(2_FIDELITY_LOGOS)FIDELITY
CAPITAL & INCOME
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1997
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 30 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 34 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 39 THE AUDITORS' OPINION.
ACCOUNTANTS
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 financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets in late October, the
Standard & Poor's 500 Index remained up more than 25% year-to-date,
twice its historical annual average. Meanwhile, bond markets -
primarily influenced by a relatively steady flow of positive news on
the inflation front - continued to post moderate returns through the
first 10 months of 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
FIDELITY CAPITAL & INCOME 11.12% 14.62% 79.51% 213.35%
MERRILL LYNCH HIGH YIELD MASTER INDEX 8.34% 13.82% 75.42% 219.17%
HIGH CURRENT YIELD FUNDS AVERAGE 9.65% 14.46% 72.92% 181.61%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the 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 mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past six months average represents a
peer group of 203 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY CAPITAL & INCOME 14.62% 12.41% 12.10%
MERRILL LYNCH HIGH YIELD MASTER INDEX 13.82% 11.90% 12.31%
HIGH CURRENT YIELD FUNDS AVERAGE 14.46% 11.54% 10.82%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19971031 19971114 135747 S00000000000001
Capital & Income ML High Yield Master
00038 ML002
1987/10/31 10000.00 10000.00
1987/11/30 10225.45 10252.88
1987/12/31 10356.98 10389.03
1988/01/31 10692.22 10673.32
1988/02/29 10987.52 10962.94
1988/03/31 10916.23 10944.81
1988/04/30 10995.98 10976.42
1988/05/31 11001.30 11033.71
1988/06/30 11220.31 11244.67
1988/07/31 11339.25 11363.49
1988/08/31 11344.01 11400.83
1988/09/30 11464.47 11515.75
1988/10/31 11587.75 11695.17
1988/11/30 11582.72 11738.98
1988/12/31 11660.62 11788.65
1989/01/31 11875.24 11965.44
1989/02/28 11941.32 12045.85
1989/03/31 11868.91 12035.13
1989/04/30 11825.05 12070.65
1989/05/31 12037.28 12292.86
1989/06/30 12290.77 12467.02
1989/07/31 12313.88 12526.07
1989/08/31 12312.72 12587.94
1989/09/30 11931.79 12468.10
1989/10/31 11402.57 12270.89
1989/11/30 11427.43 12298.39
1989/12/31 11285.66 12287.27
1990/01/31 10907.32 12047.13
1990/02/28 10710.87 11871.68
1990/03/31 10816.16 12032.16
1990/04/30 10850.77 12093.29
1990/05/31 11081.16 12311.74
1990/06/30 11328.21 12550.26
1990/07/31 11577.78 12815.48
1990/08/31 11299.84 12324.88
1990/09/30 10997.29 11788.85
1990/10/31 10648.90 11488.86
1990/11/30 10790.73 11586.18
1990/12/31 10851.58 11753.13
1991/01/31 10910.39 11919.27
1991/02/28 11457.73 12803.96
1991/03/31 11959.41 13354.47
1991/04/30 12458.78 13830.05
1991/05/31 12502.21 13897.58
1991/06/30 12765.67 14177.15
1991/07/31 13177.51 14516.85
1991/08/31 13355.55 14821.96
1991/09/30 13536.80 15010.75
1991/10/31 13866.51 15456.80
1991/11/30 13947.08 15635.34
1991/12/31 14087.43 15816.98
1992/01/31 14937.01 16370.00
1992/02/29 15567.93 16776.55
1992/03/31 16232.56 17010.63
1992/04/30 16564.09 17134.44
1992/05/31 16764.20 17407.75
1992/06/30 16957.23 17624.03
1992/07/31 17293.51 17981.11
1992/08/31 17466.80 18219.17
1992/09/30 17634.57 18426.76
1992/10/31 17455.52 18194.03
1992/11/30 17621.65 18451.70
1992/12/31 18038.87 18689.28
1993/01/31 18727.66 19149.49
1993/02/28 19116.67 19511.96
1993/03/31 19724.29 19850.24
1993/04/30 19881.91 19992.72
1993/05/31 20280.41 20261.85
1993/06/30 21068.50 20642.52
1993/07/31 21264.09 20864.40
1993/08/31 21438.51 21063.29
1993/09/30 21553.74 21167.22
1993/10/31 21987.04 21565.96
1993/11/30 22221.65 21683.91
1993/12/31 22531.25 21900.73
1994/01/31 23208.00 22380.69
1994/02/28 23196.77 22219.74
1994/03/31 22597.17 21495.66
1994/04/30 22359.27 21244.46
1994/05/31 22332.76 21168.78
1994/06/30 22045.31 21246.69
1994/07/31 22191.56 21396.05
1994/08/31 22193.39 21544.66
1994/09/30 22164.81 21536.51
1994/10/31 22021.16 21591.24
1994/11/30 21631.50 21407.57
1994/12/31 21492.46 21645.69
1995/01/31 21823.22 21951.55
1995/02/28 22703.29 22636.47
1995/03/31 22825.01 22951.49
1995/04/30 23395.57 23488.87
1995/05/31 23818.93 24222.71
1995/06/30 23907.23 24407.73
1995/07/31 24745.36 24686.76
1995/08/31 24823.54 24836.59
1995/09/30 25163.43 25120.75
1995/10/31 25216.07 25298.82
1995/11/30 24777.18 25545.77
1995/12/31 25090.23 25955.83
1996/01/31 25206.84 26365.75
1996/02/29 25686.58 26405.45
1996/03/31 25716.93 26333.74
1996/04/30 26138.57 26345.67
1996/05/31 26332.94 26535.66
1996/06/30 26242.94 26695.06
1996/07/31 26148.61 26876.30
1996/08/31 26518.44 27153.85
1996/09/30 27206.68 27736.45
1996/10/31 27338.27 28040.43
1996/11/30 27701.99 28607.32
1996/12/31 27952.38 28827.45
1997/01/31 28111.12 29048.99
1997/02/28 28674.05 29456.49
1997/03/31 28102.43 29129.33
1997/04/30 28199.01 29460.87
1997/05/31 29093.75 30047.04
1997/06/30 29597.17 30512.17
1997/07/31 30272.63 31244.40
1997/08/31 30458.37 31174.10
1997/09/30 31870.30 31706.35
1997/10/31 31334.73 31916.78
IMATRL PRASUN SHR__CHT 19971031 19971114 135750 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Capital & Income Fund on October 31, 1987. As the
chart shows, by October 31, 1997, the value of the investment would
have grown to $31,335 - a 213.35% 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 $31,917 - a 219.17% 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 MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1997 1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
DIVIDEND RETURN 4.65% 8.52% 9.87% 9.01% 9.34% 8.25%
CAPITAL APPRECIATION RETURN 6.47% -0.64% 1.85% -4.38% 3.12% 11.78%
TOTAL RETURN 11.12% 7.88% 11.72% 4.63% 12.46% 20.03%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.03(CENTS) 41.60(CENTS) 66.61(CENTS)
ANNUALIZED DIVIDEND RATE 5.86% 8.49% 6.98%
30-DAY ANNUALIZED YIELD 6.58% - -
DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.10 over the past one month, $9.72 over the past six months, and
