U.S. TREASURY 1 YEAR INDEX + 2.030% 5.183% 6/1/33 (c)(d)
8,900
8,961
U.S. TREASURY 1 YEAR INDEX + 2.230% 5.062% 4/1/34 (c)(d)
18,627
18,873
U.S. TREASURY 1 YEAR INDEX + 2.540% 5.875% 7/1/35 (c)(d)
6,625
6,736
1.5% 12/1/40 to 4/1/41
772,988
628,212
2% 5/1/36 to 7/1/41
1,793,475
1,541,516
2.5% 1/1/28 to 1/1/42
2,447,480
2,177,476
3% 9/1/34 to 3/1/52
428,030
390,772
3.5% 7/1/32 to 3/1/52 (e)
235,037
216,735
5% 9/1/35 to 12/1/52 (e)(f)
647,179
635,954
5.5% 9/1/52
435,812
435,340
6.5% 10/1/53
407,423
420,422
TOTAL FREDDIE MAC
6,579,453
Ginnie Mae - 0.1%
6% 6/15/36
104,687
107,358
3.5% 2/20/50
8,950
8,169
5.47% 8/20/59 (c)(g)
98
93
TOTAL GINNIE MAE
115,620
TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE SECURITIES
(Cost $18,595,587)
17,741,526
Collateralized Mortgage Obligations - 6.8%
Principal
Amount (a)
Value ($)
U.S. Government Agency - 6.8%
Fannie Mae:
floater:
Series 1994-42 Class FK, 10-Year Treasury Constant Maturity Rate - 0.500% 3.64% 4/25/24 (c)(d)
339
338
Series 2001-38 Class QF, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.090% 6.4161% 8/25/31 (c)(d)
10,645
10,699
Series 2002-49 Class FB, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 0.710% 6.0389% 11/18/31 (c)(d)
11,080
11,013
Series 2002-60 Class FV, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.110% 6.4361% 4/25/32 (c)(d)
2,271
2,281
Series 2002-74 Class FV, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 0.560% 5.8861% 11/25/32 (c)(d)
28,347
28,316
Series 2002-75 Class FA, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.110% 6.4361% 11/25/32 (c)(d)
4,652
4,672
Series 2010-15 Class FJ, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.040% 6.3661% 6/25/36 (c)(d)
139,177
139,604
planned amortization class:
Series 2005-64 Class PX, 5.5% 6/25/35
3,707
3,690
Series 2021-65 Class MA, 2% 8/25/51
462,874
391,902
sequential payer:
Series 2004-52 Class KZ, 5.5% 7/25/34
223,658
222,559
Series 2020-101 Class BA, 1.5% 9/25/45
272,810
230,887
Series 2020-67 Class KZ, 3.25% 9/25/40
224,227
202,974
Series 2020-75 Class HA, 1.5% 12/25/44
777,729
659,442
Series 2022-1 Class KA, 3% 5/25/48
153,228
137,010
Series 2022-13 Class MA, 3% 5/25/44
636,279
589,107
Series 2022-3:
Class G, 2% 11/25/47
1,000,586
848,112
Class N, 2% 10/25/47
1,204,739
1,026,076
Series 2022-35 Class CK, 4% 3/25/47
1,312,371
1,232,955
Series 2022-49 Class TE, 4.5% 12/25/48
1,141,415
1,099,579
Series 2022-65 Class GA, 5% 4/25/46
1,133,412
1,094,499
Series 2022-7 Class A, 3% 5/25/48
218,423
195,313
Series 2010-139 Class NI, 4.5% 2/25/40 (h)
3,189
9
Series 2010-39 Class FG, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.030% 6.3561% 3/25/36 (c)(d)
94,401
94,628
Series 2011-67 Class AI, 4% 7/25/26 (h)
2,668
51
Series 2020-45 Class JL, 3% 7/25/40
13,109
11,715
Freddie Mac:
floater:
Series 2448 Class FT, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.110% 6.4392% 3/15/32 (c)(d)
11,474
11,518
Series 2526 Class FC, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 0.510% 5.8392% 11/15/32 (c)(d)
11,998
11,941
Series 2530 Class FE, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 0.710% 6.0392% 2/15/32 (c)(d)
6,042
6,017
Series 2711 Class FC, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 1.010% 6.3392% 2/15/33 (c)(d)
