FIDELITY
(REGISTERED TRADEMARK)
GINNIE MAE
FUND
SEMIANNUAL REPORT
JANUARY 31, 1998
CONTENTS
President's 3 Ned Johnson on
Message investing
strategies.
Performance 4 How the fund has
done over time.
FUND TALK 7 The manager's
review of fund
performance,
strategy and
outlook.
Investment 10 A summary of major
Changes shifts in the
fund's investments
over the past six
months.
Investments 11 A complete list of
the fund's
investments with
their market
values.
Financial 13 Statements of
Statements assets and
liabilities,
operations, and
changes in net
assets,
as well as
financial
highlights.
NOTES 17 Notes to the
financial
statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
As we entered 1998, the pesky economic and currency crises in
Southeast Asia were still very much with us. Adding to these concerns
was the possibility that U.S. corporate earnings might decline in the
face of lower global product demand. But the news wasn't all bad as
low inflation, low interest rates and moderate economic growth
continued to prevail. The bond market performed well, as it benefited
from the favorable economic backdrop and a "flight-to-safety"
mentality on the part of stock investors.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance.
CUMULATIVE TOTAL RETURNS
Periods ended Past Past Past Past
January 31, 6 1 5 10
1998 mont year year year
hs s s
Fidelity 4.03% 8.97% 37.65% 120.36%
Ginnie Mae
Fund
LB GNMA 4.40% 9.75% 41.63% 139.92%
SB GNMA 4.28% 9.30% 41.36% 139.57%
GNMA Funds 4.17% 9.28% 36.27% 119.14%
Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 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 six months average represents a peer group of 52 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 January Past Past Past
31, 1998 1 5 10
year year year
s s
Fidelity Ginnie Mae 8.97% 6.60% 8.22%
Fund
LB GNMA 9.75% 7.21% 9.15%
SB GNMA 9.30% 7.17% 9.13%
GNMA Funds Average 9.28% 6.38% 8.15%
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
1988/01/31 10000.00 10000.00
1988/02/29 10096.75 10135.42
1988/03/31 10076.32 10048.81
1988/04/30 9988.02 10003.57
1988/05/31 9951.96 9941.07
1988/06/30 10164.90 10232.15
1988/07/31 10129.11 10191.97
1988/08/31 10143.50 10203.88
1988/09/30 10345.80 10466.98
1988/10/31 10526.64 10698.53
1988/11/30 10419.81 10550.61
1988/12/31 10364.95 10492.28
1989/01/31 10529.83 10661.63
1989/02/28 10475.28 10599.12
1989/03/31 10487.61 10612.52
1989/04/30 10692.33 10840.80
1989/05/31 10964.37 11171.76
1989/06/30 11258.98 11484.27
1989/07/31 11445.91 11723.56
1989/08/31 11338.03 11578.02
1989/09/30 11364.89 11651.24
1989/10/31 11607.63 11920.59
1989/11/30 11719.37 12056.91
1989/12/31 11800.21 12138.46
1990/01/31 11670.91 12036.37
1990/02/28 11738.70 12103.04
1990/03/31 11761.71 12134.59
1990/04/30 11629.48 12027.14
1990/05/31 12000.85 12403.94
1990/06/30 12169.51 12595.02
1990/07/31 12363.02 12827.76
1990/08/31 12331.33 12654.84
1990/09/30 12407.78 12752.17
1990/10/31 12544.99 12909.61
1990/11/30 12827.14 13202.77
1990/12/31 13039.27 13422.13
1991/01/31 13203.43 13622.73
1991/02/28 13256.72 13735.83
1991/03/31 13349.11 13834.94
1991/04/30 13447.99 13964.70
1991/05/31 13550.07 14078.69
1991/06/30 13566.42 14105.48
1991/07/31 13767.56 14346.56
1991/08/31 14013.07 14613.23
1991/09/30 14219.69 14870.68
1991/10/31 14413.21 15116.22
1991/11/30 14490.53 15220.99
1991/12/31 14808.32 15575.76
1992/01/31 14685.50 15382.90
1992/02/29 14842.45 15543.91
1992/03/31 14755.08 15455.52
1992/04/30 14881.23 15597.49
1992/05/31 15128.11 15872.20
1992/06/30 15297.44 16066.25
1992/07/31 15371.69 16207.03
1992/08/31 15541.66 16423.70
1992/09/30 15653.40 16569.84
1992/10/31 15526.87 16445.73
1992/11/30 15606.45 16520.73
1992/12/31 15800.42 16729.96
1993/01/31 16008.97 16940.39
1993/02/28 16151.24 17112.41
1993/03/31 16239.67 17206.17
1993/04/30 16295.25 17268.97
1993/05/31 16388.71 17387.42
1993/06/30 16549.30 17528.80
1993/07/31 16636.24 17602.61
1993/08/31 16677.62 17646.36
1993/09/30 16678.57 17661.54
1993/10/31 16735.59 17691.90
1993/11/30 16638.97 17666.60
1993/12/31 16766.19 17830.59
1994/01/31 16954.88 17970.77
1994/02/28 16795.27 17881.48
1994/03/31 16373.51 17398.73
1994/04/30 16242.55 17279.68
1994/05/31 16257.04 17329.09
1994/06/30 16202.07 17303.79
1994/07/31 16530.92 17641.30
1994/08/31 16572.10 17695.47
1994/09/30 16341.48 17446.35
1994/10/31 16320.50 17418.67
1994/11/30 16267.91 17369.56
1994/12/31 16431.49 17562.43
1995/01/31 16778.31 17926.13
1995/02/28 17209.86 18398.46
1995/03/31 17295.02 18488.65
1995/04/30 17529.39 18762.46
1995/05/31 18068.20 19335.40
1995/06/30 18172.74 19466.95
1995/07/31 18226.23 19508.02
1995/08/31 18396.30 19708.62
1995/09/30 18577.99 19901.49
1995/10/31 18728.96 20064.59
1995/11/30 18935.58 20296.44
1995/12/31 19159.89 20557.16
1996/01/31 19279.53 20700.32
1996/02/29 19134.64 20545.55
1996/03/31 19094.65 20493.17
1996/04/30 19033.64 20439.60
1996/05/31 18955.66 20370.84
1996/06/30 19167.71 20638.41
1996/07/31 19237.47 20716.09
1996/08/31 19250.41 20725.02
1996/09/30 19539.37 21072.06
1996/10/31 19924.54 21498.26
1996/11/30 20201.77 21811.07
1996/12/31 20090.64 21694.40
1997/01/31 20222.20 21861.07
1997/02/28 20276.92 21939.94
1997/03/31 20068.40 21723.56
1997/04/30 20373.95 22079.82
1997/05/31 20564.84 22306.32
1997/06/30 20814.38 22570.61
1997/07/31 21181.84 22980.15
1997/08/31 21141.95 22931.04
1997/09/30 21394.88 23235.81
1997/10/31 21609.24 23478.08
1997/11/30 21644.12 23550.11
1997/12/31 21838.79 23762.61
1998/01/30 22035.91 23992.08
IMATRL PRASUN SHR__CHT 19980131 19980319 094130 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Ginnie Mae Fund on January 31, 1988. As the chart
shows, by January 31, 1998, the value of the investment would have
grown to $22,036 - a 120.36% 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 $23,992 - a 139.92% increase.
Beginning with this report, 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
Six Years ended July
months 31,
ended
Januar
y 31,
1998 1997 1996 1995 1994 1993
Dividend 3.29% 7.07% 6.58% 7.35% 5.24% 6.42%
return
Capital 0.74% 3.04% -1.03% 2.91% -5.87% 1.81%
appreciatio
n return
Total ret 4.03% 10.11% 5.55% 10.26% -0.63% 8.23%
urn
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested, if any.
