(2_FIDELITY_LOGOS)SPARTAN(Registered trademark)
INVESTMENT GRADE BOND
FUND
SEMIANNUAL REPORT
MARCH 31, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy, and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the last six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 19 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 23 Footnotes to the financial
statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
The past few months have been an unsettling time for bond investors. The
bond market declined after the Federal Reserve Board raised short-term
interest rates in February and March. These rate hikes caused bond yields
to rise and bond prices to fall. While nobody knows whether rates will
continue to go up, this may be a good time to review the effect rising
rates have on your bond fund investment, and consider how well your current
bond fund holdings match your original investment goals.
Most investors choose bond funds to generate income and to help diversify
their investment portfolios. Despite the recent market downturn, bond
mutual funds still satisfy these needs. Where investors have felt the
negative effect of rising rates is in the market value of their investment,
which has eroded as bond prices have fallen. It's important to remember,
however, that this loss in principal is only "on paper" until you choose to
sell your shares. That's why your investing time horizon is key.
If your time horizon is short - one year or less - you may want to consider
shifting all or part of your bond fund investment into a money market fund.
If you can't keep your investment in the bond fund until yields start
falling again and bond prices rise, you increase your risk of not recouping
the full value of the shares. A money market fund provides a stable $1
share price and a yield that becomes more attractive as rates go up.
If you don't need your money within the next year, staying in your bond
fund may be the appropriate strategy for you. The longer your investing
time frame, the better your chances of retaining your principal investment
through periods of rising AND falling rates. For example, if you plan to
use your money in one to two years, a short-term bond fund may be the right
choice. If your time frame is two to four years, a fund with an
intermediate length average maturity may be best. If you have a longer-term
goal - say a child's college education that's ten years away - you may be
willing to ride out the bond market's peaks and valleys in exchange for the
higher potential returns of a longer-term fund.
If you have questions, please call us at 1-800-544-8888. We would be happy
to send you a Fidelity FundMatch kit, which can help you determine the mix
of investments that is right for you. You might also find it convenient to
set up a regular investment plan using the Fidelity Automatic Account
Builder.
We look forward to hearing from 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. Each figure
includes changes in a fund's share price, reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells bonds
that have grown in value), and the effect of the $5 account closeout fee.
You can also look at the fund's income to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1994 PAST 6 PAST 1 LIFE OF
MONTHS YEAR FUND
Spartan Investment Grade Bond -5.37% 3.63% 11.82%
Lehman Brothers Corporate Bond Index -3.66% 3.01% 8.43%
Average Corporate BBB-Rated Bond -3.16% 3.46% n/a
Fund
Consumer Price Index 1.45% 2.51% 4.18%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year or since the fund
began on October 1, 1992. For example, if you invested $1,000 in a fund
that had a 5% return you would end up with $1,050. You can compare the
fund's returns to those of the Lehman Brothers Corporate Bond Index - a
broad measure of corporate bond performance. You can also compare these
figures to the average corporate BBB-rated bond fund, which reflects the
performance of over 73 funds tracked by Lipper Analytical Services. These
benchmarks include reinvested dividends and capital gains, if any.
Comparing the fund's performance to the consumer price index helps show how
your fund did compared to inflation.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1994 PAST 1 LIFE OF
YEAR FUND
Spartan Investment Grade Bond 3.63% 7.74%
Lehman Brothers Corporate Bond Index 3.01% 5.54%
Average Corporate BBB-Rated Bond Fund 3.46% n/a
Consumer Price Index 2.51% 2.77%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
10/01/92 10000.00 10000.00
10/31/92 9812.22 9822.00
11/30/92 9910.57 9837.72
12/31/92 10141.51 10019.71
01/31/93 10397.72 10253.17
02/28/93 10729.65 10489.00
03/31/93 10789.99 10525.71
04/30/93 10830.04 10606.75
05/31/93 10871.84 10619.48
06/30/93 11226.71 10877.54
07/31/93 11392.80 10955.85
08/31/93 11782.45 11228.66
09/30/93 11816.74 11255.60
10/31/93 11913.99 11311.88
11/30/93 11705.43 11172.75
12/31/93 11740.03 11238.67
01/31/94 11984.81 11456.70
02/28/94 11571.42 11186.32
03/31/94 11183.64 10842.90
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Investment Grade Bond Fund on October 1, 1992, when the fund started. As
the chart shows, by March 31, 1994, the value of your investment would have
grown to $11,184 - a 11.84% increase on your initial investment. This
assumes you still own the fund on March 31, 1994 and therefore does not
include the effect of the $5 account closeout fee. For comparison, look at
how the Lehman Brothers Corporate Bond Index did over the same period. With
dividends reinvested, the same $10,000 investment would have grown to
$10,843 - a 8.43% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
INCOME
OCTOBER 1, 1992
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
MARCH 31, 1994 SEPTEMBER 30, 1993
Income return 3.15% 8.77%
Capital gain return 0.09% 0.00%
Change in share price -8.61% 9.38%
Total return -5.37% 18.15%
INCOME returns, capital gain returns, and changes in share price are all
part of a bond fund's total return. An income return reflects the dividends
paid by the fund. A capital gain return reflects the amount paid by the
fund to shareholders based on the profits it has from selling bonds that
have grown in value. Both returns assume the dividends or gains are
reinvested. Changes in the fund's share price include changes in the prices
of the bonds owned by the fund. Change in share price and total return
figures include the effect of the $5 account closeout fee; income return
figures do not.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1994 PAST 30 PAST 6 PAST 1
DAYS MONTHS YEAR
Dividends per share n/a 35.96(cents) 75.79(cents)
Annualized dividend rate n/a 6.76% 7.12%
Annualized yield 7.20% n/a n/a
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.67 over
the past six months and $10.65 over the past 12 months, you can compare the
fund's income over these two periods. The 30-day annualized YIELD is a
standard formula for all bond funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Michael Gray, Portfolio Manager of Spartan Investment
Grade Bond Fund
Q. MICHAEL, HOW DID THE FUND PERFORM?
A. The fund had a total return of -5.37% for the six months ended March 31,
1994. That was below the -3.16% total return for the average BBB-rated
corporate bond fund tracked by Lipper Analytical Services during the same
period. For the twelve months ended March 31, the fund returned 3.63%.That
beat the average fund's 3.46% return.
Q. WHY DID THE FUND TRAIL THE AVERAGE DURING THE LAST SIX MONTHS?
A. We've been in an environment where interest rates have risen fairly
dramatically. For example, the 30-year Treasury bond's yield bottomed at
5.79% on October 15th, and rose to 7.09% by the end of March. Rising yields
meant bond prices were falling. Because the fund had a longer duration than
many of its competitors, it suffered more when rates went up. Duration
measures the fund's sensitivity to changes in interest rates. For example,
the duration was 8.7 years at the end of January. That meant if interest
rates would have risen one percent, the fund's share price would have
fallen about 8.7%, and if rates had fallen one percent the share price
would have risen by about 8.7%. I reduced the duration of the portfolio to
6.3 years by March 31. However, the fund is classified with a group of
funds in which the benchmark duration is five years. Consequently, in the
rising rate environment, the fund's performance trailed many of its peers.
Q. WHAT WERE THE BIGGEST FACTORS BEHIND THE RECENT SELL-OFF IN THE BOND
MARKET?
A. The most significant factor was the strengthening U.S. economy. Economic
growth started to accelerate in the fourth quarter of '93, which caused
the Federal Reserve Board to fear the reemergence of inflation. The Fed
responded by making two small increases in the federal funds rate - the
interest rate that banks charge each other for overnight loans. These rate
increases accelerated the sell-off in the bond market. Worldwide political
uncertainty in places such as Mexico and Russia also added to the negative
sentiment in the market.
Q. WHAT ABOUT THE USE OF LEVERAGE IN THE FIXED-INCOME MARKETS? DID THAT
HAVE A MAJOR IMPACT IN THE SELL-OFF?
A. Absolutely. While the Fed was lowering short-term interest rates over
the past few years, a lot of investors were buying longer-term bonds. They
financed these purchases by borrowing money at much lower short-term rates.
Hedge funds - aggressively managed private partnerships - were among the
heaviest borrowers. They made huge investments in the U.S. and foreign
markets and earned phenomenal returns in 1992 and 1993. But as the markets
started falling and rates began rising, they had to quickly sell off these
large leveraged positions, often at losses. This flooded the market with
securities that, in an environment of falling bond prices, no investor
wanted to own. This whole unwinding process put additional downward
pressure on the markets.
Q. YOU REDUCED THE FUND'S INVESTMENT IN FOREIGN BONDS OVER THE PAST SIX
MONTHS. WHY?
A. I have been paring back on Mexican Cetes, which are short-term, high-
yielding securities issued by the Mexican government. They were strong
performers in 1993 but have weakened in 1994. This was mainly due to a
substantial depreciation in the peso caused by political turmoil in Mexico
and sluggish growth in the Mexican economy. The peso was devalued by about
8%, causing the securities to decline by the same amount.
Q. LOOKING BACK OVER THE PAST SIX MONTHS, WHAT WOULD YOU HAVE DONE
DIFFERENTLY?
A. It's always clear, with the benefit of hindsight, to know what should
have been done differently. First, I would have shortened the fund's
duration sooner. Second, I would have sold the Mexican Cetes earlier. And
third, I would have acted with a greater sense of urgency regarding changes
in credit quality in some of the fund's corporate bonds. When rates rose,
the yield spreads on these bonds widened considerably above Treasuries -
which meant their prices fell more quickly than Treasuries of comparable
maturities. I probably should have sold some of these investments sooner.
Q. WHAT IS YOUR BIGGEST CHALLENGE IN THE CURRENT MARKET ENVIRONMENT?
A. Deciding on the right time to invest more heavily. This is the first
bear market we've had in several years. The challenge is to determine when
it's going to end. The sell-off has created value in the market - in
longer-term Treasuries and some of the cheaper corporate bonds that have
been beaten up - but I'm not ready to resume any serious buying at this
point.
Q. ARE YOU ANTICIPATING FURTHER INTEREST RATE INCREASES BY THE FED IN THE
NEAR TERM?
A. The Fed appears to be in a mode of tightening monetary policy by raising
short-term interest rates so there is always that risk. The fact that rates
have risen a lot will give the Fed cause to rethink further increases. I
don't think it expected the disastrous response the bond market had to its
earlier rate increases. Moreover, the rise in rates across the spectrum has
partially accomplished the goal of slowing down the economy. I do see
further rate increases down the road, but not right away.
Q. WHAT IS YOUR GAME PLAN GOING
FORWARD?
A. I will probably be defensive. If the U.S. economy continues to
strengthen, I'll maintain a moderate cash reserve and will continue to keep
duration lower than it was earlier this year. I think we're likely to see
continued low inflation, which is very favorable for long-term bonds. But I
am going to be very careful about timing my re-entry to the market.
FUND FACTS
GOAL: high current income
by investing at least 65% in
investment grade corporate
bonds
START DATE: October 1, 1992
SIZE: as of March 31, 1994,
over $104 million
MANAGER: Michael Gray,
since October 1992;
manager, Fidelity Investment
Grade Bond, Intermediate
Bond, and Advisor Limited
Term Bond, since September
1987; Fidelity Advisor
Limited Term Bond Fund,
since October 1992
(checkmark)
MICHAEL GRAY ON MANAGING
LONG-TERM BONDS IN A DOWN
MARKET:
``My primary goal in an
environment of rising interest
rates is to try to preserve the
value of the fund's shares as
much as I possibly can. This
means shifting from an
offensive strategy of buying
aggressively in a rising
market to a defensive posture
of staying on the sidelines and
increasing the cash portion of
the portfolio. I raise cash for
two reasons. First, it gives me
a cushion that helps provide
stability when interest rates
are rising and bond prices are
falling. Second, a cash
reserve allows me to
selectively buy bonds at
attractive prices, once prices
have fallen and the market
has stabilized. Another
integral part of my down
market strategy is to reduce
duration as much as possible
within the limitations imposed
by a fund that invests in bonds
with longer maturities. That
helps reduce interest rate
risk, or the risk of substantial
share price deterioration
should rates continue to rise."