32,873
32,915
floater planned amortization class Series 2770 Class FH, U.S. 30-Day Avg. Secured Overnight Fin. Rate (SOFR) Index + 0.510% 5.8392% 3/15/34 (c)(d)
41,603
41,083
planned amortization class:
Series 2021-5122 Class TE, 1.5% 6/25/51
300,028
242,440
Series 2022-5213 Class JM, 3.5% 9/25/51
487,368
457,533
Series 2022-5214 Class CG, 3.5% 4/25/52
197,719
182,467
Series 2022-5220 Class PK, 3.5% 1/25/51
190,986
178,031
Series 2022-5224 Class DQ, 3.75% 8/25/44
273,568
258,070
Series 3415 Class PC, 5% 12/15/37
16,887
16,617
sequential payer:
Series 1929 Class EZ, 7.5% 2/17/27
5,641
5,692
Series 2004-2802 Class ZG, 5.5% 5/15/34
191,078
193,113
Series 2020-5018:
Class LC, 3% 10/25/40
79,277
70,929
Class LT, 3.25% 10/25/40
232,032
209,699
Class LY, 3% 10/25/40
60,135
53,789
Series 2022-5189 Class DA, 2.5% 5/25/49
128,048
109,065
Series 2022-5190 Class BA, 2.5% 11/25/47
112,514
98,131
Series 2022-5197 Class DA, 2.5% 11/25/47
85,438
74,578
Series 2022-5198 Class BA, 2.5% 11/25/47
451,154
399,966
Series 2022-5202 Class LB, 2.5% 10/25/47
91,208
79,728
Series 2145 Class MZ, 6.5% 4/15/29
35,048
35,295
Series 2357 Class ZB, 6.5% 9/15/31
32,547
33,027
Series 3859 Class JZ, 5% 5/15/41
248,964
249,159
Series 2020-5041 Class LB, 3% 11/25/40
135,293
121,132
Series 2021-5083 Class VA, 1% 8/15/38
1,154,216
1,075,593
Ginnie Mae guaranteed REMIC pass-thru certificates:
floater:
Series 2007-59 Class FC, CME Term SOFR 1 Month Index + 0.610% 5.9343% 7/20/37 (c)(d)
26,107
25,790
Series 2008-2 Class FD, CME Term SOFR 1 Month Index + 0.590% 5.9143% 1/20/38 (c)(d)
6,835
6,745
Series 2008-73 Class FA, CME Term SOFR 1 Month Index + 0.970% 6.2943% 8/20/38 (c)(d)
53,931
54,045
Series 2008-83 Class FB, CME Term SOFR 1 Month Index + 1.010% 6.3343% 9/20/38 (c)(d)
39,130
39,264
Series 2009-108 Class CF, CME Term SOFR 1 Month Index + 0.710% 6.0358% 11/16/39 (c)(d)
33,258
32,925
Series 2009-116 Class KF, CME Term SOFR 1 Month Index + 0.640% 5.9658% 12/16/39 (c)(d)
19,845
19,599
Series 2010-H17 Class FA, CME Term SOFR 1 Month Index + 0.440% 5.7811% 7/20/60 (c)(d)(g)
329,429
327,725
Series 2010-H18 Class AF, CME Term SOFR 1 Month Index + 0.410% 5.7629% 9/20/60 (c)(d)(g)
300,803
298,809
Series 2010-H19 Class FG, CME Term SOFR 1 Month Index + 0.410% 5.7629% 8/20/60 (c)(d)(g)
272,189
270,506
Series 2010-H27 Class FA, CME Term SOFR 1 Month Index + 0.380% 5.8429% 12/20/60 (c)(d)(g)
120,568
119,978
Series 2011-H05 Class FA, CME Term SOFR 1 Month Index + 0.610% 5.9629% 12/20/60 (c)(d)(g)
94,856
94,537
Series 2011-H07 Class FA, CME Term SOFR 1 Month Index + 0.610% 5.9629% 2/20/61 (c)(d)(g)
75,972
75,648
Series 2011-H12 Class FA, CME Term SOFR 1 Month Index + 0.600% 5.9529% 2/20/61 (c)(d)(g)
113,123
112,661
Series 2011-H13 Class FA, CME Term SOFR 1 Month Index + 0.610% 5.9629% 4/20/61 (c)(d)(g)
87,471
87,164
Series 2011-H14:
Class FB, CME Term SOFR 1 Month Index + 0.610% 5.9629% 5/20/61 (c)(d)(g)
107,268
106,920
Class FC, CME Term SOFR 1 Month Index + 0.610% 5.9629% 5/20/61 (c)(d)(g)
99,259
98,949
Series 2011-H17 Class FA, CME Term SOFR 1 Month Index + 0.640% 5.9929% 6/20/61 (c)(d)(g)
105,982
105,681
Series 2011-H21 Class FA, CME Term SOFR 1 Month Index + 0.710% 6.0629% 10/20/61 (c)(d)(g)
