(2_FIDELITY_LOGOS)FIDELITY
CAPITAL & INCOME
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 28 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 32 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first 10
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in both the stock and bond markets so far
this year. In 1995, both stock and bond markets posted strong results,
while the year before, stocks posted below-average returns and bonds had
one of the worst years in history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and 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, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in share price, reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells
securities that have grown in value). You can also look at the fund's
income to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1996 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Capital & Income 4.59% 8.42% 97.15% 169.62%
Merrill Lynch High Yield Master 6.43% 10.84% 81.41% 186.34%
Index
High Current Yield Funds Average 6.41% 12.65% 75.38% 141.26%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one, five, or 10 years. For
example, if you 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 Merrill Lynch High Yield
Master Index - a market capitalization weighted index of all domestic and
yankee high-yield bonds. Issues included in the index have maturities of at
least one year and have a credit rating lower than BBB-/Baa3, but are not
in default. To measure how the fund's performance stacked up against its
peers, you can compare it to the high current yield funds average, which
reflects the performance of 160 mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. over the past six months. These
benchmarks include reinvested dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1996 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Capital & Income 8.42% 14.54% 10.43%
Merrill Lynch High Yield Master Index 10.84% 12.65% 11.09%
High Current Yield Funds Average 12.65% 11.84% 9.13%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19961031 19961114 094624 S00000000000001
Capital & Income ML High Yield Master
00038 ML002
1986/10/31 10000.00 10000.00
1986/11/30 10030.18 10081.42
1986/12/31 10082.12 10135.86
1987/01/31 10422.71 10422.46
1987/02/28 10600.51 10594.52
1987/03/31 10694.17 10711.67
1987/04/30 10426.04 10478.07
1987/05/31 10359.57 10430.85
1987/06/30 10530.62 10575.04
1987/07/31 10516.54 10632.58
1987/08/31 10624.15 10739.13
1987/09/30 10272.43 10492.04
1987/10/31 9862.25 10211.71
1987/11/30 10084.60 10469.95
1987/12/31 10214.30 10608.98
1988/01/31 10544.93 10899.29
1988/02/29 10836.16 11195.03
1988/03/31 10765.85 11176.52
1988/04/30 10844.51 11208.80
1988/05/31 10849.75 11267.30
1988/06/30 11065.75 11482.73
1988/07/31 11183.05 11604.07
1988/08/31 11187.75 11642.20
1988/09/30 11306.54 11759.55
1988/10/31 11428.12 11942.76
1988/11/30 11423.16 11987.50
1988/12/31 11499.99 12038.23
1989/01/31 11711.65 12218.76
1989/02/28 11776.83 12300.87
1989/03/31 11705.41 12289.92
1989/04/30 11662.16 12326.20
1989/05/31 11871.46 12553.12
1989/06/30 12121.46 12730.96
1989/07/31 12144.26 12791.26
1989/08/31 12143.10 12854.44
1989/09/30 11767.43 12732.07
1989/10/31 11245.50 12530.68
1989/11/30 11270.01 12558.76
1989/12/31 11130.20 12547.40
1990/01/31 10757.06 12302.18
1990/02/28 10563.32 12123.02
1990/03/31 10667.16 12286.90
1990/04/30 10701.30 12349.32
1990/05/31 10928.51 12572.39
1990/06/30 11172.16 12815.96
1990/07/31 11418.30 13086.80
1990/08/31 11144.18 12585.81
1990/09/30 10845.79 12038.43
1990/10/31 10502.21 11732.09
1990/11/30 10642.08 11831.47
1990/12/31 10702.09 12001.95
1991/01/31 10760.10 12171.61
1991/02/28 11299.90 13075.03
1991/03/31 11794.66 13637.20
1991/04/30 12287.16 14122.84
1991/05/31 12329.99 14191.81
1991/06/30 12589.82 14477.30
1991/07/31 12995.98 14824.18
1991/08/31 13171.57 15135.76
1991/09/30 13350.33 15328.54
1991/10/31 13675.50 15784.04
1991/11/30 13754.95 15966.36
1991/12/31 13893.37 16151.84
1992/01/31 14731.25 16716.57
1992/02/29 15353.48 17131.73
1992/03/31 16008.95 17370.76
1992/04/30 16335.91 17497.20
1992/05/31 16533.27 17776.29
1992/06/30 16723.64 17997.15
1992/07/31 17055.29 18361.79
1992/08/31 17226.19 18604.89
1992/09/30 17391.65 18816.87
1992/10/31 17215.06 18579.22
1992/11/30 17378.91 18842.34
1992/12/31 17790.38 19084.95
1993/01/31 18469.68 19554.90
1993/02/28 18853.33 19925.05
1993/03/31 19452.58 20270.49
1993/04/30 19608.03 20415.99
1993/05/31 20001.04 20690.81
1993/06/30 20778.27 21079.54
1993/07/31 20971.17 21306.12
1993/08/31 21143.19 21509.23
1993/09/30 21256.83 21615.36
1993/10/31 21684.16 22022.53
1993/11/30 21915.54 22142.98
1993/12/31 22220.87 22364.39
1994/01/31 22888.30 22854.51
1994/02/28 22877.22 22690.15
1994/03/31 22285.88 21950.75
1994/04/30 22051.27 21694.23
1994/05/31 22025.11 21616.94
1994/06/30 21741.62 21696.50
1994/07/31 21885.87 21849.02
1994/08/31 21887.66 22000.78
1994/09/30 21859.48 21992.46
1994/10/31 21717.81 22048.34
1994/11/30 21333.52 21860.79
1994/12/31 21196.39 22103.96
1995/01/31 21522.60 22416.29
1995/02/28 22390.54 23115.70
1995/03/31 22510.59 23437.40
1995/04/30 23073.28 23986.15
1995/05/31 23490.82 24735.53
1995/06/30 23577.89 24924.46
1995/07/31 24404.49 25209.40
1995/08/31 24481.58 25362.41
1995/09/30 24816.80 25652.58
1995/10/31 24868.71 25834.42
1995/11/30 24435.87 26086.60
1995/12/31 24744.60 26505.34
1996/01/31 24859.60 26923.94
1996/02/29 25332.74 26964.48
1996/03/31 25362.66 26891.25
1996/04/30 25778.51 26903.43
1996/05/31 25970.19 27097.45
1996/06/30 25881.43 27260.23
1996/07/31 25788.41 27445.30
1996/08/31 26153.14 27728.73
1996/09/30 26831.90 28323.66
1996/10/31 26961.68 28634.07
IMATRL PRASUN SHR__CHT 19961031 19961114
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Capital & Income Fund on October 31, 1986. As the chart shows,
by October 31, 1996, the value of the investment would have grown to
$26,962 - a 169.62% increase on the initial investment. For comparison,
look at how the Merrill Lynch High Yield Master Index did over the same
period. With dividends reinvested, the same $10,000 investment would have
grown to $28,634 - a 186.34% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will
do tomorrow. Bond prices,
for example, generally move
in the opposite direction of
interest rates. In turn, the
share price, return, and yield
of a fund that invests in
bonds will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX YEARS ENDED APRIL 30,
MONTHS
ENDED
OCTOBER
31,
1996 1996 1995 1994 1993 1992
Dividend return 5.66% 9.87% 9.01% 9.34% 8.25% 12.72%
Capital appreciation -1.07% 1.85% -4.38% 3.12% 11.78% 20.23%
return
Total return 4.59% 11.72% 4.63% 12.46% 20.03% 32.95%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 4.47(cents) 51.14(cents) 84.32(cents)
Annualized dividend rate 5.69% 11.06% 9.18%
30-day annualized yield 5.96% - -
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 $9.25 over
the past month, $9.17 over the past six months, and $9.19 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with David Glancy, Portfolio Manager of Fidelity Capital and