(bullet) As of March 31, the fund's
duration was 6.3 years. That
means if interest rates had
risen one percentage point,
the fund's share price would
have declined by about 6.3%.
But if interest rates had fallen
by one percentage point, the
fund's share price would have
risen by about 6.3%.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF MARCH 31, 1994
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
Aaa 9.8 10.7
Aa 5.8 6.5
A 32.1 27.3
Baa 34.8 31.8
Ba 5.2 3.1
Non-rated - 1.4
AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1994
6 MONTHS AGO
Years 19.9 19.3
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE
FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF MARCH 31, 1994
6 MONTHS AGO
Years 6.3 8.1
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL
LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION
AS OF MARCH 31, 1994* AS OF SEPTEMBER 30, 1993**
Row: 1, Col: 1, Value: 7.3
Row: 1, Col: 2, Value: 6.0
Row: 1, Col: 3, Value: 9.800000000000001
Row: 1, Col: 4, Value: 76.90000000000001
Corporate bonds 76.9%
U.S. government
and agency
obligations 9.8%
Foreign government
obligations 6.0%
Other 7.3%
Corporate bonds 69.1%
U.S. government
and agency
obligations 10.7%
Foreign government
obligations 11.6%
Other 8.6%
Row: 1, Col: 1, Value: 8.6
Row: 1, Col: 2, Value: 11.6
Row: 1, Col: 3, Value: 10.7
Row: 1, Col: 4, Value: 69.09999999999999
* TOTAL FOREIGN
INVESTMENTS 9.4%
** TOTAL FOREIGN
INVESTMENTS 15.1%
INVESTMENTS MARCH 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 76.9%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
AEROSPACE & DEFENSE - 2.2%
AEROSPACE & DEFENSE - 1.8%
Lockheed Corp. 7 5/8%, 3/15/23 Baa1 $ 2,000,000 $ 1,892,000
DEFENSE ELECTRONICS - 0.4%
Loral Corp. 8 3/8%, 1/15/23 Baa2 400,000 399,968
TOTAL AEROSPACE & DEFENSE 2,291,968
BASIC INDUSTRIES - 8.2%
CHEMICALS & PLASTICS - 1.4%
du Pont (E.I.) de Nemours & Co. 7.95%,
1/15/23 Aa2 500,000 493,025
Witco Corp. 7 3/4%, 4/1/23 A3 1,000,000 955,800
1,448,825
PACKAGING & CONTAINERS - 1.0%
Crown Cork & Seal, Inc. 8%, 4/15/23 Baa1 1,000,000 980,790
PAPER & FOREST PRODUCTS - 5.8%
Georgia Pacific Corp. 9 7/8%, 11/1/21 Baa3 1,200,000 1,341,156
International Paper Co. 7 5/8%, 3/1/23 A2 1,000,000 950,000
Kimberly-Clark Corp. 7 7/8%, 2/1/23 Aa2 500,000 498,115
Mead Corp. 8 1/8%, 2/1/23 A3 500,000 512,985
Scott Paper Company 7%, 8/15/23 Baa1 1,000,000 858,300
Westvaco Corporation 7.07%, 7/1/23 A1 2,000,000 1,799,740
5,960,296
TOTAL BASIC INDUSTRIES 8,389,911
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Ford Motor Co. 8 7/8%, 1/15/22 A2 500,000 551,820
ENERGY - 1.9%
OIL & GAS - 1.9%
ARCO 8 1/4%, 2/1/22 A1 1,000,000 1,027,200
Mobil Corp. 8 5/8%, 8/15/21 Aa2 250,000 276,072
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Phillips Petroleum Co.:
9.18%, 9/15/21 Baa2 $ 200,000 $ 213,614
8.86%, 5/15/22 Baa2 100,000 104,101
8.49%, 1/1/23 Baa2 300,000 302,625
1,923,612
FINANCE - 19.6%
BANKS - 9.6%
Bankers Trust New York Corp. 6%, 10/15/08 A2 1,000,000 856,340
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 1,000,000 1,039,860
Continental Bank N.A. 7 7/8%, 2/1/03 Baa3 500,000 507,670
First Interstate Bancorp 9 1/8%, 2/1/04 Baa1 500,000 555,245
First National Bank of Boston 8 3/8%,
12/15/02 Baa1 1,000,000 1,056,200
Fleet/Norstar Financial Group, Inc. 9%,
12/1/01 Baa3 250,000 272,500
Huntington Bancshares, Inc. 7 7/8%, 11/15/02 Baa1 1,000,000 1,029,030
MBNA American Bank N.A. 7 1/4%, 9/15/02 A3 500,000 492,345
NCNB Corp. 10.20%, 7/15/15 A3 1,000,000 1,211,940
Republic New York Corp.:
9 1/8%, 5/15/21 A1 1,400,000 1,592,248
9.30%, 6/1/21 A1 225,000 259,774
UJB Financial Corp. 8 5/8%, 12/10/02 Baa3 1,000,000 1,066,630
9,939,782
CREDIT & OTHER FINANCE - 6.7%
BHP Finance (USA) Ltd. 6 3/4%, 11/1/13 A2 1,000,000 890,000
Chrysler Financial Corp. 6%, 4/15/96 Baa2 2,000,000 2,008,180
Commercial Credit Group, Inc. 10%, 5/15/09 A 350,000 408,621
Fleet Mortgage Group 6 1/2%, 9/15/99 A3 250,000 245,125
Ford Motor Credit Co. 8 3/8%, 1/15/23 A2 500,000 501,165
General Motors Acceptance Corporation:
8.80%, 3/20/96 Baa1 1,000,000 1,052,870
8 3/4%, 8/1/96 Baa1 1,000,000 1,055,010
Grand Metropolitan Investment Corp. gtd.
9%, 8/15/11 A2 250,000 278,892
Texaco Capital, Inc. gtd. 9 3/4%, 3/15/20 A1 350,000 422,737
6,862,600
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
FINANCE - CONTINUED
INSURANCE - 0.9%
CIGNA Corp. 7.65%, 3/1/23 A2 $ 1,000,000 $ 930,780
SAVINGS & LOANS - 2.4%
Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa3 1,000,000 1,123,840
Household Bank FSB Newport Beach, CA:
8.45%, 12/10/02 A3 250,000 264,955
6 1/2%, 7/15/03 A3 1,000,000 931,250
World Savings & Loan Association Oakland, CA
9.90%, 7/1/00 A2 150,000 168,156
2,488,201
TOTAL FINANCE 20,221,363
INDUSTRIAL MACHINERY & EQUIPMENT - 4.7%
ELECTRICAL EQUIPMENT - 1.7%
Philips Electronics NV 7 1/4%, 8/15/13 Baa1 1,000,000 912,900
Westinghouse Electric Corp. 7 7/8%, 9/1/23 Ba1 1,000,000 884,300
1,797,200
INDUSTRIAL MACHINERY & EQUIPMENT - 2.1%
Caterpillar, Inc.:
9 3/4%, 6/1/19 A3 500,000 582,860
8%, 2/15/23 A3 500,000 499,195
Tenneco, Inc. 9%, 11/15/12 Baa2 1,000,000 1,083,200
2,165,255
POLLUTION CONTROL - 0.9%
Laidlaw, Inc. 8 1/4%, 5/15/23 Baa2 1,000,000 935,180
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,897,635
MEDIA & LEISURE - 9.8%
BROADCASTING - 1.9%
Telecommunications, Inc.:
7 7/8%, 8/1/13 Baa3 1,000,000 905,390
9 1/4%, 1/15/23 Baa3 1,000,000 1,019,240
1,924,630
ENTERTAINMENT - 0.8%
Paramount Communications, Inc. 8 1/4%, 8/1/22 A3 1,000,000 875,630
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.9%
Brunswick Corp. 7 3/8%, 9/1/23 Baa2 $ 1,000,000 $ 897,050
LODGING & GAMING - 0.9%
Circus Circus Enterprises, Inc. 7 5/8%, 7/15/13 Baa3 1,000,000 924,440
PUBLISHING - 5.3%
Harcourt General, Inc. 8 7/8%, 6/1/22 Baa1 150,000 162,165
News America Holdings, Inc. 9 1/4%, 2/1/13 Ba1 2,500,000 2,595,675
Time Warner Entertainment Co. LP:
10.15%, 5/1/12 Ba2 250,000 279,425
8 7/8%, 10/1/12 Ba2 750,000 756,232
8 3/8%, 3/15/23 Baa3 1,750,000 1,672,300
5,465,797
TOTAL MEDIA & LEISURE 10,087,547
NONDURABLES - 6.8%
BEVERAGES - 1.9%
Anheuser Busch Companies, Inc. 7 3/8%, 7/1/23 A1 1,000,000 940,940
Seagram Joseph E. & Sons, Inc. gtd. 9%,
8/15/21 A2 500,000 542,475
Seagram Ltd. 8.35%, 1/15/22 A2 500,000 506,250
1,989,665
FOODS - 2.6%
Archer-Daniels-Midland Co. 7 1/8%, 5/1/21 Aa2 1,000,000 951,420
Campbell Soup Co. 8 7/8%, 5/1/21 Aa2 500,000 563,650
Conagra, Inc. 9 3/4%, 3/1/21 Baa2 1,000,000 1,133,220
2,648,290
HOUSEHOLD PRODUCTS - 0.9%
Procter & Gamble Co. 7 3/8%, 3/1/23 Aa2 1,000,000 944,510
TOBACCO - 1.4%
American Brands, Inc. 7 7/8%, 1/15/23 A3 500,000 488,855
RJR Nabisco, Inc. gtd. 8 3/4%, 4/15/04 Baa3 1,000,000 918,400
1,407,255
TOTAL NONDURABLES 6,989,720
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
RETAIL & WHOLESALE - 6.0%
APPAREL STORES - 0.9%
The Limited, Inc. 7 1/2%, 3/15/23 A1 $ 1,000,000 $ 918,280
GENERAL MERCHANDISE STORES - 3.3%
Dayton Hudson Corp. 8 1/2%, 12/1/22 A3 1,000,000 1,002,630
Dillard Department Stores, Inc. 7.85%, 10/1/12 A2 100,000 101,229
K Mart Corp. 7.95%, 2/1/23 A3 1,000,000 980,580
Penney J.C., Inc. 9 3/4%, 6/15/21 A2 100,000 113,941
Wal-Mart Stores, Inc.:
8.07%, 12/21/12 Aa1 250,000 254,765
7 1/4%, 6/1/13 Aa1 1,000,000 964,480
3,417,625
GROCERY STORES - 1.0%
Supervalu, Inc. 8 7/8%, 11/15/22 A3 1,000,000 1,053,980
RETAIL & WHOLESALE, MISCELLANEOUS - 0.8%
Toys "R" Us, Inc. 8 3/4%, 9/1/21 Aa3 770,000 850,657
TOTAL RETAIL & WHOLESALE 6,240,542
TECHNOLOGY - 1.1%
PHOTOGRAPHIC EQUIPMENT - 1.1%
Eastman Kodak Co. 9.20%, 6/1/21 A3 1,000,000 1,119,270
TRANSPORTATION - 4.1%
AIR TRANSPORTATION - 2.0%
Federal Express Corp. 8.76%, 5/22/15 Baa2 1,000,000 1,020,200
United Air Lines, Inc. 10 1/4%, 7/15/21 Baa3 1,000,000 1,032,500
2,052,700
RAILROADS - 1.0%
Consolidated Rail Corp. 9 3/4%, 3/1/21 A2 750,000 899,227
Norfolk Southern Corp. 9%, 3/1/21 Aa3 150,000 169,620
1,068,847
TRUCKING & FREIGHT - 1.1%
Airborne Freight Corp. 8 7/8%, 12/15/02 Baa3 1,000,000 1,069,270
TOTAL TRANSPORTATION 4,190,817
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
UTILITIES - 12.0%
ELECTRIC UTILITY - 8.0%
Cleveland Electric Illum. Co. 1st mtg.
