(2_FIDELITY_LOGOS)FIDELITY
EXCHANGE
FUND
ANNUAL REPORT
DECEMBER 31, 1997
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 financial turmoil in Pacific Basin countries was a catalyst
for significant volatility in U.S. markets throughout the fourth
quarter, the Standard & Poor's 500 Index rose more than 33% in 1997,
about three times its historical annual average. Meanwhile, bond
markets - primarily influenced by a relatively steady flow of positive
news on the inflation front - continued to post solid returns as the
year drew to a close.
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.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. A stock mutual fund, for instance, is already
diversified, because it invests in many different companies. You can
increase your diversification further by investing in a number of
different stock funds, or in such other investment categories 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, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY EXCHANGE 34.33% 146.08% 407.90%
S&P 500 (REGISTERED TRADEMARK) 33.36% 151.62% 425.77%
GROWTH AND INCOME FUNDS AVERAGE 27.14% 125.21% 335.80%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, 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
Standard & Poor's 500 Index - a widely recognized, unmanaged index of
common stocks. 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 mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past one
year average represents a peer group of 611 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
FIDELITY EXCHANGE 34.33% 19.73% 17.65%
S&P 500 33.36% 20.27% 18.05%
GROWTH AND INCOME FUNDS AVERAGE 27.14% 17.53% 15.71%
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 19971231 19980123 091029 S00000000000001
Exchange S&P 500
00033 SP001
1987/12/31 10000.00 10000.00
1988/01/31 10366.85 10421.00
1988/02/29 10920.46 10906.62
1988/03/31 10571.52 10569.60
1988/04/30 10598.98 10686.93
1988/05/31 10594.14 10779.90
1988/06/30 10964.94 11274.70
1988/07/31 10855.33 11231.86
1988/08/31 10660.63 10849.97
1988/09/30 11066.38 11312.18
1988/10/31 11553.93 11626.66
1988/11/30 11454.13 11460.40
1988/12/31 11638.85 11660.96
1989/01/31 12323.69 12514.54
1989/02/28 12092.08 12202.93
1989/03/31 12381.22 12487.26
1989/04/30 13047.23 13135.34
1989/05/31 13528.92 13667.32
1989/06/30 13469.46 13589.42
1989/07/31 14700.68 14816.55
1989/08/31 14788.62 15106.95
1989/09/30 14690.12 15045.01
1989/10/31 14459.71 14695.97
1989/11/30 14839.63 14995.77
1989/12/31 15076.53 15355.66
1990/01/31 14084.20 14325.30
1990/02/28 14204.49 14510.09
1990/03/31 14584.12 14894.61
1990/04/30 14290.94 14522.25
1990/05/31 15877.15 15938.17
1990/06/30 15907.62 15829.79
1990/07/31 15801.10 15779.13
1990/08/31 14477.20 14352.70
1990/09/30 13803.85 13653.72
1990/10/31 13695.42 13595.01
1990/11/30 14560.90 14473.25
1990/12/31 15002.70 14877.05
1991/01/31 15496.47 15525.69
1991/02/28 16638.07 16635.78
1991/03/31 17086.41 17038.36
1991/04/30 17029.13 17079.26
1991/05/31 17771.76 17817.08
1991/06/30 16905.05 17001.06
1991/07/31 17768.19 17793.31
1991/08/31 18147.81 18215.01
1991/09/30 17802.15 17910.82
1991/10/31 18143.81 18150.82
1991/11/30 17576.38 17419.34
1991/12/31 19716.07 19412.12
1992/01/31 19285.26 19051.05
1992/02/29 19623.03 19298.72
1992/03/31 19246.83 18922.39
1992/04/30 19606.85 19478.71
1992/05/31 19726.18 19574.15
1992/06/30 19228.80 19282.50
1992/07/31 20126.25 20071.15
1992/08/31 19858.45 19659.70
1992/09/30 19940.22 19891.68
1992/10/31 20120.12 19961.30
1992/11/30 20733.41 20641.98
1992/12/31 20639.68 20895.88
