FIDELITY(REGISTERED TRADEMARK) GINNIE MAE FUND
FIDELITY GOVERNMENT
INCOME FUND
FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND
SEMIANNUAL REPORT
JANUARY 31, 2000
(2_FIDELITY_LOGOS)(registered trademark)
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
21 FUND TALK: THE MANAGER'S
OVERVIEW
24 INVESTMENT CHANGES
25 INVESTMENTS
30 FINANCIAL STATEMENTS
FIDELITY INTERMEDIATE
GOVERNMENT INCOME FUND
34 PERFORMANCE
37 FUND TALK: THE MANAGER'S
OVERVIEW
40 INVESTMENT CHANGES
41 INVESTMENTS
47 FINANCIAL STATEMENTS
NOTES 51 NOTES TO THE FINANCIAL
STATEMENTS
Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
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 1-800-544-6666
FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
While no major Y2K glitches disrupted the financial markets to start
the new year, inflation worries re-emerged to hinder stock performance
throughout January. The S&P 500(Registered trademark) and Dow Jones
Industrial Average each fell approximately 5%, while the
technology-oriented NASDAQ Index dropped more than 3% for the month.
In bond markets, the potential for further rate hikes as a pre-emptive
move against inflation continued to be an obstacle to fixed-income
performance.
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 1-800-544-6666, 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
2000
FIDELITY GINNIE MAE FUND 1.02% -0.14% 39.06% 99.91%
LB GNMA 1.10% 0.29% 43.16% 113.22%
GNMA Funds Average 0.48% -1.27% 36.51% 97.40%
</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 58 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
2000
FIDELITY GINNIE MAE FUND -0.14% 6.82% 7.17%
LB GNMA 0.29% 7.44% 7.87%
GNMA Funds Average -1.27% 6.42% 7.03%
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
1990/01/31 10000.00 10000.00
1990/02/28 10058.09 10055.39
1990/03/31 10077.80 10081.60
1990/04/30 9964.50 9992.33
1990/05/31 10282.70 10305.38
1990/06/30 10427.21 10464.13
1990/07/31 10593.02 10657.50
1990/08/31 10565.87 10513.83
1990/09/30 10631.37 10594.69
1990/10/31 10748.94 10725.50
1990/11/30 10990.69 10969.07
1990/12/31 11172.45 11151.31
1991/01/31 11313.11 11317.97
1991/02/28 11358.77 11411.93
1991/03/31 11437.93 11494.28
1991/04/30 11522.66 11602.09
1991/05/31 11610.13 11696.79
1991/06/30 11624.14 11719.05
1991/07/31 11796.47 11919.34
1991/08/31 12006.84 12140.90
1991/09/30 12183.88 12354.79
1991/10/31 12349.69 12558.79
1991/11/30 12415.94 12645.83
1991/12/31 12688.23 12940.58
1992/01/31 12582.99 12780.35
1992/02/29 12717.48 12914.12
1992/03/31 12642.61 12840.68
1992/04/30 12750.71 12958.63
1992/05/31 12962.24 13186.86
1992/06/30 13107.33 13348.09
1992/07/31 13170.94 13465.05
1992/08/31 13316.58 13645.06
1992/09/30 13412.32 13766.47
1992/10/31 13303.91 13663.36
1992/11/30 13372.09 13725.67
1992/12/31 13538.29 13899.51
1993/01/31 13716.98 14074.33
1993/02/28 13838.89 14217.25
1993/03/31 13914.65 14295.15
1993/04/30 13962.28 14347.32
1993/05/31 14042.36 14445.74
1993/06/30 14179.96 14563.19
1993/07/31 14254.45 14624.51
1993/08/31 14289.90 14660.86
1993/09/30 14290.72 14673.47
1993/10/31 14339.58 14698.70
1993/11/30 14256.79 14677.68
1993/12/31 14365.79 14813.93
1994/01/31 14527.47 14930.39
1994/02/28 14390.71 14856.21
1994/03/31 14029.33 14455.13
1994/04/30 13917.13 14356.22
1994/05/31 13929.54 14397.27
1994/06/30 13882.44 14376.25
1994/07/31 14164.21 14656.66
1994/08/31 14199.49 14701.66
1994/09/30 14001.89 14494.70
1994/10/31 13983.92 14471.70
1994/11/30 13938.85 14430.90
1994/12/31 14079.01 14591.13
1995/01/31 14376.18 14893.30
1995/02/28 14745.94 15285.72
1995/03/31 14818.92 15360.65
1995/04/30 15019.73 15588.14
1995/05/31 15481.40 16064.14
1995/06/30 15570.97 16173.44
1995/07/31 15616.81 16207.56
1995/08/31 15762.52 16374.22
1995/09/30 15918.21 16534.46
1995/10/31 16047.55 16669.96
1995/11/30 16224.60 16862.59
1995/12/31 16416.79 17079.20
1996/01/31 16519.30 17198.14
1996/02/29 16395.16 17069.56
1996/03/31 16360.89 17026.04
1996/04/30 16308.62 16981.53
1996/05/31 16241.80 16924.41
1996/06/30 16423.50 17146.71
1996/07/31 16483.27 17211.25
1996/08/31 16494.35 17218.66
1996/09/30 16741.95 17506.99
1996/10/31 17071.97 17861.08
1996/11/30 17309.51 18120.97
1996/12/31 17214.29 18024.04
1997/01/31 17327.01 18162.51
1997/02/28 17373.90 18228.04
1997/03/31 17195.23 18048.27
1997/04/30 17457.03 18344.25
1997/05/31 17620.59 18532.43
1997/06/30 17834.41 18752.01
1997/07/31 18149.26 19092.26
1997/08/31 18115.08 19051.46
1997/09/30 18331.80 19304.67
1997/10/31 18515.47 19505.95
1997/11/30 18545.36 19565.79
1997/12/31 18712.16 19742.34
1998/01/31 18881.06 19932.99
1998/02/28 18911.65 19977.50
1998/03/31 18981.28 20062.07
1998/04/30 19101.23 20178.53
1998/05/31 19238.91 20316.26
1998/06/30 19285.74 20401.82
1998/07/31 19385.65 20516.55
1998/08/31 19537.89 20678.52
1998/09/30 19779.35 20923.07
1998/10/31 19733.30 20905.02
1998/11/30 19830.34 21023.22
1998/12/31 19907.11 21109.52
1999/01/31 20019.22 21259.61
1999/02/28 19949.39 21192.11
1999/03/31 20064.67 21320.41
1999/04/30 20142.12 21422.72
1999/05/31 20014.98 21314.75
1999/06/30 19874.43 21229.71
1999/07/31 19788.25 21090.72
1999/08/31 19778.37 21083.42
1999/09/30 20093.55 21422.71
1999/10/31 20219.86 21550.12
1999/11/30 20231.59 21559.39
1999/12/31 20155.56 21516.09
2000/01/31 19990.90 21321.69
IMATRL PRASUN SHR__CHT 20000131 20000209 151834 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Ginnie Mae Fund on January 31, 1990. As the chart
shows, by January 31, 2000, the value of the investment would have
grown to $19,991 - a 99.91% 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 $21,322 - a 113.22%
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000 1999 1998 1997 1996 1995
Dividend returns 3.31% 5.85% 6.63% 7.07% 6.58% 7.35%
Capital returns -2.29% -3.77% 0.18% 3.04% -1.03% 2.91%
Total returns 1.02% 2.08% 6.81% 10.11% 5.55% 10.26%
</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
2000
Dividends per share 5.54(cents) 34.86(cents) 66.58(cents)
Annualized dividend rate 6.36% 6.63% 6.30%
30-day annualized yield 6.71% - -
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
$10.26 over the past one month, $10.43 over the past six months and
$10.57 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 6.70%.
FIDELITY GINNIE MAE FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Persistent concerns about inflation,
a series of interest-rate hikes by the
Federal Reserve Board and a strong
U.S. economy were just three of the
challenges faced by the taxable
bond market in the six-month
period ending January 31, 2000.
All investment-grade spread sectors
outperformed comparable duration
Treasuries during this time frame.
The bellwether 30-year Treasury's
total return fell 3.51%, while the
Lehman Brothers Aggregate Bond
Index, a popular measure of taxable
bond performance, closed the period
up 0.66%. Troubles for 30-year
Treasuries were further compounded
in January when, for the first time
since 1994, the yield curve became
inverted, meaning the long bond
offered a lower yield than shorter
duration Treasuries. Of the spread
sectors, mortgages turned in the
strongest performance, thanks to a
relatively high housing turnover rate
and declining prepayment activity
in the second half of 1999. The
Lehman Brothers Mortgage-Backed
Securities Index posted a 1.13%
six-month return. Corporates also
enjoyed positive performance,
shaking off an excess supply scare
in the summer and riding investors'
strong demand to a 0.52% return
for the period, as measured by
the Lehman Brothers Corporate Bond
Index. Finally, agency securities
benefited from the additional
liquidity provided by issuing
larger-denominated securities in
response to waning Treasury issuance,
helping the Lehman Brothers U.S.
Agency Index to a 0.47% return.
(photograph of Tom Silvia)
An interview with Tom Silvia, Portfolio Manager of Fidelity Ginnie Mae
Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six-month period that ended January 31, 2000, the fund
provided a total return of 1.02%. To get a sense of how the fund did
relative to its competitors, the GNMA funds average returned 0.48% 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 1.10% for the same six-month period.
For the 12-month period ended January 31, 2000, the fund returned
- -0.14%. In comparison, the GNMA funds average returned -1.27% and the
Lehman Brothers index returned 0.29% for the same 12-month period.
Q. EVEN THOUGH RISING INTEREST RATES MUTED THE RETURNS OF NEARLY ALL
TYPES OF FIXED-INCOME SECURITIES, GINNIE MAE AND OTHER TYPES OF
MORTGAGE SECURITIES HELD UP REASONABLY WELL DURING THE PAST SIX
MONTHS. WHAT WAS BEHIND THE RELATIVELY STRONG PERFORMANCE OF THE
MORTGAGE SECTOR?
A. The biggest investment risk associated with mortgage securities -
rapid acceleration in prepayment activity - virtually disappeared as
home loan refinancing activity dried up in response to rising interest
rates. Market participants generally dislike waves of refinancing and
the ensuing mortgage security prepayments, which tend to occur more
frequently when interest rates decline. That's because mortgage
security investors often are in the unenviable position of being
forced to forfeit higher-yielding securities, leaving them to
re-invest the proceeds at lower rates. As interest rates rose,
however, prepayment risk was viewed as minimal and investors started
to seek out the relatively high yields offered by mortgage securities
relative to Treasury securities.