DIVIDENDS AND YIELD
Periods ended Past 1 Past 6 Past 1
January 31, 1998 month months year
Dividends per 5.83(cents) 35.04(cents) 70.75(cents)
share
Annualized 6.29% 6.41% 6.58%
dividend rate
30-day 6.65% - -
annualized yield
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
$10.92 over the past one month, $10.85 over the past six months and
$10.76 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A lack of inflationary pressure
resulted in a favorable investing
climate for bonds during the six
months that ended January 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
gauge of the U.S. taxable
investment-grade bond market -
returned 4.90% during this period.
The bond market fared well in the
months of August and September,
spurred on by the continued
strength of the U.S. economy
and a reluctance on the part of the
Federal Reserve Board to raise
interest rates. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in
Asia came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower
volatility, helping the U.S. bond
market - especially U.S.
Treasuries - surge. The Lehman
Brothers Corporate Bond Index
returned 4.40% for the six months.
Corporate bonds benefited from
continued economic growth and
demand for yield, although they
faltered somewhat in January
1998 as investors feared a
slowdown in demand in Asia
would eat into corporate earnings.
Despite increased prepayment
activity due to lower rates,
mortgage-backed bonds also
fared relatively well, with the
Lehman Brothers
Mortgage-Backed Securities
Index returning 4.45%.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Ginnie Mae Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended January 31, 1998, the fund
provided a total return of 4.03%. To get a sense of how the fund did
compared to its competitors, the GNMA funds average returned 4.17% for
the same six-month period, according to Lipper Analytical Services.
Additionally, the Lehman Brothers GNMA Index - which tracks the types
of securities in which the fund invests - returned 4.40% for the same
six-month period. For the 12-month period that ended January 31, 1998,
the fund had a total return of 8.97%. That performance compared to the
GNMA funds average's 9.28% return and the Lehman Brothers GNMA Index's
9.75% return.
Q. COULD YOU DESCRIBE YOUR INVESTMENT APPROACH?
A. Sure. A key element of my approach throughout the past year was
keeping the fund's duration neutral, or similar to that of the Lehman
Brothers GNMA Index. Duration measures how sensitive the fund and the
index are to changing interest rates: The longer the fund's duration,
the more sensitive its share price is to changing rates, and vice
versa. Since I think it is difficult for anyone to predict the future
level of interest rates consistently over a meaningful period of time,
I position the fund to have no more sensitivity to interest-rate
changes than the Ginnie Mae market, as measured by the Lehman Brothers
GNMA Index.
Q. WHICH GINNIE MAES DID YOU CHOOSE?
A. Generally speaking, I tried to emphasize Ginnie Mae securities that
had only a slight risk of being prepaid before their maturity, and
attempted to avoid those that were highly likely to be prepaid.
Prepayment of a mortgage security can be a problem for Ginnie Mae bond
holders because it means that they may be forced to reinvest the money
back into the mortgage market at a time when bond yields are lower. In
order to avoid this potentially unpleasant occurrence, I tended to shy
away from securities with coupons - which is the interest rate on the
mortgage that homeowners promise to pay - of 8.5% and 9.0%, because I
felt that they were highly likely to be prepaid. In contrast, I
emphasized securities with coupons of 8.0% and lower and those with
coupons of 10.5% and higher, both of which stood a smaller chance of
being prepaid. While it may defy conventional logic, mortgages with
coupons of 10.5% and higher aren't really likely to be prepaid, even
though the borrower might be able to save a significant amount of
money by refinancing. For a variety of reasons, homeowners with these
loans have chosen not to refinance, despite being presented with
several attractive opportunities to do so. I also avoided securities
containing mortgages issued in 1995 through 1997, since I believed
they were likely to be prepaid much faster than newly issued or much
older loans.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. None of the fund's holdings proved to be disappointing during the
past six months. However, it wasn't always easy to find attractive
opportunities. Many times, the difference in yields and prices among
Ginnie Mae securities can be quite varied, based on whether individual
securities are in or out of investors' favor as a function of their
coupons, maturities or other factors. But over the past six months,
Ginnie Mae securities were priced very efficiently and there were few
opportunities to find attractively priced bonds.
Q. THE FUND USES A STRATEGY KNOWN AS "DOLLAR ROLL." CAN YOU EXPLAIN
WHAT THIS STRATEGY IS AND WHY IT CAN BE ATTRACTIVE?
A. Sure. A dollar roll essentially describes a strategy whereby I sell
a security that the fund owns, with settlement of that sale to occur
in the current month. At the same time, I buy a similar security at a
lower price, with settlement of that purchase to occur in the
following month. By conducting these two simultaneous trades, I
attempt to add to the fund's total return.
Q. WHAT'S YOUR OUTLOOK?
A. I'm not in the interest-rate forecasting business, but I would be
surprised if interest rates fell as much over the next year as they
did in the previous year. Historically speaking, it would be highly
unusual to experience back-to-back declines of the magnitude witnessed
in 1997. Instead of trying to predict the direction of interest rates,
I'll try to identify those securities I believe will offer the best
total-return potential whether rates rise, fall or remain stable.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
CURT HOLLINGSWORTH ON
SELECTING MORTGAGE-BACKED
SECURITIES:
"Mortgage securities are pools of
individual home loans. Certificates
backed by these loans are sold to
investors, who collect interest and
principal as homeowners make
monthly mortgage payments.
Recently, falling interest rates ignited
a wave of home mortgage refinancings,
subjecting some mortgage-backed
securities to higher `prepayment risk'
- - the risk that mortgage holders will
prepay their mortgages, leaving those
who hold the prepaid securities to
reinvest at lower interest rates.
"The likelihood that a mortgage
security will be prepaid is one of the
most important factors I consider in
choosing mortgage securities for the
fund, since prepayment activity can
dramatically affect mortgage
securities' prices. I focus on finding
those securities that I think are less
susceptible to a pick-up or slowdown
in the pace of refinancings, such as
`seasoned' mortgage securities.
Seasoned securities have been
through several refinancing periods
and the mortgage holders haven't
shown a propensity to prepay.
Additionally, I also try to own bonds
with very low and very high coupons,
which is the rate of interest borrowers
promise to pay. Mortgages with either
very high coupons issued years ago,
or very low coupons, are often less
likely to experience dramatic changes
in prepayment activity."
