(2_FIDELITY_LOGOS)FIDELITY
ASSET MANAGER: GROWTH
SM
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
MARKET RECAP 6 AN OVERVIEW OF THE MARKET'S PERFORMANCE
AND THE FACTORS DRIVING IT.
FUND TALK 7 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 12 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 13 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 47 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 51 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 56 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 57
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. Asset Manager funds are already diversified because
they invest in stocks, bonds and short-term and money market
instruments, both in the U.S. and overseas. If you have a shorter
investment time horizon, you might want to consider moving some of
your investment into Asset Manager: Income, which generally has a
higher weighting in short-term investments compared with the other
Asset Manager funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past five year and life of fund total returns would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER: GROWTH 31.57% 116.76% 141.91%
S&P 500(REGISTERED TRADEMARK) 40.45% 156.94% 170.22%
FLEXIBLE PORTFOLIO FUNDS AVERAGE 23.82% 91.30% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on December 30, 1991. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Standard & Poor's 500 Index - a
widely recognized, unmanaged index of common stocks. To measure how
the fund's performance stacked up against its peers, you can compare
it to the flexible portfolio funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 201 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER: GROWTH 31.57% 16.73% 16.58%
S&P 500 40.45% 20.77% 18.84%
FLEXIBLE PORTFOLIO FUNDS AVERAGE 23.82% 13.61% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971009 142342 S00000000000001
Asset Manager: Growth S&P 500
FI Aggressive Composite
00321 SP001
F0022
1991/12/31 10000.00 10000.00
10000.00
1992/01/31 10367.06 9814.00
9832.85
1992/02/29 10585.32 9941.58
9928.97
1992/03/31 10436.51 9747.72
9786.93
1992/04/30 10466.27 10034.30
9994.02
1992/05/31 10684.52 10083.47
10082.67
1992/06/30 10565.48 9933.23
10030.39
1992/07/31 11001.98 10339.50
10375.29
1992/08/31 10823.41 10127.54
10268.06
1992/09/30 11071.43 10247.04
10393.07
1992/10/31 11279.76 10282.91
10372.18
1992/11/30 11686.51 10633.55
10597.15
1992/12/31 11907.91 10764.35
10737.36
1993/01/31 12079.90 10854.77
10866.69
1993/02/28 12231.66 11002.39
11029.52
1993/03/31 12707.16 11234.54
11193.09
1993/04/30 12747.63 10962.67
11044.56
1993/05/31 13010.68 11256.47
11234.36
1993/06/30 13202.90 11289.11
11332.44
1993/07/31 13445.72 11243.95
11324.50
1993/08/31 13992.04 11670.10
11680.72
1993/09/30 13931.34 11580.24
11637.38
1993/10/31 14366.38 11819.95
11808.39
1993/11/30 14244.97 11707.66
11697.98
1993/12/31 15041.53 11849.32
11805.19
1994/01/31 15622.08 12252.20
12116.50
1994/02/28 15157.64 11920.17
11826.37
1994/03/31 14387.09 11400.45
11413.39
1994/04/30 14365.98 11546.37
11483.36
1994/05/31 14482.09 11735.73
11603.53
1994/06/30 14049.31 11448.21
11413.06
1994/07/31 14397.64 11823.71
11720.75
1994/08/31 14904.30 12308.48
12035.98
1994/09/30 14682.64 12006.92
11795.99
1994/10/31 14724.86 12277.08
11968.80
1994/11/30 14302.64 11829.95
11680.79
1994/12/31 13930.27 12005.39
11817.45
1995/01/31 13583.09 12316.69
12084.93
1995/02/28 13810.93 12796.67
12470.93
1995/03/31 14093.00 13174.30
12736.77
1995/04/30 14483.57 13562.28
13033.69
1995/05/31 14841.59 14104.36
13533.48
1995/06/30 15156.22 14432.01
13773.08
1995/07/31 15785.47 14910.57
14057.96
1995/08/31 15872.26 14948.00
14133.12
1995/09/30 16143.49 15578.81
14564.68
1995/10/31 15948.20 15523.19
14601.96
1995/11/30 16338.77 16204.66
15089.74
1995/12/31 16709.46 16516.76
15346.85
1996/01/31 17260.20 17078.99
15718.87
1996/02/29 17238.17 17237.31
15720.14
1996/03/31 17271.22 17403.31
15780.81
1996/04/30 17568.62 17659.83
15904.94
1996/05/31 17766.88 18115.28
16167.35
1996/06/30 17843.99 18184.30
16272.38
1996/07/31 17392.38 17380.92
15820.30
1996/08/31 17513.54 17747.48
16030.69
1996/09/30 18240.52 18746.31
16699.44
1996/10/31 18769.23 19263.33
17112.70
1996/11/30 20002.89 20719.45
18045.92
1996/12/31 19648.40 20308.99
17761.67
1997/01/31 20465.58 21577.90
18556.07
1997/02/28 20693.91 21747.07
18673.13
1997/03/31 19684.45 20853.48
18088.32
1997/04/30 20489.61 22098.44
18915.95
1997/05/31 21739.42 23443.79
19771.16
1997/06/30 22388.36 24494.07
20454.16
1997/07/31 23902.55 26443.06
21735.90
1997/08/31 23133.43 24961.72
20842.03
1997/09/30 23998.69 26328.88
21722.58
IMATRL PRASUN SHR__CHT 19970930 19971009 142345 R00000000000072
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager: Growth on December 31, 1991,
shortly after the fund started. As the chart shows, by September 30,
1997, the value of the investment would have grown to $23,999 - a
139.99% increase on the initial investment. For comparison, look at
how the S&P 500 did over the same period. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have
grown to $26,329 - a 163.29% increase. You can also look at how the
Fidelity Aggressive Asset Allocation Composite Index, a hypothetical
combination of unmanaged indices, did over the same period. The
composite index combines the total returns of the S&P 500 (+163.29%),
the Lehman Brothers Aggregate Bond Index (+49.66%) and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (+28.69%) according
to the fund's neutral mix,* and assumes monthly rebalancing of the
mix. With dividends and interest, if any, reinvested, the same $10,000
investment would have grown to $21,723 - a 117.23% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. 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)
* CURRENTLY 70% STOCKS, 25% BONDS AND 5% SHORT-TERM/MONEY MARKET
INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 65%, 30% AND 5%, RESPECTIVELY, PRIOR TO JANUARY 1,
1997.
MARKET RECAP
A common denominator to the strong performances of both the bond and
stock markets during the period was economic bliss. The U.S. economy
continued to grow at a consistent, moderate clip and rising inflation
- - a deterrent to both bonds and stocks - was essentially a non-factor.
STOCKS: The Standard & Poor's 500 Index, a broad measure of the U.S.
stock market, returned 40.45% during the 12 months that ended
September 30, 1997, well above its long-term annual average of
approximately 11%. The stock market spent much of the past 12 months
breaking price and trading volume records. Solid corporate earnings,
large cash inflows into mutual funds, widespread optimism and a
generally favorable interest-rate climate boosted share prices higher,
especially among large-capitalization, household-name stocks. In fact,
a select group of these so-called "blue chips" was responsible for a
significant portion of the S&P 500's gain. Concerns in the springtime
over an overheating economy and earnings shortfall announcements from
several key companies in August provided the only considerable hiccups
in the market's rise. When the Federal Reserve Board raised a key
short-term interest rate in March, an already richly priced market
sold off sharply. From that point, with positive economic news being
the primary catalyst, the market soared. In July, the Dow Jones
Industrial Average surged past the 8000 mark for the first time ever.
August posed an altogether different story, though, as inflation
fears, a weakened dollar and sluggish corporate earnings combined to
erode some of the market's prior gains. The silver lining in this
decline, however, was the overall broadening of the market, as small-
and mid-cap stocks performed well, leading to a strong September.
BONDS: A calm economy, coupled with the absence of the bond market's
chief antagonist - rising inflation - translated into a generally
favorable investment climate for the 12 months that ended September
30, 1997. The Lehman Brothers Aggregate Bond Index - a broad measure
of the U.S. taxable bond market - returned 9.71% over the period.
Through the first half of the year, bonds suffered from the perception
that the economy was expanding too quickly and, in turn, that
inflation would appear. In February, Federal Reserve Board Chairman
Alan Greenspan hinted that the Fed was inclined to raise the rate
banks charge each other for overnight loans - known as the fed funds
target rate - to curb any potential inflation upticks. The Fed acted
in March, raising the fed funds rate by 0.25% to 5.50% in a move
largely anticipated by investors. From April through July, weakening
economic and inflation indicators - along with the Fed's shift to a
more beneficial stance signaling no further rate hikes - helped spark
an across-the-board rally. While some of these gains were lost in
August, as inflation fears cropped up again due to
stronger-than-expected economic data, much of the decline was offset
by a strong September. Relative interest-rate stability provided a
positive backdrop for mortgage-backed securities, as the Salomon
Brothers Mortgage Index returned 9.85% over the 12-month period.
Sustained economic growth and demand for higher yields aided corporate
bonds, as the Lehman Brothers Corporate Bond Index returned 10.83%
over the same time frame.
FUND TALK: THE MANAGERS' OVERVIEW
An interview with Richard Habermann (top left), Portfolio Manager of
Fidelity Asset Manager: Growth, as well as George Vanderheiden (top
right), sub-manager for stocks, Charles Morrison (bottom left),
sub-manager for bonds and John Todd (bottom right), sub-manager for
short-term/money market.
Q. HOW DID THE FUND PERFORM, DICK?
D.H. It did quite well. For the 12 months that ended September 30,
1997, the fund had a total return of 31.57%. That beat the flexible
portfolio funds average tracked by Lipper Analytical Services, which
returned 23.82% during the same period.
Q. WHAT HELPED THE FUND OUTPERFORM ITS PEER GROUP?
D.H. Asset allocation and security selection were the primary factors
that influenced performance relative to Lipper's flexible funds
average during the period. In addition to overweighting the
top-performing equity class relative to the funds in the peer group,
we benefited from outstanding security selection within our equity and
fixed-income sub-portfolios. Further, the fund's investments in
high-yield bonds - which are included in its bond-class allocation -
proved to be quite beneficial. These factors contributed to the fund's
outperformance of its peer group.
Q. HOW DID YOU POSITION THE FUND IN TERMS OF ASSET ALLOCATION?
D.H. During most of the period, the fund was overweighted in stocks
relative to its competitors and its neutral mix targets. As I
mentioned, this positioning strategy helped the fund's performance. I
started to increase investments in stocks in the spring after a
significant correction in the market brought valuations to attractive
levels against a very positive backdrop of stable, low interest rates
and favorable earnings growth. The fund's stock allocation reached a
peak of about 81% at the end of July. However, late in the period, I
cut back the fund's stake in stocks to 74% of investments at the end
of September. With the high valuations we've seen in the stock market
come expectations that can exert a great deal of influence on stock
prices. In other words, any small change in the overall view of the
market can lead to a significant shift in stock prices. That's the
reason behind this move.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
D.H. While smaller in magnitude than earlier in the period, the fund
remains overweighted in stocks relative to the neutral mix, which
calls for 70% to be invested in stocks, 25% in bonds and 5% in
short-term/money market instruments. The neutral mix is meant to be an
optimal combination of securities if valuations in all three asset
classes are at comparable levels. I'll change the asset allocation if
I have a strong view about a particular area. The stock market rose as
much as it did in large part because of an almost perfect scenario
regarding interest rates, economic growth and corporate earnings.
After this run-up, I found my strong view on stocks to be less
compelling. With low interest rates and valuations at historically
high levels, share prices are more likely to react poorly to even a
slight change in investor expectations or any unforeseen negative
news. At the same time, prospects for stocks remain attractive; hence,
they remain slightly overweighted.
Q. WHERE DID YOU PUT THE ASSETS THAT CAME OUT OF THE STOCK PORTION OF
THE FUND?
D.H. I invested them in the short-term/money market portion of the
fund. Presently, that part of the fund equals about 9% of the fund's
assets, and bonds about 17% - including a significant stake in
high-yield securities. My feeling is that given an unforeseen event,
the bond market - like the stock market - has a lot less margin for
error now after performing well through most of 1997. In addition,
valuations in the bond market also are relatively high. I don't
believe longer-maturity securities are offering enough yield to
compensate an investor for taking on the added risk and volatility
that come with investing in them. Therefore, the short-term/money
market sector was more appealing.
Q. GEORGE, WHICH STOCKS HELPED THE FUND'S PERFORMANCE?
G.V. Despite the stigma of litigation, tobacco giant Philip Morris was
a solid contributor to the fund's performance. Strong growth in
personal computer sales as well as corporate spending on
telecommunications and networking hardware propelled the fund's
technology-related holdings to solid gains. IBM and Compaq Computer
were particularly good performers.
Q. HAVE RECENT DEVELOPMENTS WITH COLUMBIA/HCA HEALTHCARE AND PHILIP
MORRIS CHANGED YOUR VIEW OF THESE STOCKS?
G.V. After the news broke that the government was investigating the
Medicare billing practices of Columbia/HCA, its market valuation
declined by over $10 billion from its peak this year in March.
However, I believed that any fine imposed by the government was more
than adequately reflected in this market discount. Further, I believed
any fine would be tax-deductible to Columbia/HCA. Consequently, I felt
the impact of the government investigation was already reflected in
the stock price. In addition, management was in the process of seeking
a settlement with the government. When management has cooperated with
the government in similar cases with other companies in the past, the
company's stock price has rebounded during and after the settlement
agreement process. In sum, then, I felt the stock was attractively
priced with good long-term business prospects, as Columbia's hospitals
are in prime locations and 20% have a monopoly position. As far as
Philip Morris is concerned, litigation has been a way of life for
tobacco companies since the Surgeon General's first warning about the
effects of smoking more than 30 years ago. If investors had decided to
sell Philip Morris after that first warning, they would have missed a
more than 32,700% increase in its price - excluding reinvested
dividends - since that time. While past performance is no guarantee of
future results, this phenomenal increase in the price of Philip Morris
equates to a gain of roughly 18% per year for the past 35 years.
Despite the ongoing tobacco litigation, Philip Morris had strong
business prospects and remained attractively priced to me at the end
of the period. The company has some of the strongest brand names in
the consumer industry and can use this advantage to increase its share
in new global markets.
Q. TURNING TO YOU, CHARLIE, HOW HAVE YOU POSITIONED THE FUND'S BOND
PORTFOLIO?
C.M. I'd highlight three areas. First, I reduced the fund's position
in Treasury bonds from 2.7% on March 31, 1997, to 1.1% at the end of
the period. I directed most of these assets toward purchases in the
corporate market, in order to increase the yield of the fund. This
larger corporate position - up to 12.8% at the end of the period
versus 12.4% at the end of March - was focused primarily on
shorter-term securities. Given the high valuations in the corporate
market, these notes should not underperform as much as longer-term
corporates if the market encounters difficulties. Second, I increased
asset-backed securities - bonds backed by credit cards, or other types
of loans - as a percentage of the fund's fixed-income investments.
Opportunities here included notes backed by home equity and
manufactured housing loans. Third, I maintained the fund's
underweighted exposure to mortgage-backed securities relative to the
overall bond market as represented by the Lehman Brothers Aggregate
Bond Index. Continued high valuations in this market did not represent
a positive risk/reward profile. More specifically, I felt that
concerns regarding potential prepayment activity - meaning the risk
that the mortgage-backed securities might be paid off early - were not
adequately factored into the pricing of these securities.
Q. DID YOU ADD TO PARTICULAR SECTORS IN THE CORPORATE MARKET?
C.M. I targeted the cable and telecommunications industries
aggressively over the period. Companies such as Tele-Communications,
Inc., Time Warner and WorldCom provided notable opportunities.
WorldCom and related subsidiaries now make up one of the larger
corporate bond positions in the fund. I believed this company - a
provider of local, long distance, Internet and other
telecommunications services - was uniquely positioned to take
advantage of deregulation and technological advancement in the
industry. It had strong revenue growth, outstanding management and
leading-edge technology working in
its favor. I'd also like to point out one area where I decreased the
fund's position - yankee bonds, which are dollar-denominated bonds
issued in the U.S. by foreign banks, governments and corporations.
Most of this selling focused on bonds issued by state-owned Malaysian
oil company Petroliam Nasional (Petronas) and the Korea Development
Bank. I sold out of most of these positions when currency stability
concerns within Southeast Asia first arose in Thailand. This move
proved quite favorable, as most of the region went on to see
significant underperformance in its dollar-denominated securities.
Q. JOHN, HOW WOULD YOU CHARACTERIZE THE INVESTING ENVIRONMENT FOR
SHORT-TERM/MONEY MARKET INSTRUMENTS?
J.T. Even though the economy continued to grow at an above-trend rate
- - meaning one that is believed to be above its capacity to expand
without generating inflation - there has been little sign of
inflation. Because of the lack of inflation, the Federal Reserve Board
has held off raising short-term interest rates since its meeting in
March. At that time, the Fed raised the rate banks charge each other
for overnight loans - known as the fed funds rate - by 0.25% to 5.50%,
trying to head off inflation before it emerged. At this point, though,
the Fed seems willing to respond with higher interest rates only if
actual evidence of inflation appears.