$9.54 over the past one year, you can compare the fund's income over
these three periods. The past six months and one year dividends
per-share include additional distributions required by federal tax
regulations. 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
& Income Fund
Q. HOW DID THE FUND PERFORM, DAVID?
A. For the six months that ended October 31, 1997, the fund returned
11.12%. For the same period, the high current yield funds average as
tracked by Lipper Analytical Services returned 9.65%. The Merrill
Lynch High Yield Master Index, meanwhile, returned 8.34% during the
same time period. For the 12 months that ended October 31, 1997, the
fund returned 14.62%, while the Lipper average and Merrill Lynch index
returned 14.46% and 13.82%, respectively.
Q. WHAT FACTORS HELPED THE FUND OUTPERFORM BOTH ITS PEER GROUP AND THE
INDEX?
A. Buoyed by a positive backdrop of low default rates, steady economic
growth and strong demand, high-yield bonds continued to post healthy
returns and the fund benefited accordingly. Also, unlike many of its
competitors in the peer group - which tend to invest almost
exclusively in high-yield bonds - Capital & Income has the ability to
invest a portion of its assets in stocks and distressed securities.
Several individual stocks performed very well during the period,
giving the fund an extra boost that many other funds may not have
realized. A third catalyst was the outstanding performance turned in
by several of the fund's cable TV and satellite-related debt and
equity positions.
Q. THE FUND HISTORICALLY HAS BEEN ATTRACTED TO THE CABLE TV INDUSTRY.
WHY IS THIS GROUP APPEALING AND WHAT FACTORS HELPED ITS PERFORMANCE
DURING THE PERIOD?
A. Many cable TV companies are appealing because they have steady,
predictable cash flows. People typically pay their cable bills on a
consistent basis and there is enormous potential to sell new cable
services. Microsoft made a significant capital investment with cable
operator Comcast in a venture designed to bring expanded services -
via cable wire - into homes. From the market's perspective,
Microsoft's gesture was a validation of the cable industry's promise.
This vote of confidence helped many cable TV positions, including
Cablevision, TCI and Adelphia.
Q. YOU MENTIONED DISTRESSED SECURITIES EARLIER. HOW DO THESE
INVESTMENTS FIT INTO YOUR OVERALL INVESTING SCHEME?
A. As their name implies, distressed securities are stocks or bonds of
companies that have gone through some sort of financial difficulty.
More often than not, these companies are highly leveraged - or carry a
significant amount of debt - and are having problems paying off that
debt. Investing in these types of securities is a risky game, as
default is obviously a concern, but opportunities do exist. Thorough
analysis of a company's business and balance sheet sometimes can
uncover investment opportunities. A potentially profitable distressed
opportunity is a good company with a bad balance sheet. Most
distressed companies today, however, are inferior operations whose
fundamental problems have led to balance sheet stress. Since these are
rarely good investment opportunities, I stayed away from distressed
securities during the period.
Q. WHY DO COMPANIES ISSUE HIGH-YIELD DEBT?
A. For various reasons. In the 1980s, companies issued high-yield debt
primarily to fund recapitalizations and leveraged buyouts of other
companies. In the 1990s, much of the capital from these offerings went
toward business expansion and acquisitions. In many instances,
companies that issue high-yield bonds are substantial, private
companies that have no interest in becoming a public company through a
stock offering. Big, multibillion dollar companies such as MCI and
Turner Broadcasting started out in the high-yield market, grew their
businesses rapidly and gradually grew out of the need to issue
high-yield debt.
Q. IN THE PAST, YOU'VE MAINTAINED A RELATIVELY HIGH CASH POSITION IN
THE PORTFOLIO. AS OF THE END OF THE PERIOD, YOUR CASH POSITION WAS
ABOUT 11%. WHAT'S BEHIND THIS REDUCTION?
A. The fund's cash position is a residual effect of the number of
opportunities I find in three categories: "plain vanilla" high-yield
bonds, common stocks of highly-leverage companies, and distressed
situations. If I find enough good opportunities in these areas, the
fund's cash position may be relatively low because it will be more
fully invested. On the other hand, these types of securities can go
through periods of volatility, so it's sometimes beneficial to have a
high cash balance on hand to take advantage of buying opportunities.
Q. WHICH INDIVIDUAL HOLDINGS PERFORMED WELL? WHICH WERE DISAPPOINTING?
A. Echostar Communications - a direct satellite TV company - performed
very well due to strong subscription orders and promising business
prospects. Alliance Gaming and Pioneer Natural Resources also
contributed positively. Among the disappointments were El Paso
Electric Co. and home equity lender ContiFinancial. El Paso, an
electric utility in Texas, remains underfollowed after emerging from
bankruptcy, while ContiFinancial lagged simply because home equity
lenders fell out of investors' favor during the period.
Q. WHAT'S YOUR OUTLOOK?
A. The events of October - when economic and currency problems in
Southeast Asia rattled financial markets around the world - increased
investors' awareness of risk. But the future is never any more or less
certain. There's always risk - it's just not always in the news.
High-yield investments are vulnerable to corporate earnings. If
corporate earnings begin to show signs of declining - as they did
toward the end of the period - high-yield securities could suffer.
Nevertheless, I'll continue to follow the same portfolio recipe by
sprinkling a few promising stocks among the fund's high-yield bond
base. It's my belief that this formula is effective over the long
term.
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.
DAVID GLANCY ON OWNING THE
BONDS AND STOCKS OF THE
SAME COMPANIES:
"By scanning the fund's list of
holdings, shareholders may notice
that the fund often has exposure
to a company's debt AND equity
securities. Investing in both reflects
my confidence that the company
will do well. Let me explain.
"The fund's investments are divided
into three buckets: 1) high-yield
bonds, which account for a
majority of the fund's assets; 2)
cash, which I prefer to maintain at a
level between 5% and 10%; and
3) equities and distressed securities.