Income Fund
Q. DAVID, HOW DID THE FUND PERFORM?
A. For the six- and 12-month periods that ended on October 31, 1996, the
fund had total returns of 4.59% and 8.42%. For the same periods, the high
current yield funds average returned 6.41% and 12.65% as tracked by Lipper
Analytical Services. The Merrill Lynch High Yield Master Index returned
6.43% for the six-month period and 10.84% for the 12-month period.
Q. CAN YOU START BY TELLING US HOW THE HIGH YIELD MARKET HAS PERFORMED OVER
THE PAST SIX MONTHS?
A. Fairly well. Supply and demand factors have favored the high-yield
market throughout the period. New demand for high-yield bonds was coming
from a lot of different sectors, including insurance companies, pension
funds and mutual funds. While there were a record number of new bonds
issued this year, demand was strong enough to absorb that supply.
High-yield mutual funds have been less affected by interest rate volatility
than high-grade corporate or Treasury bond mutual funds, and have also
benefited from low default rates.
Q. WHAT HELPED THE FUND'S PERFORMANCE?
A. On the positive side, many of the fund's largest holdings - American
Financial, Echostar Communications Corp., and
Revlon - did very well during the period. American Financial, a large
insurer, continued to have excellent underwriting results. Satellite
broadcaster Echostar Communications Corp. launched its second satellite,
and has been quickly growing its subscriber base, which grew at a much
better-than-expected pace. Revlon continued to increase market share
worldwide. Tracor, a defense contractor, also performed well as they
continued to grow earnings and pay down debt.
Q. WHAT WERE THE DISAPPOINTMENTS?
A. Generally speaking, several of the fund's common stock holdings got
caught in the stock market's down draft during June and July.
Unfortunately, many never fully recovered and were a drag on the fund's
performance. Grand Casino common stock was hurt in the market's downturn,
but also suffered from a number of situations unique to the company. Grand
Casino lost its investment in the Stratosphere, an entertainment complex
and tower in Las Vegas, and its new casino in Mississippi posted
disappointing results.
Q. AT THE END OF THE PERIOD, ROUGHLY 20% OF THE FUND'S ASSETS WERE IN CASH
EQUIVALENTS. DOES THAT SIGNAL YOU ADOPTED A MORE DEFENSIVE STRATEGY?
A. Yes, I did become more defensive during the past six months. In my view
the credit spread - which measures the difference in yield that bonds of
various credit quality offer - was too tight. Historically, the spread
between Treasuries and junk bonds tends to be around 400 basis points (a
basis point is 0.01%). But by the end of the period, the spread between
Treasuries - which are the highest quality bonds available - and junk bonds
had narrowed to between 250 and 300 basis points. At low spreads to
historically low Treasury rates, I felt that both credit risk - the risk
that business fundamentals would deteriorate - and interest rate risk -
the risk that bond prices would suffer if interest rates rose - were high.
So, I upgraded the quality and shortened the duration of the fixed-income
portion of the fund.
Q. WHAT ADDITIONS DID YOU MAKE TO THE FUND DURING THE PAST SIX MONTHS?
A. I built a larger position in the senior secured bonds and common stock
of TransTexas Gas Corp., a Texas-based natural gas producer. The company's
gas production has grown like a weed. I also built a significant position
in Viacom, which I believe benefited from its accelerated debt reduction.
Q. WHAT'S AHEAD FOR THE FUND?
A. I have some concerns about the high-yield market overall. As I mentioned
earlier, the spread between high-yield bonds and Treasuries is particularly
tight on a historical basis. If the spread starts to widen - maybe because
of an economic slowdown, a significant rise in the default rate or some
other reason - it's likely that many of the weaker, lowest-quality
companies in the high-yield market could be hit hard. In my view, the risk
of spread-widening warrants continued selectivity. So, I plan to invest
only when I feel that the business risks of a given company are discernible
and where I see potential for appreciation. I'm especially interested in
pager and casino companies, which I believe are getting more interesting
after having a very rough six months.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: seeks income and
capital growth by investing
mainly in debt and equity
securities, with an emphasis
on lower-quality debt
securities
FUND NUMBER: 038
TRADING SYMBOL: FAGIX
START DATE: November 1, 1977
SIZE: as of October 31, 1996,
more than $2.1 billion
MANAGER: David Glancy,
since January, 1996;
manager, Spartan High
Income Fund, 1993 to
January 1996; joined Fidelity
in 1990
(checkmark)
DAVID GLANCY ON FINDING VALUE
IN DISTRESSED BONDS:
"Distressed companies
continue to be - for the most
part - very expensive, and
priced at levels that I believe
are too high based on their
underlying business prospects.
Good distressed investments
come from good companies
that have had bad balance
sheets. Most distressed
companies today are bad
companies with bad balance
sheets that are a product of
their operating problems. We
can't fix a company's
operating problems, but we
can make money when
companies fix their balance
sheets."