Q. HOW DID YOU POSITION YOUR SUB-PORTFOLIO?
J.T. As we progressed through March - when the Fed raised rates - I
lowered the sub-portfolio's average maturity to
reflect a neutral stance. In late April and early May, yields in the
market started to factor in a more aggressive Fed posture than I
anticipated. Therefore, I extended the fund's average maturity to take
advantage of the higher yields being offered. As it became evident in
the summer that the Fed was going to hold pat in spite of strong
economic growth - and as long as inflation remained tame - yields for
shorter-term maturities became more attractive, relative to
longer-term rates. In turn, I reduced the fund's maturity through the
end of the period, because we weren't being rewarded for investing in
the longer end of the spectrum.
Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK?
D.H. As we look back over what has been a strong seven-year run for
the stock market, we can see that its main drivers have been declining
interest rates and solid corporate earnings. Looking out over the near
future, I don't think we can expect interest rates to provide much
more of a stimulus for stock prices. As a result, earnings should be
the most critical factor for stock prices going forward, with those
companies that can't meet expectations being penalized. As far as
bonds are concerned, valuations remain on the high side, although as
long as the economy doesn't accelerate too much and inflation remains
tame, bonds should perform reasonably well. One positive factor for
the fixed-income markets is that real interest rates - which are
stated interest rates adjusted for inflation - remain high. That's
usually a positive sign. Inflation remains subdued,
because companies worldwide have little or no pricing power due to a
competitive environment. However, if economic strength accelerates in
Europe, or if Japan shows rapid signs of recovery, inflation pressures
could build. If that's the case, interest rates may rise, which would
be a negative for all of the markets.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
DICK HABERMANN ON THE FUND'S
PERFORMANCE:
"When comparing the fund's
returns to the unusually strong
performance of the Standard &
Poor's 500 Index, investors should
note that there are some
significant differences between
the make-up of the fund and the
composition of the index. While
the S&P 500 is made up exclusively
of stocks, Asset Manager: Growth
invests in stocks, bonds and
short-term/money market
instruments. The fund allocates
assets among these three
categories in order to help
control both volatility and risk
relative to funds or indexes that
invest only in stocks. A single
index covering only one asset
class should not be used as the
only benchmark against which to
compare the fund's overall
performance. History teaches us
that it's better to invest for the long
term by diversifying across several
asset classes. That's because the
markets are not predictable. At
some point, the economy will
falter and the S&P will fall back
to provide returns more in line
with its historical average. Asset
Manager: Growth offers the
portfolio manager the flexibility to
reallocate the components of the
fund. That decision-making mainly
comes down to looking at relative
valuations among the three asset
classes. Given that your
investment horizon and risk
tolerance match the investment
objectives of the fund, you can rest
assured that we will do our best to
make sure the fund's asset
allocation is appropriate for your
goals."
FUND FACTS
GOAL: maximum total return
over the long term through
investing in stocks, bonds and
short-term and money market
instruments
FUND NUMBER: 321
TRADING SYMBOL: FASGX
START DATE: December 30, 1991
SIZE: as of September 30,
1997, more than $4.4 billion
MANAGER: Richard Habermann,
since 1996; manager, Fidelity
Asset Manager and Fidelity
Asset Manager: Income, since
1996; Fidelity Trend Fund,
1977-1981; Fidelity Magellan
Fund, 1972-1977; joined
Fidelity in 1968
(checkmark)
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE STOCKS AS OF SEPTEMBER 30, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FEDERAL NATIONAL MORTGAGE ASSOCIATION 5.9 5.8
PHILIP MORRIS COMPANIES, INC. 4.9 7.1
GENERAL MOTORS CORP. 2.5 2.8
FEDERAL HOME LOAN MORTGAGE CORPORATION 2.2 2.3
COLUMBIA/HCA HEALTHCARE CORP. 1.9 2.0
TOP FIVE MARKET SECTORS AS OF SEPTEMBER 30, 1997
(STOCKS ONLY) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
FINANCE 16.1 15.6
TECHNOLOGY 11.1 10.7
RETAIL & WHOLESALE 6.5 4.9
UTILITIES 6.1 6.9
NONDURABLES 5.8 8.3
TOP FIVE COUNTRIES AS OF SEPTEMBER 30, 1997
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO
UNITED STATES 83.2 85.2
UNITED KINGDOM 2.8 3.3
NETHERLANDS 1.8 2.5
CANADA 1.1 1.9
SWITZERLAND 0.9 0.5
</TABLE>
TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY,
INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT
RISKS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997 * AS OF MARCH 31, 1997**
ROW: 1, COL: 1, VALUE: 9.0
ROW: 1, COL: 2, VALUE: 0.0
ROW: 1, COL: 3, VALUE: 17.0
ROW: 1, COL: 4, VALUE: 30.0
ROW: 1, COL: 5, VALUE: 44.0
ROW: 1, COL: 1, VALUE: 4.0
ROW: 1, COL: 2, VALUE: 20.0
ROW: 1, COL: 3, VALUE: 40.0
ROW: 1, COL: 4, VALUE: 36.0
STOCK CLASS 74%
BOND CLASS 17%
SHORT-TERM CLASS 9%
FOREIGN
INVESTMENTS 9%
STOCK CLASS 76%
BOND CLASS 20%
SHORT-TERM CLASS 4%
FOREIGN
INVESTMENTS 14%
*
**
ASSET ALLOCATIONS IN THE PIE CHARTS REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME
PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM
TO ACCOUNTING STANDARDS AND MAY DIFFER FROM THE PIE CHART.
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 71.8%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.3%
AEROSPACE & DEFENSE - 0.8%
Boeing Co. 668,400 $ 36,386
Gulfstream Aerospace Corp. (a) 51,400 1,491
37,877
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. 303,600 17,950
SHIP BUILDING & REPAIR - 0.1%
Avondale Industries, Inc. (a) 25,200 665
Newport News Shipbuilding, Inc. 72,800 1,715
2,380
TOTAL AEROSPACE & DEFENSE 58,207
BASIC INDUSTRIES - 3.3%
CHEMICALS & PLASTICS - 2.1%
Air Products & Chemicals, Inc. 87,100 7,223
du Pont (E.I.) de Nemours & Co. 845,900 52,076
Raychem Corp. 282,900 23,905
Union Carbide Corp. 274,400 13,360
96,564
PACKAGING & CONTAINERS - 0.6%
Corning, Inc. 16,300 770
Owens-Illinois, Inc. (a) 719,200 24,408
25,178
PAPER & FOREST PRODUCTS - 0.6%
Boise Cascade Corp. 172,100 7,239
Champion International Corp. 242,700 14,790
International Paper Co. 59,300 3,265
Ivex Packaging Corp. 4,700 75
Willamette Industries, Inc. 68,700 2,628
27,997
TOTAL BASIC INDUSTRIES 149,739
CONSTRUCTION & REAL ESTATE - 1.0%
CONSTRUCTION - 0.7%
Centex Corp. 93,100 5,435
D.R. Horton, Inc. 232,653 3,664
Fleetwood Enterprises, Inc. 432,700 14,522
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
Kaufman & Broad Home Corp. 339,000 $ 7,352
U.S. Home Corp. (a) 25,900 1,000
31,973
ENGINEERING - 0.3%
Fluor Corp. 217,900 11,686
TOTAL CONSTRUCTION & REAL ESTATE 43,659
DURABLES - 4.3%
AUTOS, TIRES, & ACCESSORIES - 3.5%
Circuit City Stores, Inc. - CarMax Group 27,000 447
Cummins Engine Co., Inc. 149,000 11,631
Discount Auto Parts, Inc. (a) 141,900 3,406
Federal-Mogul Corp. 74,000 2,747
General Motors Corp. 1,692,145 113,268
Gentex Corp. (a) 43,600 1,081
Goodyear Tire & Rubber Co. 73,400 5,046
Honda Motor Co. Ltd. 93,000 3,254
Magna International, Inc. Class A 168,100 11,667
Superior Industries International, Inc. 260,400 7,210
159,757
CONSUMER ELECTRONICS - 0.2%
Philips Electronics NV (Bearer) 18,200 1,546
Philips Electronics NV 5,500 462
Newell Co. 140,900 5,636
7,644
TEXTILES & APPAREL - 0.6%
Arena Brands Holdings Corp. Class B (a) 5,556 224
Big Dog Holdings, Inc. 1,800 25
Burlington Industries, Inc. (a) 358,900 5,025
Liz Claiborne, Inc. 102,700 5,642
NIKE, Inc. Class B 286,900 15,206
Reebok International Ltd. 24,300 1,183
27,305
TOTAL DURABLES 194,706
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 5.4%
OIL & GAS - 5.2%
Amerada Hess Corp. 139,800 $ 8,624
Atlantic Richfield Co. 168,500 14,396
British Petroleum PLC:
ADR 447,979 40,682
Ord. 515 8
Burlington Resources, Inc. 355,800 18,257
Elf Aquitaine SA sponsored ADR 72,219 4,816
Enron Oil & Gas Co. 38,600 859
Kerr-McGee Corp. 83,600 5,753
Louisiana Land & Exploration Co. 262,100 20,526
Mobil Corp. 41,200 3,049
Occidental Petroleum Corp. 638,400 16,559
Royal Dutch Petroleum Co. Ord. 105,600 5,934
Royal Dutch Petroleum Co. 987,100 54,784
Santa Fe Energy Resources, Inc. 197,800 2,473
Tosco Corp. 672,500 23,411
Total SA:
Class B 35,955 4,131
sponsored ADR 105,051 6,020
Union Pacific Resources Group, Inc. 15,800 414
Valero Energy Corp. 61,900 2,031
232,727
ENERGY SERVICES - 0.2%
McDermott International, Inc. 328,300 11,983
TOTAL Energy 244,710
FINANCE - 15.9%
BANKS - 0.9%
Credit Suisse Group (Reg.) 126,700 17,194
NationsBank Corp. 153,100 9,473
Providian Financial Corp. 311,100 12,347
39,014
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CLOSED END INVESTMENT COMPANY - 0.1%
First NIS Regional Fund (a) 391,800 $ 7,444
CREDIT & OTHER FINANCE - 1.3%
Fleet Financial Group, Inc. 793,417 52,018
Green Tree Financial Corp. 127,400 5,988
58,006
FEDERAL SPONSORED CREDIT - 8.1%
Federal Home Loan Mortgage Corporation 2,836,600 99,990
Federal National Mortgage Association 5,608,200 263,586
363,576
INSURANCE - 5.0%
AFLAC, Inc. 109,000 5,913
Aegon NV (Reg.) 107,045 8,530
Allmerica Financial Corp. 157,700 6,929
Allstate Corp. 815,609 65,555
American International Group, Inc. 464,425 47,923
CIGNA Corp. 69,600 12,963
Equitable of Iowa Companies 17,600 1,179
General Re Corp. 70,400 13,974
Loews Corp. 113,000 12,762
MGIC Investment Corp. 369,800 21,194
Nationwide Financial Services, Inc. Class A 11,100 309
PMI Group, Inc. 167,500 9,600
Provident Companies, Inc. 10,200 713
Reliastar Financial Corp. 97,798 3,894
Torchmark Corp. 332,600 13,055
Travelers Property Casualty Corp. Class A 40,300 1,632
UNUM Corp. 29,500 1,346
227,471
SAVINGS & LOANS - 0.3%
Golden West Financial Corp. 146,220 13,123
SECURITIES INDUSTRY - 0.2%
United Asset Management Corp. 261,500 7,502
TOTAL FINANCE 716,136
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 5.6%
DRUGS & PHARMACEUTICALS - 2.1%
American Home Products Corp. 177,800 $ 12,979
Amgen, Inc. 201,100 9,640
Astra AB Class A Free shares 1,141,400 21,113
Merck & Co., Inc. 60,300 6,026
Novartis AG (Reg.) 13,875 21,368
Schering-Plough Corp. 480,400 24,742
95,868
MEDICAL EQUIPMENT & SUPPLIES - 0.6%
Allegiance Corp. 16,220 503
Bard (C.R.), Inc. 115,700 3,927
Baxter International, Inc. 57,100 2,983
Biomet, Inc. 274,800 6,595
Johnson & Johnson 31,500 1,815
St. Jude Medical, Inc. (a) 317,900 11,146
26,969
MEDICAL FACILITIES MANAGEMENT - 2.9%
Columbia/HCA Healthcare Corp. 2,928,925 84,207
Humana, Inc. (a) 686,000 16,335
Tenet Healthcare Corp. (a) 458,800 13,363
United HealthCare Corp. 280,200 14,010
127,915
TOTAL HEALTH 250,752
HOLDING COMPANIES - 0.2%
U.S. Industries, Inc. 266,100 7,717
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 1.3%
Alcatel Alsthom Compagnie Generale d'Electricite
SA sponsored ADR 18,600 494
Alcatel Alsthom Compagnie Generale d'Electricite SA 152,100 20,311
Emerson Electric Co. 69,200 3,988
General Electric Co. 313,700 21,351
Grainger (W.W.), Inc. 24,600 2,189
Scientific-Atlanta, Inc. 158,100 3,577
Westinghouse Electric Corp. 252,500 6,833
58,743
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
Caterpillar, Inc. 360,000 $ 19,418
Ultratech Stepper, Inc. (a) 181,700 6,178
25,596
POLLUTION CONTROL - 0.1%
Browning-Ferris Industries, Inc. 97,700 3,719
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 88,058
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.4%
Cox Communications, Inc. Class A (a) 47,500 1,309
HSN, Inc. 30,635 1,245
Time Warner, Inc. 146,800 7,956
TCI Group Class A 129,911 2,664
Tele-Communications, Inc. (TCI) (Ventures Group) Series A 167,589
3,457
16,631
ENTERTAINMENT - 0.2%
Cedar Fair LP (depositary unit) 11,900 568
King World Productions, Inc. 31,900 1,380
MGM Grand, Inc. 4,900 213
Royal Caribbean Cruises Ltd. 52,600 2,301
Viacom, Inc.:
Class A 79,100 2,487
Class B (non-vtg.) (a) 103,000 3,257
10,206
LEISURE DURABLES & TOYS - 0.4%
Nintendo Co. Ltd. Ord. 198,300 18,621
LODGING & GAMING - 0.9%
Bally Gaming International, Inc. warrants 7/29/98 (a) 37,500 35
Circus Circus Enterprises, Inc. (a) 373,200 9,400
Fitzgeralds South, Inc. warrants 3/15/99 (a)(e) 410 -
Harrah's Entertainment, Inc. (a) 92,500 2,075
HFS, Inc. (a) 153,800 11,448
Mirage Resorts, Inc. (a) 383,700 11,559
Rio Hotel & Casino, Inc. (a) 23,900 500
Sun International Hotels Ltd. Ord. (a) 224,900 7,759
42,776
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.1%
Cognizant Corp. 103,500 $ 4,218
RESTAURANTS - 0.6%
Brinker International, Inc. (a) 115,300 2,054
Lone Star Steakhouse Saloon (a) 97,500 2,035
McDonald's Corp. 322,400 15,354
Papa John's International, Inc. (a) 29,100 995
Wendy's International, Inc. 275,200 5,848
26,286
TOTAL MEDIA & LEISURE 118,738
NONDURABLES - 5.8%
BEVERAGES - 0.0%
PepsiCo, Inc. 39,500 1,602
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 42,400 1,357
TOBACCO - 5.8%
Philip Morris Companies, Inc. 5,348,500 222,297
RJR Nabisco Holdings Corp. 1,081,484 37,176
259,473
TOTAL NONDURABLES 262,432
PRECIOUS METALS - 0.1%
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 36,200 898
Newmont Mining Corp. 96,331 4,329
5,227
RETAIL & WHOLESALE - 6.5%
APPAREL STORES - 0.3%
Gap, Inc. 94,200 4,716
Lamonts Apparel, Inc. warrants 6/10/99 (a) 47,666 -
TJX Companies, Inc. 319,600 9,768
14,484
DRUG STORES - 0.0%
CVS Corp. 44,400 2,525
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 2.1%
Federated Department Stores, Inc. (a) 372,700 $ 16,073
Proffitts, Inc. (a) 58,200 3,448
Wal-Mart Stores, Inc. 2,009,400 73,594
93,115
GROCERY STORES - 0.3%
Safeway, Inc 238,300 12,958
RETAIL & WHOLESALE, MISCELLANEOUS - 3.8%
Comcast Corp. Class A 8,200 210
Circuit City Stores, Inc. - Circuit City Group 506,500 20,418
Corporate Express, Inc. (a) 172,600 3,646
Home Depot, Inc. 1,280,600 66,751
Lowe's Companies, Inc. 953,300 37,060
Officemax, Inc. (a) 497,375 7,554
Office Depot, Inc. (a) 156,550 3,160
PEAPOD, Inc. 9,600 120
Rex Stores Corp. (a) 59,200 666
Staples, Inc. (a) 207,800 5,740
Toys "R" Us, Inc. (a) 416,400 14,782
U.S. Office Products Co. (a) 155,200 5,472
Viking Office Products, Inc. (a) 207,700 4,517
170,096