"In the course of considering
investments for the high-yield
bucket, I may come across a
company that has a solid debt
structure and favorable business
plan. Companies that are growing
earnings and paying down debt
rapidly usually make good debt and
equity investments, and I'll often
own both. Current examples include
Echostar Communications and
Thermadyne, a manufacturer of
welding equipment."
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, 1997,
more than $2.1 billion
MANAGER: David Glancy, since
1996; manager, Spartan High
Income Fund, 1993 to 1996;
joined Fidelity in 1990
(checkmark)
INVESTMENT CHANGES
TOP FIVE HOLDINGS AS OF OCTOBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
THERMADYNE HOLDINGS CORP. 5.4 5.2
ECHOSTAR COMMUNICATIONS CORP. 4.8 2.6
PATHMARK STORES, INC. 2.8 1.8
REVLON CONSUMER PRODUCTS CORP. 2.6 2.3
CABLEVISION SYSTEMS CORP. 2.4 1.8
</TABLE>
TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
MEDIA & LEISURE 25.7 20.6
UTILITIES 15.4 4.9
INDUSTRIAL MACHINERY & EQUIPMENT 11.4 10.0
FINANCE 9.1 8.8
ENERGY 4.7 6.5
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA, AA, A 0 0.0
.
0
BAA 0 0.3
.
4
BA 3 7.7
.
1
B 4 31.7
5
.
0
CAA, CA, C 8 5.4
.
4
NOT RATED 1 4.1
.
7
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, 1997 AND APRIL 30, 1997
ACCOUNT FOR 1.5% AND 3.6%, RESPECTIVELY, OF THE FUND'S INVESTMENTS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1997 * AS OF APRIL 30, 1997 **
NONCONVERTIBLE
BONDS 58.3%
PREFERRED STOCKS 14.3%
COMMON STOCKS 15.8%
SHORT-TERM
INVESTMENTS 11.2%
OTHER 0.4%
NONCONVERTIBLE
BONDS 48.1%
PREFERRED STOCKS 10.4%
COMMON STOCKS 17.0%
SHORT-TERM
INVESTMENTS 23.3%
OTHER 1.2%
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 11.2
ROW: 1, COL: 3, VALUE: 15.8
ROW: 1, COL: 4, VALUE: 14.3
ROW: 1, COL: 5, VALUE: 58.3
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 23.3
ROW: 1, COL: 3, VALUE: 17.0
ROW: 1, COL: 4, VALUE: 10.4
ROW: 1, COL: 5, VALUE: 48.1
* FOREIGN
INVESTMENTS 3.8%
** FOREIGN
INVESTMENTS 3.9%
INVESTMENTS OCTOBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 58.3%
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
AEROSPACE & DEFENSE - 1.8%
AEROSPACE & DEFENSE - 1.6%
Fairchild Corp.:
12%, 10/15/01 Caa1 $ 11,335 $ 11,392
13 1/8%, 3/15/06 Caa1 2,780 2,794
K&F Industries, Inc. 9 1/4%, 10/15/07 (i) B3 8,830 8,830
RHI Holdings, Inc. 11 7/8%, 3/1/99 B2 10,632 10,632
33,648
DEFENSE ELECTRONICS - 0.2%
Tracor, Inc. 8 1/2%, 3/1/07 B1 3,860 3,860
TOTAL AEROSPACE & DEFENSE 37,508
BASIC INDUSTRIES - 1.8%
CHEMICALS & PLASTICS - 0.7%
PCI Chemicals Canada, Inc.
9 1/4%, 10/15/07 (i) B2 4,000 3,920
Sovereign Specialty Chemicals, Inc.
9 1/2%, 8/1/07 (i) B3 1,100 1,125
Sterling Chemicals, Inc. 11 1/4%, 4/1/07 B3 6,000 6,555
Sterling Chemicals Holdings, Inc.
0%, 8/15/08 (f) Caa1 5,480 3,918
15,518
METALS & MINING - 0.1%
Kaiser Aluminum & Chemical Corp.
9 7/8%, 2/15/02 B1 2,000 2,070
PACKAGING & CONTAINERS - 0.1%
Huntsman Packaging Corp.
9 1/8%, 10/1/07 (i) B2 2,050 2,101
PAPER & FOREST PRODUCTS - 0.9%
Container Corp. of America gtd.
9 3/4%, 4/1/03 B1 1,040 1,112
Omega Cabinets Ltd. 10 1/2%, 6/15/07 (i) B3 2,400 2,508
Paperboard Industries International, Inc.
8 3/8%, 9/15/07 (i) Ba3 1,450 1,461
Repap New Brunswick, Inc. yankee
10 5/8%, 4/15/05 Caa1 5,100 5,049
Riverwood International Corp.
10 5/8%, 8/1/07 B3 7,590 7,931
18,061
TOTAL BASIC INDUSTRIES 37,750
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE - 0.1%
Iron Mountain, Inc. 8 3/4%, 9/30/09 (i) B3 $ 2,880 $ 2,902
DURABLES - 1.0%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Navistar Financial Corp. 9%, 6/1/02 B1 3,000 3,090
United Auto Group, Inc.(i):
11%, 7/15/07 B3 4,000 4,110
Series B, 11%, 7/15/07 B3 3,000 3,068
10,268
TEXTILES & APPAREL - 0.5%
Delta Mills, Inc. 9 5/8%, 9/1/07 (i) B3 3,730 3,767
Nine West Group, Inc. 9%, 8/15/07 (i) Ba3 6,840 6,823
10,590
TOTAL DURABLES 20,858
ENERGY - 2.0%
COAL - 0.1%
Anker Coal Group, Inc.
9 3/4%, 10/1/07 (i) B3 1,610 1,634
OIL & GAS - 1.9%
Belden & Blake Corp. 9 7/8%, 6/15/07 B3 5,120 5,222
Chesapeake Energy Corp.:
7 7/8%, 3/15/04 Ba3 1,460 1,431
8 1/2%, 3/15/12 Ba2 4,490 4,411
Cross Timbers Oil Co. 8 3/4%, 11/1/09 (i) B2 8,300 8,279
Petsec Energy, Inc. 9 1/2%, 6/15/07 (i) B3 14,340 14,663
Rutherford-Moran Oil Corp.
10 3/4%, 10/1/04 (i) B3 3,690 3,653
Southwest Royalties, Inc.