FUND FACTS
GOAL: 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 January 31, 1998,
more than $874 million
MANAGER: Curt Hollingsworth,
since 1997; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1998
% of % of
fund's fund's
investment investment
s s
6 months
ago
6 - 7.1 12.0
6.99
%
7 - 38.6 35.2
7.99
%
8 - 30.3 30.3
8.99
%
9 - 4.9 7.8
9.99
%
10 - 2.6 3.3
10.99
%
11% 1.6 2.0
and
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 JANUARY 31, 1998
6 months
ago
Years 5.4 6.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 1998
6 months
ago
Years 2.6 3.4
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 JANUARY 31, 1998 AS OF JULY 31, 1997
ROW: 1, COL: 1, VALUE: 14.9
ROW: 1, COL: 2, VALUE: 85.09999999999999
ROW: 1, COL: 1, VALUE: 9.4
ROW: 1, COL: 2, VALUE: 90.59999999999999
MORTGAGE-BACKED
SECURITIES * 85.1%
SHORT-TERM
INVESTMENTS 14.9%
GNMA SECURITIES 82.5%
MORTGAGE-BACKED
SECURITIES ** 90.6%
SHORT-TERM
INVESTMENTS 9.4%
GNMA SECURITIES 81.0%
*
**
INVESTMENTS JANUARY 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 85.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FREDDIE MAC - 2.3%
8 1/2%, 2/1/04 to 10/1/09 $ 997,904 $ 1,037,774
9%, 1/1/17 to 4/1/21 3,548,268 3,748,206
10%, 10/1/04 to 12/1/19 6,703,433 7,277,089
10 1/4%, 2/1/09 to 11/1/16 3,446,311 3,755,659
10 1/2%, 5/1/10 to 12/1/20 5,259,664 5,877,375
11 1/4%, 2/1/10 317,622 355,505
11 3/4%, 11/1/11 162,999 183,848
12%, 6/1/15 to 11/1/15 319,557 370,848
12 1/2%, 11/1/12 to 9/1/13 771,575 900,464
23,506,768
FANNIE MAE - 0.3%
8 1/2%, 6/1/08 to 4/1/16 1,060,281 1,105,741
9%, 10/1/11 239,573 251,269
10 1/4%, 12/1/15 to 10/1/18 629,130 693,637
11 1/2%, 6/1/13 to 9/1/15 449,673 511,300
12 1/2%, 10/1/15 260,987 305,381
14%, 11/1/12 8,671 10,522
2,877,850
GOVERNMENT NATIONAL MORTGAGE ASSOCATION - 82.5%
6 1/2%, 1/15/28 to 2/15/28 73,299,782 73,041,505
7%, 1/15/08 to 2/15/28 187,826,980 190,947,769
7 1/2%, 6/15/02 to 2/15/28 198,784,185 204,781,985
8%, 7/15/01 to 2/15/28 236,475,128 246,280,975
8%, 2/15/28 (a) 5,000,000 5,216,484
8 1/2%, 2/15/05 to 10/15/22 52,975,499 56,614,020
9%, 12/15/04 to 12/15/24 9,741,208 10,520,549
9 1/2%, 4/15/01 to 11/15/22 32,450,810 35,225,637
10%, 10/15/00 to 2/15/25 2,451,191 2,723,896
10 1/2%, 5/15/98 to 9/15/19 6,000,218 6,714,452
11%, 1/15/10 to 8/15/19 4,358,188 4,966,740
11 1/2%, 4/15/10 to 4/15/19 5,121,041 5,880,223
12%, 5/15/99 to 11/15/15 1,099,718 1,275,081
13%, 1/15/11 to 5/15/15 790,955 944,454
13 1/2%, 5/15/10 to 1/15/15 398,706 475,964
845,609,734
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $844,092,095) 871,994,352
CASH EQUIVALENTS - 14.9%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.59%, dated
1/30/98 due 2/2/98 $ 153,082,231 $ 153,011,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $997,103,095) $ 1,025,005,352
LEGEND
1. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
INCOME TAX INFORMATION
At January 31, 1998, the aggregate cost of investment securities for
income tax purposes was $1,007,661,596. Net unrealized appreciation
aggregated $17,343,756 of which $19,515,108 related to appreciated
investment securities and $2,171,352 related to depreciated investment
securities.
At July 31, 1997, the fund had a capital loss carryforward of
approximately $25,746,000 of which $20,992,000 and $4,754,000 will
expire on July 31, 2003 and 2004, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
2.Assets 3. 4.
5.Investment in 6. $ 1,025,
securities, at value 005,352
(including repurchase
agreements of $153,011,000)
(cost $997,103,095) - See
accompanying schedule
7.Receivable for 8. 42,812,
investments sold 547
9.Interest receivable 10. 5,116,2
36
11. 12.TOTAL ASSETS 13. 1,072,9
34,135
14.Liabilities 15. 16.
17.Payable to custodian $ 395,06 18.
bank 3
19.Payable for 189,474 20.
investments purchased ,204
Regular delivery
21. Delayed delivery 5,216,4 22.
84
23.Payable for fund 2,252,2 24.
shares redeemed 45
25.Distributions payable 569,144 26.
27.Accrued management 315,839 28.
fee
29.Other payables and 272,345 30.
accrued expenses
31. 32.TOTAL LIABILITIES 33. 198,495
,324
34.35.NET ASSETS 36. $ 874,43
8,811
37.Net Assets consist 38. 39.
of:
40.Paid in capital 41. $ 878,68
4,807
42.Distributions in 43. (840,65
excess of net 5)
investment income
44.Accumulated 45. (31,307
undistributed net ,598)
realized gain (loss)
on investments and
foreign currency
transactions
46.Net unrealized 47. 27,902,
appreciation 257
(depreciation) on
investments
48.49.NET ASSETS, for 80,032,790 50. $ 874,43
shares outstanding 8,811
51.52.NET ASSET VALUE, offering 53. $10.93
price and redemption
price per share
($874,438,811 (divided by) 80,032,790 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
54.Investment Income 56. $ 30,665
55.Interest ,944
57.Expenses 58. 59.
60.Management fee $ 1,840, 61.
372
62.Transfer agent fees 995,284 63.
64.Accounting fees and 137,569 65.
expenses
66.Non-interested 1,597 67.
trustees' compensation
68.Custodian fees and 87,016 69.
expenses
70.Registration fees 29,328 71.
72.Audit 26,561 73.
74.Legal 16,110 75.
76.Miscellaneous 3,594 77.
78. Total expenses before 3,137,4 79.
reductions 31
80. Expense reductions (10,982 3,126,4
) 49
81.82.NET INVESTMENT INCOME 83. 27,539,
495
84.Realized and 86. 6,881,1
Unrealized Gain (Loss) 32
85.Net realized gain (loss) on investment securities
87.Change in net 88. (822,25
unrealized 6)
appreciation
(depreciation) on
investment securities
89.90.NET GAIN (LOSS) 91. 6,058,8
76
92.93.94.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 95. $ 33,598
,371
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
Six Year
months ended
ended July
January 31,
31, 1997
1998
(Unaudi
ted)
96.Increase (Decrease)
in Net Assets
97.Operations $ 27,539 $ 53,629
Net investment income ,495 ,889
98. Net realized gain 6,881,1 2,497,4
(loss) 32 90
99. Change in net (822,25 20,073,
unrealized 6) 014
appreciation
(depreciation)
100. 33,598, 76,200,
101.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 371 393
FROM OPERATIONS
102.Distributions to (27,178 (52,898
shareholders from net ,411) ,937)
investment income
103.Share transactions 151,671 195,576
Net proceeds from ,664 ,516
sales of shares
104. 23,622, 45,336,
Reinvestment of 532 707
distributions
105. (129,41 (232,01
Cost of shares 0,699) 3,817)
redeemed
106.107. 45,883, 8,899,4
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 497 06
FROM SHARE TRANSACTIONS
108. 52,303, 32,200,
109.TOTAL INCREASE (DECREASE) IN NET ASSETS 457 862
110.Net Assets 111. 112.
113. 822,135 789,934
Beginning of period ,354 ,492
114. $ 874,43 $ 822,13
End of period 8,811 5,354
(including
distributions in
excess
of net investment
income of $840,655 and
$1,201,739, respectively)
115.Other Information 117. 118.