7 3/8%, 6/1/03 Ba2 $ 1,000,000 $ 890,810
Commonwealth Edison Co. 1st mtg.:
8 5/8%, 2/1/22 Baa2 1,000,000 1,000,330
8 3/8%, 9/15/22 Baa2 100,000 98,872
8 3/8%, 2/15/23 Baa2 250,000 248,057
Georgia Power Co. 1st mtg. 8.94%, 6/1/22 A3 100,000 98,539
Gulf States Utilities Co. 1st mtg. 8.94%, 1/1/22 Baa2 135,000 151,875
Houston Lighting & Power 1st mtg. 9.15%,
3/15/21 A2 175,000 200,609
Hydro-Quebec yankee:
8%, 2/1/13 A1 250,000 251,567
8.40%, 1/15/22 A1 300,000 307,650
Long Island Lighting Co.:
9 3/4%, 5/1/21 Baa2 400,000 431,068
8.20%, 3/15/23 Baa3 1,000,000 922,000
Pacific Gas & Electric Co. 1st & ref. mtg.:
8 3/8%, 5/1/25 A1 150,000 157,098
8%, 10/1/25 A1 100,000 98,030
7 1/4%, 8/1/26 A1 1,000,000 916,490
Philadelphia Electric Co. 1st & ref. mtg.:
8 5/8%, 6/1/22 Baa1 300,000 306,861
8 1/4%, 9/1/22 Baa1 100,000 98,543
7 3/4%, 5/1/23 Baa1 1,000,000 1,005,620
Texas Utilities Electric Co. 1st mtg.:
9 3/4%, 5/1/21 Baa2 100,000 112,843
collateral trust 7 7/8%, 4/1/24 Baa2 1,000,000 966,060
8,262,922
TELEPHONE SERVICES - 4.0%
GTE Corp.:
8 3/4%, 11/1/21 A3 200,000 214,965
7.83%, 5/1/23 A3 2,000,000 1,923,900
MCI Communications Corp.:
8 1/4%, 1/20/23 A2 1,500,000 1,504,005
7 3/4%, 3/15/24 A2 500,000 482,920
4,125,790
TOTAL UTILITIES 12,388,712
TOTAL NONCONVERTIBLE BONDS
(Cost $82,813,084) 79,292,917
U.S. TREASURY OBLIGATIONS - 9.8%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
8 1/8%, 8/15/19 Aaa $ 2,000,000 $ 2,192,500
7 1/4%, 8/15/22 Aaa 2,850,000 2,854,018
7 5/8%, 11/15/22 Aaa 4,750,000 4,974,865
Stripped Coupon 2/15/19 Aaa 475,000 75,582
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $10,212,834) 10,096,965
FOREIGN GOVERNMENT OBLIGATIONS - 6.0%
Manitoba Province yankee 8.80%, 1/15/20 A1 300,000 325,165
Mexican Government Cetes
0%, 6/16/94-9/22/94 - MXN 17,771,670 5,086,015
New Brunswick Province of Canada yankee
7 5/8%, 2/15/13 A1 500,000 488,950
Saskatchewan Province of Canada yankee
8 1/2%, 7/15/22 A3 300,000 309,990
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $6,548,262) 6,210,120
REPURCHASE AGREEMENTS - 7.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 3.58% dated
3/31/94 due 4/4/94 $ 7,586,016 7,583,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $107,157,180) $ 103,183,002
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
SELL
190 U.S. Treasury Bond Futures Contracts June, 1994 $ 21,219,108 $
880,771
THE VALUE OF FUTURES CONTRACTS SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 20.6%
CURRENCY ABBREVIATIONS
MXN - Mexican peso
LEGEND
1. Principal amount is stated in United States dollars unless otherwise
noted.
2. Standard & Poor's Corporation credit ratings are used in the absence
of a rating by Moody's Investor Service, Inc.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 47.7% AAA, AA, A 45.1%
Baa 34.8% BBB 39.9%
Ba 5.2% BB 2.8%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 0.0%.
INCOME TAX INFORMATION
At March 31, 1994, the aggregate cost of investment securities for income
tax purposes was $107,239,267. Net unrealized depreciation aggregated
$4,056,265, of which $564,403 related to appreciated investment securities
and $4,620,668 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, 1994 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 103,183,002
agreements of $7,583,000) (cost $107,157,180)
(Notes 1 and 2) - See accompanying schedule
Cash 519
Interest receivable 1,838,837
Receivable for daily variation on futures contracts 62
TOTAL ASSETS 105,022,420
LIABILITIES
Payable for fund shares redeemed $ 352,422
Dividends payable 236,201
Accrued management fee 60,010
TOTAL LIABILITIES 648,633
NET ASSETS $ 104,373,787
Net Assets consist of (Note 1):
Paid in capital $ 108,280,732
Undistributed net investment income 5,590
Accumulated undistributed net realized gain (loss) on (819,128)
investments
Net unrealized appreciation (depreciation) on:
Investment securities (3,974,178)
Futures contracts 880,771
NET ASSETS, for 10,441,113 shares outstanding $ 104,373,787
NET ASSET VALUE, offering price and redemption price per $10.00
share ($104,373,787 (divided by) 10,441,113 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
INVESTMENT INCOME $ 4,451,742
Interest
EXPENSES
Management fee (Note 4) $ 391,543
Non-interested trustees' compensation 383
TOTAL EXPENSES 391,926
NET INVESTMENT INCOME 4,059,816
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1, 2 AND 3)
Net realized gain (loss) on:
Investment securities (740,472)
Futures contracts 290 (740,182)
Change in net unrealized appreciation (depreciation) on:
Investment securities (10,578,617)
Futures contracts 880,771 (9,697,846)
NET GAIN (LOSS) (10,438,028)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ (6,378,212)
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS OCTOBER 1, 1992
ENDED MARCH 31, (COMMENCEMENT
1994 OF OPERATIONS) TO
(UNAUDITED) SEPTEMBER 30,
1993
INCREASE (DECREASE) IN NET ASSETS
Operations $ 4,059,816 $ 4,481,350
Net investment income
Net realized gain (loss) on investments (740,182) 35,145
Change in net unrealized appreciation (depreciation) (9,697,846) 6,604,439
on
investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (6,378,212) 11,120,934
FROM OPERATIONS
Distributions to shareholders (4,051,086) (4,470,567)
From net investment income
In excess of net investment income - (3,140)
In excess of net realized gain (115,335) -
TOTAL DISTRIBUTIONS (4,166,421) (4,473,707)
Share transactions 67,323,780 191,964,450
Net proceeds from sales of shares
Reinvestment of distributions 2,588,036 3,157,648
Cost of shares redeemed (83,853,054) (72,909,667)
Net increase (decrease) in net assets resulting from (13,941,238) 122,212,431
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (24,485,871) 128,859,658
NET ASSETS
Beginning of period 128,859,658 -
End of period (including under (over) distribution of net $ 104,373,787 $ 128,859,658
investment income of $5,590 and $(3,140),
respectively)
OTHER INFORMATION
Shares
Sold 6,288,551 18,439,723
Issued in reinvestment of distributions 243,832 299,281
Redeemed (7,875,298) (6,954,976)
Net increase (decrease) (1,342,915) 11,784,028
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED OCTOBER 1, 1992
MARCH 31, 1994 (COMMENCEMENT OF
OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1993
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.940 $ 10.000
Income from Investment Operations .360 .799
Net investment income
Net realized and unrealized gain (loss) on (.930) .940
investments
Total from investment operations (.570) 1.739
Less Distributions (.360) (.798)
From net investment income
In excess of net investment income - (.001)
In excess of net realized gain on investments (.010) -
Total distributions (.370) (.799)
Net asset value, end of period $ 10.000 $ 10.940
TOTAL RETURN (dagger) (5.36)% 18.17%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 104,374 $ 128,860
Ratio of expenses to average net assets .65%* .65%
Ratio of net investment income to average net 6.75%* 7.58%
assets
Portfolio turnover rate 46%* 55%
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1994 (Unaudited)
1. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Investment Grade Bond Fund (the fund) is a fund of Fidelity Charles
Street Trust (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
Securities for which market quotations are not readily available are valued
at their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
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 current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
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 all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions and losses deferred due to wash sales. The
fund also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income
tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the following
year.
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.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October
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,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of September 30, 1993 did not have to be
reclassified.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign
currency contracts. These contracts involve market risk in excess of the
amount reflected in the fund's Statement of Assets and Liabilities. The
face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
2. OPERATING POLICIES -
CONTINUED
FORWARD FOREIGN CURRENCY
CONTRACTS - CONTINUED
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $23,264,005 and $26,005,159, respectively, of which U.S.
government and government agency obligations aggregated $19,237,885 and
$21,126,241, respectively.
The market value of futures contracts opened and closed amounted to
$44,351,557 and $22,981,902, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and extraordinary
expenses. FMR receives a fee that is computed daily at an annual rate of
.65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund. For
the period, FMR or its affiliates collected certain transaction fees from
shareholders which aggregated $6,704.
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND
QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios(registered trademark).
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND
ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* 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. FOR MORE
INFORMATION ON ANY
FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888
FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
TO WRITE FIDELITY
Please locate the address that is closest to you. We'll give your
correspondence immediate attention and send you written confirmation upon
completion of your request. Please send ALL correspondence about retirement
accounts to Dallas.
(LETTER_GRAPHIC)(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 2269
Boston, MA 02107-2269
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30280
Salt Lake City, UT 84130-0280
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
Additional Payments
P.O. Box 2656
Boston, MA 02293-0656
Fidelity Investments
Additional Payments
P.O. Box 620024
Dallas, TX 75262-0024
Fidelity Investments
Additional Payments
P.O. Box 31455
Salt Lake City, UT 84131-0455
OVERNIGHT EXPRESS
Fidelity Investments
Additional Payments
World Trade Center
164 Northern Avenue
Boston, MA 02210
SELLING SHARES
Fidelity Investments
P.O. Box 193
Boston, MA 02103-0878
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30281
Salt Lake City, UT 84130-0281
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions
World Trade Center
164 Northern Avenue
Boston, MA 02210
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02101-0193
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 620024
Dallas, TX 75262-0024
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
2249 Galiano Street
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
175 East 400 South Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Michael Gray, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income Fund
Ginnie Mae Portfolio
Global Bond Fund
Government Securities Fund
Intermediate Bond Fund
Investment Grade Bond Fund
Mortgage Securities Portfolio
New Markets Income Fund
Short-Intermediate Government Fund
Short-Term Bond Portfolio
Short-Term World Income Fund
Spartan Ginnie Mae Fund
Spartan Government Income Fund
Spartan High Income Fund
Spartan Investment Grade Bond Fund
Spartan Limited Maturity Government
Bond Fund
Spartan Long-Term Government Bond
Fund
Spartan Short-Intermediate Government Fund
Spartan Short-Term Bond Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
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)
AUTOMATED LINES FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)SPARTAN(Registered trademark)
SHORT-TERM INCOME
FUND
SEMIANNUAL REPORT
MARCH 31, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund
performance, strategy, and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the last six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 31 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 35 Footnotes to the financial
statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
The past few months have been an unsettling time for bond investors. The
bond market declined after the Federal Reserve Board raised short-term
interest rates in February and March. These rate hikes caused bond yields
to rise and bond prices to fall. While nobody knows whether rates will
continue to go up, this may be a good time to review the effect rising
rates have on your bond fund investment, and consider how well your current
bond fund holdings match your original investment goals.