10 1/2%, 10/15/04 (i) B3 2,040 2,020
39,679
TOTAL ENERGY 41,313
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
FINANCE - 6.7%
CREDIT & OTHER FINANCE - 3.4%
Advanced Accessory Systems LLC/AAC
Capital Corp. 9 3/4%, 10/1/07 (i) B3 $ 2,370 $ 2,340
Delta Financial Corp. 9 1/2%, 8/1/04 B1 6,500 6,435
Fedders North America, Inc.
9 3/8%, 8/15/07 (i) B2 5,600 5,684
GST Equipment Funding, Inc.
13 1/4%, 5/1/07 (i) - 7,950 8,944
Ocwen Capital Trust 10 7/8%, 8/1/27 B2 2,330 2,481
Olympic Finance Ltd. unit 11 1/2%, 3/15/07 B2 19,400 19,595
PTC International Finance BV
0%, 7/1/07 (f)(i) B3 3,710 2,393
TransAmerican Energy (i):
11 1/2%, 6/15/02 B3 6,810 6,878
0%, 6/15/02 (f) B3 5,000 4,100
Unicco Services Co./Unicco Finance Corp.
9 7/8%, 10/15/07 (i) B3 3,500 3,465
United Companies Financial Corp.
8 3/8%, 7/1/05 Ba3 10,000 10,023
72,338
INSURANCE - 0.5%
American Premier Underwriters, Inc.
9 3/4%, 8/1/99 Ba1 5,000 5,187
Reliance Group:
9%, 11/15/00 Ba3 1,000 1,043
9 3/4%, 11/15/03 B1 4,000 4,200
10,430
SAVINGS & LOANS - 2.8%
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 43,700 49,678
First Nationwide Holdings, Inc.
9 1/8%, 1/15/03 Ba3 3,430 3,550
Western Financial Bank FSB 8 7/8%, 8/1/07 B1 5,460 5,296
58,524
TOTAL FINANCE 141,292
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
HEALTH - 0.8%
DRUGS & PHARMACEUTICALS - 0.1%
ICN Pharmaceuticals, Inc.
9 1/4%, 8/15/05 (i) B1 $ 1,450 $ 1,515
MEDICAL FACILITIES MANAGEMENT - 0.7%
Integrated Healthcare Facilities LP 10%,
12/6/96 (b) - 141 -
Sun Healthcare Group, Inc.
9 1/2%, 7/1/07 (i) B2 3,000 3,045
Vencor, Inc. 8 5/8%, 7/15/07 (i) B1 11,815 11,490
14,535
TOTAL HEALTH 16,050
INDUSTRIAL MACHINERY & EQUIPMENT - 4.5%
ELECTRICAL EQUIPMENT - 2.5%
Echostar Communications Corp. secured discount
0%, 6/1/04 (f) B2 58,715 52,403
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
Howmet Corp. 10%, 12/1/03 B3 1,120 1,219
Thermadyne Holdings Corp.:
10 1/4%, 5/1/02 B1 11,711 12,165
10 3/4%, 11/1/03 B3 27,196 29,168
42,552
TOTAL Industrial machinery & equipment 94,955
MEDIA & LEISURE - 15.6%
BROADCASTING - 11.2%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (f)(i) B3 8,200 6,048
Adelphia Communications Corp.:
9 1/4%, 10/1/02 (i) B3 3,600 3,573
10 1/2%, 7/15/04 (i) B3 3,750 3,900
9 7/8%, 3/1/07 B3 20,890 21,308
American Telecasting, Inc.
0%, 8/15/05 (f) Caa1 15,000 5,100
Citadel Broadcasting Co.
10 1/4%, 7/1/07 (i) B3 2,100 2,216
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Comcast UK Cable Partners Ltd.
0%, 11/15/07 (f) B2 $ 13,680 $ 10,670
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (f) Caa1 54,315 43,452
Echostar DBS Corp. 12 1/2%, 7/1/02 (i) Caa1 6,050 6,398
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (f)(i) Caa1 1,974 1,357
International Cabletel, Inc. 0%, 2/1/06 (f) B3 29,385 21,595
Iridium LLC/Iridium Capital Corp.:
14%, 7/15/05 B3 6,000 6,300
11 1/4%, 7/15/05 (i) B3 8,250 7,673
Knology Holdings, Inc. unit 0%, 10/15/07 (f)(i) - 6,500 3,315
Lenfest Communications, Inc. 8 3/8%, 11/1/05 Ba3 7,000 7,018
Marcus Cable Operating Co. LP/ Marcus Cable
Capital Corp. II gtd. 0%, 8/1/04 (f) B3 4,250 3,793
Olympus Communications LP/Olympus
Capital Corp 10 5/8%, 11/15/06 B1 4,420 4,774
Panamsat Corp. 12 3/4%,
4/15/05 pay-in-kind BBB+ 6,726 8,038
Paxson Communications Corp.
11 5/8%, 10/1/02 B3 1,110 1,210
Pegasus Communications Corp.
9 5/8%, 10/15/05 (i) B3 2,350 2,356
Peoples Choice TV Corp. unit
0%, 6/1/04 (f) Caa 14,000 5,740
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 5,740 6,214
TCI Communications Financing III
9.65%, 3/31/27 Ba3 3,370 3,715
TCI Satellite Entertainment, Inc.
10 7/8%, 2/15/07 (i) B3 1,000 1,030
Telemundo Group, Inc. 7%, 2/15/06 (l) B1 28,280 27,997
Telewest PLC 0%, 10/1/07 (f) B1 20,700 15,370
UIH Australia/PAC, Inc.,
0%, 5/15/06 (f) B2 7,450 5,178
235,338
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 2,250 2,284
Alliance Gaming Corp. 10%, 8/1/07 (i) B3 9,000 9,045
Ameristar Casinos, Inc. 10 1/2%, 8/1/04 (i) B3 5,290 5,131
Hollywood Theaters, Inc.
10 5/8%, 8/1/07 (i) B3 850 893
17,353
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.4%
Coleman Escrow Corp. secured 1st priority
0%, 5/15/01 (i) B3 $ 8,000 $ 5,120
E&S Holdings Corp. 10 3/8%, 10/1/06 B3 3,010 2,559
7,679
LODGING & GAMING - 2.1%
Autotote Corp. 10 7/8%, 8/1/04 B2 4,000 4,200
Boyd Gaming Corp. 9 1/2%, 7/15/07 (i) B1 6,000 6,135
Grand Casinos, Inc. 9%, 10/15/04 (i) B2 4,000 3,960
Hollywood Park, Inc./Hollywood Park
Operating Co. 9 1/2%, 8/1/07 (i) B2 1,000 1,070
Players International, Inc. 10 7/8%, 4/15/05 Ba3 2,900 3,110
Showboat, Inc. 9 1/4%, 5/1/08 Ba3 11,000 11,385
Station Casinos, Inc. 9 3/4%, 4/15/07 B2 13,550 13,618
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 660 677
44,155
PUBLISHING - 0.8%
Big Flower Press Holdings, Inc.