Q. WHAT HELPED THE FUND OUTPACE ITS PEERS DURING THE PAST SIX MONTHS?
A. The fund's performance was aided by its slightly larger stake in
more recently issued securities with coupons of 7.0%. In the report to
shareholders six months ago, I explained that I had added those
securities at a time when I felt that their prices were extremely
attractive and that they offered the potential for solid total return.
In fact, Ginnie Mae "sevens," as they're known, performed relatively
well as the demand for them firmed. Investors sought them out because
they offered an attractive amount of incremental yield over lower
coupon bonds, and their rate of prepayment was declining a lot faster
than higher coupon bonds. More recently, however, I pared back the
fund's stake in sevens and looked for more attractive values
elsewhere. In addition, I reduced the fund's stake in 15-year
securities - which tend to experience less prepayment volatility - and
replaced them with higher-yielding 30-year mortgage securities.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. There weren't any specific holdings that performed dramatically
worse than the overall Ginnie Mae market. So I'd have to say that the
only disappointment was the market's overall difficulty in light of
rising interest rates.
Q. HOW DID YOU MANAGE THE FUND'S SENSITIVITY TO INTEREST-RATE CHANGES?
A. I kept the fund's duration - a gauge of interest-rate sensitivity -
in line with the Ginnie Mae market as a whole as measured by the
Lehman Brothers GNMA Index. The duration of the index and, therefore,
of the fund, tends to be shorter than the average of the fund's peers.
The shorter a fund's duration, the less its share price will fall as
interest rates rise. As rates rose during the past six months, the
fund benefited from its shorter-than-average duration.
Q. YOU ALSO USED A STRATEGY KNOWN AS A "DOLLAR ROLL." CAN YOU EXPLAIN
THAT STRATEGY AND WHY YOU USE IT?
A. Sure. A dollar roll describes a strategy whereby I sell a security
that the fund owns, with settlement of that sale to occur in the
current month. At the same time, I buy a similar security at a lower
price, with settlement of that purchase to occur in the following
month. By conducting these two simultaneous trades, I was able to add
to the fund's total return.
Q. WHAT'S YOUR OUTLOOK?
A. At current levels, I believe that mortgage securities offer very
attractive values. Investors are getting compensated - in the form of
relatively high yields - for taking on prepayment risk that's all but
disappeared in the current environment. At period-end, mortgage
securities offered more than a 130 basis points (1.30 percentage
points) yield advantage over comparable maturity U.S. Treasury
securities.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: to provide a high level
of 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,
2000, more than $1.7 billion
MANAGER: Tom Silvia, since
1998; manager, various Fidelity
and Spartan government funds;
joined Fidelity in 1993
TOM SILVIA ON THE PLANNED
REDUCTION OF U.S. TREASURY
SECURITIES AND ITS EFFECT ON
MORTGAGE SECURITIES:
"In mid-January, the U.S. Treasury
Department announced plans to trim
outstanding government debt by
buying back some older Treasury
securities. Just days later, the Treasury
said it also planned to cut its sales of
new 30-year bonds and other
maturities. Those announcements
prompted a rush into government
securities, primarily the 30-year
Treasury bond. Intense buying in that
maturity range caused the 30-year
bond's yield to fall below that of
shorter maturity Treasury securities,
even as rising interest rates were
putting pressure on most other types of
bonds. Normally, yields are higher the
longer the term of the bond to
compensate investors for the risk of
lending their money for longer periods
of time. The unusual situation with
yields that occurred in January -
known as inversion of the yield curve
- - had an interesting effect on the
mortgage securities market. To make
way for additional Treasury purchases,
investors were selling other types of
bonds, including mortgage securities
such as Ginnie Maes. Those sales, in
turn, caused mortgage securities
prices to decline and their yields to
move higher. Although that adjustment
was a difficult one - and it may not be
over yet - Ginnie Mae securities
ended January offering a healthy
amount of incremental yield over
Treasuries, especially when viewed on
a historical basis. Given their yield
advantage, I believe that Ginnie Mae
securities can outpace Treasuries
when investors become more
comfortable with the reduction in
Treasury supply."
FIDELITY GINNIE MAE FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 2000
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
6 - 6.99% 27.6 20.3
7 - 7.99% 52.0 57.8
8 - 8.99% 13.4 12.8
9 - 9.99% 3.9 4.6
10% and over 2.2 2.3
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, 2000
6 MONTHS AGO
Years 8.7 8.2
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME REMAINING UNTIL
PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS,
WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 2000
6 MONTHS AGO
Years 5.3 5.0
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF JANUARY 31, 2000 AS OF JULY 31, 1999
Mortgage Securities* 98.7% Mortgage Securities** 99.4%
Short-Term Investments and Short-Term Investments and
Net Other Assets 1.3% Net Other Assets 0.6%
* GNMA SECURITIES 97.5% ** GNMA SECURITIES 98.1%
Row: 1, Col: 1, Value: 98.7 Row: 1, Col: 1, Value: 99.40000000000001
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0 Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0 Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 0.0 Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0 Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 1.3 Row: 1, Col: 8, Value: 0.6000000000000001
</TABLE>
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY GINNIE MAE FUND
INVESTMENTS JANUARY 31, 2000 (UNAUDITED)
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 98.7%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - 0.1%
9% 10/1/11 $ 106 $ 108
10.25% 10/1/18 282 302
11.5% 5/1/14 to 9/1/15 156 170
12.5% 11/1/13 to 7/1/16 604 670
13.25% 9/1/11 248 279
14% 11/1/12 8 9
1,538
FREDDIE MAC - 1.1%
8.5% 2/1/04 to 2/1/19 519 527
9% 7/1/08 to 7/1/21 3,777 3,878
9.75% 12/1/08 to 4/1/13 172 179
10% 10/1/04 to 11/1/20 5,366 5,641
10.25% 2/1/09 to 11/1/16 2,315 2,417
10.5% 5/1/10 to 12/1/20 3,671 3,887
11.25% 2/1/10 158 168
11.75% 11/1/11 75 80
12% 5/1/10 to 2/1/17 441 481
12.5% 11/1/12 to 5/1/15 837 921
13% 11/1/12 to 11/1/14 116 130
13.5% 1/1/13 to 12/1/14 41 46
18,355
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 97.5%
6% 10/15/23 to 8/15/29 111,533 99,613
6.5% 6/15/23 to 11/15/29 398,578 368,617
7% 3/15/22 to 2/15/29 646,780 616,193
7.5% 6/15/02 to 12/15/34 261,438 256,292
7.5% 12/15/29 to 1/15/30 (a) 767 752
7.55% 12/15/34 3,350 3,221
7.75% 12/15/34 6,300 6,162
8% 7/15/01 to 11/15/29 160,006 160,191
8.5% 2/15/05 to 11/15/29 64,354 65,930
9% 5/15/08 to 12/15/24 20,144 20,993
9.5% 4/15/01 to 1/15/23 38,346 40,448
10% 10/15/00 to 2/15/25 5,815 6,226
10.5% 9/15/00 to 9/15/19 4,418 4,770
11% 1/15/10 to 7/15/20 3,744 4,090
11.5% 3/15/10 to 9/15/18 3,539 3,889
12% 4/15/00 to 11/15/15 615 682
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
13% 2/15/11 to 5/15/15 $ 606 $ 686
13.5% 5/15/10 to 1/15/15 276 311
1,659,066
TOTAL U.S. GOVERNMENT AGENCY 1,678,959
- - MORTGAGE SECURITIES
(Cost $1,764,956)
</TABLE>
CASH EQUIVALENTS - 0.9%
MATURITY AMOUNT (000S)
Investments in repurchase $ 15,353 15,351
agreements (U.S. Government
obligations), in a joint
trading account at 5.8%,
dated 1/31/00 due 2/1/00
(Cost $15,351)
TOTAL INVESTMENT PORTFOLIO - 1,694,310
99.6%
(Cost $1,780,307)
NET OTHER ASSETS - 0.4% 7,058
NET ASSETS - 100% $ 1,701,368
LEGEND
(a) Security purchased on a delayed delivery or when-issued basis.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $884,021,000 and $995,259,000, respectively.
INCOME TAX INFORMATION
At January 31, 2000, the aggregate cost of investment securities for
income tax purposes was $1,784,349,000. Net unrealized depreciation
aggregated $90,039,000, of which $3,291,000 related to appreciated
investment securities and $93,330,000 related to depreciated
investment securities.
At July 31, 1999, the fund had a capital loss carryforward of
approximately $25,005,000 of which $9,123,000, $10,722,000, $4,754,000
and $406,000 will expire on July 31, 2002, 2003, 2004 and 2007,
respectively. Approximately $9,858,000, of which $9,123,000 and
$735,000 will expire on July 31, 2002 and 2003, respectively, was
acquired in the merger and is available to offset future capital gains
of the fund to the extent provided by regulations.
FIDELITY GINNIE MAE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JANUARY 31, 2000 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,694,310
value (including repurchase
agreements of $15,351) (cost
$1,780,307) - See
accompanying schedule
Cash 90
Receivable for investments 9,974
sold
Receivable for fund shares 4,748
sold
Interest receivable 10,207
TOTAL ASSETS 1,719,329
LIABILITIES
Payable for investments $ 8,696
purchased Regular delivery
Delayed delivery 837
Payable for fund shares 5,743
redeemed
Distributions payable 1,635
Accrued management fee 630
Other payables and accrued 420
expenses
TOTAL LIABILITIES 17,961
NET ASSETS $ 1,701,368
Net Assets consist of:
Paid in capital $ 1,829,698
Undistributed net investment 1,853
income
Accumulated undistributed net (44,186)
realized gain (loss) on
investments
Net unrealized appreciation (85,997)
(depreciation) on investments
NET ASSETS, for 166,448 $ 1,701,368
shares outstanding
NET ASSET VALUE, offering $10.22
price and redemption price
per share ($1,701,368
(divided by) 166,448 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
2000 (UNAUDITED)
INVESTMENT INCOME $ 65,402
Interest
EXPENSES
Management fee $ 3,849
Transfer agent fees 1,509
Accounting fees and expenses 213
Non-interested trustees' 3
compensation
Custodian fees and expenses 184
Registration fees 46
Audit 55
Legal 10
Miscellaneous 5
Total expenses before 5,874
reductions
Expense reductions (197) 5,677
NET INVESTMENT INCOME 59,725
REALIZED AND UNREALIZED GAIN (8,551)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (31,432)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (39,983)
NET INCREASE (DECREASE) IN $ 19,742
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions FMR $ 175
reimbursement
Custodian credits 8
Transfer agent credits 14
$ 197
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, YEAR ENDED JULY 31, 1999
2000 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 59,725 $ 79,191
income
Net realized gain (loss) (8,551) (3,194)
Change in net unrealized (31,432) (65,621)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 19,742 10,376
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (60,088) (73,154)
from net investment income
Share transactions Net 257,746 875,680
proceeds from sales of shares
Net asset value of shares - 609,769
issued in exchange for the
net assets of Spartan
Ginnie Mae Fund
Reinvestment of distributions 49,249 62,728
Cost of shares redeemed (406,719) (561,191)
NET INCREASE (DECREASE) IN (99,724) 986,986
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (140,070) 924,208
IN NET ASSETS
NET ASSETS
Beginning of period 1,841,438 917,230
End of period (including $ 1,701,368 $ 1,841,438
undistributed net investment
income of $1,853 and $2,216,
respectively)
OTHER INFORMATION
Shares
Sold 24,745 80,985
Issued in exchange for - 56,971
shares of Spartan Ginnie
Mae Fund
Issued in reinvestment of 4,730 5,828
distributions
Redeemed (39,104) (52,070)
Net increase (decrease) (9,629) 91,714
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000
(UNAUDITED) 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.460 $ 10.870 $ 10.850 $ 10.530 $ 10.640 $ 10.360
period
Income from Investment .345 D .689 D .714 D .720 D .688 .721
Operations Net investment
income
Net realized and unrealized (.236) (.460) .004 .310 (.107) .292
gain (loss)
Total from investment .109 .229 .718 1.030 .581 1.013
operations
Less Distributions
From net investment income (.349) (.639) (.698) (.710) (.691) (.713)
In excess of net realized gain - - - - - (.020)
Total distributions (.349) (.639) (.698) (.710) (.691) (.733)
Net asset value, end of $ 10.220 $ 10.460 $ 10.870 $ 10.850 $ 10.530 $ 10.640
period
TOTAL RETURN B, C 1.02% 2.08% 6.81% 10.11% 5.55% 10.26%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,701 $ 1,841 $ 917 $ 822 $ 790 $ 767
millions)
Ratio of expenses to average .63% A, E .64% E .72% E .76% .76% .75%
net assets
Ratio of expenses to average .63% A .64% .72% .75% F .75% F .75%
net assets after expense
reductions
Ratio of net investment 6.60% A 6.43% 6.58% 6.75% 6.69% 7.24%
income to average net assets
Portfolio turnover rate 99% A 73% G 172% 98% 107% 210%
</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 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.