Most investors choose bond funds to generate income and to help diversify
their investment portfolios. Despite the recent market downturn, bond
mutual funds still satisfy these needs. Where investors have felt the
negative effect of rising rates is in the market value of their investment,
which has eroded as bond prices have fallen. It's important to remember,
however, that this loss in principal is only "on paper" until you choose to
sell your shares. That's why your investing time horizon is key.
If your time horizon is short - one year or less - you may want to consider
shifting all or part of your bond fund investment into a money market fund.
If you can't keep your investment in the bond fund until yields start
falling again and bond prices rise, you increase your risk of not recouping
the full value of the shares. A money market fund provides a stable $1
share price and a yield that becomes more attractive as rates go up.
If you don't need your money within the next year, staying in your bond
fund may be the appropriate strategy for you. The longer your investing
time frame, the better your chances of retaining your principal investment
through periods of rising AND falling rates. For example, if you plan to
use your money in one to two years, a short-term bond fund may be the right
choice. If your time frame is two to four years, a fund with an
intermediate length average maturity may be best. If you have a longer-term
goal - say a child's college education that's ten years away - you may be
willing to ride out the bond market's peaks and valleys in exchange for the
higher potential returns of a longer-term fund.
If you have questions, please call us at 1-800-544-8888. We would be happy
to send you a Fidelity FundMatch kit, which can help you determine the mix
of investments that is right for you. You might also find it convenient to
set up a regular investment plan using the Fidelity Automatic Account
Builder.
We look forward to hearing from 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. Each figure
includes changes in a fund's share price, reinvestment of any dividends (or
income) and capital gains (the profits the fund earns when it sells bonds
that have grown in value), and the effect of the $5 account closeout fee.
You can also look at the fund's income to measure performance. If Fidelity
had not reimbursed certain fund expenses during the periods shown, the
total returns and dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1994 PAST 6 PAST 1 LIFE OF
MONTHS YEAR FUND
Spartan Short-Term Income Fund -0.45% 3.49% 7.21%
Lehman Brothers 1-3 Year Government- 0.18% 2.75% 5.24%
Corporate Bond Index
Average Short Investment Grade Bond -0.28% 2.69% n/a
Fund
Consumer Price Index 1.45% 2.51% 4.18%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year or since the fund
began on October 1, 1992. For example, if you invested $1,000 in a fund
that had a 5% return, you would end up with $1,050. You can compare these
figures to the Lehman Brothers 1-3 Year Government-Corporate Bond Index - a
broad measure of the performance of the short-term bond market. To measure
how the fund stacked up against its peers, you can also look at the average
short investment grade bond fund, which reflects the performance of 108
funds tracked by Lipper Analytical Services. These benchmarks include
reinvested dividends and capital gains, if any. Comparing the fund's
performance to the consumer price index helps show how your fund did
compared to inflation.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED MARCH 31, 1994 PAST 1 LIFE OF
YEAR FUND
Spartan Short-Term Income Fund 3.49% 4.75%
Lehman Brothers 1-3 Year Government-Corporate Bond 2.75% 3.46%
Index
Average Short Investment Grade Bond Fund 2.69% n/a
Consumer Price Index 2.51% 2.77%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
10/01/92 10000.00 10000.00
10/31/92 9933.83 9940.00
11/30/92 9941.15 9926.08
12/31/92 10033.22 10019.39
01/31/93 10177.57 10126.60
02/28/93 10293.45 10209.63
03/31/93 10359.81 10242.31
04/30/93 10422.37 10306.83
05/31/93 10447.69 10283.13
06/30/93 10563.39 10361.28
07/31/93 10625.81 10385.11
08/31/93 10730.26 10472.34
09/30/93 10769.15 10505.86
10/31/93 10828.20 10530.02
11/30/93 10852.94 10533.18
12/31/93 10937.02 10576.36
01/31/94 11008.69 10644.05
02/28/94 10928.78 10579.12
03/31/94 10722.16 10524.11
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan
Short-Term Income Fund on October 1, 1992, when the fund started. As the
chart shows, by March 31, 1994, the value of your investment would have
grown to $10,722 - a 7.22% increase on your initial investment. This
assumes you still own the fund on March 31, 1994, and therefore does not
include the effect of the $5 account closeout fee. For comparison, look at
how the Lehman Brothers 1-3 Year Government-
Corporate Bond Index did over the same period. With dividends reinvested,
the same $10,000 investment would have grown to $10,524 - a 5.24% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
INCOME
OCTOBER 1, 1992
SIX MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
MARCH 31, 1994 SEPTEMBER 30, 1993
Income return 3.17% 7.79%
Capital gain return 0.10% 0.00%
Change in share price -3.72% -0.11%
Total return -0.45% 7.68%
INCOME returns, capital gain returns, and changes in share price are all
part of a bond fund's total return. An income return reflects the dividends
paid by the fund. A capital gain return reflects the amount paid by the
fund to shareholders based on the profits it has from selling bonds that
have grown in value. Both returns assume the dividends or gains are
reinvested. Changes in the fund's share price include changes in the prices
of the bonds owned by the fund. Change in share price and total return
figures include the effect of the $5 account closeout fee.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1994 PAST 30 PAST 6 PAST 1
DAYS MONTHS YEAR
Dividends per share n/a 32.12(cents) 67.86(cents)
Annualized dividend rate n/a 6.49% 6.82%
Annualized yield 6.12% n/a n/a
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $9.93 over
the past six months and $9.95 over the past 12 months, you can compare the
fund's income over these two periods. The 30-day annualized YIELD is a
standard formula for all bond funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. If the
adviser had not reimbursed certain portfolio expenses during the periods
shown, the yield would have been 6.07%.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Donald Taylor, Portfolio Manager of Spartan Short-Term
Income Fund
Q. DON, HOW DID THE FUND PERFORM?
A. The fund had a total return of -0.45% for the six months ended March 31,
1994. That was below the total return of -0.28% for the average short-term
investment grade bond fund tracked by Lipper Analytical Services during the
same period. However, for the 12 months ended March 31, the fund returned
3.49%, which beat the average fund's 2.69% return.
Q. WHY DID THE FUND TRAIL THE AVERAGE DURING THE LAST SIX MONTHS?
A. In 1993, U.S. interest rates were at all-time lows. By late summer, I
expected the economy to accelerate quite a bit. It appeared that there
would be enough growth to cause investors to fear a move by the Federal
Reserve to raise short-term interest rates. In that type of environment, I
felt that the strong performance we were enjoying in the U.S. bond market
would not continue. My options were either to step back from the market and
begin to raise the cash level of the fund, or to take advantage of
attractive opportunities that existed in foreign markets. I chose the
latter, and shifted a portion of the fund's assets into European and Latin
American markets. When the global bond market sell-off hit in February and
March, the fund suffered from falling bond prices in those markets. This
happened despite economic conditions - slow growth and low inflation -that
are generally favorable for bonds. In addition, fourth quarter U.S. growth
did advance at a very strong rate. That resulted in rising interest rates
here at home in February and March, which accelerated the worldwide
sell-off.
Essentially, all of the markets we were in took a beating.
Q. WHAT WERE THE BIGGEST FACTORS BEHIND THE SELL-OFF IN THE FOREIGN BOND
MARKETS?
A. I think the primary triggering event was the breakdown in U.S.-Japanese
trade negotiations in mid-February. This drove up the value of the yen by
about 10%. A lot of highly leveraged hedge funds - aggressively managed
private partnerships - had taken short positions in the yen, meaning they
were betting that its value would fall. When the yen's value shot up so
quickly, they were forced to sell their investments in other markets to
cover their losses in the yen. The investments that the hedge funds sold
were in the same European and Latin American markets that I had entered.
And they had invested in those markets for the same reasons I had.
Q. WHAT WERE THOSE REASONS?
A. In the case of Europe, weak economic growth, falling inflation rates,
and declining short-term interest rates. In Latin America, there are strong
economic policies which should lead to falling inflation and solid growth.
Q. IN RETROSPECT, WHAT WOULD YOU HAVE DONE DIFFERENTLY?
A. I would have more thoroughly investigated the global implications of
leverage in the bond markets. In many of the global markets, there was
heavy borrowing to finance investments. I don't think I fully appreciated
how much borrowed money and speculation there was, and how the downward
pressure from rapid de-leveraging could permeate the markets so quickly.
With the benefit of hindsight, it's clear that the markets had gotten too
far ahead of themselves. I think the biggest lesson I've learned from what
we've gone through is how markets that are seemingly unrelated can affect
each other negatively, even in the face of very favorable economic
conditions. When I turned bearish on the U.S. market, it would have been
better to have built up a cash position, rather than increasing the fund's
investment in foreign markets that seemed attractive. In this way, the fund
would have been much less volatile.
Q. HOW DO YOU FEEL ABOUT THE GLOBAL MARKETS NOW, AFTER THE SELL-OFF?
A. I think the underlying story is still positive. Now that the hedge
funds and most of the speculators are out, the markets should be free to go
the way they naturally would under the existing economic conditions. I
think what happened was a short-term aberration in an otherwise positive
market environment. As far as the fund is concerned, I think the worst is
behind us.
Q. WHERE ARE YOU FINDING OPPORTUNITIES IN THE U.S. MARKET?
A. Given the recent rise in yields, bond prices in many sectors have fallen
to very attractive levels. The two-year Treasury note is the benchmark for
the fund. Its yield had risen to about 5.35% by the end of March from under
4% last fall. The Fed is in a mode of tightening monetary policy, meaning
it's predisposed to raise short-term interest rates. If the yield on the
two-year note gets up to 5.75% - and its price has dropped further - I will
probably begin buying these bonds. In addition, as the mortgage-backed
market stabilizes, I will be looking at opportunities there. The sell-off
has driven down mortgage bond prices to the point at which they are a much
better value than Treasuries. I'm also looking at buying a limited amount
of 10-year Treasuries. There's a lot more room for 10-year yields to fall -
and prices to rise - than there is for two-year yields. Going forward, I
think a combination of cash and five- to 10-year Treasuries will perform
better than simply holding only shorter-term securities.
Q. WHAT'S YOUR GAME PLAN FOR THE NEXT SIX MONTHS?
A. I plan to keep the foreign investments. I think if we're patient, the
market will realize that these bonds are
undervalued at current prices. After what has happened, assuming that the
favorable conditions we've talked about continue, the fund could regain
much of the value it has lost recently. I'll also be shopping in the
domestic market, especially in the Treasury and mortgage-backed areas.
Finally, I think it's important to emphasize that this is principally a
domestic fund. I increased the fund's activity in foreign markets because
the risk of rising interest rates appeared much greater in the United
States, and the potential returns were and still are greater in foreign
markets.
FUND FACTS
GOAL: high current income
with preservation of capital
by investing in a broad range
of short-term securities, such
as investment grade
domestic and foreign
corporate bonds.
START DATE: October 1, 1992
SIZE: as of March 31, 1994,
over $1.2 billion
MANAGER: Donald Taylor,
since October 1992;
manager, Fidelity Short-Term
Bond, Fidelity Advisor Short
Fixed- Income, since
September 1989; VIP II:
Investment Grade Bond,
since May 1991
(checkmark)
DONALD TAYLOR ON THE FUND'S
INVESTMENT STRATEGY:
``My strategy is to look
throughout the domestic and
foreign fixed- income markets
to find investment alternatives
that represent good value. My
goal is to generate high
returns and yields that will
beat money market funds,
while keeping volatility low.