105,163
104,941
Series 2012-H01 Class FA, CME Term SOFR 1 Month Index + 0.810% 6.1629% 11/20/61 (c)(d)(g)
115,813
115,706
Series 2012-H03 Class FA, CME Term SOFR 1 Month Index + 0.810% 6.1629% 1/20/62 (c)(d)(g)
61,566
61,499
Series 2012-H06 Class FA, CME Term SOFR 1 Month Index + 0.740% 6.0929% 1/20/62 (c)(d)(g)
114,843
114,600
Series 2012-H07 Class FA, CME Term SOFR 1 Month Index + 0.740% 6.0929% 3/20/62 (c)(d)(g)
55,206
55,042
Series 2012-H21 Class DF, CME Term SOFR 1 Month Index + 0.760% 6.1129% 5/20/61 (c)(d)(g)
1,486
1,473
Series 2015-H13 Class FL, CME Term SOFR 1 Month Index + 0.390% 5.7429% 5/20/63 (c)(d)(g)
2,347
2,297
Series 2015-H19 Class FA, CME Term SOFR 1 Month Index + 0.310% 5.6629% 4/20/63 (c)(d)(g)
3,177
3,141
Series 2016-H20 Class FM, CME Term SOFR 1 Month Index + 0.510% 5.8629% 12/20/62 (c)(d)(g)
3,920
3,850
planned amortization class:
Series 2011-68 Class EC, 3.5% 4/20/41
95,917
91,999
Series 2017-134 Class BA, 2.5% 11/20/46
29,391
26,240
sequential payer:
Series 2014-H04 Class HA, 2.75% 2/20/64 (g)
53,223
52,004
Series 2018-H12 Class HA, 3.25% 8/20/68 (g)
492,658
471,324
Series 2010-H18 Class PL, 5.0108% 9/20/60 (c)(g)
2,970
2,938
Series 2015-H30 Class HA, 1.75% 9/20/62 (c)(g)
12,032
11,566
Series 2016-H13 Class FB, U.S. TREASURY 1 YEAR INDEX + 0.500% 5.31% 5/20/66 (c)(d)(g)
172,121
171,508
Series 2017-H06 Class FA, U.S. TREASURY 1 YEAR INDEX + 0.350% 5.16% 8/20/66 (c)(d)(g)
288,047
286,810
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $15,922,680)
15,938,843
Commercial Mortgage Securities - 8.9%
Principal
Amount (a)
Value ($)
Fannie Mae Series 2022-66, Class KA, 5% 10/25/52
179,344
176,634
Freddie Mac:
sequential payer:
Series 2015-K043 Class A2, 3.062% 12/25/24
1,093,358
1,073,215
Series 2015-K049 Class A2, 3.01% 7/25/25
25,000
24,310
Series 2015-K050 Class A2, 3.334% 8/25/25 (c)
990,127
965,881
Series 2015-KPLB Class A, 2.77% 5/25/25
680,000
659,788
Series 2016-K052 Class A2, 3.151% 11/25/25
1,115,675
1,082,808
Series 2016-K055 Class A2, 2.673% 3/25/26
1,200,000
1,148,848
Series 2017-K066 Class A2, 3.117% 6/25/27
170,000
161,897
Series 2017-K729 Class A2, 3.136% 10/25/24
510,328
502,422
Series 2018-K731 Class A2, 3.6% 2/25/25
172,451
169,837
Series 2018-K732 Class A2, 3.7% 5/25/25
963,516
946,838
Series 2018-K733 Class A2, 3.75% 8/25/25
1,091,701
1,070,142
Series 2019-K736 Class A2, 2.282% 7/25/26
1,100,000
1,040,839
Series 2021-K746 Class A2, 2.031% 9/25/28
500,000
444,606
Series 2022-K747 Class A2, 2.05% 11/25/28
300,000
266,150
Series 2023-160 Class A1, 4.68% 10/25/32
299,366
295,487
Series 2023-K752 Class A2, 4.284% 7/25/30
525,000
510,879
Series 2023-K753 Class A2, 4.4% 10/25/30
800,000
782,622
Series K058 Class A2, 2.653% 8/25/26
800,000
760,068
Series K065 Class A2, 3.243% 4/25/27
200,000
191,637
Series K073 Class A2, 3.35% 1/25/28
199,980
190,227
Series 2016-K059 Class A2, 3.12% 9/25/26 (c)
300,000
288,011
Series 2017-K068 Class A2, 3.244% 8/25/27
1,500,000
1,430,997
Series 2017-K727 Class A2, 2.946% 7/25/24
912,996
903,982
Series 2022 K748 Class A2, 2.26% 1/25/29
300,000
267,846
Series K048 Class A2, 3.284% 6/25/25 (c)
900,000
879,681
Series K053 Class A2, 2.995% 12/25/25
700,000
