FIDELITY GINNIE MAE FUND
FIDELITY GOVERNMENT
INCOME FUND
FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND
SEMIANNUAL REPORT
JANUARY 31, 1999
(2 fidelity logo graphics)
CONTENTS
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
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respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
(recycle logo)This report is printed on recycled paper using soy-based
inks.
.
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:
After the first month of 1999, U.S. stock markets seem to have
maintained their momentum from 1998, as the S&P 500, the Dow and
NASDAQ all reached record highs in January. The technology sector, and
Internet stocks in particular, were the main contributors. In the bond
markets, domestic securities continued to trade at historically low
yields, while positive economic news helped credit-sensitive sectors
outperform Treasury bonds.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888, or visit our
web site at www.fidelity.com. 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY GINNIE MAE FUND 3.27% 6.03% 37.80% 121.89%
LB GNMA 3.62% 6.66% 42.39% 140.01%
GNMA Funds Average 3.33% 6.02% 36.57% 120.41%
</TABLE>
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 the Lehman Brothers GNMA Index - a market value-weighted index of
fixed-rate securities that represent interests in pools of mortgage
loans with original terms of 15 and 30 years and are issued by the
Government National Mortgage Association (GNMA). To measure how the
fund's performance stacked up against its peers, you can compare it to
the GNMA funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Inc. The past six months
average represents a peer group of 56 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 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY GINNIE MAE FUND 6.03% 6.62% 8.30%
LB GNMA 6.66% 7.32% 9.15%
GNMA Funds Average 6.02% 6.43% 8.22%
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 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
1989/01/31 10000.00 10000.00
1989/02/28 9948.20 9941.38
1989/03/31 9959.91 9953.94
1989/04/30 10154.32 10168.05
1989/05/31 10412.67 10478.48
1989/06/30 10692.46 10771.59
1989/07/31 10869.98 10996.04
1989/08/31 10767.53 10859.53
1989/09/30 10793.04 10928.20
1989/10/31 11023.56 11180.84
1989/11/30 11129.68 11308.69
1989/12/31 11206.46 11385.18
1990/01/31 11083.66 11289.43
1990/02/28 11148.04 11351.96
1990/03/31 11169.89 11381.55
1990/04/30 11044.31 11280.78
1990/05/31 11397.00 11634.19
1990/06/30 11557.17 11813.41
1990/07/31 11740.94 12031.71
1990/08/31 11710.85 11869.52
1990/09/30 11783.45 11960.81
1990/10/31 11913.76 12108.48
1990/11/30 12181.71 12383.45
1990/12/31 12383.17 12589.19
1991/01/31 12539.07 12777.34
1991/02/28 12589.68 12883.42
1991/03/31 12677.42 12976.38
1991/04/30 12771.33 13098.10
1991/05/31 12868.27 13205.01
1991/06/30 12883.80 13230.14
1991/07/31 13074.81 13456.26
1991/08/31 13307.97 13706.38
1991/09/30 13504.20 13947.85
1991/10/31 13687.98 14178.16
1991/11/30 13761.40 14276.42
1991/12/31 14063.21 14609.18
1992/01/31 13946.56 14428.28
1992/02/29 14095.62 14579.31
1992/03/31 14012.64 14496.40
1992/04/30 14132.45 14629.56
1992/05/31 14366.91 14887.22
1992/06/30 14527.72 15069.23
1992/07/31 14598.23 15201.27
1992/08/31 14759.65 15404.50
1992/09/30 14865.76 15541.57
1992/10/31 14745.60 15425.16
1992/11/30 14821.17 15495.51
1992/12/31 15005.38 15691.75
1993/01/31 15203.44 15889.12
1993/02/28 15338.55 16050.47
1993/03/31 15422.53 16138.41
1993/04/30 15475.32 16197.31
1993/05/31 15564.07 16308.41
1993/06/30 15716.59 16441.01
1993/07/31 15799.15 16510.25
1993/08/31 15838.44 16551.28
1993/09/30 15839.35 16565.52
1993/10/31 15893.50 16593.99
1993/11/30 15801.74 16570.26
1993/12/31 15922.56 16724.08
1994/01/31 16101.75 16855.56
1994/02/28 15950.18 16771.82
1994/03/31 15549.64 16319.02
1994/04/30 15425.27 16207.36
1994/05/31 15439.03 16253.70
1994/06/30 15386.83 16229.97
1994/07/31 15699.13 16546.54
1994/08/31 15738.23 16597.34
1994/09/30 15519.22 16363.69
1994/10/31 15499.30 16337.73
1994/11/30 15449.35 16291.66
1994/12/31 15604.70 16472.56
1995/01/31 15934.07 16813.69
1995/02/28 16343.90 17256.71
1995/03/31 16424.78 17341.30
1995/04/30 16647.36 17598.12
1995/05/31 17159.06 18135.50
1995/06/30 17258.34 18258.89
1995/07/31 17309.14 18297.41
1995/08/31 17470.65 18485.57
1995/09/30 17643.20 18666.46
1995/10/31 17786.57 18819.44
1995/11/30 17982.79 19036.90
1995/12/31 18195.81 19281.45
1996/01/31 18309.43 19415.72
1996/02/29 18171.84 19270.56
1996/03/31 18133.86 19221.43
1996/04/30 18075.92 19171.18
1996/05/31 18001.86 19106.69
1996/06/30 18203.25 19357.66
1996/07/31 18269.49 19430.52
1996/08/31 18281.78 19438.89
1996/09/30 18556.21 19764.39
1996/10/31 18921.99 20164.14
1996/11/30 19185.27 20457.54
1996/12/31 19079.73 20348.11
1997/01/31 19204.68 20504.44
1997/02/28 19256.64 20578.42
1997/03/31 19058.61 20375.47
1997/04/30 19348.78 20709.62
1997/05/31 19530.07 20922.06
1997/06/30 19767.06 21169.95
1997/07/31 20116.03 21554.07
1997/08/31 20078.14 21508.01
1997/09/30 20318.34 21793.87
1997/10/31 20521.92 22021.10
1997/11/30 20555.05 22088.66
1997/12/31 20739.92 22287.98
1998/01/31 20927.13 22503.21
1998/02/28 20961.04 22553.46
1998/03/31 21038.21 22648.93
1998/04/30 21171.16 22780.41
1998/05/31 21323.75 22935.91
1998/06/30 21375.66 23032.49
1998/07/31 21486.40 23162.02
1998/08/31 21655.14 23344.87
1998/09/30 21922.76 23620.96
1998/10/31 21871.72 23600.58
1998/11/30 21979.27 23734.02
1998/12/31 22064.37 23831.44
1999/01/29 22188.63 24000.89
IMATRL PRASUN SHR__CHT 19990131 19990212 142611 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Ginnie Mae Fund on January 31, 1989. As the chart
shows, by January 31, 1999, the value of the investment would have
grown to $22,189 - a 121.89% 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 $24,001 - a 140.01%
increase.
(checkmark)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.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED JANUARY 31, YEARS ENDED JULY 31,
1999 1998 1997 1996 1995 1994
Dividend returns 2.99% 6.63% 7.07% 6.58% 7.35% 5.24%
Capital returns 0.28% 0.18% 3.04% -1.03% 2.91% -5.87%
Total returns 3.27% 6.81% 10.11% 5.55% 10.26% -0.63%
</TABLE>
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 JANUARY 31, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1999
Dividends per share 5.13(cents) 32.16(cents) 66.94(cents)
Annualized dividend rate 5.55% 5.86% 6.15%
30-day annualized yield 5.82% - -
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
$10.89 over the past one month, $10.89 over the past six months and
$10.89 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 bond 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 yield
would have been 5.80%.
FIDELITY GINNIE MAE FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Like the U.S. equity markets, taxable
fixed-income spread sectors
experienced their share of volatility
during the six-month period ending
January 31, 1999. For the period,
the Lehman Brothers Aggregate Bond
Index - a broad measure of the
U.S. taxable investment-grade bond
market - returned 5.10%. Overall,
U.S. Treasuries posted the strongest
performance, as investors shunned
credit risk in a flight-to-quality from
economic and financial instability in
Asia and Russia. This caused a
dramatic widening in yield spreads
and, coupled with significant
hedge-fund liquidations in October,
contributed to a major reduction in
liquidity among spread sectors,
placing further pressure on yield
spreads. During the six-month
period, the Lehman Brothers
Treasury Index returned 6.04%. In the
last three months of the period,
however, other fixed-income spread
sectors - agencies, corporate bonds,
mortgage and asset-backed
securities - outperformed
comparable duration Treasuries, as
investors capitalized on historically
attractive yield spread levels. This
narrowing of yield spreads was
spurred by the Federal Reserve Board's
three cuts in key interest rates, which
helped boost market confidence and
restore some measure of liquidity to
the fixed-income markets. The
Lehman Brothers Corporate Bond Index
returned 5.38% for the six-month
period, while the Lehman Brothers
Mortgage Backed Securities Index
return was 3.67%.
(photograph of Tom Silvia)
NOTE TO SHAREHOLDERS: Tom Silvia became Portfolio Manager of Fidelity
Ginnie Mae Fund on December 7, 1998.
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six-month period that ended January 31, 1999, the fund had
a total return of 3.27%. To get a sense of how the fund did relative
to its competitors, the GNMA funds average returned 3.33% for the same
six-month period, according to Lipper Inc. Additionally, the Lehman
Brothers GNMA Index - which tracks the types of securities in which
the fund invests - returned 3.62% for the same six-month period. For
the 12-month period that ended January 31, 1998, the fund had a total
return of 6.03%. That compared to the 6.02% return of the GNMA funds
average and the 6.66% return of the Lehman Brothers GNMA Index for the
same 12-month period.
Q. WHY DID THE FUND LAG ITS PEERS DURING THE PAST SIX MONTHS?
A. The main reason for the fund's lag during that period was that its
duration - which measures its sensitivity to interest-rate changes -
was somewhat shorter than its average peer. The longer a fund's
duration, the more its share price will rise when interest rates fall
and vice versa. Since interest rates fell substantially during the
six-month period, funds with a longer duration generally performed
better than those with a shorter duration. However, as the previous
manager did, I kept the fund's duration neutral to the Ginnie Mae
market as a whole as measured by the Lehman Brothers GNMA Index.
