(2_FIDELITY_LOGOS)FIDELITY
EXCHANGE
FUND
ANNUAL REPORT
DECEMBER 31, 1996
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 16 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 20 Notes to the financial statements.
REPORT OF INDEPENDENT 23 The auditors' opinion.
ACCOUNTANTS
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Although stocks managed to post solid returns throughout 1996, signs of
strength in the economy have led to inflation fears, causing some
uncertainty in both the stock and bond markets. In 1995, both stock and
bond markets posted strong results, while the year before, stocks posted
below-average returns and bonds had one of the worst years in history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term. You also can help to manage some of the risks of investing
through diversification. A stock fund is already diversified because it
invests in many issues. You can diversify even further by placing some of
your money in several different types of stock funds or in other investment
categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. 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).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Exchange 21.00% 91.77% 297.25%
S&P 500(registered trademark) 22.96% 103.09% 314.99%
Growth and Income Funds Average 20.78% 92.43% 246.71%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one, five, or 10 years. For example, if
you invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Standard & Poor's 500 Index - a widely
recognized, unmanaged index of common stock prices. To measure how the
fund's performance stacked up against its peers, you can compare it to the
growth and income funds average, which reflects the performance of 522
mutual funds with similar objectives tracked by Lipper Analytical Services,
Inc. over the past one year. Both benchmarks include reinvested dividends
and capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1996 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Exchange 21.00% 13.91% 14.79%
S&P 500 22.96% 15.22% 15.27%
Growth and Income Funds Average 20.78% 13.87% 13.13%
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 19961231 19970115 133522 S00000000000001
Exchange SP Standard & Poor 500
00033 SP001
1986/12/31 10000.00 10000.00
1987/01/31 11364.36 11347.00
1987/02/28 11988.37 11795.21
1987/03/31 12192.88 12136.09
1987/04/30 11927.14 12028.08
1987/05/31 12046.15 12132.72
1987/06/30 12690.12 12745.42
1987/07/31 13311.25 13391.62
1987/08/31 13732.53 13891.12
1987/09/30 13413.02 13586.91
1987/10/31 10629.62 10660.29
1987/11/30 9778.13 9781.88
1987/12/31 10506.73 10526.28
1988/01/31 10892.18 10969.44
1988/02/29 11473.84 11480.61
1988/03/31 11107.22 11125.86
1988/04/30 11136.07 11249.36
1988/05/31 11130.98 11347.23
1988/06/30 11520.57 11868.07
1988/07/31 11405.40 11822.97
1988/08/31 11200.84 11420.99
1988/09/30 11627.15 11907.52
1988/10/31 12139.40 12238.55
1988/11/30 12034.55 12063.54
1988/12/31 12228.63 12274.65
1989/01/31 12948.17 13173.16
1989/02/28 12704.82 12845.14
1989/03/31 13008.62 13144.44
1989/04/30 13708.38 13826.63
1989/05/31 14214.48 14386.61
1989/06/30 14152.01 14304.61
1989/07/31 15445.61 15596.31
1989/08/31 15538.01 15902.00
1989/09/30 15434.52 15836.80
1989/10/31 15192.43 15469.39
1989/11/30 15591.60 15784.96
1989/12/31 15840.51 16163.80
1990/01/31 14797.90 15079.21
1990/02/28 14924.28 15273.73
1990/03/31 15323.15 15678.49
1990/04/30 15015.11 15286.53
1990/05/31 16681.70 16776.96
1990/06/30 16713.71 16662.88
1990/07/31 16601.79 16609.56
1990/08/31 15210.81 15108.05
1990/09/30 14503.33 14372.29
1990/10/31 14389.42 14310.49
1990/11/30 15298.75 15234.95
1990/12/31 15762.94 15660.00
1991/01/31 16281.73 16342.78
1991/02/28 17481.17 17511.29
1991/03/31 17952.23 17935.06
1991/04/30 17892.06 17978.11