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 PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
2000
FIDELITY GOVERNMENT INCOME 0.40% -3.01% 36.63% 105.91%
LB Government Bond 0.32% -2.66% 40.72% 108.99%
General U.S. Government Funds -0.16% -3.79% 34.32% 92.70%
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 months average
represents a peer group of 187 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
2000
FIDELITY GOVERNMENT INCOME -3.01% 6.44% 7.49%
LB Government Bond -2.66% 7.07% 7.65%
General U.S. Government Funds -3.79% 6.07% 6.76%
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
1990/01/31 10000.00 10000.00
1990/02/28 10038.85 10019.95
1990/03/31 10051.08 10017.76
1990/04/30 10015.66 9929.40
1990/05/31 10223.27 10206.31
1990/06/30 10365.35 10367.89
1990/07/31 10497.74 10500.53
1990/08/31 10443.12 10354.29
1990/09/30 10521.26 10453.61
1990/10/31 10678.32 10624.40
1990/11/30 10914.62 10859.86
1990/12/31 11096.91 11027.80
1991/01/31 11177.36 11146.19
1991/02/28 11265.36 11209.99
1991/03/31 11312.50 11266.99
1991/04/30 11417.40 11390.64
1991/05/31 11475.65 11434.93
1991/06/30 11448.86 11418.71
1991/07/31 11590.62 11554.20
1991/08/31 11888.53 11822.11
1991/09/30 12160.12 12070.07
1991/10/31 12264.42 12175.74
1991/11/30 12378.62 12297.86
1991/12/31 12868.06 12716.83
1992/01/31 12647.81 12518.85
1992/02/29 12673.43 12567.75
1992/03/31 12590.52 12494.30
1992/04/30 12668.84 12573.01
1992/05/31 12929.47 12804.96
1992/06/30 13150.17 12988.47
1992/07/31 13554.58 13315.79
1992/08/31 13671.40 13439.88
1992/09/30 13852.53 13629.97
1992/10/31 13627.49 13433.31
1992/11/30 13637.14 13410.07
1992/12/31 13893.74 13635.89
1993/01/31 14222.92 13925.50
1993/02/28 14571.55 14204.38
1993/03/31 14648.89 14251.95
1993/04/30 14793.66 14361.57
1993/05/31 14734.67 14345.79
1993/06/30 15097.50 14664.12
1993/07/31 15194.06 14753.57
1993/08/31 15617.28 15082.87
1993/09/30 15678.87 15140.53
1993/10/31 15760.26 15197.75
1993/11/30 15536.68 15031.13
1993/12/31 15605.68 15089.23
1994/01/31 15856.94 15295.76
1994/02/28 15386.44 14971.94
1994/03/31 14976.47 14635.18
1994/04/30 14833.80 14520.08
1994/05/31 14821.11 14501.45
1994/06/30 14742.63 14468.12
1994/07/31 15071.78 14734.06
1994/08/31 15062.80 14736.91
1994/09/30 14767.83 14529.29
1994/10/31 14710.38 14518.33
1994/11/30 14697.35 14491.80
1994/12/31 14793.31 14579.94
1995/01/31 15071.03 14851.35
1995/02/28 15422.63 15171.01
1995/03/31 15508.25 15266.16
1995/04/30 15701.73 15465.67
1995/05/31 16327.93 16089.41
1995/06/30 16442.28 16212.84
1995/07/31 16378.16 16153.21
1995/08/31 16566.73 16343.07
1995/09/30 16719.36 16500.48
1995/10/31 16978.22 16751.73
1995/11/30 17236.67 17012.85
1995/12/31 17466.11 17254.01
1996/01/31 17559.59 17359.91
1996/02/29 17183.55 17006.27
1996/03/31 17039.50 16864.20
1996/04/30 16906.18 16756.56
1996/05/31 16878.50 16728.49
1996/06/30 17076.90 16944.44
1996/07/31 17121.19 16986.32
1996/08/31 17070.79 16948.39
1996/09/30 17358.69 17229.68
1996/10/31 17723.97 17608.74
1996/11/30 18013.98 17915.02
1996/12/31 17830.28 17732.18
1997/01/31 17849.57 17751.91
1997/02/28 17861.54 17776.24
1997/03/31 17668.62 17588.13
1997/04/30 17916.96 17842.02
1997/05/31 18057.08 17995.92
1997/06/30 18249.75 18197.84
1997/07/31 18768.57 18714.37
1997/08/31 18563.95 18529.33
1997/09/30 18853.16 18807.99
1997/10/31 19141.48 19133.34
1997/11/30 19234.11 19231.34
1997/12/31 19422.94 19432.39
1998/01/31 19711.22 19723.10
1998/02/28 19657.17 19669.60
1998/03/31 19712.35 19725.29
1998/04/30 19783.40 19814.08
1998/05/31 19977.78 20017.54
1998/06/30 20191.77 20245.11
1998/07/31 20208.07 20276.46
1998/08/31 20630.09 20803.96
1998/09/30 21151.79 21364.77
1998/10/31 21044.49 21291.98
1998/11/30 21056.97 21299.22
1998/12/31 21090.89 21346.79
1999/01/31 21229.77 21470.67
1999/02/28 20735.32 20960.05
1999/03/31 20813.32 21042.34
1999/04/30 20888.78 21090.02
1999/05/31 20670.99 20905.02
1999/06/30 20598.88 20862.47
1999/07/31 20508.14 20832.24
1999/08/31 20502.55 20831.96
1999/09/30 20711.96 21001.14
1999/10/31 20753.21 21034.82
1999/11/30 20726.29 21005.82
1999/12/31 20615.37 20869.87
2000/01/31 20590.91 20899.08
IMATRL PRASUN SHR__CHT 20000131 20000209 152003 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Government Income Fund on January 31, 1990. As
the chart shows, by January 31, 2000, the value of the investment
would have grown to $20,591 - a 105.91% 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
$20,899 - a 108.99% 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000 1999 1998 1997 1996 1995
Dividend returns 3.02% 5.89% 6.04% 7.22% 6.58% 6.78%
Capital returns -2.62% -4.41% 1.63% 2.40% -2.04% 1.89%
Total returns 0.40% 1.48% 7.67% 9.62% 4.54% 8.67%
</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, 2000 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 4.89(cents) 28.93(cents) 56.66(cents)
Annualized dividend rate 6.20% 6.07% 5.89%
30-day annualized yield 6.52% - -
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 $9.29
over the past one month, $9.45 over the past six months and $9.62 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
Persistent concerns about inflation,
a series of interest-rate hikes by the
Federal Reserve Board and a strong
U.S. economy were just three of the
challenges faced by the taxable
bond market in the six-month
period ending January 31, 2000.
All investment-grade spread sectors
outperformed comparable duration
Treasuries during this time frame.
The bellwether 30-year Treasury's
total return fell 3.51%, while the
Lehman Brothers Aggregate Bond
Index, a popular measure of taxable
bond performance, closed the period
up 0.66%. Troubles for 30-year
Treasuries were further compounded
in January when, for the first time
since 1994, the yield curve became
inverted, meaning the long bond
offered a lower yield than shorter
duration Treasuries. Of the spread
sectors, mortgages turned in the
strongest performance, thanks to a
relatively high housing turnover rate
and declining prepayment activity
in the second half of 1999. The
Lehman Brothers Mortgage-Backed
Securities Index posted a 1.13%
six-month return. Corporates also
enjoyed positive performance,
shaking off an excess supply scare
in the summer and riding investors'
strong demand to a 0.52% return
for the period, as measured by
the Lehman Brothers Corporate Bond
Index. Finally, agency securities
benefited from the additional
liquidity provided by issuing
larger-denominated securities in
response to waning Treasury issuance,
helping the Lehman Brothers U.S.
Agency Index to a 0.47% return.
An interview with Tom Silvia, Portfolio Manager of Fidelity Government
Income Fund
Q. HOW DID THE FUND PERFORM, TOM?
A. For the six-month period that ended January 31, 2000, the fund
provided a total return of 0.40%. To get a sense of how the fund did
relative to its competitors, the general U.S. government funds average
returned -0.16% 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
0.32% for the same six-month period. For the 12-month period ended
January 31, 2000, the fund returned -3.01%. In comparison, the U.S.
government funds average returned -3.79% and the Lehman Brothers index
returned -2.66% for the same 12-month period.
Q. HOW DID THE FUND OUTPACE ITS PEERS AND ITS BENCHMARK DURING THE
PAST SIX MONTHS?