Because I believe that it is nearly impossible for anyone to predict
interest rates with any consistency over a long period of time, I
position the fund to have no more or no less interest-rate sensitivity
than the market as a whole.
Q. WHY WAS IT SUCH A VOLATILE PERIOD FOR GINNIE MAE SECURITIES?
A. Looking back to the beginning of the period, investors had become
increasingly concerned about economic and market stability in Asia,
Russia and Latin America. Add to that mix the impending impeachment
trial and hedge fund losses and you have the makings of a classic
"flight to safety," whereby global investors flocked to the liquidity
and safety of U.S. Treasury securities. In the process, investors
shunned most other riskier asset classes. Even though Ginnie Mae is a
U.S. government agency and has the full faith and credit of the United
States backing it, investors tended to shun its securities in favor of
the more liquid Treasury securities. Later, investors shied away from
Ginnie Maes and other mortgage securities because of fears that the
rate of home-loan prepayments would accelerate dramatically. Of
course, lower interest rates tend to fan prepayment activity because
homeowners want to refinance at lower, prevailing rates. More
recently, however, loan rates have risen, causing prepayments to slow
and Ginnie Mae securities to perform better in response.
Q. WHICH OF THE FUND'S HOLDINGS PERFORMED WELL DURING THE PAST SIX
MONTHS?
A. Those that were resilient to prepayment performed the best.
Prepayment of a mortgage security can be problematic for Ginnie Mae
bondholders because it means that they may be forced to reinvest the
money back into the mortgage market when bond yields are lower. The
fund's holdings in securities containing loans that originated between
five and 10 years ago held up better than more recently issued
securities. Even though they could have refinanced at lower interest
rates, fewer homeowners holding these "seasoned" mortgage loans chose
not to do so. As a result of the emphasis on seasoned securities, the
fund had a relatively light weighting - compared to the Lehman
Brothers GNMA index - in bonds issued between 1992 and 1996. More
recently however, I've added some bonds issued in 1993 because I felt
that they were very attractively priced. Prepayment fears have calmed
a bit in conjunction with evidence that the Federal Reserve may not be
able to lower interest rates given the economy's strength.
Q. WHAT'S YOUR OUTLOOK FOR THE GINNIE MAE MARKET?
A. I think that Ginnie Mae securities are poised to perform better
than their Treasury counterparts. Although it has come down a bit
since it was at its widest, the spread - or yield differential -
between agencies and Treasuries is quite large when viewed on a
historical basis. If equilibrium returns to the market and the yield
spread narrows, mortgage securities are likely to do well.
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.
(checkmark) 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,
1999, more than $1.1 billion
MANAGER: Tom Silvia, since
December 1998; manager,
various Fidelity and Spartan
government funds; joined
Fidelity in 1993
TOM SILVIA ON THE GINNIE
MAE MARKET:
"One of the interesting things that
has gone on with the Ginnie Mae
market is that it really has become
quite concentrated. Looking at the
entire Ginnie Mae universe, most
of it is made up of securities that
mature in 30 years. For example,
95% of the Lehman Brothers GNMA
Index are 30-year securities, with
the remainder of the index made
up of 15-year securities. In
addition, roughly 87% of the index
is made up of securities that have
been issued since 1992, which
means there are fewer `seasoned'
mortgages to be had. Investors
often like seasoned mortgages
because they haven't yet been
prepaid - even though the
borrower has been presented with
several attractive opportunities to
do so. Finally, securities with a 7%
coupon - the interest rate the
borrower promises to pay - make
up nearly 25% of the index. Because
of rapid prepayments in 1998, a lot
of Ginnie Mae securities with 8.5%
and 10% coupons were retired.
Securities with coupons
between 6.5% and 8% presently
make up about 78% of the index."
FIDELITY GINNIE MAE FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Less than 7% 18.5 15.0
7 - 7.99% 51.0 46.3
8 - 8.99% 16.8 26.2
9 - 9.99% 7.0 5.4
10 - 10.99% 1.7 2.4
11% and over 0.9 1.4
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, 1999
6 MONTHS AGO
Years 5.2 6.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 1999
6 MONTHS AGO
Years 2.2 2.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF JANUARY 31, 1999
Row: 1, Col: 2, Value: 95.90000000000001
Row: 1, Col: 1, Value: 4.1
Mortgage-backed
securities * 95.9%
Short-term
investments 4.1%
*GNMA SECURITIES 94.3%
AS OF JULY 31, 1998
Row: 1, Col: 2, Value: 96.7
Row: 1, Col: 1, Value: 3.3
Mortgage-backed
securities ** 96.7%
Short-term
investments 3.3%
**GNMA SECURITIES 94.3%
FIDELITY GINNIE MAE FUND
INVESTMENTS JANUARY 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 95.9%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - 0.2%
8.5% 6/1/08 to 4/1/16 $ 849 $ 896
9% 10/1/11 161 167
10.25% 10/1/18 368 397
11.5% 5/1/14 to 9/1/15 271 301
12.5% 10/1/15 206 235
14% 11/1/12 8 10
2,006
FREDDIE MAC - 1.4%
8.5% 2/1/04 to 5/1/17 686 718
9% 6/1/10 to 4/1/21 2,583 2,717
10% 10/1/04 to 12/1/19 4,623 4,988
10.25% 2/1/09 to 11/1/16 2,457 2,659
10.5% 5/1/10 to 12/1/20 3,612 4,005
11.25% 2/1/10 215 238
11.75% 11/1/11 102 113
12% 6/1/15 to 11/1/15 217 249
12.5% 11/1/12 to 9/1/13 572 658
16,345
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 94.3%
6% 1/15/11 to 1/15/29 33,439 33,178
6.5% 4/15/08 to 1/15/29 176,179 178,152
7% 10/15/07 to 2/15/29 365,652 374,628
7% 2/15/29 (a) 6,000 6,150
7.5% 6/15/02 to 9/15/28 194,498 201,068
8% 7/15/01 to 12/15/27 142,574 148,620
8.5% 10/15/01 to 10/15/22 38,443 41,003
9% 12/15/04 to 12/15/24 37,891 40,629
9.5% 4/15/00 to 11/15/22 33,709 36,026
10% 10/15/00 to 2/15/25 1,690 1,828
10.5% 10/15/00 to 12/1/20 4,120 4,504
11% 1/15/10 to 8/15/19 3,061 3,407
11.5% 3/15/10 to 4/15/19 3,669 4,105
12% 5/15/99 to 11/15/15 696 780
13% 2/15/11 to 5/15/15 529 605
13.5% 5/15/10 to 1/15/15 347 399
1,075,082
TOTAL U.S. GOVERNMENT AGENCY 1,093,433
- - MORTGAGE SECURITIES
(Cost $1,079,944)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
CASH EQUIVALENTS - 4.1%
MATURITY AMOUNT (000S) VALUE (NOTE 1) (000S)
Investments in repurchase
agreements:
(U.S. Government $ 40,864 $ 40,848
obligations), in a joint
trading account at 4.83%,
dated 1/29/99 due 2/1/99
(U.S. Treasury obligations), 5,903 5,901
in a joint trading account
at 4.25%, dated 1/29/99 due
2/1/99
TOTAL CASH EQUIVALENTS 46,749
(Cost $46,749)
TOTAL INVESTMENT IN $ 1,140,182
SECURITIES - 100%
(Cost $1,126,693)
</TABLE>
LEGEND
(a) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $764,654,000 and $590,167,000, respectively
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At January 31, 1999, the aggregate cost of investment securities for
income tax purposes was $1,131,901,000. Net unrealized appreciation
aggregated $8,281,000, of which $10,971,000 related to appreciated
investment securities and $2,690,000 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
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JANUARY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,140,182
value (including repurchase
agreements of $46,749) (cost
$1,126,693) - See
accompanying schedule
Receivable for investments 61,510
sold
Receivable for fund shares 2,791
sold
Interest receivable 6,374
TOTAL ASSETS 1,210,857
LIABILITIES
Payable for investments $ 75,555
purchased Regular delivery
Delayed delivery 6,163
Payable for fund shares 3,581
redeemed
Distributions payable 758
Accrued management fee 383
Other payables and accrued 326
expenses
TOTAL LIABILITIES 86,766
NET ASSETS $ 1,124,091
Net Assets consist of:
Paid in capital $ 1,130,351
Undistributed net investment 797
income
Accumulated undistributed net (20,546)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 13,489
(depreciation) on investments
NET ASSETS, for 103,121 $ 1,124,091
shares outstanding
NET ASSET VALUE, offering $10.90
price and redemption price
per share ($1,124,091
(divided by) 103,121 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
1999 (UNAUDITED)
INVESTMENT INCOME $ 36,563
Interest
EXPENSES
Management fee $ 2,241
Transfer agent fees 1,068
Accounting fees and expenses 149
Non-interested trustees' 2
compensation
Custodian fees and expenses 103
Registration fees 56
Audit 26
Legal 5
Total expenses before 3,650
reductions
Expense reductions (273) 3,377
NET INVESTMENT INCOME 33,186
REALIZED AND UNREALIZED GAIN 1,098
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (1,418)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (320)
NET INCREASE (DECREASE) IN $ 32,866
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions FMR $ 262
reimbursement
Custodian credits 3
Transfer agent credits 8
$ 273
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, YEAR ENDED JULY 31, 1998
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 33,186 $ 56,820
income
Net realized gain (loss) 1,098 14,559
Change in net unrealized (1,418) (13,818)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 32,866 57,561
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (30,527) (55,500)
from net investment income
Share transactions Net 407,106 349,964
proceeds from sales of shares
Reinvestment of distributions 26,052 48,330
Cost of shares redeemed (228,636) (305,260)
NET INCREASE (DECREASE) IN 204,522 93,034
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 206,861 95,095
IN NET ASSETS
NET ASSETS
Beginning of period 917,230 822,135
End of period (including $ 1,124,091 $ 917,230
undistributed net investment
income of $797 and
distributions in excess of
net investment income of
$1,862, respectively)
OTHER INFORMATION
Shares
Sold 37,360 32,197
Issued in reinvestment of 2,388 4,446
distributions
Redeemed (20,990) (28,087)
Net increase (decrease) 18,758 8,556
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
1999
(UNAUDITED) 1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360 $ 11.260
period
Income from Investment .349 D .714 D .720 D .688 .721 .582
Operations Net investment
income
Net realized and .003 G .004 .310 (.107) .292 (.650)
unrealized gain (loss)
Total from investment .352 .718 1.030 .581 1.013 (.068)
operations
Less Distributions
From net investment income (.322) (.698) (.710) (.691) (.713) (.582)
From net realized gain - - - - - (.190)
In excess of net realized - - - - (.020) (.060)
gain
Total distributions (.322) (.698) (.710) (.691) (.733) (.832)
Net asset value, end of $ 10.900 $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360
period
TOTAL RETURN B, C 3.27% 6.81% 10.11% 5.55% 10.26% (.63)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,124 $ 917 $ 822 $ 790 $ 767 $ 769
millions)
Ratio of expenses to average .65% A, E .72% E .76% .76% .75% .82%
net assets
Ratio of expenses to average .65% A .72% .75% F .75% F .75% .82%
net assets after expense
reductions
Ratio of net investment 6.37% A 6.58% 6.75% 6.69% 7.24% 7.03%
income to average net assets
Portfolio turnover rate 115% A 172% 98% 107% 210% 303%
</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 6 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
G THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH
THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD DUE TO THE TIMING
OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING
MARKET VALUES OF THE INVESTMENTS OF THE FUND.