TOTAL RETAIL & WHOLESALE 293,178
SERVICES - 0.2%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 33,500 1,719
LEASING & RENTAL - 0.0%
Avis Rent A Car, Inc. 11,100 265
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 30,500 1,088
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
SERVICES - 0.1%
Boron LePore & Associates, Inc. 2,800 $ 65
Orion Network Systems, Inc. warrants 1/15/07 (a) 7,410 79
Reuters Holdings PLC ADR Class B 46,900 3,342
3,486
TOTAL SERVICES 6,558
TECHNOLOGY - 11.0%
COMMUNICATIONS EQUIPMENT - 0.3%
Andrew Corp. (a) 74,100 1,940
Cisco Systems, Inc. (a) 95,100 6,948
Globalstar Telecommunications Ltd. warrants 2/15/04 (a) 1,900 219
Nokia Corp. AB sponsored ADR 32,900 3,086
12,193
COMPUTER SERVICES & SOFTWARE - 2.3%
Advantage Learning Systems, Inc. 1,800 45
Automatic Data Processing, Inc. 228,300 11,415
Ceridian Corp. (a) 291,200 10,774
CompUSA, Inc. (a) 115,500 4,043
CUC International, Inc. (a) 257,300 7,976
Electronic Data Systems Corp. 505,100 17,931
E Trade Group, Inc. 10,300 484
First Data Corp. 297,200 11,164
J.D. Edwards & Co. 3,300 111
Microsoft Corp. (a) 120,400 15,930
Netscape Communications Corp. 17,800 641
Network Solutions, Inc. Class A 1,000 21
Oracle Corp. (a) 277,950 10,128
Paychex, Inc. 93,400 3,257
Policy Management Systems Corp. (a) 141,500 8,800
102,720
COMPUTERS & OFFICE EQUIPMENT - 4.2%
Bay Networks, Inc. (a) 103,800 4,009
Compaq Computer Corp. (a) 784,550 58,645
Hewlett-Packard Co. 156,500 10,887
Ingram Micro, Inc. Class A (a) 31,500 853
International Business Machines Corp. 728,600 77,186
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Quantum Corp. 39,800 $ 1,525
SCI Systems, Inc. (a) 480,900 23,835
Tech Data Corp. (a) 186,200 8,565
Western Digital Corp. 64,800 2,596
188,101
ELECTRONIC INSTRUMENTS - 0.6%
Applied Materials, Inc. (a) 23,300 2,219
Cognex Corp. (a) 78,700 2,587
Lam Research Corp. (a) 210,400 9,784
Novellus Systems, Inc. (a) 37,400 4,712
Thermo Electron Corp. (a) 193,300 7,732
Varian Associates, Inc. 40,900 2,540
29,574
ELECTRONICS - 3.6%
AMP, Inc. 482,400 25,839
Intel Corp. 551,000 50,864
Methode Electronics, Inc. Class A 172,400 4,439
Micron Technology, Inc. (a) 639,500 22,183
Molex, Inc. 96,975 3,952
Motorola, Inc. 44,700 3,213
Power-One, Inc. 1,600 22
Solectron Corp. (a) 1,143,600 50,890
Thomas & Betts Corp. 17,500 956
Uniphase Corp. 1,600 127
162,485
TOTAL TECHNOLOGY 495,073
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.1%
Northwest Airlines Corp. Class A (a) 40,600 1,685
RAILROADS - 0.4%
Bombardier, Inc. Class B 139,300 2,824
Burlington Northern Santa Fe Corp. 44,200 4,271
CSX Corp. 185,800 10,869
17,964
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - CONTINUED
SHIPPING - 0.1%
Stolt-Nielsen SA Class B sponsored ADR 130,000 $ 3,770
Stolt-Nielsen SA 35,100 935
4,705
TRUCKING & FREIGHT - 0.1%
Roadway Express, Inc. 29,500 807
Yellow Corp. (a) 125,200 4,077
4,884
TOTAL TRANSPORTATION 29,238
UTILITIES - 5.9%
CELLULAR - 2.2%
AirTouch Communications, Inc. (a) 918,000 32,532
McCaw International Ltd. warrants 4/15/07 (a)(e) 5,640 14
SK Telecom Ltd. (a) 6 4
Vodafone Group PLC sponsored ADR 932,900 50,143
Vodafone Group PLC 3,312,763 17,860
100,553
ELECTRIC UTILITY - 0.3%
American Electric Power Co., Inc. 89,200 4,059
Entergy Corp. 230,700 6,013
Niagara Mohawk Power Corp. (a) 105,600 1,010
PG&E Corp. 24,248 561
11,643
GAS - 0.1%
Enron Corp. 53,600 2,064
TELEPHONE SERVICES - 3.3%
AT&T Corp. 171,500 7,600
Ameritech Corp. 189,200 12,582
Bell Atlantic Corp. 258,898 20,825
BellSouth Corp. 345,200 15,966
Deutsche Telekom AG 96,300 1,856
MCI Communications Corp. 1,232,900 36,216
NEXTLINK Communications, Inc.:
Class A 4,800 115
warrants 2/1/09 (a) 58,550 -
SBC Communications, Inc. 225,084 13,815
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Sprint Corp. 726,300 $ 36,315
US WEST Media Group 41,100 917
WorldCom, Inc. (a) 97,000 3,431
149,638
TOTAL UTILITIES 263,898
TOTAL COMMON STOCKS
(Cost $2,456,531) 3,228,026
NONCONVERTIBLE PREFERRED STOCKS - 1.8%
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Crown America Realty Trust Series A 11% pay-in kind 33,030 1,750
Walden Residential Properties, Inc. 9.20% 83,400 2,127
3,877
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.1%
American Annuity Group Capital Trust II 8 3/4% 1,800 1,944
SIG Capital Trust I 9 1/2% (a)(e) 685 701
2,645
SAVINGS & LOANS - 0.1%
California Federal Preferred Capital Corp. 9 1/8% 243,456 6,360
TOTAL FINANCE 9,005
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
Fresenius Medical Care Capital Trust 9% 944 986
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Echostar Communications Corp. 12 1/8% pay-in-kind 1,534 1,611
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 1.2%
BROADCASTING - 1.1%
Adelphia Communications Corp. 13% (e) 19,875 $ 2,206
American Radio Systems Corp. 11 3/8% pay-in-kind 37,662 4,406
Cablevision System Corp. 11 1/8% depositary shares
pay-in-kind 106,872 11,702
CapStar Broadcasting Partners, Inc. 12% pay-in-kind 856 95
Chancellor Media Corp.:
12% pay-in-kind (e) 25,646 2,936
$12.25 Series A 15,694 2,134
Granite Broadcasting Corp. 12 3/4% pay-in-kind 2,221 2,343
SFX Broadcasting, Inc. 12 5/8% 29,795 3,443
Sinclair Capital 11 5/8% 34,380 3,730
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 12,443 14,185
47,180
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 2,390 260
Series D, $10 41,288 4,387
4,647
TOTAL MEDIA & LEISURE 51,827
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B, 14 7/8% 4,600 465
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp. $3.52 pay-in-kind 18,200 380
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia Communications, Inc. 13 1/2% pay-in-kind 1,904 2,285
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications Corp. 13% pay-in-kind (e) 2,696 3,113
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.1%
IXC Communications, Inc. 12 1/2% pay-in-kind (e) 1,950 $ 2,262
NEXTLINK Communications, Inc. 14% pay-in-kind 62,743 4,016
6,278
TOTAL UTILITIES 9,391
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $73,481) 79,827
NONCONVERTIBLE BONDS - 12.8%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (C) AMOUNT (000S)
AEROSPACE & DEFENSE - 0.3%
AEROSPACE & DEFENSE - 0.1%
Argo-Tech Corp. 8 5/8%, 10/1/07 (e) B3 $ 170 170
Be Aerospace, Inc. 9 7/8%, 2/1/06 B2 770 828
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 760 857
1,855
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 6.45%, 8/15/04 Baa1 2,030 2,028
Tracor, Inc. 8 1/2%, 3/1/07 B1 1,420 1,450
3,478
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 5,870 6,178
TOTAL AEROSPACE & DEFENSE 11,511
BASIC INDUSTRIES - 0.5%
CHEMICALS & PLASTICS - 0.2%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 2,510 2,598
General Chemical Corp. 9 1/4%, 8/15/03 B2 1,600 1,648
Huntsman Corp. 9 1/2%, 7/1/07 (e) B2 2,760 2,891
Sterling Chemicals, Inc. 11 1/4%, 4/1/07 B3 2,450 2,670
9,807
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.0%
Keystone Consolidated Industries, Inc.
9 5/8%, 8/1/07 (e) B2 $ 830 $ 852
PACKAGING & CONTAINERS - 0.1%
BWAY Corp. 10 1/4%, 4/15/07 (e) B2 1,930 2,089
Silgan Holdings, Inc. 9%, 6/1/09 B1 1,220 1,244
U.S. Can Corp. 10 1/8%, 10/15/06 B1 790 838
4,171
PAPER & FOREST PRODUCTS - 0.2%
Florida Coast Paper Co. LLC/Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 Caa 1,250 1,350
Omega Cabinets Ltd. 10 1/2%, 6/15/07 (e) B3 1,730 1,786
Repap New Brunswick, Inc. yankee:
9 7/8%, 7/15/00 B2 240 242
10 5/8%, 4/15/05 Caa 1,030 1,015
Riverwood International Corp.
10 1/4%, 4/1/06 B3 1,220 1,251
Stone Container Corp. 10 3/4%, 10/1/02 B1 3,430 3,670
9,314
TOTAL BASIC INDUSTRIES 24,144
CONSTRUCTION & REAL ESTATE - 0.1%
BUILDING MATERIALS - 0.1%
Nortek, Inc.:
9 1/4%, 3/15/07 Ba3 960 974
9 1/8%, 9/1/07 (e) B1 2,160 2,182
3,156
CONSTRUCTION - 0.0%
U.S. Home Corp. 8.88%, 8/15/07 B1 2,220 2,264
TOTAL CONSTRUCTION & REAL ESTATE 5,420
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Aftermarket Technology Corp. 12%, 8/1/04 B3 1,522 1,695
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 1,880 2,016
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES - CONTINUED
Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa3 $ 1,010 $ 1,037
United Auto Group, Inc. 11%, 7/15/07 (e) B3 1,750 1,825
6,573
TEXTILES & APPAREL - 0.3%
Dyersburg Corp. 9 3/4%, 9/1/07 (e) B2 1,030 1,056
GFSI, Inc. 9 5/8%, 3/1/07 B3 1,890 1,937
Levi Strauss & Co. 7%, 11/1/06 (e) Baa2 3,150 3,200
Nine West Group, Inc. 9%, 8/15/07 (e) Ba3 6,400 6,448
12,641
TOTAL DURABLES 19,214
ENERGY - 0.5%
COAL - 0.1%
Anker Coal Group, Inc. 9 3/4%, 10/1/07 (e) B3 4,690 4,760
OIL & GAS - 0.4%
Belden & Blake Corp. 9 7/8%, 6/15/07 (e) B3 750 756
Chesapeake Energy Corp.:
7 7/8%, 3/15/04 Ba3 450 439
8 1/2%, 3/15/12 Ba2 120 117
Energy Corp. 9 1/2%, 5/15/07 B2 3,690 3,708
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 2,420 2,583
Forcenergy, Inc. 8 1/2%, 2/15/07 B2 1,790 1,781
Gulf Canada Resources Ltd. yankee
9 5/8%, 7/1/05 Ba2 1,350 1,472
Lomak Petroleum, Inc. 8 3/4%, 1/15/07 B1 720 722
Occidental Petroleum Corp.:
10.94%, 5/17/00 Baa3 1,200 1,330
6.39%, 11/9/00 Baa3 500 499
8 1/2%, 11/9/01 Baa3 530 568
Ocean Energy, Inc. 8 7/8%, 7/15/07 (e) B3 2,460 2,515
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 900 959
Petsec Energy, Inc. 9 1/2%, 6/15/07 (e) B3 620 639
United Refining Co. 10 3/4%, 6/15/07 (e) B2 990 1,011
19,099
TOTAL ENERGY 23,859
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
FINANCE - 3.1%
ASSET-BACKED SECURITIES - 0.7%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 $ 7,040 $ 7,990
Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 370 373
CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 1,183 1,187
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 1,640 1,642
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 750 754
6.80%, 6/15/27 Aaa 750 760
6.45%, 9/15/28 Aaa 1,230 1,235
6.68%, 1/15/29 Aaa 2,280 2,295
MBNA Master Credit Card Trust II
6.50%, 1/15/07 Aaa 3,230 3,254
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710 1,727
6.70%, 3/15/02 Aaa 810 820
Premier Auto Trust:
8.05%, 4/4/00 Aaa 2,966 3,004
6%, 5/6/00 Aaa 970 971
6.34%, 1/6/03 Aaa 2,470 2,481
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 1,520 1,527
30,020
BANKS - 0.7%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 3,000 3,029
Banc One Corp.:
6.70%, 3/24/00 Aa3 1,700 1,721
6 1/4%, 9/1/00 Aa3 1,630 1,632
BanPonce Financial Corp. 7.72%, 4/13/00 A3 1,000 1,027
BanPonce Corp. 6.665%, 3/5/01 A3 1,650 1,665
Bankers Trust Co. 5.66%, 7/21/98 (h) - 5,000 4,998
Capital One Bank:
6.74%, 5/31/99 Baa3 1,640 1,653
7.20%, 7/19/99 Baa3 4,000 4,056
6.42%, 11/12/99 Baa3 3,600 3,601
Den Danske Bank AS 7.40%, 6/15/10 (e)(h) A1 1,570 1,620
Midland Bank PLC yankee 7 5/8%, 6/15/06 Aa3 1,220 1,287
NB Capital Trust IV 8 1/4%, 4/15/27 A1 1,500 1,578
Summit Bancorp. 8 5/8%, 12/10/02 BBB 650 706
Union Planters National Bank
6.81%, 8/20/01 A3 1,500 1,521
30,094
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 1.2%
AT&T Capital Corp.:
6.39%, 1/22/99 Baa3 $ 630 $ 634
6.26%, 2/18/99 Baa3 4,300 4,315
6.65%, 4/30/99 Baa3 3,250 3,276
6.16%, 12/3/99 Baa3 1,250 1,246
Advanced Accessory Systems LLC/AAC
Capital Corp. 9 3/4%, 10/1/07 (e) B3 2,610 2,610
Ahmanson Capital Trust I 8.36%, 12/1/26 (e) Baa3 1,800 1,881
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 1,200 1,256
BanPonce Trust I 8.327%, 2/1/27 (e) Baa1 2,850 2,946
CIT Group Holdings, Inc. 6 1/4%, 10/4/99 Aa3 2,500 2,505
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 3,390 3,405
Equimar Shipholdings Ltd. 9 7/8%, 7/1/07 (e) B3 2,000 1,920
Finova Capital Corp. 6.12%, 5/28/02 Baa1 1,000 986
First Security Capital I 8.41%, 12/15/26 A3 850 901
Ford Motor Credit Co.:
5.73%, 2/23/00 A1 1,500 1,486
6.65%, 5/22/00 A1 4,000 4,044 6.57%, 3/19/01 A1 2,500 2,521
General Electric Capital Corp. 6.94%,
4/13/09 (g) Aaa 3,000 3,038
General Motors Acceptance Corp.
6 3/4%, 7/10/02 A3 2,730 2,753
GreenPoint Capital Trust I 9.10%, 6/1/27 (e) Ba1 1,580 1,666
Heller Financial, Inc. 7 7/8%, 11/1/99 A2 2,230 2,299
Household Finance Corp. 5.6887%, 6/4/98 (h) - 5,000 5,000
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 1,550 1,557
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 1,200 1,238
U.S. West Capital Funding, Inc. 6.95%, 1/15/37 Baa1 1,300 1,326
54,809
INSURANCE - 0.1%
Reliance Group 9 3/4%, 11/15/03 B1 5,150 5,420
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 2,000 2,000
7,420
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 0.3%
Chevy Chase Savings Bank FSB:
9 1/4%, 12/1/05 B1 $ 1,170 $ 1,182
9 1/4%, 12/1/08 B1 2,160 2,192
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 4,330 4,882
Great West Financial Trust II 8.206%, 2/1/27 A3 1,290 1,329
Great Western Financial Corp. 8.60%, 2/1/02 A3 1,000 1,077
Home Savings of America FSB 6 1/2%, 8/15/04 A3 970 962
Long Island Savings Bank FSB 7%, 6/13/02 Baa3 900 905
12,529
SECURITIES INDUSTRY - 0.1%
Merrill Lynch & Co., Inc. 5.6063%, 7/28/98 (h) - 5,000 5,000
TOTAL FINANCE 139,872
HEALTH - 0.4%
DRUGS & PHARMACEUTICALS - 0.0%
ICN Pharmaceuticals, Inc. 9 1/4%, 8/15/05 (e) B1 1,340 1,397
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (e) B3 3,270 3,401
McKesson Corp. 6.60%, 3/1/00 A3 1,720 1,735
5,136
MEDICAL FACILITIES MANAGEMENT - 0.3%
Integrated Health Services, Inc. (e):
9 1/2%, 9/15/07 B2 3,490 3,582
9 1/4%, 1/15/08 B2 1,339 1,356
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 5,760 5,947
Vencor, Inc. 8 5/8%, 7/15/07 (e) B1 1,250 1,267
12,152
TOTAL HEALTH 18,685
HOLDING COMPANIES - 0.1%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa1 2,340 2,428
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Bucyrus International, Inc. 9 3/4%, 9/15/07 (e) B1 $ 2,910 $ 2,939
Continental Global Group, Inc. 11%, 4/1/07 B2 950 1,017
Exide Corp. 10%, 4/15/05 B1 890 952
Goss Graphic System, Inc. 12%, 10/15/06 B2 2,510 2,811
7,719
POLLUTION CONTROL - 0.1%
Allied Waste North America 10 1/4%, 12/1/06 B3 3,060 3,341
Envirosource, Inc. 9 3/8%, 6/15/03 (e) B3 1,150 1,159
WMX Technologies, Inc. 7.10%, 8/1/26 A3 1,570 1,636
6,136
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 13,855
MEDIA & LEISURE - 3.2%
BROADCASTING - 1.9%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (d)(e) B3 620 454
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 7,588 7,362
9 7/8%, 3/1/07 B3 930 958
Comcast UK Cable Partners Ltd.
