(2_FIDELITY_LOGOS)
FIDELITY
CAPITAL & INCOME
FUND
SEMIANNUAL REPORT
OCTOBER 31, 1998
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 29 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 33 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 38 THE AUDITORS' OPINION
ACCOUNTANTS
DISTRIBUTIONS 39
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.
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.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
What a difference one month can make. The stock and bond markets did
an about-face in October, as renewed optimism in many emerging markets
and more encouraging corporate earnings forecasts in the U.S. replaced
the concerns that had shaped the financial markets in recent months.
Equity markets worldwide bounced back strongly, while the major U.S.
bond indexes were off slightly as the flight to safety eased.
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. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888. 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. Prior to
December 30, 1990, Fidelity Capital & Income Fund operated under a
different investment objective. Accordingly, the fund's historical
performance may not represent its current investment policies.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
FIDELITY CAPITAL & INCOME -11.04% -1.05% 41.01% 167.57%
ML HIGH YIELD MASTER -4.03% 1.00% 49.48% 175.64%
HIGH CURRENT YIELD FUNDS AVERAGE -9.09% -3.35% 39.07% 134.14%
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 271 mutual funds. These benchmarks reflect reinvestment
of dividends and capital gains, if any, and exclude the effect of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY CAPITAL & INCOME -1.05% 7.12% 10.34%
ML HIGH YIELD MASTER 1.00% 8.37% 10.67%
HIGH CURRENT YIELD FUNDS AVERAGE -3.35% 6.78% 8.81%
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
Capital & Income ML High Yield Master
00038 ML002
1988/10/31 10000.00 10000.00
1988/11/30 9995.66 10037.46
1988/12/31 10062.89 10079.93
1989/01/31 10248.10 10231.10
1989/02/28 10305.13 10299.85
1989/03/31 10242.64 10290.69
1989/04/30 10204.79 10321.06
1989/05/31 10387.94 10511.07
1989/06/30 10606.70 10659.98
1989/07/31 10626.64 10710.47
1989/08/31 10625.64 10763.37
1989/09/30 10296.91 10660.90
1989/10/31 9840.20 10492.28
1989/11/30 9861.65 10515.79
1989/12/31 9739.31 10506.28
1990/01/31 9412.80 10300.95
1990/02/28 9243.27 10150.93
1990/03/31 9334.14 10288.15
1990/04/30 9364.01 10340.42
1990/05/31 9562.83 10527.20
1990/06/30 9776.03 10731.15
1990/07/31 9991.40 10957.93
1990/08/31 9751.54 10538.44
1990/09/30 9490.45 10080.11
1990/10/31 9189.80 9823.59
1990/11/30 9312.19 9906.81
1990/12/31 9364.70 10049.56
1991/01/31 9415.46 10191.62
1991/02/28 9887.80 10948.08
1991/03/31 10320.74 11418.80
1991/04/30 10751.69 11825.44
1991/05/31 10789.17 11883.18
1991/06/30 11016.53 12122.23
1991/07/31 11371.94 12412.69
1991/08/31 11525.58 12673.58
1991/09/30 11682.00 12835.00
1991/10/31 11966.53 13216.40
1991/11/30 12036.06 13369.06
1991/12/31 12157.18 13524.38
1992/01/31 12890.35 13997.23
1992/02/29 13434.83 14344.86
1992/03/31 14008.38 14545.01
1992/04/30 14294.49 14650.88
1992/05/31 14467.18 14884.57
1992/06/30 14633.76 15069.50
1992/07/31 14923.97 15374.83
1992/08/31 15073.51 15578.38
1992/09/30 15218.29 15755.88
1992/10/31 15063.78 15556.88
1992/11/30 15207.15 15777.20
1992/12/31 15567.20 15980.35
1993/01/31 16161.61 16373.85
1993/02/28 16497.32 16683.78
1993/03/31 17021.68 16973.03
1993/04/30 17157.71 17094.86
1993/05/31 17501.60 17324.98
1993/06/30 18181.71 17650.47
1993/07/31 18350.50 17840.19
1993/08/31 18501.02 18010.26
1993/09/30 18600.46 18099.12
1993/10/31 18974.39 18440.06
1993/11/30 19176.86 18540.92
1993/12/31 19444.03 18726.31
1994/01/31 20028.06 19136.70
1994/02/28 20018.36 18999.08
1994/03/31 19500.92 18379.96
1994/04/30 19295.62 18165.17
1994/05/31 19272.74 18100.45
1994/06/30 19024.67 18167.07
1994/07/31 19150.89 18294.78
1994/08/31 19152.46 18421.85
1994/09/30 19127.80 18414.88
1994/10/31 19003.83 18461.68
1994/11/30 18667.57 18304.63
1994/12/31 18547.57 18508.24
1995/01/31 18833.02 18769.77
1995/02/28 19592.50 19355.41
1995/03/31 19697.54 19624.77
1995/04/30 20189.92 20084.26
1995/05/31 20555.28 20711.73
1995/06/30 20631.47 20869.93
1995/07/31 21354.77 21108.52
1995/08/31 21422.23 21236.63
1995/09/30 21715.56 21479.60
1995/10/31 21760.98 21631.86
1995/11/30 21382.23 21843.02
1995/12/31 21652.38 22193.64
1996/01/31 21753.01 22544.14
1996/02/29 22167.02 22578.09
1996/03/31 22193.21 22516.77
1996/04/30 22557.08 22526.97
1996/05/31 22724.82 22689.43
1996/06/30 22647.15 22825.73
1996/07/31 22565.75 22980.69
1996/08/31 22884.90 23218.02
1996/09/30 23478.84 23716.17
1996/10/31 23592.40 23976.08
1996/11/30 23906.28 24460.81
1996/12/31 24122.37 24649.03
1997/01/31 24259.36 24838.46
1997/02/28 24745.15 25186.89
1997/03/31 24251.85 24907.16
1997/04/30 24335.20 25190.64
1997/05/31 25107.34 25691.85
1997/06/30 25541.79 26089.56
1997/07/31 26124.70 26715.65
1997/08/31 26284.99 26655.54
1997/09/30 27503.45 27110.65
1997/10/31 27041.26 27290.57
1997/11/30 27200.71 27534.98
1997/12/31 27669.40 27810.28
1998/01/31 28389.70 28217.67
1998/02/28 28985.84 28340.94
1998/03/31 29740.97 28585.18
1998/04/30 30076.00 28720.95
1998/05/31 29994.52 28906.75
1998/06/30 29918.35 29064.14
1998/07/31 30105.74 29229.89
1998/08/31 27164.91 27968.59
1998/09/30 27324.94 28024.38
1998/10/30 26756.72 27556.88
IMATRL PRASUN SHR__CHT 19981031 19981104 145555 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Capital & Income Fund on October 31, 1988. As the
chart shows, by October 31, 1998, the value of the investment would
have grown to $26,757 - a 167.57% increase on the initial investment.