8 7/8%, 7/1/07 B2 2,100 2,111
Garden State Newspapers, Inc.
8 3/4%, 10/1/09 (i) B1 1,705 1,696
ITT Publimedia BV 9 3/8%, 9/15/07 (i) B3 9,830 10,223
Maxwell Communication Corp. PLC euro
5%, 6/16/99 (c) - CHF 6 -
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 2,000 2,110
9 1/2%, 5/15/07 B3 1,000 1,058
17,198
RESTAURANTS - 0.3%
SC International Services, Inc.
9 1/4%, 9/1/07 (i) B2 7,180 7,323
TOTAL MEDIA & LEISURE 329,046
NONDURABLES - 2.8%
AGRICULTURE - 0.0%
Windy Hill Pet Food, Inc. 9 3/4%, 5/15/07 B3 920 934
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
NONDURABLES - CONTINUED
HOUSEHOLD PRODUCTS - 2.7%
MacAndrews and Forbes Holdings, Inc.
13%, 3/1/99 B3 $ 1,835 $ 1,846
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 51,530 54,364
56,210
TOBACCO - 0.1%
North Atlantic Trading, Inc. 11%, 6/15/04 B3 1,950 1,994
TOTAL NONDURABLES 59,138
RETAIL & WHOLESALE - 4.1%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (b)(i) - 18,686 701
GROCERY STORES - 4.0%
Brunos, Inc. 10 1/2%, 8/1/05 Caa2 2,120 1,102
Fleming Companies, Inc.
10 5/8%, 7/31/07 (i) B3 6,840 7,216
Marsh Supermarkets, Inc. 8 7/8%, 8/1/07 (i) B2 8,800 8,470
Pathmark Stores, Inc.:
9 5/8%, 5/1/03 B3 29,415 27,724
0%, 11/1/03 (f) Caa2 44,150 30,243
Penn Traffic Co.:
8 5/8%, 12/15/03 B3 6,494 5,487
10 3/8%, 10/1/04 B3 2,000 1,800
82,042
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
J Crew Operating Corp.
10 3/8%, 10/15/07 (i) B3 2,660 2,633
TOTAL RETAIL & WHOLESALE 85,376
SERVICES - 1.4%
ADVERTISING - 0.1%
Katz Media Corp. 10 1/2%, 1/15/07 B2 2,000 2,120
LEASING & RENTAL - 0.1%
Williams Scotsman, Inc. 9 7/8%, 6/1/07 B- 2,430 2,491
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
SERVICES - CONTINUED
PRINTING - 0.1%
US Banknotes Corp. 10 3/8%, 6/1/02 B1 $ 2,000 $ 2,085
SERVICES - 1.1%
Borg-Warner Security Corp. 9 5/8%, 3/15/07 B3 5,040 5,090
Coach USA, Inc. 9 3/8%, 7/1/07 (i) B1 1,000 1,010
Coinmach Corp. 11 3/4%, 11/15/05 (i) B2 3,000 3,278
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 B2 5,000 5,613
0%, 1/15/07 (f) B2 10,000 7,274
22,265
TOTAL SERVICES 28,961
TECHNOLOGY - 2.7%
COMMUNICATIONS EQUIPMENT - 1.7%
Intermedia Communications, Inc.
0%, 7/15/07 (f) B2 48,710 31,905
Jordan Telecommunications Products
0%, 8/1/07 (f)(i) B3 4,200 3,276
35,181
COMPUTER SERVICES & SOFTWARE - 0.6%
Anacomp, Inc. 10 7/8%, 4/1/04 B- 3,200 3,304
DecisionOne Corp. 9 3/4%, 8/1/07 B3 3,230 3,303
DecisionOne Holdings Corp. unit
0%, 8/1/08 (f) Caa1 1,530 964
Federal Data Corp. 10 1/8%, 8/1/05 (i) B3 5,400 5,521
13,092
ELECTRONIC INSTRUMENTS - 0.2%
High Voltage Engineering Corp.
10 1/2%, 8/15/04 (i) B3 5,030 5,181
ELECTRONICS - 0.2%
Communications Instruments, Inc.
10%, 9/15/04 (i) B3 4,400 4,378
TOTAL TECHNOLOGY 57,832
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
TRANSPORTATION - 2.4%
AIR TRANSPORTATION - 1.5%
US Air, Inc.:
9 5/8%, 2/1/01 B3 $ 22,197 $ 22,919
10%, 7/1/03 B3 1,700 1,755
pass through trust:
9 5/8%, 9/1/03 B1 7,050 7,420
32,094
RAILROADS - 0.9%
Transtar Holdings LP/Transtar Capital Corp.
0%, 12/15/03 (f) B- 22,790 19,599
TRUCKING & FREIGHT - 0.0%
St. Johnsbury Trucking Co. 11%, 7/15/98
pay-in-kind (b)(h) - 7,550 1
TOTAL TRANSPORTATION 51,694
UTILITIES - 10.6%
CELLULAR - 5.9%
Comcast Cellular Holdings, Inc.
9 1/2%, 5/1/07 Ba3 6,000 5,990
Globalstar LP/Globalstar Capital Corp.:
11 3/8%, 2/15/04 B3 10,000 9,900
11 1/4%, 6/15/04 B3 10,550 10,392
McCaw International Ltd. 0%, 4/15/07 (f) CCC 57,720 33,476
Metrocall, Inc. 9 3/4%, 11/1/07 (i) B3 4,350 4,296
Millicom International Cellular SA
0%, 6/1/06 (f) B3 2,870 2,153
Nextel Communications, Inc. (f):
0%, 9/1/03 B3 26,860 26,054
0%, 9/15/07(i) B3 21,884 12,693
Price Communications Cellular Holdings, Inc. unit
0%, 8/1/07 (f)(i) Caa1 16,500 9,488
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 5,790 5,732
Telesystem International Wireless, Inc.:
0%, 6/30/07 (f)(i) Caa1 5,340 3,204
0%, 11/1/07 (f)(i) Caa1 3,550 1,882
125,260
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S (E) PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (D) (000S) (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 4.7%
Brooks Fiber Properties, Inc.:
0%, 3/1/06 (f) - $ 5,070 $ 4,119
11 7/8%, 11/1/06 - 3,850 3,013
Hermes Europe Railtel BV 11 1/2%, 8/15/07 (i) B3 3,090 3,329
Hyperion Telecommunications, Inc.:
0%, 4/15/03 (f) - 2,710 1,843
12 1/4%, 9/1/04 (i) - 4,800 5,088
McLeodUSA, Inc.:
0%, 3/1/07 (f) B3 18,050 12,477
9 1/4%, 7/15/07 (i) B3 10,000 10,275
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 12,180 12,286
Qwest Communications International, Inc.