1991/05/31 18672.32 18754.76
1991/06/30 17761.69 17895.79
1991/07/31 18668.56 18729.74
1991/08/31 19067.42 19173.63
1991/09/30 18704.25 18853.43
1991/10/31 19063.22 19106.07
1991/11/30 18467.04 18336.09
1991/12/31 20715.15 20433.74
1992/01/31 20262.51 20053.67
1992/02/29 20617.39 20314.37
1992/03/31 20222.13 19918.24
1992/04/30 20600.39 20503.84
1992/05/31 20725.77 20604.31
1992/06/30 20203.19 20297.30
1992/07/31 21146.12 21127.46
1992/08/31 20864.74 20694.35
1992/09/30 20950.66 20938.54
1992/10/31 21139.67 21011.83
1992/11/30 21784.04 21728.33
1992/12/31 21685.56 21995.59
1993/01/31 21516.76 22180.35
1993/02/28 21582.53 22482.00
1993/03/31 22077.97 22956.37
1993/04/30 21646.10 22400.83
1993/05/31 22196.35 23001.17
1993/06/30 22210.76 23067.88
1993/07/31 21798.51 22975.60
1993/08/31 22594.20 23846.38
1993/09/30 22405.81 23662.76
1993/10/31 23077.38 24152.58
1993/11/30 22758.22 23923.13
1993/12/31 23103.88 24212.60
1994/01/31 23476.89 25035.83
1994/02/28 22927.51 24357.36
1994/03/31 21988.78 23295.38
1994/04/30 22359.75 23593.56
1994/05/31 22730.72 23980.49
1994/06/30 22155.70 23392.97
1994/07/31 22855.50 24160.26
1994/08/31 23841.16 25150.83
1994/09/30 23612.47 24534.64
1994/10/31 24234.51 25086.67
1994/11/30 23804.57 24173.01
1994/12/31 24179.89 24531.50
1995/01/31 25057.91 25167.60
1995/02/28 25916.91 26148.38
1995/03/31 26354.72 26920.02
1995/04/30 27199.24 27712.81
1995/05/31 28216.01 28820.49
1995/06/30 28813.81 29489.99
1995/07/31 29770.80 30467.88
1995/08/31 29439.72 30544.36
1995/09/30 30838.97 31833.33
1995/10/31 30974.30 31719.68
1995/11/30 32259.96 33112.18
1995/12/31 32829.68 33749.92
1996/01/31 34029.79 34898.76
1996/02/29 34563.98 35222.28
1996/03/31 34927.42 35561.47
1996/04/30 35344.53 36085.64
1996/05/31 36327.55 37016.29
1996/06/30 36547.06 37157.32
1996/07/31 34673.23 35515.71
1996/08/31 35398.66 36264.74
1996/09/30 37422.50 38305.72
1996/10/31 37835.63 39362.19
1996/11/30 40548.01 42337.58
1996/12/31 39727.07 41498.87
IMATRL PRASUN SHR__CHT 19961231 19970115 133526 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Exchange Fund on December 31, 1986. As the chart shows, by
December 31, 1996, the value of the investment would have grown to $39,725
- - a 297.25% increase on the initial investment. For comparison, look at how
the S&P 500 did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to $41,499 -
a 314.99% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks 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)
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Paced by the robust performance
of blue chip stocks, the U.S. stock
market posted strong gains for
the year that ended December
31, 1996. The Standard & Poor's
500 Index returned 22.96%
during the period - well above its
long-term average of about 12%.
The stock market spent much of
the past year breaking price and
trading volume records. Solid
corporate earnings reports, large
cash inflows into mutual funds,
widespread optimism and a
generally favorable interest rate
environment propelled share
prices higher. Large capitalization
stocks thrived as investors
sought their lower volatility and
higher degree of liquidity over
smaller cap stocks in an
environment where it was
sometimes difficult to discern the
health of the economy. While
short-term confusion over the
direction of interest rates created
a volatile backdrop in the summer
months, stocks rallied again
when the Federal Reserve Board
left short-term interest rates
unchanged and it appeared
inflation would not be an issue for
the remainder of 1996. The Dow
Jones Industrial Average closed
above 6500 for the first time in
November. Stock markets ended
the year on an up note after
experiencing some volatility
sparked by comments by Fed
Chairman Alan Greenspan in
December about the market's
exuberance.
