FIDELITY
EXCHANGE
FUND
ANNUAL REPORT
DECEMBER 31, 1998
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 8 A summary of major shifts in
the fund's investments over
the past six months.
INVESTMENTS 9 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 15 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 19 Footnotes to the financial
statements.
REPORT OF INDEPENDENT 22 The auditors' opinion.
ACCOUNTANTS
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
Resurgent stock market performance in the fourth quarter helped the
Dow Jones Industrial Average post a double-digit return for the fourth
year in a row - a first in the Dow's 100-plus year history. Three
interest-rate cuts made late in the year by the Federal Reserve Board
helped spark the equity rally. Meanwhile, while the majority of bonds
posted positive performance, most bond returns for 1998 trailed their
gains from 1997.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
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, or visit our
web site at www.fidelity.com. 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, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY EXCHANGE 18.74% 174.26% 418.17%
S&P 500 (registered trademark) 28.58% 193.90% 479.73%
Growth & Income Funds Average 15.61% 133.95% 332.13%
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 market-capitalization-weighted index
of common stocks. To measure how the fund's performance stacked up
against its peers, you can compare it to the growth & income funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Inc. The past one year average represents
a peer group of 768 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, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY EXCHANGE 18.74% 22.36% 17.88%
S&P 500 28.58% 24.06% 19.21%
Growth & Income Funds Average 15.61% 18.35% 15.53%
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER 10 YEARS
Exchange S&P 500
00033 SP001
1988/12/31 10000.00 10000.00
1989/01/31 10588.40 10732.00
1989/02/28 10389.41 10464.77
1989/03/31 10637.84 10708.60
1989/04/30 11210.07 11264.38
1989/05/31 11623.93 11720.59
1989/06/30 11572.85 11653.78
1989/07/31 12630.69 12706.12
1989/08/31 12706.25 12955.15
1989/09/30 12621.63 12902.04
1989/10/31 12423.66 12602.71
1989/11/30 12750.08 12859.81
1989/12/31 12953.62 13168.44
1990/01/31 12101.03 12284.84
1990/02/28 12204.37 12443.31
1990/03/31 12530.55 12773.06
1990/04/30 12278.65 12453.74
1990/05/31 13641.51 13667.97
1990/06/30 13667.68 13575.03
1990/07/31 13576.16 13531.59
1990/08/31 12438.69 12308.34
1990/09/30 11860.14 11708.92
1990/10/31 11766.99 11658.57
1990/11/30 12510.60 12411.72
1990/12/31 12890.19 12758.00
1991/01/31 13314.43 13314.25
1991/02/28 14295.28 14266.22
1991/03/31 14680.49 14611.46
1991/04/30 14631.28 14646.53
1991/05/31 15269.34 15279.26
1991/06/30 14524.67 14579.47
1991/07/31 15266.27 15258.87
1991/08/31 15592.44 15620.51
1991/09/30 15295.46 15359.65
1991/10/31 15589.00 15565.47
1991/11/30 15101.47 14938.18
1991/12/31 16939.87 16647.11
1992/01/31 16569.72 16337.47
1992/02/29 16859.93 16549.86
1992/03/31 16536.71 16227.13
1992/04/30 16846.03 16704.21
1992/05/31 16948.56 16786.06
1992/06/30 16521.22 16535.95
1992/07/31 17292.30 17212.27
1992/08/31 17062.20 16859.42
1992/09/30 17132.46 17058.36
1992/10/31 17287.03 17118.06
1992/11/30 17813.97 17701.79
1992/12/31 17733.43 17919.52
1993/01/31 17595.39 18070.05
1993/02/28 17649.18 18315.80
1993/03/31 18054.33 18702.26
1993/04/30 17701.16 18249.67
1993/05/31 18151.13 18738.76
1993/06/30 18162.92 18793.10
1993/07/31 17825.80 18717.93
1993/08/31 18476.48 19427.34
1993/09/30 18322.42 19277.75
1993/10/31 18871.60 19676.80
1993/11/30 18610.60 19489.87
1993/12/31 18893.27 19725.69
1994/01/31 19198.30 20396.37
1994/02/28 18749.04 19843.63
1994/03/31 17981.39 18978.44
1994/04/30 18284.75 19221.37
1994/05/31 18588.11 19536.60
1994/06/30 18117.89 19057.95