Recently, the fund has
experienced share price
fluctuations caused by a
short-term market aberration
which I believe is now largely
behind us. With the sharp
sell-off in global markets, and
improved valuations in the
United States, many
attractive fixed- income
securities are now available. I
will capitalize on these
opportunities selectively."
(bullet) As of March 31, 45.3% of
the fund's portfolio was
invested in foreign securities,
up from 27.1% six months
ago.
(bullet) 62.1% of the fund's assets
are invested in securities with
maturities of three years or
less. The fund's overall
average maturity was 3.1
years at the end of March.
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF MARCH 31, 1994
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS
6 MONTHS AGO
Aaa 6.3 16.4
Aa 5.8 3.0
A 12.4 11.7
Baa 31.8 32.7
Ba 9.0 5.7
B - 0.3
Not rated 11.9 7.6
TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES
OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY
FIDELITY.
AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1994
6 MONTHS AGO
Years 3.1 2.4
AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE
FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF MARCH 31, 1994
6 MONTHS AGO
Years 1.8 1.7
DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST
RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL
LOSE ABOUT 5% OF ITS VALUE.
ASSET ALLOCATION
AS OF MARCH 31, 1994* AS OF SEPTEMBER 30, 1993**
Row: 1, Col: 1, Value: 17.2
Row: 1, Col: 2, Value: 23.3
Row: 1, Col: 3, Value: 2.2
Row: 1, Col: 4, Value: 58.3
Corporate bonds 58.3%
U.S. government
and agency
obligations 1.2%
Foreign government
obligations 23.3%
Other 17.2%
Corporate bonds 56.0%
U.S. government
and agency
obligations 7.2%
Foreign government
obligations 15.8%
Other 21.0%
Row: 1, Col: 1, Value: 21.0
Row: 1, Col: 2, Value: 15.8
Row: 1, Col: 3, Value: 7.2
Row: 1, Col: 4, Value: 56.0
* TOTAL FOREIGN
ISSUES 45.3%
** TOTAL FOREIGN
ISSUES 27.1%
INVESTMENTS MARCH 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investments
CORPORATE BONDS - 58.3%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
CONVERTIBLE BONDS - 0.4%
ENERGY - 0.1%
ENERGY SERVICES - 0.1%
Halliburton Co. liquid yield option
0%, 3/31/06 A3 $ 2,500 $ 1,231
RETAIL & WHOLESALE - 0.3%
DRUG STORES - 0.3%
Rite Aid Corp. liquid yield option
0%, 7/24/06 A3 10,000 4,419
TOTAL CONVERTIBLE BONDS 5,650
NONCONVERTIBLE BONDS - 57.9%
AEROSPACE & DEFENSE - 0.6%
AEROSPACE & DEFENSE - 0.5%
Grumman Corp. 10 3/8%, 1/1/99 Baa3 280 301
Lockheed Corp. 4 7/8%, 2/15/96 Baa1 6,000 5,905
6,206
SHIP BUILDING & REPAIR - 0.1%
Tennessee Gas Pipeline Co. 9 1/4%, 5/15/96 Baa2 1,000 1,062
TOTAL AEROSPACE & DEFENSE 7,268
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.3%
Desc (Soc De Fomento Indust) euro
11%, 12/15/97 - 2,270 2,418
Grace (W.R.) & Co. 7.4%, 2/1/00 Baa3 1,600 1,601
4,019
IRON & STEEL - 0.3%
Grupo Simec 8 7/8%, 12/15/98 (f) - 2,950 2,862
Hylsa de CV 11%, 2/23/98 (f) - 1,000 1,023
3,885
PAPER & FOREST PRODUCTS - 0.2%
Chesapeake Corp. 11 3/4%, 8/1/95 Baa3 1,150 1,226
Kimberly-Clark Corp. euro 9 3/4%, 6/15/95 Aa2 700 736
1,962
TOTAL BASIC INDUSTRIES 9,866
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - 2.9%
BUILDING MATERIALS - 2.8%
Cemex SA 8 7/8%, 6/10/98 (f) Ba2 $ 15,920 $ 16,040
Cemex SA and Tolmex SA de CV:
euro:
10%, 11/15/96 (f) Ba2 1,700 1,777
8 7/8%, 6/10/98 Ba2 6,219 6,266
11.60%, 11/15/96 (f) - 4,150 4,337
10%, 11/5/99 - 1,500 1,560
Masco Corp. 6 1/4%, 6/15/95 Baa1 5,880 5,948
35,928
CONSTRUCTION - 0.1%
Empresas ICA Sociedad Controladora SA de
CV 9 3/4%, 2/11/98 (f) - 850 876
ICA euro 9 3/4%, 2/11/98 - 155 160
1,036
TOTAL CONSTRUCTION & REAL ESTATE 36,964
DURABLES - 0.9%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Chrysler Corp. 13%, 3/1/97 Baa2 1,000 1,063
Grupo Dina (Consorcio) euro 10 1/2%,
11/18/97 - 1,000 1,038
Grupo Imsa SA de CV euro 8 3/4%, 7/7/98 - 2,500 2,455
4,556
CONSUMER ELECTRONICS - 0.5%
Black & Decker Corp. 8 3/8%, 4/1/97 Ba1 6,500 6,500
TOTAL DURABLES 11,056
ENERGY - 2.7%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 10 1/4%, 6/1/95 Baa3 1,987 2,071
OIL & GAS - 2.5%
BP Capital euro 0%, 6/20/95 A1 2,000 1,881
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
McDermott, Inc.:
7.95%, 7/2/97 Baa3 $ 4,500 $ 4,614
8.2%, 7/15/99 Baa3 5,000 5,120
Occidental Petroleum Corp. 5.82%, 11/30/94 Baa3 1,000 1,005
Pemex 4.8281%, 3/8/99 (f)(g) - 6,500 6,443
Union Oil Co. California gtd. 8 1/2%, 4/1/94 Baa 13,390 13,390
32,453
TOTAL ENERGY 34,524
FINANCE - 32.8%
ASSET-BACKED SECURITIES - 2.4%
Concord Leasing, Inc. 5.04%, 7/15/98 (f) AAA 6,984 6,853
Discover Card Trust, 6 1/8%, 5/15/98 Aaa 3,300 3,292
Ford Credit Auto Loan Master Trust, cert.
5 5/8%, 10/15/95 Aaa 700 699
Ford Credit 1991-B Grantor Trust 6 1/2%,
11/15/96 Aaa 1,024 1,033
Ford Motor Co. 1993-A Pass Thru Trust, cert.
4.67%, 1/1/96 A2 6,946 6,827
Midlantic Grantor Trust, Series 1992-1, Class B,
5.15%, 9/15/97 Baa2 64 64
Premier Auto Trust 1992-5 4.9%, 12/15/95 A3 2,493 2,476
Standard Credit Card Master Trust:
Series 94-1 B 4.85%, 3/7/99 A2 5,000 4,822
5 7/8%, 7/7/96 Aaa 300 303
9%, 8/7/97 A2 5,000 5,322
31,691
BANKS - 16.7%
Bancomer SA:
euro 8%, 7/7/98 Ba2 3,800 3,743
8%, 7/7/98 (f) - 12,000 11,820
9% 6/1/00 (f) - 2,500 2,500
Bank of Boston Corp.:
euro 3.8%, 8/26/98 (g) Baa2 8,900 8,755
9 1/2%, 8/15/97 Baa2 825 899
10.3%, 9/1/00 Baa1 1,040 1,109
5%, 2/28/01 (g) Baa2 13,000 12,838
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Baybanks, Inc. 3.39%, 9/30/97 (g) Baa2 $ 4,670 $ 4,612
Chase Manhattan Corp. euro 5%, 5/31/00 (g) Baa2 5,950 5,957
Citicorp:
euro:
5%, 1/30/98 (g) A3 7,050 7,032
5%, 10/25/05 (g) Baa2 3,000 2,948
5 1/4%, 7/10/97 (g) Baa3 10,100 10,075
9 1/8%, 8/15/95 A2 1,250 1,316
5.7%, 2/12/96 A2 2,000 2,007
9.47%, 5/22/96 A2 250 269
Citicorp Person to Person, Inc. 5 1/4%,
1/30/97 (g) A3 4,300 4,289
Continental Bank Corp.:
9 3/4%, 3/15/95 Baa3 2,683 2,794
9 7/8%, 6/15/96 Baa3 5,000 5,418
4 1/2%, 5/18/00 Baa3 5,000 4,994
Corestates Capital Corp. 6.24%, 2/13/95 A1 450 456
Corporacion Andina De Fomento yankee
7 1/4%, 4/30/98 (f) - 1,600 1,564
Czech National Bank Prague euro 7%,
4/6/96 Baa3 2,575 2,591
First Bank Systems, Inc. euro 5 1/4%,
11/29/96 (g) A3 10,350 10,350
First Fidelity Bancorporation 9 3/4%, 5/25/95 A3 300 315
First Tennessee National Corp. 7 3/8%, 12/1/97 - 567 568
First Union Corp.:
6 3/4%, 1/15/98 A2 500 502
9.45%, 6/15/99 A3 100 110
First USA Bank (Wilmington, DE) 5 3/4%,
1/15/99 Baa3 4,000 3,800
Fleet Financial Group, Inc.:
5 5/8%, 7/1/95 A3 200 201
7 5/8%, 12/1/99 Baa1 1,000 1,026
Integra Financial Corp. 6 1/2%, 4/15/00 Baa2 3,000 2,908
Kansallis-Osake-Pankki euro:
4 5/8%, 4/30/94 Baa1 1,000 1,000
8.95%, 8/25/94 A3 1,000 1,016
8 1/2%, 5/31/95 A3 1,000 1,028
10%, 3/7/96 A3 2,000 2,129
KeyCorp. 8.55%, 5/30/95 A2 300 312
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Manufacturers Hanover Trust, NY euro
5 1/4%, 7/15/97 (g) Baa2 $ 8,950 $ 8,995
Marine Midland Bank Inc.:
euro 5 1/4%, 9/27/96 (g) Baa1 7,720 7,712
8 5/8%, 3/1/97 Baa1 1,285 1,364
5%, 3/29/99 (g) Baa1 1,000 993
5 1/4%, 12/20/00 (g) Baa2 22,950 22,491
Mellon Financial Co.:
6 1/8%, 11/15/95 A3 1,000 1,011
6 1/2%, 12/1/97 A3 600 602
Mercantile Bancorporation, Inc.