An interview with Jonathan F. Weed, Portfolio Manager of Fidelity Exchange
Fund
Q. JAY, HOW HAS THE FUND PERFORMED?
A. For the 12 months that ended December 31, 1996, the fund had a total
return of 21.00%. To compare, the Standard & Poor's 500 Index posted a
return of 22.96% over the same period. In addition, the fund's performance
beat the growth and income funds average return of 20.78% for 1996.
Q. WHAT FACTORS HELPED THE FUND'S PERFORMANCE?
A. The main reason behind the fund's strong performance was that the market
favored the type of stock found in this fund, namely steady growth
companies. As a result, the performance of individual stocks helped propel
the fund's returns. Most noteworthy on the sector level was that the fund
had less invested in the utilities sector than the S&P 500. This sector
generally moves in close concert with bonds, which underperformed stocks by
a large margin. Utilities stocks also suffered from uncertainty over the
impact of deregulation in the sector. As an added plus, the stocks the fund
did own in the utilities sector actually performed relatively well. In
addition, the fund's nondurables and health investments performed better
than the stocks from those sectors included in the S&P 500.
Q. LET'S TAKE A LOOK AT THE FUND'S STOCKS, FOCUSING IN ON THOSE THAT
CONTRIBUTED MOST TO THE FUND'S RETURN . . .
A. Gillette and Coca-Cola made two of the strongest contributions to the
fund's performance. They're nondurables stocks, and this sector really
benefited from the attractiveness of the steady earnings growth that
nondurables stocks tend to post in many economic environments. For example,
demand for the kinds of products Coca-Cola and Gillette offer tends to
remain steady, while demand for other products such as automobiles tend to
be cyclical, or more dependent on the stimulus provided by a strong
economy. Five health stocks - Bristol-Myers Squibb, Pfizer, American Home
Products, Johnson & Johnson and Schering-Plough - also benefited from
investors' interest in stocks that could post steady earnings growth in
1996's uncertain economic environment.
Q. WHAT WERE SOME OF THE OTHER STOCKS THAT HELPED PERFORMANCE?
A. American Express was one. It, along with many other finance stocks,
benefited from a generally positive interest rate environment, as well as
from a good response to the company's new charge card products. Solid
business prospects, along with merger and acquisition activity among
companies involved in defense and aerospace, helped General Electric.
Hewlett-Packard also performed well, due to strong demand for its products.
Q. WERE THERE SOME AREAS OF THE FUND THAT PROVED TO BE WEAK PERFORMERS IN
1996?
A. The fund's investments in technology - the S&P 500's top-performing
sector in 1996 - didn't perform as well as the technology stocks that
helped make up the index. And, while the fund's finance stocks performed
well, they didn't perform as well as the finance stocks in the index. In
fact, finance proved to be one of the better-performing sectors of the
index, but the fund was underweighted in finance relative to the S&P. The
fund's aerospace and defense investments also performed poorly compared to
those in the index. In terms of specific stocks, two that stumbled were
Darden Restaurants and Viacom. Darden suffered from operations problems in
its Red Lobster chain, and Viacom was hurt by sluggish revenues in its
Blockbuster Video franchise.
Q. WHAT'S YOUR OUTLOOK AS WE ENTER 1997?
A. In 1996, stock prices outpaced earnings increases. This situation leaves
valuations at very high levels. While there is no one factor that looks
like trouble for the market, history teaches us that problems eventually do
arise. Any one of several factors could provide a shock to the market,
resulting in normal but unpredictable market volatility and/or a decline.
On the other hand, it is possible that we go another 12 months in the
"Goldilocks" scenario, with everything falling into place to provide stock
investors with moderate positive returns. It is unlikely that the market
will let stocks go to even more extreme valuations, so any increase in
stock prices would have to be supported by further increases in earnings.
In the meantime, earnings disappointments are hitting specific issues hard.