1993/01/31 20479.02 21071.40
1993/02/28 20541.61 21357.97
1993/03/31 21013.16 21808.63
1993/04/30 20602.12 21280.86
1993/05/31 21125.83 21851.19
1993/06/30 21139.55 21914.55
1993/07/31 20747.18 21826.90
1993/08/31 21504.50 22654.14
1993/09/30 21325.19 22479.70
1993/10/31 21964.38 22945.03
1993/11/30 21660.60 22727.05
1993/12/31 21989.60 23002.05
1994/01/31 22344.61 23784.12
1994/02/28 21821.73 23139.57
1994/03/31 20928.28 22130.68
1994/04/30 21281.35 22413.96
1994/05/31 21634.43 22781.54
1994/06/30 21087.14 22223.40
1994/07/31 21753.19 22952.32
1994/08/31 22691.32 23893.37
1994/09/30 22473.65 23307.98
1994/10/31 23065.70 23832.41
1994/11/30 22656.49 22964.43
1994/12/31 23013.70 23305.00
1995/01/31 23849.39 23909.30
1995/02/28 24666.95 24841.04
1995/03/31 25083.65 25574.10
1995/04/30 25887.44 26327.26
1995/05/31 26855.17 27379.56
1995/06/30 27424.13 28015.58
1995/07/31 28334.97 28944.58
1995/08/31 28019.86 29017.23
1995/09/30 29351.62 30241.76
1995/10/31 29480.43 30133.80
1995/11/30 30704.08 31456.67
1995/12/31 31246.32 32062.53
1996/01/31 32388.55 33153.93
1996/02/29 32896.98 33461.27
1996/03/31 33242.89 33783.50
1996/04/30 33639.89 34281.47
1996/05/31 34575.49 35165.59
1996/06/30 34784.42 35299.57
1996/07/31 33000.96 33740.04
1996/08/31 33691.41 34451.61
1996/09/30 35617.63 36390.55
1996/10/31 36010.83 37394.20
1996/11/30 38592.40 40220.83
1996/12/31 37808.69 39424.06
1997/01/31 40024.22 41887.27
1997/02/28 40441.70 42215.67
1997/03/31 39193.98 40481.03
1997/04/30 41328.86 42897.74
1997/05/31 43753.14 45509.36
1997/06/30 45914.79 47548.18
1997/07/31 48769.39 51331.58
1997/08/31 45487.55 48455.99
1997/09/30 48170.31 51109.92
1997/10/31 47280.03 49402.85
1997/11/30 49475.89 51689.71
1997/12/31 50789.73 52577.22
IMATRL PRASUN SHR__CHT 19971231 19980123 091032 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Exchange Fund on December 31, 1987. As the chart
shows, by December 31, 1997, the value of the investment would have
grown to $50,790 - a 407.90% 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 $52,577 - a 425.77% 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
long-term growth and
short-term volatility. 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
Despite a bout with global volatility
in late October, the U.S. equity
market still managed to register
strong gains for the third
consecutive calendar year. For the
12 months that ended December
31, 1997, the Standard & Poor's
500 Index - a measure of the U.S.
stock market - returned 33.36%.
The strength of the S&P 500
reflected the continued
dominance of large-capitalization
stocks during most of the period.
For most of 1996 and part of 1997,
stocks of the largest companies
performed well as investors
sought reliability and consistent
earnings growth track records.
Stock prices surged, investor
enthusiasm was high and the Dow
Jones Industrial Average reached
the 8000-point mark in August for
the first time ever. But the adage
"what goes up, must come down"
may have crept into investors'
minds as many felt the market had
risen too rapidly. In mid-August,
several multinational companies
announced earnings shortfalls and
stocks of smaller companies came
into favor. From August through
December, the S&P 500 returned
2.43%, while the S&P MidCap 400
Index - a measure of
medium-sized stocks - returned
6.50%. In October, currency
turmoil in several Asian countries
bubbled over, causing concern in
many world markets. As we
entered 1998, sentiment indicated
that the effects of this crisis could
linger, placing pressure on U.S.
economic growth as well as
corporate profits.