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1996
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Thermadyne Holdings Corp. 4.1 4.6
Revlon Worldwide Corp. 4.1 5.9
Echostar Communications Corp. 4.0 2.8
American Financial Group, Inc. 3.0 1.3
Gulf Canada Resources Ltd. 2.4 2.6
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1996
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Media & Leisure 18.1 22.0
Finance 8.6 7.7
Energy 7.3 4.4
Technology 6.3 4.8
Nondurables 6.1 8.3
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Aaa, Aa, A 6.1 0.0
Baa 0.3 0.0
Ba 6.6 6.7
B 30.7 37.8
Caa, Ca, C 8.5 7.1
Nonrated 3.8 6.4
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT OCTOBER 31, 1996, AND APRIL 30, 1996 ACCOUNT
FOR 3.8% AND 6.4%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1996 * AS OF APRIL 30, 1996 **
Nonconvertible
bonds 46.9%
U.S. Treasury
obligations 6.1%
Convertible bonds,
preferred stocks 8.2%
Common stocks 15.3%
Short-term
investments 20.5%
Other 3.0%
FOREIGN
INVESTMENTS 4.3%
Row: 1, Col: 1, Value: 3.0
Row: 1, Col: 2, Value: 20.5
Row: 1, Col: 3, Value: 15.3
Row: 1, Col: 4, Value: 8.199999999999999
Row: 1, Col: 5, Value: 6.1
Row: 1, Col: 6, Value: 46.9
Nonconvertible
bonds 54.6%
U.S. Treasury
obligations 0.0%
Convertible bonds,
preferred stocks 8.8%
Common stocks 13.1%
Short-term
investments 20.5%
Other 3.0%
FOREIGN
INVESTMENTS 3.8%
Row: 1, Col: 1, Value: 3.1
Row: 1, Col: 2, Value: 20.5
Row: 1, Col: 3, Value: 13.1
Row: 1, Col: 4, Value: 8.800000000000001
Row: 1, Col: 5, Value: 4.5
Row: 1, Col: 6, Value: 50.0
*
**
INVESTMENTS OCTOBER 31, 1996
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 46.9%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
CONVERTIBLE BONDS - 0.0%
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Merry-Go-Round Enterprises, Inc.,
0%, 5/16/97 (b)(j) - $ 8,914 $ -
NONCONVERTIBLE BONDS - 46.9%
AEROSPACE & DEFENSE - 4.1%
AEROSPACE & DEFENSE - 3.4%
Alliant Techsystems, Inc. 11 3/4%, 3/1/03 B2 17,025 18,642
Fairchild Corp.:
12%, 10/15/01 Caa 11,335 11,392
13 1/8%, 3/15/06 Caa 2,780 2,780
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 14,420 14,420
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 10,310 11,392
Wyman-Gordon Co. 10 3/4%, 3/15/03 Ba3 17,070 18,308
76,934
DEFENSE ELECTRONICS - 0.7%
Tracor, Inc.:
10 7/8%, 8/15/01 B2 2,930 3,120
10 7/8%, 8/15/01(j) B2 10,841 11,546
14,666
TOTAL AEROSPACE & DEFENSE 91,600
BASIC INDUSTRIES - 1.5%
CHEMICALS & PLASTICS - 0.8%
American Pacific Corp. 11%, 2/21/02 (k) - 2,975 2,826
Sterling Chemicals Holdings, Inc.:
11 3/4%, 8/15/06 B3 2,160 2,182
0%, 8/15/08 (g) Caa 6,690 3,646
Trans Resources, Inc. 11 7/8%, 7/1/02 (k) B2 8,290 8,456
17,110
METALS & MINING - 0.2%
Kaiser Aluminum & Chemical Corp.:
9 7/8%, 2/15/02 B1 2,000 1,992
10 7/8%, 10/15/06 (k) B1 2,000 2,000
3,992
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - 0.4%
Crown Packaging Holdings Ltd.,
0%, 11/1/03 (g) Caa $ 11,730 $ 4,707
Owens-Illinois, Inc. 11%, 12/1/03 Ba3 3,650 4,010
8,717
PAPER & FOREST PRODUCTS - 0.1%
Repap Wisconsin, Inc. 9 7/8%, 5/1/06 Caa 1,400 1,372
Repap New Brunswick, Inc. yankee 10 5/8%,
4/15/05 B3 1,470 1,492
2,864
TOTAL BASIC INDUSTRIES 32,683
CONSTRUCTION & REAL ESTATE - 0.9%
CONSTRUCTION - 0.5%
Emcor Group, Inc., Series C,
11%, 12/15/01 pay-in-kind - 229 230
McDermott J Ray SA 9 3/8%, 7/15/06 Ba3 5,000 5,163
WCI Communities LP 17%, 7/24/98 (j) - 5,000 5,000
10,393
REAL ESTATE - 0.4%
Grand Bay Residences of Key Biscayne
15%, 12/31/99 (j) - 2,500 2,500
Littlefield Co. 10%, 12/31/95 (b)(j) - 9,175 6,327
8,827
TOTAL CONSTRUCTION & REAL ESTATE 19,220
DURABLES - 0.7%
AUTOS, TIRES, & ACCESSORIES - 0.1%
APS, Inc. 11 7/8%, 1/15/06 B2 2,330 2,470
TEXTILES & APPAREL - 0.6%
Hat Brands, Inc.(b):
Series B, 12 5/8%, 9/15/02 - 14,630 10,972
Series D, 12 5/8%, 9/15/02 - 3,960 2,970
13,942
TOTAL DURABLES 16,412
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 2.9%
OIL & GAS - 2.9%
Forcenergy, Inc. 9 1/2%, 11/1/06 B2 $ 3,940 $ 3,940
Mesa Operating Co.:
0%, 7/1/06 (g) B2 18,530 12,276
10 5/8%, 7/1/06 B2 7,550 8,003
TransTexas Gas Corp. 11 1/2%, 6/15/02 B2 37,955 40,327
TOTAL ENERGY 64,546
FINANCE - 5.1%
CREDIT & OTHER FINANCE - 0.4%
Olympic Financial Ltd. 13%, 5/1/00 B1 6,960 7,725
INSURANCE - 0.7%
American Financial Corp. 9 3/4%, 4/20/04 Baa 5,500 5,926
American Premier Underwriters, Inc.:
9 3/4%, 8/1/99 Ba1 5,000 5,313
10 7/8%, 5/1/11 Ba1 3,000 3,611
Reliance Group 9%, 11/15/00 Ba3 1,000 1,020
15,870
SAVINGS & LOANS - 4.0%
First Nationwide Escrow Corp.