And again, any kind of shock - an inflation increase in particular, because
it could lead to a new valuation of the stock market based on higher
discount rates, possible Federal Reserve short-term rate increases and
higher interest expense for corporations - could derail the market.
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.
INVESTMENT CHANGES
TOP TEN STOCKS AS OF DECEMBER 31, 1996
% OF FUND'S % OF FUND'S INVESTMENT
INVESTMENTS S
IN THESE STOCKS
6 MONTHS AGO
Hewlett-Packard Co. 4.2 4.5
Gillette Co. 4.1 3.4
General Electric Co. 3.8 3.4
Disney (Walt) Co. 3.6 3.4
Schering-Plough Corp. 3.1 3.1
American Home Products Corp. 2.9 3.2
McDonald's Corp. 2.6 3.0
Bristol-Myers Squibb Co. 2.6 2.2
Pfizer, Inc. 2.5 2.2
Coca-Cola Co. (The) 2.2 3.0
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1996
% OF FUND'S % OF FUND'S INVESTMENT
INVESTMENTS S
IN THESE MARKET SECTORS
6 MONTHS AGO
Nondurables 17.2 17.6
Health 17.0 17.8
Media & Leisure 12.9 13.1
Energy 10.6 9.8
Technology 7.9 8.1
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF DECEMBER 31, 1996 * AS OF JUNE 30, 1996 **
Row: 1, Col: 1, Value: 5.0
Row: 1, Col: 2, Value: 45.0
Row: 1, Col: 3, Value: 50.0
Row: 1, Col: 1, Value: 4.0
Row: 1, Col: 2, Value: 45.6
Row: 1, Col: 3, Value: 50.0
Stocks 94.9%
Short-term
investments 5.1%
FOREIGN
INVESTMENTS 1.0%
Stocks 95.6%
Short-term
investments 4.4%
FOREIGN
INVESTMENTS 1.8%
*
**
INVESTMENTS DECEMBER 31, 1996
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 94.9%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.5%
DEFENSE ELECTRONICS - 1.5%
Raytheon Co. 80,000 $ 3,850,000
BASIC INDUSTRIES - 2.2%
CHEMICALS & PLASTICS - 2.2%
Air Products & Chemicals, Inc. 47,634 3,292,700
Cabot Corp. 95,800 2,406,975
5,699,675
CONGLOMERATES - 0.7%
United Technologies Corp. 27,372 1,806,552
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES - 1.7%
Dana Corp. 80,670 2,631,859
General Motors Corp. 30,000 1,672,500
4,304,359
CONSUMER DURABLES - 0.9%
Minnesota Mining & Manufacturing Co. 30,000 2,486,250
TOTAL DURABLES 6,790,609
ENERGY - 10.6%
ENERGY SERVICES - 2.7%
Dresser Industries, Inc. 40,000 1,240,000
Halliburton Co. 50,700 3,054,675
Schlumberger Ltd. 26,919 2,688,535
6,983,210
OIL & GAS - 7.9%
Amoco Corp. 40,000 3,220,000
Chevron Corp. 60,000 3,900,000
Exxon Corp. 47,900 4,694,200
Kerr-McGee Corp. 13,480 970,560
Mobil Corp. 36,000 4,401,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Royal Dutch Petroleum Co. ADR 15,000 $ 2,561,250
Union Pacific Resources Group, Inc. 16,168 472,914
20,219,924
TOTAL ENERGY 27,203,134
FINANCE - 4.6%
CREDIT & OTHER FINANCE - 2.1%
American Express Co. 94,788 5,355,522
INSURANCE - 2.3%
General Re Corp. 23,360 3,685,040
Highlands Insurance Group, Inc. (a) 5,070 102,668
Torchmark Corp. 41,616 2,101,608
5,889,316
SECURITIES INDUSTRY - 0.2%
Lehman Brothers Holdings, Inc. 18,357 575,951
TOTAL FINANCE 11,820,789
HEALTH - 17.0%
DRUGS & PHARMACEUTICALS - 13.1%
American Home Products Corp. 129,034 7,564,618
Bristol-Myers Squibb Co. 60,584 6,588,510
Lilly (Eli) & Co. 34,854 2,544,342
Merck & Co., Inc. 33,619 2,664,306
Pfizer, Inc. 76,880 6,371,430
Schering-Plough Corp. 124,340 8,051,015
33,784,221
MEDICAL EQUIPMENT & SUPPLIES - 3.9%
Becton, Dickinson & Co. 64,000 2,776,000
Guidant Corp. 30,799 1,755,543
Johnson & Johnson 111,995 5,571,751
10,103,294
TOTAL HEALTH 43,887,515
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 7.1%
ELECTRICAL EQUIPMENT - 4.5%
General Electric Co. 98,534 $ 9,742,549
General Signal Corp. 40,000 1,710,000
11,452,549
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
Parker-Hannifin Corp. 113,905 4,413,819
Stanley Works (The) 28,748 776,196
5,190,015
POLLUTION CONTROL - 0.6%
WMX Technologies, Inc. 50,000 1,631,250
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 18,273,814