For comparison, look at how the Merrill Lynch High Yield Master Index
did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 would have grown to $27,564 - a 175.64%
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)
<TABLE>
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TOTAL RETURN COMPONENTS
SIX MONTHS YEARS ENDED APRIL 30,
ENDED
OCTOBER 31,
1998 1997 1996 1995 1994
DIVIDEND RETURNS 4.22% 8.52% 9.87% 9.01% 9.34%
CAPITAL RETURNS -15.26% -0.64% 1.85% -4.38% 3.12%
TOTAL RETURNS -11.04% 7.88% 11.72% 4.63% 12.46%
</TABLE>
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED OCTOBER 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.66(CENTS) 48.75(CENTS) 78.15(CENTS)
ANNUALIZED DIVIDEND RATE 7.50% 9.70% 7.73%
30-DAY ANNUALIZED YIELD 10.46% - -
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 $8.89
over the past one month, $9.97 over the past six months and $10.11
over the past one year, you can compare the fund's income over these
three periods. The 30-day annualized YIELD is a standard formula for
all 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
MARKET RECAP
Despite some recent signs of life,
the high-yield bond market posted
lackluster results during the six
months that ended October 31,
1998. While the high-yield market
tends to perform somewhat in line
with the stock market, this was not
the case during the stock market's
recent rally. Although the overall
six-month return of -0.41% for the
Standard & Poor's 500 Index was
weak, the index posted an
impressive 8.13% return during
October. Despite the recent
strength in the stock market, the
Merrill Lynch High Yield Master
Index - a broad measure of the
high-yield market - returned
- -1.64% during October and
- -4.03% for the period. In
comparison, the Lehman Brothers
Aggregate Bond Index - a
popular performance gauge of the
U.S. taxable bond market -
returned 5.55% during the past six
months. The skepticism exhibited
in the high-yield market is a
reflection of its participants.
Whereas stocks and higher-quality
bonds are generally purchased by
individual investors and large
institutions, high-yield bonds are
largely the domain of insurance
companies and pension funds.
These investors have been more
doubtful of the Federal Reserve
Board's ability to prevent an
economic downturn and have
subscribed to the view that a
slowdown due to foreign weakness
may be in the cards.
An interview with David Glancy, Portfolio Manager of Fidelity Capital
& Income Fund
Q. DAVID, HOW DID THE FUND PERFORM?
A. For the six months that ended October 31, 1998, the fund had a
total return of -11.04%. To compare, the high current yield funds
average tracked by Lipper Analytical Services returned -9.09% and the
Merrill Lynch High Yield Master Index returned -4.03% over the same
six-month period. For the 12 months that ended October 31, 1998, the
fund returned -1.05%, while the Lipper average returned -3.35% and the
Merrill Lynch index returned 1.00%.
Q. WHY DID THE FUND'S SIX-MONTH PERFORMANCE LAG THAT OF THE INDEX AND
ITS PEERS?
A. The fund's underperformance occurred mainly in late August and in
early October, when the markets were rocked by problems in Russia and
with hedge fund Long-Term Capital Management, respectively. In the
corporate bond market's sharp downdrafts in August and October,
lower-rated debt was marked down more than higher-rated issues. The
overall credit rating of the fund's holdings was slightly lower than
the average of its peers, and lower than that of the index. As a
result, the fund didn't perform as well as the average and the index
during the period. It's important for shareholders to understand that
the fund was hurt by broad declines in the capital markets that
toppled high-yield bonds after two years of heady gains, not because
of difficulties encountered by the companies represented in the
portfolio.
Q. WHAT WAS YOUR STRATEGY AMID THIS VOLATILE ENVIRONMENT?
A. There weren't any major shifts in strategy, although I used the
market dips as an opportunity to use the fund's cash and short-term
investments to buy securities that had dropped in value. One of the
reasons the fund historically has carried a larger cash and short-term
investment position than many other funds is to take advantage of
buying opportunities like we've seen come to the market over the past
six months. The fund's purchases were focused on high-yield debt
securities. The fund also can invest in distressed securities - stocks
or bonds of companies that have gone through financial difficulty -
but that market has been unattractive for some time. This fund
profited from distressed securities in the early '90s, but at the time
that market was characterized by very good companies, such as market
leaders that had erred by borrowing too much at the wrong time. The
fund profited as the economy turned upward and their profits improved.
The distressed-debt market today is primarily non-competitive
companies with operating problems that can't be helped by an infusion
of new capital. Common stocks accounted for about 5% of the fund's
investments at the end of the period; these investments fared poorly
in August's downturn, but have recovered well since then.
Q. SECURITIES OF CABLE TELEVISION AND TELECOMMUNICATIONS COMPANIES
CONTINUE TO BE WELL REPRESENTED IN THE FUND. HOW DID THESE INDUSTRIES
FARE?
A. They fell in August and October like most of the high-yield market,
but started to rebound well at the end of the period. Cable TV
securities, including those issued by Adelphia Communications and
Cablevision - listed in the investments as CSC Holdings - were
attractive because they enjoy steady cash flows; people pay their
cable bills regularly irrespective of economic conditions. The
telecommunications industry represents a large percentage of the firms
that have come to the high-yield market to raise capital. For example,
fund holdings Intermedia Communications and McLeod are competitive
local exchange companies (CLECs) that are taking advantage of
deregulation in the telecom industry to build digital
telecommunications infrastructures to challenge both regional and
long-distance operators. These companies have appealing long-term
prospects that should not be influenced by the ups and downs in the
economy. During the period, these securities suffered as questions
arose about the availability of funding; the firms are fairly
capital-dependent. However, investors in the sector were reassured
recently when WinStar announced it had received a loan of $2 billion
from Lucent Technologies.
Q. WHAT'S YOUR OUTLOOK AS WE WIND DOWN 1998 AND HEAD INTO 1999?
A. The market has priced in substantial increases in defaults - the
critical variable in the growth of and returns from the high-yield
market - well above the levels I think we'll see going forward. As a
result of these extremely attractive values, I believe the outlook is
as good as it's been since 1990. Near the end of the period, the
market rebounded, more accurately reflecting the credit risk carried
by securities in this market. I think a great deal of
capital-appreciation and total-return potential remains.
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 THE
CURRENT POTENTIAL OF THE
HIGH-YIELD MARKET:
"After sharp drops in August
and early October, the high-yield
market currently offers some
extraordinarily attractive values.
Default rates peaked at more than
10% in the early 1990s, but have
been in the 2% range since. I think
default rates will be in the 3% to 4%
range going forward. At the end
of the period, though, prices for
bonds in this market priced in a
default rate of about 9% to 10%.