0%, 10/15/07 (f)(i) B2 26,000 16,640
RCN Corp. 10%, 10/15/07 (i) B3 6,050 5,974
Telegroup, Inc. 0%, 11/1/04 (f)(i) - 1,840 1,362
Teleport Communications Group, Inc.
0%, 7/1/07 (f) B1 15,000 11,738
Winstar Communications, Inc.:
0%, 10/15/05 (f) Caa1 5,820 4,132
14 1/2%, 10/15/05 CCC+ 5,650 6,554
98,830
TOTAL UTILITIES 224,090
TOTAL NONCONVERTIBLE BONDS
(Cost $1,197,183) 1,228,765
COMMERCIAL MORTGAGE SECURITIES - 0.4%
First Chicago /Lennar Trust I Series 1997-CHL1
Class E, 8.1217%, 2/28/11 (j)
(Cost $6,944) - 9,200 7,756
COMMON STOCKS - 15.8%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.4%
DEFENSE ELECTRONICS - 0.4%
Tracor, Inc. (a) 282,900 $ 7,568
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Atlantis Group, Inc. (Trivest/Winston) (a)(h) 33,115 469
Sterling Chemical Holdings warrants 8/15/08 (a) 6,690 254
Trivest 1992 Special Fund Ltd. 11.4(k) 1,346
2,069
METALS & MINING - 0.0%
Camphor Ventures, Inc. (a) 356,400 607
Commonwealth Industries, Inc. 10,000 176
783
TOTAL BASIC INDUSTRIES 2,852
CONSTRUCTION & REAL ESTATE - 0.0%
BUILDING MATERIALS - 0.0%
Puretec Corp. (a) 5,000 13
DURABLES - 0.8%
TEXTILES & APPAREL - 0.8%
Arena Brands Holdings Corp. Class B (a) 413,111 16,686
Hat Brands, Inc. Class I unit (a)(h) 1,980,000 -
16,686
ENERGY - 2.7%
ENERGY SERVICES - 0.0%
Dawson Production Services, Inc. (a) 5,000 121
Parker Drilling Co. (a) 4,800 71
192
OIL & GAS - 2.7%
Chesapeake Energy Corp. 11,500 113
Gulf Canada Resources Ltd. (a) 1,391,800 11,463
Nuevo Energy Corp. (a) 351,200 14,553
Petsec Energy Ltd. sponsored ADR (a) 161,800 3,641
Pioneer Natural Resources Co. 647,972 25,959
XCL Ltd. unit 10,000 2,050
57,779
TOTAL ENERGY 57,971
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - 1.4%
CREDIT & OTHER FINANCE - 1.1%
Arcadia Financial Ltd. (a) 125,900 $ 1,141
ContiFinancial Corp. (a)(g) 747,000 21,243
22,384
INSURANCE - 0.3%
American Annuity Group, Inc. 351,913 7,082
TOTAL FINANCE 29,466
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Imagyn Medical Technologies, Inc. (a) 375,600 1,279
INDUSTRIAL MACHINERY & EQUIPMENT - 4.4%
ELECTRICAL EQUIPMENT - 0.9%
Echostar Communications Corp. Class A (a)(g) 897,323 17,049
Loral Space & Communications Ltd. (a) 100,000 2,100
19,149
INDUSTRIAL MACHINERY & EQUIPMENT - 3.5%
Fedders Corp. 10,000 60
Lincoln Electric Co. 10,000 378
Thermadyne Holdings Corp. (a)(g) 2,424,935 72,748
73,186
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 92,335
MEDIA & LEISURE - 3.6%
BROADCASTING - 1.2%
Chancellor Trust Class I unit (h) 273 24,247
ENTERTAINMENT - 0.7%
Alliance Gaming Corp. (a)(g) 2,831,078 14,155
Livent, Inc. (a) 19,000 175
14,330
LODGING & GAMING - 1.7%
Autotote Corp. Class A (a) 153,700 375
Bally Gaming International, Inc. warrants 7/29/98 (a) 300,000 263
Harrah's Entertainment, Inc. (a) 50,000 984
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Players International, Inc. (a) 1,015,900 $ 3,556
Showboat, Inc. (g) 1,134,100 22,540
Station Casinos, Inc. (a) 306,400 2,490
WMS Industries, Inc. 249,500 6,065
36,273
TOTAL MEDIA & LEISURE 74,850
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Stroh Brewery Co. warrants 1/1/01 (a) 25,067 90
PRECIOUS METALS - 0.3%
Mountain Province Mining, Inc. (a)(g) 1,255,000 5,435
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc. (a) 307,603 29
Lamonts Apparel, Inc. warrants 6/10/99 (a) 562,033 -
29
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Zale Corp. unit (a)(h) 1,768,285 18
TOTAL RETAIL & WHOLESALE 47
SERVICES - 0.0%
Orion Network Systems, Inc. (a):
warrants 1/15/07 5,000 65
warrants 1/15/07 10,000 110
Vestar/LPA Investment Corp. (a) 2,550 51
226
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.0%
Globalstar Telecommunications Ltd. warrants 2/15/04 (a) 10,000 1,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 0.1%
DecisionOne Holdings Corp. (a) 1,389 $ 44
Midway Games, Inc. (a) 87,100 1,824
1,868
TOTAL TECHNOLOGY 2,868
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. warrants 12/15/00 (a) 108,320 356
UTILITIES - 1.9%
CELLULAR - 0.0%
McCaw International Ltd. warrants
4/15/07 (a)(i) 57,720 144
ELECTRIC UTILITY - 1.8%
Baycorp Holdings Ltd. (a) 25,849 194
El Paso Electric Co. (a)(g) 5,969,941 37,685
Niagara Mohawk Power Corp. (a) 70,100 679
38,558
TELEPHONE SERVICES - 0.1%
Hyperion Telecommunications, Inc.