MEDIA & LEISURE - 12.9%
BROADCASTING - 0.3%
Cox Communications, Inc. Class A (a) 37,488 866,910
ENTERTAINMENT - 3.9%
Disney (Walt) Co. 134,440 9,360,385
Viacom, Inc. Class B (non-vtg.) (a) 15,283 532,995
9,893,380
PUBLISHING - 5.9%
Gannett Co., Inc. 55,214 4,134,148
Harcourt General, Inc. 40,000 1,845,000
Knight-Ridder, Inc. 64,400 2,463,300
McGraw-Hill, Inc. 69,512 3,206,241
Media General, Inc. Class A 24,382 737,556
Times Mirror Co. Class A 55,902 2,781,125
15,167,370
RESTAURANTS - 2.8%
Darden Restaurants, Inc. 50,000 437,500
Dave & Busters, Inc. (a) 4,900 98,613
McDonald's Corp. 146,580 6,632,745
7,168,858
TOTAL MEDIA & LEISURE 33,096,518
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 17.2%
BEVERAGES - 4.0%
Anheuser-Busch Companies, Inc. 114,134 $ 4,565,360
Coca-Cola Co. (The) 107,628 5,663,924
10,229,284
FOODS - 3.7%
General Mills, Inc. 42,400 2,687,100
Ralston Purina Group 35,298 2,589,991
Sara Lee Corp. 111,000 4,134,750
9,411,841
HOUSEHOLD PRODUCTS - 7.6%
Colgate-Palmolive Co. 49,900 4,603,275
Gillette Co. 134,344 10,445,246
International Flavors & Fragrances, Inc. 22,447 1,010,115
Procter & Gamble Co. 33,350 3,585,125
19,643,761
TOBACCO - 1.9%
Philip Morris Companies, Inc. 44,150 4,972,394
TOTAL NONDURABLES 44,257,280
RETAIL & WHOLESALE - 2.5%
APPAREL STORES - 0.2%
Payless ShoeSource, Inc. (a) 13,140 492,750
GENERAL MERCHANDISE STORES - 1.5%
May Department Stores Co. (The) 82,126 3,839,391
GROCERY STORES - 0.8%
Supervalu, Inc. 76,080 2,158,770
TOTAL RETAIL & WHOLESALE 6,490,911
SERVICES - 1.6%
PRINTING - 1.3%
Harland (John H.) Co. 100,000 3,300,000
SERVICES - 0.3%
Jostens, Inc. 33,307 703,610
TOTAL SERVICES 4,003,610
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - 7.9%
COMPUTERS & OFFICE EQUIPMENT - 4.7%
Hewlett-Packard Co. 215,778 $ 10,842,845
International Business Machines Corp. 9,097 1,373,647
12,216,492
ELECTRONICS - 2.0%
Motorola, Inc. 81,906 5,026,981
PHOTOGRAPHIC EQUIPMENT - 1.2%
Eastman Kodak Co. 36,242 2,908,421
Imation Corp. (a) 3,000 84,375
2,992,796
TOTAL TECHNOLOGY 20,236,269
TRANSPORTATION - 0.4%
RAILROADS - 0.4%
Union Pacific Corp. 19,090 1,147,786
UTILITIES - 6.1%
CELLULAR - 0.1%
360 Degrees Communications Co. (a) 16,666 385,401
ELECTRIC UTILITY - 3.5%
Central Louisiana Electric Co., Inc. 45,500 1,256,934
Duke Power Co. 50,000 2,312,500
Edison International 80,000 1,590,000
Hawaiian Electric Industries, Inc. 40,000 1,445,000
PacifiCorp. 55,400 1,135,700
Potomac Electric Power Co. 49,800 1,282,350
9,022,484
GAS - 0.7%
Williams Companies, Inc. 46,020 1,725,750
TELEPHONE SERVICES - 1.8%
MCI Communications Corp. 80,000 2,615,000
Sprint Corp. 50,000 1,993,750
4,608,750
TOTAL UTILITIES 15,742,385
TOTAL COMMON STOCKS
(Cost $22,748,925) 244,306,847
CONVERTIBLE PREFERRED STOCKS - 0.0%
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 0.0%
PUBLISHING - 0.0%
Times Mirror Co. Series B $1.374 (Cost $7) 79 $ 2,202
CASH EQUIVALENTS - 5.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.75%, dated
12/31/96 due 1/2/97 $ 13,036,887 13,032,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $35,780,932) $ 257,341,049
LEGEND
1. Non-income producing
INCOME TAX INFORMATION
At December 31, 1996, the aggregate cost of investment securities for
income tax purposes was $35,780,932. Net unrealized appreciation aggregated
$221,560,117, of which $221,562,215 related to appreciated investment
securities and $2,098 related to depreciated investment securities.
The fund hereby designates approximately $1,239,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1996
ASSETS
Investment in securities, at value (including repurchase $ 257,341,049
agreements of $13,032,000) (cost $35,780,932) -
See accompanying schedule
Cash 989
Receivable for investments sold 198,488