116.Shares
119. 13,974, 18,325,
Sold 697 132
120. 2,174,7 4,249,0
Issued in reinvestment 95 34
of distributions
121. (11,923 (21,757
Redeemed ,427) ,983)
122. 4,226,0 816,183
Net increase 65
(decrease)
FINANCIAL HIGHLIGHTS
123. Six Years ended July 31,
months
ended
January
31,
1998
124. (Unaud 1997 1996 1995 1994 1993
ited)
125.SELECTED
PER-SHARE DATA
126.Net $ 10. $ 10. $ 10. $ 10. $ 11. $ 11.
asset 850 530 640 360 260 060
value,
beginnin
g of
period
127.Income .355 E .720 E .688 .721 .582 .800
from
Investme
nt
Operatio
ns
Net
investme
nt
income
128. .075 .310 (.10 .292 (.65 .083
Net 7) 0)
realized
and
unrealiz
ed gain
(loss)
129. .430 1.03 .581 1.01 (.06 .883
Total 0 3 8)
from
investme
nt
operatio
ns
130.Less
Distribu
tions
131. (.35 (.71 (.69 (.71 (.58 (.68
From net 0) 0) 1) 3) 2) 3)
investme
nt
income
132. - - - - (.19 -
From net 0)
realized
gain
133. - - - (.02 (.06 -
In 0) 0)
excess
of net
realized
gain
134. (.35 (.71 (.69 (.73 (.83 (.68
Total 0) 0) 1) 3) 2) 3)
distribu
tions
135.Net $ 10. $ 10. $ 10. $ 10. $ 10. $ 11.
asset 930 850 530 640 360 260
value,
end of
period
136.TOTAL 4.03 10.1 5.55 10.2 (.63 8.23
RETURN B, C % 1% % 6% )% %
137.RATIOS AND
SUPPLEMENTAL DATA
138.Net $ 874 $ 822 $ 789 $ 767 $ 768 $ 975
assets, ,439 ,135 ,934 ,423 ,765 ,565
end of
period
(000
omitted)
139.Ratio .74% .76% .76% .75% .82% .80%
of A
expenses
to
average
net
assets
140.Ratio .74% .75% .75% .75% .82% .80%
of A D D
expenses
to
average
net
assets
after
expense
reductio
ns
141.Ratio 6.49 6.75 6.69 7.24 7.03 7.26
of net % A % % % % %
investme
nt
income
to
average
net
assets
142.Portfo 210% 98% 107% 210% 303% 259%
lio A
turnover
rate
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
E NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Ginnie Mae Fund (the fund) is a fund of Fidelity Income Fund
(the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements
have been prepared in conformity with generally accepted accounting
principles which permit management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
between the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, capital
loss carryforwards and losses deferred due to wash sales and excise
tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $908,231,718 and $869,058,899, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
MANAGEMENT FEE - CONTINUED
they resulted in the same or a lower management fee. For the period,
the management fee was equivalent to an annualized rate of .44% of
average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .23% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$1,186 and $9,796, respectively, under these arrangements.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
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(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
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(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
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OVERNIGHT EXPRESS
Fidelity Investments
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SELLING SHARES
Fidelity Investments
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Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
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P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
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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
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For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
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1625 Broadway
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1000 Abernathy Road
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HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
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3232 Lake Avenue
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INDIANA
4729 East 82nd Street
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LOUISIANA
201 St. Charles Avenue
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MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
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1 West Pennsylvania Ave.
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MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
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44 Mall Road
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416 Belmont Street
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MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
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200 North Broadway
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NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
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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
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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
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Curt Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
International Bond
Government Securities
Intermediate Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Target Timeline 1999, 2001 & 2003
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SPARTAN(REGISTERED TRADEMARK)
(REGISTERED TRADEMARK)
LIMITED MATURITY GOVERNMENT
FUND
SEMIANNUAL REPORT
JANUARY 31, 1998
CONTENTS
President's 3 Ned Johnson on
Message investing
strategies.
Performance 4 How the fund has
done over time.
FUND TALK 7 The manager's
review of fund
performance,
strategy and
outlook.
Investment 10 A summary of major
Changes shifts in the
fund's investments
over the past six
months.
Investments 11 A complete list of
the fund's
investments with
their market
values.
Financial 17 Statements of
Statements assets and
liabilities,
operations, and
changes in net
assets,
as well as
financial
highlights.
NOTES 21 Notes to the
financial
statements.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
As we entered 1998, the pesky economic and currency crises in
Southeast Asia were still very much with us. Adding to these concerns
was the possibility that U.S. corporate earnings might decline in the
face of lower global product demand. But the news wasn't all bad as
low inflation, low interest rates and moderate economic growth
continued to prevail. The bond market performed well, as it benefited
from the favorable economic backdrop and a "flight-to-safety"
mentality on the part of stock investors.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value), and the effect of the $5 account closeout fee on
an average-sized account. You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
Periods ended Past Past Pas Lif
January 31, 1998 6 1 t 5 e
mont year yea of
hs rs fun
d
Spartan Ltd Maturity 4.30% 8.63% 35.19% 101.14%
Government
LB Intermediate 4.27% 8.71% 35.57% n/a
Govt.
SB Treasury/Agency 4.34% 8.76% 35.60% n/a
1-10 Yr
Short-Intermediate 3.58% 7.42% 29.63% n/a
U.S.
Government Funds
Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or since the fund started on May 2, 1988. For example, if you
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 six
months average represents a peer group of 101 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 January Past Pas Lif
31, 1998 1 t 5 e
year yea of
rs fun
d
Spartan Ltd Maturity 8.63% 6.22% 7.43%
Government
LB Intermediate Govt. 8.71% 6.28% n/a
SB Treasury/Agency 8.76% 6.28% n/a
1-10 Yr
Short-Intermediate 7.42% 5.31% n/a
U.S.
Government Funds
Average
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19980131 19980226 153319 S00000000000001
Spartan Ltd Mat Govt. LB Govt Intermediate
00452 LB008
1988/05/31 10000.00 10000.00
1988/06/30 10089.93 10162.77
1988/07/31 10093.28 10132.53
1988/08/31 10115.75 10146.11
1988/09/30 10224.38 10321.45
1988/10/31 10323.95 10463.72
1988/11/30 10319.91 10373.74
1988/12/31 10358.92 10383.74
1989/01/31 10442.02 10487.30
1989/02/28 10446.04 10442.44
1989/03/31 10499.63 10491.40
1989/04/30 10638.18 10703.14
1989/05/31 10788.05 10909.74
1989/06/30 10980.47 11187.87
1989/07/31 11117.13 11415.24
1989/08/31 11049.90 11260.93
1989/09/30 11106.17 11314.76
1989/10/31 11282.21 11552.13
1989/11/30 11373.33 11666.45
1989/12/31 11431.33 11700.80
1990/01/31 11417.22 11628.00
1990/02/28 11480.37 11671.07
1990/03/31 11507.34 11684.91
1990/04/30 11524.33 11645.69
1990/05/31 11697.25 11895.11
1990/06/30 11809.06 12051.47