FIDELITY 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 the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY GOVERNMENT INCOME 5.06% 7.70% 33.88% 133.12%
LB Government Bond 5.89% 8.86% 40.37% 138.74%
General U.S. Government Funds 4.69% 7.22% 33.93% 118.86%
Average
</TABLE>
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 the Lehman Brothers Government Bond Index - a market
value-weighted index 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 Inc. The past six month average
represents a peer group of 189 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 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY GOVERNMENT INCOME 7.70% 6.01% 8.83%
LB Government Bond 8.86% 7.02% 9.09%
General U.S. Government Funds 7.22% 6.00% 8.12%
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 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
1989/01/31 10000.00 10000.00
1989/02/28 10003.86 9957.23
1989/03/31 10055.17 10003.91
1989/04/30 10187.86 10205.81
1989/05/31 10331.39 10402.82
1989/06/30 10515.66 10668.02
1989/07/31 10646.54 10884.83
1989/08/31 10582.15 10737.68
1989/09/30 10636.03 10789.01
1989/10/31 10804.63 11015.35
1989/11/30 10891.88 11124.36
1989/12/31 10947.43 11157.12
1990/01/31 10933.92 11087.70
1990/02/28 10994.40 11128.76
1990/03/31 11020.23 11141.96
1990/04/30 11036.50 11104.57
1990/05/31 11202.10 11342.39
1990/06/30 11309.17 11491.49
1990/07/31 11443.64 11652.57
1990/08/31 11490.20 11610.53
1990/09/30 11582.09 11714.41
1990/10/31 11702.11 11877.44
1990/11/30 11839.23 12056.36
1990/12/31 11947.29 12223.31
1991/01/31 12080.54 12348.94
1991/02/28 12174.74 12423.74
1991/03/31 12275.11 12492.42
1991/04/30 12380.78 12621.48
1991/05/31 12444.78 12692.61
1991/06/30 12494.11 12703.12
1991/07/31 12637.15 12840.73
1991/08/31 12794.25 13084.43
1991/09/30 12924.16 13306.85
1991/10/31 13085.72 13459.13
1991/11/30 13133.25 13617.03
1991/12/31 13370.33 13947.99
1992/01/31 13305.46 13813.80
1992/02/29 13384.28 13856.81
1992/03/31 13368.22 13801.57
1992/04/30 13467.52 13925.50
1992/05/31 13602.10 14133.26
1992/06/30 13707.21 14336.87
1992/07/31 13746.77 14611.85
1992/08/31 13912.19 14761.19
1992/09/30 14008.06 14964.56
1992/10/31 13950.57 14784.90
1992/11/30 14015.14 14724.78
1992/12/31 14141.03 14914.45
1993/01/31 14262.40 15191.63
1993/02/28 14418.99 15415.53
1993/03/31 14494.97 15472.23
1993/04/30 14588.76 15593.22
1993/05/31 14636.92 15550.69
1993/06/30 14790.43 15775.81
1993/07/31 14840.71 15807.59
1993/08/31 14951.77 16042.97
1993/09/30 15003.13 16108.23
1993/10/31 15037.43 16146.36
1993/11/30 14937.73 16066.44
1993/12/31 15048.70 16132.92
1994/01/31 15205.35 16292.29
1994/02/28 15062.59 16068.64
1994/03/31 14869.13 15834.23
1994/04/30 14796.84 15731.81
1994/05/31 14781.52 15743.06
1994/06/30 14776.32 15746.24
1994/07/31 14925.69 15953.02
1994/08/31 14969.71 15999.46
1994/09/30 14937.29 15867.23
1994/10/31 14954.83 15870.40
1994/11/30 14920.42 15799.77
1994/12/31 14905.84 15851.34
1995/01/31 15131.06 16109.21
1995/02/28 15350.82 16419.88
1995/03/31 15423.87 16510.31
1995/04/30 15606.03 16701.70
1995/05/31 16010.22 17172.71
1995/06/30 16107.71 17281.97
1995/07/31 16142.99 17290.28
1995/08/31 16278.90 17433.03
1995/09/30 16397.96 17549.86
1995/10/31 16619.84 17742.23
1995/11/30 16807.62 17958.55
1995/12/31 16982.37 18135.75
1996/01/31 17126.75 18288.77
1996/02/29 16960.89 18095.42
1996/03/31 16866.46 18012.81
1996/04/30 16818.71 17960.26
1996/05/31 16809.17 17950.97
1996/06/30 16971.08 18133.31
1996/07/31 17029.64 18189.53
1996/08/31 17050.78 18210.31
1996/09/30 17268.35 18445.69
1996/10/31 17560.54 18748.04
1996/11/30 17782.48 18974.38
1996/12/31 17685.09 18872.21
1997/01/31 17749.58 18944.81
1997/02/28 17785.72 18975.61
1997/03/31 17670.91 18867.57
1997/04/30 17862.53 19080.47
1997/05/31 18002.22 19229.08
1997/06/30 18159.55 19393.58
1997/07/31 18487.42 19751.17
1997/08/31 18438.56 19675.65
1997/09/30 18651.57 19889.52
1997/10/31 18847.81 20121.24
1997/11/30 18906.63 20165.48
1997/12/31 19046.10 20329.73
1998/01/31 19283.05 20594.94
1998/02/28 19277.56 20573.18
1998/03/31 19337.25 20637.22
1998/04/30 19434.49 20735.73
1998/05/31 19556.39 20878.23
1998/06/30 19677.43 21018.77
1998/07/31 19740.50 21099.68
1998/08/31 20024.07 21498.83
1998/09/30 20450.48 22000.39
1998/10/31 20455.50 22036.81
1998/11/30 20396.84 21969.35
1998/12/31 20464.98 22054.90
1999/01/29 20570.25 22153.16
IMATRL PRASUN SHR__CHT 19990131 19990217 152914 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Government Income Fund on January 31, 1989. As
the chart shows, by January 31, 1999, the value of the investment
would have grown to $23,312 - a 133.12% 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
$23,874 - a 138.74% increase.
(checkmark)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.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED
JANUARY 31, YEARS ENDED JULY 31,
1999 1998 1997 1996 1995 1994
Dividend returns 3.26% 6.04% 7.22% 6.58% 6.78% 5.93%
Capital returns 1.80% 1.63% 2.40% -2.04% 1.89% -6.73%
Total returns 5.06% 7.67% 9.62% 4.54% 8.67% -0.80%
</TABLE>
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 JANUARY 31, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 4.68(cents) 32.16(cents) 60.00(cents)
Annualized dividend rate 5.45% 6.27% 5.96%
30-day annualized yield 4.89% - -
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
$10.11 over the past one month, $10.17 over the past six months and
$10.06 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 bond 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 INCOME FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Like the U.S. equity markets, taxable
fixed-income spread sectors
experienced their share of volatility
during the six-month period ending
January 31, 1999. For the period,
the Lehman Brothers Aggregate Bond
Index - a broad measure of the
U.S. taxable investment-grade bond
market - returned 5.10%. Overall,
U.S. Treasuries posted the strongest
performance, as investors shunned
credit risk in a flight-to-quality from
economic and financial instability in
Asia and Russia. This caused a
dramatic widening in yield spreads
and, coupled with significant
hedge-fund liquidations in October,
contributed to a major reduction in
liquidity among spread sectors,
placing further pressure on yield
spreads. During the six-month
period, the Lehman Brothers
Treasury Index returned 6.04%. In the
last three months of the period,
however, other fixed-income spread
sectors - agencies, corporate bonds,
mortgage and asset-backed
securities - outperformed
comparable duration Treasuries, as
investors capitalized on historically
attractive yield spread levels. This
narrowing of yield spreads was
spurred by the Federal Reserve Board's
three cuts in key interest rates, which
helped boost market confidence and
restore some measure of liquidity to
the fixed-income markets. The
Lehman Brothers Corporate Bond Index
returned 5.38% for the six-month
period, while the Lehman Brothers
Mortgage Backed Securities Index
return was 3.67%.
(photograph of Tom Silvia)
NOTE TO SHAREHOLDERS: Tom Silvia became Portfolio Manager of Fidelity
Government Income Fund on December 7, 1998.
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six-month period that ended January 31, 1999, the fund had
a total return of 5.06%. To get a sense of how the fund did relative
to its competitors, the general U.S. government funds average returned
4.69% for the same six-month period, according to Lipper Inc.
Additionally, the Lehman Brothers Government Bond Index - which tracks
the types of securities in which the fund invests - returned 5.89% for
the same period. For the 12-month period that ended January 31, 1999,
the fund had a total return of 7.70%. That compared to the U.S.
government funds average return of 7.22% and the Lehman Brothers
Government Bond Index return of 8.86% for the same 12-month period.