A. The way in which the fund's holdings were allocated across three
sectors - U.S. Treasuries, government agency securities and mortgages
- - was the key to its strong relative performance. Compared with its
peers, the fund had a smaller stake in Treasury securities, which
underperformed both agency and mortgage securities during the past six
months. Compared to the Lehman Brothers Government Bond Index, the
fund had a smaller exposure to Treasuries and a larger exposure to
better-performing agency securities. At the end of January, U.S.
agency securities made up about half of the fund's investments, but
only about 22% of the index. Treasuries, on the other hand, made up
only about 23% of the fund, but 78% of the index. Most importantly,
however, the fund had roughly one-quarter of its investments in
mortgage securities, which are not included in the Lehman Brothers
index but outpaced both Treasury and agency securities.
Q. WHY DID MORTGAGE SECURITIES PERFORM THE BEST?
A. Mortgage securities did relatively well because prepayment risk
essentially evaporated. Rising interest rates dramatically reduced
home loan refinancing activity, which ultimately curtailed the amount
of mortgage prepayment activity. Mortgage security investors generally
dislike waves of refinancing and mortgage prepayment because it
potentially places them in the unenviable position of being forced to
forfeit higher-yielding securities, leaving them to re-invest the
proceeds at lower rates. As interest rates rose, however, investors
sought out the relatively high yields offered by mortgage securities
compared to Treasury securities.
Q. WITHIN THE MORTGAGE MARKET, WHAT TYPES OF SECURITIES DID YOU
EMPHASIZE?
A. I emphasized more recently issued securities with coupons of 7.0%,
which I added last summer at attractive prices and yields. They
performed relatively well as investors sought them out for their
attractive amount of incremental yield over lower coupon bonds, plus
their rate of prepayment was declining a lot faster than higher coupon
bonds. In addition, I reduced the fund's stake in 15-year securities -
which tend to experience less prepayment volatility - and replaced
them with higher-yielding 30-year mortgage securities.
Q. WHAT AGENCY SECURITIES WERE MOST ATTRACTIVE DURING THE PAST SIX
MONTHS?
A. I concentrated my purchases in callable securities - which can be
redeemed by their issuer prior to maturity. Callable agency securities
were priced more cheaply and offered higher yields than their
non-callable counterparts. Rising interest rates have reduced the
financial incentive for issuers to call away debt, making callable
securities even that much more attractive during the past six months.
Q. WERE THERE ANY DISAPPOINTMENTS DURING THE PERIOD?
A. The fund's stake in intermediate-maturity securities didn't do as
well as I expected. I focused on intermediate-term securities because
I felt that they offered an adequate amount of yield given their
interest-rate sensitivity. However, a potential decline in the supply
of long-term Treasuries - the result of the U.S. Treasury Department's
decision to buy back some of its older debt and issue less new debt -
resulted in stronger demand and higher prices for long-maturity
Treasuries, despite the fact that interest rates moved higher.
Intermediate-term securities, on the other hand, did not enjoy the
same strong demand and positive price performance.
Q. WHAT'S YOUR OUTLOOK?
A. In my view, mortgage and agency securities offered very attractive
values at the end of the period. Even though Treasuries outpaced
agency and mortgages in the final weeks of the period, I think the
reverse will be true over longer periods. Both agency and mortgage
securities carry relatively high yields compared with U.S. Treasury
securities, an advantage that should help them perform well over time.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: a high level of current
income consistent with
preservation of principal
FUND NUMBER: 054
TRADING SYMBOL: FGOVX
START DATE: April 4, 1979
SIZE: as of January 31,
2000, more than $1.5
billion
MANAGER: Tom Silvia, since
1998; manager, various Fidelity
and Spartan government
funds; joined Fidelity in
1993
TOM SILVIA ON THE REDUCTION
IN THE SUPPLY OF U.S.
TREASURY SECURITIES:
"Despite the fact that interest
rates were on the upswing, 30-year
Treasury bonds posted strong
gains in the final week of trading in
January 2000. Intense buying of the
30-year bond was sparked by the
U.S. Treasury Department
unveiling of its plan to trim
outstanding government debt by
buying back some older Treasury
securities. Demand intensified
just days later when the Treasury
said it also planned to cut its sales
of new 30-year bonds. The news
sent investors rushing to sell
shorter-maturity Treasury
securities and other types of bonds,
including mortgage and agency
securities. As their prices moved
lower, the agency and mortgage
security yields moved higher.
Given their yield advantage as of the
end of January 2000, I believe that
agency and mortgage securities can
outpace their Treasury
counterparts once investors
become more comfortable with the
reduction in Treasury supply."
FIDELITY GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 2000
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Less than 5% 0.1 0.0
5 - 5.99% 20.7 22.1
6 - 6.99% 23.6 24.8
7 - 7.99% 14.7 10.8
8 - 8.99% 27.3 25.3
9 - 9.99% 7.7 8.1
10% and over 3.8 4.5
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, 2000
6 MONTHS AGO
Years 9.1 8.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME REMAINING UNTIL
PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS,
WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 2000
6 MONTHS AGO
Years 5.1 5.3
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF JANUARY 31, 2000 AS OF JULY 31, 1999
Mortgage Securities 22.6% Mortgage Securities 20.2%
CMOs and Other Mortgage CMOs and Other Mortgage
Related Securities 1.8% Related Securities 3.5%
U.S. Treasury Obligations 22.5% U.S. Treasury Obligations 25.4%
U.S. Government Agency U.S. Government Agency
Obligations 49.2% Obligations 48.0%
Short-Term Investments and Short-Term Investments and
Net Other Assets 3.9% Net Other Assets 2.9%
Row: 1, Col: 1, Value: 22.6 Row: 1, Col: 1, Value: 20.2
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 1.8 Row: 1, Col: 3, Value: 3.5
Row: 1, Col: 4, Value: 0.0 Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 22.5 Row: 1, Col: 5, Value: 25.4
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 49.2 Row: 1, Col: 7, Value: 48.0
Row: 1, Col: 8, Value: 3.9 Row: 1, Col: 8, Value: 2.9
</TABLE>
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY GOVERNMENT INCOME FUND
INVESTMENTS JANUARY 31, 2000 (UNAUDITED)
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 71.7%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 49.2%
Fannie Mae:
5.125% 2/13/04 $ 28,000 $ 25,970
5.25% 1/15/09 16,000 13,825
5.45% 2/4/02 12,000 11,602
6% 5/15/08 3,000 2,760
6.25% 5/15/29 55,300 48,059
6.5% 8/15/04 52,660 51,212
6.5% 4/29/09 41,000 37,996
Farm Credit Systems Financial
Assistance Corp.:
8.8% 6/10/05 10,983 11,687
9.375% 7/21/03 19,037 20,265
Federal Agricultural Mortgage 3,000 3,104
Corp. 8.07% 7/17/06
Federal Farm Credit Bank 1,000 1,001
7.35% 3/24/05
Federal Home Loan Bank:
5.285% 9/22/05 19,230 17,388
5.595% 3/27/01 11,100 10,961
5.78% 8/24/05 49,925 46,438
5.785% 2/9/05 26,900 25,177
5.875% 8/15/01 27,000 26,595
6.07% 5/2/06 1,500 1,411
9.5% 2/25/04 2,355 2,538
Financing Corp. - coupon 1,989 1,348
STRIPS 0% 8/3/05
Freddie Mac:
6.25% 7/15/04 16,000 15,400
6.625% 9/15/09 10,000 9,502
6.875% 1/15/05 90 89
7.625% 9/9/09 50,255 49,242
Government Loan Trusts 12,663 13,046
(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 1-C, 9.25% 11/15/01 29,827 30,465
Class 2-E, 9.4% 5/15/02 10,096 10,334
Class T-3, 9.625% 5/15/02 8,812 9,032
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 1994-A, 7.12% 4/15/06 $ 10,949 $ 10,750
Series 1994-F, 8.187% 12/15/04 7,403 7,528
Series 1995-A, 6.28% 6/15/04 6,939 6,786
Series 1995-B, 6.13% 6/15/04 17,219 16,785
Series 1996-A, 6.55% 6/15/04 10,482 10,312
Guaranteed Trade Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through Export-
Import Bank):
Series 1994-A, 7.39% 6/26/06 28,167 28,082
Series 1994-B, 7.5% 1/26/06 6,894 6,932
Israel Export Trust 6,201 6,182
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% 7,638 7,484
8/15/04 (callable)
Series 1998-196A, 5.926% 12,237 11,899
6/15/05
Private Export Funding Corp.:
secured:
5.8% 2/1/04 1,539 1,502
5.82% 6/15/03 (a) 21,500 20,423
5.31% 11/15/03 (a) 41,500 38,744
State of Israel (guaranteed
by U.S. Government through
Agency for International
Development):
5.625% 9/15/03 40,680 38,539
5.75% 3/15/00 1,600 1,599
6.6% 2/15/08 25,515 24,713
6.625% 8/15/03 15,190 14,873
Student Loan Marketing 4,190 3,942
Association 6.125% 12/1/05
U.S. Department of Housing
and Urban Development
government guaranteed
participation certificates
Series 1999-A:
5.75% 8/1/06 9,300 8,501
5.96% 8/1/09 9,930 9,046
U.S. Trade Trust Certificates 4,360 4,442
(assets of Trust guaranteed
by U.S. Government through
Export-Import Bank) 8.17%
1/15/07
TOTAL U.S. GOVERNMENT AGENCY 775,511
OBLIGATIONS
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. TREASURY OBLIGATIONS -
22.5%
U.S. Treasury Bonds:
8.75% 5/15/17 $ 218,565 $ 263,028
8.875% 8/15/17 59,500 72,460
14% 11/15/11 14,600 20,169
TOTAL U.S. TREASURY 355,657
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 1,131,168
GOVERNMENT AGENCY OBLIGATIONS
(Cost $1,198,000)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 22.6%
FANNIE MAE - 14.3%
5.5% 5/1/09 to 3/1/24 7,261 6,482
6% 11/1/09 to 7/1/20 13,219 12,474
6.5% 10/1/28 to 6/1/29 38,735 35,951
7% 7/1/13 to 10/1/29 73,845 70,388
7.5% 3/1/29 to 2/1/30 63,366 61,872
8% 1/1/22 806 802
9% 5/1/14 12,327 12,446
9.5% 11/15/09 to 10/1/20 11,425 12,017
10% 8/1/10 764 792
11% 3/1/10 474 499
11.5% 6/1/19 to 5/1/28 11,387 12,533
226,256
FREDDIE MAC - 2.6%
5% 1/1/09 to 6/1/09 4,574 4,226
8% 1/1/10 to 6/1/11 672 669
8.5% 8/1/08 to 12/1/29 22,643 23,073
9% 8/1/09 to 12/1/10 711 729
9.75% 8/1/14 799 836
10.5% 7/1/20 to 12/1/20 11,040 11,715
41,248
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 5.7%
6% 7/15/08 to 12/15/10 37,045 35,021
8% 11/15/06 to 12/15/23 19,653 19,734
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - CONTINUED
9.5% 7/15/09 to 2/15/25 $ 19,418 $ 20,517
10% 12/15/09 to 1/15/26 13,215 14,151
89,423
TOTAL U.S. GOVERNMENT AGENCY 356,927
- - MORTGAGE SECURITIES
(Cost $367,915)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.8%
U.S. GOVERNMENT AGENCY - 1.8%
Fannie Mae REMIC planned
amortization class:
Series 1991-170 Class E, 8% 2,906 2,936
12/25/06
Series 1994-72 Class G, 6% 14,425 14,028
10/25/19
Federal Home Loan Mortgage 10,628 10,519
Corp. 6% 10/15/06
TOTAL COLLATERALIZED MORTGAGE 27,483
OBLIGATIONS
(Cost $28,096)
CASH EQUIVALENTS - 2.0%
MATURITY AMOUNT (000S)
Investments in repurchase $ 32,118 32,113
agreements (U.S. Government
obligations), in a joint
trading account at 5.8%,
dated 1/31/00 due 2/1/00
(Cost $32,113)
TOTAL INVESTMENT PORTFOLIO - 1,547,691
98.1%
(Cost $1,626,124)
NET OTHER ASSETS - 1.9% 29,569
NET ASSETS - 100% $ 1,577,260
</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 $59,167,000 or 3.8% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $841,927,000 and $817,648,000, respectively.