1990/07/31 11949.47 12220.40
1990/08/31 11998.08 12176.31
1990/09/30 12094.04 12285.25
1990/10/31 12219.36 12456.23
1990/11/30 12362.55 12643.87
1990/12/31 12475.38 12818.95
1991/01/31 12614.53 12950.71
1991/02/28 12712.89 13029.15
1991/03/31 12817.69 13101.18
1991/04/30 12928.04 13236.52
1991/05/31 12994.86 13311.12
1991/06/30 13046.37 13322.14
1991/07/31 13195.74 13466.46
1991/08/31 13359.78 13722.03
1991/09/30 13495.43 13955.29
1991/10/31 13664.13 14114.99
1991/11/30 13713.77 14280.59
1991/12/31 13961.32 14627.67
1992/01/31 13893.58 14486.94
1992/02/29 13975.89 14532.06
1992/03/31 13959.12 14474.12
1992/04/30 14062.81 14604.09
1992/05/31 14203.34 14821.97
1992/06/30 14313.09 15035.50
1992/07/31 14354.40 15323.88
1992/08/31 14527.13 15480.51
1992/09/30 14627.24 15693.78
1992/10/31 14567.21 15505.37
1992/11/30 14634.63 15442.31
1992/12/31 14766.09 15641.23
1993/01/31 14892.82 15931.92
1993/02/28 15056.34 16166.72
1993/03/31 15135.67 16226.19
1993/04/30 15233.61 16353.08
1993/05/31 15283.89 16308.48
1993/06/30 15444.20 16544.56
1993/07/31 15496.70 16577.89
1993/08/31 15612.67 16824.74
1993/09/30 15666.30 16893.18
1993/10/31 15702.11 16933.17
1993/11/30 15598.00 16849.35
1993/12/31 15713.88 16919.07
1994/01/31 15877.45 17086.21
1994/02/28 15728.38 16851.66
1994/03/31 15526.38 16605.83
1994/04/30 15450.88 16498.42
1994/05/31 15434.89 16510.22
1994/06/30 15429.46 16513.55
1994/07/31 15585.43 16730.41
1994/08/31 15631.40 16779.11
1994/09/30 15597.54 16640.43
1994/10/31 15615.86 16643.77
1994/11/30 15579.93 16569.69
1994/12/31 15564.70 16623.77
1995/01/31 15799.88 16894.21
1995/02/28 16029.35 17220.01
1995/03/31 16105.63 17314.86
1995/04/30 16295.84 17515.57
1995/05/31 16717.90 18009.54
1995/06/30 16819.70 18124.12
1995/07/31 16856.54 18132.83
1995/08/31 16998.45 18282.54
1995/09/30 17122.78 18405.07
1995/10/31 17354.47 18606.80
1995/11/30 17550.55 18833.66
1995/12/31 17733.02 19019.51
1996/01/31 17883.78 19179.97
1996/02/29 17710.59 18977.21
1996/03/31 17611.99 18890.57
1996/04/30 17562.13 18835.46
1996/05/31 17552.16 18825.72
1996/06/30 17721.23 19016.94
1996/07/31 17782.38 19075.90
1996/08/31 17804.45 19097.69
1996/09/30 18031.64 19344.54
1996/10/31 18336.75 19661.63
1996/11/30 18568.50 19899.00
1996/12/31 18466.80 19791.85
1997/01/31 18534.14 19867.99
1997/02/28 18571.88 19900.28
1997/03/31 18451.99 19786.98
1997/04/30 18652.09 20010.25
1997/05/31 18797.95 20166.11
1997/06/30 18962.23 20338.62
1997/07/31 19304.60 20713.64
1997/08/31 19253.57 20634.44
1997/09/30 19476.00 20858.73
1997/10/31 19680.92 21101.74
1997/11/30 19742.34 21148.14
1997/12/31 19887.97 21320.40
1998/01/30 20130.39 21598.52
IMATRL PRASUN SHR__CHT 19980131 19980226 153322 R00000000000119
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Limited Maturity Government Fund on May 31, 1988,
shortly after the fund started. As the chart shows, by January 31,
1998, the value of the investment would have grown to $20,130 - a
101.30% increase on the initial investment, which includes the effect
of the $5 account closeout fee. 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 $21,599 - a 115.99% increase. Beginning with this
report, 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 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
Six Years ended July 31,
months
ended
Januar
y 31,
1998 1997 1996 1995 1994 1993
Dividend 3.69% 7.11% 6.61% 6.60% 5.22% 6.18%
return
Capital 0.61% 1.44% -1.13 1.55% -4.66% 1.77%
appreciation %
return
Total retur 4.30% 8.55% 5.48% 8.15% 0.56% 7.95%
n
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested, if any.
Capital appreciation and total returns include the effect of the $5
account closeout fee on an average-sized account.
DIVIDENDS AND YIELD
Periods ended Past Past 6 Past
January 31, 1998 1 months 1
month year
Dividends per 5.17(cents) 35.37(cents) 67.88(cents)
share
Annualized 6.18% 7.17% 6.98%
dividend rate
30-day annualized 5.92% - -
yield
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 $9.85
over the past one month, $9.78 over the past six months and $9.72 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
5.66%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A lack of inflationary pressure
resulted in a favorable investing
climate for bonds during the six
months that ended January 31,
1998. The Lehman Brothers
Aggregate Bond Index - a broad
gauge of the U.S. taxable
investment-grade bond market -
returned 4.90% during this period.
The bond market fared well in the
months of August and September,
spurred on by the continued
strength of the U.S. economy and
a reluctance on the part of the
Federal Reserve Board to raise
interest rates. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in
Asia came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower
volatility, helping the U.S. bond
market - especially U.S.
Treasuries - surge. The Lehman
Brothers Corporate Bond Index
returned 4.40% for the six months.
Corporate bonds benefited from
continued economic growth and
demand for yield, although they
faltered somewhat in January
1998 as investors feared a
slowdown in demand in Asia
would eat into corporate earnings.
Despite increased prepayment
activity due to lower rates,
mortgage-backed bonds also fared
relatively well, with the Lehman
Brothers Mortgage-Backed
Securities Index returning 4.45%.
An interview with Curt Hollingsworth, Portfolio Manager of Spartan
Limited Maturity Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended January 31, 1998, the fund
provided a total return of 4.30%. To get a sense of how the fund did
compared to its competitors, the short-intermediate U.S. government
funds average returned 3.58% for the same six-month 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 4.27% for the same
six-month period. For the 12-month period that ended January 31, 1998,
the fund had a total return of 8.63%. That performance compares to the
7.42% return of the short-intermediate U.S. government funds
average's, according to Lipper and the Lehman Brothers Intermediate
Government Index's 8.71% return.
Q. WHY DID THE FUND BEAT ITS COMPETITORS?
A. The fund's better-than-average performance can be attributed
primarily to the fact that it had more U.S. government agency and
mortgage securities - and fewer Treasury securities - than many of its
competitors. During much of the past six months and year, the
performance of agency and mortgage securities generally outpaced that
of Treasury securities. Granted, agency and mortgage securities failed
to keep pace with Treasuries at the tail end of the period, but their
strong performance earlier in the period was enough to offset their
late-period lag. At the end of the period, federal agency securities
accounted for 55.4% of the fund's investments, mortgage-related
securities were 23.3% and Treasury securities were 19.3%.
Q. THE FUND HELD MORE AGENCY SECURITIES AND FEWER MORTGAGE SECURITIES
AT THE END OF THE PERIOD THAN IT DID SIX MONTHS AGO. WHAT ACCOUNTED
FOR THAT SHIFT?
A. Toward the end of 1997, we saw a widening of the difference between
yields offered by agency and Treasury securities, with agencies
offering a growing yield advantage over Treasuries. Because of this
yield-spread widening, the prices of agency securities - which, like
all fixed-income investments, move in the opposite direction of their
yields - became more attractive, in my view. Mortgage securities, on
the other hand, didn't offer as many attractive opportunities because
of their more stable yield relationship to Treasuries.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU FOCUS ON?
A. I emphasized agency securities that are non-callable - those that
can't be redeemed by their issuer before maturity. Securities
typically are "called" - or redeemed - when interest rates fall enough
so that the issuer can save money by issuing new securities at lower
rates. A call is a positive for an issuer because it cuts its
borrowing costs. But holders of callable bonds are often at a
disadvantage because they may have to reinvest the proceeds from the
called bonds in new, lower-yielding bonds. I prefer non-callable
securities because they generally perform better than callable bonds
when interest rates fall and bond prices rally, and generally fare no
worse than callable bonds when interest rates rise and bond prices
fall.
Q. LET'S TALK ABOUT TREASURY SECURITIES AND THE CHOICES YOU MADE THERE
. . .