An interview with Timothy Heffernan, Portfolio Manager of Fidelity
Exchange Fund
Q. HOW DID THE FUND PERFORM, TIM?
A. For the 12 months that ended December 31, 1997, the fund had a
total return of 34.33%, slightly outperforming the Standard & Poor's
500 Index's return of 33.36%. Over the same period, the fund also
outperformed the 27.14% return recorded by the growth and income funds
average tracked by Lipper Analytical Services.
Q. WHAT FACTORS WERE IMPORTANT TO THE FUND'S PERFORMANCE OVER THE
PERIOD?
A. Generally speaking, 1997 was another good year to own the kind of
stocks held by the fund: large-cap stocks with the ability to post
steady earnings growth in a variety of market environments. The fund
was able to outperform the Lipper average because it held more of
those stocks than the funds in the average, which tend to have a
higher concentration of mid-cap and small-cap issues. Investors'
attention in the early part of the year was focused on the U.S.
economy's ability to achieve moderate growth without a resurgence of
inflation - the so-called "Goldilocks" economy. The primary cautionary
factor early in the year was the fear that stock prices had advanced
too far too fast, and that the Federal Reserve Board might deem it
necessary to launch a "preemptive strike" against inflation by raising
short-term interest rates. When the Fed finally did raise the federal
funds target rate by a modest .25 percentage points in March, stocks
sold off briefly but then rallied strongly through early August, when
the Dow Jones Industrial Average flirted with the 8300 threshold.
While small-cap stocks significantly outperformed their large-cap
brethren for the balance of August and September, the volatile market
conditions created by widespread currency problems in the Pacific
Basin near the end of October caused investors to once again take
refuge in large-cap stocks, a situation that prevailed until the end
of the year.
Q. WHAT SECTORS HELPED OR HURT THE FUND'S PERFORMANCE?
A. One sector that helped was health care, where the fund was
significantly overweighted relative to the S&P 500. The health care
sector benefited from investors' perception that the demand for health
care products and services is relatively steady and not as sensitive
to the ups and downs of the economy as, for example, the demand for
cars and other big-ticket items. In addition, the health care stocks
held by the fund performed better overall than those in the index.
Industrial machinery was another sector that helped performance
because the fund was overweighted relative to the index and owned
better-performing stocks. On the negative side, the fund was
substantially underweighted in the finance sector, which hurt
performance when the continuing spree of bank mergers, combined with
stable interest rates, spurred healthy gains in many finance stocks in
the index. Performance was also hampered by the fact that the fund's
technology holdings did not perform as well as those in the index.
Q. WHAT STOCKS STOOD OUT AS STRONG PERFORMERS?
A. Three of the fund's largest holdings and best performers were
pharmaceutical stocks: Schering-Plough, Bristol-Myers Squibb and
Pfizer. Schering-Plough rose on healthy sales of its Claritin brand of
nonsedating antihistamines. The company's ongoing share-repurchase
program also helped the stock. Bristol-Myers Squibb enjoyed robust
sales of Pravachol, which lowers cholesterol, while Pfizer had similar
success with Zoloft, an anti-depressant. The fund's largest holding,
General Electric, continued to show consistently strong earnings
growth.
Q. WHAT STOCKS WERE DISAPPOINTING OVER THE PERIOD?
A. Eastman Kodak struggled as the company continued to lose market
share in its core film business due to aggressive pricing by key
competitor Fuji Photo Film. Kodak also was burdened by high labor
costs, and late in the year the company responded by announcing
layoffs that will bring the total number of jobs eliminated to almost
20,000 worldwide. The John Harland company, a business services and
printing firm, has also been restructuring. The company closed 20
plants in 1997 and saw last year's earnings dip substantially below
those of 1996.