1994/07/31 18690.15 19683.05
1994/08/31 19496.18 20490.06
1994/09/30 19309.17 19988.05
1994/10/31 19817.84 20437.78
1994/11/30 19466.26 19693.44
1994/12/31 19773.17 19985.49
1995/01/31 20491.18 20503.72
1995/02/28 21193.63 21302.75
1995/03/31 21551.65 21931.39
1995/04/30 22242.26 22577.27
1995/05/31 23073.73 23479.68
1995/06/30 23562.58 24025.12
1995/07/31 24345.16 24821.79
1995/08/31 24074.42 24884.09
1995/09/30 25218.66 25934.20
1995/10/31 25329.32 25841.62
1995/11/30 26380.68 26976.06
1995/12/31 26846.57 27495.62
1996/01/31 27827.96 28431.57
1996/02/29 28264.80 28695.13
1996/03/31 28562.00 28971.47
1996/04/30 28903.10 29398.51
1996/05/31 29706.96 30156.69
1996/06/30 29886.47 30271.59
1996/07/31 28354.14 28934.19
1996/08/31 28947.36 29544.41
1996/09/30 30602.36 31207.17
1996/10/31 30940.20 32067.87
1996/11/30 33158.25 34491.88
1996/12/31 32484.89 33808.59
1997/01/31 34388.46 35920.96
1997/02/28 34747.16 36202.58
1997/03/31 33675.13 34715.01
1997/04/30 35509.40 36787.50
1997/05/31 37592.31 39027.12
1997/06/30 39449.58 40775.54
1997/07/31 41902.24 44020.05
1997/08/31 39082.51 41554.04
1997/09/30 41387.51 43829.96
1997/10/31 40622.59 42366.04
1997/11/30 42509.25 44327.16
1997/12/31 43638.09 45088.26
1998/01/31 44019.80 45586.93
1998/02/28 46693.79 48874.66
1998/03/31 48538.35 51377.53
1998/04/30 49268.75 51894.39
1998/05/31 48239.18 51002.33
1998/06/30 49461.00 53074.04
1998/07/31 48193.88 52508.80
1998/08/31 42096.80 44917.08
1998/09/30 44185.16 47794.47
1998/10/31 47799.85 51682.07
1998/11/30 49861.25 54814.52
1998/12/31 51816.87 57972.94
IMATRL PRASUN SHR__CHT 19981231 19990127 115123 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Exchange Fund on December 31, 1988. As the chart
shows, by December 31, 1998, the value of the investment would have
grown to $51,817 - a 418.17% increase on the initial investment. For
comparison, look at how the Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $57,973 - a 479.73% increase.
(checkmark)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.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
For the first time in its history, the
Dow Jones Industrial Average -
an index of 30 blue-chip stocks -
posted double-digit percentage
gains in four consecutive years,
thanks to an 18.07% increase for
the 12-month period ending
December 31, 1998. In that same
time frame, the Standard & Poor's
500 Index returned 28.58%. The
period began with the U.S.
enjoying low inflation, stable
interest rates and an
unemployment rate at its lowest
peacetime level in 41 years. But
while the equity market continued
its bull-like charge, mounting
doubts lingered in many
investors' minds about the impact of
Asia's economic woes. Those fears
soon became reality. Further
prompted by Russia's currency
devaluation and subsequent loan
defaults, the Dow suffered a
512.61 point free-fall on August
31, a loss that erased all previous
gains for the year to that point.
Faced with global economic
chaos, investors began fleeing the
equity markets in droves, searching
for safer, less volatile havens,
particularly U.S. Treasuries. To
address the lack of confidence in
domestic and global equity markets,
the U.S. Federal Reserve Board
stepped in with three separate 0.25%
interest-rate cuts in the late fall.
Those cuts helped boost confidence
in the U.S. economy, and stocks
began to quickly ascend to their
former lofty levels, culminating in a
new Dow record of 9374.27 on
November 23, 1998.
(photograph of Tim Heffernan)
An interview with Tim Heffernan, Portfolio Manager of Fidelity
Exchange Fund
Q. HOW DID THE FUND PERFORM, TIM?
A. For the 12 months that ended December 31, 1998, the fund had a
total return of 18.74%, trailing the 28.58% return for the Standard &
Poor's 500 Index. The fund outpaced the 15.61% return of the growth &
income funds average tracked by Lipper Inc. during the same period.