676,920
Series K063 Class A2, 3.43% 1/25/27
400,000
385,990
Series K734 Class A2, 3.208% 2/25/26
500,000
484,785
Freddie Mac Multi-family Structured pass-thru certificates:
sequential payer Series 2015 K045 Class A2, 3.023% 1/25/25
174,820
171,206
Series K044 Class A2, 2.811% 1/25/25
646,186
632,365
FREMF 2015-KPLB Mortgage Trust Series 2015-KPLB Class B, 2.5% 5/25/25 (i)
2,400,000
2,300,480
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $20,928,434)
20,887,398
Money Market Funds - 3.7%
Shares
Value ($)
Fidelity Cash Central Fund 5.39% (j)
5,430,728
5,431,814
Fidelity Securities Lending Cash Central Fund 5.39% (j)(k)
3,381,491
3,381,829
TOTAL MONEY MARKET FUNDS
(Cost $8,813,642)
8,813,643
Purchased Swaptions - 0.2%
Expiration
Date
Notional
Amount (a)
Value ($)
Put Options - 0.1%
Option on an interest rate swap with Citibank N.A. to receive annually a floating rate based on the U.S. Secured Overnight Fin. Rate (SOFR) Index and pay a fixed rate of 3.694%, expiring December 2033.
12/12/28
6,100,000
247,382
Call Options - 0.1%
Option on an interest rate swap with Citibank N.A. to receive annually a fixed rate of 3.694% and pay a floating rate based on the U.S. Secured Overnight Fin. Rate (SOFR) Index, expiring December 2033.
12/12/28
6,100,000
246,247
TOTAL PURCHASED SWAPTIONS
(Cost $493,186)
493,629
TOTAL INVESTMENT IN SECURITIES - 102.9%
(Cost $247,693,397)
241,165,695
NET OTHER ASSETS (LIABILITIES) - (2.9)%
(6,888,717)
NET ASSETS - 100.0%
234,276,978
TBA Sale Commitments
Principal
Amount (a)
Value ($)
Uniform Mortgage Backed Securities
5% 3/1/54
(900,000)
(872,859)
TOTAL TBA SALE COMMITMENTS
(Proceeds $879,223)
(872,859)
Futures Contracts
Number
of contracts
Expiration
Date
Notional
Amount ($)
Value ($)
Unrealized
Appreciation/
(Depreciation) ($)
Purchased
Treasury Contracts
CBOT 10-Year U.S. Treasury Note Contracts (United States)
6
Jun 2024
662,625
2,382
2,382
CBOT 2-Year U.S. Treasury Note Contracts (United States)
260
Jun 2024
53,235,000
26,701
26,701
CBOT 5-Year U.S. Treasury Note Contracts (United States)
179
Jun 2024
19,136,219
35,426
35,426
TOTAL PURCHASED
64,509
Sold
Treasury Contracts
CBOT Long Term U.S. Treasury Bond Contracts (United States)
16
Jun 2024
1,908,000
(18,786)
(18,786)
TOTAL FUTURES CONTRACTS
45,723
The notional amount of futures purchased as a percentage of Net Assets is 31.2%
The notional amount of futures sold as a percentage of Net Assets is 0.8%
Interest Rate Swaps
Payment Received
Payment
Frequency
Payment Paid
Payment
Frequency
Clearinghouse /
Counterparty(1)
Maturity
Date
Notional
Amount(2)
Value ($)
Upfront
Premium
Received/
(Paid) ($)(3)
Unrealized
Appreciation/
(Depreciation) ($)
U.S. Secured Overnight Fin. Rate (SOFR) Index(4)
Annual
4%
Annual
LCH
Mar 2026
3,255,000
18,291
0
18,291
U.S. Secured Overnight Fin. Rate (SOFR) Index(4)
Annual
4.5%
Annual
LCH
Mar 2027
9,199,000
50,380
0
50,380
U.S. Secured Overnight Fin. Rate (SOFR) Index(4)
Annual
4.25%
Annual
LCH
Mar 2031
1,961,000
13,221
0
13,221
U.S. Secured Overnight Fin. Rate (SOFR) Index(4)
Annual
4.25%
Annual
LCH
Mar 2034
5,176,000
32,507
0
32,507
TOTAL INTEREST RATE SWAPS
114,399
0
114,399
(1)Swaps with LCH Clearnet Group (LCH) are centrally cleared swaps.