A. Within the Treasury sector, I preferred to own securities that were
issued some time ago. Newly issued Treasuries, which are known as
"current" Treasury issues, typically are priced higher than older
Treasuries with similar maturities. That's because current issues
command a premium price for being more easily traded, or more liquid.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET AND THE FUND?
A. I'm not in the interest-rate forecasting business, but I would be
surprised if interest rates fell as much over the next year as they
did in the previous year. Historically speaking, it would be highly
unusual to experience back-to-back declines of the magnitude witnessed
in 1997. But no matter what the direction of interest rates, I'll try
to identify those securities I believe will offer the best
total-return potential whether rates rise, fall or remain stable.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
CURT HOLLINGSWORTH ON
SELECTING MORTGAGE-BACKED
SECURITIES:
"Mortgage-backed securities are
pools of individual home loans.
Certificates backed by these loans
are sold to investors, who collect
interest and principal as
homeowners make monthly
mortgage payments. Recently,
falling interest rates have incited a
wave of home mortgage
refinancings, and have subjected
some mortgage-backed
securities to higher `prepayment
risk' - the risk that mortgage
holders will prepay their
mortgages, leaving those who hold
the prepaid securities to reinvest
at lower interest rates.
"The likelihood that a mortgage
security will be prepaid is one of
the most important factors I
consider in choosing these types of
securities for the fund, since
prepayment activity can
dramatically affect mortgage
securities' prices. I focus on
finding those that I think are less
susceptible to a pick-up or
slowdown in the pace of
refinancings, such as `seasoned'
mortgage securities. Seasoned
securities have been through
several refinancing periods during
which the mortgage holders
haven't shown a propensity to
prepay. Additionally, I also try to
own bonds with very low and very
high coupons, which is the rate of
interest borrowers promise to pay.
Mortgages with either very high
coupons issued years ago, or very
low coupons, are often less likely
to experience dramatic changes in
prepayment activity."
FUND FACTS
GOAL: high current income
with preservation of capital by
investing mainly in U.S.
government and agency
securities while maintaining
an average maturity of 10
years or less
FUND NUMBER: 452
TRADING SYMBOL: FSTGX
START DATE: May 2, 1988
SIZE: as of January 31, 1998,
more than $777 million
MANAGER: Curt Hollingsworth,
since 1988; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF JANUARY 31, 1998
% of % of
fund's fund's
investment investment
s s
6 months
ago
Less 5.1 5.2
than
4%
4 - 0.1 8.0
4.99
%
5 - 12.7 7.1
5.99
%
6 - 35.9 14.7
6.99
%
7 - 7.8 16.3
7.99
%
8 - 10.3 12.5
8.99
%
9 - 12.9 10.2
9.99
%
10 - 4.1 5.1
10.99
%
11 - 4.6 10.7
11.99
%
12 - 3.4 4.2
12.99
%
13% 1.1 1.3
and
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 JANUARY 31, 1998
6 months
ago
Years 4.6 4.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 1998
6 months
ago
Years 3.1 3.0
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 JANUARY 31, 1998 AS OF JULY 31, 1997
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 74.7
ROW: 1, COL: 3, VALUE: 23.3
MORTGAGE-BACKED
SECURITIES 28.1%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 67.2%
SHORT-TERM
INVESTMENTS 4.7%
MORTGAGE-BACKED
SECURITIES 23.3%
U.S. GOVERNMENT
AND GOVERNMENT
AGENCY OBLIGATIONS 74.7%
SHORT-TERM
INVESTMENTS 2.0%
ROW: 1, COL: 1, VALUE: 4.7
ROW: 1, COL: 2, VALUE: 67.2
ROW: 1, COL: 3, VALUE: 28.1
INVESTMENTS JANUARY 31, 1998 (UNAUDITED
)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 74.7%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 19.3%
9 1/4%, 8/15/98 $ 6,290,000 $ 6,415,800
6%, 9/30/98 55,000,000 55,227,695
8 7/8%, 2/15/99 11,600,000 12,000,548
6%, 8/15/99 4,600,000 4,642,412
6 7/8%, 3/31/00 4,800,000 4,946,976
6 3/8%, 3/31/01 21,080,000 21,676,142
6 5/8%, 6/30/01 9,500,000 9,856,250
5 7/8%, 11/30/01 21,837,000 22,178,094
7%, 7/15/06 11,440,000 12,528,630
TOTAL U.S. TREASURY OBLIGATIONS 149,472,547
U.S. GOVERNMENT AGENCY OBLIGATIONS - 55.4%
Fannie Mae:
8 1/4%, 12/18/00 5,370,000 5,740,852
5.55%, 1/17/01 6,630,000 6,633,116
5.80%, 12/10/03 2,945,000 2,959,725
7.49%, 3/02/05 5,480,000 6,022,849
7.16%, 5/11/05 9,005,000 9,738,097
Federal Agricultural Mortgage Corporation:
7.63%, 1/16/01 6,000,000 6,340,320
6.92%, 2/10/01 1,400,000 1,452,934
7.04%, 8/10/05 2,050,000 2,203,115
Federal Farm Credit Bank:
5.51%, 1/25/01 9,000,000 8,992,980
5.285%, 2/21/01 13,900,000 13,800,059
6.10%, 9/24/01 41,000,000 41,704,380
5.60%, 1/30/02 3,663,000 3,668,165
5.54%, 9/10/03 1,300,000 1,295,125
8.09%, 12/28/04 3,500,000 3,956,645
9.15%, 2/14/05 500,000 595,545
Federal Home Loan Bank:
6.37%, 6/30/03 1,060,000 1,096,104
7.59%, 3/10/05 1,940,000 2,143,390
6.45%, 6/8/05 6,000,000 6,239,040
6.34%, 6/13/05 3,500,000 3,616,480
6 1/2%, 11/29/05 3,000,000 3,134,070
6 3/4%, 4/10/06 1,000,000 1,064,530
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Financing Corp. stripped principal:
Series A, 0%, 2/8/02 $ 6,339,000 $ 5,071,834
0%, 5/2/02 3,667,000 2,895,610
0%, 6/27/02 9,425,000 7,380,152
0%, 9/26/04 4,472,000 3,057,596
0%, 6/6/05 6,126,000 4,015,225
0%, 6/27/05 5,100,000 3,331,524
Freddie Mac:
8.12%, 1/31/05 7,350,000 8,325,051
6.78%, 8/18/05 15,000,000 15,892,950
5.83%, 2/09/06 4,250,000 4,257,310
6.99%, 7/05/06 1,000,000 1,075,160
Government Loan Trusts (assets of Trust guaranteed by U.S.