INCOME TAX INFORMATION
At January 31, 2000, the aggregate cost of investment securities for
income tax purposes was $1,628,055,000. Net unrealized depreciation
aggregated $80,364,000, of which $16,000 related to appreciated
investment securities and $80,380,000 related to depreciated
investment securities.
FIDELITY GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JANUARY
31, 2000 (UNAUDITED)
ASSETS
Investment in securities, at $ 1,547,691
value (including repurchase
agreements of $32,113) (cost
$1,626,124) - See
accompanying schedule
Receivable for investments 21,131
sold
Receivable for fund shares 4,673
sold
Interest receivable 24,622
TOTAL ASSETS 1,598,117
LIABILITIES
Payable for investments $ 15,348
purchased
Payable for fund shares 3,997
redeemed
Distributions payable 608
Accrued management fee 560
Other payables and accrued 344
expenses
TOTAL LIABILITIES 20,857
NET ASSETS $ 1,577,260
Net Assets consist of:
Paid in capital $ 1,689,517
Undistributed net investment 4,325
income
Accumulated undistributed net (38,149)
realized gain (loss) on
investments
Net unrealized appreciation (78,433)
(depreciation) on investments
NET ASSETS, for 169,847 $ 1,577,260
shares outstanding
NET ASSET VALUE, offering $9.29
price and redemption price
per share ($1,577,260
(divided by) 169,847 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
2000 (UNAUDITED)
INVESTMENT INCOME $ 55,010
Interest
Security lending 28
Total income 55,038
EXPENSES
Management fee $ 3,406
Transfer agent fees 1,636
Accounting and security 173
lending fees
Non-interested trustees' 2
compensation
Custodian fees and expenses 46
Registration fees 33
Audit 19
Legal 10
Miscellaneous 4
Total expenses before 5,329
reductions
Expense reductions (59) 5,270
NET INVESTMENT INCOME 49,768
REALIZED AND UNREALIZED GAIN (20,124)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (24,465)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (44,589)
NET INCREASE (DECREASE) IN $ 5,179
NET ASSETS RESULTING FROM
OPERATIONS
OTHER INFORMATION
Expense reductions Custodian $ 5
credits
Transfer agent credits 54
$ 59
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, YEAR ENDED JULY 31, 1999
2000 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 49,768 $ 92,703
income
Net realized gain (loss) (20,124) (11,048)
Change in net unrealized (24,465) (67,679)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 5,179 13,976
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (48,740) (94,127)
from net investment income
Share transactions Net 413,746 1,430,122
proceeds from sales of shares
Reinvestment of distributions 44,517 85,177
Cost of shares redeemed (417,674) (1,107,827)
NET INCREASE (DECREASE) IN 40,589 407,472
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (2,972) 327,321
IN NET ASSETS
NET ASSETS
Beginning of period 1,580,232 1,252,911
End of period (including $ 1,577,260 $ 1,580,232
undistributed net investment
income of $4,325 and $3,297,
respectively)
OTHER INFORMATION
Shares
Sold 43,873 142,123
Issued in reinvestment of 4,718 8,543
distributions
Redeemed (44,352) (110,604)
Net increase (decrease) 4,239 40,062
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000
FINANCIAL HIGHLIGHTS (UNAUDITED) 1999 1998 F 1997 G 1996 G 1995 G
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.540 $ 9.980 $ 9.760 $ 9.620 $ 9.890 $ 9.330
period
Income from Investment .289 D .588 D .481 D .625 D .670 .625
Operations Net investment
income
Net realized and unrealized (.250) (.429) .208 .175 (.299) .564
gain (loss)
Total from investment .039 .159 .689 .800 .371 1.189
operations
Less Distributions
From net investment income (.289) (.599) (.469) (.660) (.641) (.609)
From net realized gain - - - - - -
In excess of net realized - - - - - (.020)
gain
Total distributions (.289) (.599) (.469) (.660) (.641) (.629)
Net asset value, end of period $ 9.290 $ 9.540 $ 9.980 $ 9.760 $ 9.620 $ 9.890
TOTAL RETURN B, C 0.40% 1.48% 7.19% 8.61% 3.82% 13.21%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 1,577 $ 1,580 $ 1,253 $ 1,023 $ 949 $ 897
millions)
Ratio of expenses to average .67% A .68% .69% A .73% .72% .71%
net assets
Ratio of expenses to average .66% A, E .67% E .68% A, E .72% E .71% E .71%
net assets after expense
reductions
Ratio of net investment 6.22% A 5.91% 5.82% A 6.48% 6.52% 6.36%
income to average net assets
Portfolio turnover rate 105% A 168% 289% A 199% 124% 391%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FINANCIAL HIGHLIGHTS 1994 G
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 10.870
period
Income from Investment .626
Operations Net investment
income
Net realized and unrealized (1.225)
gain (loss)
Total from investment (.599)
operations
Less Distributions
From net investment income (.631)
From net realized gain (.310)
In excess of net realized -
gain
Total distributions (.941)
Net asset value, end of period $ 9.330
TOTAL RETURN B, C (5.81)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 614
millions)
Ratio of expenses to average .69%
net assets
Ratio of expenses to average .69%
net assets after expense
reductions
Ratio of net investment 6.26%
income to average net assets
Portfolio turnover rate 402%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
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.
F FOR THE TEN MONTHS ENDED JULY 31, 1998.
G YEARS ENDED SEPTEMBER 30.
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL
STATEMENTS.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
2000
FIDELITY INTERMEDIATE GOVT 0.78% -0.19% 35.68% 87.77%
INCOME
LB Int Government Bond 0.61% -0.29% 37.11% 99.21%
Short-Intermediate U.S. 0.72% -0.21% 31.36% 87.17%
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 months average represents a peer group of 92 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
2000
FIDELITY INTERMEDIATE GOVT -0.19% 6.29% 6.50%
INCOME
LB Int Government Bond -0.29% 6.52% 7.14%
Short-Intermediate U.S. -0.21% 5.60% 6.46%
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
Intermediate Govt Income LB Govt Intermediate
00452 LB008
1990/01/31 10000.00 10000.00
1990/02/28 10055.31 10037.04
1990/03/31 10078.93 10048.94
1990/04/30 10093.81 10015.21
1990/05/31 10245.27 10229.71
1990/06/30 10343.20 10364.18
1990/07/31 10466.18 10509.46
1990/08/31 10508.76 10471.54
1990/09/30 10592.81 10565.23
1990/10/31 10702.57 10712.27
1990/11/30 10827.98 10873.64
1990/12/31 10926.81 11024.21
1991/01/31 11048.68 11137.52
1991/02/28 11134.83 11204.97
1991/03/31 11226.63 11266.92
1991/04/30 11323.28 11383.32
1991/05/31 11381.81 11447.47
1991/06/30 11426.92 11456.95
1991/07/31 11557.75 11581.06
1991/08/31 11701.43 11800.85
1991/09/30 11820.24 12001.45
1991/10/31 11968.00 12138.79
1991/11/30 12011.48 12281.20
1991/12/31 12228.30 12579.69
1992/01/31 12168.97 12458.67
1992/02/29 12241.06 12497.46
1992/03/31 12226.38 12447.64
1992/04/30 12317.19 12559.41
1992/05/31 12440.28 12746.79
1992/06/30 12536.41 12930.43
1992/07/31 12572.59 13178.43
1992/08/31 12723.88 13313.13
1992/09/30 12811.56 13496.54
1992/10/31 12758.98 13334.51
1992/11/30 12818.03 13280.28
1992/12/31 12933.18 13451.35
1993/01/31 13044.18 13701.34
1993/02/28 13187.39 13903.27
1993/03/31 13256.88 13954.41
1993/04/30 13342.66 14063.53
1993/05/31 13386.70 14025.18
1993/06/30 13527.11 14228.21
1993/07/31 13573.09 14256.87
1993/08/31 13674.67 14469.16
1993/09/30 13721.64 14528.02
1993/10/31 13753.00 14562.41
1993/11/30 13661.82 14490.32
1993/12/31 13763.32 14550.28
1994/01/31 13906.58 14694.02
1994/02/28 13776.02 14492.31
1994/03/31 13599.09 14280.90
1994/04/30 13532.96 14188.53
1994/05/31 13518.96 14198.67
1994/06/30 13514.20 14201.53
1994/07/31 13650.81 14388.03
1994/08/31 13691.07 14429.92
1994/09/30 13661.42 14310.66
1994/10/31 13677.46 14313.52
1994/11/30 13645.99 14249.81
1994/12/31 13632.65 14296.33
1995/01/31 13838.64 14528.90
1995/02/28 14039.62 14809.09
1995/03/31 14106.44 14890.66
1995/04/30 14273.04 15063.27
1995/05/31 14642.70 15488.07
1995/06/30 14731.87 15586.61
1995/07/31 14764.13 15594.11
1995/08/31 14888.43 15722.85
1995/09/30 14997.33 15828.23
1995/10/31 15200.26 16001.72
1995/11/30 15372.00 16196.82
1995/12/31 15531.82 16356.64
1996/01/31 15663.87 16494.64
1996/02/29 15512.17 16320.27
1996/03/31 15425.81 16245.76
1996/04/30 15382.14 16198.36
1996/05/31 15373.41 16189.98
1996/06/30 15521.49 16354.44
1996/07/31 15575.05 16405.14
1996/08/31 15594.38 16423.88
1996/09/30 15793.37 16636.17
1996/10/31 16060.61 16908.87
1996/11/30 16263.59 17113.00
1996/12/31 16174.52 17020.85
1997/01/31 16233.50 17086.33
1997/02/28 16266.55 17114.10
1997/03/31 16161.55 17016.67
1997/04/30 16336.80 17208.68
1997/05/31 16464.56 17342.71
1997/06/30 16608.45 17491.07
1997/07/31 16908.32 17813.59
1997/08/31 16863.63 17745.47
1997/09/30 17058.44 17938.36
1997/10/31 17237.92 18147.35
1997/11/30 17291.72 18187.25
1997/12/31 17419.27 18335.39
1998/01/31 17635.98 18574.58
1998/02/28 17630.97 18554.96
1998/03/31 17685.56 18612.72
1998/04/30 17774.49 18701.56
1998/05/31 17885.98 18830.08
1998/06/30 17996.68 18956.84
1998/07/31 18054.36 19029.80
1998/08/31 18313.72 19389.80
1998/09/30 18703.70 19842.16
1998/10/31 18708.29 19875.01
1998/11/30 18654.65 19814.16
1998/12/31 18716.96 19891.32
1999/01/31 18813.24 19979.94
1999/02/28 18578.09 19705.92
1999/03/31 18677.54 19836.74
1999/04/30 18753.43 19890.36
1999/05/31 18635.32 19768.31
1999/06/30 18632.22 19797.06
1999/07/31 18631.69 19799.83
1999/08/31 18648.77 19827.62
1999/09/30 18823.79 19997.50
1999/10/31 18845.08 20037.28
1999/11/30 18864.01 20051.25
1999/12/31 18837.30 19988.15
2000/01/31 18776.83 19921.13
IMATRL PRASUN SHR__CHT 20000131 20000209 152140 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Intermediate Government Income Fund on January
31, 1990. As the chart shows, by January 31, 2000, the value of the
investment would have grown to $18,777 - an 87.77% 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 $19,921 - a 99.21% 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000 1999 1998 1997 1996 1995
Dividend returns 3.21% 6.47% 6.88% 7.11% 6.62% 6.60%
Capital returns -2.43% -3.27% -0.10% 1.45% -1.13% 1.56%
Total returns 0.78% 3.20% 6.78% 8.56% 5.49% 8.16%
</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
2000
Dividends per share 5.01(cents) 30.40(cents) 59.93(cents)
Annualized dividend rate 6.37% 6.42% 6.30%
30-day annualized yield 6.60% - -
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 $9.26
over the past one month, $9.39 over the past six months and $9.51 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
6.58%.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Persistent concerns about inflation,
a series of interest-rate hikes by the
Federal Reserve Board and a strong
U.S. economy were just three of the
challenges faced by the taxable
bond market in the six-month
period ending January 31, 2000.