Q. WHY DID THE FUND'S RETURN FALL SHORT OF THE INDEX YET BEAT THE
LIPPER AVERAGE?
A. The fund's performance relative to the S&P 500 index was hurt
primarily due to its relative underweighting in one of the strongest
sectors for the year - technology. Stocks such as Microsoft, Intel and
Cisco, which are not held in the fund, were big contributors to the
performance of the index. Of particular interest is the fact that the
market continued to reward such a small number of large-cap growth
stocks: 15 companies accounted for approximately half the total return
of the S&P 500. This very narrow market breadth caused the fund to lag
the S&P 500 index. In addition, several stocks in the portfolio across
different industries such as entertainment and energy services
produced disappointing results for the year. The fund's strong
performance relative to the Lipper growth and income funds average can
most likely be attributed to the fund's greater exposure to large-cap
stocks and its overweighting in the health care sector. Specifically,
pharmaceutical companies such as Schering-Plough, American Home
Products and Pfizer helped total return.
Q. WHAT OTHER STOCKS HELPED THE FUND'S RETURN?
A. Along with technology, drug companies were among the biggest
contributors to the gains in the market indexes. Schering-Plough was
one of the best performers for the fund as the stock benefited from
the predictable growth of the sector due to strong product demand and
strong sales of its allergy drug - Claritin. The fund's holding in
Pfizer also benefited from the company's reliable earnings growth and
strength in the drug sector. While the majority of stocks in the
energy sector hurt performance, the fund was helped by a couple of
major acquisitions announcements. The fund's total return received a
helping hand after British Petroleum decided to acquire Amoco and from
Exxon's decision to acquire Mobil. The fund's largest holding, General
Electric, also helped performance as the company benefited from its
market dominance, strong sales and excellent growth outlook.
Q. WHAT HOLDINGS HURT THE FUND'S PERFORMANCE?
A. As I mentioned, the energy sector did not perform well and energy
service companies such as Halliburton and Schlumberger were
particularly hard hit. These holdings detracted from total return
because they are very sensitive to oil prices. As the price of a
barrel of oil dropped to a 12-year low, stock prices for energy
service companies were slashed. The fund's positions in Walt Disney
and Gillette also hurt performance. Walt Disney suffered after the
company's fourth-quarter earnings declined due to weak film and video
sales. While Gillette has rebounded from its lows, the stock price
experienced weakness in the midst of declining international sales and
uncertainty in global markets.
Q. WHAT'S YOUR OUTLOOK, TIM?
A. Neither the forces of inflation nor deflation prevailed in 1998. In
addition, central banks around the world have lowered interest rates
in hopes of improving their countries growth prospects, and the
Federal Reserve appears to be highly sensitive to both U.S. and
international economic trends. While large-cap stock valuations have
returned to their July 1998 peaks, earnings estimates for the fourth
quarter of 1998 and 1999 continue to be trimmed. Further, excess
capacity and ongoing weakness overseas have combined to provide a
difficult backdrop against which to produce significant earnings
growth in 1999.
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
<TABLE>
<CAPTION>
<S> <C> <C>
TOP TEN STOCKS AS OF DECEMBER
31, 1998
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE STOCKS 6 MONTHS AGO
General Electric Co. 5.6 5.1
Hewlett-Packard Co. 3.9 3.5
Schering-Plough Corp. 3.7 4.0
Bristol-Myers Squibb Co. 3.6 3.5
Disney (Walt) Co. 3.4 4.0
Gillette Co. 3.2 4.0
American Home Products Corp. 3.1 3.6
McDonald's Corp. 3.1 2.8
Pfizer, Inc. 2.8 2.5
American Express Co. 2.7 3.1
TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1998
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO
HEALTH 21.7 20.7
NONDURABLES 15.5 16.4
MEDIA & LEISURE 13.8 14.1
ENERGY 9.2 9.9
INDUSTRIAL MACHINERY & 7.5 7.8
EQUIPMENT
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
</TABLE>
AS OF DECEMBER 31, 1998 *
Stocks 96.2%
Short-term
investments 3.8%
*FOREIGN
INVESTMENTS 1.5%
Row: 1, Col: 1, Value: 96.59999999999999
Row: 1, Col: 2, Value: 3.4
AS OF JUNE 30, 1998 **
Stocks 96.6%
Short-term
investments 3.4%
**FOREIGN
INVESTMENTS 2.0%
Row: 1, Col: 1, Value: 96.2
Row: 1, Col: 2, Value: 3.8
INVESTMENTS DECEMBER 31, 1998
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 96.2%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 2.0%
AEROSPACE & DEFENSE - 0.8%
United Technologies Corp. 26,672 $ 2,900,580
DEFENSE ELECTRONICS - 1.2%
Raytheon Co.:
Class A 1,913 98,878
Class B 80,000 4,260,000
4,358,878
TOTAL AEROSPACE & DEFENSE 7,259,458
BASIC INDUSTRIES - 1.8%
CHEMICALS & PLASTICS - 1.8%
Air Products & Chemicals, 95,268 3,810,720
Inc.