Government through Agency for International
Development) 8 1/2%, 4/1/06 11,490,000 12,818,933
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 5,058,882 5,385,079
Class 1-C, 9 1/4%, 11/15/01 47,124,307 50,292,946
Class 2-E, 9.40%, 5/15/02 11,149,922 11,880,800
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1993-C, 5.20%, 10/15/04 1,473,600 1,451,209
Series 1993-D, 5.23%, 5/15/05 1,104,255 1,087,433
Series 1994-A, 7.12%, 4/15/06 5,848,605 6,161,825
Series 1994-C, 6.61%, 9/15/99 246,359 247,974
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1992-A, 7.02%, 9/1/04 7,302,750 7,581,569
Series 1993-A, 4.86%, 4/1/98 995,000 993,965
Series 1994-B, 7 1/2%, 1/26/06 851,103 910,254
Series 1997-A, 6.104%, 7/15/03 15,432,628 15,577,695
Israel Export Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank)
Series 1994-1, 6.88%, 1/26/03 1,058,824 1,087,571
Overseas Private Investment Corp. (U.S. Government
guaranteed participation certificate):
Series 1994-195, 6.08%, 8/15/04 (callable) 7,075,600 7,158,951
Series 1996-A1, 6.73%, 9/15/10 (callable) 4,000,000 4,183,720
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Private Export Funding Corp. secured:
5.65%, 3/15/03 $ 2,271,500 $ 2,271,455
5.48%, 9/15/03 2,940,000 2,926,844
5.80%, 2/1/04 4,590,000 4,619,055
6.86%, 4/30/04 2,187,465 2,258,877
State of Israel (guaranteed by U.S. Government through
Agency for International Development):
7 1/8%, 8/15/99 3,247,000 3,324,798
0%, 11/15/00 8,165,000 7,011,857
0%, 11/15/01 8,485,000 6,902,895
8%, 11/15/01 14,310,000 15,480,129
6 1/8%, 3/15/03 2,437,000 2,482,767
6 5/8%, 8/15/03 4,860,000 5,095,127
5 5/8%, 9/15/03 11,550,000 11,572,869
6 3/4%, 8/15/04 350,000 370,255
7 5/8%, 8/15/04 1,320,000 1,457,931
6.60%, 2/15/08 27,910,000 29,335,922
U.S. Department of Housing and Urban Development
government guaranteed participation certificates:
Series 1996-A, 6.59%, 8/1/00 1,340,000 1,371,530
Series 1996-A, 6.98%, 8/1/05 8,000,000 8,552,880
U.S. Trade Trust Certificates (assets of Trust guaranteed by
U.S. Government through Export-Import Bank):
8.17%, 1/15/07 5,790,000 6,364,715
6.69%, 1/15/09 (a) 3,405,829 3,530,618
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 429,450,381
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $567,617,749) 578,922,928
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 23.0%
FANNIE MAE - 8.1%
5 1/2%, 1/1/09 to 2/1/09 10,497,838 10,330,607
6%, 10/1/08 to 12/1/08 22,109,033 22,025,019
8%, 10/1/00 11,092 11,236
8 1/4%, 12/1/01 5,431,500 5,896,057
8 1/2%, 9/1/07 to 12/1/22 1,935,068 2,021,121
9%, 5/1/98 to 2/1/13 1,086,234 1,153,733
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FANNIE MAE - CONTINUED
10%, 1/1/20 $ 171,110 $ 188,115
10 1/4%, 10/1/09 to 10/1/18 402,612 442,372
11%, 8/1/10 to 1/1/16 5,750,176 6,429,279
11 1/4%, 1/1/11 to 1/1/16 1,201,164 1,357,703
11 1/2%, 9/1/11 to 12/1/15 2,172,915 2,468,285
11 3/4%, 7/1/13 to 4/1/14 138,386 159,219
12 1/4%, 10/1/10 to 6/1/15 1,368,734 1,592,091
12 1/2%, 9/1/07 to 5/1/21 3,427,569 4,019,429
12 3/4%, 10/1/11 to 6/1/15 1,457,973 1,722,624
13%, 6/1/11 to 7/1/15 1,494,177 1,759,518
13 1/4%, 9/1/11 to 9/1/13 654,984 781,000
13 1/2%, 5/1/11 to 12/1/14 34,354 41,227
14%, 6/1/11 to 12/1/14 149,915 178,179
14 1/2%, 7/1/14 19,459 23,734
15%, 4/1/12 23,860 29,102
62,629,650
FREDDIE MAC - 9.2%
6 1/2%, 5/1/08 2,819,602 2,845,373
7%, 6/1/01 to 8/1/01 2,127,519 2,160,752
8 1/2%, 5/1/10 to 1/1/22 5,447,412 5,694,129
9%, 11/1/09 to 11/1/16 1,393,332 1,471,722
9 1/2%, 7/1/16 to 8/1/21 8,407,765 9,056,349
10%, 12/1/00 to 3/1/21 14,027,330 15,297,043
10 1/2%, 9/1/09 to 12/1/21 9,200,620 10,251,688
10 3/4%, 7/1/13 150,730 168,768
11%, 8/1/00 to 9/1/2 1,009,202 1,139,242
11 1/4%, 2/1/10 to 10/1/14 1,144,635 1,288,205
11 1/2%, 10/1/15 to 8/1/19 602,232 682,336
11 3/4%, 1/1/10 to 10/1/15 272,786 308,985
12%, 1/1/00 to 7/1/15 2,329,494 2,675,190
12 1/4%, 2/1/11 to 6/1/14 993,459 1,154,223
12 1/2%, 10/1/9 to 6/1/19 11,925,257 13,907,244
12 3/4%, 2/1/10 to 1/1/11 205,193 239,861
13%, 9/1/10 to 7/1/15 1,781,852 2,106,417
13 1/4%, 11/1/10 to 10/1/13 154,736 180,529
13 1/2%, 11/1/10 to 12/1/13 412,033 491,551
13 3/4%, 10/1/14 15,221 16,544
14%, 11/1/12 55,111 66,343
14 1/2%, 3/1/10 to 9/1/12 103,986 125,595
14 3/4%, 3/1/10 32,067 38,731
16 1/4%, 7/1/11 7,215 8,757
71,375,577
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 5.7%
8%, 9/15/06 to 11/15/07 $ 1,026,012 $ 1,073,777
8 1/2%, 4/15/16 to 4/15/17 103,332 110,587
9%, 1/15/05 to 5/15/17 1,637,636 1,765,883
9 1/2%, 6/15/09 to 1/15/17 8,720,253 9,468,947
10%, 12/15/09 to 10/15/20 1,863,819 2,069,093
10 1/2%, 8/15/15 to 1/15/18 3,159,753 3,543,657
11%, 8/15/98 to 8/15/19 4,094,408 4,655,417
11 1/2%, 3/15/10 to 1/15/21 15,105,422 17,381,202
12%, 11/15/12 to 6/15/15 938,893 1,100,006
12 1/4%, 1/15/14 51,150 57,641
12 1/2%, 6/15/14 65,900 78,173
13%, 1/15/11 to 12/15/14 1,168,380 1,395,609
13 1/2%, 5/15/10 to 12/15/14 760,408 891,785
13 3/4%, 9/15/14 35,192 40,570
14%, 6/15/11 to 12/15/14 88,607 106,003
16%, 9/15/11 to 4/15/13 176,469 217,442
17%, 12/15/11 3,382 4,112
43,959,904
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $172,992,758) 177,965,131
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 2,016,508 2,202,406
Freddie Mac sequential pay Series 1353, Class A
5 1/2%, 11/15/04 235,634 234,824
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,404,778) 2,437,230
CASH EQUIVALENTS - 2.0%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.59%, dated
1/30/98 due 2/2/98 $15,576,248 15,569,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $758,584,285) $ 774,894,289
LEGEND
6. Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers.
At the period end, the value of these securities amounted to
$3,530,618 or 0.5% of net assets.
INCOME TAX INFORMATION
At January 31, 1998, the aggregate cost of investment securities for
income tax purposes was $758,606,169. Net unrealized appreciation
aggregated $16,288,120, of which $17,713,788 related to appreciated
investment securities and $1,425,668 related to depreciated investment
securities.
At July 31, 1997, the fund had a capital loss carryforward of
approximately $59,613,000 of which $49,727,000, $6,634,000 and
$3,252,000 will expire on July 31, 2003, 2004 and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1998 (UNAUDITED)
7.Assets 8. 9.