Q. WHAT'S YOUR OUTLOOK, TIM?
A. Turmoil in Asia and a stronger dollar may slow demand in some
industries. This could have a significant impact on the growth rates
and profit margins of many U.S. multinational companies whose growth
strategies hinge, in part, on Asian demand. However, the overall U.S.
economy tends to be less dependent on the demand for exports than most
other nations. Less than 15% of gross domestic product (GDP) results
from foreign trade. Further, exports to Southeast Asia and Korea
represent less than 1% of U.S. GDP.
Questions remain regarding the inflationary outlook for 1998. While we
currently enjoy what appears to be a durable and well-balanced
economy, with inflation in check and interest rates at their lowest
level in years, the economy has reached high operating levels. With
unemployment at a 24-year low, wage pressures could drive prices
higher. If this is the case, the Fed may choose to restrain inflation
by increasing interest rates.
Investors have built their growth expectations into the market's
valuations, leading to record-setting price-to-earnings multiples over
the past year. Heightened uncertainty regarding the stability and
sustainability of earnings growth has led investors to favor a narrow
group of liquid - easily tradable - large-capitalization stocks with
stable earnings growth as they did in 1996 and early 1997. This group
of companies, given their high valuations on many measures, may prove
vulnerable to the effects of reduced overseas demand or an upturn in
interest rates.
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, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
GENERAL ELECTRIC CO. 4.5 4.3
DISNEY (WALT) CO. 4.1 3.6
HEWLETT-PACKARD CO. 4.0 3.9
GILLETTE CO. 3.8 4.0
SCHERING-PLOUGH CORP. 3.3 3.6
BRISTOL-MYERS SQUIBB CO. 3.3 3.1
AMERICAN HOME PRODUCTS CORP. 2.9 3.2
AMERICAN EXPRESS CO. 2.6 2.4
PFIZER, INC. 2.3 2.9
PARKER-HANNIFIN CORP. 2.3 2.3
TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
HEALTH 18.5 19.1
NONDURABLES 17.1 17.1
MEDIA & LEISURE 13.5 12.5
ENERGY 10.8 10.9
INDUSTRIAL MACHINERY & EQUIPMENT 8.2 8.2
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF DECEMBER 31, 1997 * AS OF JUNE 30, 1997 **
ROW: 1, COL: 1, VALUE: 4.0
ROW: 1, COL: 2, VALUE: 40.0
ROW: 1, COL: 3, VALUE: 50.6
STOCKS 96.3%
SHORT-TERM
INVESTMENTS 3.7%
FOREIGN
INVESTMENTS 2.2%
STOCKS 96.0%
SHORT-TERM
INVESTMENTS 4.0%
FOREIGN
INVESTMENTS 2.3%
ROW: 1, COL: 1, VALUE: 3.7
ROW: 1, COL: 2, VALUE: 40.0
ROW: 1, COL: 3, VALUE: 56.3
*
**
INVESTMENTS DECEMBER 31, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 96.0%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 1.9%
AEROSPACE & DEFENSE - 0.6%
United Technologies Corp. 26,672 $ 1,942,046
DEFENSE ELECTRONICS - 1.3%
Raytheon Company:
Class A 1,913 94,335
Class B 80,000 4,040,000
4,134,335
TOTAL AEROSPACE & DEFENSE 6,076,381
BASIC INDUSTRIES - 2.0%
CHEMICALS & PLASTICS - 2.0%
Air Products & Chemicals, Inc. 47,634 3,917,897
Cabot Corp. 91,700 2,533,213
6,451,110
DURABLES - 2.5%
AUTOS, TIRES, & ACCESSORIES - 1.7%
Dana Corp. 80,670 3,831,825
General Motors Corp. 30,000 1,818,750
5,650,575
CONSUMER DURABLES - 0.8%
Minnesota Mining & Manufacturing Co. 30,000 2,461,875
TOTAL DURABLES 8,112,450
ENERGY - 10.8%
ENERGY SERVICES - 3.5%
Dresser Industries, Inc. 40,000 1,677,500
Halliburton Co. 101,400 5,266,463
Schlumberger Ltd. 53,838 4,333,959
11,277,922
OIL & GAS - 7.3%