Cabot Corp. 91,700 2,561,869
6,372,589
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES -
2.0%
Dana Corp. 80,670 3,297,386
General Motors Corp. 26,155 1,871,717
SPX Corp. 27,908 1,869,836
7,038,939
CONSUMER DURABLES - 0.6%
Minnesota Mining & 30,000 2,133,750
Manufacturing Co.
TOTAL DURABLES 9,172,689
ENERGY - 9.2%
ENERGY SERVICES - 1.8%
Halliburton Co. 141,400 4,188,975
Schlumberger Ltd. 53,568 2,470,824
6,659,799
OIL & GAS - 7.4%
Amoco Corp. 80,000 4,720,000
Chevron Corp. 60,000 4,976,250
Exxon Corp. 95,800 7,005,375
Kerr-McGee Corp. 13,480 515,610
Mobil Corp. 71,360 6,217,240
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Royal Dutch Petroleum Co. (NY 60,000 $ 2,872,500
Registry Gilder 1.25)
Union Pacific Resources 16,168 146,523
Group, Inc.
26,453,498
TOTAL ENERGY 33,113,297
FINANCE - 5.5%
CREDIT & OTHER FINANCE - 2.7%
American Express Co. 94,788 9,692,073
INSURANCE - 2.4%
General Re Corp. 23,360 5,723,200
Highlands Insurance Group, 370 4,833
Inc. (a)
Torchmark Corp. 83,232 2,939,130
8,667,163
SECURITIES INDUSTRY - 0.4%
Lehman Brothers Holdings, 18,357 808,855
Inc.
Waddell & Reed Financial, Inc.:
Class A 4,735 112,160
Class B 20,383 473,905
1,394,920
TOTAL FINANCE 19,754,156
HEALTH - 21.7%
DRUGS & PHARMACEUTICALS - 15.8%
American Home Products Corp. 196,463 11,063,323
Bristol-Myers Squibb Co. 96,743 12,945,423
Lilly (Eli) & Co. 48,608 4,320,036
Merck & Co., Inc. 33,619 4,965,106
Pfizer, Inc. 80,788 10,133,845
Schering-Plough Corp. 244,878 13,529,510
56,957,243
MEDICAL EQUIPMENT & SUPPLIES
- - 5.9%
Becton, Dickinson & Co. 128,000 5,464,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES
- - CONTINUED
Guidant Corp. 61,598 $ 6,791,180
Johnson & Johnson 107,095 8,982,593
21,237,773
TOTAL HEALTH 78,195,016
INDUSTRIAL MACHINERY &
EQUIPMENT - 7.5%
ELECTRICAL EQUIPMENT - 5.6%
General Electric Co. 197,068 20,113,247
INDUSTRIAL MACHINERY &
EQUIPMENT - 1.4%
Parker-Hannifin Corp. 135,907 4,450,954
Stanley Works 28,748 797,757
5,248,711
POLLUTION CONTROL - 0.5%
Waste Management, Inc. 36,250 1,690,156
TOTAL INDUSTRIAL MACHINERY & 27,052,114
EQUIPMENT
MEDIA & LEISURE - 13.8%
BROADCASTING - 0.3%
Cox Communications, Inc. 14,488 1,001,483
Class A (a)
ENTERTAINMENT - 3.7%
Disney (Walt) Co. 403,320 12,099,600
Viacom, Inc. Class B 15,283 1,130,942
(non-vtg.) (a)
13,230,542
PUBLISHING - 6.7%
Gannet, Inc. 110,428 7,308,953
Harcourt General, Inc. 40,000 2,127,500
Knight-Ridder, Inc. 64,400 3,292,450
McGraw-Hill Companies, Inc. 69,512 7,081,535
Media General, Inc. Class A 24,382 1,292,246
Times Mirror Co. Class A 55,947 3,133,032
24,235,716
RESTAURANTS - 3.1%
McDonald's Corp. 143,980 11,032,468
TOTAL MEDIA & LEISURE 49,500,209
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 15.5%
BEVERAGES - 3.5%
Anheuser-Busch Companies, 81,409 $ 5,342,466
Inc.