(2)Notional amount is stated in U.S. Dollars unless otherwise noted.
(3)Any premiums for centrally cleared swaps are recorded periodically throughout the term of the swap to variation margin and included in unrealized appreciation (depreciation).
(4)Represents floating rate.
Legend
(a)
Amount is stated in United States dollars unless otherwise noted.
(b)
Security or a portion of the security is on loan at period end.
(c)
Coupon rates for floating and adjustable rate securities reflect the rates in effect at period end.
(d)
Coupon is indexed to a floating interest rate which may be multiplied by a specified factor and/or subject to caps or floors.
(e)
Security or a portion of the security was pledged to cover margin requirements for futures contracts. At period end, the value of securities pledged amounted to $677,385.
(f)
Security or a portion of the security was pledged to cover margin requirements for centrally cleared swaps. At period end, the value of securities pledged amounted to $673,442.
(g)
Represents an investment in an underlying pool of reverse mortgages which typically do not require regular principal and interest payments as repayment is deferred until a maturity event.
(h)
Interest Only (IO) security represents the right to receive only monthly interest payments on an underlying pool of mortgages or assets. Principal shown is the outstanding par amount of the pool as of the end of the period.
(i)
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 end of the period, the value of these securities amounted to $2,300,480 or 1.0% of net assets.
(j)
Affiliated fund that is generally available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund's holdings as of its most recent quarter end is available upon request. In addition, each Fidelity Central Fund's financial statements are available on the SEC's website or upon request.
(k)
Investment made with cash collateral received from securities on loan.
Affiliated Central Funds
Fiscal year to date information regarding the Fund's investments in Fidelity Central Funds, including the ownership percentage, is presented below.
Affiliate
Value,
beginning
of period ($)
Purchases ($)
Sales
Proceeds ($)
Dividend
Income ($)
Realized
Gain (loss) ($)
Change in
Unrealized
appreciation
(depreciation) ($)
Value,
end
of period ($)
% ownership,
end
of period
Fidelity Cash Central Fund 5.39%
6,797,430
29,255,016
30,620,632
121,122
-
-
5,431,814
0.0%
Fidelity Securities Lending Cash Central Fund 5.39%
15,906,808
15,368,883
27,893,862
605
-
-
3,381,829
0.0%
Total
22,704,238
44,623,899
58,514,494
121,727
-
-
8,813,643
Amounts in the dividend income column in the above table include any capital gain distributions from underlying funds.
Amounts in the dividend income column for Fidelity Securities Lending Cash Central Fund represents the income earned on investing cash collateral, less rebates paid to borrowers and any lending agent fees associated with the loan, plus any premium payments received for lending certain types of securities.
Investment Valuation
Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. Securities transactions are accounted for as of trade date. The Board of Trustees (the Board) has designated the Fund's investment adviser as the valuation designee responsible for the fair valuation function and performing fair value determinations as needed. The investment adviser has established a Fair Value Committee (the Committee) to carry out the day-to-day fair valuation responsibilities and has adopted policies and procedures to govern the fair valuation process and the activities of the Committee. In accordance with these fair valuation policies and procedures, which have been approved by the Board, the Fund attempts to obtain prices from one or more third party pricing services or brokers to value its investments. When current market prices, quotations or currency exchange rates are not readily available or reliable, investments will be fair valued in good faith by the Committee, in accordance with the policies and procedures. Factors used in determining fair value vary by investment type and may include market or investment specific events, transaction data, estimated cash flows, and market observations of comparable investments. The frequency that the fair valuation procedures are used cannot be predicted and they may be utilized to a significant extent. The Committee manages the Fund's fair valuation practices and maintains the fair valuation policies and procedures. The Fund's investment adviser reports to the Board information regarding the fair valuation process and related material matters.