0%, 11/15/07 (d) B2 210 161
Cablevision System Corp.:
9 1/4%, 11/1/05 B1 1,710 1,787
9 7/8%, 5/15/06 B1 1,790 1,929
9 7/8%, 2/15/13 B1 1,130 1,220
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 4,400 4,510
0%, 2/1/09 (d) B3 1,660 1,162
Century Communications Corp.
8 3/4%, 10/1/07 Ba3 3,750 3,745
Diamond Cable Communications PLC yankee
0%, 9/30/04 (d) B3 2,240 1,960
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) Caa 1,380 1,154
Fox/Liberty Networks LLC/FLN Finance, Inc.
0%, 8/15/07 (d)(e) B1 2,310 1,470
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (d)(e) Caa $ 3,741 $ 2,549
Frontiervision Operating Partners LP/
Frontiervision Capital Corp.
11%, 10/15/06 B3 4,090 4,448
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 1,090 1,125
9 3/8%, 12/1/05 B3 2,790 2,769
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 1,180 1,304
International Cabletel, Inc.
0%, 2/1/06 (d) B3 3,000 2,243
Lenfest Communications, Inc.
8 3/8%, 11/1/05 Ba3 2,420 2,435
NTL, Inc. 10%, 2/15/07 B3 3,440 3,586
Olympus Communications LP/Olympus
Capital Corp. 10 5/8%, 11/15/06 B1 1,410 1,528
Panamsat Corp. 12 3/4%, 4/15/05 pay-in-kind - 268 316
Rogers Cablesystems Ltd. yankee 11%, 12/1/15 B2 3,400 3,893
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 1,225 1,341
TCI Communications, Inc. 6.46%, 3/6/00 Ba1 2,930 2,909
TCI Communications Financing III
9.65%, 3/31/27 Ba3 5,810 6,456
Tele-Communications, Inc.:
9 1/4%, 4/15/02 Ba1 1,000 1,090
8.25%, 1/15/03 Ba1 3,540 3,739
Telemundo Group, Inc. 7%, 2/15/06 (g) B1 3,090 3,038
Telewest PLC 0%, 10/1/07 (d) B1 6,350 4,762
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 3,180 3,283
7 3/4%, 6/15/05 Ba1 1,100 1,142
sub. deb. 9.15%, 2/1/23 Ba1 430 498
82,326
ENTERTAINMENT - 0.4%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 5,620 5,718
Ameristar Casinos, Inc. 10 1/2%, 8/1/04 (e) B3 2,360 2,378
Bally Total Fitness Holding Corp.
9 7/8%, 10/15/07 (e) B3 3,390 3,390
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - CONTINUED
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 $ 470 $ 482
Hollywood Theaters, Inc. 10 5/8%, 8/1/07 (e) B3 310 329
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (e) B1 120 120
Viacom, Inc. 8%, 7/7/06 B1 5,520 5,486
17,903
LODGING & GAMING - 0.5%
American Skiing Co. 12%, 7/15/06 B3 3,470 3,860
Courtyard by Marriott II LP/Courtyard II Finance
Co., Series B, 10 3/4%, 2/1/08 B- 1,180 1,280
HMC Acquisition Properties, Inc.
9%, 12/15/07 Ba3 4,580 4,706
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 4,700 4,947
8 7/8%, 7/15/07 (e) Ba3 2,390 2,450
Horseshoe Gaming LLC 9 3/8%, 6/15/07 (e) B3 620 641
Prime Hospitality Corp. 9 3/4%, 4/1/07 - 2,280 2,408
Speedway Motorsports, Inc. 8 1/2%, 8/15/07 (e) Ba3 80 80
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 2,220 2,292
Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 750 852
23,516
PUBLISHING - 0.2%
Garden State Newspapers, Inc.
8 3/4%, 10/1/09 (e) B1 2,360 2,378
News America Holdings, Inc. 7.70%, 10/30/25 Baa3 2,720 2,669
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 2,530 2,619
9 1/2%, 5/15/07 B3 490 506
8,172
RESTAURANTS - 0.2%
Foodmaker, Inc. 9 3/4%, 6/1/02 B3 2,710 2,791
Host Marriott Travel Plazas, Inc.
9 1/2%, 5/15/05 Ba3 4,810 5,063
SC International Services, Inc. 9 1/4%, 9/1/07 (e) B2 1,950 1,979
9,833
TOTAL MEDIA & LEISURE 141,750
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
NONDURABLES - 0.4%
FOODS - 0.1%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 $ 1,700 $ 1,776
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 2,250 2,396
4,172
HOUSEHOLD PRODUCTS - 0.2%
Playtex Products, Inc. 8 7/8%, 7/15/04 (e) B1 1,940 1,959
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 4,550 4,829
6,788
TOBACCO - 0.1%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 1,700 1,738
7%, 7/15/05 A2 1,610 1,610
6.95%, 6/1/06 A2 1,510 1,541
4,889
TOTAL NONDURABLES 15,849
RETAIL & WHOLESALE - 1.1%
APPAREL STORES - 0.1%
AnnTaylor, Inc. 8 3/4%, 6/15/00 B3 3,630 3,603
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (e)(l) - 1,584 63
Specialty Retailers, Inc. 8 1/2%, 7/15/05 Ba3 1,060 1,087
4,753
GENERAL MERCHANDISE STORES - 0.4%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa1 1,800 1,826
7 1/2%, 7/15/06 Baa1 2,000 2,087
Federated Department Stores, Inc.:
10%, 2/15/01 Baa2 2,600 2,878
8 1/8%, 10/15/02 Baa2 520 554
6.79%, 7/15/27 Baa2 1,100 1,110
K mart Corp.:
12 1/2%, 3/1/05 Ba3 3,550 4,331
7 3/4%, 10/1/12 Ba3 310 296
8 1/4%, 1/1/22 Ba3 2,480 2,387
Parisian, Inc. 9 7/8%, 7/15/03 B1 2,580 2,728
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,600 1,624
19,821
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 0.6%
Ameriserve Food Distribution, Inc.
10 1/8%, 7/15/07 (e) B3 $ 1,840 $ 1,914
Di Giorgio Corp. 10%, 6/15/07 (e) B3 3,010 2,987
Fleming Companies, Inc. 10 5/8%, 7/31/07 (e) B3 2,440 2,568
Kroger Co. 8.15%, 7/15/06 Baa3 1,000 1,080
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 Caa 3,130 3,232
9 5/8%, 5/1/03 B3 7,570 7,485
0%, 11/1/03 (d) Caa 570 404
Pueblo Xtra International, Inc.
9 1/2%, 8/1/03 B3 3,550 3,521
Randalls Food Markets, Inc.
9 3/8%, 7/1/07 (e) B2 2,180 2,202
Windy Hill Pet Food, Inc. 9 3/4%, 5/15/07 (e) B3 1,570 1,633
27,026
TOTAL RETAIL & WHOLESALE 51,600
SERVICES - 0.4%
ADVERTISING - 0.0%
Lamar Advertising Co. 8 5/8%, 9/15/07 (e) B1 1,250 1,245
LEASING & RENTAL - 0.1%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 (e) B2 1,190 1,219
PHH Corp. 5.646%, 6/11/98 (h) - 5,000 4,999
6,218
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,810 1,846
SERVICES - 0.2%
Borg-Warner Security Corp.
9 5/8%, 3/15/07 B3 1,150 1,190
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 B2 1,900 2,057
0%, 1/15/07 (d) B2 5,510 3,747
6,994
TOTAL SERVICES 16,303
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
TECHNOLOGY - 0.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Echostar Communications Corp. secured discount
0%, 6/1/04 (d) B2 $ 2,440 $ 2,199
COMPUTER SERVICES & SOFTWARE - 0.0%
Federal Data Corp. 10 1/8%, 8/1/05 (e) B3 2,110 2,152
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Comdisco, Inc.:
7.21%, 7/2/01 Baa1 1,750 1,799
6 3/8%, 11/30/01 Baa1 1,800 1,793
3,592
ELECTRONICS - 0.1%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 1,590 1,777
Communications Instruments, Inc.
10%, 9/15/04 (e) B3 160 164
Fairchild Semiconductor Corp.:
10 1/8%, 3/15/07 B2 1,610 1,719
11.74%, 3/15/08 pay-in-kind (f) - 2,300 2,288
5,948
TOTAL TECHNOLOGY 13,891
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa3 500 540
US Air, Inc.:
9 5/8%, 2/1/01 B3 1,960 2,038
10%, 7/1/03 B3 2,770 2,881
10 3/8%, 3/1/13 B1 3,610 4,007
9,466
RAILROADS - 0.0%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa2 1,500 1,582
TOTAL TRANSPORTATION 11,048
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
UTILITIES - 1.5%
CELLULAR - 0.5%
Clearnet Communications, Inc. yankee
0%, 12/15/05 (d) B3 $ 5,000 $ 3,875
Globalstar LP/Globalstar Capital C Corp.
11 3/8%, 2/15/04 B3 730 759
McCaw International Ltd. 0%, 4/15/07 (d) CCC 5,640 3,412
MGC Communications, Inc.
13%, 10/1/04 unit (e) Caa 900 929
Millicom International Cellular SA
0%, 6/1/06 (d) B3 2,860 2,213
Nextel Communications, Inc.
0%, 9/15/07 (d)(e) B3 7,247 4,466
Paging Network, Inc. 8.875%, 2/1/06 B2 880 862
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 3,350 3,375
Telesystem International Wireless, Inc.
0%, 6/30/07 (d)(e) Caa 390 245
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba1 280 284
7 1/2%, 3/1/06 Ba1 1,100 1,127
21,547
ELECTRIC UTILITY - 0.3%
AES Corp. 8 3/8%, 8/15/07 Ba1 1,630 1,634
CalEnergy, Inc. 9 1/2%, 9/15/06 Ba2 1,250 1,350
Calpine Corp. 8 3/4%, 7/15/07 (e) Ba3 4,100 4,182
Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa2 1,950 2,008
Hydro-Quebec yankee 7.40%, 3/28/25 A2 1,050 1,209
Israel Electric Corp. yankee
7 7/8%, 12/15/26 (e) A3 980 1,026
Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 2,230 2,275
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa1 1,600 1,651
15,335
TELEPHONE SERVICES - 0.7%
GCI, Inc. 9 3/4%, 8/1/07 B2 190 197
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) - 2,170 1,503
12 1/4%, 9/1/04 (e) - 3,250 3,543
ICG Holdings, Inc. 0%, 9/15/05 (d) - 2,410 1,928
McLeodUSA, Inc.:
0%, 3/1/07 (d) B3 4,230 2,982
9 1/4%, 7/15/07 (e) B3 3,500 3,693
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 $ 2,630 $ 2,715
Teleport Communications Group, Inc.
0%, 7/1/07 (d) B1 3,420 2,659
Winstar Equipment 12 1/2%, 3/15/04 B3 2,050 2,255
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,394 1,483
8 7/8%, 1/15/06 Ba1 1,180 1,271
7 3/4%, 4/1/07 Ba1 4,800 5,032
29,261
TOTAL UTILITIES 66,143
TOTAL NONCONVERTIBLE BONDS
(Cost $559,714) 575,572
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 1.6%
U.S. TREASURY OBLIGATIONS - 1.1%
7 3/4%, 12/31/99 Aaa 500 520
6 7/8%, 3/31/00 Aaa 600 614
6 5/8%, 6/30/01 Aaa 2,420 2,471
7 7/8%, 8/15/01 Aaa 3,810 4,053
7%, 7/15/06 Aaa 17,633 18,592
12 3/4%, 11/15/10 (callable) Aaa 7,400 10,427
7 1/4%, 2/15/23 Aaa 4,680 5,046
6 1/2%, 11/15/26 Aaa 6,530 6,570
48,293
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.5%
Federal Home Loan Bank:
7.66%, 7/20/04 Aaa 4,540 4,870
7.59%, 3/10/05 Aaa 2,450 2,631
Federal National Mortgage Association:
6.97%, 4/8/04 Aaa 2,060 2,134
7.49%, 3/2/05 Aaa 2,320 2,476
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank) Series 1994-A, 7.12%, 4/15/06 Aaa 3,016 3,110
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban
Development U.S. government guaranteed
participation certificates Series 1996-A:
6.83%, 8/1/03 Aaa $ 4,000 $ 4,099
7.66%, 8/1/15 Aaa 1,200 1,253
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) 6.69%, 1/15/09 (e) Aaa 2,110 2,136
22,709
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $69,259) 71,002
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 1.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.2%
5 1/2%, 2/1/03 to 5/1/03 Aaa 1,671 1,615
7%, 7/1/01 Aaa 439 444
7 1/2%, 2/1/27 to 6/1/27 Aaa 1,135 1,155
7 1/2%, 10/1/27 (k) Aaa 4,600 4,685
7,899
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.4%
5 1/2%, 4/1/03 to 6/1/03 Aaa 1,573 1,525
6%, 4/1/00 to 6/1/26 Aaa 26,637 25,859
6 1/2%, 9/1/25 to 5/1/26 Aaa 19,218 18,728
7%, 2/1/26 to 9/1/27 Aaa 9,326 9,293
7 1/2%, 10/1/27 (k) Aaa 7,000 7,120
62,525
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.2%
6%, 6/15/08 to 9/15/10 Aaa 1,647 1,622
6 1/2%, 9/15/08 to 5/15/09 Aaa 8,548 8,555
8%, 5/15/25 Aaa 632 654
10,831
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $79,171) 81,255
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing and Securitization
LLC Series 1997-2 Class 2-B,
7.289%, 12/29/25 (e)(h)(l) (Cost $957) Ba3 $ 1,800 $ 962
COMMERCIAL MORTGAGE SECURITIES - 0.7%
American Southwest Financial Securities
Series 1994-C2 Class B2,
11.682%, 12/25/01 (e)(h) - 1,670 1,687
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.739%, 8/1/24 (e)(h) - 1,900 1,424
Blackrock Capital Funding LLC Series 1996
Class C2, 7.6194%, 11/16/26 (e)(h) Aaa 398 402
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (e)(h) BBB 680 690
CS First Boston Mortgage Securities Corp. (e)(h):
Series 1994-CFB1 Class E, 7.672%, 1/25/28 Ba2 604 592
Series 1995-AEWI Class E, 9.808%, 11/25/97 - 1,250 1,277
DLJ Mortgage Acceptance Corp. Series
1993-MF12 Class B-2, 10.10%, 9/18/03 (e) - 1,650 1,658
Equitable Life Assurance Society of the
United States (The) (e):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,200 1,257
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 1,000 1,055
Franchise Mortgage Acceptance Company LLC
Loan Receivables Trust Series 1997-A
Class E, 8.103%, 4/15/19 (e)(h) - 500 481
Franchise Mortgage Acceptance Corp.
sequential pay, Series 1997-B Class E,
7.89%, 9/15/19 (e)(h) - 700 630
First Chicago/Lennar Trust I Series 1997-CHL1 (h):
Class D, 8.134%, 5/29/08 - 1,100 1,094
Class E, 8.134%, 2/28/11 - 1,800 1,487
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1
Class F, 7.86%, 11/15/06 (e) Ba3 750 722
GS Mortgage Securities Corp. II Series 1997-
GL Class A2-B, 6.86%, 7/13/30 Aaa 1,590 1,622
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 848 850
LTC Commercial Mortgage Pass Thru Certificates
Series 1996-1 Class E, 9.16%, 4/15/28 BB- 500 516
Merrill Lynch Mortgage Investments, Inc. Series
1994 Class M1-E, 8.103%, 6/25/22 (e)(h) Ba2 270 272
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
Morgan Stanley Capital I, Inc. sequential pay
Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa $ 1,720 $ 1,803
Morgan Stanley Capital One, Inc. Series 1996-
MBL1 Class E, 8.589%, 5/25/21 (e) - 1,775 1,659
NB Commercial Mortgage sequential pay,
Series FSI Class A, 7.187%, 10/20/23 (e) - 483 486
Oregon Commercial Mortgage, Inc. Series 1995
Class E, 9.869%, 6/25/26 (e)(h) BB 830 848
Penn Mutual Life Insurance Co. (The) Series
1996-PML (e):
Class K, 7.90%, 11/15/26 - 1,750 1,130
Class L, 7.90%, 11/15/26 - 1,300 595
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (f) - 1,325 1,166
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (e) BB 1,100 1,000
Series 1993-C1 Class E, 6.60%, 10/25/24 (e) B 1,250 438
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 Aaa 628 636
commercial Series 1996-CFL Class E,
7 3/4%, 2/25/28 BB+ 820 842
Series 1996-CFL Class G, 7 3/4%, 2/25/28 (e) - 2,000 1,753
Series 1996-C3 Class E, 8.458%,
6/25/30 (e)(h) - 1,000 962
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (e) Aaa 2,060 2,071
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $30,955) 33,105
COMPLEX MORTGAGE SECURITIES - 0.0%
INTEREST ONLY STRIPS - 0.0%
SML, Inc. commercial Series 1994-C1 Class S,
0.81%, 9/18/99 (j) (Cost $547) - 31,799 318
FOREIGN GOVERNMENT OBLIGATIONS (I) - 0.2%
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 620 643
Israeli State euro 6 3/8%, 12/19/01 A3 2,410 2,401
Manitoba Province yankee 6 3/8%, 10/15/99 A1 3,000 3,018
Quebec Province yankee 7.22%, 7/22/36 (g) A2 1,750 1,870
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $7,744) 7,932
SUPRANATIONAL OBLIGATIONS - 0.0%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (C) AMOUNT (000S) (000S)
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $1,590) Aaa $ 1,600 $ 1,616
BANK NOTES - 0.2%
Key Bank N.A. 5.6488%, 8/20/99 (h) 5,000 4,995
Morgan Guaranty Trust Co.