10 5/8%, 10/1/03 (k) Ba3 10,820 11,415
First Nationwide Holdings, Inc.:
12 1/4%, 5/15/01 Ba2 11,510 12,776
9 1/8%, 1/15/03 Ba3 13,430 13,430
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B2 48,700 52,840
90,461
TOTAL FINANCE 114,056
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
Integrated Healthcare Facilities LP 10%, 12/6/96 (b) - 141 -
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 1.9%
Howmet Corp. 10%, 12/1/03 B3 $ 1,120 $ 1,199
International Knife & Saw, Inc. 11 3/8%,
11/15/06 (k) B3 2,400 2,400
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B3 11,711 12,062
10 3/4%, 11/1/03 Caa 25,239 25,996
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 41,657
MEDIA & LEISURE - 12.5%
BROADCASTING - 7.0%
Cablevision Systems Corp.:
10 3/4%, 4/1/04 B2 3,000 3,045
10 1/2%, 5/15/16 B2 6,500 6,370
Comcast UK Cable Partners Ltd. 0%, 11/15/07 B2 8,250 5,321
Diamond Cable Communications PLC yankee
0%, 12/15/05 (g) B3 19,775 12,953
Intermedia Capital Partners IV LP/ Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 (k) B2 5,200 5,200
JCAC, Inc. 10 1/8%, 6/15/06 B2 1,580 1,608
NWCG Holdings Corp. 0%, 6/15/99 Caa 49,334 40,207
SCI Television, Inc. secured:
8 1/2%, 6/30/98 (l) - 14,978 14,978
11%, 6/30/05 B2 4,000 4,295
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 12,740 13,122
Telemundo Group, Inc. 7%, 2/15/06 (h) B1 29,280 28,036
Viacom, Inc. 8%, 7/7/06 B1 24,000 22,530
157,665
ENTERTAINMENT - 0.1%
Alliance Gaming Corp. 12 7/8%, 6/30/03 B2 1,610 1,678
LODGING & GAMING - 4.6%
Aztar Corp. 11%, 10/1/02 B2 2,000 1,900
Boyd Gaming Corp. 10 3/4%, 9/3/03 BB- 14,840 15,582
Casino America, Inc. 12 1/2%, 8/1/03 B1 4,910 5,008
GNF Corp. 10 5/8%, 4/1/03 B1 2,000 2,210
Grand Casinos, Inc. 10 1/8%, 12/1/03 Ba3 14,930 14,632
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
HMH Properties, Inc. 9 1/2%, 5/15/05 B1 $ 9,990 $ 10,090
Harrah's Jazz Co. 14 1/4%, 11/15/01 (b) Caa 67,790 37,962
Horseshoe Gaming LLC 12 3/4%, 9/30/00 B1 15,270 16,415
103,799
PUBLISHING - 0.8%
Hollinger International Publishing, Inc. 9 1/4%,
2/1/06 B1 2,000 1,920
Marvel Holdings, Inc. 0%, 4/15/98 Ca 10,450 4,337
Marvel Parent Holdings, Inc. 0%, 4/15/98 Ca 31,500 10,868
Maxwell Communication Corp. PLC euro
5%, 6/16/99 (c) - CHF 6 -
17,125
TOTAL MEDIA & LEISURE 280,267
NONDURABLES - 5.8%
FOODS - 0.1%
Specialty Foods Corp. 11 1/8%, 10/1/02 B3 2,500 2,338
HOUSEHOLD PRODUCTS - 5.7%
MacAndrews and Forbes Holdings, Inc.
13%, 3/1/99 - 2,300 2,311
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 31,550 32,891
Revlon Worldwide Corp. secured 0%, 3/15/98 B3 104,965 92,369
127,571
TOTAL NONDURABLES 129,909
RETAIL & WHOLESALE - 2.1%
APPAREL STORES - 0.8%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(k) - 18,686 818
Merry-Go-Round Enterprises, Inc.
7.09%, 9/1/03 (b)(j) - 7,500 -
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
APPAREL STORES - CONTINUED
Specialty Retailers, Inc.:
10%, 8/15/00 B1 $ 11,000 $ 11,165
11%, 8/15/03 B3 5,180 5,309
17,292
GROCERY STORES - 1.3%
Pathmark Stores, Inc.:
11 5/8%, 6/15/02 B3 7,860 8,096
12 5/8%, 6/15/02 B3 3,455 3,585
0%, 11/1/03 (g) B3 25,530 17,488
29,169
TOTAL RETAIL & WHOLESALE 46,461
SERVICES - 0.4%
PRINTING - 0.3%
US Banknotes Corp. 10 3/8%, 6/1/02 B1 7,466 6,981
SERVICES - 0.1%
Outsourcing Solutions, Inc. 11%, 11/1/06 (k) B3 2,400 2,400
TOTAL SERVICES 9,381
TECHNOLOGY - 4.6%
COMMUNICATIONS EQUIPMENT - 4.4%
Echostar Communications Corp.
0%, 6/1/04 (g) B2 64,395 51,033
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (g) Caa 68,480 48,278
99,311
COMPUTER SERVICES & SOFTWARE - 0.2%
Anacomp, Inc. 11 5/8%, 9/30/99 - 5,479 5,493
TOTAL TECHNOLOGY 104,804
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 2.0%
AIR TRANSPORTATION - 1.2%
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 20,095 $ 19,191
9 5/8%, 9/1/03 B1 7,050 7,050
26,241
RAILROADS - 0.8%
Transtar Holdings LP/Transtar Capital Corp.
0%, 12/15/03 (g) B- 22,790 17,321
TRUCKING & FREIGHT - 0.0%
St. Johnsbury Trucking Co. Unit
11%, 7/15/98 (b)(j) - 7,550 589
TOTAL TRANSPORTATION 44,151
UTILITIES - 2.4%
CELLULAR - 0.4%
Sprint Spectrum LP/Sprint Spectrum Finance Corp.