All investment-grade spread sectors
outperformed comparable duration
Treasuries during this time frame.
The bellwether 30-year Treasury's
total return fell 3.51%, while the
Lehman Brothers Aggregate Bond
Index, a popular measure of taxable
bond performance, closed the period
up 0.66%. Troubles for 30-year
Treasuries were further compounded
in January when, for the first time
since 1994, the yield curve became
inverted, meaning the long bond
offered a lower yield than shorter
duration Treasuries. Of the spread
sectors, mortgages turned in the
strongest performance, thanks to a
relatively high housing turnover rate
and declining prepayment activity
in the second half of 1999. The
Lehman Brothers Mortgage-Backed
Securities Index posted a 1.13%
six-month return. Corporates also
enjoyed positive performance,
shaking off an excess supply scare
in the summer and riding investors'
strong demand to a 0.52% return
for the period, as measured by
the Lehman Brothers Corporate Bond
Index. Finally, agency securities
benefited from the additional
liquidity provided by issuing
larger-denominated securities in
response to waning Treasury issuance,
helping the Lehman Brothers U.S.
Agency Index to a 0.47% return.
(photograph of Andrew Dudley)
An interview with Andrew Dudley, Portfolio Manager of Fidelity
Intermediate Government Income Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. Against a difficult investment backdrop, the fund performed in line
with its peers and its benchmark. For the six-month period that ended
January 31, 2000, the fund provided a total return of 0.78%. To get a
sense of how the fund did relative to its competitors, the
short-intermediate U.S. government funds average returned 0.72% 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 0.61% for the
same six-month period. For the 12-month period ended January 31, 2000,
the fund returned -0.19%. In comparison, the short-intermediate U.S.
government funds average returned -0.21% and the Lehman Brothers index
fell 0.29% for the same 12-month period.
Q. HOW DID THE THREE SECTORS IN WHICH THE FUND INVESTS - TREASURY,
AGENCY AND MORTGAGE SECURITIES - PERFORM DURING THE PAST SIX MONTHS
AND WHY?
A. While all three were hurt by rising interest rates, mortgage
securities were the best performers, followed by agency securities and
Treasuries. Mortgage securities were lifted by the fact that the rate
of mortgage prepayments declined dramatically in response to fewer
home loan refinancings. Investors dislike mortgage security
prepayments because it potentially forces them to relinquish
higher-yielding securities and re-invest when securities carry lower
rates. Since interest rates were on the upswing during the past six
months, the demand for mortgage securities increased as the risk of
prepayment risk diminished. Turning to agency securities, fears of an
agency supply glut put them on shaky ground throughout the third
quarter of 1999, although they enjoyed much better performance during
the past several months when supply diminished. Treasuries proved to
be the most sensitive to rising interest rates, and generally posted
the largest losses as a result.
Q. HOW DID YOU ALLOCATE THE FUND'S INVESTMENTS DURING THE PAST SIX
MONTHS?
A. The fund maintained a relatively large exposure - compared to its
peers - in agency securities, because I felt that they offered a more
attractive risk/reward profile relative to mortgage securities, given
our benchmark. Compared to the Lehman Brothers Intermediate Government
Bond index, the fund had a smaller exposure to Treasuries and a larger
exposure to agency securities. At the end of January, U.S. agency
securities made up nearly 60% of the fund's investments, but less than
26% of the index. Treasuries, on the other hand, made up only about
10% of the fund's investments, but about 74% of the index. In
addition, the fund had roughly 30% of its investments in mortgage
securities, which are not included in the Lehman Brothers index but
outperformed both Treasury and agency securities. From a broad
perspective, the fund's overweighting in mortgage and agency
securities relative to the index translated into disappointing
returns in the initial months of the period, but generally boosted
performance in the final months.
Q. SPECIFICALLY, WHICH AGENCY SECURITIES DID YOU EMPHASIZE?
A. Throughout the period, I moved more of the fund's agency holdings
out of the less liquid, smaller issues into some of the more liquid,
larger issues from top-tier agency issuers such as Fannie Mae and
Federal Home Loan. In addition, I increasingly found attractive
opportunities among callable agency securities, which can be redeemed
by their issuer before their stated maturities.
Q. WHERE WERE THE OPPORTUNITIES IN THE MORTGAGE MARKET?
A. In my view, the best opportunities were found among newly issued
mortgage securities that carried coupons around prevailing market
rates. In addition, I traded some prepayment-resilient 15-year
mortgage securities in exchange for higher-yielding 30-year
securities.
Q. WHAT'S YOUR OUTLOOK?
A. Over the past year, we witnessed higher levels of interest-rate and
spread - or yield differential - volatility than we have in recent
memory. My feeling is that it would be difficult for this higher
volatility to persist going forward. That said, we could continue to
experience an adjustment period as investors get more comfortable with
the U.S. government's plan to trim back its debt and agencies march
forward with their growth initiatives. It's quite possible, in my
view, that agency securities ultimately can rival Treasury securities
as very liquid fixed-income investments. Among agency securities, I
plan to continue to focus on those issued by the top-tier agency
issuers because I feel that their added liquidity will more than make
up for the slightly lower yield they offer compared to smaller, less
well-traded securities.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: a high level of current
income consistent 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,
2000, more than $765
million
MANAGER: Andrew Dudley,
since 1998; manager,
various Fidelity and Spartan
government and mortgage
funds; joined Fidelity in
1996
ANDREW DUDLEY ON THE
FUND'S INVESTMENT IN CALLABLE
AGENCY SECURITIES:
"As part of the new agency issuance
program, one development that I
feel creates a new set of
opportunities is callable agency
securities. These are securities
that can be called back, or retired,
by the issuing agency prior to
maturity, should interest rates
fall. Investors are compensated
for the risk that a bond will be called
by a higher beginning yield. These
higher-yielding securities trade in
large-sized, relatively liquid deals
and are comparable to certain
parts of the mortgage market with
respect to their risk and return
profiles.
"As a result, there is a good set of
conditions for opportunistic trading
between the agency and mortgage
sectors. While different sectors of
the bond market are interrelated,
they do not move in lock step. By
trading one part of the market
for another, I can take advantage of
changing market conditions and
supply/demand imbalances that
may develop within each market."
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF
JANUARY 31, 2000
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO
Less than 5% 1.8 1.4
5 - 5.99% 17.6 20.6
6 - 6.99% 35.7 26.2
7 - 7.99% 8.5 14.9
8 - 8.99% 5.6 4.7
9 - 9.99% 13.0 13.0
10 - 10.99% 3.0 4.2
11 - 11.99% 6.1 3.9
12% and over 8.2 8.1
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, 2000
6 MONTHS AGO
Years 5.1 5.1
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME REMAINING UNTIL
PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS,
WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF JANUARY 31, 2000
6 MONTHS AGO
Years 3.1 3.2
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF JANUARY 31, 2000 AS OF JULY 31, 1999
Mortgage Securities 24.7% Mortgage Securities 23.3%
CMOs and Other Mortgage CMOs and Other Mortgage
Related Securities 3.8% Related Securities 3.6%
U.S. Treasury Obligations 9.8% U.S. Treasury Obligations 11.8%
U.S. Government Agency U.S. Government Agency
Obligations 59.8% Obligations 58.8%
Short-Term Investments and Short-Term Investments and
Net Other Assets 1.9% Net Other Assets 2.5%
Row: 1, Col: 1, Value: 24.7 Row: 1, Col: 1, Value: 23.3
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 3.8 Row: 1, Col: 3, Value: 3.6
Row: 1, Col: 4, Value: 0.0 Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 9.800000000000001 Row: 1, Col: 5, Value: 11.8
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 59.8 Row: 1, Col: 7, Value: 58.8
Row: 1, Col: 8, Value: 1.9 Row: 1, Col: 8, Value: 2.5
</TABLE>
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
INVESTMENTS JANUARY 31, 2000 (UNAUDITED)
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - 69.6%
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 59.8%
Fannie Mae:
5.25% 1/15/09 $ 9,000 $ 7,777
5.625% 5/14/04 4,870 4,583
5.75% 6/15/05 8,800 8,228
6.25% 11/15/02 35,000 34,300
6.5% 8/15/04 7,000 6,808
6.5% 4/29/09 12,700 11,769
6.69% 8/7/01 1,700 1,695
Farm Credit Systems Financial 33,770 35,949
Assistance Corp. 9.375%
7/21/03
Federal Agricultural Mortgage
Corp.:
6.92% 2/10/02 350 350
7.04% 8/10/05 2,050 2,023
Federal Farm Credit Bank:
5.54% 9/10/03 1,300 1,231
9.15% 2/14/05 500 538
Federal Home Loan Bank:
4.96% 10/7/05 8,100 7,199
5.35% 2/7/01 3,375 3,330
5.595% 3/27/01 2,200 2,173
5.6% 9/8/05 10,400 9,558
5.717% 8/25/03 4,500 4,286
6% 8/15/02 2,000 1,949
6.75% 2/1/02 30,000 29,892
6.75% 4/10/06 1,000 979
7.59% 3/10/05 1,940 1,962
Financing Corp. - coupon 5,000 4,615
STRIPS 0% 4/6/01
Freddie Mac:
6.25% 7/15/04 17,700 17,036
6.99% 7/5/06 2,000 1,960
Government Loan Trusts 10,214 10,523
(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 1-C, 9.25% 11/15/01 31,832 32,513
Class 2-E, 9.4% 5/15/02 7,922 8,109
Class T-3, 9.625% 5/15/02 3,927 4,025
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 $ 1,037 $ 989
Series 1993-D, 5.23% 5/15/05 810 768
Series 1994-F, 8.187% 12/15/04 3,930 3,997
Series 1995-A, 6.28% 6/15/04 3,393 3,318
Series 1996-A, 6.55% 6/15/04 6,179 6,078
Guaranteed Trade Trust
Certificates (assets of
Trust guaranteed by U.S.