10.Investment in 11. $ 774,89
securities, at value 4,289
(including repurchase
agreements of $15,569,000)
(cost $758,584,285) - See
accompanying schedule
12.Cash 13. 302
14.Receivable for 15. 698,011
investments sold
16.Interest receivable 17. 11,792,
200
18. 19.TOTAL ASSETS 20. 787,384
,802
21.Liabilities 22. 23.
24.Payable for $ 8,362, 25.
investments purchased 490
26.Payable for fund 379,877 27.
shares redeemed
28.Distributions payable 606,009 29.
30.Accrued management 245,067 31.
fee
32.Other payables and 12,330 33.
accrued expenses
34. 35.TOTAL LIABILITIES 36. 9,605,7
73
37.38.NET ASSETS 39. $ 777,77
9,029
40.Net Assets consist 41. 42.
of:
43.Paid in capital 44. $ 819,12
5,207
45.Distributions in 46. (1,942,
excess of net 949)
investment income
47.Accumulated 48. (55,713
undistributed net ,233)
realized gain (loss)
on investments
49.Net unrealized 50. 16,310,
appreciation 004
(depreciation) on
investments
51.52.NET ASSETS, for 78,931,349 53. $ 777,77
shares outstanding 9,029
54.55.NET ASSET VALUE, offering 56. $9.85
price and redemption
price per share
($777,779,029 (divided by) 78,931,349 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
57.Investment Income 59. $ 26,415
58.Interest ,728
60.Expenses 61. 62.
63.Management fee $ 2,421, 64.
858
65.Non-interested 1,795 66.
trustees' compensation
67. Total expenses before 2,423,6 68.
reductions 53
69. Expense reductions (1,022, 1,400,7
866) 87
70.71.NET INVESTMENT INCOME 72. 25,014,
941
73.Realized and 75. 3,936,1
Unrealized Gain (Loss) 71
74.Net realized gain (loss) on investment securities
76.Change in net 77. 2,823,3
unrealized 01
appreciation
(depreciation) on
investment securities
78.79.NET GAIN (LOSS) 80. 6,759,4
72
81.82.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 83. $ 31,774
FROM OPERATIONS ,413
STATEMENT OF CHANGES IN NET ASSETS
Six Year
months ended
ended July
January 31,
31, 1997
1998
(Unaudi
ted)
84.Increase (Decrease)
in Net Assets
85.Operations $ 25,014 $ 48,874
Net investment income ,941 ,283
86. Net realized gain 3,936,1 (3,334,
(loss) 71 493)
87. Change in net 2,823,3 12,958,
unrealized 01 452
appreciation
(depreciation)
88. 31,774, 58,498,
89.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 413 242
FROM OPERATIONS
90.Distributions to (26,817 (47,691
shareholders from net ,446) ,995)
investment income
91.Share transactions 158,322 147,916
Net proceeds from ,366 ,359
sales of shares
92. Reinvestment of 22,308, 39,233,
distributions 897 703
93. Cost of shares (112,20 (233,30
redeemed 7,728) 3,762)
94.95. 68,423, (46,153
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 535 ,700)
SHARE TRANSACTIONS
96. 73,380, (35,347
97.TOTAL INCREASE (DECREASE) IN NET ASSETS 502 ,453)
98.Net Assets 99. 100.
101. 704,398 739,745
Beginning of period ,527 ,980
102. $ 777,77 $ 704,39
End of period 9,029 8,527
(including
distributions in
excess of net
investment income of
$1,942,949 and
$140,444, respectively)
103.Other Information 105. 106.
104.Shares
107. 16,173, 15,241,
Sold 221 896
108. 2,279,2 4,045,2
Issued in reinvestment 80 68
of distributions
109. (11,454 (24,039
Redeemed ,496) ,746)
110. 6,998,0 (4,752,
Net increase 05 582)
(decrease)
FINANCIAL HIGHLIGHTS
111. Six Years ended July 31,
months
ended
January
31,
1988
112. (Unaudi 1997 1996 1995 1994 E 1993
ted)
113.SELECTED
PER-SHARE DATA
114.NET $ 9.79 $ 9.6 $ 9.7 $ 9.6 $ 10.3 $ 10.1
ASSET 0 50 60 10 10 80
VALUE,
BEGINNIN
G OF
PERIOD
115.INCOME .331 .675 D .678 .610 .470 .872
FROM
INVESTME
NT
OPERATIO
NS
NET
INVESTME
NT
INCOME
116. .083 .124 (.15 .143 (.410 (.087
NET 0) ) )
REALIZED
AND
UNREALIZ
ED GAIN
(LOSS)
117. .414 .799 .528 .753 .060 .785
TOTAL
FROM
INVESTME
NT
OPERATIO
NS
118.
119.LESS
DISTRIBU
TIONS
120. (.354 (.65 (.63 (.60 (.540 (.605
FROM NET ) 9) 8) 3) ) )
INVESTME
NT
INCOME
121. - - - - - (.050
FROM NET )
REALIZED
GAIN
122. - - - - (.220 -
IN )
EXCESS
OF NET
REALIZED
GAIN
123. (.354 (.65 (.63 (.60 (.760 (.655
TOTAL ) 9) 8) 3) ) )
DISTRIBU
TIONS
124.NET $ 9.85 $ 9.7 $ 9.6 $ 9.7 $ 9.61 $ 10.3
ASSET 0 90 50 60 0 10
VALUE,
END
OF
PERIOD
125.TOTAL 4.30% 8.56 5.49 8.16 .57% 7.96%
RETURN B, C % % %
126.RATIOS AND
SUPPLEMENTAL DATA
127.NET $ 777, $ 704 $ 739 $ 817 $ 1,01 $ 1,52
ASSETS, 779 ,399 ,746 ,075 8,117 9,181
END OF
PERIOD
(000
OMITTED)
128.RATIO .38% A .54% .63% .65% .65% .65%
OF , F F F
EXPENSES
TO
AVERAGE
NET
ASSETS
129.RATIO .38% A .54% .62% .65% .65% .65%
OF G
EXPENSES
TO
AVERAGE
NET
ASSETS
AFTER
EXPENSE
REDUCTIO
NS
130.RATIO 6.71% 6.96 6.89 7.18 7.37% 8.05%
OF NET A % % %
INVESTME
NT
INCOME
TO
AVERAGE
NET
ASSETS
131.PORTFO 205% A 105% 105% 210% 391% 324%
LIO
TURNOVER
RATE
A ANNUALIZED
B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E EFFECTIVE AUGUST 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION
93-2, "DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY
INVESTMENT COMPANIES." AS A RESULT, NET INTEREST INCOME PER SHARE MAY
REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WTIHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Limited Maturity Government Fund (the fund) is a fund of
Fidelity Income Fund (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net interest income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment 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.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $493,460,540 and $413,152,089, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all
expenses, except the compensation of the non-interested Trustees and
certain exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. FMR receives a fee that is computed daily at
an annual rate of .65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $4,981 for the period.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an
5. EXPENSE REDUCTIONS -
CONTINUED
annual rate of .38% of the fund's average net assets. For the period,
the reimbursement reduced the expenses by $1,018,398.
In addition, FMR has entered into arrangements on behalf of the fund
with the fund's custodian and transfer agent whereby credits realized
as a result of uninvested cash balances were used to reduce a portion
of the fund's expenses. During the period, the fund's expenses were
reduced by $4,468 under these arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISER
Fidelity Management & Research
(U.K.) Inc. London, England
Fidelity Management & Research
(Far East) Inc. Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Curt Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
International Bond Fund
Government Securities
Intermediate Bond
Investment Grade Bond
Mortgage Securities
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Short-Intermediate
Government
Spartan Short-Term Bond
Target Timeline1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