11%, 8/15/06 B2 9,840 9,938
ELECTRIC UTILITY - 0.2%
CalEnergy, Inc. 9 1/2%, 9/15/06 (k) Ba2 5,000 5,063
TELEPHONE SERVICES - 1.8%
Brooks Fiber Properties, Inc. 0%, 3/1/06 (g) - 8,170 4,780
MFS Communications, Inc. 0%, 1/15/06 (g) B1 42,440 29,920
Teleport Communications Group, Inc. 8%, 8/1/05 B1 8,000 5,140
39,840
TOTAL UTILITIES 54,841
TOTAL NONCONVERTIBLE BONDS 1,049,988
TOTAL CORPORATE BONDS
(Cost $1,088,650) 1,049,988
U.S. TREASURY OBLIGATIONS - 6.1%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (E) AMOUNT (D) (000S) (000S)
6 5/8% 7/31/01 Aaa $ 10,000 $ 10,211
6 1/2% 10/15/06 Aaa 125,000 126,230
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $136,440) 136,441
COMMERCIAL MORTGAGE SECURITIES - 2.8%
ACP Mortgage LP floater Series (k)(l):
Series E, 7.3890%, 2/28/28 BB 2,232 1,745
Series F, 7.3890%, 2/28/28 B 1,899 1,589
CS First Boston Mortgage Securities Corp. (k):
floater Series 1995-AEWI Class E,
10.1954%, 11/25/97 (l) - 4,840 4,323
Series 1994-M1 Class E, 12.60%, 2/15/02 - 7,392 7,373
Lehman Structured Securities Corp. Series 1996-1
Class E-2, 7.995%, 6/25/26 BB 5,899 5,519
Lennar Central Partners LP Series 1995-1 Class F,
11.70%, 5/15/05 (k) - 5,000 5,042
Merrill Lynch Mortgage Investments, Inc. (k)(l):
Series 1994 Class M1-E, 8.0973%, 6/25/22 Ba2 5,000 4,480
Series 1995 Class C2-E, 7.9820%, 6/15/21 Ba3 3,742 3,484
Morgan Stanley Capital One, Inc. Series 1995
TNE Class D2, 8.24%, 2/15/23 (k) Ba3 4,006 3,713
Resolution Trust Corp.:
floater Series 1991-M2
Class A1, 7.1656%, 9/25/20 (l) Ba3 2,975 2,082
sequential pay Series 1994-C1 Class F,
8%, 6/25/26 B 5,803 5,255
Series 1994-C2 Class G, 8%, 4/25/25 B 1,246 1,139
Series 1994-N2 (h)(k):
Class 5-A, 10.625%, 12/15/04 B2 4,200 4,200
Class 5-B, 10.625%, 12/15/04 B2 2,750 2,750
Series 1995-C2 Class F, 7%, 5/25/27 B1 2,956 2,464
Structured Asset Securities Corp. (k):
Series 1995-C1 Class E, 7 3/8%, 9/25/24 BB 6,500 5,017
Series 1996-CFL Class F, 7 3/4%, 2/25/28 - 1,000 894
Series 1996-CFL Class G, 7 3/4%, 2/25/28 - 3,500 2,592
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $60,820) 63,661
COMMON STOCKS - 15.3%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.0%
Thiokol Corp. 22,100 $ 926
DEFENSE ELECTRONICS - 1.0%
Tracor, Inc. (a) 942,600 21,444
TOTAL AEROSPACE & DEFENSE 22,370
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
American Azide (warrants) (a)(j) 408 -
American Pacific Corp. (warrants) (a)(j) 242,857 61
Atlantis Group, Inc. (Trivest/Winston) (a)(j) 33,115 265
Trivest 1992 Special Fund Ltd. 11.4 (f) 2,186
Plastic Specialties & Technology, Inc. (a) 2,500 -
Sterling Chemical Holdings (warrants) (a) 6,690 201
TOTAL BASIC INDUSTRIES 2,713
CONSTRUCTION & REAL ESTATE - 1.3%
BUILDING MATERIALS - 0.1%
Corimon SA CA sponsored ADR (a)(j) 1,359,203 1,614
REAL ESTATE - 1.2%
Cadillac Fairview Corp. (a) 1,928,008 25,209
Cadillac Fairview Corp. (warrants) (a) 187,104 594
25,803
TOTAL CONSTRUCTION & REAL ESTATE 27,417
DURABLES - 0.1%
HOME FURNISHINGS - 0.0%
Polyvision Corp. (a) 154,746 145
TEXTILES & APPAREL - 0.1%
Hat Brands, Inc. (warrants) (a)(j) 246,278 1,231
HM/Hat Brands Trust Class I Unit (a)(j) 1,980,000 1,980
3,211
TOTAL DURABLES 3,356
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 1.3%
ENERGY SERVICES - 0.3%
Dawson Production Services, Inc. (a)(j) 117,536 $ 1,140
Key Energy Group, Inc. (a) 369,395 4,433
Key Energy Group, Inc. (warrants) (a) 67,910 538
6,111
OIL & GAS - 1.0%
Goodrich Petroleum Corp. (a) 358,125 291
Goodrich Petroleum Corp. (warrants) (a)(j) 460,000 -
Mesa, Inc. (a) 2,739,100 12,668
TransTexas Gas Corp. (a) 735,100 10,292
23,251
TOTAL ENERGY 29,362
FINANCE - 3.4%
CREDIT & OTHER FINANCE - 0.2%
Olympic Financial Ltd. 246,400 3,912
INSURANCE - 3.2%
American Annuity Group, Inc. 278,713 3,797
American Financial Group, Inc. 1,901,700 68,224
72,021
TOTAL FINANCE 75,933
HOLDING COMPANIES - 0.0%
SDW Holdings Corp., Series B (warrants) (a) 12,555 163
INDUSTRIAL MACHINERY & EQUIPMENT - 2.5%
Thermadyne Holdings Corp.(a)(i) 2,424,935 55,470
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.2%
Chancellor Trust Class I Unit (j) 273 5,515
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.5%
Alliance Gaming Corp. (a)(i) 3,176,378 $ 10,919
Live Entertainment, Inc. (a)(j):
$2.00 (warrants) 256,000 13
$2.72 (warrants) 244,706 12
10,944
LEISURE DURABLES & TOYS - 0.2%
Toy Biz, Inc. Class A (a) 267,700 4,752
LODGING & GAMING - 1.7%
Bally Gaming International, Inc. (warrants) (a) 300,000 675
Grand Casinos, Inc. (a) 903,300 13,437
Maritime Group Ltd. (warrants) (a) 103,320 1
WMS Industries, Inc. (a) 956,300 23,429
37,542