Government through Export-
Import Bank):
Series 1992-A, 7.02% 9/1/04 5,216 5,185
Series 1994-A, 7.39% 6/26/06 6,500 6,480
Series 1994-B, 7.5% 1/26/06 683 687
Series 1997-A, 6.104% 7/15/03 11,307 11,065
Israel Export Trust 4,835 4,820
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% 7,088 6,945
8/15/04 (callable)
Series 1996-A1, 6.726% 3,826 3,714
9/15/10 (callable)
Private Export Funding Corp.:
secured:
5.48% 9/15/03 1,960 1,899
5.65% 3/15/03 2,391 2,343
5.8% 2/1/04 5,031 4,912
5.82% 6/15/03 (a) 20,600 19,568
6.86% 4/30/04 1,874 1,856
8.35% 1/31/01 3,800 3,864
8.75% 6/30/03 3,215 3,361
5.31% 11/15/03 (a) 4,000 3,734
State of Israel (guaranteed
by U.S. Government through
Agency for International
Development):
5.25% 9/15/00 8,141 8,070
5.625% 9/15/03 19,564 18,535
6.6% 2/15/08 27,910 27,033
6.625% 8/15/03 26,675 26,119
Tennessee Valley Authority 6% 4,060 4,042
11/1/00
U.S. GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
U.S. Department of Housing
and Urban Development
government guaranteed
participation certificates
Series 1999-A:
5.75% 8/1/06 $ 10,000 $ 9,141
6.06% 8/1/10 10,000 9,120
U.S. Trade Trust Certificates 4,503 4,587
(assets of Trust guaranteed
by U.S. Government through
Export-Import Bank) 8.17%
1/15/07
TOTAL U.S. GOVERNMENT AGENCY 457,590
OBLIGATIONS
U.S. TREASURY OBLIGATIONS -
9.8%
U.S. Treasury Bonds:
11.75% 2/15/10 (callable) 18,099 21,812
12% 8/15/13 24,400 32,349
14% 11/15/11 8,075 11,155
U.S. Treasury Notes 5.5% 8,500 8,197
5/31/03
U.S. Treasury Notes - coupon
STRIPS:
0% 5/31/00 207 203
0% 9/30/00 300 289
0% 10/31/00 142 136
0% 4/30/01 142 131
0% 5/31/01 207 190
0% 9/30/01 300 270
0% 4/30/02 142 123
0% 5/31/02 207 178
0% 9/30/02 200 168
TOTAL U.S. TREASURY 75,201
OBLIGATIONS
TOTAL U.S. GOVERNMENT AND 532,791
GOVERNMENT AGENCY OBLIGATIONS
(Cost $556,786)
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES - 24.7%
FANNIE MAE - 14.6%
5.5% 1/1/09 to 2/1/09 7,370 6,889
6% 10/1/08 to 11/1/09 17,128 16,222
6.5% 10/1/28 to 6/1/29 24,048 22,320
7% 9/1/27 to 10/1/29 47,089 44,861
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FANNIE MAE - CONTINUED
8.25% 12/1/01 $ 5,293 $ 5,279
9% 2/1/13 807 837
9.5% 11/15/09 2,112 2,235
10% 1/1/20 53 56
10.25% 10/1/09 to 10/1/18 216 231
11% 8/1/10 to 1/1/16 3,480 3,760
11.25% 1/1/11 to 1/1/16 574 626
11.5% 9/1/11 to 6/1/19 2,323 2,548
11.75% 7/1/13 38 42
12.25% 10/1/10 to 6/1/15 804 891
12.5% 9/1/07 to 7/1/16 1,831 2,042
12.75% 10/1/11 to 6/1/15 841 940
13% 6/1/11 to 7/1/15 798 894
13.25% 9/1/11 to 9/1/13 467 527
13.5% 11/1/14 to 12/1/14 22 26
14% 6/1/11 to 10/1/14 92 104
14.5% 7/1/14 19 22
15% 4/1/12 20 23
111,375
FREDDIE MAC - 4.3%
6.5% 5/1/08 1,561 1,514
8.5% 6/1/14 to 9/1/17 2,063 2,100
9% 11/1/09 to 8/1/16 630 643
9.5% 7/1/16 to 8/1/21 3,740 3,908
10% 12/1/00 to 3/1/21 6,964 7,388
10.5% 9/1/09 to 5/1/21 4,281 4,552
10.75% 7/1/13 75 79
11% 8/1/00 to 9/1/20 534 573
11.25% 2/1/10 to 10/1/14 634 679
11.5% 10/1/15 to 8/1/19 369 401
11.75% 1/1/10 to 7/1/15 139 149
12% 10/1/09 to 11/1/19 1,321 1,438
12.25% 2/1/11 to 8/1/15 422 461
12.5% 10/1/09 to 6/1/19 6,510 7,180
12.75% 2/1/10 to 1/1/11 144 158
13% 9/1/10 to 5/1/17 1,024 1,146
13.25% 11/1/10 to 12/1/14 110 122
13.5% 11/1/10 to 10/1/14 169 189
13.75% 10/1/14 4 4
14% 11/1/12 to 4/1/16 31 35
U.S. GOVERNMENT AGENCY -
MORTGAGE SECURITIES -
CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
FREDDIE MAC - CONTINUED
14.5% 12/1/10 to 9/1/12 $ 68 $ 78
14.75% 3/1/10 17 19
16.25% 7/1/11 7 8
32,824
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 5.8%
8% 9/15/06 to 12/15/23 8,460 8,494
8.5% 4/15/16 to 7/15/17 86 88
9.5% 6/15/09 to 11/15/20 7,566 7,996
10% 11/15/09 to 11/15/20 3,390 3,616
10.5% 2/15/14 to 2/15/25 5,885 6,367
10.75% 12/15/09 to 3/15/10 168 180
11% 4/15/00 to 1/20/21 3,768 4,111
11.5% 3/15/10 to 1/15/21 10,503 11,552
12% 11/15/12 to 2/15/16 711 790
12.25% 1/15/14 49 55
12.5% 12/15/10 13 15
13% 1/15/11 to 12/15/14 699 790
13.25% 9/15/13 to 10/15/14 65 75
13.5% 5/15/10 to 12/15/14 301 342
14% 6/15/11 to 12/15/14 49 57
16% 4/15/13 38 45
17% 12/15/11 3 4
44,577
TOTAL U.S. GOVERNMENT AGENCY 188,776
- - MORTGAGE SECURITIES
(Cost $192,676)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 3.8%
U.S. GOVERNMENT AGENCY - 3.8%
Fannie Mae REMIC planned
amortization class:
Series 1988-21 Class G, 9.5% 912 950
8/25/18
Series 1993-192 Class E, 7,000 6,878
5.95% 11/25/07
Series 1994-72 Class G, 6% 7,800 7,586
10/25/19
Series 1999-25 Class PA, 6% 6,800 6,585
2/25/20
COLLATERALIZED MORTGAGE
OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
U.S. GOVERNMENT AGENCY -
CONTINUED
Freddie Mac:
REMIC accretion directed $ 3,251 $ 3,251
Series 1462 Class PT, 7.5%
1/15/03
REMIC planned amortization 4,287 4,193
class Series 1639 Class J,
6% 12/15/08
TOTAL COLLATERALIZED MORTGAGE 29,443
OBLIGATIONS
(Cost $30,186)
CASH EQUIVALENTS - 0.5%
MATURITY AMOUNT (000S)
Investments in repurchase $ 3,706 3,705
agreements (U.S. Government
obligations), in a joint
trading account at 5.8%,
dated 1/31/00 due 2/1/00
(Cost $3,705)
TOTAL INVESTMENT PORTFOLIO - 754,715
98.6%
(Cost $783,353)
NET OTHER ASSETS - 1.4% 10,686
NET ASSETS - 100% $ 765,401
</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 $23,302,000 or 3.0% of net assets.
OTHER INFORMATION
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $223,479,000 and $302,986,000, respectively.
INCOME TAX INFORMATION
At January 31, 2000, the aggregate cost of investment securities for
income tax purposes was $783,415,000. Net unrealized depreciation
aggregated $28,700,000, of which $667,000 related to appreciated
investment securities and $29,367,000 related to depreciated
investment securities.
At July 31, 1999, the fund had a capital loss carryforward of
approximately $66,116,000 of which $631,000, $6,681,000, $46,313,000,
$8,517,000 and $3,974,000 will expire on July 31, 2001, 2002, 2003,
2004 and 2005, respectively. Approximately $12,884,000, of which
$631,000, $6,681,000, $2,987,000, $1,883,000 and $702,000 will expire
on July 31, 2001, 2002, 2003, 2004 and 2005, respectively, was
acquired in the mergers and is available to offset future capital
gains of the fund to the extent provided by regulations.
The fund intends to elect to defer to its fiscal year ending July 31,
2000 approximately $7,827,000 of losses recognized during the period
November 1, 1998 to July 31, 1999.