7 5/8%, 10/15/02 Baa1 100 101
Meridian Bancorp. 5 1/4%, 12/1/96 Baa1 1,575 1,575
Midland International Financial Services BV euro
0%, 3/6/99 A1 4,000 4,000
NCNB Corp. 10 1/2%, 3/15/99 A3 8,100 8,806
Provident Bank 5%, 6/15/96 Baa2 4,000 3,928
Shawmut Bank of Boston, NA euro
5%, 2/24/97 (g) Baa2 5,250 5,237
Shawmut Corp. 8 7/8%, 4/1/96 Baa1 5,000 5,284
Signet Banking Corp.:
5 1/4%, 5/15/97 (g) Baa2 3,870 3,870
5 1/4%, 4/15/98 (g) Baa2 5,800 5,800
Society Corporation 8 7/8%, 5/15/96 A1 200 211
Sovran Financial Corp. 9 3/4%, 6/15/99 A3 200 224
Summit Bancorporation 11 7/8%, 2/1/95 Baa2 4,755 5,007
United Virginia Bankshares, Inc. 8 5/8%,
4/15/98 Baa2 362 384
UJB Financial Corp. 8 5/8%, 12/10/02 Baa3 500 533
Valley National Corp. 11 3/4%, 4/15/95 Aa3 220 234
Wells Fargo & Co. euro 5 1/4%, 4/28/00 (g) Baa2 3,500 3,474
215,087
CREDIT & OTHER FINANCE - 12.3%
Associates Corp. of North America:
6%, 12/1/95 A1 1,000 1,008
6 7/8%, 1/15/97 A1 380 386
Avco Financial Services, Inc. 4%, 1/14/99 (g) A2 4,450 4,439
Beneficial Corp. 9.4%, 2/7/96 A2 200 213
Caterpillar Financial Services Corp.:
4.14%, 10/16/94 A3 5,000 4,988
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
7.14%, 4/10/95 A3 $ 500 $ 509
Chrysler Financial Corp.:
euro 9 1/2%, 4/12/96 Baa2 520 551
9.55%, 6/7/94 Baa2 100 101
9%, 10/15/94 Baa2 2,000 2,044
6.4%, 6/17/97 Baa3 3,000 2,999
10.34%, 5/15/08 Baa2 6,550 7,098
Equitable Bancorp 5 1/4%, 4/13/94 (g) A2 540 540
Financiera Energetica Nacional 6 5/8%,
12/13/96 (f) - 4,770 4,609
Fleet Mortgage Group 6 1/2%, 9/15/99 A3 3,000 2,942
Ford Motor Credit Corp.:
6 1/2%, 1/17/95 A2 4,000 4,054
9.3%, 3/15/95 A2 900 934
4.23%, 2/15/99 A2 15,200 15,162
Ford Motor Credit Co. Canada 10.7%, 6/28/96 A2 1,000 769
General Electric Capital Corp. peso linked
11.09%, 10/29/96 (g) Aaa 6,400 5,888
General Motors Acceptance Corp.:
6.45%, 4/25/94 Baa1 2,000 2,002
9.4%, 5/25/94 Baa1 2,600 2,618
6.05%, 6/1/94 Baa1 4,000 4,011
8 3/4%, 8/15/94 Baa1 200 203
9.15%, 12/1/94 Baa1 400 411
8.9%, 2/7/95 Baa1 250 258
5.55%, 2/16/95 Baa1 3,600 3,616
9.45%, 5/15/95 Baa1 1,675 1,750
9.40%, 5/18/95 Baa1 100 104
9.45%, 5/18/95 Baa1 300 314
9 1/4%, 6/8/95 Baa1 5,700 5,955
6.10%, 7/3/95 Baa1 3,000 3,029
7.9%, 9/15/95 Baa1 2,300 2,376
8.95%, 2/5/96 Baa1 1,200 1,265
Greyhound Financial Corp.:
0%, 6/15/94 Ba1 3,568 3,532
5 3/4%, 7/28/95 Baa2 1,500 1,507
6.94%, 1/28/98 Baa2 2,500 2,518
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Household Finance Corp.:
5.47%, 12/19/94 A3 $ 1,220 $ 1,226
7 5/8%, 12/15/96 A2 300 312
Household International, Inc. 5 3/4%, 6/15/94 A3 2,700 2,708
Industrial Finance Corp. Thailand 7 1/4%,
12/2/96 - THB 20,000 790
Margaretten Financial Corp. 6 3/4%, 6/15/00 Baa3 4,500 4,320
Maryland National Corp. 5 1/4%, 9/5/97 (g) A3 2,700 2,697
Nafin Finance Trust II 6.3563%, 3/31/99 (f)(g) - 10,320 10,294
Offshore Mexican Bond secured new peso linked,
7%, 7/20/94 (f) - 13,500 13,467
Tenneco Credit Corp.:
9 3/4%, 8/1/94 Baa2 225 228
9%, 7/15/95 Baa2 1,361 1,418
10 1/8%, 12/1/97 Baa2 900 996
10.05%, 8/17/98 Baa2 1,500 1,646
Third Mexican Acceptance Corp.:
coll. gtd. by NAFIN 7.37%, 3/15/98 (f) - 1,000 998
coll. gtd. by Grupo Sidek SA and
Grupo Situr SA 10 1/2%, 3/15/98 (f) - 3,000 3,098
US West Financial Services, Inc.
4.89%, 12/11/97 (g) A2 1,200 1,186
Westinghouse Credit Corp.:
9.31%, 6/1/94 Ba1 1,500 1,511
9.15%, 6/21/94 Ba1 800 807
9%, 8/14/94 Ba1 150 152
8.73%, 10/19/94 Ba1 1,900 1,935
8.65%, 12/19/94 Ba1 1,000 1,018
8 3/4%, 1/25/95 Ba1 300 307
9.15%, 7/12/95 Ba1 1,135 1,170
9.15%, 7/13/95 Ba1 100 104
8 7/8%, 8/1/95 Ba1 5,400 5,570
9.13%, 8/1/95 Ba1 1,500 1,562
5.92%, 9/11/95 Ba1 250 250
8.79%, 5/22/96 Ba1 1,000 1,041
8 3/4%, 6/5/96 Ba1 600 625
8.84%, 10/21/96 Ba1 500 524
8.93%, 6/22/99 Ba1 1,265 1,328
157,991
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.5%
ITT Hartford Group, Inc.:
7 1/4%, 12/1/96 A1 $ 1,175 $ 1,207
8 1/5%, 10/15/98 A1 755 794
Metropolitan Life Insurance Co. 6.3%,
11/1/03 (f) Aa3 4,000 3,684
5,685
SAVINGS & LOANS - 0.9%
Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa3 500 562
Golden West Financial Corp.:
10 1/4%, 5/15/97 A3 100 111
8 5/8%, 8/30/98 A3 100 106
Home Savings of America 10 1/2%, 6/12/97 Baa1 6,870 7,460
World Savings & Loan 5 1/4%, 2/15/96 A1 3,000 2,996
11,235
TOTAL FINANCE 421,689
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Cardinal Health Inc. 8%, 3/1/97 Baa1 2,000 2,080
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.3%
Westinghouse Electric Corp.:
7.75%, 4/15/96 Baa1 1,000 1,024
9.14%, 1/15/98 Baa1 700 741
6.875%, 9/1/03 Baa1 1,400 1,333
3,098
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Tenneco Corp.:
gtd. 11%, 11/15/95 Baa2 1,000 1,078
9 5/8%, 11/15/94 Baa2 1,910 1,962
3,040
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 6,138
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 3.2%
BROADCASTING - 1.9%
Telecommunications, Inc. 7.13%, 2/2/98 Baa3 $ 2,500 $ 2,516
Time Warner, Inc.:
9 1/2%, 11/1/94 Baa1 3,750 3,838
6.05%, 7/1/95 (f) Baa1 17,500 17,566
23,920
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 8 1/8%, 4/1/97 Baa2 200 206
Mattel, Inc. 6 7/8%, 8/1/97 Baa2 2,000 2,014
2,220
PUBLISHING - 1.2%
News America Holdings, Inc.:
gtd. 9 1/8%, 10/15/99 Ba1 8,975 9,532
12%, 12/15/01 Ba1 4,430 5,193
Time Warner Entertainment Co. 9 5/8%
5/1/02 Baa3 1,000 1,088
15,813
TOTAL MEDIA & LEISURE 41,953
NONDURABLES - 1.4%
BEVERAGES - 0.3%
Fomento Economico Mexicano SA de CV
euro 9 1/2%, 7/22/97 - 3,950 4,049
Grupo Embotellador de Mexico SA de CV
10 3/4%, 11/19/97 (f) Ba2 500 530
4,579
TOBACCO - 1.1%
Empresas La Moderna SA 10 1/4%,
11/12/97 (f) - 800 828
Philip Morris Companies, Inc.:
8.7%, 8/1/94 A2 1,000 1,013
8 7/8%, 7/1/96 A2 5,090 5,391
RJR Nabisco, Inc.:
8 7/8%, 1/15/95 Baa3 2,000 2,036
9 1/4%, 5/1/95 Baa3 4,150 4,257
13,525
TOTAL NONDURABLES 18,104
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 1.3%
GENERAL MERCHANDISE STORES - 1.0%
Controladora Comercial Mexicana SA de CV:
euro 8 3/4%, 4/21/98 - $ 2,630 $ 2,623
8 3/4%, 4/21/98 (f) - 400 399
El Puerto de Liverpool SA de CV 7 1/4%,
10/19/96 (f) - 3,800 3,696
K mart Corp. 12 1/8%, 3/1/95 A3 250 265
Sears Canada, Inc. 11%, 5/18/99 - CAD 1,500 1,157
Sears Roebuck & Co.:
9.03%, 3/21/95 Baa1 2,000 2,083
9.41%, 4/3/96 Baa1 1,400 1,496
8.55%, 8/1/96 Baa1 1,500 1,577
13,296
GROCERY STORES - 0.3%
Great Atlantic & Pacific Tea, Inc. 9 1/8%,
1/15/98 Baa3 3,000 3,132
Supervalu, Inc. 5 7/8%, 11/15/95 A3 150 151
3,283
TOTAL RETAIL & WHOLESALE 16,579
SERVICES - 0.3%
ADVERTISING - 0.1%
Valassis Inserts 9 3/8%, 3/15/99 Ba2 1,100 1,162
LEASING & RENTAL - 0.2%
Hertz Corp. 8%, 4/1/95 Baa1 200 205
Ryder System, Inc. 9 3/8%, 1/15/98 Baa1 1,000 1,030
U.S. Leasing International, Inc. 8.35%,
4/12/94 A2 1,000 1,001
2,236
TOTAL SERVICES 3,398
TECHNOLOGY - 1.6%
COMPUTERS & OFFICE EQUIPMENT - 1.2%
Comdisco, Inc.:
6 1/2%, 6/15/94 Baa2 5,000 5,018
8.95%, 5/15/95 Baa2 5,510 5,715
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Comdisco, Inc. - continued
9 3/4%, 1/15/97 Baa2 $ 2,300 $ 2,483
7 3/4%, 1/29/97 Baa2 2,000 2,062
15,278
ELECTRONICS - 0.4%
Grupo Condumex SA de CV:
6 1/4%, 7/27/96 (f) - 4,530 4,326
6 1/4%, 7/27/96 - 750 716
5,042
PHOTOGRAPHIC EQUIPMENT - 0.0%
Eastman Kodak Co. 9 1/8%, 3/1/98 A3 150 155
TOTAL TECHNOLOGY 20,475
TRANSPORTATION - 1.0%
AIR TRANSPORTATION - 0.8%
AMR Corp.:
7 3/4%, 12/1/97 Baa3 2,000 2,019
9 1/2%, 7/15/98 Baa3 3,100 3,285
American Airlines, Inc. Equipment Trust
Certificate 9.21%, 12/15/94 Baa1 722 743
Qantas Airways Ltd. 6 5/8%, 6/30/98 (f) Baa2 4,000 3,923
United Air Lines 1993-A Pass Thru Trust
5.33%, 1/21/95 Baa2 500 498
10,468
SHIPPING - 0.0%
Transportation Maritama Mexico euro
8 3/8%, 10/28/97 (d) - 750 746
TRUCKING & FREIGHT - 0.2%
Federal Express Corp.:
9 3/4%, 10/3/94 Baa3 475 486
9.2%, 11/15/94 Baa3 570 585
9 3/4%, 5/15/96 Baa3 1,475 1,583
2,654
TOTAL TRANSPORTATION 13,868
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - 7.8%
ELECTRIC UTILITY - 6.0%
Commonwealth Edison Co.:
1st. mtg., 6 1/8%, 5/15/92 Baa2 $ 1,300 $ 1,311
5 3/4%, 4/15/94 Baa3 6,950 6,950
8.04%, 7/1/94 Baa2 500 504
8.95%, 8/1/94 Baa2 500 506
5 1/2%, 7/15/95 Baa3 8,750 8,752
Gulf States Utilities Co. 9.72%, 7/1/98 Baa3 5,600 6,051
Hydro-Quebec euro 4 3/4%, 7/31/02 (g) A+ 2,670 2,650
Long Island Lighting Co.:
10 1/4%, 6/15/94 Baa3 12,354 12,480
11 3/4%, 11/15/94 Baa3 8,000 8,318
8 3/4%, 5/1/96 Baa2 5,000 5,234
10 7/8%, 6/15/99 Baa3 1,000 1,062
7.3%, 7/15/99 Baa3 2,865 2,805
Niagara Mohawk Power Corp. 1st mtg.