Q. WHAT FACTORS HELPED THE FUND OUTPACE ITS PEERS OVER THE PAST SIX
MONTHS?
A. The main reason for the fund's better performance was its
relatively heavy exposure to agency and mortgage securities, which,
after falling behind Treasuries early on in the period, outpaced
Treasuries in the final months. Spooked by problems in Asia, Russia
and Latin America, investors initially sought out the safety of U.S.
Treasury bonds from August through October, generally shunning agency
and mortgage securities in the process. U.S. Treasuries were
considered to be the safe haven of choice in large part because of
their direct backing by the full faith and credit of the U.S.
government and because they are very liquid, or easily traded.
Agencies, on the other hand, carry the implicit or indirect backing of
the U.S. government and are considered to be less liquid. As such,
they were not widely sought out during the global market turmoil. That
said, agency securities outpaced mortgage securities, which were
plagued by fears of early prepayment, which can occur when homeowners
refinance their home loans. More recently, agency and mortgage
securities have gained ground on Treasuries as investors' fears about
overseas problems subsided and they again began to seek out the higher
yields that agency and mortgage securities offered.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Other than the fact that agency and mortgage securities lagged
early on, I can't think of any other disappointments during the short
time I've managed the fund.
Q. SINCE TAKING OVER THE FUND, YOU INCREASED ITS HOLDINGS IN MORTGAGE
SECURITIES. WHAT WAS BEHIND THAT INCREASE?
A. In my view, mortgage securities had become very attractively priced
compared to agency securities. With interest rates at low levels and
the potential for them to drop further, investors worried that the
rate of mortgage prepayments would continue to accelerate as
homeowners refinanced their mortgages. Of course, mortgage security
investors generally dislike prepayments because they often are faced
with reinvesting the proceeds at lower interest rates. However, I felt
that investors had punished mortgage securities too severely, pushing
their prices below what I felt to be their true value - even factoring
in prepayments. Therefore, I added some to the fund.
Q. WITHIN THE AGENCY MARKET, WHAT CHOICES DID YOU MAKE?
A. I continued the fund's emphasis on non-callable securities - 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
usually positive for issuers because it cuts their borrowing costs.
But bondholders often are 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 securities when interest rates fall, and generally do no
worse when interest rates rise.
Q. WHAT'S YOUR OUTLOOK FOR THE GOVERNMENT SECURITIES MARKET?
A. I think that agency and mortgage securities are poised to outpace
Treasury securities once the market becomes more stable and moves back
toward equilibrium. At the end of the period, the difference in yield
between both Treasuries and mortgages, and the difference in yield
between Treasuries and agencies, was quite large when viewed on a
historical basis. Sooner or later, I believe those yield
differentials, or spreads, will contract and cause mortgage and agency
securities to outpace Treasuries as a result. So for now, I'm
comfortable with the way in which the fund is allocated among those
three segments of the market. As for the direction of the government
securities market, that will depend on the direction of interest
rates, which I don't spend time trying to predict. I spend time trying
to find attractively priced bonds that I think will do well no matter
what the 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.
(checkmark)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: April 4, 1979
SIZE: as of January 31,
1999, more than $1.6
billion
MANAGER: Tom Silvia, since
December 1998; manager,
various Fidelity and Spartan
government funds; joined
Fidelity in 1993
TOM SILVIA ON HIS
INVESTMENT APPROACH:
"My investment style and
approach are much the same as
those of the fund's previous
portfolio manager. Most
importantly, I will manage the
fund so that its duration - a
measure of its interest-rate
sensitivity - is in line with the
Lehman Brothers Government
Bond Index just as he did. By
doing so, I hope to avoid the
damage to the fund that can occur
if the fund's duration is too long
when interest rates are on the
rise, and vice versa. I believe that
my efforts are better spent
identifying - with the help of
Fidelity's research staff - bonds
that are undervalued, with the
intent of holding them until they
appreciate to what I believe to be
their fair value. I also spend time
identifying various mispricings
that occur among various sectors,
emphasizing those I believe are
inexpensive relative to other
sectors and relative to their
historic value."
FIDELITY GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Zero Coupon bonds 0.0 0.1
4 - 4.99% 0.9 0.0
5 - 5.99% 16.6 9.9
6 - 6.99% 23.5 28.5
7 - 7.99% 7.8 11.4
8 - 8.99% 29.0 24.2
9 - 9.99% 14.4 19.2
10 - 10.99% 2.6 4.2
11% and over 1.2 2.0
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, 1999
6 MONTHS AGO
Years 8.8 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 JANUARY 31, 1999
6 MONTHS AGO
Years 5.3 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 JANUARY 31, 1999
Row: 1, Col: 1, Value: 20.4
Row: 1, Col: 2, Value: 28.2
Row: 1, Col: 3, Value: 47.4
Row: 1, Col: 4, Value: 4.0
Mortgage-backed
securities 20.4%
U.S. Treasury
obligations 28.2%
U.S. government
agency obligations 47.4%
Short-term
investments 4.0%
AS OF JULY 31, 1998
Row: 1, Col: 1, Value: 18.0
Row: 1, Col: 2, Value: 24.0
Row: 1, Col: 3, Value: 53.0
Row: 1, Col: 4, Value: 1.0
Mortgage-backed
securities 18.1%
U.S. Treasury
obligations 24.1%
U.S. government
agency obligations 57.3%
Short-term
investments 0.5%
FIDELITY GOVERNMENT INCOME FUND
INVESTMENTS JANUARY 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 75.6%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 47.4%
Fannie Mae:
6% 5/15/08 $ 3,000 $ 3,167
6.5% 7/16/07 39,300 42,192
6.54% 10/3/05 13,000 13,967
6.59% 9/17/07 5,600 6,061
6.74% 5/13/04 3,720 3,965
7.49% 3/2/05 2,320 2,594
8.25% 12/18/00 15,000 15,867
Farm Credit Systems Financial
Assistance Corp.:
8.8% 6/10/05 10,983 13,097
9.375% 7/21/03 19,037 22,241
Federal Agricultural Mortgage 3,000 3,512
Corp. 8.07% 7/17/06
Federal Farm Credit Bank:
5.95% 5/18/05 2,000 2,081
6.19% 11/3/04 2,000 2,098
6.2% 11/12/04 6,900 7,243
6.25% 9/24/04 7,300 7,681
7.35% 3/24/05 1,000 1,111
8.06% 1/4/05 7,600 8,694
8.12% 2/1/05 8,635 9,918
Federal Home Loan Bank:
4.64% 10/9/02 15,000 14,761
5.285% 9/22/05 19,230 19,170
5.595% 3/27/01 11,100 11,234
5.78% 8/24/05 49,925 51,540
5.785% 2/9/05 26,900 27,720
6.07% 5/2/06 1,500 1,571
6.21% 11/4/04 11,330 11,897
6.26% 9/24/04 1,800 1,895
6.56% 9/17/04 1,585 1,691
6.575% 6/24/04 4,325 4,607
7.31% 6/16/04 8,240 9,052
7.36% 7/1/04 7,110 7,832
7.38% 8/5/04 3,770 4,163
7.46% 9/9/04 6,015 6,673
7.58% 9/13/04 4,000 4,462
7.59% 3/10/05 1,895 2,129
7.66% 7/20/04 6,460 7,217
7.87% 10/20/04 1,280 1,447
8.09% 12/28/04 2,140 2,451
9.5% 2/25/04 2,355 2,804
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Financing Corp. 0% 8/3/05 $ 907 $ 652
Financing Corp. Coupon Strip 1,082 774
0% 8/3/05
Freddie Mac:
6.505% 7/1/04 5,000 5,312
7.25% 4/28/04 2,000 2,188
Government Loan Trusts 3,781 4,230
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class T-3, 9.625% 5/15/02 15,296 16,111
Class 1-C, 9.25% 11/15/01 44,362 47,086
Class 2-E 9.4% 5/15/02 15,748 16,593
Guaranteed Export Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994 A, 7.12% 4/15/06 4,908 5,218
Series 1994 F, 8.187% 12/15/04 10,487 11,237
Series 1995-A, 6.28% 6/15/04 9,541 9,800
Series 1995-B, 6.13% 6/15/04 23,676 24,225
Series 1996-A, 6.55% 6/15/04 14,412 14,906
Guaranteed Trade Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1994 B, 7.5% 1/26/06 7,773 8,385
Series 1994-A, 7.39% 6/26/06 32,500 34,782
Israel Export Trust 8,268 8,532
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 1, 6.88% 1/26/03
Overseas Private Investment
Corp. U.S. Government
guaranteed participation
certificate:
Series 1994 195, 6.08% 8,888 9,170
8/15/04 (callable)
Series 1998-196A, 5.926% 14,341 14,779
6/15/05
Private Export Funding Corp.:
secured:
5.8% 2/1/04 1,710 1,739
5.82% 6/15/03 (a) 21,500 21,927
6.31% 9/30/04 9,000 9,511
5.31% 11/15/03 (a) 41,500 41,438
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
State of Israel (guaranteed
by U.S. Government through
Agency for International
Development):
5.625% 9/15/03 $ 40,680 $ 41,568
5.75% 3/15/00 1,600 1,610
6.6% 2/15/08 25,515 27,429
6.625% 8/15/03 14,190 15,064
Student Loan Marketing
Association:
6.125% 12/1/05 4,190 4,410
8.14% 5/17/04 1,500 1,703
U.S. Department of Housing 4,000 4,249
and Urban Development
government guaranteed
participation certificates
Series 1996-A, 6.83% 8/1/03
U.S. Trade Trust Certificates 4,983 5,473
(assets of Trust guaranteed
by U.S. government through
Export-Import Bank) 8.17%
1/15/07
TOTAL U.S. GOVERNMENT AGENCY 769,906
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
28.2%
U.S. Treasury Bond:
8.75% 5/15/17 61,200 85,537
8.75% 8/15/20 131,508 188,012
8.875% 8/15/17 47,410 67,078
9% 11/15/18 52,700 76,102
U.S. Treasury Notes:
6.25% 5/31/00 12,000 12,242
7% 7/15/06 26,400 30,063
TOTAL U.S. TREASURY 459,034
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 1,228,940
GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,201,373)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 17.5%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - 6.9%
5.5% 5/1/09 to 3/1/24 $ 8,356 $ 8,138
6% 7/1/20 2,141 2,123
6.5% 1/1/28 to 12/1/28 61,798 62,358
8% 1/1/22 1,123 1,168
9.5% 11/15/09 to 10/1/20 16,472 17,587
10% 8/1/10 1,147 1,212
11% 3/1/10 846 897
11.5% 6/1/19 to 5/1/28 16,325 18,311
111,794
FREDDIE MAC - 4.5%
8% 1/1/10 to 6/1/11 874 908
8.5% 8/1/08 to 7/1/28 50,301 52,786
9% 8/1/09 to 12/1/10 985 1,041
9.75% 8/1/14 1,112 1,197
10.5% 7/1/20 to 12/1/20 16,375 18,189
74,121
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 6.1%
6% 7/15/08 to 12/15/10 45,159 45,742
9.5% 7/15/09 to 2/15/25 29,082 31,213
10% 12/15/09 to 1/15/26 20,137 21,829
98,784
TOTAL U.S. GOVERNMENT AGENCY 284,699
- - MORTGAGE SECURITIES
(Cost $285,004)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 2.9%
U.S. GOVERNMENT AGENCY - 2.9%
Federal Home Loan Mortgage 21,250 21,277
Corp. 6% 10/15/06
Freddie Mac planned 26,500 25,916
amortization class Series
1380 Class L, 5% 10/15/07
TOTAL COLLATERALIZED MORTGAGE 47,193
OBLIGATIONS
(Cost $47,483)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
CASH EQUIVALENTS - 4.0%
MATURITY AMOUNT (000S) VALUE (NOTE 1) (000S)
Investments in repurchase $ 65,153 $ 65,127
agreements (U.S. Government
obligations), in a joint
trading account at 4.83%,
dated 1/29/99 due 2/1/99
(Cost $65,127)
TOTAL INVESTMENT IN $ 1,625,959
SECURITIES - 100%
(Cost $1,598,987)
</TABLE>
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $63,365,000 or 3.8% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $1,577,328,000 and $1,274,290,000, respectively
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At January 31, 1999, the aggregate cost of investment securities for
income tax purposes was $1,598,987,000. Net unrealized appreciation
aggregated $26,972,000, of which $31,382,000 related to appreciated
investment securities and $4,410,000 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.