5.765%, 3/30/98 (h) 4,000 3,999
TOTAL BANK NOTES
(Cost $8,991) 8,994
CERTIFICATES OF DEPOSIT - 1.0%
ABN-Amro Bank NV yankee 5.65%, 12/23/97 3,000 2,998
Banque Nationale de paris yankee
5 3/4%, 7/31/98 2,300 2,296
Canadian Imperial Bank of Commerce:
5.91%, 8/28/98 5,000 4,998
yankee 6.20%, 8/1/00 1,950 1,951
Chase Manhattan Bank 5 3/4%, 2/9/98 2,300 2,300
Deutsche Bank AG yankee 6.20%, 4/10/98 4,000 4,005
Landesbank Hessen-Thuringen yankee:
5.78%, 1/27/98 3,000 2,999
5.67%, 2/11/98 1,000 999
PNC Bank 5.576%, 2/2/98 (h) 2,000 1,999
Royal Bank of Canada yankee 5.58%, 12/11/97 786 786
Rabobank Nederland, Coop Central yankee:
5.97%, 3/20/98 1,300 1,301
6.20%, 4/10/98 3,000 3,004
Sanwa Bank Ltd. yankee 5.65%, 10/27/97 3,000 3,000
SunTrust Bank 5.85%, 11/25/97 4,500 4,501
Westpac Banking Corp. yankee
5.885%, 8/27/98 1,000 999
Westdeutsche Landesbank yankee
5.83%, 8/3/98 4,000 3,995
TOTAL CERTIFICATES OF DEPOSIT
(Cost $42,120) 42,131
COMMERCIAL PAPER - 0.3%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Bear Stearns Cos., Inc. 5.56%, 1/12/98 $ 5,000 $ 4,919
Goldman Sachs Group LP 5.83%, 1/26/98 2,000 1,963
Norfolk Southern Corp. 5.70%, 10/20/97 1,000 997
Textron, Inc. 5.68%, 10/6/97 1,000 999
Triple A One Funding Corp. 5.56%, 10/10/97 2,708 2,704
Unifunding, Inc. yankee 5.67%, 11/12/97 3,000 2,981
TOTAL COMMERCIAL PAPER
(Cost $14,562) 14,563
MASTER NOTES - 0.2%
Corestates Bank NA 5.616%, 1/30/98 (h) 2,000 2,000
First Bank National Association
5.566%, 5/15/98 (h) 2,000 1,999
Goldman Sachs Group LP (The)
5.7188%, 5/4/98 (f)(h) 3,000 3,000
TOTAL MASTER NOTES
(Cost $6,999) 6,999
TIME DEPOSITS - 0.3%
Bank of Tokyo-Mitsubishi Ltd.
5.67%, 10/27/97 5,000 5,000
Barclays Bank PLC 6 1/2%, 10/1/97 2,500 2,500
Sumitomo Bank Ltd. 5.70%, 10/21/97 5,000 5,000
TOTAL TIME DEPOSITS
(Cost $12,500) 12,500
CASH EQUIVALENTS - 7.3%
MATURITY
AMOUNT (000S)
Investment in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account dated 9/30/97
due 10/1/97:
at 6.30% $ 419 419
at 5.50% 3,326 3,325
3,744
SHARES
Taxable Central Cash Fund (b) 325,214,000 325,214
TOTAL CASH EQUIVALENTS
(Cost $328,958) 328,958
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,694,079) $ 4,493,760
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund
was 5.66%. The yield refers to the income earned by investing in the
fund over the seven-day period, expressed as an annual percentage.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
5. 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 $151,751,000 or
3.4% of net assets.
6. 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 (000S)
Fairchild Semiconductor
Corp. 11.74%,
3/15/08 pay-in-kind 4/3/97 $ 2,017
Goldman Sachs Group LP
(The) 5.7188%,
5/4/98 8/5/97 $ 3,000
SML, Inc. Series 1994-C1,
Class C, 9.20%,
9/18/99 8/11/94 $ 862
7. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
8. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
9. For foreign government obligations not individually rated by S&P or
Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
10. Security represents right to receive monthly interest payments on
an underlying pool of mortgages. Principal shown is the par amount of
the mortgage pool.
11. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
12. Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
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 5.7% AAA, AA, A 5.5%
Baa 1.4% BBB 2.2%
Ba 2.3% BB 1.9%
B 6.3% B 5.9%
Caa 0.3% CCC 0.3%
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 Moody's or S&P amounted to 0.7%. FMR has determined that
unrated debt securities that are lower quality account for 0.7% of the
total value of investment in securities.
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $3,695,230,000. Net unrealized appreciation
aggregated $798,530,000, of which $848,871,000 related to appreciated
investment securities and $50,341,000 related to depreciated
investment securities.
The fund hereby designates approximately $36,032,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 4,493,760
AGREEMENTS OF $3,744) (COST $3,694,079) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 6,470
RECEIVABLE FOR FUND SHARES SOLD 3,911
DIVIDENDS RECEIVABLE 6,979
INTEREST RECEIVABLE 13,952
OTHER RECEIVABLES 86
TOTAL ASSETS 4,525,158
LIABILITIES
PAYABLE TO CUSTODIAN BANK $ 1,257
PAYABLE FOR INVESTMENTS PURCHASED 37,183
REGULAR DELIVERY
DELAYED DELIVERY 11,722
PAYABLE FOR FUND SHARES REDEEMED 14,326
ACCRUED MANAGEMENT FEE 2,192
OTHER PAYABLES AND ACCRUED EXPENSES 996
TOTAL LIABILITIES 67,676
NET ASSETS $ 4,457,482
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 3,186,007
UNDISTRIBUTED NET INVESTMENT INCOME 67,056
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 404,764
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 799,655
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 223,213 SHARES OUTSTANDING $ 4,457,482
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $19.97
SHARE ($4,457,482 (DIVIDED BY) 223,213 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 51,066
DIVIDENDS
INTEREST 69,624
TOTAL INCOME 120,690
EXPENSES
MANAGEMENT FEE $ 22,505
TRANSFER AGENT FEES 8,938
ACCOUNTING FEES AND EXPENSES 832
NON-INTERESTED TRUSTEES' COMPENSATION 22
CUSTODIAN FEES AND EXPENSES 208
REGISTRATION FEES 93
AUDIT 95
LEGAL 21
INTEREST 3
MISCELLANEOUS 15
TOTAL EXPENSES BEFORE REDUCTIONS 32,732
EXPENSE REDUCTIONS (583) 32,149
NET INVESTMENT INCOME 88,541
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 425,103
FOREIGN CURRENCY TRANSACTIONS (147) 424,956
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 517,422
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (19) 517,403
NET GAIN (LOSS) 942,359
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,030,900
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 88,541 $ 74,300
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 424,956 257,319
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 517,403 27,068
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,030,900 358,687
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (81,646) (43,221)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (203,145) -
TOTAL DISTRIBUTIONS (284,791) (43,221)
SHARE TRANSACTIONS 1,283,870 815,995
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 282,710 42,752
COST OF SHARES REDEEMED (953,951) (925,769)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 612,629 (67,022)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,358,738 248,444
NET ASSETS
BEGINNING OF PERIOD 3,098,744 2,850,300
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 4,457,482 $ 3,098,744
INCOME OF $67,056 AND $66,610, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 72,671 52,211
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 17,155 2,839
REDEEMED (53,787) (59,383)
NET INCREASE (DECREASE) 36,039 (4,333)
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 C 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 16.56 $ 14.88 $ 13.91 $ 13.77 $ 11.16
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .42 B .47 .26 .13 .18
NET REALIZED AND UNREALIZED 4.49 1.44 1.07 .61 2.66
GAIN (LOSS)
TOTAL FROM INVESTMENT 4.91 1.91 1.33 .74 2.84
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.43) (.23) (.27) (.18) (.15)
FROM NET REALIZED GAIN (1.07) - - (.37) (.08)
IN EXCESS OF NET REALIZED GAIN - - (.09) (.05) -
TOTAL DISTRIBUTIONS (1.50) (.23) (.36) (.60) (.23)
NET ASSET VALUE, END OF PERIOD $ 19.97 $ 16.56 $ 14.88 $ 13.91 $ 13.77
TOTAL RETURN A 31.57% 12.99% 9.95% 5.39% 25.83%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 4,457 $ 3,099 $ 2,850 $ 3,071 $ 1,243
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .87% 1.02% 1.03% 1.15% 1.19% D
NET ASSETS
RATIO OF EXPENSES TO AVERAGE .86% E 1.01% E 1.02% E 1.15% 1.19%
NET ASSETS AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO 2.36% 2.51% 3.16% 2.64% 3.02%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 70% 138% 119% 104% 97%
AVERAGE COMMISSION RATE F $ .0047 $ .0027
</TABLE>
THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS).
NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY
FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES
EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION
RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Asset Manager: Growth (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 financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price. Debt securities for which quotations are
readily available are valued by a pricing service at their market
values as determined by their most recent bid prices in the principal
market (sales prices if the principal market is an exchange) in which
such securities are normally traded. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
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 recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, passive foreign investment companies (PFIC),
market discount, partnerships, non-taxable dividends 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 and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. 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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is
an open-end money market fund available only to investment companies
and other accounts managed by FMR and its affiliates. The Cash Fund
seeks preservation of capital, liquidity, and current income by
investing in U.S. Treasury securities and repurchase agreements for
these securities. Income distributions from the Cash Fund are declared
daily and paid monthly from net interest income. Income distributions
received by the fund are recorded as interest income in the
accompanying financial statements.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $6,454,000 or 0.1% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $2,660,587,000 and $2,485,685,000, respectively, of which
U.S. government and government agency obligations aggregated
$371,522,000 and $688,863,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .60% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .24% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $429,000 for the
period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the period for which loans were outstanding amounted
to $16,365,000 and $5,324,000, respectively. The weighted average
interest rate was 5.38%.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $330,000 under this arrangement.
In addition, the fund has entered into an arrangements with its
custodian and transfer agent whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's custodian and transfer agent
fees were reduced by $17,000 and $236,000, respectively, under these
arrangements.
7. LITIGATION.
The fund is engaged in litigation against the obligor on the inflation
adjusted debt of Siderurgica Brasileiras SA, contesting the
calculation of the principal adjustment. The probability of success of
this litigation cannot be predicted and the amount of recovery cannot
be estimated. Any recovery from this litigation would inure to the
benefit of the fund. As of period end, the fund no longer holds
Siderurgica Brasileiras SA debt securities.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Asset Manager: Growth:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for Moody's and Standard
& Poor's ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Fidelity Asset
Manager: Growth (a fund of Fidelity Charles Street Trust) at September
30, 1997, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Asset Manager: Growth's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 7, 1997
DISTRIBUTIONS
A total of 13.72% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 22% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1998 of these percentages
for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, 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.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
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
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
Longwood, FL
4001 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State 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
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
William J. Hayes, Vice President
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
George A. Vanderheiden, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H . Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
* INDEPENDENT TRUSTEES
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY'S ASSET ALLOCATION FUNDS
Asset Manager
SM
Asset Manager: Growth
SM
Asset Manager: Income
SM
Fidelity Freedom Funds-
Income, 2000, 2010, 2020, 2030
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
(for the deaf and hearing impaired)
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)FIDELITY
ASSET MANAGER: INCOME
SM
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
MARKET RECAP 6 AN OVERVIEW OF THE MARKET'S PERFORMANCE
AND THE FACTORS DRIVING IT.
FUND TALK 7 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 12 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 13 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 37 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 41 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 45 THE AUDITORS' OPINION
ACCOUNTANTS
DISTRIBUTIONS 46
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification.
Asset Manager funds are already diversified because they invest in
stocks, bonds and short-term and money market instruments, both in the
U.S. and overseas. If you have a short investment time horizon, you
might want to consider moving some of your investment into a money
market fund, which seeks income and a stable share price by investing
in high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
FIDELITY ASSET MANAGER: INCOME 14.16% 60.45%
LEHMAN BROTHERS AGGREGATE BOND INDEX 9.71% 39.71%
INCOME FUNDS AVERAGE 19.61% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 1, 1992. For example, if you had invested $1,000 in
a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare the fund's returns to the
performance of the Lehman Brothers Aggregate Bond Index - a market
value weighted performance benchmark for investment-grade fixed-rate
debt issues, including government, corporate, asset-backed and
mortgage-backed securities, with maturities of at least one year. To
measure how the fund's performance stacked up against its peers, you
can compare it to the income funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 54 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
FIDELITY ASSET MANAGER: INCOME 14.16% 9.91%
LEHMAN BROTHERS AGGREGATE BOND INDEX 9.71% 6.92%
INCOME FUNDS AVERAGE 19.61% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971028 120446 S00000000000001
Asset Manager: Income LB Aggregate Bond
FI Conservative Composite
00328 LB001
F0056
1992/10/31 10000.00 10000.00
10000.00
1992/11/30 10131.75 10002.26
10074.70
1992/12/31 10335.71 10161.31
10164.47
1993/01/31 10601.78 10356.17
10260.82
1993/02/28 10775.92 10537.45
10362.41
1993/03/31 11012.63 10581.36
10429.35
1993/04/30 11095.59 10655.05
10415.79
1993/05/31 11157.79 10668.61
10480.89
1993/06/30 11282.63 10861.96
10570.50
1993/07/31 11376.79 10923.40
10594.50
1993/08/31 11628.47 11114.86
10759.45
1993/09/30 11660.07 11145.39
10768.92
1993/10/31 11818.44 11187.03
10839.46
1993/11/30 11744.57 11091.87
10796.64
1993/12/31 11926.14 11151.98
10849.44
1994/01/31 12131.02 11302.55
10982.23
1994/02/28 11915.04 11106.19
10865.05
1994/03/31 11687.39 10832.38
10712.51
1994/04/30 11698.18 10745.88
10730.93
1994/05/31 11731.10 10744.37
10779.97
1994/06/30 11665.22 10720.63
10738.36
1994/07/31 11819.10 10933.57
10886.77
1994/08/31 11940.44 10947.14
10996.83
1994/09/30 11829.82 10786.02
10917.10
1994/10/31 11863.39 10776.41
10986.65
1994/11/30 11774.41 10752.47
10923.10
1994/12/31 11763.68 10826.72
11000.61
1995/01/31 11831.41 11040.99
11144.01
1995/02/28 12046.30 11303.50
11326.60
1995/03/31 12171.32 11372.84
11442.60
1995/04/30 12330.59 11531.71
11582.43
1995/05/31 12627.09 11977.95
11843.78
1995/06/30 12752.88 12065.77
11954.71
1995/07/31 12959.19 12038.82
12049.41
1995/08/31 13074.38 12184.11
12125.71
1995/09/30 13247.66 12302.65
12290.26
1995/10/31 13270.83 12462.64
12366.90
1995/11/30 13503.77 12649.39
12560.19
1995/12/31 13726.82 12826.91
12691.35
1996/01/31 13880.66 12912.09
12830.29
1996/02/29 13785.70 12687.65
12801.47
1996/03/31 13773.58 12599.45
12819.60
1996/04/30 13785.38 12528.60
12859.06
1996/05/31 13833.79 12503.16
12946.86
1996/06/30 13942.35 12671.06
13033.24
1996/07/31 13846.45 12705.74
12955.49
1996/08/31 13881.96 12684.44
13030.47
1996/09/30 14211.73 12905.49
13269.27
1996/10/31 14517.86 13191.37
13459.23
1996/11/30 14937.29 13417.32
13760.83
1996/12/31 14799.54 13292.57
13693.37
1997/01/31 15016.25 13333.27
13903.37
1997/02/28 15080.03 13366.44
13958.82
1997/03/31 14810.26 13218.32
13785.06
1997/04/30 15080.75 13416.19
14070.82
1997/05/31 15416.69 13543.01
14327.56
1997/06/30 15649.97 13703.76
14559.24
1997/07/31 16144.31 14073.31
15006.26
1997/08/31 15948.38 13953.26
14793.72
1997/09/30 16045.00 13971.00
15047.00
IMATRL PRASUN SHR__CHT 19970930 19971028 120448 R00000000000062
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager: Income on October 1, 1992, when
the fund started. As the chart shows, by September 30, 1997, the value
of the investment would have grown to $16,045 - a 60.45% increase on
the initial investment. For comparison, look at how the Lehman
Brothers Aggregate Bond Index did over the same period. With dividends
and capital gains, if any, reinvested, the same $10,000 investment
would have grown to $13,971 - a 39.71% increase. You can also look at
how the Fidelity Conservative Composite Index, a hypothetical
combination of unmanaged indices, did over the same period. The
composite index combines the total returns of the S&P 500 (+156.94%),
the Lehman Brothers Aggregate Bond Index (+39.71%) and the Salomon
Brothers 3-month T-Bill Total Rate of Return Index (+25.16%) according
to the fund's neutral mix * and assumes monthly rebalancing of the
mix. With dividends and interest, if any, reinvested, the same $10,000
investment would have grown to $15,047 - a 50.47% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will
do tomorrow. 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)
* CURRENTLY 20% STOCKS, 50% BONDS AND 30% SHORT-TERM/MONEY MARKET
INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 20%, 30% AND 50%, RESPECTIVELY,
PRIOR TO JANUARY 1, 1997.