8 7/8%, 8/1/94 Baa2 10,000 10,138
Public Service Co. of New Hampshire 1st mtg.,
Series B Baa3 6,175 6,528
Systems Energy Resources, Inc. 1st mtg. 14%,
11/15/94 Baa3 1,693 1,776
Toledo Edison 8 1/2%, 4/1/94 Baa 1,900 1,900
Virginia Electric & Power Co. 1st & ref. mtg.
9 3/8%, 11/1/94 A2 150 154
77,119
GAS - 1.8%
ARKLA, Inc.:
9.45%, 10/15/95 Ba2 7,120 7,423
9 7/8%, 4/15/97 Ba2 2,920 3,095
Enron Corp. 8.15%, 4/1/94 Baa 4,700 4,700
Houston Natural Gas Corp. 12 1/8%, 4/15/95 Baa2 1,000 1,065
Panhandle Eastern Pipe Line Co. 9 7/8%,
10/15/96 Baa2 7,000 7,245
Southwest Gas Co. 9 3/4%,6/15/02 Ba1 200 216
23,744
TOTAL UTILITIES 100,863
TOTAL NONCONVERTIBLE BONDS 744,825
TOTAL CORPORATE BONDS
(Cost $766,286) 750,475
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 1.2%
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1%
Federal Home Loan Mortgage Corp.
10%, 7/15/09 Aaa $ 1,179 $ 1,244
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.3%
REMIC Trust:
7%, 6/25/19 Aaa 1,500 1,502
7 1/2%, 2/25/21 Aaa 1,500 1,520
3,022
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.8%
9 1/2%, 9/15/18 to 8/15/21 Aaa 227 242
7%, 4/15/23 (h) Aaa 4,000 3,811
7 1/2%, 4/15/22 to 6/15/23 Aaa 2,796 2,776
8%, 1/15/22 to 9/15/23 (a) Aaa 3,802 3,837
10,666
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $14,874) 14,932
FOREIGN GOVERNMENT OBLIGATIONS - 23.3%
Argentina Republic BOCON:
3.7% 4/1/01 (g) - ARP 24,667 16,150
3.7%, 9/1/02 (g) - ARP 48,096 27,310
3.6875%, 4/1/07 (g) - ARP 5,898 2,918
Denmark Government:
8%, 5/15/03 Aa1 DKK 76,760 12,516
7%, 12/15/04 Aa1 DKK 136,860 20,891
France Government OAT:
8 1/2%, 11/25/02 Aaa FRF 300 60
8 1/2%, 4/25/03 Aaa FRF 157,690 31,406
6 3/4%, 10/25/03 Aaa FRF 14,000 2,501
5 1/2%, 4/25/04 Aaa FRF 8,000 1,303
Indonesia SBI:
0%, 5/13/94 (i) - INR 3,000 1,376
0%, 5/13/94 (i) - INR 1,080 4,945
0%, 1/13/95 (i) - INR 4,000 1,708
Italy Government 11%, 6/1/03 (i) Aa3 INR 9,700 6,528
Kingdom of Sweden 10 3/4%, 1/23/97 Aa2 SEK 38,700 5,335
Korea Development Bank:
8.9%, 3/12/96 A1 300 315
8.9%, 4/1/96 A1 1,400 1,473
7.95%, 3/25/97 A1 4,000 4,148
7%, 7/15/99 A1 5,700 5,635
FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED
MOODY'S RATINGS (B) PRINCIPAL VALUE (NOTE 1)
AMOUNT (A)
Malaysian Government:
0%, 5/11/94 to 9/7/94 A2 MYR 76,780 $ 28,257
9 1/2%, 10/31/96 A2 815 876
9 7/8%, 9/27/00 A2 MYR 650 738
5 1/4%, 4/30/15 (g) A2 MYR 1,000 1,000
Mexican Government:
Bondes:
14.31%, 9/22/94 (g) - MXN 30,700 9,149
10.11%, 11/10/94 (g) - MXN 1,000 298
Cetes:
0%, 9/29/94 to 2/29/96 - MXN 317,105 81,204
New Zealand Government 8%, 4/15/04 Aa3 NZD 30,850 19,018
Petronas Degangan BHD 0%, 2/24/99 A2 MYR 8,000 2,160
United Kingdom Treasury 12%, 11/20/98 Aaa GBP 6,524 11,376
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $321,384) 300,594
SUPRANATIONAL OBLIGATIONS - 0.7%
African Development Bank:
9 1/2%, 12/15/95 Aa1 500 532
6 3/4%, 7/30/99 Aa1 200 200
International Bank for Reconstruction and
Development:
euro 5 1/4%, 3/20/02 Aaa JPY 200,000 2,104
4 1/2%, 3/20/03 Aaa JPY 635,000 6,398
SUPRANATIONAL OBLIGATIONS
(Cost $8,966) 9,234
OTHER SECURITIES - 7.8%
COLLATERALIZED NOTES - 5.5%
Ridgefield Investments Ltd. sr. notes 0%, 2/2/95
(collateralized by Mexican govt. securities) (f) 22,436 20,192
Wilton Investments Ltd.:
Sr. notes (collateralized by
Mexican govt. and U.S. govt. securities)
Series B, 0%, 4/15/94 (e) 23,400 23,574
Sr. notes (collateralized by
Mexican govt. and U.S. govt. securities)
Series C, 0%, 6/3/94 (e) 27,710 27,464
71,230
OTHER SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (B) (000S) (000S)
INDEXED SECURITIES - 2.3%
AIG Matched Funding Corp. note (j):
3.5862%, 9/14/94 (coupon inversely indexed to
HELIBOR and principal indexed to value of
3-year Finnish securities, both multiplied
by 4) $ 1,300 $ 1,196
4.4655%, 9/16/94 (coupon inversely indexed to
HELIBOR and principal indexed to value
of 2-year Finnish securities, both multiplied
by 6) 1,300 1,162
Bankers Trust Company note (j):
9.5303%, 8/23/94 (coupon inversely indexed to
CAD Banker's Acceptance rate and principal
indexed to value of 3-year Canadian securities,
both multiplied by 4) 1,600 1,402
13.23%, 8/31/94 (coupon inversely indexed to
HELIBOR and principal indexed to value of 2-year
Finnish securities, both multiplied by 6) 400 396
10.514%, 9/2/94 (coupon inversely indexed to
HELIBOR and principal indexed to value of 3-year
Finnish securities, both multiplied by 4) 300 274
5.6832%, 2/23/95 (coupon inversely indexed to
GBP LIBOR and principal indexed to value of
2-year United Kingdom securities, both
multiplied by 4) 2,450 2,131
14.4375%, 7/15/94 (indexed to CSK denom.
CEZ a.s. bond 16 1/2%, 6/25/98) 700 721
.325%, 3/27/95 (coupon inversely indexed to
PIBOR and principal indexed to value of 1-year
French securities, both multiplied by 5.5) 3,200 3,129
Bayerische Landesbank cert. of dep. 6.2675%,
2/16/95 (coupon inversely indexed to
HELIBOR and principal indexed to value
of 2-year Finnish securities, both
multiplied by 3) 1,000 835
Citibank Nassau (j):
0%, 12/29/94 (coupon inversely indexed to
CAD Banker's Acceptance rate and principal
indexed to value of 1-year Canadian securities,
both multiplied by 6) 1,600 1,272
6.11%, 2/24/95 (coupon inversely indexed to
GBP LIBOR and principal indexed to value of
2-year United Kingdom securities, both multiplied
by 4) 800 692
0%, 3/3/95 (coupon inversely indexed to
ITL LIBOR and principal indexed to value of
2-year Italian securities, both multiplied by 8) 3,200 3,084
OTHER SECURITIES - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (B) (000S) (000S)
INDEXED SECURITIES - CONTINUED
5.98%, 2/16/95 (coupon inversely indexed to
GBP LIBOR and principal indexed to value of
2-year United Kingdom securities, both
mulitiplied by 4) $ 3,250 $ 2,806
0%, 3/21/95 (coupon inversely indexed to
PIBOR and principal indexed to value of
1-year French securities, both multiplied
by 5.5) 3,150 3,102
Disney Corp. note 0%, 9/30/94
(coupon inversely indexed to STIBOR and
principal indexed to value of 2-year Swedish
securities, both multiplied by 5) (j) 4,000 3,633
First Interstate Bancorp 4.2%, 2/26/96
(inversely indexed to JPY) (g) 600 248
Merck & Co., Inc. note 3.78%, 1/25/95
(inversely indexed to 2-year SEK swap rate,
multiplied by 10) 1,300 1,278
Morgan Guaranty Trust Co. cert. of dep.:
0%, 6/6/94 (indexed to $482 par of Westport
Investments Ltd. sr. notes, collateralized
by Mexican govt. securities, per $100 par) 1,600 1,574
0%, 8/22/94 (indexed to $481 par of Westport
Investments Ltd. sr. notes, collateralized
by Mexican govt. securities, per $100 par) 430 425
29,360
TOTAL OTHER SECURITIES
(Cost $104,048) 100,590
MUNICIPAL BONDS - 0.8%
MOODY'S RATINGS (C)
Denver Colorado City & County
7 1/2%, 8/1/95 Aa 3,155 3,293
Louisiana Pub. Facs. Auth. Rev
9.95%, 6/1/96 Baa1 3,150 3,399
Shreveport Louisiana Water & Sewer Review,
taxable refunding 0%, 12/1/96 Aaa 3,500 2,953
Virginia State Public School Authority,
4 1/4%, 1/1/98 Aa 1,250 1,216
TOTAL MUNICIPAL BONDS
(Cost $11,103) 10,861
CERTIFICATES OF DEPOSIT - 3.1%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (B) (000S) (000S)
Bangkok Bank, Ltd. 8 1/2%, 10/3/94 THB 170,000 $ 6,787
Bank Bumiputra 5 3/4%, 7/5/94 MYR 20,950 7,848
First USA Bank (Wilmington, DE) 4.3%, 2/3/95 10,000 9,927
Siam Commerce Bank Co. Ltd. 6 3/4% to 7 3/8%,
11/7/94 to 11/29/94 THB 150,000 5,947
Thai Military Bank, Ltd. 6 7/8% to 8%, 6/15/95
to 10/28/96 THB 240,000 9,550
TOTAL CERTIFICATES OF DEPOSIT
(Cost $40,008) 40,059
COMMERCIAL PAPER - 3.2%
Banca Serfin 0%, 4/7/94 MXN 24,960 7,414
Bancomer 0%, 12/28/95 MXN 19,877 4,909
Grupo Embotellador de Mexico SA de CV:
0%, 4/20/94 to 5/10/94 (f) 9,750 9,709
Grupo Simec 0%, 6/15/94 2,850 2,813
Nacional Financiera SNC 0%, 4/14/94 to
7/23/96 MXN 63,585 16,224
Thai Airways International, Ltd. 0%, 8/1/94 THB 15,000 581
TOTAL COMMERCIAL PAPER
(Cost $43,798) 41,650
REPURCHASE AGREEMENTS - 1.6%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.58%
dated 3/31/94 due 4/4/94 $ 19,658 $ 19,650
TOTAL INVESTMENTS - 100%
(Cost $1,330,117) $ 1,288,045
FORWARD FOREIGN CURRENCY CONTRACTS
AMOUNTS IN THOUSANDS SETTLEMENT UNREALIZED
DATE(S) VALUE GAIN/(LOSS)
CONTRACTS TO BUY
255 CAD 5/9/94 $ 184 $ (4)
(Payable amount $188)
THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 0.0%
CONTRACTS TO SELL
815,565 BEF 4/13/94 to 5/24/94 $ 23,628 $ (929)
2,949 CAD 5/9/94 2,131 88
144,831 DKK 5/11/94 21,941 (625)
243,176 FRF 4/27/94 42,445 (1,767)
3,783 DEM 4/11/94 to 7/18/94 2,255 (95)
6,875,169 ITL 5/24/94 4,234 (183)
1,908,633 JPY 4/19/94 to 6/10/94 18,623 (465)
41,028 SEK 5/25/94 5,213 (82)
TOTAL CONTRACTS TO SELL
(Receivable amount $116,412) $ 120,470 $ (4,058)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 9.4%
CURRENCY ABBREVIATIONS
ARP - Argentinean peso
BEF - Belgian franc
CAD - Canadian dollar
DEM - German Deutche Mark
DKK - Danish krone
FRF - French franc
GBP - British pound
ITL - Italian lira
INR - Indonesian rupiah
JPY - Japanese yen
MYR - Malaysian ringgit
MXN - Mexican peso
NZD - New Zealand dollar
SEK - Swedish krona
THB - Thai Baht
LEGEND
5. Security sold on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
6. Principal amount is stated in United States dollars unless otherwise
noted.