Coca-Cola Co. (The) 107,628 7,197,623
12,540,089
FOODS - 3.3%
Agribrands International, 2,134 64,020
Inc.
General Mills, Inc. 42,400 3,296,600
Ralston Purina Co. 92,739 3,002,425
Sara Lee Corp. 192,510 5,426,376
11,789,421
HOUSEHOLD PRODUCTS - 6.8%
Colgate-Palmolive Co. 67,475 6,266,741
Gillette Co. 238,654 11,529,971
International Flavors & 12,047 532,327
Fragrances, Inc.
Procter & Gamble Co. 66,700 6,090,544
24,419,583
TOBACCO - 1.9%
Philip Morris Companies, Inc. 132,450 7,086,075
TOTAL NONDURABLES 55,835,168
RETAIL & WHOLESALE - 1.9%
APPAREL STORES - 0.2%
Payless ShoeSource, Inc. (a) 13,140 622,508
GENERAL MERCHANDISE STORES -
1.2%
May Department Stores Co. 71,626 4,324,420
(The)
GROCERY STORES - 0.5%
Supervalu, Inc. 70,160 1,964,480
TOTAL RETAIL & WHOLESALE 6,911,408
SERVICES - 0.7%
PRINTING - 0.4%
Harland (John H.) Co. 100,000 1,581,250
SERVICES - 0.3%
Jostens, Inc. 33,307 872,227
TOTAL SERVICES 2,453,477
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - 6.8%
COMPUTERS & OFFICE EQUIPMENT
- - 4.8%
Hewlett-Packard Co. 202,563 $ 13,837,585
International Business 18,194 3,361,342
Machines Corp.
17,198,927
ELECTRONICS - 1.4%
Motorola, Inc. 81,906 5,001,385
PHOTOGRAPHIC EQUIPMENT - 0.6%
Eastman Kodak Co. 28,942 2,083,824
TOTAL TECHNOLOGY 24,284,136
TRANSPORTATION - 0.2%
RAILROADS - 0.2%
Union Pacific Corp. 19,090 860,243
UTILITIES - 7.0%
ELECTRIC UTILITY - 3.1%
CLECO Corp. 45,500 1,561,219
Duke Energy Corp. 50,000 3,203,125
Edison International 80,000 2,230,000
Hawaiian Electric Industries, 40,000 1,610,000
Inc.
PacifiCorp 55,400 1,166,863
Potomac Electric Power Co. 49,800 1,310,363
11,081,570
GAS - 0.6%
Williams Companies, Inc. 70,040 2,184,373
TELEPHONE SERVICES - 3.3%
ALLTEL Corp. 1,756 105,031
MCI WorldCom, Inc. (a) 99,512 7,139,986
Sprint Corp.:
(FON Group) 50,000 4,206,250
Series 1 (PCS Group) (a) 25,000 578,125
12,029,392
TOTAL UTILITIES 25,295,335
TOTAL COMMON STOCKS 346,059,295
(Cost $21,593,472)
CASH EQUIVALENTS - 3.8%
MATURITY AMOUNT VALUE (NOTE 1)
Investments in repurchase $ 13,758,212 $ 13,751,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99
(Cost $13,751,000)
TOTAL INVESTMENT IN $ 359,810,295
SECURITIES - 100%
(Cost $35,344,472)
</TABLE>
LEGEND
(a) Non-income producing
INCOME TAX INFORMATION
At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $35,344,472. Net unrealized appreciation
aggregated $324,465,823, all of which was related to appreciated
investment securities.