warrants 4/15/01 (a)(i) 2,000 150
Source Media, Inc. 30,000 368
Source Media, Inc. unit (i) 53 1,352
1,870
TOTAL UTILITIES 40,572
TOTAL COMMON STOCKS
(Cost $268,378) 332,614
PREFERRED STOCKS - 14.3%
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - 0.5%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
Echostar Communications Corp. $3.375, Series C 34,000 $ 1,700
Loral Space & Communications Ltd. $3.00, Series C (i) 50,000 3,031
4,731
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.3%
CD Radio, Inc. 5% (h) 150,268 5,673
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Town & Country Corp. pay-in-kind 17,771 4
TOTAL CONVERTIBLE PREFERRED STOCKS 10,408
NONCONVERTIBLE PREFERRED STOCKS - 13.8%
BASIC INDUSTRIES - 0.3%
PAPER & FOREST PRODUCTS - 0.3%
SDW Holdings Corp. 15% (i) 125,550 4,583
S D Warren Co. 14% exchangeable pay-in-kind 27,816 1,307
5,890
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Crown America Realty Trust Series A 11%,
pay-in kind 40,400 2,202
FINANCE - 1.0%
CREDIT & OTHER FINANCE - 1.0%
American Annuity Group Capital Trust II 8 3/4% 18,557 19,679
SIG Capital Trust I 9 1/2% (i) 2,530 2,558
22,237
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 2.3%
ELECTRICAL EQUIPMENT - 2.3%
Ampex Corp. 8% (a)(h) 23,995 $ 18,651
Echostar Communications Corp. 12 1/8%,
pay-in-kind 29,458 30,047
48,698
MEDIA & LEISURE - 6.2%
BROADCASTING - 6.2%
Adelphia Communications Corp. 13% (i) 177,855 20,275
Cablevision Systems Corp.:
11 1/8% depositary shares pay-in-kind 398,551 43,841
Series H, $11.75 pay-in-kind 60,437 6,829
Chancellor Media Corp.:
12%, pay-in-kind (i) 50,882 5,851
Series A, $12.25 190,700 25,937
Citadel Broadcasting Co. 13 1/4%,
pay-in-kind (i) 40,250 4,428
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 10,867 11,410
NTL, Inc. 13%, pay-in-kind 3,684 4,052
SFX Broadcasting, Inc. 12 5/8% 4,255 487
Sinclair Capital 11 5/8% 30,000 3,210
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 3,717 4,293
130,613
RETAIL & WHOLESALE - 0.4%
GROCERY STORES - 0.4%
Supermarkets General Holdings Corp. $3.52
pay-in-kind 462,093 9,357
TECHNOLOGY - 0.6%
COMMUNICATIONS EQUIPMENT - 0.6%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 10,826 12,558
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - 2.9%
CELLULAR - 1.3%
Nextel Communications Corp. 13%,
pay-in-kind (i) 25,271 $ 27,672
ELECTRIC UTILITY - 0.2%
El Paso Electric Co., Series A, 11.40%,
pay-in-kind 31,057 3,354
TELEPHONE SERVICES - 1.4%
American Communications Services, Inc.
12 3/4%, pay-in-kind (i) 3,589 3,374
Hyperion Telecommunications, Inc. 12 7/8%,
pay-in-kind (i) 2,867 2,781
ICG Holdings, Inc. 14% pay-in-kind 2,142 2,528
IXC Communications, Inc. 12 1/2%,
pay-in-kind (i) 8,121 9,035
NEXTLINK Communications, Inc.
14%, pay-in-kind 200,087 11,804
29,522
TOTAL UTILITIES 60,548
TOTAL NONCONVERTIBLE PREFERRED STOCKS 292,103
TOTAL PREFERRED STOCKS
(Cost $268,594) 302,511
PURCHASED BANK DEBT - 0.0%
PRINCIPAL
AMOUNT (D) (000S)
Merry-Go-Round Enterprises, Inc. (b):
trade claim $ 41 -
trade claim 143 -
trade claim 155 -
lease indemnity claim 1,423 -
TAK Communications term loan (b) 36,907 -
TOTAL PURCHASED BANK DEBT
(Cost $1,082) -
CASH EQUIVALENTS - 11.2%
MATURITY VALUE (NOTE 1
AMOUNT (000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account dated
10/31/97 due 11/3/97:
at 5.68% $ 217,983 $ 217,880
at 5.60% 17,609 17,601
TOTAL CASH EQUIVALENTS
(Cost $235,481) 235,481
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,977,662) $ 2,107,127
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 (ratings are unaudited).
6. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
7. Affiliated company (see Note 7 of Notes to Financial Statements).
8. 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 DATE COST (000S) SECURITY
Ampex Corp. 8% 2/16/95 $ 12,598
Atlantis Group, Inc.
(Trivest/Winston) 4/6/93 $ 39
CD Radio, Inc. 5% 5/8/97 $ 4,307
Chancellor Trust
Class I unit 10/12/94 $ 5,515
Hat Brands, Inc.
Class I unit 2/22/94 $ 1,980
St. Johnsbury Trucking Co.
11%, 7/15/98 2/1/93 $ 2,827
Zale Corp. 2/6/91
unit to 7/30/93 $ -
9. 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 $410,309,000 or
19.5% of net assets.
10. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
11. Represents number of units held.
12. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
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 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 0.6%
Ba 3.1% BB 4.4%
B 43.8% B 41.1%
Caa 6.5% CCC 8.6%
Ca, C 0.0% CC, C 0.2%
The percentage not rated by Moody's or S&P amounted to 1.7%. FMR has
determined that unrated debt securities that are lower quality account
for 1.5% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1997, the aggregate cost of investment securities for
income tax purposes was $1,981,778,000. Net unrealized appreciation
aggregated $125,349,000, of which $179,818,000 related to appreciated
investment securities and $54,469,000 related to depreciated
investment securities.
At April 30, 1997, the fund had a capital loss carryforward of
approximately $94,621,000 of which $52,847,000, and $41,774,000 will
expire on April 30, 1999, and 2005, respectively.