That makes them very appealing.
"This may be the time when people
might want to own a high-yield bond
fund, especially one offered by a
company like Fidelity where there
are lots of resources dedicated to
researching which companies will
succeed and which will fail. For
the past five years, access to credit
in the high-yield market was so
easy that bad companies could
refinance their way out of
problems before anyone knew
about it. Now, it's a much more
selective market. That's a good
thing; our credit-intensive
approach to this asset class should
show dividends over the long
term."
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, 1998,
more than $2.0 billion
MANAGER: David Glancy, since
1996; manager, Spartan High
Income Fund, 1993-1996;
joined Fidelity in 1990
(checkmark)
INVESTMENT CHANGES
<TABLE>
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TOP FIVE HOLDINGS AS OF OCTOBER 31, 1998
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO
NEXTEL COMMUNICATIONS, INC. 8.4 7.6
ECHOSTAR COMMUNICATIONS CORP. 6.7 5.7
PATHMARK STORES INC 3.8 3.6
CSC HOLDINGS, INC. 3.6 3.2
ECHOSTAR SATELLITE BROADCASTING CORP. 2.9 2.0
</TABLE>
<TABLE>
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TOP FIVE MARKET SECTORS AS OF OCTOBER 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
MEDIA & LEISURE 31.8 23.4
UTILITIES 26.6 23.3
RETAIL & WHOLESALE 5.8 5.5
ENERGY 5.6 5.1
FINANCE 5.2 9.5
</TABLE>
QUALITY DIVERSIFICATION AS OF OCTOBER 31, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 0.0 0.0
BAA 0.0 0.0
BA 5.2 3.9
B 43.4 43.1
CAA, CA, C 12.4 10.0
NOT RATED 5.8 5.5
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, 1998 AND APRIL 30, 1998
ACCOUNT FOR 5.8% AND 5.5% RESPECTIVELY, OF THE FUND'S INVESTMENTS.
<TABLE>
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ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF OCTOBER 31, 1998* AS OF APRIL 30, 1998**
NONCONVERTIBLE
BONDS 66.3%
CONVERTIBLE BONDS,
PREFERRED STOCKS 19.7%
COMMON STOCKS 4.6%
SHORT-TERM
INVESTMENTS 9.1%
OTHER INVESTMENTS 0.3%
* FOREIGN
INVESTMENTS 5.5%
NONCONVERTIBLE
BONDS 61.8%
CONVERTIBLE BONDS,
PREFERRED STOCKS 21.7%
COMMON STOCKS 12.2%
SHORT-TERM
INVESTMENTS 3.9%
OTHER INVESTMENTS 0.4%
** FOREIGN
INVESTMENTS 4.2%
</TABLE>
ROW: 1, COL: 1, VALUE: 1.3
ROW: 1, COL: 2, VALUE: 9.1
ROW: 1, COL: 3, VALUE: 4.6
ROW: 1, COL: 4, VALUE: 19.7
ROW: 1, COL: 5, VALUE: 65.3
ROW: 1, COL: 1, VALUE: 1.4
ROW: 1, COL: 2, VALUE: 3.9
ROW: 1, COL: 3, VALUE: 12.2
ROW: 1, COL: 4, VALUE: 21.7
ROW: 1, COL: 5, VALUE: 61.4
INVESTMENTS OCTOBER 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CORPORATE BONDS - 66.5%
<TABLE>
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MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
CONVERTIBLE BONDS - 0.2%
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
Key Energy Group, Inc. 5% 9/15/04 - $ 2,000 $ 1,220
UTILITIES - 0.2%
CELLULAR - 0.2%
Rogers Communications, Inc. 2% 11/26/05 B2 6,000 3,765
TOTAL CONVERTIBLE BONDS 4,985
NONCONVERTIBLE BONDS - 66.3%
AEROSPACE & DEFENSE - 0.3%
K & F Industries, Inc. 9.25% 10/15/07 B3 7,000 6,650
BASIC INDUSTRIES - 0.9%
CHEMICALS & PLASTICS - 0.6%
Brunner Mond Group PLC 11% 7/15/08 (c) B3 4,600 3,956
Sterling Chemicals Holdings, Inc. 0% Caa1 4,000 1,240
8/15/08 (b)
Sterling Chemicals, Inc. 11.25% 4/1/07 B3 9,930 7,423
12,619
PACKAGING & CONTAINERS - 0.1%
Huntsman Packaging Corp. 9.125% 10/1/07 B2 2,050 1,958
PAPER & FOREST PRODUCTS - 0.2%
Container Corp. of America:
gtd. 10.75% 5/1/02 B1 3,420 3,454
9.75% 4/1/03 B1 500 485
3,939
TOTAL BASIC INDUSTRIES 18,516
CONSTRUCTION & REAL ESTATE - 1.0%
REAL ESTATE - 0.4%
LNR Property Corp. 9.375% 3/15/08 B1 9,230 8,261
REAL ESTATE INVESTMENT TRUSTS - 0.6%
Ocwen Asset Investment Corp. 11.5% - 22,330 12,728
7/1/05 (c)
TOTAL CONSTRUCTION & REAL ESTATE 20,989
CORPORATE BONDS - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Breed Technologies, Inc. 9.25% 4/15/08 (c) B3 $ 1,460 $ 1,139
ENERGY - 4.8%
COAL - 0.5%
P&L Coal Holdings Corp. 9.625% 5/15/08 (c) B2 10,245 10,143
ENERGY SERVICES - 1.7%
Bayard Drilling Technologies, Inc. 11% B2 7,950 8,586
6/30/05
Dawson Production Services, Inc. 9.375% B1 2,135 2,135
2/1/07
DI Industries, Inc. 8.875% 7/1/07 B1 1,000 725
Grant Geophysical, Inc. 9.75% 2/15/08 B3 7,000 5,180
Northern Offshore ASA 10% 5/15/05 (c) B3 4,000 2,720
Ocean Rig Norway AS 10.25% 6/1/08 B3 460 329
Offshore Logistics, Inc. 7.875% 1/15/08 Ba3 3,550 3,195
Pool Energy Services Co. 8.625% 4/1/08 B2 14,000 12,880
35,750
OIL & GAS - 2.6%
Belden & Blake Corp. 9.875% 6/15/07 B3 9,120 7,296
Chesapeake Energy Corp. 9.625% 5/1/05 B1 6,570 5,519
Gothic Production Corp. 11.125% 5/1/05 B3 3,775 2,454
Great Lakes Carbon Corp.:
0% 5/15/09 (b)(c) Caa1 3,135 1,254
10.25% 5/15/08 (c) B3 2,475 2,401
Hurricane Hydrocarbons Ltd. 11.75% B3 11,500 5,750
11/1/04 (c)
Magnum Hunter Resources, Inc. 10% 6/1/07 B2 8,000 6,320
Nuevo Energy Co. 8.875% 6/1/08 B1 2,500 2,488
Petsec Energy, Inc. 9.5% 6/15/07 Caa1 9,210 7,368
Southwest Royalties, Inc. 10.5% 10/15/04 Caa2 11,680 6,132
TransAmerican Refining Corp. 16% 6/30/03 - 10,000 8,000
unit (c)
54,982
TOTAL ENERGY 100,875
CORPORATE BONDS - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - 4.1%
CREDIT & OTHER FINANCE - 3.5%
Abraxas Petroleum Corp./Canadian Abraxas B2 $ 5,770 $ 4,385
11.5% 11/1/04
Cellco Finance NV 15% 8/1/05 (c) B2 3,680 2,999
ContiFinancial Corp.:
7.5% 3/15/02 Ba3 1,000 650
8.125% 4/1/08 Ba3 11,400 6,897
8.375% 8/15/03 Ba3 22,000 13,860
Delta Financial Corp. 9.5% 8/1/04 B3 15,100 8,456
Denbury Management, Inc. 9% 3/1/08 B3 990 842
Grove Investors LLC/Grove Investors Capital - 5,185 3,960
14.5% 5/1/10 (c)
Metris Companies, Inc. 10% 11/1/04 Ba3 14,000 13,020
Ocwen Capital Trust 10.875% 8/1/27 B2 6,650 4,988
Olympic Financial Ltd. 11.5% 3/15/07 B2 18,600 11,904
United Companies Financial Corp. Caa2 5,000 2,250
8.375% 7/1/05
74,211
INSURANCE - 0.3%
American Financial Group 9.75% 8/1/99 Ba1 5,000 5,075
SAVINGS & LOANS - 0.3%
Western Financial Bank 8.875% 8/1/07 B1 8,460 6,091
TOTAL FINANCE 85,377
HEALTH - 0.7%
DRUGS & PHARMACEUTICALS - 0.1%
Global Health Sciences, Inc. 11% 5/1/08 Caa1 2,555 2,197
MEDICAL FACILITIES MANAGEMENT - 0.6%
Fountain View, Inc. 11.25% 4/15/08 Caa1 9,350 7,293
Harborside Healthcare Corp. 0% B3 11,295 5,422
8/1/08 (b)(c)
12,715
TOTAL HEALTH 14,912
CORPORATE BONDS - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.8%
Thermadyne Holdings Corp. 0% 6/1/08 (b) Caa1 $ 20,130 $ 7,851
Thermadyne Manufacturing LLC 9.875% 6/1/08 B3 10,190 9,069
16,920
MEDIA & LEISURE - 21.5%
BROADCASTING - 20.2%
ACME Television LLC/ACME Financial Corp. 0% B3 9,810 7,259
9/30/04 (b)
Adelphia Communications Corp.:
8.375% 2/1/08 B2 7,500 7,463
9.25% 10/1/02 B2 3,600 3,708
9.875% 3/1/07 B2 20,890 22,352
Ascent Entertainment Group, Inc. 0% B3 9,870 5,577
12/15/04 (b)
CD Radio, Inc. 0% 12/1/07 (b) Caa1 4,000 1,880
Century Communications Corp. 0% 1/15/08 Ba3 28,400 13,632
Chancellor Media Corp. 9% 10/1/08 (c) Ba3 9,345 9,368
Citadel Broadcasting Co. 10.25% 7/1/07 B3 2,100 2,216
Classic Cable, Inc. 9.875% 8/1/09 (c) B3 1,430 1,444
Classic Communications, Inc. 0% 8/1/09 Caa1 5,520 2,870
unit (b)(c)
Comcast UK Cable Partners Ltd. 0% B2 13,180 10,280
11/15/07 (b)
EchoStar Communications Corp. 0% 6/1/04 (b) B2 55,235 53,854
Echostar DBS Corp. 12.5% 7/1/02 Caa1 4,000 4,090
Echostar Satellite Broadcasting Corp. 0% B3 69,980 60,183
3/15/04 (b)
Falcon Holdings Group LP/Falcon Funding:
0% 4/15/10 (b) B2 11,900 7,854
8.375% 4/15/10 B2 5,515 5,446
FrontierVision Holdings LP/FrontierVision Caa1 1,974 1,594
Holdings Capital Corp. 0% 9/15/07 (b)
Golden Sky Systems, Inc. 12.375% 8/1/06 (c) B3 6,190 6,128
International Cabletel, Inc.:
0% 4/15/05 (b) B3 4,168 3,626
0% 2/1/06 (b) B3 10,000 7,600
Iridium Operating LLC/Iridium Capital Corp.:
10.875% 7/15/05 B3 18,610 13,958
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Iridium Operating LLC/Iridium Capital Corp.: - continued
11.25% 7/15/05 B3 $ 37,455 $ 28,466
Lenfest Communications, Inc. 8.25% 2/15/08 B2 2,210 2,216
LIN Holdings Corp. 0% 3/1/08 (b) B3 13,610 8,778
Marcus Cable Operating Co. LP/Marcus Cable B2 3,000 2,948
Capital Corp. 0% 8/1/04 (b)
NTL, Inc.:
0% 4/1/08 (b)(c) B3 35,600 19,580
0% 10/1/08 (b)(c) B3 17,500 9,713
10% 2/15/07 B3 1,520 1,444
11.5% 10/1/08 (c) B3 8,925 9,237
Olympus Communications LP/Olympus Capital B1 4,420 4,752
Corp. 10.625% 11/15/06
Orbital Imaging Corp. 11.625% 3/1/05 - 10,380 9,134
Orion Network Systems, Inc. 11.25% 1/15/07 B2 3,970 3,494
Renaissance Media Group LLC/Renaissance 0% B3 3,980 2,507
4/15/08 (b)
Satelites Mexicanos SA de CV:
9.06% 6/30/04 (c)(d) - 11,595 10,204
10.125% 11/1/04 (c) B3 43,425 29,529
TCI Satellite Entertainment, Inc. 10.875% 2/15/07 Caa1 4,000 2,000
Telemundo Holdings, Inc. 0% 8/15/08 (b)(c) Caa1 11,505 5,753
Telewest Communications PLC 11.25% B+ 3,430 3,602
11/1/08 (c)
Telewest PLC:
yankee 0% 10/1/07 (b) B1 20,655 16,317
9.625% 10/1/06 B1 3,410 3,342
425,398
ENTERTAINMENT - 0.3%
Alliance Gaming Corp. 10% 8/1/07 B3 4,000 3,360
Jones International Networks Ltd. 11.75% B3 2,665 2,265
7/1/05 (c)
5,625
LODGING & GAMING - 1.0%
Grand Casinos, Inc. 9% 10/15/04 B2 5,000 5,125
CORPORATE BONDS - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Hollywood Park, Inc./Hollywood Park Operating B2 $ 1,000 $ 925
Co. 9.5% 8/1/07
Resort at Summerlin LP (The)/Resort at Caa1 11,893 11,215