MARKET RECAP
A common denominator to the strong performances of both the bond and
stock markets during the period was economic bliss. The U.S. economy
continued to grow at a consistent, moderate clip and rising inflation
- - a deterrent to both bonds and stocks - was essentially a non-factor.
STOCKS: The Standard & Poor's 500 Index, a broad measure of the U.S.
stock market, returned 40.45% during the 12 months that ended
September 30, 1997, well above its long-term annual average of
approximately 11%. The stock market spent much of the past 12 months
breaking price and trading volume records. Solid corporate earnings,
large cash inflows into mutual funds, widespread optimism and a
generally favorable interest-rate climate boosted share prices higher,
especially among large-capitalization, household-name stocks. In fact,
a select group of these so-called "blue chips" was responsible for a
significant portion of the S&P 500's gain. Concerns in the springtime
over an overheating economy and earnings shortfall announcements from
several key companies in August provided the only considerable hiccups
in the market's rise. When the Federal Reserve Board raised a key
short-term interest rate in March, an already richly priced market
sold off sharply. From that point, with positive economic news being
the primary catalyst, the market soared. In July, the Dow Jones
Industrial Average surged past the 8000 mark for the first time ever.
August posed an altogether different story, though, as inflation
fears, a weakened dollar and sluggish corporate earnings combined to
erode some of the market's prior gains. The silver lining in this
decline, however, was the overall
broadening of the market, as small- and mid-cap stocks performed well,
leading to a strong September.
BONDS: A calm economy, coupled with the absence of the bond market's
chief antagonist - rising inflation - translated into a generally
favorable investment climate for the 12 months that ended September
30, 1997. The Lehman Brothers Aggregate Bond Index - a broad measure
of the U.S. taxable bond market - returned 9.71% over the period.
Through the first half of the year, bonds suffered from the perception
that the economy was expanding too quickly and, in turn, that
inflation would appear. In February, Federal Reserve Board Chairman
Alan Greenspan hinted that the Fed was inclined to raise the rate
banks charge each other for overnight loans - known as the fed funds
target rate - to curb any potential inflation upticks. The Fed acted
in March, raising the fed funds rate by 0.25% to 5.50% in a move
largely anticipated by investors. From April through July, weakening
economic and inflation indicators - along with the Fed's shift to a
more beneficial stance signaling no further rate hikes - helped spark
an across-the-board rally. While some of these gains were lost in
August, as inflation fears cropped up again due to
stronger-than-expected economic data, much of the decline was offset
by a strong September. Relative interest-rate stability provided a
positive backdrop for mortgage-backed securities, as the Salomon
Brothers Mortgage Index returned 9.85% over the 12-month period.
Sustained economic growth and demand for higher yields aided corporate
bonds, as the Lehman Brothers Corporate Bond Index returned 10.83%
over the same time frame.
FUND TALK: THE MANAGERS' OVERVIEW
An interview with Richard Habermann (top left), Portfolio Manager of
Fidelity Asset Manager: Income, as well as George Vanderheiden (top
right), sub-manager for stocks, Charles Morrison (bottom left),
sub-manager for bonds and John Todd (bottom right), sub-manager for
short-term/money market.
Q. HOW DID THE FUND PERFORM, DICK?
D.H. For the 12 months that ended September 30, 1997, the fund had a
total return of 14.16%. That lagged the income funds average tracked
by Lipper Analytical Services, which returned 19.61% during the same
period.
Q. WHY DID THE FUND LAG ITS PEER GROUP?
D.H. The funds in Lipper's income funds average have the flexibility
to invest a significant percentage of their assets in stocks. On
average, funds in that Lipper group carry over 40% in equities. In
light of its conservative investment mandate, Asset Manager: Income
invested only about 23% in equities, on average, during the period -
slightly higher than its neutral target allocation of 20% but far less
than the peer group average weight of about 40% during the same
period. As equities were far and away the top-performing asset class
during the period, the fund lagged the average because of its lighter
exposure to stocks than the average fund in its peer group.
Q. HOW DID YOU POSITION THE FUND IN TERMS OF ASSET ALLOCATION?
D.H. During most of the period, the fund was overweighted in stocks
relative to its neutral mix target. This positioning strategy - in
conjunction with beneficial security selection within the equity and
fixed-income sub-portfolios - helped the fund's performance. I started
to increase investments in stocks in the spring after a significant
correction in the market brought valuations to attractive levels
against a very positive backdrop of stable, low interest rates and
favorable earnings growth. The fund's stock allocation reached a peak
of about 25% at the end of July. However, late in the period, I cut
back the fund's stake in stocks, and this asset class represented
about 21% of investments at the end of September. With the high
valuations we've seen in the stock market come expectations that can
exert a great deal of influence on stock prices. In other words, any
small change in the overall view of the market can lead to a
significant shift in stock prices. That's the reason behind this move.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
D.H. The fund remains slightly overweighted in stocks relative to the
neutral mix, which calls for 20% to be invested in stocks, 50% in
bonds and 30% in short-term/money market instruments. The neutral mix
is meant to be an optimal combination of securities if valuations in
all three asset classes are at comparable levels. I'll make small
changes to the asset allocation if I have a strong view about a
particular area. The stock market rose as much as it did in large part
because of an almost perfect scenario regarding interest rates,
economic growth and corporate earnings. After this run-up, I found my
strong view on stocks to be less compelling. With low interest rates
and valuations at historically high levels, share prices are more
likely to react poorly to even a slight change in investor
expectations or any unforeseen negative news. At the same time,
prospects for stocks remain attractive; hence, they remain slightly
overweighted.
Q. WHERE DID YOU PUT THE ASSETS THAT CAME OUT OF THE STOCK PORTION OF
THE FUND?
D.H. I invested them in the short-term/money market portion of the
fund. Presently, that part of the fund equals 33% of the fund's
assets, and bonds 46%. My feeling is that given an unforeseen event,
the bond market - like the stock market - has a lot less margin for
error now after performing well through most of 1997. In addition,
valuations in the bond market also are relatively high. I don't
believe longer-maturity securities are offering enough yield to
compensate an investor for taking on the added risk and volatility
that come with investing in them. Therefore, the short-term/money
market sector was more appealing.
Q. GEORGE, WHICH STOCKS HELPED THE FUND'S PERFORMANCE?
G.V. Despite the stigma of litigation, tobacco giant Philip Morris was
a solid contributor to the fund's performance. Strong growth in
personal computer sales as well as corporate spending on
telecommunications and networking hardware propelled the fund's
technology-related holdings to solid gains. IBM and Compaq Computer
were particularly good performers.
Q. HAVE RECENT DEVELOPMENTS WITH COLUMBIA/HCA HEALTHCARE AND PHILIP
MORRIS CHANGED YOUR VIEW OF THESE STOCKS?
G.V. After the news broke that the government was investigating the
Medicare billing practices of Columbia/HCA, its market valuation
declined by over $10 billion from its peak this year in March.
However, I believed that any fine imposed by the government was more
than adequately reflected in this market discount. Further, I believed
any fine would be tax-deductible to Columbia/HCA. Consequently, I felt
the impact of the government investigation was already reflected in
the stock price. In addition, management is in the process of seeking
a settlement with the government. When management has cooperated with
the government in similar cases with other companies in the past, the
company's stock price has rebounded during and after the settlement
agreement process. In sum, then, I felt the stock was attractively
priced with good long-term business prospects, as Columbia's hospitals
are in prime locations and 20% have a monopoly position. As far as
Philip Morris is concerned, litigation has been a way of life for
tobacco companies since the Surgeon General's first warning about the
effects of smoking more than 30 years ago. If investors had decided to
sell Philip Morris after that first warning, they would have missed a
more than 32,700% increase in its price - excluding reinvested
dividends - since that time. While past performance is no guarantee of
future results, this phenomenal increase in the price of Philip Morris
equates to a gain of roughly 18% per year for the past 35 years.
Despite the ongoing tobacco litigation, Philip Morris had strong
business prospects and remained attractively priced to me at the end
of the period. The company has some of the strongest brand names in
the consumer industry and can use this advantage to increase its share
in new global markets.
Q. TURNING TO YOU, CHARLIE, HOW HAVE YOU POSITIONED THE FUND'S BOND
PORTFOLIO?
C.M. I'd highlight three areas. First, I reduced the fund's position
in Treasury bonds from 11.1% on March 31, 1997, to 6.3% at the end of
the period. I directed most of these assets toward purchases in the
corporate market, in order to increase the yield of the fund. This
larger corporate position - up to 24.2% at the end of the period
versus 18.6% at the end of March - was focused primarily on
shorter-term securities. Given the relatively high valuations in the
corporate market, these notes
should not underperform as much as longer-term corporates if the
market encounters difficulties. Second, I increased asset-backed
securities - bonds backed by credit cards, or other types of loans -
as a percentage of the fund's fixed-income investments. Opportunities
here included notes backed by home equity and manufactured housing
loans. Third, I maintained the fund's underweighted exposure to
mortgage-backed securities relative to the overall bond market as
represented by the Lehman Brothers Aggregate Bond Index. Continued
high valuations in this market did not represent a positive
risk/reward profile. More specifically, I felt that concerns regarding
potential prepayment activity - meaning the risk that the
mortgage-backed securities might be paid off early - were not
adequately factored into the pricing of these securities.
Q. DID YOU ADD TO PARTICULAR SECTORS IN THE CORPORATE MARKET?
C.M. I targeted the cable and telecommunications industries
aggressively over the period. Companies such as Tele-Communications,
Inc., Time Warner and WorldCom provided notable opportunities.
WorldCom and related subsidiaries now make up one of the larger
corporate bond positions in the fund. I believed this company - a
provider of local, long distance, Internet and other
telecommunications services - was uniquely positioned to take
advantage of deregulation and technological advancement in the
industry. It had strong revenue growth, outstanding management and
leading-edge technology
working in its favor. I'd also like to point out one area where I
decreased the fund's position - yankee bonds, which are
dollar-denominated bonds issued in the U.S. by foreign banks,
governments and corporations. Most of this selling focused on bonds
issued by state-owned Malaysian oil company Petroliam Nasional
(Petronas) and the Korea Development Bank. I sold out of most of these
positions when currency stability concerns within Southeast Asia first
arose in Thailand. This move proved quite favorable, as most of the
region went on to see significant underperformance in its
dollar-denominated securities.
Q. JOHN, HOW WOULD YOU CHARACTERIZE THE INVESTING ENVIRONMENT FOR
SHORT-TERM/MONEY MARKET INSTRUMENTS?
J.T. Even though the economy continued to grow at an above-trend rate
- - meaning one that is believed to be above its capacity to expand
without generating inflation - there has been little sign of
inflation. Because of the lack of inflation, the Federal Reserve Board
has held off raising short-term interest rates since its meeting in
March. At that time, the Fed raised the rate banks charge each other
for overnight loans - known as the fed funds rate - by 0.25% to 5.50%,
trying to head off inflation before it emerged. At this point, though,
the Fed seems willing to respond with higher interest rates only if
actual evidence of inflation appears.
Q. HOW DID YOU POSITION YOUR SUB-PORTFOLIO?
J.T. As we progressed through March - when the Fed raised rates - I
lowered the sub-portfolio's average maturity to reflect a neutral
stance. In late April and early May, yields in the market started to
factor in a more aggressive Fed posture than I anticipated. Therefore,
I extended the fund's average maturity to take advantage of the higher
yields being offered. As it became evident in the summer that the Fed
was going to hold pat in spite of strong economic growth - and as long
as inflation remained tame - yields for shorter-term maturities became
more attractive, relative to longer-term rates. In turn, I reduced the
fund's maturity through the end of the period, because we weren't
being rewarded for investing in the longer end of the spectrum.
Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK?
D.H. As we look back over what has been a strong seven-year run for
the stock market, we can see that its main drivers have been declining
interest rates and solid corporate earnings. Looking out over the near
future, I don't think we can expect interest rates to provide much
more of a stimulus for stock prices. As a result, earnings should be
the most critical factor for stock prices going forward, with those
companies that can't meet expectations being penalized. As far as
bonds are concerned, valuations remain on the high side, although as
long as the economy doesn't accelerate too much and inflation remains
tame, bonds should perform reasonably well. One positive factor for
the fixed-income markets is that real interest rates - which are
stated interest rates adjusted for inflation - remain high. That's
usually a positive sign. Inflation remains subdued, because companies
worldwide have little or no pricing power due to a competitive
environment. However, if economic strength accelerates in Europe, or
if Japan show rapid signs of recovery, inflation pressures could
build. If that's the case, interest rates may rise, which would be a
negative for all of the markets.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
DICK HABERMANN ON THE FUND'S
PERFORMANCE:
"When comparing the fund's
returns to the unusually strong
performance of the Standard &
Poor's 500 Index, investors should
note that there are some
significant differences between
the make-up of the fund and the
composition of the index. While
the S&P 500 is made up exclusively
of stocks, Asset Manager: Growth
invests in stocks, bonds and
short-term/money market
instruments. The fund allocates
assets among these three
categories in order to help
control both volatility and risk
relative to funds or indexes that
invest only in stocks. A single
index covering only one asset
class should not be used as the
only benchmark against which to
compare the fund's overall
performance. History teaches us
that it's better to invest for the long
term by diversifying across several
asset classes. That's because the
markets are not predictable. At
some point, the economy will
falter and the S&P will fall back
to provide returns more in line
with its historical average. Asset
Manager: Growth offers the
portfolio manager the flexibility to
reallocate the components of the
fund. That decision-making mainly
comes down to looking at relative
valuations among the three asset
classes. Given that your
investment horizon and risk
tolerance match the investment
objectives of the fund, you can rest
assured that we will do our best to
make sure the fund's asset
allocation is appropriate for your
goals."
FUND FACTS
GOAL: maximum total return
over the long term through
investing in stocks, bonds and
short-term and money market
instruments
FUND NUMBER: 321
TRADING SYMBOL: FASGX
START DATE: December 30, 1991
SIZE: as of September 30,
1997, more than $4.4 billion
MANAGER: Richard Habermann,
since 1996; manager, Fidelity
Asset Manager and Fidelity
Asset Manager: Income, since
1996; Fidelity Trend Fund,
1977-1981; Fidelity Magellan
Fund, 1972-1977; joined
Fidelity in 1968
(checkmark)
INVESTMENT CHANGES
TOP FIVE BOND ISSUERS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
FEDERAL NATIONAL MORTGAGE ASSOCIATION 7.2 5.6
U.S. TREASURY 6.3 11.1
KEY BANK N.A. 1.4 0.0
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 1.2 1.3
GREEN TREE FINANCIAL CORP. 1.0 0.8
</TABLE>
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1997
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 34.0 36.4
BAA 5.0 6.8
BA AND BELOW 2.3 2.1
NOT RATED 0.2 0.3
WHERE MOODY'S RATINGS ARE UNAVAILABLE, WE HAVE USED S&P RATINGS.