TOTAL MEDIA & LEISURE 58,753
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Stroh Brewery Co. (warrants) (a) 25,067 90
FOODS - 0.0%
Chiquita Brands International, Inc. 39,300 491
TOTAL NONDURABLES 581
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a):
(New) 307,603 52
(warrants) 562,033 -
Merry-Go-Round Enterprises, Inc. (a) 1,258,700 1
53
GROCERY STORES - 0.0%
FF Holdings Corp. (a)(j) 11,900 -
Little Rock Groceries, Inc. (warrants) (a) 51 -
-
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Barry's Jewelers, Inc. (a) 168,421 $ 400
Barry's Jewelers, Inc. (warrants) (a) 47,568 7
Town & Country Jewelry Manufacturing Corp. Class A 1,116,816 559
Zale Corp. Unit (a)(j) 1,768,285 18
984
TOTAL RETAIL & WHOLESALE 1,037
SERVICES - 0.0%
Vestar/LPA Investment Corp. (a) 2,550 25
TECHNOLOGY - 1.7%
COMMUNICATIONS EQUIPMENT - 1.7%
Echostar Communications Corp. Class A (a) 1,267,422 37,389
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Intelogic Trace, Inc. (a)(i) 3,931,987 -
TOTAL TECHNOLOGY 37,389
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. (warrants) (a) 108,320 -
UTILITIES - 1.2%
ELECTRIC UTILITY - 1.0%
El Paso Electric Co. (a)(i) 4,184,341 21,968
Great Bay Power Corp. 25,849 226
22,194
TELEPHONE SERVICES - 0.2%
MFS Communications, Inc. 100,000 5,012
TOTAL UTILITIES 27,206
TOTAL COMMON STOCKS
(Cost $330,804) 341,775
PREFERRED STOCKS - 8.2%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 1.5%
ENERGY - 0.7%
OIL & GAS - 0.7%
Mesa, Inc. Series A, pay-in-kind 8% (a) 2,720,530 $ 15,643
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Cablevision Systems Corp. depositary shares
representing 1/10 pfd., Series I, $2.125 41,500 846
NONDURABLES - 0.3%
FOODS - 0.3%
Chiquita Brands International, Inc., Series B, $3.75
(non-vtg.) 110,000 5,802
RETAIL & WHOLESALE - 0.5%
GROCERY STORES - 0.5%
Supermarkets General Holdings Corp.
exchangeable pay-in-kind $3.52 366,933 10,091
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Town & Country Corp. pay-in-kind 16,752 17
TOTAL RETAIL & WHOLESALE 10,108
TOTAL CONVERTIBLE PREFERRED STOCKS 32,399
NONCONVERTIBLE PREFERRED STOCKS - 6.7%
BASIC INDUSTRIES - 0.1%
PAPER & FOREST PRODUCTS - 0.1%
SD Warren Co. 14% exchangeable pay-in-kind 27,816 1,001
ENERGY - 2.4%
OIL & GAS - 2.4%
Gulf Canada Resources Ltd., Series 1, adj. rate 16,289,300 53,671
Gulf Canada Resources Ltd. (j) 220,666 689
TOTAL ENERGY 54,360
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
FINANCE - 0.1%
SAVINGS & LOANS - 0.1%
California Federal Bank $10.625 pfd. B 24,390 $ 2,634
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
Integrated Healthcare Facilities LP, Series A 1,404 -
HOLDING COMPANIES - 0.2%
SDW Holdings Corp. (a)(k) 125,550 4,520
INDUSTRIAL MACHINERY & EQUIPMENT - 0.8%
ELECTRICAL EQUIPMENT - 0.8%
Ampex Corp. 8% (a)(j) 23,995 18,567
MEDIA & LEISURE - 3.0%
BROADCASTING - 2.5%
Cablevision System Corp.:
depositary shares representing 1/100 pfd.,
Series M pay-in-kind 57,036 5,205
Series H, $11.75 exchangeable pay-in-kind 319,722 30,693
Chancellor Radio Broadcasting Co., Series A
exchangeable (a) 190,700 20,786
56,684
ENTERTAINMENT - 0.5%
Alliance Gaming Corp. pay-in-kind (non-vtg.) (a) 106,749 10,008
TOTAL MEDIA & LEISURE 66,692
TECHNOLOGY - 0.0%
COMPUTERS & OFFICE EQUIPMENT - 0.0%
Intelogic Trace, Inc. 10% 645,723 -
UTILITIES - 0.1%
ELECTRIC UTILITY - 0.1%
El Paso Electric Co., Series A pay-in-kind (a) 27,757 2,998
TOTAL NONCONVERTIBLE PREFERRED STOCKS 150,772
TOTAL PREFERRED STOCKS
(Cost $167,567) 183,171
PURCHASED BANK DEBT - 0.2%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (D) (000S) (000S)
Art Store Holdings term loan (j):
9%, 7/31/97 $ 842 $ 842
9%, 7/31/98 842 842
Merry-Go-Round Enterprises, Inc. (b) 52 -
Merry-Go-Round Enterprises, Inc. TC Double Light (b) 12 -
Merry-Go-Round Enterprises, Inc. lease
indemnity claim (b) 3,929 -
Merry-Go-Round Enterprises, Inc. term loan (b) 4,129 -
Merry-Go-Round Enterprises, Inc. trade claim (b) 7,593 -
TAK Communications term loan (b) 36,907 1,476
Welltech, Inc. Vanguard loan participation (b) 744 372
TOTAL PURCHASED BANK DEBT
(Cost $14,817) 3,532
CASH EQUIVALENTS - 20.5%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.54%, dated
10/31/96 due 11/1/96 (Note 3) $ 458,986 458,915
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $2,258,013) $ 2,237,483
CURRENCY ABBREVIATIONS
CHF - Swiss franc
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
3. Non-income producing - the company moved to seek a court appointed
administrator under British bankruptcy law.
4. Principal amount is stated in United States dollars unless otherwise
noted.
5. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
6. Represents number of units held.
7. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
8. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
9. Affiliated company (see Note 9 of Notes to Financial Statements).
10. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
American Azide
(warrants) 8/22/96 $ -
American Pacific
Corp. (warrants) 8/22/96 $ 61
Ampex Corp. 8% 2/16/95 $ 12,598
Art Store Holdings
term loan:
9%, 7/31/97 8/1/95 $ 842
9%, 7/31/98 8/1/95 $ 842
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 39
Chancellor Trust
Class 1 Unit 10/12/94 $ 5,515
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
Corimon CA SACA
sponsored ADR 7/27/95 $ 9,005
Dawson Production
Services Inc. 3/1/96 $ 1,264
FF Holdings 10/2/92
Corp. to 1/14/94 $ 48
Goodrich Petroleum
Corp. (warrants) 2/5/93 $ 438
Grand Bay Residences
of Key Biscayne
15%, 12/31/99 7/20/95 $ 2,500
Gulf Canada 10/15/93
Resources Ltd. to 8/31/94 $ 550
Hat Brands, Inc. 9/2/92
(warrants) to 2/23/94 $ -
HM/Hat Brands Trust
Class 1 Unit 2/22/94 $ 1,980
Littlefield Co.
10%, 12/31/95 2/28/94 $ 9,175
Live Entertainment, Inc.:
$2.00 (warrants) 3/23/93 $ 244
$2.72 (warrants) 3/23/93 $ 146
Merry-Go-Round
Enterprises, Inc.: 3/1/94
0%, 5/16/97 to 3/24/94 $ 7,680
7.09%, 9/1/03 3/21/94 $ 6,457
St. Johnsbury Trucking Co.
Unit 11%, 7/15/98 2/1/93 $ 2,827
Tracor, Inc.
10 7/8%, 8/15/01 4/7/95 $ 10,922
WCI Communities LP
17%, 7/24/98 7/24/95 $ 4,937
Zale Corp. 2/6/91
unit to 7/30/93 $ -
11. 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 $92,300,000 or 4.2% of net
assets.
12. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 6.1% AAA, AA, A 6.1%
Baa 0.3% BBB 0.7%
Ba 5.3% BB 8.3%
B 29.6% B 31.5%
Caa 7.9% CCC 3.2%
Ca, C 0.6% CC, C 0.0%
D 1.7%
The percentage not rated by both S&P and Moody's amounted to 3.8%. FMR has
deter- mined that unrated debt securities that are lower quality account
for 3.8% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31,1996, the aggregate cost of investment securities for income
tax purposes was $2,264,278,000. Net unrealized depre- ciation aggregated
$26,795,000, of which $143,686,000 related to appreciated invest- ment
securities and $170,481,000 related to depreciated investment securities.
At April 30, 1996, the fund had a capital loss carryforward of
approximately $52,848,000 all of which will expire on April 30, 1999.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1996
ASSETS
Investment in securities, at value (including repurchase $ 2,237,483
agreements of $458,915) (cost $2,258,013) -
See accompanying schedule
Cash 39
Receivable for investments sold 18,441
Dividends receivable 526
Interest receivable 19,857
Redemption fees receivable 2
Other receivables 174
TOTAL ASSETS 2,276,522
LIABILITIES
Payable for investments purchased $ 85,647
Payable for fund shares redeemed 3,887
Distributions payable 1,371
Accrued management fee 1,085
Other payables and accrued expenses 977
TOTAL LIABILITIES 92,967
NET ASSETS $ 2,183,555
Net Assets consist of:
Paid in capital $ 2,295,225
Undistributed net investment income 16,461
Accumulated undistributed net realized gain (loss) on (107,602)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on (20,529)
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 236,398 shares outstanding $ 2,183,555
NET ASSET VALUE, offering price and redemption price $9.24
per share ($2,183,555 (divided by) 236,398 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1996
INVESTMENT INCOME $ 6,645
Dividends
Interest (including income on securities loaned of $28) 78,495
TOTAL INCOME 85,140
EXPENSES
Management fee $ 6,964
Transfer agent fees 2,244
Accounting fees and expenses 413
Non-interested trustees' compensation 5
Custodian fees and expenses 40
Registration fees 51
Audit 79
Legal 74
Interest 4
Miscellaneous 9
Total expenses before reductions 9,883
Expense reductions (99) 9,784
NET INVESTMENT INCOME 75,356
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities (including realized loss of (47,575)
$24,547
on sale of investments in affiliated issuers)
Foreign currency transactions (327) (47,902)
Change in net unrealized appreciation (depreciation) on:
Investment securities 70,740
Assets and liabilities in foreign currencies 252 70,992
NET GAIN (LOSS) 23,090
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 98,446
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED OCTOBER APRIL 30,
31, 1996
1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 75,356 $ 187,004
Net investment income
Net realized gain (loss) (47,902) 53,617
Change in net unrealized appreciation (depreciation) 70,992 13,886
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 98,446 254,507
FROM OPERATIONS
Distributions to shareholders (123,236) (181,546)
From net investment income
In excess of net investment income - (33,323)
TOTAL DISTRIBUTIONS (123,236) (214,869)
Share transactions 136,356 461,604
Net proceeds from sales of shares
Reinvestment of distributions 106,846 187,273
Cost of shares redeemed (305,604) (675,669)
Redemption fees 333 1,296
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (62,069) (25,496)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (86,859) 14,142
NET ASSETS
Beginning of period 2,270,414 2,256,272
End of period (including undistributed net investment $ 2,183,555 $ 2,270,414
income of $16,461 and $55,904, respectively)
OTHER INFORMATION
Shares
Sold 14,824 49,805
Issued in reinvestment of distributions 11,736 20,325
Redeemed (33,315) (73,039)
Net increase (decrease) (6,755) (2,909)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED APRIL 30,
ENDED OCTOBER
31,
1996 1996 1995 1994 D 1993 1992
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 9.340 $ 9.170 $ 9.590 $ 9.300 $ 8.320 $ 6.920
beginning of period
Income from Investment .351 .902 .814 .871 .645 .725
Operations
Net investment income
Net realized and .059 .119 (.427) .249 .942 1.418
unrealized gain (loss)
Total from investment .410 1.021 .387 1.120 1.587 2.143
operations
Less Distributions (.511) (.724) (.617) (.730) (.619) (.746)
From net investment
income
In excess of net - (.133) (.202) (.119) - -
investment income
Total distributions (.511) (.857) (.819) (.849) (.619) (.746)
Redemption fees added .001 .006 .012 .019 .012 .003
to paid in capital
Net asset value, $ 9.240 $ 9.340 $ 9.170 $ 9.590 $ 9.300 $ 8.320
end of period
TOTAL RETURN B, C 4.59% 11.72% 4.63% 12.46% 20.03% 32.95%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 2,184 $ 2,270 $ 2,256 $ 2,734 $ 2,124 $ 1,579
period (in millions)
Ratio of expenses to .89% A .98% .96% .97% .91% .80%
average net assets
Ratio of expenses to .88% A .98% .96% .97% .91% .80%
average net assets , E
after expense
reductions
Ratio of net investment 6.75% A 8.03% 7.38% 6.78% 7.45% 9.77%
income to average
net assets
Portfolio turnover rate 242% A 119% 78% 100% 102% 132%
Average commission $ .0405
rate F
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 8 OF NOTES TO FINANCIAL
STATEMENTS).