Summerlin, Inc. (The) 13% 12/15/07
pay-in-kind
Signature Resorts, Inc. 9.25% 5/15/06 B2 4,000 3,400
20,665
PUBLISHING - 0.0%
Maxwell Communication Corp. PLC euro 5% - CHF 6 0
6/16/99 (i)
TOTAL MEDIA & LEISURE 451,688
NONDURABLES - 2.5%
FOODS - 0.2%
Compania de Alimentos Fargo SA 13.25% B1 3,180 1,876
8/1/08 (c)
Del Monte Foods Co. 0% 12/15/07 (b) Caa2 5,350 2,996
4,872
HOUSEHOLD PRODUCTS - 2.3%
AKI, Inc. 10.5% 7/1/08 (c) B2 2,850 2,708
Carson, Inc. 10.375% 11/1/07 B3 5,725 2,405
Jafra Cosmet International, Inc./Jafra Companies Caa1 8,000 6,560
SA 11.75% 5/1/08 (c)
Revlon Consumer Products Corp.:
8.125% 2/1/06 B2 5,000 4,850
8.625% 2/1/08 B3 22,500 20,475
9.5% 6/1/99 B2 9,847 9,909
46,907
TOTAL NONDURABLES 51,779
RETAIL & WHOLESALE - 5.4%
DRUG STORES - 0.2%
Duane Reade, Inc. 9.25% 2/15/08 B3 4,000 3,920
CORPORATE BONDS - CONTINUED
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 3.8%
Pathmark Stores, Inc.:
0% 11/1/03 (b) Caa2 $ 18,750 $ 13,875
9.625% 5/1/03 Caa1 42,200 41,356
11.625% 6/15/02 Caa2 22,225 21,225
12.625% 6/15/02 Caa2 3,530 3,371
79,827
RETAIL & WHOLESALE, MISCELLANEOUS - 1.4%
Amazon.com, Inc. 0% 5/1/08 (b) Caa2 36,120 21,040
MTS, Inc. 9.375% 5/1/05 B2 2,630 2,387
Nebraska Book Co., Inc. 8.75% 2/15/08 B3 6,540 5,886
29,313
TOTAL RETAIL & WHOLESALE 113,060
SERVICES - 0.5%
LEASING & RENTAL - 0.2%
Renters Choice, Inc. 11% 8/15/08 (c) B2 5,000 4,838
SERVICES - 0.3%
Borg-Warner Security Corp. 9.625% 3/15/07 B3 5,040 5,393
Young American Corp. 11.625% 2/15/06 B3 2,900 1,015
6,408
TOTAL SERVICES 11,246
TECHNOLOGY - 3.7%
COMMUNICATIONS EQUIPMENT - 2.0%
Intermedia Communications, Inc.:
0% 7/15/07 (b) B2 23,000 15,180
8.6% 6/1/08 B2 29,070 27,544
42,724
COMPUTER SERVICES & SOFTWARE - 1.4%
Concentric Network Corp. 12.75% 12/15/07 - 1,050 950
Federal Data Corp. 10.125% 8/1/05 B3 2,500 2,250
ICG Services, Inc.:
0% 2/15/08 (b) - 20,335 9,964
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
ICG Services, Inc.: - continued
0% 5/1/08 (b) - $ 23,820 $ 11,255
PSINet, Inc. 10% 2/15/05 B3 5,140 5,037
29,456
COMPUTERS & OFFICE EQUIPMENT - 0.3%
Mediacom LLC/Mediacom Capital Corp. 8.5% B2 5,640 5,584
4/15/08
TOTAL TECHNOLOGY 77,764
TRANSPORTATION - 1.9%
AIR TRANSPORTATION - 0.8%
US Air, Inc. 9.625% 2/1/01 B1 16,197 16,683
RAILROADS - 0.8%
Transtar Holdings LP/Transtar Capital Corp. 0% B- 17,790 16,812
12/15/03 (b)
SHIPPING - 0.3%
Amer Reefer Co. Ltd. 10.25% 3/1/08 B1 3,090 2,318
Holt Group, Inc. 9.75% 1/15/06 (c) Caa1 4,000 2,640
Stena Line AB 10.625% 6/1/08 B1 2,430 2,126
7,084
TOTAL TRANSPORTATION 40,579
UTILITIES - 18.1%
CELLULAR - 6.6%
Globalstar LP/Globalstar Capital Corp. 11.5% Caa1 10,000 6,669
6/1/05
ICO Global Communications Holdings Ltd. 15% CCC+ 9,000 5,940
8/1/05 unit (c)
Iridium LLC/Iridium Capital Corp. 14% 7/15/05 B3 4,000 3,400
McCaw International Ltd. 0% 4/15/07 (b) Caa1 53,320 23,727
Nextel Communications, Inc.:
0% 8/15/04 (b) B2 5,000 4,600
0% 9/15/07 (b) B2 15,564 9,066
0% 10/31/07 (b) B2 5,500 3,025
0% 2/15/08 (b) B2 27,050 14,675
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Nextel Communications, Inc.: - continued
12% 11/1/08 (c) B2 $ 24,700 $ 25,935
Nextel International, Inc. 0% 4/15/08 (b) Caa1 26,160 9,679
Orange PLC 8% 8/1/08 Ba3 5,000 4,875
PageMart Nationwide, Inc. 0% 2/1/05 (b) B3 5,000 4,350
Rogers Communications, Inc. 8.875% 7/15/07 B2 10,370 10,214
Teligent, Inc.:
0% 3/1/08 (b) Caa1 10,000 4,175
11.5% 12/1/07 Caa1 9,250 7,678
138,008
ELECTRIC UTILITY - 1.7%
Niagara Mohawk Power Corp.:
7% 10/1/00 Ba3 34,500 34,845
7.75% 10/1/08 Ba3 1,270 1,340
36,185
TELEPHONE SERVICES - 9.8%
Allegiance Telecom, Inc.:
0% 2/15/08 (b) - 10,000 4,400
12.875% 5/15/08 - 5,320 5,027
Call-Net Enterprises, Inc. 0% 8/15/08 (b) B1 360 200
Covad Communications Group, Inc. 0% - 7,210 2,524
3/15/08 (b)
Dobson Wireline Co. 12.25% 6/15/08 (c) - 2,415 2,017
DTI Holdings, Inc. 0% 3/1/08 (b) - 30,500 9,760
e.spire Communications, Inc. 0% 7/1/08 (b)(c) - 7,480 3,665
Firstworld Communications, Inc. 0% - 15,890 4,382
4/15/08 (b)(c)
GST Equipment Funding, Inc. 13.25% 5/1/07 - 7,950 7,791
Hyperion Telecommunications, Inc.:
0% 4/15/03 (b) B3 2,710 1,843
12.25% 9/1/04 B3 2,300 2,243
IXC Communications, Inc. 9% 4/15/08 B3 28,610 28,252
KMC Telecom Holdings, Inc. 0% 2/15/08 (b) - 2,500 1,113
Level 3 Communications, Inc. 9.125% 5/1/08 B3 19,260 18,128
McLeodUSA, Inc.:
0% 3/1/07 (b) B2 31,690 22,500
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (G) AMOUNT (H) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
McLeodUSA, Inc.: - continued
8.375% 3/15/08 B2 $ 7,000 $ 6,738
9.25% 7/15/07 B2 11,640 11,756
9.5% 11/1/08 (c) B2 7,070 7,229
MetroNet Communications Corp. 0% B3 10,000 5,450
6/15/08 (b)
NEXTLINK Communications, Inc.:
0% 4/15/08 (b) B3 15,000 8,025
9.625% 10/1/07 B3 15,000 14,138
Pathnet, Inc. 12.25% 4/15/08 - 1,140 809
Qwest Communications International, Inc. 7.5% Ba1 5,000 5,063
11/1/08 (c)
Rhythms Netconnections, Inc. 0% 5/15/08 - 5,390 1,940
unit (b)(c)
Source Media, Inc. 12% 11/1/04 B3 2,000 1,500
Versatel Telecom BV 13.25% 5/15/08 (c) - 3,140 2,920
WinStar Communications, Inc.:
0% 10/15/05 (b) Caa1 2,650 2,862
0% 3/15/08 (b) CCC 13,375 10,165
10% 3/15/08 CCC 16,640 13,645
206,085
TOTAL UTILITIES 380,278
TOTAL NONCONVERTIBLE BONDS 1,391,772
TOTAL CORPORATE BONDS 1,396,757
(Cost $1,563,441)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 0.3%
First Chicago/Lennar Trust I Series 1997-CHL1 - 9,200 6,653
Class E, 8.1309% 2/28/11 (d)
(Cost $6,944)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 4.6%
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Borden Chemicals & Plastics Ltd. 2,000 $ 8
Sterling Chemicals Holdings, Inc. warrants 8/15/08 (a) 6,690 140
Trivest 1992 Special Fund Ltd. (a)(e) 11.4 1,306
1,454
METALS & MINING - 0.0%
Camphor Ventures, Inc. (a) 356,400 85
TOTAL BASIC INDUSTRIES 1,539
DURABLES - 0.8%
TEXTILES & APPAREL - 0.8%
Arena Brands Holdings Corp. Class B 654,858 16,371
Hat Brands, Inc. (a)(f) 1,980,000 0
16,371
ENERGY - 0.5%
ENERGY SERVICES - 0.0%
Pool Energy Services Co. (a) 60,000 801
OIL & GAS - 0.5%
Chesapeake Energy Corp. 500,000 969
Nuevo Energy Co. (a) 357,800 7,581
XCL Ltd. unit (c) 10,000 1,040
9,590
TOTAL ENERGY 10,391
FINANCE - 0.3%
CREDIT & OTHER FINANCE - 0.3%
Arcadia Financial Ltd. (a) 484,100 2,027
ContiFinancial Corp. (a) 524,300 3,900
Delta Financial Corp. (a) 73,300 417
Olympic Financial Ltd. warrants 3/15/07 (a) 14,870 45
6,389
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 0.0%
Golden State Bancorp, Inc. 25,000 $ 480
TOTAL FINANCE 6,869
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Ampex Corp. Class A (a) 1,078,798 1,079
Loral Space & Communications Ltd. (a) 100,000 1,894
2,973
MEDIA & LEISURE - 2.3%
BROADCASTING - 1.8%
EchoStar Communications Corp. Class A (a)(j) 1,350,323 36,459
Loral Orion Network Systems, Inc.:
warrants 1/15/07 (CV ratio .47) (a) 10,000 79
warrants 1/15/07 (CV ratio .6) (a) 5,000 53
Orbital Imaging Corp. warrants 3/1/05 (a)(c) 10,380 104
Telewest Communications PLC sponsored ADR 20,000 463
UIH Australia/Pacific, Inc. warrants 5/15/06 (a) 7,450 22
37,180
ENTERTAINMENT - 0.3%
Alliance Gaming Corp. (a)(j) 3,272,378 7,158
Alliance Gaming Corp. (a)(f) 23,670 41
Livent, Inc. (a) 19,000 62
7,261
LODGING & GAMING - 0.2%
Resort at Summerlin L.P. warrants 12/15/07 (a)(c) 11,000 0
Station Casinos, Inc. (a) 552,000 3,312
3,312
TOTAL MEDIA & LEISURE 47,753
NONDURABLES - 0.0%
BEVERAGES - 0.0%
Stroh Brewery Co. warrants 7/1/01 (a) 25,067 90
PRECIOUS METALS - 0.1%
Mountain Province Mining, Inc. (a) 1,826,500 1,918
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 0.0%
APPAREL STORES - 0.0%
Lamonts Apparel, Inc.:
Class A warrants 1/31/08 (a) 571,603 $ 143
Class A (a)(j) 923,334 346
Class B warrants 1/31/08 (a) 183,381 46
535
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Zale Corp. (a) 3,233 77
TOTAL RETAIL & WHOLESALE 612
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Globalstar Telecommunications Ltd. warrants 2/15/04 (a)(c) 10,000 250
Intermedia Communications, Inc. (a) 3,510 65
315
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
CHC Helicopter Corp. Class A warrants 12/15/00 (a) 108,320 0
UTILITIES - 0.4%
CELLULAR - 0.0%
McCaw International Ltd. warrants 4/15/07 (a)(c) 55,220 276
Price Communications Corp. warrants 8/1/07 (a)(f) 17,200 557
833
ELECTRIC UTILITY - 0.2%
Baycorp Holdings Ltd. (a) 25,549 115
El Paso Electric Co. (a) 415,437 3,635
3,750
TELEPHONE SERVICES - 0.2%
Covad Communications Group, Inc. warrants 3/15/98 (a)(c) 7,210 72
DTI Holdings, Inc. warrants 3/1/08 (a)(c) 152,500 2
Firstworld Communications, Inc. warrants 4/15/08 (c) 15,890 226
Hyperion Telecommunications, Inc. Class A (a) 12,120 118
IXC Communications, Inc. 76,800 2,976
KMC Telecom Holdings, Inc. warrants 2/15/08 (a)(c) 2,500 6
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Pathnet, Inc. warrants 4/15/08 (a)(c) 1,140 $ 11
Versatel Telecom BV warrants 5/15/08 (a)(c) 3,140 31
3,442
TOTAL UTILITIES 8,025
TOTAL COMMON STOCKS 96,856
(Cost $150,074)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PREFERRED STOCKS - 19.5%
CONVERTIBLE PREFERRED STOCKS - 0.9%
ENERGY - 0.2%
OIL & GAS - 0.2%
Chesapeake Energy Corp.:
$3.50 (a)(c) 235,000 4,583
$3.50 19,000 371
XCL Ltd. Series A, 9.5% pay-in-kind 1,435 79
5,033
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.3%
Ampex Corp. 8% non-cumulative (a) 3,429 5,349