FIDELITY GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JANUARY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,625,959
value (including repurchase
agreements of $65,127) (cost
$1,598,987) - See
accompanying schedule
Receivable for investments 758
sold
Receivable for fund shares 11,278
sold
Interest receivable 23,197
TOTAL ASSETS 1,661,192
LIABILITIES
Payable for fund shares $ 7,839
redeemed
Distributions payable 585
Accrued management fee 582
Other payables and accrued 406
expenses
TOTAL LIABILITIES 9,412
NET ASSETS $ 1,651,780
Net Assets consist of:
Paid in capital $ 1,618,762
Undistributed net investment 1,004
income
Accumulated undistributed net 5,042
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 26,972
(depreciation) on investments
NET ASSETS, for 162,632 $ 1,651,780
shares outstanding
NET ASSET VALUE, offering $10.16
price and redemption price
per share ($1,651,780
(divided by) 162,632 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
1999 (UNAUDITED)
INVESTMENT INCOME $ 49,818
Interest
EXPENSES
Management fee $ 3,279
Transfer agent fees 1,522
Accounting fees and expenses 196
Non-interested trustees' 3
compensation
Custodian fees and expenses 21
Registration fees 164
Audit 25
Legal 5
Total expenses before 5,215
reductions
Expense reductions (65) 5,150
NET INVESTMENT INCOME 44,668
REALIZED AND UNREALIZED GAIN 11,362
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 13,261
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 24,623
NET INCREASE (DECREASE) IN $ 69,291
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions Custodian $ 22
credits
Transfer agent credits 43
$ 65
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, TEN MONTHS ENDED JULY 31, 1998 YEAR ENDED SEPTEMBER 30, 1997
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 44,668 $ 57,760 $ 63,391
income
Net realized gain (loss) 11,362 28,818 (622)
Change in net unrealized 13,261 (5,599) 18,125
appreciation (depreciation)
NET INCREASE (DECREASE) IN 69,291 80,979 80,894
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (48,168) (56,286) (66,908)
from net investment income
Share transactions Net 964,038 835,669 378,207
proceeds from sales of shares
Reinvestment of
distributions 43,511 50,449 57,722
Cost of shares redeemed (629,803) (680,613) (376,059)
NET INCREASE (DECREASE) IN 377,746 205,505 59,870
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 398,869 230,198 73,856
IN NET ASSETS
NET ASSETS
Beginning of period 1,252,911 1,022,713 948,857
End of period (including $ 1,651,780 $ 1,252,911 $ 1,022,713
undistributed net investment
income of $1,004, $4,504 and
$581, respectively)
OTHER INFORMATION
Shares
Sold 94,685 84,090 39,114
Issued in reinvestment of 4,267 5,076 5,974
distributions
Redeemed (61,866) (68,444) (38,946)
Net increase (decrease) 37,086 20,722 6,142
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS - CLASS
A SIX MONTHS ENDED JANUARY 31, TEN MONTHS ENDED JULY 31, YEARS ENDED SEPTEMBER 30,
1999
FINANCIAL HIGHLIGHTS - CLASS
A (UNAUDITED) 1998 1997 1996
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.980 $ 9.760 $ 9.620 $ 9.890
period
Income from Investment .299 D .481 D .625 D .670
Operations Net investment
income
Net realized and unrealized .203 .208 .175 (.299)
gain (loss)
Total from investment .502 .689 .800 .371
operations
Less Distributions
From net investment income (.322) (.469) (.660) (.641)
From net realized gain - - - -
In excess of net realized - - - -
gain
Total distributions (.322) (.469) (.660) (.641)
Net asset value, end of period $ 10.160 $ 9.980 $ 9.760 $ 9.620
TOTAL RETURN B, C 5.06% 7.19% 8.61% 3.82%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,652 $ 1,253 $ 1,023 $ 949
millions)
Ratio of expenses to average .68% A .69% A .73% .72%
net assets
Ratio of expenses to average .68% A .68% A, E .72% E .71% E
net assets after expense
reductions
Ratio of net investment 5.86% A 5.82% A 6.48% 6.52%
income to average net assets
Portfolio turnover rate 174% A 289% A 199% 124%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended September 30,
FINANCIAL HIGHLIGHTS - CLASS A 1995 1994 1993
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.330 $ 10.870 $ 10.500
period
Income from Investment .625 .626 .672
Operations Net investment
income
Net realized and unrealized .564 (1.225) .627
gain (loss)
Total from investment 1.189 (.599) 1.299
operations
Less Distributions
From net investment income (.609) (.631) (.679)
From net realized gain - (.310) (.250)
In excess of net realized (.020) - -
gain
Total distributions (.629) (.941) (.929)
Net asset value, end of period $ 9.890 $ 9.330 $ 10.870
TOTAL RETURN B, C 13.21% (5.81)% 13.18%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 897 $ 614 $ 729
millions)
Ratio of expenses to average .71% .69% .69%
net assets
Ratio of expenses to average .71% .69% .69%
net assets after expense
reductions
Ratio of net investment 6.36% 6.26% 6.40%
income to average net assets
Portfolio turnover rate 391% 402% 323%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY INTERMEDIATE GOVT 4.20% 6.68% 35.28% 105.70%
INCOME
LB Int Government Bond 4.99% 7.57% 35.97% 121.53%
Short-Intermediate U.S. 3.83% 5.93% 29.32% 104.62%
Government Funds Average
</TABLE>
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 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. 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,
Inc. The past six month 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 31, PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
1999
FIDELITY INTERMEDIATE GOVT 6.68% 6.23% 7.48%
INCOME
LB Int Government Bond 7.57% 6.34% 8.28%
Short-Intermediate U.S. 5.93% 5.25% 7.42%
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER 10 YEARS
Government Income LB Government Bond
00054 LB003
1989/01/31 10000.00 10000.00
1989/02/28 9946.09 9918.58
1989/03/31 9994.45 9979.28
1989/04/30 10185.70 10193.32
1989/05/31 10369.49 10433.69
1989/06/30 10662.23 10781.81
1989/07/31 10855.49 11009.51
1989/08/31 10705.37 10824.23
1989/09/30 10747.48 10870.79
1989/10/31 10967.87 11152.12
1989/11/30 11068.17 11260.12
1989/12/31 11124.81 11279.13
1990/01/31 10980.87 11119.45
1990/02/28 11023.53 11141.64
1990/03/31 11036.96 11139.20
1990/04/30 10998.07 11040.96
1990/05/31 11226.04 11348.85
1990/06/30 11382.05 11528.52
1990/07/31 11527.44 11676.01
1990/08/31 11467.46 11513.41
1990/09/30 11553.26 11623.84
1990/10/31 11725.73 11813.75
1990/11/30 11985.21 12075.57
1990/12/31 12185.37 12262.31
1991/01/31 12273.71 12393.95
1991/02/28 12370.34 12464.90
1991/03/31 12422.11 12528.28
1991/04/30 12537.29 12665.77
1991/05/31 12601.26 12715.02
1991/06/30 12571.85 12696.98
1991/07/31 12727.51 12847.64
1991/08/31 13054.64 13145.54
1991/09/30 13352.87 13421.26
1991/10/31 13467.40 13538.76
1991/11/30 13592.80 13674.55
1991/12/31 14130.25 14140.42
1992/01/31 13888.40 13920.28
1992/02/29 13916.53 13974.65
1992/03/31 13825.49 13892.98
1992/04/30 13911.49 13980.50
1992/05/31 14197.68 14238.42
1992/06/30 14440.03 14442.47
1992/07/31 14884.11 14806.44
1992/08/31 15012.39 14944.42
1992/09/30 15211.28 15155.78
1992/10/31 14964.17 14937.10
1992/11/30 14974.77 14911.26
1992/12/31 15256.54 15162.36
1993/01/31 15618.00 15484.40
1993/02/28 16000.83 15794.49
1993/03/31 16085.76 15847.39
1993/04/30 16244.73 15969.28
1993/05/31 16179.95 15951.73
1993/06/30 16578.37 16305.70
1993/07/31 16684.40 16405.17
1993/08/31 17149.13 16771.33
1993/09/30 17216.76 16835.45
1993/10/31 17306.13 16899.07
1993/11/30 17060.62 16713.80
1993/12/31 17136.39 16778.40
1994/01/31 17412.30 17008.04
1994/02/28 16895.65 16647.98
1994/03/31 16445.47 16273.53
1994/04/30 16288.80 16145.54
1994/05/31 16274.87 16124.82
1994/06/30 16188.69 16087.76
1994/07/31 16550.12 16383.47
1994/08/31 16540.27 16386.64
1994/09/30 16216.36 16155.78
1994/10/31 16153.28 16143.59
1994/11/30 16138.96 16114.09
1994/12/31 16244.34 16212.09
1995/01/31 16549.31 16513.90
1995/02/28 16935.39 16869.33
1995/03/31 17029.41 16975.13
1995/04/30 17241.86 17196.98
1995/05/31 17929.48 17890.54
1995/06/30 18055.06 18027.79
1995/07/31 17984.65 17961.48
1995/08/31 18191.72 18172.60
1995/09/30 18359.31 18347.64
1995/10/31 18643.57 18627.01
1995/11/30 18927.37 18917.36
1995/12/31 19179.31 19185.52
1996/01/31 19281.95 19303.27
1996/02/29 18869.03 18910.04
1996/03/31 18710.85 18752.07
1996/04/30 18564.46 18632.37
1996/05/31 18534.06 18601.17
1996/06/30 18751.93 18841.30
1996/07/31 18800.56 18887.86
1996/08/31 18745.21 18845.69
1996/09/30 19061.35 19158.46
1996/10/31 19462.46 19579.96
1996/11/30 19780.91 19920.53
1996/12/31 19579.20 19717.21
1997/01/31 19600.38 19739.15
1997/02/28 19613.53 19766.21
1997/03/31 19401.68 19557.05
1997/04/30 19674.38 19839.35
1997/05/31 19828.24 20010.48
1997/06/30 20039.82 20235.01
1997/07/31 20609.52 20809.36
1997/08/31 20384.84 20603.61
1997/09/30 20702.41 20913.46
1997/10/31 21019.01 21275.23
1997/11/30 21120.73 21384.20
1997/12/31 21328.08 21607.75
1998/01/31 21644.63 21931.01