Dividends receivable 372,650
TOTAL ASSETS 257,913,176
LIABILITIES
Payable for fund shares redeemed $ 200,783
Distributions payable 2,407,033
Accrued management fee 116,884
Other payables and accrued expenses 52,882
TOTAL LIABILITIES 2,777,582
NET ASSETS $ 255,135,594
Net Assets consist of:
Paid in capital $ 33,595,049
Distributions in excess of net investment income (19,184)
Accumulated undistributed net realized gain (loss) (388)
on investments
Net unrealized appreciation (depreciation) on 221,560,117
investments
NET ASSETS, for 1,600,675 shares outstanding $ 255,135,594
NET ASSET VALUE, offering price and redemption price $159.39
per share ($255,135,594 (divided by) 1,600,675 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME $ 5,193,093
Dividends
Interest 612,711
TOTAL INCOME 5,805,804
EXPENSES
Management fee $ 1,331,711
Transfer agent fees 187,355
Accounting fees and expenses 931
Non-interested trustees' compensation 940
Custodian fees and expenses 9,068
Registration fees 250
Audit 36,456
Legal 1,230
Miscellaneous 2,852
Total expenses before reductions 1,570,793
Expense reductions (7,556) 1,563,237
NET INVESTMENT INCOME 4,242,567
REALIZED AND UNREALIZED GAIN (LOSS) 20,766,828
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on 21,986,686
investment securities
NET GAIN (LOSS) 42,753,514
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 46,996,081
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
INCREASE (DECREASE) IN NET ASSETS
Operations $ 4,242,567 $ 4,285,052
Net investment income
Net realized gain (loss) 20,766,828 9,418,924
Change in net unrealized appreciation (depreciation) 21,986,686 49,618,997
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 46,996,081 63,322,973
FROM OPERATIONS
Distributions to shareholders (4,266,891) (4,271,960)
From net investment income
From net realized gain (1,239,290) (3,033,709)
TOTAL DISTRIBUTIONS (5,506,181) (7,305,669)
Share transactions
Reinvestment of distributions 1,612,084 2,033,251
Cost of shares redeemed (20,734,887) (10,880,904)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (19,122,803) (8,847,653)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 22,367,097 47,169,651
NET ASSETS
Beginning of period 232,768,497 185,598,846
End of period (including under (over) distribution of net $ 255,135,594 $ 232,768,497
investment income of $(19,184) and $5,140,
respectively)
OTHER INFORMATION
Shares
Issued in reinvestment of distributions 10,325 17,703
Redeemed (139,053) (95,116)
Net increase (decrease) (128,728) (77,413)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 B 1992
SELECTED PER-SHARE DATA
Net asset value, beginning $ 134.59 $ 102.72 $ 102.20 $ 98.92 $ 97.48
of period
Income from Investment
Operations
Net investment income 2.59 2.45 2.56 2.26 2.19
Net realized and unrealized 25.58 33.59 2.12 4.14 2.34
gain (loss)
Total from 28.17 36.04 4.68 6.40 4.53
investment operations
Less Distributions
From net investment income (2.60) (2.45) (2.42) (2.26) (2.23)
In excess of net - - - (.09) -
investment income
From net realized gain (.77) (1.72) (1.74) (.77) (.86)
Total distributions (3.37) (4.17) (4.16) (3.12) (3.09)
Net asset value, end of period $ 159.39 $ 134.59 $ 102.72 $ 102.20 $ 98.92
TOTAL RETURN A 21.00% 35.77% 4.66% 6.54% 4.68%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 255,136 $ 232,768 $ 185,599 $ 189,358 $ 186,886
(000 omitted)
Ratio of expenses to average .64% .63% .58% .57% .58%
net assets
Ratio of expenses to average .63% .63% .58% .57% .58%
net assets after expense C
reductions
Ratio of net investment income 1.72% 2.05% 2.50% 2.24% 2.23%
to average net assets
Portfolio turnover rate 0% 0% 0% 0% 0%
</TABLE>
A TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED
DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