Loral Space & Communications Ltd. Series C, $3.00 29,000 1,537
6,886
MEDIA & LEISURE - 0.3%
BROADCASTING - 0.1%
EchoStar Communications Corp. $3.375 34,000 2,057
LODGING & GAMING - 0.2%
Station Casinos, Inc. $3.50 105,700 3,528
TOTAL MEDIA & LEISURE 5,585
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
IXC Communications, Inc. $3.375 (a)(c) 46,400 $ 1,668
TOTAL CONVERTIBLE PREFERRED STOCKS 19,172
NONCONVERTIBLE PREFERRED STOCKS - 18.6%
BASIC INDUSTRIES - 0.1%
PAPER & FOREST PRODUCTS - 0.1%
SD Warren Co. 14% pay-in-kind (a) 27,816 1,252
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Crown America Realty Trust Series A, $5.50 40,400 2,005
FINANCE - 0.8%
INSURANCE - 0.8%
American Annuity Group Capital Trust II 8.75% (a) 18,557 16,522
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
ELECTRICAL EQUIPMENT - 0.6%
Ampex Corp. 8% non-cumulative (a) 7,494 11,691
MEDIA & LEISURE - 7.7%
BROADCASTING - 7.7%
Adelphia Communications Corp. $13.00 197,855 22,803
Citadel Broadcasting Co. Series B, 13.25% pay-in-kind 45,727 5,167
CSC Holdings, Inc.: 67,857 7,464
Series H, 11.75% pay-in-kind
11.125% pay-in-kind 627,537 68,088
Echostar Communications Corp. 12.125% pay-in-kind 50,725 47,682
Granite Broadcasting Corp. 12.75% pay-in-kind 8,948 7,158
NTL, Inc. 13% pay-in-kind 4,055 3,852
162,214
RETAIL & WHOLESALE - 0.4%
GROCERY STORES - 0.4%
Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 427,093 9,396
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
TECHNOLOGY - 1.1%
COMMUNICATIONS EQUIPMENT - 0.7%
Intermedia Communications, Inc. 13.5% pay-in-kind 14,267 $ 14,552
COMPUTER SERVICES & SOFTWARE - 0.4%
Concentric Network Corp. 13.5% pay-in-kind 10,614 7,907
TOTAL TECHNOLOGY 22,459
UTILITIES - 7.8%
CELLULAR - 5.7%
Nextel Communications, Inc.:
11.125% pay-in-kind 107,891 90,618
Series D, 13% pay-in-kind 30,992 29,442
120,060
ELECTRIC UTILITY - 0.2%
El Paso Electric Co. Series A, 11.4% pay-in-kind 34,750 3,710
TELEPHONE SERVICES - 1.9%
e.spire Communications, Inc. 12.75% pay-in-kind 9,610 6,535
Hyperion Telecommunication, Inc. 12.875% pay-in-kind 13,039 8,084
ICG Holdings, Inc. 14% pay-in-kind 2,457 2,236
IXC Communications, Inc. 12.5% pay-in-kind 9,171 9,354
NEXTLINK Communications, Inc. 14% pay-in-kind 188,204 8,846
WinStar Communications, Inc. 14.25% (a) 6,000 5,340
40,395
TOTAL UTILITIES 164,165
TOTAL NONCONVERTIBLE PREFERRED STOCKS 389,704
TOTAL PREFERRED STOCKS 408,876
(Cost $448,365)
</TABLE>
PURCHASED BANK DEBT - 0.0%
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL VALUE (NOTE 1)
AMOUNT (H) (000S) (000S)
Merry-Go-Round Enterprises, Inc.:
lease indemnity claim $ 1,435 0
trade claim 339 0
TOTAL PURCHASED BANK DEBT 0
(Cost $1,417)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 9.1%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements (U.S. Treasury
obligations), in a joint trading account at:
5.39%, dated 10/30/98 due 11/2/98 187,755 187,699
5.4%, dated 10/30/98 due 11/2/98 2,142 2,141
TOTAL CASH EQUIVALENTS 189,840
(Cost $189,840)
TOTAL INVESTMENT IN SECURITIES - 100% $ 2,098,982
(Cost $2,360,081)
</TABLE>
CURRENCY ABBREVIATIONS
CHF - Swiss franc
LEGEND
(a) Non-income producing
(b) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(c) 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 $256,147,000 or 12.4% of net assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Share amount represents number of units held.
(f) Restricted securities - Investment in securities not registered
under the Securities Act of 1933 (see Note 2 of Notes to Financial
Statements).
SECURITY ACQUISTION ACQUISITION
DATE COST (000S)
Alliance Gaming 7/28/98 3
Corp.
Hat Brands, Inc. 2/22/94 1,980
Price Communications 9/19/97 166
Corp. warrants
8/1/97
(g) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(h) Principal amount is stated in United States dollars unless
otherwise noted.
(i) Non-income producing issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(j) Affiliated company (see Note 7 of Notes to Financial Statements).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments 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 0.2%
Ba 5.3% BB 4.1%
B 42.3% B 38.6%
Caa 11.1% CCC 17.7%
Ca, C 0.0% CC, C 0.2%
The percentage not rated by Moody's or S&P amounted to 5.8%. FMR has
determined that unrated debt securities that are lower quality account
for 5.8% of the total value of investment in securities.
INCOME TAX INFORMATION
At October 31, 1998, the aggregate cost of investment securities for
income tax purposes was $2,364,212,000. Net unrealized depreciation
aggregated $265,230,000, of which $50,316,000 related to appreciated
investment securities and $315,546,000 related to depreciated
investment securities.