7. Standard & Poor's Corporation credit ratings are used in the absence
of a rating by Moody's Investors Service, Inc.
8. Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
9. Restricted securities - investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Wilton Investments Ltd.
sr. notes (collateralized by
Mexican government
and U.S. government
securities):
Series B, 0%,
4/15/94 3/3/93 $ 23,442,000
Series C, 0%,
6/3/94 3/3/93 27,410,000
10. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $153,414,000 or 11.6% of net
assets.
11. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
12. Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
13. Principal amount in millions.
14. Inverse floating rate security is a security where the coupon is
inversely indexed to a floating interest rate multiplied by a specified
factor. If the floating rate is high enough, the coupon rate may be zero or
be a negative amount that is carried forward to reduce future interest
and/or principal payments. The price may be considerably more volatile than
the price of a comparable fixed rate security.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 24.5% AAA, AA, A 25.0%
Baa 31.8% BBB 32.4%
Ba 9.0% BB 4.6%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government. The percentage not rated by
either S&P or Moody's amounted to 9.4% including long-term debt
categorized as other securities. FMR has determined that unrated debt
securities that are lower quality account for 0.0% of the total value of
investment in securities.
Distribution of investments by country, as a percentage of total value of
investment in securities, is as follows:
United States 54.7%
Mexico 24.7
Argentina 3.6
Malaysia 3.2
France 2.7
Denmark 2.6
Thailand 1.8
New Zealand 1.5
Others (individually less than 1%) 5.2
TOTAL 100.0%
INCOME TAX INFORMATION
At March 31, 1994, the aggregate cost of investment securities for income
tax purposes was $1,330,117,000. Net unrealized depreciation aggregated
$42,072,000 of which $3,228,000 related to appreciated investment
securities and $45,300,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE AMOUNTS) MARCH 31, 1994 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 1,288,045
agreements of $19,650) (cost $1,330,117) (Notes 1
and 2) - See accompanying schedule
Long foreign currency contracts held, at value (cost 184
$188) (Note 2)
Short foreign currency contracts (Note 2) $ (120,470)
Contracts held, at value
Receivable for contracts held 116,412 (4,058)
Receivable for investments sold, regular delivery 85,356
Commitment to sell securities on a delayed delivery (3,837)
basis
Receivable for securities sold on a delayed delivery 3,915 78
basis
Cash 143
Interest receivable 22,373
TOTAL ASSETS 1,392,121
LIABILITIES
Payable for foreign currency contracts held (Note 2) 188
Payable for investments purchased 43
Regular delivery
Delayed delivery (Note 2) 3,931
Net payable for closed foreign currency contracts 2
Payable for fund shares redeemed 92,862
Dividends payable 1,257
Accrued management fee 757
TOTAL LIABILITIES 99,040
NET ASSETS $ 1,293,081
Net Assets consist of (Note 1):
Paid in capital $ 1,346,011
Undistributed net investment income 871
Accumulated undistributed net realized gain (loss) on (7,745)
investments
Net unrealized appreciation (depreciation) on:
Investment securities (42,072)
Foreign currency contracts (4,062)
Delayed delivery 78
NET ASSETS, for 134,450 shares outstanding $ 1,293,081
NET ASSET VALUE, offering price and redemption price per $9.62
share ($1,293,081 (divided by) 134,450 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1994 (UNAUDITED)
INVESTMENT INCOME $ 54,965
Interest
EXPENSES
Management fee (Note 4) $ 5,023
Non-interested trustees' compensation 5
Total expenses before reductions 5,028
Expense reductions (Note 5) (1,275) 3,753
NET INVESTMENT INCOME 51,212
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1, 2 AND 3)
Net realized gain (loss) on:
Investment securities (7,272)
Foreign currency contracts 351 (6,921)
Change in net unrealized appreciation (depreciation) on:
Investment securities (47,122)
Foreign currency contracts (3,497)
Delayed delivery commitments 78 (50,541)
NET GAIN (LOSS) (57,462)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ (6,250)
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT IN THOUSANDS SIX MONTHS OCTOBER 1, 1992
ENDED MARCH 31, (COMMENCEMENT
1994 OF OPERATIONS) TO
(UNAUDITED) SEPTEMBER 30,
1993
INCREASE (DECREASE) IN NET ASSETS
Operations $ 51,212 $ 40,064
Net investment income
Net realized gain (loss) on investments (6,921) 421
Change in net unrealized appreciation (depreciation) (50,541) 4,485
on
investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (6,250) 44,970
FROM OPERATIONS
Distributions to shareholders (50,224) (39,709)
From net investment income
</TABLE>
In excess of net investment income - (71)
<TABLE>
<CAPTION>
<S> <C> <C>
From net realized gain (1,628) -
TOTAL DISTRIBUTIONS (51,852) (39,780)
Share transactions 937,887 1,842,665
Net proceeds from sales of shares
Reinvestment of distributions from: 43,648 35,496
Net investment income
Net realized gain 1,513 -
Cost of shares redeemed (1,103,060) (412,156)
Net increase (decrease) in net assets resulting from (120,012) 1,466,005
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS (178,114) 1,471,195
NET ASSETS
Beginning of period 1,471,195 -
End of period (including under (over) distribution of net $ 1,293,081 $ 1,471,195
investment income of $871 and $(117), respectively)
OTHER INFORMATION
Shares
Sold 94,334 185,157
Issued in reinvestment of distributions from: 4,407 3,560
Net investment income
Net realized gain 152 -
Redeemed (111,771) (41,389)
Net increase (decrease) (12,878) 147,328
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS OCTOBER 1, 1992
ENDED (COMMENCEMEN
MARCH 31, 1994 T OF OPERATIONS)
TO
SEPTEMBER 30,
<TABLE>
<CAPTION>
<S> <C> <C>
(UNAUDITED) 1993
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.990 $ 10.000
Income from Investment Operations .328 .747
Net investment income
Net realized and unrealized gain (loss) on investments (.367) (.009)
Total from investment operations (.039) .738
Less Distributions (.321) (.747)
From net investment income
In excess of net investment income - (.001)
From net realized gain on investments (.010) -
Total distributions (.331) (.748)
Net asset value, end of period $ 9.620 $ 9.990
TOTAL RETURN (dagger)(double dagger) (.44)% 7.69%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in millions) $ 1,293 $ 1,471
Ratio of expenses to average net assets(dagger)(dagger) .49%* .20%
Ratio of expenses to average net assets before expense .65%* .65%
reductions(dagger)(dagger)
Ratio of net investment income to average net assets 6.62%* 7.32%
Portfolio turnover rate 92%* 112%
</TABLE>
* ANNUALIZED
(dagger) THE TOTAL RETURN DOES NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND IS
NOT ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR.
(double dagger) THE TOTAL RETURN WOULD HVE BEEN LOWER HAD THE ADVISER NOT
REIMBURSED CERTAIN EXPENSES DURING THE PERIODS SHOWN.
(dagger)(dagger) SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1994 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Term Income Fund (formerly Spartan Short-Term Bond Fund) (the
fund) is a fund of Fidelity Charles Street Trust (the trust) and is
authorized to issue an unlimited number of shares. The trust is registered
under the Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
Securities (including restricted securities) for which market quotations
are not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees.
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 current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
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 all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
generally accepted accounting principles. These differences are primarily
due to differing treatments for mortgage-backed securities, foreign
currency transactions and market discount. The fund also utilized earnings
and profits distributed to shareholders on redemption of shares as a part
of the dividends paid deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the following
year.
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.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign
currency contracts. These contracts involve market risk in excess of the
amount reflected in the fund's Statement of Assets and Liabilities. The
face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
2. OPERATING POLICIES -
CONTINUED
INDEXED SECURITIES. The fund may invest in indexed securities whose value
is linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other reference instruments.
Indexed securities may be more volatile than the reference instrument
itself, but any loss is limited to the amount of the original investment.
RESTRICTED SECURITIES. The fund is permitted to invest in privately placed
restricted securities. These securities may be resold in transactions
exempt from registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult. At the
end of the period, restricted securities (excluding 144A issues) amounted
to $51,038,000 or 3.9% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $593,644,000 and $513,628,000, respectively, of which U.S.
government and government agency obligations aggregated $93,189,000 and
$228,121,000, respectively.
4. FEES AND OTHER
TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and extraordinary
expenses. FMR receives a fee that is computed daily at an annual rate of
.65% of the fund's average net assets.
FMR also bears the cost of providing shareholder services to the fund. For
the period, FMR or its affiliates collected certain transaction fees from
shareholders which aggregated $51,000.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above a specified percentage of average net assets. During the
period, this expense limitation ranged from .40% to .60% of average net
assets and the reimbursement reduced expenses by $1,275,000.
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
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only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
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5.
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4.
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INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
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AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. FOR MORE
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(LETTER_GRAPHIC)(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 2269
Boston, MA 02107-2269
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30280
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(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
Additional Payments
P.O. Box 2656
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Fidelity Investments
Additional Payments
P.O. Box 620024
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Fidelity Investments
Additional Payments
P.O. Box 31455
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OVERNIGHT EXPRESS
Fidelity Investments
Additional Payments
World Trade Center
164 Northern Avenue
Boston, MA 02210
SELLING SHARES
Fidelity Investments
P.O. Box 193
Boston, MA 02103-0878
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30281
Salt Lake City, UT 84130-0281
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions
World Trade Center
164 Northern Avenue
Boston, MA 02210
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02101-0193
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 620024
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SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Donald Taylor, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox*
Richard J. Flynn*
Edward C. Johnson 3d
E. Bradley Jones*
Donald J. Kirk*
Peter S. Lynch
Edward H. Malone*
Gerald C. McDonough*
Thomas R. Williams*
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
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Product Information 1-800-544-8888
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TDD Service 1-800-544-0118 (9 a.m. - 9 p.m. Eastern time)