1998/02/28 21585.29 21871.53
1998/03/31 21645.88 21933.45
1998/04/30 21723.89 22032.18
1998/05/31 21937.34 22258.41
1998/06/30 22172.32 22511.46
1998/07/31 22190.21 22546.32
1998/08/31 22653.63 23132.86
1998/09/30 23226.50 23756.46
1998/10/31 23108.68 23675.52
1998/11/30 23122.38 23683.57
1998/12/31 23159.63 23736.47
1999/01/29 23312.14 23874.21
IMATRL PRASUN SHR__CHT 19990131 19990216 134816 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Intermediate Government Income Fund on January
31, 1989. As the chart shows, by January 31, 1999, the value of the
investment would have grown to $20,570 - a 105.70% 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 $22,153 - a 121.53% increase.
(checkmark)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.
TOTAL RETURN COMPONENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
1999 1998 1997 1996 1995 1994
Dividend returns 3.48% 6.88% 7.11% 6.62% 6.60% 5.22%
Capital returns 0.72% -0.10% 1.45% -1.13% 1.56% -4.65%
Total returns 4.20% 6.78% 8.56% 5.49% 8.16% 0.57%
</TABLE>
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 JANUARY 31, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1999
Dividends per share 5.07(cents) 33.82(cents) 63.83(cents)
Annualized dividend rate 6.07% 6.78% 6.48%
30-day annualized yield 5.14% - -
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 $9.83
over the past one month, $9.90 over the past six months and $9.85 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
bond 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 yield would have been
4.86%.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Like the U.S. equity markets, taxable
fixed-income spread sectors
experienced their share of volatility
during the six-month period ending
January 31, 1999. For the period,
the Lehman Brothers Aggregate Bond
Index - a broad measure of the
U.S. taxable investment-grade bond
market - returned 5.10%. Overall,
U.S. Treasuries posted the strongest
performance, as investors shunned
credit risk in a flight-to-quality from
economic and financial instability in
Asia and Russia. This caused a
dramatic widening in yield spreads
and, coupled with significant
hedge-fund liquidations in October,
contributed to a major reduction in
liquidity among spread sectors,
placing further pressure on yield
spreads. During the six-month
period, the Lehman Brothers
Treasury Index returned 6.04%. In the
last three months of the period,
however, other fixed-income spread
sectors - agencies, corporate bonds,
mortgage and asset-backed
securities - outperformed
comparable duration Treasuries, as
investors capitalized on historically
attractive yield spread levels. This
narrowing of yield spreads was
spurred by the Federal Reserve Board's
three cuts in key interest rates, which
helped boost market confidence and
restore some measure of liquidity to
the fixed-income markets. The
Lehman Brothers Corporate Bond Index
returned 5.38% for the six-month
period, while the Lehman Brothers
Mortgage Backed Securities Index
return was 3.67%.
(photograph of Andrew Dudley)
NOTE TO SHAREHOLDERS: Andrew Dudley became Portfolio Manager of
Fidelity Intermediate Government Income Fund on December 7, 1998.
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six-months that ended January 31, 1999, the fund returned
4.20%. To get a sense of how the fund did relative to its competitors,
the short-intermediate U.S. government funds average returned 3.83%
for the same six-month period, according to Lipper Inc. Additionally,
the Lehman Brothers Intermediate Government Bond Index - which tracks
the types of securities in which the fund invests - returned 4.99% for
the same period. For the 12-months ending January 31, 1999, the fund
returned 6.68%, while the Lipper average returned 5.93% and the Lehman
Brothers index returned 7.57%.
Q. WHY DID THE FUND'S PERFORMANCE OUTPACE THAT OF THE AVERAGE FUND OF
ITS TYPE OVER THE PAST SIX MONTHS?
A. Although it's difficult to pinpoint exactly, I suspect that one of
the key reasons for the fund's better performance was that it had a
smaller stake in poor-performing mortgage securities than many of its
peers. Mortgage securities suffered from investors' fears that falling
interest rates would unleash a rapid increase in prepayment activity -
or the number of homeowners who refinanced their mortgages to take
advantage of falling interest rates. In response, investors pushed
mortgage security prices lower fearing that an accelerated rate of
mortgage prepayments - and the eventual retirement of the securities
made up of them - would potentially force them to reinvest at lower,
prevailing interest rates.
Q. HOW DID THE FUND'S MORTGAGE SECURITY HOLDINGS PERFORM?
A. They proved to be a disappointment during the past six months. Much
of the fund's mortgage investments were concentrated in securities
made up of mortgages with coupons - the interest rate the homeowner
promises to pay - of 8% and higher. The rationale for investing in
these "seasoned" securities issued several years ago when interest
rates were higher was that - based on history - they were less
susceptible to prepayment. After all, the homeowners had, for whatever
reason, chosen not to refinance their mortgages, even after being
presented with several attractive opportunities to do so. The strength
of the Treasury market was too powerful for these seasoned mortgages
as interest rates fell to low levels not seen in years. Not only did
prepayments rise more than expected, but many of these seasoned
securities were priced lower despite higher Treasury prices. I have
chosen to maintain the fund's holdings in mortgages because I believe
that prices currently reflect relative value compared to Treasuries,
even at higher prepayment levels.
Q. HOW DID AGENCY SECURITIES - WHICH MADE UP ROUGHLY 64% OF THE FUND'S
INVESTMENTS AT THE END OF THE PERIOD - PERFORM DURING THE PAST SIX
MONTHS?
A. Better than mortgages, but not as well as Treasuries - which
benefited from a global flight to quality in the first several months
of the period. More recently, however, agencies have gained some
ground on Treasuries by posting stronger performance. Within the
agency sector, I continued the fund's emphasis on non-callable
securities - those that can't be redeemed by their issuers before
maturity. Some agency securities can be "called" - or redeemed - by
their issuers as a way to reduce their debt costs. Because they can't
be redeemed prior to maturity, non-callable securities tend to perform
better than their callable counterparts when interest rates fall, and
generally keep pace with callable bonds when interest rates rise. In
addition to their call protection, I felt that non-callable securities
generally were more attractively priced than their callable
counterparts. I also worked to keep the fund's agency holdings
diversified across a variety of issuers.
Q. WHAT'S YOUR OUTLOOK, ANDY?
A. At the end of the period, yield spreads between Treasuries and
agencies, and between Treasuries and mortgages, were fairly wide when
viewed on a historical basis. The higher yields that agencies and
mortgage securities offered essentially signified that investors
wanted more compensation - in the form of yield - for the higher risk
those securities carry. In my view, the wider spreads have pushed
agency and mortgage security prices to attractive levels we've not
seen in some time. If spread relationships move closer to their
historical norm, agency and mortgage securities should do well
relative to Treasuries. Furthermore, I would expect that the yield
advantage they offer will help agency and mortgage securities outpace
Treasuries even if spreads remain constant.
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.
(checkmark)FUND FACTS
GOAL: high current income with
preservation of capital by
investing mainly in U.S.
government and agency
securities while maintaining a
dollar-weighted average
maturity between three and
10 years
FUND NUMBER: 452
TRADING SYMBOL: FSTGX
START DATE: May 2, 1988
SIZE: as of January 31,
1999, more than $742
million
MANAGER: Andrew Dudley,
since December, 1998;
manager, various Fidelity and
Spartan government and
mortgage funds; joined
Fidelity in 1996
ANDREW DUDLEY ON HIS
INVESTMENT STYLE:
"Investors can expect to see a
continuation of the investment
process that was used by the
fund's previous manager. As he
did, I will manage the fund so that
its duration - a measure of its
interest-rate sensitivity - is in
line with the Lehman Brothers
Intermediate Government Bond
Index. Because getting the fund's
duration wrong - making it too
interest-rate sensitive when
interest rates are on the rise, for
example - can seriously hurt
performance, I'd rather focus my
efforts on other areas where
Fidelity's research efforts can add
value. Those areas include asset
allocation - how the fund is
divided among various sectors
of the bond market - and
individual security selection.