The inputs to valuation techniques used to value investments are categorized into a disclosure hierarchy consisting of three levels as shown below:
Level 1 - Unadjusted quoted prices in active markets for identical investments
Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, etc.)
Level 3 - unobservable inputs (including the Fund's own assumptions based on the best information available)
Valuation techniques used to value investments by major category are as follows:
Debt securities, including restricted securities, are valued based on evaluated prices received from third party pricing services or from brokers who make markets in such securities. U.S. Government and Government Agency Obligations are valued by pricing services who utilize matrix pricing which considers yield or price of bonds of comparable quality, coupon, maturity and type or by broker-supplied prices. U.S. Government Agency - Mortgage Securities, Collateralized Mortgage Obligations and Commercial Mortgage Securities are valued by pricing services who utilize matrix pricing which considers prepayment speed assumptions, attributes of the collateral, yield or price of bonds of comparable quality, coupon, maturity and type or by broker-supplied prices. When independent prices are unavailable or unreliable, debt securities may be valued utilizing pricing methodologies which consider similar factors that would be used by third party pricing services. Debt securities are generally categorized as Level 2 in the hierarchy but may be Level 3 depending on the circumstances.
Swaps are marked-to-market daily based on valuations from third party pricing services, registered derivatives clearing organizations (clearinghouses) or broker-supplied valuations. These pricing sources may utilize inputs such as interest rate curves, credit spread curves, default possibilities and recovery rates. When independent prices are unavailable or unreliable, swaps may be valued utilizing pricing methodologies which consider similar factors that would be used by third party pricing services. Swaps are generally categorized as Level 2 in the hierarchy but may be Level 3 depending on the circumstances.
Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded and are categorized as Level 1 in the hierarchy.
Options traded over-the-counter are valued using service or broker-supplied valuations and are categorized as Level 2 in the hierarchy.
Investments in any open-end mutual funds are valued at their closing net asset value (NAV) each business day and are categorized as Level 1 in the hierarchy.
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy.
Derivative Instruments
Risk Exposures and the Use of Derivative Instruments: The Fund's investment objectives allow the Fund to enter into various types of derivative contracts. Derivatives are investments whose value is primarily derived from underlying assets, indices or reference rates and may be transacted on an exchange or over-the-counter (OTC). Derivatives may involve a future commitment to buy or sell a specified asset based on specified terms, to exchange future cash flows at periodic intervals based on a notional principal amount, or for one party to make one or more payments upon the occurrence of specified events in exchange for periodic payments from the other party.
The Fund used derivatives to increase returns, to gain exposure to certain types of assets and/or to manage exposure to certain risks as defined below. The success of any strategy involving derivatives depends on analysis of numerous economic factors, and if the strategies for investment do not work as intended, the Fund may not achieve its objectives.
The Fund's use of derivatives increased or decreased its exposure to the following risk(s):
Interest Rate Risk - Interest rate risk relates to the fluctuations in the value of interest-bearing securities due to changes in the prevailing levels of market interest rates.
The Fund is also exposed to additional risks from investing in derivatives, such as liquidity risk and counterparty credit risk. Liquidity risk is the risk that the Fund will be unable to close out the derivative in the open market in a timely manner. Counterparty credit risk is the risk that the counterparty will not be able to fulfill its obligation to the Fund.