Amoco Corp. 40,000 3,405,000
Chevron Corp. 60,000 4,620,000
Exxon Corp. 95,800 5,861,763
Kerr-McGee Corp. 13,480 853,453
Mobil Corp. 72,000 5,197,500
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Royal Dutch Petroleum Co. 60,000 $ 3,251,250
Union Pacific Resources Group, Inc. 16,168 392,074
23,581,040
TOTAL ENERGY 34,858,962
FINANCE - 5.6%
CREDIT & OTHER FINANCE - 2.6%
American Express Co. 94,788 8,459,829
INSURANCE - 2.7%
General Re Corp. 23,360 4,952,320
Highlands Insurance Group, Inc. (a) 370 10,499
Torchmark Corp. 83,232 3,500,946
8,463,765
SECURITIES INDUSTRY - 0.3%
Lehman Brothers Holdings, Inc. 18,357 936,207
TOTAL FINANCE 17,859,801
HEALTH - 18.5%
DRUGS & PHARMACEUTICALS - 14.1%
American Home Products Corp. 122,434 9,366,201
Bristol-Myers Squibb Co. 113,143 10,706,156
Lilly (Eli) & Co. 48,608 3,384,332
Merck & Co., Inc. 33,619 3,572,019
Pfizer, Inc. 101,170 7,543,488
Schering-Plough Corp. 173,155 10,757,254
45,329,450
MEDICAL EQUIPMENT & SUPPLIES - 4.4%
Becton, Dickinson & Co. 64,000 3,200,000
Guidant Corp. 61,598 3,834,476
Johnson & Johnson 107,095 7,054,883
14,089,359
TOTAL HEALTH 59,418,809
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 8.2%
ELECTRICAL EQUIPMENT - 5.0%
General Electric Co. 197,068 $ 14,459,865
General Signal Corp. 40,000 1,687,500
16,147,365
INDUSTRIAL MACHINERY & EQUIPMENT - 2.7%
Parker-Hannifin Corp. 160,607 7,367,846
Stanley Works 28,748 1,356,546
8,724,392
POLLUTION CONTROL - 0.5%
Waste Management, Inc. 50,000 1,375,000
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 26,246,757
MEDIA & LEISURE - 13.5%
BROADCASTING - 0.2%
Cox Communications, Inc. Class A (a) 14,488 580,426
ENTERTAINMENT - 4.4%
Disney (Walt) Co. 134,440 13,317,963
Viacom, Inc. Class B (non-vtg.) (a) 15,283 633,289
13,951,252
PUBLISHING - 6.8%
Gannett Co., Inc. 110,428 6,825,831
Harcourt General, Inc. 40,000 2,190,000
Knight-Ridder, Inc. 64,400 3,348,800
McGraw-Hill, Inc. 69,512 5,143,888
Media General, Inc. Class A 24,382 1,019,472
Times Mirror Co. Class A 55,947 3,440,741
21,968,732
RESTAURANTS - 2.1%
McDonald's Corp. 143,980 6,875,045
TOTAL MEDIA & LEISURE 43,375,455
NONDURABLES - 17.1%
BEVERAGES - 3.7%
Anheuser-Busch Companies, Inc. 107,684 4,738,096
Coca-Cola Co. (The) 107,628 7,170,716
11,908,812
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - CONTINUED
FOODS - 3.9%
General Mills, Inc. 42,400 $ 3,036,900
Ralston Purina Co. 35,298 3,280,508
Sara Lee Corp. 111,000 6,250,688
12,568,096
HOUSEHOLD PRODUCTS - 7.6%
Colgate-Palmolive Co. 83,100 6,107,850
Gillette Co. 123,007 12,354,516
International Flavors & Fragrances, Inc. 12,047 620,421
Procter & Gamble Co. 66,700 5,323,494
24,406,281
TOBACCO - 1.9%
Philip Morris Companies, Inc. 132,450 6,001,641
TOTAL NONDURABLES 54,884,830
RETAIL & WHOLESALE - 1.9%
APPAREL STORES - 0.3%
Payless ShoeSource, Inc. (a) 13,140 882,023
GENERAL MERCHANDISE STORES - 1.2%
May Department Stores Co. (The) 71,626 3,773,795
GROCERY STORES - 0.4%
Supervalu, Inc. 35,080 1,468,975
TOTAL RETAIL & WHOLESALE 6,124,793
SERVICES - 0.9%
PRINTING - 0.7%
Harland (John H.) Co. 100,000 2,100,000
SERVICES - 0.2%
Jostens, Inc. 33,307 768,143
TOTAL SERVICES 2,868,143
TECHNOLOGY - 6.6%
COMPUTERS & OFFICE EQUIPMENT - 4.6%
Hewlett-Packard Co. 206,578 12,911,125
International Business Machines Corp. 18,194 1,902,410
14,813,535
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - 1.4%
Motorola, Inc. 81,906 $ 4,673,761
PHOTOGRAPHIC EQUIPMENT - 0.6%
