,812,040.82 6.277
ABSTAIN 48,835,120.89 11.021
TOTAL 443,108,687.82 100.000
PROPOSAL 8
To amend Spartan Limited Maturity Government Fund's fundamental
investment limitation concerning diversification.
# OF % OF
DOLLARS VOTED DOLLARS VOTED
AFFIRMATIVE 320,055,334.74 89.620
AGAINST 17,486,336.33 4.896
ABSTAIN 19,583,973.54 5.484
TOTAL 357,125,644.61 100.000
BROKER 1,939,740.10
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
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.
(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+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
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CALIFORNIA
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251 University Avenue
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CONNECTICUT
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FLORIDA
4400 N. Federal Highway
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90 Alhambra Plaza
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8880 Tamiami Trail, North
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Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
16850 SW 72 Avenue
Tigard, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
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
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
Curt Hollingsworth, 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
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
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 & 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(registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