D EFFECTIVE MAY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 8 OF
NOTES TO FINANCIAL STATEMENTS).
F FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Capital & Income (the fund) is a fund of Fidelity Summer Street
Trust (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements have
been prepared in conformity with generally accepted accounting principles
which permit management to make certain estimates and assumptions at the
date of the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market (sales
prices if the principal market is an exchange) in which such securities are
normally traded. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned and dividend income is recorded on the
ex-dividend date. The fund may place a debt obligation on non-accrual
status and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a portion of
interest has become doubtful based on consistently applied procedures,
under the general supervision of the Board of Trustees of the fund. A debt
obligation is removed from non-accrual status when the issuer resumes
interest payments or when collectibility of interest is reasonably assured.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust. Legal expenditures that are expected to result in the
restructuring of or a plan of reorganization for an investment are recorded
as realized loss on investment transactions. Ongoing expenditures to
protect or enhance an investment, or expenditures incurred to pursue other
claims or legal actions are recorded as operating expenses.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for litigation
proceeds, paydown gains/losses on certain securities, foreign currency
transactions, defaulted bonds, market discount, partnerships, capital loss
carryforwards and losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions 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.
REDEMPTION FEES. Shares held in the fund less than 365 days are subject to
a redemption fee equal to 1.50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign securities. Losses may
arise from changes in the value of the foreign currency or if the
counterparties do not perform under the contracts' terms. The U.S. dollar
value of foreign currency contracts is determined using contractual
currency exchange rates established at the time of each trade. The cost of
the foreign currency contracts is included in the cost basis of the
associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase for U.S. Treasury or Federal
Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the
SEC, the fund, along with other registered investment companies having
management contracts with FMR, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the
fund to borrow from, or lend money to, other participating funds.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $58,751,000 or
2.7% of net assets.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to invest in
loans and loan participations, trade claims or other receivables. These
investments may include standby financing commitments that obligate the
fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary. At the end of the period, these investments
amounted to $3,532,000 or 0.2% of net assets.
3. JOINT TRADING ACCOUNT.
At the end of the period, the fund had 20% or more of its total investments
in repurchase agreements through a joint trading account. These repurchase
3. JOINT TRADING ACCOUNT -
CONTINUED
agreements were with entities whose creditworthiness has been reviewed and
found satisfactory by FMR. The maturity values of the joint trading account
investments were $458,986,000 at 5.54%.
The investments in repurchase agreements through the joint trading account
are summarized as follows:
SUMMARY OF JOINT TRADING
Dated October 31,1996, due November 1, 1996
Number of dealers or banks 23
Maximum amount with one dealer or bank 14.3%
Aggregate principal amount of agreements $19,523,483,000
Aggregate maturity amount of agreements $19,526,485,000
Aggregate market value of transferred assets $19,943,965,000
Coupon rates of transferred assets 0.0% to 15.75%
Maturity dates of transferred assets 11/07/96 to 8/15/26
4. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,169,249,000 and $2,228,698,000, respectively, of which U.S.
government and government agency obligations aggregated $1,064,964,000 and
$932,331,000, respectively.
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. 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. The annual individual fund fee rate is .45%.
Effective July 1, 1996, FMR voluntarily agreed to reduce the individual
fund fee rate from .55% to .45%. For the period, the management fees were
equivalent to an annualized rate of .62% of average net assets.
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives account fees and asset-based fees that vary according to
account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annualized rate of
.20% of average net assets.
ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's accounting
records and administers the security lending program. The security lending
fee is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the month
plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $2,000 for the period.
6. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund negotiated
lenders' fees. These fees are included in interest income. The fund
receives U.S. Treasury obligations and/or cash as collateral against the
loaned securities, in an amount at least equal to 102% of the market value
of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. At period end, there were no
loans outstanding.
7. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the period for
which loans were outstanding amounted to $10,579,000 and $6,723,000,
respectively. The weighted average interest rate was 5.71%.
8. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$60,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $31,000 and $8,000,
respectively, under these arrangements.
9. TRANSACTIONS WITH
AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND VALUE AFFILIATE COST COST
INCOME
Alliance Gaming Corp. $ 4,266 $ - $ - $ 10,919
Barry's Jewelers, Inc. 124 568 - -
El Paso Electric Co. - 226 - 21,968
Intelogic Trace, Inc. - - - -
Standard Brand Paint Co. - 24,410 - -
Thermadyne Holdings Corp. 1,804 - - 55,470
TOTALS $ 6,194 $ 25,204 $ - $ 88,357
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Summer Street Trust and the Shareholders of
Fidelity Capital & Income Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Summer Street Trust: Fidelity Capital & Income Fund, including the
schedule of portfolio investments, as of October 31, 1996, and the related
statement of operations for the six months then ended, the statement of
changes in net assets for the six months then ended and the year ended
April 30, 1996 and the financial highlights for the six months ended
October 31, 1996 and each of the five years in the period ended April 30,
1996. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1996 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Summer Street Trust: Fidelity Capital & Income Fund as of
October 31,1996, the results of its operations for the six months then
ended, the changes in its net assets for the six months then ended and the
year ended April 30, 1996 and the financial highlights for the six months
ended October 31, 1996 and each of the five years in the period ended April
30, 1996, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 13, 1996
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research Company, Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Robert A. Lawrence, Vice President
David Glancy, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
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Target Timeline 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
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AUTOMATED LINE FOR QUICKEST SERVICE