At April 30, 1998, the fund had a capital loss carryforward of
approximately $999,000 all of which will expire on
April 30, 2005.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) OCTOBER 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 2,098,982
AGREEMENTS OF $189,840) (COST $2,360,081) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 20,286
RECEIVABLE FOR FUND SHARES SOLD 1,566
DIVIDENDS RECEIVABLE 67
INTEREST RECEIVABLE 28,010
REDEMPTION FEES RECEIVABLE 2
OTHER RECEIVABLES 3,013
TOTAL ASSETS 2,151,926
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 79,697
PAYABLE FOR FUND SHARES REDEEMED 2,242
DISTRIBUTIONS PAYABLE 1,692
ACCRUED MANAGEMENT FEE 984
OTHER PAYABLES AND ACCRUED EXPENSES 844
COLLATERAL ON SECURITIES LOANED, AT VALUE 4,187
TOTAL LIABILITIES 89,646
NET ASSETS $ 2,062,280
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 2,232,174
UNDISTRIBUTED NET INVESTMENT INCOME 25,494
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 65,711
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (261,099)
NET ASSETS, FOR 227,823 SHARES OUTSTANDING $ 2,062,280
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.05
PER SHARE ($2,062,280 (DIVIDED BY) 227,823 SHARES)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED OCTOBER 31, 1998
INVESTMENT INCOME $ 23,265
DIVIDENDS
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $178) 84,196
TOTAL INCOME 107,461
EXPENSES
MANAGEMENT FEE $ 6,570
TRANSFER AGENT FEES 2,107
ACCOUNTING AND SECURITY LENDING FEES 410
NON-INTERESTED TRUSTEES' COMPENSATION 3
CUSTODIAN FEES AND EXPENSES 38
REGISTRATION FEES 41
AUDIT 56
MISCELLANEOUS 6
TOTAL EXPENSES BEFORE REDUCTIONS 9,231
EXPENSE REDUCTIONS (89) 9,142
NET INVESTMENT INCOME 98,319
REALIZED AND UNREALIZED GAIN (LOSS) 72,013
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
(INCLUDING REALIZED GAIN OF $6,215 ON SALES OF
INVESTMENTS IN AFFILIATED ISSUERS)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (431,689)
INVESTMENT SECURITIES
NET GAIN (LOSS) (359,676)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (261,357)
FROM OPERATIONS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, APRIL 30,
1998 1998
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 98,319 $ 155,011
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 72,013 149,275
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (431,689) 151,434
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (261,357) 455,720
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (109,692) (152,717)
SHARE TRANSACTIONS 231,217 411,837
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 97,863 136,080
COST OF SHARES REDEEMED (251,958) (537,020)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM 77,122 10,897
SHARE TRANSACTIONS
REDEMPTION FEES 698 768
TOTAL INCREASE (DECREASE) IN NET ASSETS (293,229) 314,668
NET ASSETS
BEGINNING OF PERIOD 2,355,509 2,040,841
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 2,062,280 $ 2,355,509
INCOME OF $25,494 AND $36,867, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 23,285 40,637
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 9,824 13,717
REDEEMED (25,788) (53,883)
NET INCREASE (DECREASE) 7,321 471
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED APRIL 30,
OCTOBER 31, 1998 1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 10.680 $ 9.280 $ 9.340 $ 9.170 $ 9.590 $ 9.300
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .436 D .721 D .605 D .902 .814 .871
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED AND (1.582) 1.385 .093 .119 (.427) .249
UNREALIZED GAIN
(LOSS)
TOTAL FROM INVEST- (1.146) 2.106 .698 1.021 .387 1.120
MENT OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.487) (.710) (.762) (.724) (.617) (.730)
INCOME
IN EXCESS OF NET - - - (.133) (.202) (.119)
INVESTMENT INCOME
TOTAL DISTRIBUTIONS (.487) (.710) (.762) (.857) (.819) (.849)
REDEMPTION FEES .003 .004 .004 .006 .012 .019
ADDED TO PAID
IN CAPITAL
NET ASSET VALUE, $ 9.050 $ 10.680 $ 9.280 $ 9.340 $ 9.170 $ 9.590
END OF PERIOD
TOTAL RETURN B, C (11.04)% 23.59% 7.88% 11.72% 4.63% 12.46%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 2,062 $ 2,356 $ 2,041 $ 2,270 $ 2,256 $ 2,734
PERIOD (IN MILLIONS)
RATIO OF EXPENSES TO .81% A .83% .87% .98% .96% .97%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .81% A .82% E .86% E .98% .96% .97%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 8.67% A 7.23% 6.53% 8.03% 7.38% 6.78%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 127% A 179% 309% 119% 78% 100%
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE
YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD
CERTAIN EXPENSES NOT BEEN REDUCED DURING THE
PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED
BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH
THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE
FUND'S EXPENSES.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED OCTOBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Capital & Income Fund (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, 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 require 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. 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. 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
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, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. 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."
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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
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
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, passive foreign investment companies (PFIC),
defaulted bonds, litigation, 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.
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.
SHORT-TERM TRADING (REDEMPTION) FEES. Shares held in the fund less
than 365 days are subject to a short-term trading 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.
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
The U.S. dollar value of foreign currency contracts is determined
using contractual currency exchange rates established at the time of
each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), 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 $598,000 or 0.0% 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 $0 or 0.0% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,335,090,000, and $1,314,014,000, respectively, of which
U.S. government and government agency obligations aggregated
$75,745,000 and $76,389,000, 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 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 $27,000 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 $3,114,000 and $4,187,000, 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 $79,000 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 $2,000 and $8,000, 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Alliance Gaming Corp. $ 880 $ - $ - $ 7,158
Echostar Communications Class A 11,282 - - 36,459
El Paso Electric Co. 672 6,815 - -
Lamonts Apparel, Inc. Class A - - - 346
Thermadyne Holdings Corp. - - - -
TOTALS $ 12,834 $ 6,815 $ - $ 43,963
</TABLE>
8. LITIGATION.
In August 1998, the NGC Asbestos Disease and Property Damage
Settlement Trust commenced an action against FMR and other unrelated
parties. The complaint alleges that during the reorganization of
National Gypsum Company, the defendants (including FMR acting on
behalf of the fund and another Fidelity fund) failed to disclose
information material to the valuation of the reorganized entity. FMR
denies the allegations and intends to defend the lawsuit vigorously.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Summer Street Trust and the Shareholders
of Fidelity Capital & Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Capital & Income Fund (a fund of Fidelity Summer Street
Trust) at October 31, 1998, the results of its operations, the changes
in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Capital & Income Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at October 31, 1998 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 1998
DISTRIBUTIONS
The Board of Trustees of Fidelity Capital & Income Fund voted to pay
on December 7, 1998, to shareholders of record at the opening of
business on December 4, 1998, a distribution of $.26 derived from
capital gains realized from sales of portfolio securities a period.
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
Eric D. Roiter, 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
CAI-SANN-1298 66954
1.538653.101
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
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International Bond
Investment Grade Bond
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Short-Term Bond
Spartan Ginnie Mae
(registered trademark)
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline 1999, 2001 & 2003
SM
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MUTUAL FUND 24-HOUR SERVICE
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Account Assistance 1-800-544-6666
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(8 a.m. - 9 p.m.)
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