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain OTC derivatives, the Fund attempts to reduce its exposure to counterparty credit risk by entering into an International Swaps and Derivatives Association, Inc. (ISDA) Master Agreement with each of its counterparties. The ISDA Master Agreement gives the Fund the right to terminate all transactions traded under such agreement upon the deterioration in the credit quality of the counterparty beyond specified levels. The ISDA Master Agreement gives each party the right, upon an event of default by the other party or a termination of the agreement, to close out all transactions traded under such agreement and to net the amounts owed under each transaction to one net payable by one party to the other. To mitigate counterparty credit risk on bi-lateral OTC derivatives, the Fund receives collateral in the form of cash or securities once the Fund's net unrealized appreciation on outstanding derivative contracts under an ISDA Master Agreement exceeds certain applicable thresholds, subject to certain minimum transfer provisions. The collateral received is held in segregated accounts with the Fund's custodian bank in accordance with the collateral agreements entered into between the Fund, the counterparty and the Fund's custodian bank. The Fund could experience delays and costs in gaining access to the collateral even though it is held by the Fund's custodian bank. The Fund's maximum risk of loss from counterparty credit risk related to bi-lateral OTC derivatives is generally the aggregate unrealized appreciation and unpaid counterparty payments in excess of any collateral pledged by the counterparty to the Fund. For OTC written options with upfront premiums received, the Fund is obligated to perform and therefore does not have counterparty risk. For OTC written options with premiums to be received at a future date, the maximum risk of loss from counterparty credit risk is the amount of the premium in excess of any collateral pledged by the counterparty. The Fund may be required to pledge collateral for the benefit of the counterparties on bi-lateral OTC derivatives in an amount not less than each counterparty's unrealized appreciation on outstanding derivative contracts, subject to certain minimum transfer provisions, and any such pledged collateral is identified in the Schedule of Investments. Exchange-traded contracts are not covered by the ISDA Master Agreement; however counterparty credit risk related to these contracts may be mitigated by the protection provided by the exchange on which they trade. Counterparty credit risk related to centrally cleared swaps may be mitigated by the protection provided by the clearinghouse.
Investing in derivatives may involve greater risks than investing in the underlying assets directly and, to varying degrees, may involve risk of loss in excess of any initial investment and collateral received. In addition, there may be the risk that the change in value of the derivative contract does not correspond to the change in value of the underlying instrument.
Futures Contracts: A futures contract is an agreement between two parties to buy or sell a specified underlying instrument for a specified price at a specified future date.
The Fund used futures contracts to manage its exposure to the bond market and fluctuations in interest rates.
Open futures contracts at period end are presented in the Schedule of Investments under the caption "Futures Contracts". The underlying face amount at value reflects each contract's exposure to the underlying instrument or index at period end. Any securities and/or cash deposited to meet initial margin requirements are identified in the Schedule of Investments.
Options: Options give the purchaser the right, but not the obligation, to buy (call) or sell (put) an underlying security or financial instrument at an agreed exercise or strike price between or on certain dates. Options obligate the seller (writer) to buy (put) or sell (call) an underlying instrument at the exercise or strike price or cash settle an underlying derivative instrument if the holder exercises the option on or before the expiration date.
The Fund used OTC options, such as swaptions, which are options where the underlying instrument is a swap, to manage its exposure to fluctuations in interest rates and/or potential credit events.
Open options at period end are presented in the Schedule of Investments under the captions "Purchased Options," "Purchased Swaptions," "Written Options" and "Written Swaptions." Writing puts and buying calls tend to increase exposure to the underlying instrument while buying puts and writing calls tend to decrease exposure to the underlying instrument. For purchased options, risk of loss is limited to the premium paid, and for written options, risk of loss is the change in value in excess of the premium received.
Swaps: A swap is a contract between two parties to exchange future cash flows at periodic intervals based on a notional principal amount.
A centrally cleared swap is a transaction executed between a fund and a dealer counterparty, then cleared by a futures commission merchant (FCM) through a clearinghouse. Once cleared, the clearinghouse serves as a central counterparty, with whom a fund exchanges cash flows for the life of the transaction, similar to transactions in futures contracts.
Interest Rate Swaps: Interest rate swaps are agreements between counterparties to exchange cash flows, one based on a fixed rate, and the other on a floating rate. The Fund entered into interest rate swaps to manage its exposure to interest rate changes. Changes in interest rates can have an effect on both the value of bond holdings as well as the amount of interest income earned. In general, the value of bonds can fall when interest rates rise and can rise when interest rates fall.
For additional information on the Fund's significant accounting policies, please refer to the Fund's most recent semiannual or annual shareholder report.
The fund's schedule of investments as of the date on the cover of this report has not been audited. This report is provided for the general information of the fund's shareholders. For more information regarding the fund and its holdings, please see the fund's most recent prospectus and annual report.
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