TOP FIVE STOCKS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FEDERAL NATIONAL MORTGAGE ASSOCIATION 1.8 1.7
PHILIP MORRIS COMPANIES, INC. 1.4 2.2
GENERAL MOTORS CORP. 0.8 0.9
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.6 0.7
COLUMBIA/HCA HEALTHCARE CORP. 0.6 0.6
</TABLE>
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997* AS OF MARCH 31, 1997 **
ROW: 1, COL: 1, VALUE: 33.0
ROW: 1, COL: 2, VALUE: 46.0
ROW: 1, COL: 3, VALUE: 11.0
ROW: 1, COL: 4, VALUE: 10.0
STOCK CLASS 23%
BOND CLASS 46%
SHORT-TERM CLASS 31%
FOREIGN
INVESTMENTS 23%
STOCK CLASS 21%
BOND CLASS 46%
SHORT-TERM CLASS 33%
FOREIGN
INVESTMENTS 14%
ROW: 1, COL: 1, VALUE: 31.0
ROW: 1, COL: 2, VALUE: 46.0
ROW: 1, COL: 3, VALUE: 13.0
ROW: 1, COL: 4, VALUE: 10.0
*
**
ASSET ALLOCATIONS IN THE PIE CHARTS REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME
PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM
TO ACCOUNTING STANDARDS AND MAY DIFFER FROM THE PIE CHART.
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 20.8%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.4%
AEROSPACE & DEFENSE - 0.3%
Boeing Co. 27,000 $ 1,469,813
Gulfstream Aerospace Corp. (a) 2,100 60,900
1,530,713
DEFENSE ELECTRONICS - 0.1%
Raytheon Co. 12,300 727,238
SHIP BUILDING & REPAIR - 0.0%
Avondale Industries, Inc. (a) 1,100 29,013
Newport News Shipbuilding, Inc. 2,900 68,331
97,344
TOTAL AEROSPACE & DEFENSE 2,355,295
BASIC INDUSTRIES - 1.0%
CHEMICALS & PLASTICS - 0.6%
Air Products & Chemicals, Inc. 3,500 290,281
du Pont (E.I.) de Nemours & Co. 34,300 2,111,594
Raychem Corp. 13,600 1,149,200
Union Carbide Corp. 12,000 584,250
4,135,325
PACKAGING & CONTAINERS - 0.2%
Corning, Inc. 700 33,075
Owens-Illinois, Inc. (a) 31,300 1,062,244
1,095,319
PAPER & FOREST PRODUCTS - 0.2%
Boise Cascade Corp. 7,000 294,438
Champion International Corp. 9,800 597,188
International Paper Co. 2,400 132,150
Ivex Packaging Corp. 200 3,200
Willamette Industries, Inc. 2,800 107,100
1,134,076
TOTAL BASIC INDUSTRIES 6,364,720
CONSTRUCTION & REAL ESTATE - 0.3%
CONSTRUCTION - 0.2%
Centex Corp. 3,800 221,825
D.R. Horton, Inc. 9,448 148,806
Fleetwood Enterprises, Inc. 17,502 587,411
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
Kaufman & Broad Home Corp. 14,900 $ 323,144
U.S. Home Corp. (a) 1,300 50,213
1,331,399
ENGINEERING - 0.1%
Fluor Corp. 8,800 471,900
TOTAL CONSTRUCTION & REAL ESTATE 1,803,299
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 1.1%
Circuit City Stores, Inc. - CarMax Group 1,100 18,219
Cummins Engine Co., Inc. 6,300 491,794
Discount Auto Parts, Inc. (a) 6,700 160,800
Federal-Mogul Corp. 3,000 111,375
General Motors Corp. 73,742 4,936,105
Gentex Corp. (a) 1,800 44,663
Goodyear Tire & Rubber Co. 3,000 206,250
Honda Motor Co. Ltd. 4,000 139,937
Magna International, Inc. Class A 6,800 471,945
Superior Industries International, Inc. 10,600 293,488
6,874,576
CONSUMER ELECTRONICS - 0.0%
Newell Co. 5,700 228,000
Philips Electronics NV 200 16,800
Philips Electronics NV (Bearer) 700 59,170
303,970
TEXTILES & APPAREL - 0.2%
Big Dog Holdings, Inc. 100 1,400
Burlington Industries, Inc. (a) 14,500 203,000
Liz Claiborne, Inc. 4,200 230,738
NIKE, Inc. Class B 12,800 678,400
Reebok International Ltd. 1,000 48,688
1,162,226
TOTAL DURABLES 8,340,772
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - 1.5%
ENERGY SERVICES - 0.1%
McDermott International, Inc. 13,300 $ 485,450
OIL & GAS - 1.4%
Amerada Hess Corp. 5,700 351,619
Atlantic Richfield Co. 6,800 580,975
British Petroleum PLC:
Ord. 127 1,922
ADR 18,172 1,650,245
Burlington Resources, Inc. 14,400 738,900
Elf Aquitaine SA sponsored ADR 2,953 196,928
Enron Oil & Gas Co. 1,600 35,600
Kerr-McGee Corp. 3,700 254,606
Louisiana Land & Exploration Co. 10,600 830,113
Mobil Corp. 1,700 125,800
Occidental Petroleum Corp. 25,900 671,781
Royal Dutch Petroleum Co. Ord. 21,200 1,191,324
Royal Dutch Petroleum Co. 22,900 1,270,950
Santa Fe Energy Resources, Inc. 8,000 100,000
Tosco Corp. 27,300 950,381
Total SA:
Class B 1,637 188,127
sponsored ADR 3,845 220,367
Union Pacific Resources Group, Inc. 800 20,950
Valero Energy Corp. 2,500 82,031
9,462,619
TOTAL Energy 9,948,069
FINANCE - 4.9%
BANKS - 0.3%
Credit Suisse Group (Reg.) 5,100 692,093
NationsBank Corp. 6,300 389,813
Providian Financial Corp. 13,400 531,813
1,613,719
CREDIT & OTHER FINANCE - 0.6%
Fleet Financial Group, Inc. 56,536 3,706,642
Green Tree Financial Corp. 5,700 267,900
3,974,542
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
FEDERAL SPONSORED CREDIT - 2.4%
Federal Home Loan Mortgage Corporation 115,000 $ 4,053,750
Federal National Mortgage Association 256,600 12,060,200
16,113,950
INSURANCE - 1.4%
AFLAC, Inc. 4,400 238,700
Aegon NV (Reg.) 4,303 342,895
Allmerica Financial Corp. 6,400 281,200
Allstate Corp. 33,108 2,661,056
American International Group, Inc. 18,875 1,947,664
CIGNA Corp. 3,100 577,375
Equitable of Iowa Companies 700 46,900
General Re Corp. 2,800 555,800
Loews Corp. 5,100 575,981
MGIC Investment Corp. 15,000 859,688
Nationwide Financial Services, Inc. Class A 400 11,150
PMI Group, Inc. 6,800 389,725
Provident Companies, Inc. 400 27,975
Reliastar Financial Corp. 3,944 157,021
Torchmark Corp. 13,500 529,875
Travelers Property Casualty Corp. Class A 1,600 64,800
UNUM Corp. 1,200 54,750
9,322,555
SAVINGS & LOANS - 0.1%
Golden West Financial Corp. 5,900 529,525
SECURITIES INDUSTRY - 0.1%
United Asset Management Corp. 10,600 304,088
TOTAL FINANCE 31,858,379
HEALTH - 1.6%
DRUGS & PHARMACEUTICALS - 0.6%
American Home Products Corp. 8,000 584,000
Amgen, Inc. 8,100 388,294
Astra AB Class A Free shares 46,266 855,816
Merck & Co., Inc. 2,400 239,850
Novartis AG (Reg.) 600 924,033
Schering-Plough Corp. 20,900 1,076,350
4,068,343
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Allegiance Corp. 620 $ 19,220
Bard (C.R.), Inc. 4,700 159,506
Baxter International, Inc. 2,300 120,175
Biomet, Inc. 11,100 266,400
Johnson & Johnson 1,300 74,913
St. Jude Medical, Inc. (a) 12,900 452,306
1,092,520
MEDICAL FACILITIES MANAGEMENT - 0.8%
Columbia/HCA Healthcare Corp. 129,602 3,726,058
Humana, Inc. (a) 27,700 659,606
Tenet Healthcare Corp. (a) 18,600 541,725
United HealthCare Corp. 11,300 565,000
5,492,389
TOTAL HEALTH 10,653,252
HOLDING COMPANIES - 0.1%
U.S. Industries, Inc. 10,800 313,200
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.4%
Alcatel Alsthom Compagnie Generale d'Electricite SA
sponsored ADR 800 21,250
Alcatel Alsthom Compagnie Generale d'Electricite SA 6,200 827,947
Emerson Electric Co. 2,800 161,350
General Electric Co. 12,700 864,394
Grainger (W.W.), Inc. 1,000 89,000
Scientific-Atlanta, Inc. 6,400 144,800
Westinghouse Electric Corp. 10,200 276,038
2,384,779
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Caterpillar, Inc. 14,600 787,488
Ultratech Stepper, Inc. (a) 7,400 251,600
1,039,088
POLLUTION CONTROL - 0.0%
Browning-Ferris Industries, Inc. 4,000 152,250
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,576,117
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.1%
Cox Communications, Inc. Class A (a) 1,900 $ 52,369
HSN, Inc. (a) 1,290 52,406
TCI Group Class A 6,008 123,164
Tele-Communications, Inc. (TCI) (Ventures Group) Series A 7,092
146,273
Time Warner, Inc. 5,900 319,706
693,918
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 500 23,875
King World Productions, Inc. 1,500 64,875
MGM Grand, Inc. 200 8,688
Royal Caribbean Cruises Ltd. 5,100 223,125
Viacom, Inc. (a):
Class A 3,100 97,456
Class B (non-vtg.) 4,200 132,825
550,844
LEISURE DURABLES & TOYS - 0.1%
Nintendo Co. Ltd. Ord. 7,900 741,815
LODGING & GAMING - 0.3%
Circus Circus Enterprises, Inc. (a) 15,100 380,331
HFS, Inc. (a) 6,400 476,400
Harrah's Entertainment, Inc. (a) 3,700 83,019
Mirage Resorts, Inc. (a) 15,600 469,950
Rio Hotel & Casino, Inc. (a) 1,000 20,938
Sun International Hotels Ltd. Ord. (a) 9,100 313,950
1,744,588
PUBLISHING - 0.0%
Cognizant Corp. 4,200 171,150
RESTAURANTS - 0.2%
Brinker International, Inc. (a) 4,700 83,719
Lone Star Steakhouse Saloon (a) 4,000 83,500
McDonald's Corp. 13,100 623,888
Papa John's International, Inc. (a) 1,100 37,606
Wendy's International, Inc. 11,100 235,875
1,064,588
TOTAL MEDIA & LEISURE 4,966,903
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONDURABLES - 1.6%
BEVERAGES - 0.0%
PepsiCo, Inc. 1,600 $ 64,900
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 1,700 54,400
TOBACCO - 1.6%
Philip Morris Companies, Inc. 216,950 9,016,984
RJR Nabisco Holdings Corp. 43,861 1,507,722
10,524,706
TOTAL NONDURABLES 10,644,006
PRECIOUS METALS - 0.0%
Barrick Gold Corp. 1,500 37,200
Newmont Mining Corp. 3,867 173,773
210,973
RETAIL & WHOLESALE - 1.8%
APPAREL STORES - 0.1%
Gap, Inc. 3,800 190,238
TJX Companies, Inc. 13,000 397,313
587,551
DRUG STORES - 0.0%
CVS Corp. 2,000 113,750
GENERAL MERCHANDISE STORES - 0.6%
Federated Department Stores, Inc. (a) 15,100 651,188
Proffitts, Inc. (a) 2,400 142,200
Wal-Mart Stores, Inc. 81,500 2,984,938
3,778,326
GROCERY STORES - 0.1%
Safeway, Inc. (a) 9,600 522,000
RETAIL & WHOLESALE, MISCELLANEOUS - 1.0%
Circuit City Stores, Inc. - Circuit City Group 21,700 874,781
Comcast Corp. Class A 300 7,723
Corporate Express, Inc. (a) 7,000 147,875
Home Depot, Inc. 51,900 2,705,288
Lowe's Companies, Inc. 38,600 1,500,575
Officemax, Inc. (a) 20,200 306,788
Office Depot, Inc. (a) 6,300 127,181
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
PEAPOD, Inc. 400 $ 5,000
Rex Stores Corp. (a) 2,400 27,000
Staples, Inc. (a) 8,400 232,050
Toys "R" Us, Inc. (a) 16,900 599,950
U.S. Office Products Co. (a) 6,300 222,075
Viking Office Products, Inc. (a) 8,400 182,700
6,938,986
TOTAL RETAIL & WHOLESALE 11,940,613
SERVICES - 0.0%
ADVERTISING - 0.0%
Interpublic Group of Companies, Inc. 1,350 69,272
LEASING & RENTAL - 0.0%
Avis Rent A Car, Inc. 500 11,938
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 1,200 42,825
SERVICES - 0.0%
Boron LePore & Associates, Inc. 400 9,250
Reuters Holdings PLC ADR Class B 2,100 149,625
158,875
TOTAL SERVICES 282,910
TECHNOLOGY - 3.2%
COMMUNICATIONS EQUIPMENT - 0.1%
Andrew Corp. (a) 3,000 78,563
Cisco Systems, Inc. (a) 3,900 284,944
Nokia Corp. AB sponsored ADR 1,300 121,956
485,463
COMPUTER SERVICES & SOFTWARE - 0.7%
Advantage Learning Systems, Inc. 100 2,525
Automatic Data Processing, Inc. 9,300 465,000
Ceridian Corp. (a) 11,600 429,200
CompUSA, Inc. (a) 4,700 164,500
CUC International, Inc. (a) 11,600 359,600
E Trade Group, Inc. 600 28,200
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Electronic Data Systems Corp. 20,600 $ 731,300
First Data Corp. 12,000 450,750
J.D. Edwards & Co. 500 16,750
Microsoft Corp. (a) 4,800 635,100
Netscape Communications Corp. (a) 700 25,200
Network Solutions, Inc. Class A 100 2,175
Oracle Corp. (a) 11,275 410,833
Paychex, Inc. 3,750 130,781
Policy Management Systems Corp. (a) 8,600 534,813
4,386,727
COMPUTERS & OFFICE EQUIPMENT - 1.2%
Bay Networks, Inc. (a) 4,200 162,225
Compaq Computer Corp. (a) 34,700 2,593,825
Hewlett-Packard Co. 6,300 438,244
Ingram Micro, Inc. Class A (a) 1,300 35,181
International Business Machines Corp. 29,500 3,125,156
Quantum Corp. 1,800 68,963
SCI Systems, Inc. (a) 24,800 1,229,150
Tech Data Corp. (a) 7,500 345,000
Western Digital Corp. 3,000 120,188
8,117,932
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 900 85,725
Cognex Corp. (a) 3,200 105,200
Lam Research Corp. (a) 11,000 511,500
Novellus Systems, Inc. (a) 1,500 189,000
Thermo Electron Corp. (a) 7,800 312,000
Varian Associates, Inc. 1,700 105,613
1,309,038
ELECTRONICS - 1.0%
AMP, Inc. 19,600 1,049,825
Intel Corp. 22,300 2,058,569
Methode Electronics, Inc. Class A 900 23,175
Micron Technology, Inc. (a) 25,900 898,406
Molex, Inc. 3,910 159,333
Motorola, Inc. 1,800 129,375
Power-One, Inc. 100 1,400
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Solectron Corp. (a) 46,400 $ 2,064,800
Thomas & Betts Corp. 800 43,700
Uniphase Corp. 100 7,563
6,436,146
TOTAL TECHNOLOGY 20,735,306
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.0%
Northwest Airlines Corp. Class A (a) 1,600 66,400
RAILROADS - 0.1%
Bombardier, Inc. Class B 5,600 113,537
Burlington Northern Santa Fe Corp. 1,800 173,925
CSX Corp. 7,500 438,750
726,212
SHIPPING - 0.0%
Stolt-Nielsen SA 2,600 69,225
Stolt-Nielsen SA Class B sponsored ADR 4,200 121,800
191,025
TRUCKING & FREIGHT - 0.1%
Roadway Express, Inc. 1,200 32,850
Yellow Corp. (a) 5,100 166,069
198,919
TOTAL TRANSPORTATION 1,182,556
UTILITIES - 1.6%
CELLULAR - 0.6%
AirTouch Communications, Inc. (a) 37,200 1,318,275
Vodafone Group PLC 468,961 2,528,295
Vodafone Group PLC sponsored ADR 5,000 268,750
4,115,320
ELECTRIC UTILITY - 0.1%
American Electric Power Co., Inc. 3,600 163,800
Entergy Corp. 9,400 244,988
Niagara Mohawk Power Corp. (a) 4,500 43,031
PG&E Corp. 1,063 24,648
476,467
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
GAS - 0.0%
Enron Corp. 2,200 $ 84,700
TELEPHONE SERVICES - 0.9%
AT&T Corp. 6,900 305,756
Ameritech Corp. 7,700 512,050
Bell Atlantic Corp. 10,478 842,824
BellSouth Corp. 14,000 647,500
Deutsche Telekom AG 3,900 75,182
MCI Communications Corp. 49,900 1,465,813
NEXTLINK Communications, Inc. Class A 200 4,800
SBC Communications, Inc. 9,100 558,513
Sprint Corp. 29,400 1,470,000
US WEST Media Group 1,600 35,828
WorldCom, Inc. (a) 3,900 137,963
6,056,229
TOTAL UTILITIES 10,732,716
TOTAL COMMON STOCKS
(Cost $90,587,569) 135,909,086
NONCONVERTIBLE BONDS - 24.2%
MOODY'S RATINGS PRINCIPAL (UNAUDITED) (C) AMOUNT
AEROSPACE & DEFENSE - 0.3%
DEFENSE ELECTRONICS - 0.3%
Raytheon Co. 6.45%, 8/15/04 Baa $ 1,620,000 1,618,396