"For example, since taking over
the fund, I have been biased toward
more liquid - or easily traded -
securities. Even though it may
mean sacrificing a small amount of
additional yield for the added
liquidity, I'm more comfortable
owning securities that I feel I can
sell more easily when I want to."
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Less than 5% 1.1 0.0
5 - 5.99% 11.1 14.5
6 - 6.99% 29.0 31.6
7 - 7.99% 16.9 8.5
8 - 8.99% 8.3 9.1
9 - 9.99% 14.5 16.9
10 - 10.99% 5.6 3.8
11 - 11.99% 4.4 4.7
12% and over 7.1 4.3
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, 1999
6 MONTHS AGO
Years 4.8 4.7
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 JANUARY 31, 1999
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 JANUARY 31, 1999
Row: 1, Col: 1, Value: 24.8
Row: 1, Col: 2, Value: 9.199999999999999
Row: 1, Col: 3, Value: 64.0
Row: 1, Col: 4, Value: 2.0
Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0
Mortgage securities 24.8%
U.S. Treasury
obligations 9.2%
U.S. government
agency obligations 64.0%
Short-term
investments 2.0%
AS OF JULY 31, 1998
Row: 1, Col: 1, Value: 23.7
Row: 1, Col: 2, Value: 3.5
Row: 1, Col: 3, Value: 66.2
Row: 1, Col: 4, Value: 6.6
Row: 1, Col: 5, Value: 0.0
Mortgage securities 23.7%
U.S. Treasury
obligations 3.5%
U.S. government
agency obligations 66.2%
Short-term
investments 6.6%
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENTS JANUARY 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C>
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 73.2%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 64.0%
Fannie Mae:
6.4% 9/27/05 $ 8,510 $ 9,055
6.48% 6/28/04 1,210 1,284
6.5% 7/16/07 10,000 10,736
6.54% 10/3/05 9,750 10,475
6.74% 5/13/04 2,150 2,292
7.49% 3/2/05 5,980 6,685
7.875% 2/24/05 5,455 6,208
8.25% 12/18/00 9,600 10,155
12% 11/13/00 24,100 26,943
Farm Credit Systems Financial 25,570 29,873
Assistance Corp. 9.375%
7/21/03
Federal Agricultural Mortgage 2,050 2,257
Corp. 7.04% 8/10/05
Federal Farm Credit Bank:
5.54% 9/10/03 1,300 1,322
9.15% 2/14/05 500 601
Federal Home Loan Bank:
4.96% 10/7/05 8,100 7,984
5.6% 9/8/05 10,400 10,632
5.717% 8/25/03 4,500 4,601
6.26% 9/24/04 3,500 3,684
6.75% 4/10/06 1,000 1,094
7.36% 7/1/04 7,825 8,620
7.59% 3/10/05 1,940 2,179
8.09% 12/28/04 3,500 4,008
Freddie Mac:
6.08% 12/17/04 14,275 14,911
6.505% 7/1/04 3,200 3,399
6.783% 8/18/05 335 364
6.99% 7/5/06 2,000 2,210
8.115% 1/31/05 7,350 8,441
Government Loan Trusts 11,082 12,399
(assets of Trust guaranteed
by U.S. Government through
Agency for International
Development) 8.5% 4/1/06
Government Trust Certificates
(assets of Trust guaranteed
by U.S. Government through
Defense Security Assistance
Agency):
Class T-3, 9.625% 5/15/02 3,553 3,742
Class 1-C, 9.25% 11/15/01 35,495 37,675
Class 2-E 9.4% 5/15/02 8,205 8,646
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (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, 5.2% 10/15/04 $ 1,255 $ 1,255
Series 1993 D, 5.23% 5/15/05 957 957
Series 1994 A, 7.12% 4/15/06 35,524 37,773
Series 1994 C, 6.61% 9/15/99 100 100
Series 1996 A, 6.55% 6/15/04 8,496 8,787
Guaranteed Trade Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank):
Series 1992 A, 7.02% 9/1/04 6,259 6,548
Series 1994 A, 7.39% 6/26/06 5,531 5,920
Series 1994 B, 7.5% 1/26/06 770 831
Series 1997 A, 6.104% 7/15/03 11,574 11,777
Israel Export Trust 4,847 5,002
Certificates (assets of
Trust guaranteed by U.S.
Government through
Export-Import Bank) Series
1994 1, 6.88% 1/26/03
Overseas Private Investment
Corp. U.S. Government
guaranteed participation
certificate:
Series 1994 195, 6.08% 6,417 6,621
8/15/04 (callable)
Series 1996 A1, 6.726% 4,000 4,239
9/15/10 (callable)
Private Export Funding Corp.:
secured:
5.48% 9/15/03 2,450 2,465
5.65% 3/15/03 1,859 1,878
5.8% 2/1/04 4,990 5,075
5.82% 6/15/03 (a) 15,200 15,502
6.31% 9/30/04 4,700 4,967
6.86% 4/30/04 2,291 2,382
8.35% 1/31/01 3,800 4,039
5.31% 11/15/03 (a) 4,000 3,994
State of Israel (guaranteed
by U.S. Government through
Agency for International
Development):
5.25% 9/15/00 8,141 8,157
5.625% 9/15/03 16,250 16,605
6.6% 2/15/08 27,910 30,004
6.625% 8/15/03 15,375 16,321
7.75% 11/15/99 4,200 4,290
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
Tennessee Valley Authority 6% $ 4,060 $ 4,128
11/1/00
U.S. Trade Trust Certificates 5,147 5,652
(assets of Trust guaranteed
by U.S. government through
Export-Import Bank) 8.17%
1/15/07
TOTAL U.S. GOVERNMENT AGENCY 467,744
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
9.2%
U.S. Treasury Bond:
10.75% 8/15/05 14,900 19,845
11.75% 2/15/10 (callable) 5,100 6,904
U.S. Treasury Notes 7.875% 37,900 40,794
8/15/01
TOTAL U.S. TREASURY 67,543
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 535,287
GOVERNMENT AGENCY OBLIGATIONS
(Cost $529,038)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 24.6%
FANNIE MAE - 12.8%
5.5% 1/1/09 to 2/1/09 8,840 8,776
6% 10/1/08 to 12/1/08 18,009 18,133
6.5% 6/1/28 to 1/1/29 38,380 38,728
8% 11/10/03 5 5
8.25% 12/1/01 5,365 5,689
8.5% 9/1/07 to 12/1/22 1,204 1,271
9% 2/1/13 888 943
9.5% 11/15/09 2,941 3,149
10% 1/1/20 103 112
10.25% 10/1/09 to 10/1/18 277 298
11% 8/1/10 to 1/1/16 4,492 4,920
11.25% 11/1/10 to 1/1/16 923 1,020
11.5% 9/1/11 to 6/1/19 3,008 3,357
11.75% 7/1/13 58 65
12.25% 10/1/10 to 6/1/15 1,027 1,164
12.5% 9/1/07 to 7/1/16 2,515 2,868
12.75% 10/1/11 to 6/1/15 1,037 1,192
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - CONTINUED
13% 6/1/11 to 7/1/15 $ 1,023 $ 1,179
13.25% 9/1/11 to 9/1/13 552 641
13.5% 5/1/11 to 12/1/14 33 39
14% 6/1/11 to 12/1/14 99 116
14.5% 7/1/14 19 23
15% 4/1/12 23 27
93,715
FREDDIE MAC - 7.2%
6.5% 5/1/08 2,065 2,097
7% 6/1/01 to 8/1/01 1,032 1,038
8.5% 5/1/10 to 12/1/27 7,156 7,504
9% 11/1/09 to 8/1/16 1,008 1,059
9.5% 7/1/16 to 8/1/21 5,598 5,994
10% 12/1/00 to 3/1/21 9,525 10,253
10.5% 9/1/09 to 5/1/21 6,244 6,891
10.75% 7/1/13 116 129
11% 8/1/00 to 9/1/20 683 765
11.25% 2/1/10 to 10/1/14 800 891
11.5% 10/1/15 to 8/1/19 449 502
11.75% 1/1/10 to 10/1/15 171 191
12% 1/1/00 to 11/1/19 1,776 2,020
12.25% 2/1/11 to 8/1/15 608 697
12.5% 10/1/09 to 6/1/19 8,898 10,231
12.75% 2/1/10 to 1/1/11 186 214
13% 9/1/10 to 5/1/17 1,367 1,590
13.25% 11/1/10 to 12/1/14 132 152
13.5% 11/1/10 to 10/1/14 239 280
13.75% 10/1/14 12 12
14% 11/1/12 to 4/1/16 41 48
14.5% 12/1/10 to 9/1/12 76 90
14.75% 3/1/10 26 30
16.25% 7/1/11 7 8
52,686
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 4.6%
8% 9/15/06 to 11/15/07 860 902
8.5% 4/15/16 to 4/15/17 72 76
9% 11/15/04 to 5/15/17 1,154 1,228
9.5% 6/15/09 to 11/15/20 9,875 10,582
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
10% 12/15/09 to 10/15/20 $ 1,387 $ 1,500
10.5% 8/15/15 to 1/20/18 1,998 2,168
11% 4/15/00 to 8/15/19 2,748 3,050
11.5% 3/15/10 to 1/15/21 10,579 11,858
12% 11/15/12 to 6/15/15 648 725
12.25% 1/15/14 50 56
13% 1/15/11 to 12/15/14 871 996
13.25% 9/15/13 to 10/15/14 70 80
13.5% 5/15/10 to 12/15/14 418 480
14% 6/15/11 to 12/15/14 86 99
16% 4/15/13 131 157
17% 12/15/11 3 4
33,961
TOTAL U.S. GOVERNMENT AGENCY 180,362
- - MORTGAGE SECURITIES
(Cost $178,046)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 0.2%
U.S. GOVERNMENT AGENCY - 0.2%
Fannie Mae planned 1,328 1,411
amortization class Series
1988-21 Class G, 9.5%
8/25/18 (Cost $1,440)
CASH EQUIVALENTS - 2.0%
MATURITY AMOUNT (000S)
Investments in repurchase $ 14,477 14,471
agreements (U.S. Government
obligations), in a joint
trading account at 4.83%,
dated 1/29/99 due 2/1/99
(Cost $14,471)
TOTAL INVESTMENT IN $ 731,531
SECURITIES - 100%
(Cost $722,995)
</TABLE>
LEGEND
(a) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $19,496,000 or 2.6% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $523,212,000 and $464,595,000, respectively
(see Note 3 of Notes to Financial Statements).