FIDELITY INTERMEDIATE GOVERNMENT INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JANUARY
31, 2000 (UNAUDITED)
ASSETS
Investment in securities, at $ 754,715
value (including repurchase
agreements of $3,705) (cost
$783,353) - See accompanying
schedule
Receivable for investments 35,363
sold
Receivable for fund shares 552
sold
Interest receivable 11,463
TOTAL ASSETS 802,093
LIABILITIES
Payable for investments $ 29,985
purchased
Payable for fund shares 5,571
redeemed
Distributions payable 711
Accrued management fee 419
Other payables and accrued 6
expenses
TOTAL LIABILITIES 36,692
NET ASSETS $ 765,401
Net Assets consist of:
Paid in capital $ 878,900
Undistributed net investment 835
income
Accumulated undistributed net (85,696)
realized gain (loss) on
investments
Net unrealized appreciation (28,638)
(depreciation) on investments
NET ASSETS, for 82,966 shares $ 765,401
outstanding
NET ASSET VALUE, offering $9.23
price and redemption price
per share ($765,401 (divided
by) 82,966 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JANUARY 31,
2000 (UNAUDITED)
INVESTMENT INCOME $ 30,391
Interest
Security lending 7
Total income 30,398
EXPENSES
Management fee $ 2,762
Non-interested trustees' 1
compensation
Total expenses before 2,763
reductions
Expense reductions (108) 2,655
NET INVESTMENT INCOME 27,743
REALIZED AND UNREALIZED GAIN (11,691)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (9,716)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (21,407)
NET INCREASE (DECREASE) IN $ 6,336
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JANUARY 31, YEAR ENDED JULY 31, 1999
2000 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 27,743 $ 51,652
income
Net realized gain (loss) (11,691) (5,246)
Change in net unrealized (9,716) (24,881)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 6,336 21,525
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (27,349) (50,841)
from net investment income
Share transactions Net 65,588 284,648
proceeds from sales of shares
Net asset value of shares - 71,358
issued in exchange for the
net assets of Spartan
Short-Intermediate
Government Fund
Net asset value of shares - 122,989
issued in exchange for the
net assets of Fidelity
Short-Intermediate
Government Fund
Reinvestment of distributions 22,573 41,707
Cost of shares redeemed (176,075) (320,889)
NET INCREASE (DECREASE) IN (87,914) 199,813
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) (108,927) 170,497
IN NET ASSETS
NET ASSETS
Beginning of period 874,328 703,831
End of period (including $ 765,401 $ 874,328
undistributed net investment
income of $835 and $441,
respectively)
OTHER INFORMATION
Shares
Sold 6,986 29,025
Issued in exchange for - 7,363
shares of Spartan
Short-Intermediate
Government Fund
Issued in exchange for - 12,662
shares of Fidelity
Short-Intermediate
Government Fund
Issued in reinvestment of 2,409 4,281
distributions
Redeemed (18,828) (32,874)
Net increase (decrease) (9,433) 20,457
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JANUARY 31, YEARS ENDED JULY 31,
2000
(UNAUDITED) 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.460 $ 9.780 $ 9.790 $ 9.650 $ 9.760 $ 9.610
period
Income from Investment .309 D .640 D .652 D .675 D .678 .610
Operations Net investment
income
Net realized and unrealized (.235) (.326) (.008) .124 (.150) .143
gain (loss)
Total from investment .074 .314 .644 .799 .528 .753
operations
Less Distributions
From net investment income (.304) (.634) (.654) (.659) (.638) (.603)
Net asset value, end of $ 9.230 $ 9.460 $ 9.780 $ 9.790 $ 9.650 $ 9.760
period
TOTAL RETURN B, C 0.78% 3.20% 6.78% 8.56% 5.49% 8.16%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 765 $ 874 $ 704 $ 704 $ 740 $ 817
millions)
Ratio of expenses to average .63% A, E .53% E .38% E .54% E .63% E .65%
net assets
Ratio of expenses to average .62% A, F .53% .38% .54% .62% F .65%
net assets after expense
reductions
Ratio of net investment 6.53% A 6.58% 6.65% 6.96% 6.89% 7.18%
income to average net assets
Portfolio turnover rate 54% A 117% G 188% 105% 105% 210%
</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 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.
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 PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Ginnie Mae Fund, Fidelity Government Income 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. Dividends are declared daily and paid
monthly from net interest income. Distributions to shareholders from
realized capital gains on investments, 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. Fidelity Government Income Fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the 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, Federal Agency,
and other obligations found satisfactory by FMR 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 after the customary settlement period for that security. 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 on a
delayed delivery basis are identified as such in each applicable
fund's schedule of investments. Each fund may receive compensation for
interest forgone in the purchase of a delayed delivery security. With
respect to purchase commitments, each fund identifies securities as
segregated in its 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. At the end of the period, no funds had 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 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 .0920% 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 an annualized rate of .43% of average net
assets for Fidelity Ginnie Mae Fund and Fidelity Government Income
Fund.
As the investment adviser for Fidelity Intermediate Government Income
Fund, FMR receives a fee that is computed daily at an annual rate of
.65% of the fund's average net assets. FMR pays all other expenses,
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and
extraordinary expenses. The management fee paid to FMR by the fund is
reduced by an amount equal to the fees and expenses paid by the fund
to the non-interested Trustees.
SUB-ADVISER FEE. FMR, on behalf of each fund, has entered into a
sub-advisory agreement 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 fee is paid prior to any voluntary expense reimbursements 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 .17% and .20% of the average net
assets of Fidelity Ginnie Mae Fund and Fidelity Government Income
Fund, respectively.
ACCOUNTING AND SECURITY LENDING FEES. FSC maintains each fund's
accounting records and administers the security lending program for
Fidelity Ginnie Mae Fund and Fidelity Government Income Fund. The
security lending fee is based on the number and duration of lending
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
ACCOUNTING AND SECURITY LENDING FEES - CONTINUED
transactions. The accounting fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. SECURITY LENDING.
Certain funds lend portfolio securities from time to time in order to
earn additional income. Each applicable fund receives collateral (in
the form of U.S. Treasury obligations, letters of credit and/or cash)
against the loaned securities and maintains collateral in an amount
not less than 100% of the market value of the loaned securities during
the period of the loan. The market value of the loaned securities is
determined at the close of business of the funds and any additional
required collateral is delivered to the funds on the next business
day. If the borrower defaults on its obligation to return the
securities loaned because of insolvency or other reasons, a fund could
experience delays and costs in recovering the securities loaned or in
gaining access to the collateral. 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 each fund's operating
expenses (excluding interest, taxes, certain securities lending fees,
brokerage commissions and extraordinary expenses, if any) above an
annual rate of 0.63% of average net assets. For the period, the
reimbursement reduced the expenses by $175,000 and $99,000 for
Fidelity Ginnie Mae Fund and Fidelity Intermediate Government Income
Fund, respectively.
In addition, through arrangements with the Fidelity Ginnie Mae Fund's
and Fidelity Government Income Fund's custodian and transfer agent,
credits realized as a result of uninvested cash balances were used to
reduce a portion of each applicable fund's expenses. For the period,
the reductions under these arrangements are shown under the caption
"Other Information" on each applicable fund's Statement of Operations.
Through arrangements with Fidelity Intermediate Government Income
Fund's custodian and transfer agent, credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's expenses were reduced by
$9,000 under these arrangements.
7. MERGER INFORMATION.
On April 22, 1999, Fidelity Intermediate Government Income Fund
acquired all of the assets and assumed all of the liabilities of
Spartan Short-Intermediate Government Fund. The acquisition, which was
approved by the shareholders of Spartan Short-Intermediate Government
Fund on April 14, 1999, was accomplished by an exchange of 7,363,405
shares of the Fidelity Intermediate Government Income Fund (each
valued at $9.69) for the 7,680,451 shares then outstanding (each
valued at $9.29) of Spartan Short-Intermediate Government Fund. Based
on the opinion
7. MERGER INFORMATION -
CONTINUED
of fund counsel, the reorganization qualified as a tax-free
reorganization for federal income tax purposes with no gain or loss
recognized to the funds or their shareholders. Spartan
Short-Intermediate Government Fund's net assets, including $638,690 of
unrealized depreciation, were combined with Fidelity Intermediate
Government Income Fund for total net assets after the acquisition of
$803,238,766.
On April 29, 1999, Fidelity Intermediate Government Income Fund
acquired all of the assets and assumed all of the liabilities of
Fidelity Short-Intermediate Government Fund. The acquisition, which
was approved by the shareholders of Fidelity Short-Intermediate
Government Fund on April 14, 1999, was accomplished by an exchange of
12,662,423 shares of the Fidelity Intermediate Government Income Fund
(each valued at $9.71) for the 13,292,122 shares then outstanding
(each valued at $9.25) of Fidelity Short-Intermediate Government Fund.
Based on the opinion of fund counsel, the reorganization qualified as
a tax-free reorganization for federal income tax purposes with no gain
or loss recognized to the funds or their shareholders. Fidelity
Short-Intermediate Government Fund's net assets, including $674,931 of
unrealized depreciation, were combined with Fidelity Intermediate
Government Income Fund for total net assets after the acquisition of
$924,822,820.
On May 27, 1999, Fidelity Ginnie Mae Fund acquired all of the assets
and assumed all of the liabilities of Spartan Ginnie Mae Fund. The
acquisition, which was approved by the shareholders of Spartan Ginnie
Mae Fund on May 19, 1999, was accomplished by an exchange of
56,971,308 shares of the Fidelity Ginnie Mae Fund (each valued at
$10.70) for the 60,959,299 shares then outstanding (each valued at
$10.00) of Spartan Ginnie Mae Fund. Based on the opinion of fund
counsel, the reorganization qualified as a tax-free reorganization for
federal income tax purposes with no gain or loss recognized to the
funds or their shareholders. Spartan Ginnie Mae Fund's net assets,
including $3,850,708 of unrealized depreciation, were combined with
Fidelity Ginnie Mae Fund for total net assets after the acquisition of
$1,873,723,094.
8. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of
approximately 20% of the total outstanding shares of Fidelity
Government Income Fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc.
Fidelity Management & Research
(Far East) Inc.
Fidelity Investments
Money Management, Inc.
Fidelity Investments Japan Ltd.
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,
Intermediate Government Income
Thomas J. Silvia, Vice President,
Ginnie Mae and Government Income
Stanley N. Griffith, Assistant
Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
Maria F. Dwyer, Deputy Treasurer
John H. Costello, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
Donald J. Kirk *
Ned C. Lautenbach *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
Abigail P. Johnson
* INDEPENDENT TRUSTEES
GVT-SANN-0300 95629
1.700523.102
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
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-Term Bond
Spartan(registered trademark) Government Income
Spartan Investment Grade Bond
Strategic Income
Target TimelineSM 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions
and Account Assistance 1-800-544-6666
Product Information 1-800-544-6666
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)
Fidelity Automated Service
Telephone (FASTSM) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