B EFFECTIVE JANUARY 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.
C 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 5 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Exchange Fund (the fund) 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 and is
authorized to issue 10 million shares. 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. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities for which exchange quotations are not readily
available (and in certain cases debt securities which trade on an exchange)
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.
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. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if any,
are recorded at the fair market value of the securities received. Interest
income is accrued as earned. Investment income is recorded net of foreign
taxes withheld where recovery of such taxes is uncertain.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions 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
redemptions in kind.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the following
year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase for U.S. Treasury or Federal
Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Sales of securities, other than short-term securities, aggregated
$21,714,908, which represents the current value of securities delivered in
redemption of fund shares. There were no purchases of securities during the
period.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a fee at a
rate of 1/20 of 1% per month (which is equivalent to an annual rate of 6/10
of 1%) of the fund's average net assets determined as of the close of
business on each business day throughout the month. In addition, under the
Management Contract, FMR provides portfolio accounting and bookkeeping
services to the fund and determines the net asset value per share of the
fund. The management fee is subject to a reduction to the extent that the
monthly average net assets of all mutual funds advised by FMR exceed $4
billion in any month. The management fee payable by the fund on its portion
of the excess is reduced by 10%. For the period, the management fee was
reduced by $146,371. For the period, the management fee was equivalent to
an annual rate of .54% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is
the fund's transfer, dividend disbursing and shareholder servicing agent.
FSC receives account fees and asset-based fees that vary according to
account size and type of account. FSC pays for typesetting,
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
printing and mailing of all shareholder reports, except proxy statements.
For the period, the transfer agent fees were equivalent to an annual rate
of .08% of average net assets.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $201 and $7,355,
respectively, under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Fidelity Exchange Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Exchange Fund, including the schedule of portfolio investments, as
of December 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
five years in the period then ended. 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 December 31, 1996 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Exchange Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 7, 1997
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S GROWTH AND INCOME FUNDS
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Real Estate Investment Portfolio
Utilities Fund
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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(9 a.m. - 9 p.m. Eastern time)
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