INCOME TAX INFORMATION
At January 31, 1999, the aggregate cost of investment securities for
income tax purposes was $723,000,000. Net unrealized appreciation
aggregated $8,531,000, of which $11,687,000 related to appreciated
investment securities and $3,156,000 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.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS(EXCEPT
PER SHARE AMOUNT) JANUARY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 731,531
value (including repurchase
agreements of $14,471) (cost
$722,995) - See
accompanying schedule
Receivable for investments 9,866
sold
Receivable for fund shares 399
sold
Interest receivable 11,245
TOTAL ASSETS 753,041
LIABILITIES
Payable for investments $ 8,670
purchased
Payable for fund shares 511
redeemed
Distributions payable 703
Accrued management fee 403
Other payables and accrued 20
expenses
TOTAL LIABILITIES 10,307
NET ASSETS $ 742,734
Net Assets consist of:
Paid in capital $ 784,903
Undistributed net investment 1,238
income
Accumulated undistributed net (51,943)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 8,536
(depreciation) on investments
NET ASSETS, for 75,399 shares $ 742,734
outstanding
NET ASSET VALUE, offering $9.85
price and redemption price
per share ($742,734 (divided
by) 75,399 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
1999 (UNAUDITED)
INVESTMENT INCOME $ 26,720
Interest (including income on
securities loaned of $6)
EXPENSES
Management fee $ 2,462
Non-interested trustees' 2
compensation
Total expenses before 2,464
reductions
Expense reductions (871) 1,593
NET INVESTMENT INCOME 25,127
REALIZED AND UNREALIZED GAIN 3,970
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 1,263
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 5,233
NET INCREASE (DECREASE) IN $ 30,360
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions
FMR reimbursement $ 868
Custodian credits 3
$ 871
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, YEAR ENDED JULY 31, 1998
1999
(UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 25,127 $ 48,961
income
Net realized gain (loss) 3,970 5,968
Change in net unrealized 1,263 (6,214)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 30,360 48,715
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (25,756) (49,186)
from net investment income
Share transactions Net 184,673 255,811
proceeds from sales of shares
Reinvestment of distributions 20,734 40,988
Cost of shares redeemed (171,108) (296,896)
NET INCREASE (DECREASE) IN 34,299 (97)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 38,903 (568)
IN NET ASSETS
NET ASSETS
Beginning of period 703,831 704,399
End of period (including $ 742,734 $ 703,831
undistributed net investment
income of $1,238 and $1,867,
respectively)
OTHER INFORMATION
Shares
Sold 18,656 26,122
Issued in reinvestment of 2,093 4,188
distributions
Redeemed (17,292) (30,301)
Net increase (decrease) 3,457 9
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
1999
(UNAUDITED) 1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610 $ 10.310
period
Income from Investment .331 D .652 D .675 D .678 .610 .470
Operations Net investment
income
Net realized and .077 (.008) .124 (.150) .143 (.410)
unrealized gain (loss)
Total from investment .408 .644 .799 .528 .753 .060
operations
Less Distributions
From net investment income (.338) (.654) (.659) (.638) (.603) (.540)
In excess of net realized - - - - - (.220)
gain
Total distributions (.338) (.654) (.659) (.638) (.603) (.760)
Net asset value, end of $ 9.850 $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610
period
TOTAL RETURN B, C 4.20% 6.78% 8.56% 5.49% 8.16% .57%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 743 $ 704 $ 704 $ 740 $ 817 $ 1,018
millions)
Ratio of expenses to average .42% A, E .38% E .54% E .63% E .65% .65%
net assets
Ratio of expenses to average .42% A .38% .54% .62% F .65% .65%
net assets after expense
reductions
Ratio of net investment 6.64% A 6.65% 6.96% 6.89% 7.18% 7.37%
income to average net assets
Portfolio turnover rate 128% A 188% 105% 105% 210% 391%
</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 6 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Ginnie Mae Fund, Fidelity Government Income Fund (formerly
Fidelity Government Securities Fund) and Fidelity Intermediate
Government Income Fund (the funds) are funds of Fidelity Income Fund
(the trust). The trust is registered under the Investment Company Act
of 1940, as amended, 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. 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 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 and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
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. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in each applicable
fund's schedule of investments. 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 and expense, and prompt sale at an acceptable price may
be difficult. Information regarding restricted securities is included
under the caption "Other Information" at the end of each applicable
fund's schedule of investments. 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 Income 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
fees were equivalent to annualized rates of .43% of average net assets
for the Fidelity Ginnie Mae Fund and Fidelity Government Income 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.
SUB-ADVISER FEE. FMR, on behalf of each fund, has entered into a
sub-advisory agreement (effective January 1, 1999) with Fidelity
Investments Money Management, Inc. (FIMM), a wholly owned subsidiary
of FMR. For its services, FIMM receives a fee from FMR of 50% of the
management fee payable to FMR. The fees are paid prior to any
voluntary expense limitations which may be in effect.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the funds' transfer, dividend disbursing and
shareholder servicing agent for Fidelity Ginnie Mae Fund and Fidelity
Government Income 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 fees were
equivalent to an annualized rate of .20% of the average net assets of
Fidelity Ginnie Mae Fund and Fidelity Government Income Fund.
ACCOUNTING FEES. FSC maintains the accounting records for Fidelity
Ginnie Mae Fund and Fidelity Government Income Fund. The fee is based
on the level of average net assets for the month plus out-of-pocket
expenses.
5. SECURITY LENDING.
Fidelity Intermediate Government Income Fund loaned securities to
brokers who paid the fund's negotiated lenders' fees. These fees are
included in interest income. Fidelity Intermediate Government Income
Fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of
5. SECURITY LENDING - CONTINUED
the loan. The market value of the loaned securities is determined at
the close of business of the fund and any additional required
collateral is delivered to the fund on the next business day. At
period end there were no loans outstanding.
6. EXPENSE REDUCTIONS.
For Fidelity Ginnie Mae Fund and 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 .65% and .38%,
respectively, of average net assets. Effective December 31, 1998,
Fidelity Intermediate Government Income Fund's expense limitation was
eliminated.
In addition, Fidelity Ginnie Mae Fund, Fidelity Government Income 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 funds' expenses.
For the period, the reductions under these arrangements are shown
under the caption "Other Information" on each applicable fund's
Statement of Operations.
7. PROPOSED REORGANIZATIONS.
The Board of Trustees of Fidelity Ginnie Mae Fund has approved an
Agreement and Plan of Reorganization ("Agreement") between Fidelity
Ginnie Mae Fund and Spartan Ginnie Mae Fund ("Reorganization"). The
Agreement provides for the transfer of all of the assets and the
assumption of all of the liabilities of Spartan Ginnie Mae Fund in
exchange solely for the number of shares of Fidelity Ginnie Mae Fund
having the same aggregate net asset value as the outstanding shares of
Spartan Ginnie Mae Fund as of the close of business of the New York
Stock Exchange on the day that the Reorganization is effective. The
Reorganization can be consummated only if, among other things, it is
approved by the vote of a majority (as defined by the 1940 Act) of
outstanding voting securities of Spartan Ginnie Mae Fund. A Special
Meeting of Shareholders ("Meeting") of Spartan Ginnie Mae Fund will be
held on May 19, 1999 to vote on the Agreement. A detailed description
of the proposed transaction and voting information will be sent to
shareholders of Spartan Ginnie Mae Fund in March, 1999. If the
Agreement is approved at the Meeting, the Reorganization is expected
to become effective on or about May 27, 1999.
The Board of Trustees of Fidelity Intermediate Government Income Fund
has approved Agreements and Plans of Reorganization ("Agreements")
between Fidelity Intermediate Government Income Fund and Spartan
Short-Intermediate Government Fund and Fidelity Short-Intermediate
Government Fund ("Target Funds") ("Reorganizations"). The Agreements
provide for the transfer of all of the assets and the assumption of
all of the liabilities of each Target Fund in exchange solely for the
number of shares of Fidelity Intermediate Government Income Fund
having the same aggregate net asset value as the outstanding shares of
each Target
7. PROPOSED REORGANIZATIONS - CONTINUED
Fund as of the close of business of the New York Stock Exchange on the
day that the Reorganizations are effective. A Reorganization can be
consummated only if, among other things, it is approved by the vote of
a majority (as defined by the 1940 Act) of outstanding voting
securities of the Target Fund to which the Reorganization relates. A
Special Meeting of Shareholders ("Meeting") of the Target Funds will
be held on April 14, 1999 to vote on the Agreements. A detailed
description of the proposed transactions and voting information was
sent to shareholders of the Target Funds in February, 1999. If the
Agreements are approved at the Meeting, the Reorganizations are
expected to become effective on or about April 22, 1999 and April 29,
1999 for Spartan Short-Intermediate Government Fund and Fidelity
Short-Intermediate Government Fund, respectively.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC) TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)
FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE
WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
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
Fidelity Investments
Money Management, Inc.
Merrimack, NH
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning Jr., Vice President
Dwight D. Churchill, Vice President
Andrew J. Dudley, Vice President of
Intermediate Government Income
Thomas J. Silvia, Vice President of
Ginnie Mae and Government Income
Stanley N. Griffith, Assistant
Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy 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
GVT-SANN-0399 72332
1.700523.101
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 SM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark) (AUTOMATED GRAPHIC)
1-800-544-5555
(AUTOMATED GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
(Fidelity Logo Graphic)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