Eastman Kodak Co. 28,942 1,760,035
Imation Corp. (a) 3,000 48,000
1,808,035
TOTAL TECHNOLOGY 21,295,331
TRANSPORTATION - 0.4%
RAILROADS - 0.4%
Union Pacific Corp. 19,090 1,191,932
UTILITIES - 6.1%
CELLULAR - 0.1%
360 Degrees Communications Co. (a) 16,666 336,445
ELECTRIC UTILITY - 3.4%
Central Louisiana Electric Co., Inc. 45,500 1,473,063
Duke Energy Corp. 50,000 2,768,750
Edison International 80,000 2,175,000
Hawaiian Electric Industries, Inc. 40,000 1,635,000
PacifiCorp. 55,400 1,513,113
Potomac Electric Power Co. 49,800 1,285,463
10,850,389
GAS - 0.6%
Williams Companies, Inc. 70,040 1,987,385
TELEPHONE SERVICES - 2.0%
MCI Communications Corp. 80,000 3,425,000
Sprint Corp. 50,000 2,931,250
6,356,250
TOTAL UTILITIES 19,530,469
TOTAL COMMON STOCKS
(Cost $22,260,679) 308,295,223
CASH EQUIVALENTS - 4.0%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.40%, dated
12/31/97 due 1/2/98 $ 12,886,580 $ 12,882,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $35,142,679) $ 321,177,223
LEGEND
1. Non-income producing
INCOME TAX INFORMATION
At December 31, 1997, the aggregate cost of investment securities for
income tax purposes was $35,142,679. Net unrealized appreciation
aggregated $286,034,544, all of which was related to appreciated
investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 321,177,223
AGREEMENTS OF $12,882,000) (COST $35,142,679) -
SEE ACCOMPANYING SCHEDULE
CASH 640
DIVIDENDS RECEIVABLE 401,250
TOTAL ASSETS 321,579,113
LIABILITIES
DISTRIBUTIONS PAYBLE $ 1,285,636
ACCRUED MANAGEMENT FEE 142,507
OTHER PAYABLES AND ACCRUED EXPENSES 60,088
TOTAL LIABILITIES 1,488,231
NET ASSETS $ 320,090,882
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 33,993,304
UNDISTRIBUTED NET INVESTMENT INCOME 62,580
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 454
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 286,034,544
NET ASSETS, FOR 1,513,459 SHARES OUTSTANDING $ 320,090,882
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $211.50
SHARE ($320,090,882 (DIVIDED BY) 1,513,459 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME $ 5,014,941
DIVIDENDS
INTEREST 638,604
TOTAL INCOME 5,653,545
EXPENSES
MANAGEMENT FEE $ 1,576,362
TRANSFER AGENT FEES 206,989
ACCOUNTING EXPENSES 798
NON-INTERESTED TRUSTEES' COMPENSATION 1,594
CUSTODIAN FEES AND EXPENSES 9,402
REGISTRATION FEES 125
AUDIT 37,652
LEGAL 1,831
MISCELLANEOUS 1,355
TOTAL EXPENSES BEFORE REDUCTIONS 1,836,108
EXPENSE REDUCTIONS (6,852) 1,829,256
NET INVESTMENT INCOME 3,824,289
REALIZED AND UNREALIZED GAIN (LOSS) 16,664,642
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 64,474,427
INVESTMENT SECURITIES
NET GAIN (LOSS) 81,139,069
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 84,963,358
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 3,824,289 $ 4,242,567
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 16,664,642 20,766,828
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 64,474,427 21,986,686
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 84,963,358 46,996,081
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (3,742,136) (4,266,891)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN - (1,239,290)
TOTAL DISTRIBUTIONS (3,742,136) (5,506,181)
SHARE TRANSACTIONS 1,059,351 1,612,084
REINVESTMENT OF DISTRIBUTIONS
COST OF SHARES REDEEMED (17,325,285) (20,734,887)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (16,265,934) (19,122,803)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 64,955,288 22,367,097