The fund intends to elect to defer to its fiscal year ending April 30,
1998 approximately $51,826,000 of losses recognized during the period
November 1, 1996 to April 30, 1997.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) OCTOBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,107,127
AGREEMENTS OF $235,481) (COST $1,977,662) -
SEE ACCOMPANYING SCHEDULE
CASH 1
RECEIVABLE FOR INVESTMENTS SOLD 31,224
DIVIDENDS RECEIVABLE 46
INTEREST RECEIVABLE 17,968
OTHER RECEIVABLES 1,726
TOTAL ASSETS 2,158,092
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 30,683
PAYABLE FOR FUND SHARES REDEEMED 967
DISTRIBUTIONS PAYABLE 1,185
ACCRUED MANAGEMENT FEE 1,056
OTHER PAYABLES AND ACCRUED EXPENSES 964
COLLATERAL ON SECURITIES LOANED, AT VALUE 21,058
TOTAL LIABILITIES 55,913
NET ASSETS $ 2,102,179
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,073,106
UNDISTRIBUTED NET INVESTMENT INCOME 12,092
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (112,484)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 129,465
NET ASSETS, FOR 212,771 SHARES OUTSTANDING $ 2,102,179
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.88
PER SHARE ($2,102,179 (DIVIDED BY) 212,771 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1997
INVESTMENT INCOME $ 9,598
DIVIDENDS (INCLUDING $48 RECEIVED FROM AFFILIATED ISSUERS)
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $141) 71,715
TOTAL INCOME 81,313
EXPENSES
MANAGEMENT FEE $ 6,169
TRANSFER AGENT FEES 2,029
ACCOUNTING AND SECURITY LENDING FEES 414
NON-INTERESTED TRUSTEES' COMPENSATION 21
CUSTODIAN FEES AND EXPENSES 26
REGISTRATION FEES 48
AUDIT 80
LEGAL 17
MISCELLANEOUS 2
TOTAL EXPENSES BEFORE REDUCTIONS 8,806
EXPENSE REDUCTIONS (82) 8,724
NET INVESTMENT INCOME 72,589
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES (INCLUDING REALIZED LOSS OF $3,653 37,929
ON SALE OF INVESTMENTS IN AFFILIATED ISSUERS)
FOREIGN CURRENCY TRANSACTIONS (4) 37,925
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 110,309
INVESTMENT SECURITIES
NET GAIN (LOSS) 148,234
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 220,823
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, APRIL 30,
1997 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 72,589 $ 141,924
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 37,925 (87,543)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 110,309 110,677
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 220,823 165,058
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (89,674) (180,254)
SHARE TRANSACTIONS 129,761 280,897
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 79,666 156,531
COST OF SHARES REDEEMED (279,561) (652,730)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (70,134) (215,302)
FROM SHARE TRANSACTIONS
REDEMPTION FEES 323 925
TOTAL INCREASE (DECREASE) IN NET ASSETS 61,338 (229,573)
NET ASSETS
BEGINNING OF PERIOD 2,040,841 2,270,414
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,102,179 $ 2,040,841
INCOME OF $12,092 AND $29,177, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 13,348 30,268
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 8,239 17,049
REDEEMED (28,847) (70,439)
NET INCREASE (DECREASE) (7,260) (23,122)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31,
1997 1997 1996 1995 1994 D 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.280 $ 9.340 $ 9.170 $ 9.590 $ 9.300 $ 8.320
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .337 C .605 C .902 .814 .871 .645
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .678 .093 .119 (.427) .249 .942
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT 1.015 .698 1.021 .387 1.120 1.587
OPERATIONS
LESS DISTRIBUTIONS (.416) (.762) (.724) (.617) (.730) (.619)
FROM NET INVESTMENT
INCOME
IN EXCESS OF NET - - (.133) (.202) (.119) -
INVESTMENT INCOME
TOTAL DISTRIBUTIONS (.416) (.762) (.857) (.819) (.849) (.619)
REDEMPTION FEES ADDED .001 .004 .006 .012 .019 .012
TO PAID IN CAPITAL
NET ASSET VALUE, END $ 9.880 $ 9.280 $ 9.340 $ 9.170 $ 9.590 $ 9.300
OF PERIOD
TOTAL RETURN B, G 11.12% 7.88% 11.72% 4.63% 12.46% 20.03%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 2,102 $ 2,041 $ 2,270 $ 2,256 $ 2,734 $ 2,124
(IN MILLIONS)
RATIO OF EXPENSES TO .83% A .87% .98% .96% .97% .91%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .83% A, .86% .98% .96% .97% .91%
AVERAGE NET ASSETS AFTER E E
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT 6.87% A 6.53% 8.03% 7.38% 6.78% 7.45%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 208% A 309% 119% 78% 100% 102%
AVERAGE COMMISSION $ .0331 $ .0382
RATE F
</TABLE>
A ANNUALIZED
B THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS).
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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 6 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.
G TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended October 31, 1997
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 primarily using dealer-supplied valuations or 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 foreign
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. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. 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.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net investment income. Distributions to shareholders from
realized capital gains on investments, if any, are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for 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 and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments 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-denominated
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
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS -
CONTINUED
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 for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $49,059,000 or 2.3% 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, the value of these investments was $0.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,010,567,000 and $1,884,087,000, respectively, of which
U.S. government and government agency obligations aggregated
$247,173,000 and $246,343,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
net assets of the fund. The group fee rate is the weighted average of
a series of rates and is based on the monthly average net assets of
all the mutual funds advised by FMR. The rates ranged from .1100% to
.3700% for the period. The annual individual fund fee rate is .45%. In
the event that these rates were lower than the contractual rates in
effect during the period, FMR voluntarily implemented the above rates,
as they resulted in the same or a lower management fee. For the
period, the management fee was equivalent to an annualized rate of
.58% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .19% 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 $29,000 for the
period.
5. 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, the value of the securities loaned and the value of
collateral amounted to $19,877,000 and $21,058,000, respectively.
6. 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 $73,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $7,000 and $2,000, respectively, under these arrangements.
7. 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. $ 493 $ 433 $ - $ 14,155
Contifinancial Corp. 7,099 - - 21,243
Echostar Communications Class A 6,632 16,687 - 17,049
El Paso Electric Co. - 153 - 37,685
Mountain Province Mining, Inc. 99 - - 5,435
Showboat, Inc. 5,799 - 48 22,540
Thermadyne Holdings Corp. - - - 72,748
WHG Resorts and Casinos, Inc. - 1,085 - -
WMS Industries, Inc. 22 14,749 - -
TOTALS $ 20,144 $ 33,107 $ 48 $ 190,855
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of 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,
1997, 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, 1997 and the financial highlights
for the six months ended October 31, 1997 and each of the five years
in the period ended April 30, 1997. 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, 1997 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, 1997, 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, 1997 and the financial
highlights for the six months ended October 31, 1997 and each of the
five years in the period ended April 30, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 10, 1997
INVESTMENT ADVISER
Fidelity Management & Research Company, Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart Grenier, Vice President
David Glancy, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
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Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan Ginnie Mae
(registered trademark)
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline 1999, 2001 & 2003
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
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(8 a.m. - 9 p.m.)
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for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
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