The fund hereby designates approximately $450 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
ASSETS
Investment in securities, at $ 359,810,295
value (including repurchase
agreements of $13,751,000)
(cost $35,344,472) - See
accompanying schedule
Cash 228
Dividends receivable 336,999
TOTAL ASSETS 360,147,522
LIABILITIES
Payable for fund shares $ 3,963
redeemed
Distributions payable 1,245,414
Accrued management fee 156,765
Other payables and accrued 52,804
expenses
TOTAL LIABILITIES 1,458,946
NET ASSETS $ 358,688,576
Net Assets consist of:
Paid in capital $ 34,219,123
Undistributed net investment 25,698
income
Accumulated undistributed net (22,068)
realized gain (loss) on
investments
Net unrealized appreciation 324,465,823
(depreciation) on investments
NET ASSETS, for 1,442,719 $ 358,688,576
shares outstanding
NET ASSET VALUE, offering $248.62
price and redemption price
per share ($358,688,576
(divided by) 1,442,719
shares)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME $ 4,949,140
Dividends
Interest 675,617
TOTAL INCOME 5,624,757
EXPENSES
Management fee $ 1,825,623
Transfer agent fees 234,886
Non-interested trustees' 932
compensation
Custodian fees and expenses 9,121
Audit 29,724
Legal 1,455
Miscellaneous 2,013
Total expenses before 2,103,754
reductions
Expense reductions (6,464) 2,097,290
NET INVESTMENT INCOME 3,527,467
REALIZED AND UNREALIZED GAIN 16,532,572
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized 38,431,279
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 54,963,851
NET INCREASE (DECREASE) IN $ 58,491,318
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 3,527,467 $ 3,824,289
income
Net realized gain (loss) 16,532,572 16,664,642
Change in net unrealized 38,431,279 64,474,427
appreciation (depreciation)
NET INCREASE (DECREASE) IN 58,491,318 84,963,358
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (3,564,824) (3,742,136)
from net investment income
Share transactions
Reinvestment of distributions 1,076,729 1,059,351
Cost of shares redeemed (17,405,529) (17,325,285)
NET INCREASE (DECREASE) IN (16,328,800) (16,265,934)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 38,597,694 64,955,288
IN NET ASSETS
NET ASSETS
Beginning of period 320,090,882 255,135,594
End of period (including $ 358,688,576 $ 320,090,882
undistributed net investment
income of $25,698 and
$62,580, respectively)
OTHER INFORMATION
Shares
Issued in reinvestment of 4,463 5,292
distributions
Redeemed (75,203) (92,508)
Net increase (decrease) (70,740) (87,216)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
SELECTED PER-SHARE DATA
Net asset value, beginning $ 211.50 $ 159.39 $ 134.59 $ 102.72 $ 102.20
of period
Income from Investment
Operations
Net investment income 2.39 B 2.46 B 2.59 2.45 2.56
Net realized and 37.17 52.10 25.58 33.59 2.12
unrealized gain (loss)
Total from investment 39.56 54.56 28.17 36.04 4.68
operations
Less Distributions
From net investment income (2.44) (2.45) (2.60) (2.45) (2.42)
From net realized gain - - (.77) (1.72) (1.74)
Total distributions (2.44) (2.45) (3.37) (4.17) (4.16)
Net asset value, end of period $ 248.62 $ 211.50 $ 159.39 $ 134.59 $ 102.72
TOTAL RETURN A 18.74% 34.33% 21.00% 35.77% 4.66%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 358,689 $ 320,091 $ 255,136 $ 232,768 $ 185,599
(000 omitted)
Ratio of expenses to average .62% .63% .64% .63% .58%
net assets
Ratio of expenses to average .62% .63% .63% C .63% .58%
net assets after expense
reductions
Ratio of net investment 1.04% 1.31% 1.72% 2.05% 2.50%
income to 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, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Exchange Fund (the fund) is registered under the Investment
Company Act of 1940, as amended, 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 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 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. 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
and settlement date 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. 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.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 that 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 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
$17,221,829, 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
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 $201,382. 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 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
$24 and $6,440, respectively, under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and the Shareholders of Fidelity Exchange Fund:
In our opinion, the accompanying statements 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 Exchange Fund at December 31, 1998, and 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 Exchange 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 December 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
February 12, 1999
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE
WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Robert A. Lawrence, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy 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
EXC-ANN-0299 70453
1.540021.101
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S GROWTH AND INCOME FUNDS
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Congress Street Fund
Convertible Securities Fund
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Exchange Fund
Fidelity (registered trademark) Fund
Global Balanced Fund
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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
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)
TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