NET ASSETS
BEGINNING OF PERIOD 255,135,594 232,768,497
END OF PERIOD (INCLUDING UNDER (OVER) DISTRIBUTION OF $ 320,090,882 $ 255,135,594
NET INVESTMENT INCOME OF $62,580 AND $(19,184),
RESPECTIVELY)
OTHER INFORMATION
SHARES
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 5,292 10,325
REDEEMED (92,508) (139,053)
NET INCREASE (DECREASE) (87,216) (128,728)
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 159.39 $ 134.59 $ 102.72 $ 102.20 $ 98.92
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME 2.46 B 2.59 2.45 2.56 2.26
NET REALIZED AND UNREALIZED 52.10 25.58 33.59 2.12 4.14
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS 54.56 28.17 36.04 4.68 6.40
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (2.45) (2.60) (2.45) (2.42) (2.26)
IN EXCESS OF NET INVESTMENT - - - - (.09)
INCOME
FROM NET REALIZED GAIN - (.77) (1.72) (1.74) (.77)
TOTAL DISTRIBUTIONS (2.45) (3.37) (4.17) (4.16) (3.12)
NET ASSET VALUE, END OF PERIOD $ 211.50 $ 159.39 $ 134.59 $ 102.72 $ 102.20
TOTAL RETURN A 34.33% 21.00% 35.77% 4.66% 6.54%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 320,091 $ 255,136 $ 232,768 $ 185,599 $ 189,358
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .63% .64% .63% .58% .57%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET .63% .63% .63% .58% .57%
ASSETS AFTER EXPENSE REDUCTIONS C
RATIO OF NET INVESTMENT INCOME TO 1.31% 1.72% 2.05% 2.50% 2.24%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 0% 0% 0% 0% 0%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1997
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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
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.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed 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 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
$17,152,896, which represents the current value of securities
delivered in redemption of fund shares. There were no purchases of
investments 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 $173,615. For the period, the management
fee was equivalent to an annual rate of .54% 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 annual rate of .07% of average net assets.
5. EXPENSE REDUCTIONS.
The fund has entered into an arrangement with its 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 transfer agent fees were reduced by $6,852 under this
arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and the 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, 1997, 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, 1997, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Exchange Fund as of December 31, 1997,
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.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 10, 1998
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Richard A. Spillane, Jr., 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
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S GROWTH AND INCOME FUNDS
Balanced Fund
Congress Street Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Exchange Fund
Fidelity Fund
Global Balanced Fund
Growth & Income Portfolio
Puritan Fund(registered trademark)
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
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
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