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 900,000 952,488
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES - 0.2%
General Motors Corp. 9 5/8%, 12/1/00 A3 630,000 689,781
Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa 670,000 687,963
1,377,744
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.4%
Levi Strauss & Co. 7%, 11/1/06 (f) Baa $ 2,440,000 $ 2,478,552
TOTAL DURABLES 3,856,296
ENERGY - 0.1%
OIL & GAS - 0.1%
Pennzoil Co. 9 5/8%, 11/15/99 Baa 570,000 607,307
FINANCE - 15.7%
ASSET-BACKED SECURITIES - 3.1%
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 1,227,446 1,233,743
5.85%, 2/15/03 A3 370,000 366,411
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 1,300,000 1,301,625
CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 910,213 913,057
Green Tree Financial Corp.:
5.80%, 2/15/27 Aaa 1,620,023 1,617,480
6.10%, 4/15/27 Aaa 1,122,008 1,122,356
6 1/2%, 6/15/27 Aaa 670,000 673,136
6.80%, 6/15/27 Aaa 650,000 658,938
6.45%, 9/15/28 Aaa 950,000 953,859
6.68%, 1/15/29 Aaa 1,820,000 1,831,939
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 122,178 122,202
MBNA Master Credit Card Trust II 6.55%, 1/15/07 Aaa 2,580,000
2,599,350
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,140,000 1,151,549
6.70%, 3/15/02 Aaa 540,000 546,750
Premier Auto Trust:
4.95%, 2/2/99 A2 144,228 143,845
6%, 5/6/00 Aaa 840,000 840,521
6.35%, 7/6/00 A3 920,000 921,150
Railcar Trust 7 3/4%, 6/1/04 Aaa 36,961 38,578
Standard Credit Card Master Trust I
7.65%, 2/15/00 A2 300,000 301,313
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 265,058 264,934
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa $ 58,957 $ 59,086
7.275%, 10/10/00 Baa 59,122 59,362
8.20%, 1/10/01 Baa 67,434 68,403
Western Financial Grantor Trust:
6.05%, 11/1/00 Aaa 255,876 258,211
6.20%, 2/1/02 Aaa 318,445 321,351
5 7/8%, 3/1/02 Aaa 912,522 928,510
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 1,170,000 1,175,236
20,472,895
BANKS - 4.5%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 1,500,000 1,514,730
Banc One Corp.:
6.70%, 3/24/00 Aa3 1,100,000 1,113,321
6 1/4%, 9/1/00 Aa3 1,300,000 1,301,625
Bankers Trust Co. 5.66%, 7/21/98 (g) - 10,000,000 9,996,500
BanPonce Financial Corp.:
6.34%, 3/29/99 A3 310,000 311,584
7.65%, 5/3/00 A3 690,000 705,346
6.69%, 9/21/00 A3 1,000,000 1,009,930
6 3/4%, 8/9/01 A3 1,660,000 1,678,376
BanPonce Corp.:
5 3/4%, 3/1/99 A3 460,000 456,306
6.665%, 3/5/01 A3 1,100,000 1,109,823
Den Danske Bank AS 7.40%,
6/15/10 (f)(g) A1 1,220,000 1,258,674
First Fidelity Bancorp. 8 1/2%, 4/1/98 A2 570,000 576,937
Firstar Corp. 7.15%, 9/1/00 A3 1,390,000 1,399,202
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 470,000 489,082
Marine Midland Bank euro 6%, 3/29/99 (g) A3 1,000,000 1,000,000
Midland Bank PLC yankee 7 5/8%, 6/15/06 Aa3 1,000,000 1,055,160
NB Capital Trust IV 8 1/4%, 4/15/27 A1 1,000,000 1,052,170
Provident Bank 6 1/8%, 12/15/00 A3 1,560,000 1,548,955
Signet Banking Corp. 5.9375%, 4/15/98 (g) Baa 700,000 697,424
Union Planters National Bank
6.81%, 8/20/01 A3 1,000,000 1,013,750
29,288,895
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 6.1%
AT&T Capital Corp.:
6.39%, 1/22/99 Baa $ 370,000 $ 372,168
6.26%, 2/18/99 Baa 2,800,000 2,809,660
Ahmanson Capital Trust I 8.36%,
12/1/26 (f) Baa 1,000,000 1,044,910
Associates Corp. North America
7.35%, 7/6/99 Aa3 1,500,000 1,533,555
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 2,600,000 2,722,148
BanPonce Trust I 8.327%, 2/1/27 (f) Baa 1,550,000 1,602,158
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,570,000 1,576,845
First Security Capital I 8.41%, 12/15/26 (f) A3 420,000 445,381
Ford Motor Credit Co.:
6 1/4%, 2/26/98 A1 1,460,000 1,462,686
6.65%, 5/22/00 A1 2,700,000 2,729,484
6.57%, 3/19/01 A1 1,700,000 1,714,280
General Electric Capital Corp.:
6.94%, 4/13/09 (d) Aaa 1,500,000 1,518,900
General Motors Acceptance Corp.:
6.55%, 4/23/99 A3 2,600,000 2,621,450
6.65%, 5/24/00 A3 1,200,000 1,212,468
6 3/4%, 7/10/02 A3 2,170,000 2,188,293
Greyhound Financial Corp. 6.94%, 1/28/98 Baa 500,000 501,315
Heller Financial, Inc. 7 7/8%, 11/1/99 A2 1,220,000 1,257,625
Household Finance Corp. 5.6888%, 6/4/98 (d) - 10,000,000 9,999,900
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 (f) A1 900,000 903,915
MCN Investment Corp. 5.84%, 2/1/99 Baa 730,000 730,562
U.S. West Capital Funding, Inc. 6.95%, 1/15/37 Baa 1,000,000
1,019,990
39,967,693
INSURANCE - 0.2%
SunAmerica, Inc. 6.20%, 10/31/99 Baa 1,500,000 1,499,985
SAVINGS & LOANS - 0.4%
Great West Financial Trust II 8.206%, 2/1/27 A3 1,030,000 1,061,353
Home Savings of America Irwindale FSB
6 1/2%, 8/15/04 A3 750,000 743,963
Long Island Savings Bank FSB
7%, 6/13/02 Baa 700,000 703,500
2,508,816
SECURITIES INDUSTRY - 1.4%
Merrill Lynch & Co., Inc. 5.6063%, 7/28/98 (g) - 9,000,000
9,000,000
TOTAL FINANCE 102,738,284
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
HEALTH - 0.2%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
McKesson Corp. 6.60%, 3/1/00 (f) A3 $ 1,150,000 $ 1,159,752
HOLDING COMPANIES - 0.3%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa 1,830,000 1,898,186
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
POLLUTION CONTROL - 0.2%
WMX Technologies, Inc. 7.1%, 8/1/26 A3 1,240,000 1,292,154
MEDIA & LEISURE - 1.2%
BROADCASTING - 0.9%
TCI Communications, Inc.:
6.46%, 3/6/00 Ba1 1,340,000 1,330,473
9 1/4%, 4/15/02 Ba1 800,000 872,224
8 1/4%, 1/15/03 Ba1 2,100,000 2,218,251
Time Warner, Inc. 7.95%, 2/1/00 Ba1 1,470,000 1,517,716
5,938,664
PUBLISHING - 0.3%
News America Holdings, Inc. 7.70%, 10/30/25 Baa 1,900,000 1,864,185
TOTAL MEDIA & LEISURE 7,802,849
NONDURABLES - 0.7%
FOODS - 0.1%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa 1,000,000 1,044,610
TOBACCO - 0.6%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 1,200,000 1,227,012
7%, 7/15/05 A2 1,250,000 1,249,913
6.95%, 6/1/06 A2 1,180,000 1,203,919
3,680,844
TOTAL NONDURABLES 4,725,454
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
RETAIL & WHOLESALE - 0.8%
GENERAL MERCHANDISE STORES - 0.8%
Federated Department Stores, Inc.:
10%, 2/15/01 Baa $ 2,310,000 $ 2,556,616
8 1/8%, 10/15/02 Baa 400,000 425,828
6.79%, 7/15/27 Baa 800,000 807,280
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,100,000 1,117,171
4,906,895
SERVICES - 1.5%
LEASING & RENTAL - 1.5%
PHH Corp. 5.6775%, 6/11/98 - 10,000,000 9,998,896
TECHNOLOGY - 0.2%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc. 7 3/4%, 9/1/99 Baa 1,300,000 1,337,479
TRANSPORTATION - 0.4%
AIR TRANSPORTATION - 0.4%
AMR Corp. 9 1/2%, 7/15/98 Baa 2,245,000 2,305,233
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa 500,000 540,195
2,845,428
UTILITIES - 1.9%
CELLULAR - 0.3%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 1,610,000 1,631,461
ELECTRIC UTILITY - 0.7%
Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa 1,300,000 1,338,818
Israel Electric Corp. yankee
7 7/8%, 12/15/26 (f) A3 980,000 1,025,923
Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 1,480,000 1,510,665
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa 1,000,000 1,031,563
4,906,969
GAS - 0.1%
Florida Gas Transmission Co.
7 3/4%, 11/1/97 (f) Baa 520,000 520,697
Southwest Gas Corp. 9 3/4%, 6/15/02 Baa 300,000 336,756
857,453
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.8%
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 $ 936,000 $ 995,502
8 7/8%, 1/15/06 Ba1 793,000 854,458
7 3/4%, 4/1/07 Ba1 3,200,000 3,354,688
5,204,648
TOTAL UTILITIES 12,600,531
TOTAL NONCONVERTIBLE BONDS
(Cost $157,199,872) 158,340,395
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 11.5%
U.S. TREASURY OBLIGATIONS - 6.3%
6 5/8%, 6/30/01 Aaa 190,000 194,038
11 7/8%, 11/15/03 Aaa 470,000 606,521
7%, 7/15/06 Aaa 5,290,000 5,577,617
13 7/8%, 5/15/11 (callable) Aaa 8,760,000 13,153,666
9%, 11/15/18 Aaa 2,570,000 3,310,880
8 7/8%, 2/15/19 Aaa 3,870,000 4,934,250
8 1/8%, 8/15/19 Aaa 1,490,000 1,772,400
7 1/4%, 2/15/23 Aaa 6,475,000 6,980,827
6 1/2%, 11/15/26 Aaa 4,697,000 4,725,605
TOTAL U.S. TREASURY OBLIGATIONS 41,255,804
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.2%
Federal Farm Credit Bank 6.47% 6/07/05 Aaa 2,000,000 2,008,740
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 600,000 635,154
7.59%, 3/10/05 Aaa 680,000 730,150
Federal National Mortgage Association:
6.97% 4/08/04 Aaa 1,200,000 1,242,936
7.49% 3/02/05 Aaa 4,080,000 4,354,135
Financing Corp. stripped principal:
0%, 5/2/04 to 11/2/04 Aaa 4,711,000 3,085,567
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Government Loan Trusts (assets of Trust guaranteed
by U.S. Government through Agency for
International Development) 8 1/2%, 4/1/06 Aaa $ 4,310,000 $ 4,713,890
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 Aaa 457,456 485,530
Class 2-E, 9.40%, 5/15/02 Aaa 2,184,813 2,316,775
Class T-3, 9 5/8%, 5/15/02 Aaa 92,626 98,191
Israel Export Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1994-1,
6.88%, 1/26/03 Aaa 420,588 427,347
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 955,500 971,810
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
7 1/8%, 8/15/99 Aaa 908,000 926,532
7 3/4%, 11/15/99 Aaa 317,000 328,095
0%, 11/15/01 Aaa 5,355,000 4,175,615
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates:
Series 1995-A, 8.27%, 8/1/03 Aaa 1,000,000 1,096,300
Series 1996-A, 6.92%, 8/1/04 Aaa 3,640,000 3,753,350
Series 1996-A, 7.63%, 8/1/14 (callable) Aaa 1,000,000 1,045,700
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) 6.69%, 1/15/09 (f) Aaa 1,409,671 1,427,898
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 33,823,715
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $73,906,267) 75,079,519
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 8.3%
PRINCIPAL AMOUNT (000S)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.8%
7%, 7/1/01 Aaa $ 577,717 $ 583,477
7 1/2%, 10/1/27 (h) Aaa 3,300,000 3,360,844
7 1/2%, 2/1/27 to 6/1/27 Aaa 601,061 611,765
8 1/2%, 4/1/21 to 5/1/22 Aaa 122,177 128,810
12%, 11/1/19 Aaa 186,481 212,749
4,897,645
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.3%
6%, 12/1/10 to 3/1/26 Aaa 12,930,279 12,493,870
6 1/2%, 9/1/25 to 1/1/27 Aaa 14,363,638 13,995,429
7%, 9/1/27 Aaa 6,702,300 6,675,021
7 1/2%, 5/1/27 to 10/1/27 (h) Aaa 7,926,240 7,994,769
11 1/2%, 11/1/15 Aaa 334,400 379,842
41,538,931
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.2%
6 1/2%, 11/1/08 to 6/1/09 Aaa 5,836,050 5,840,733
9 1/2%, 8/15/16 Aaa 3,485 3,799
10%,11/15/09 to 12/15/17 Aaa 490,497 542,201
11%, 7/15/10 to 10/15/15 Aaa 518,120 586,266
11 1/2%, 7/15/15 to 1/15/16 Aaa 531,133 613,748
7,586,747
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $52,841,446) 54,023,323
COMMERCIAL MORTGAGE SECURITIES - 2.5%
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (f)(g) BBB 450,000 456,680
CBM Funding Corp. sequential pay:
Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 178,627 181,167
Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 1100,000 1,118,047
CS First Boston Mortgage Securities Corp.
floater Series 1994-CFB1 Class A-1,
6.2063%, 1/25/28 (g) Aaa 34,090 34,101
Equitable Life Assurance Society of the
United States (The) (f):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,000,000 1,047,690
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 700,000 738,661
Federal Deposit Insurance Corp.
Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa 471,231 473,587
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL AMOUNT (000S)
GS Mortgage Securities Corp. II
Series 1997-GL Class A2-B, 6.86%, 7/13/30 Aaa $ 1,230,000 $ 1,254,984
Kidder Peabody Acceptance Corp. sequential
pay, Series 1993-M1 Class A-2,
7.15%, 4/25/25 Aa2 556,052 557,616
Meritor Mortgage Security Corp.
Series 1987-1 Class A-3, 9.40%, 6/1/99 Baa 54,847 54,779
Morgan Stanley Capital I, Inc. sequential pay
Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa 1,150,000 1,205,703
New England Mutual Life Insurance Co.
commercial Series 1993 Class 1-A,
6.70%, 12/15/23 (f) Aaa 346,929 346,908
Nomura Asset Securities Corp. floater Series
1994-MD-II Class A-6, 6.9213% 7/4/03 (g) - 382,364 384,634
Resolution Trust Corp.:
floater Series 1993-C2 Class A-2,
6.5575% 3/25/25 (g) Aaa 256,966 257,448
floater Series 1994-C1 Class A-3,
6.2375%, 6/25/26 (g) Aaa 506,301 506,617
commercial Series 1995-C1 Class A-4B,
6.65%, 2/25/27 Aaa 4,785,000 4,779,019
commercial Series 1995-C1 Class C,
6.90%, 2/25/27 A2 1,200,000 1,200,375
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 49,420 49,235
SC Finance Corp. floater 7.2063%, 8/1/04 (f)(g) - 600,000 600,375
Structured Asset Securities Corp. sequential pay:
Series 1993-C1 Class A-1A, 6.60%, 10/25/24 AA+ 58,064 58,010
Series 1996 Class A-2A, 7 3/4%, 2/25/28 Aaa 642,657 651,694
commercial Series 1996-CFL Class E,
7 3/4%, 2/25/28 BB+ 640,000 656,800
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $16,398,834) 16,614,130
FOREIGN GOVERNMENT OBLIGATIONS (I) - 0.8%
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 410,000 424,924
Israeli State euro 6 3/8%, 12/19/01 A3 800,000 797,000
Ontario Province yankee 7 3/4%, 6/4/02 Aa3 3,000,000 3,172,500
Quebec Province yankee 7.22%, 7/22/36 (d) A2 1,000,000 1,068,350
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,327,503) 5,462,774
SUPRANATIONAL OBLIGATIONS - 0.2%
PRINCIPAL AMOUNT (000S)
Inter American Development Bank yankee
6.29%, 7/16/27
(Cost $1,262,012) Aaa $ 1,270,000 $ 1,282,687
BANK NOTES - 2.4%
Key Bank N.A. 5.6488%, 8/20/99 (g) 9,000,000 8,991,360
Morgan Guaranty Trust Co. New York
5.565%, 3/30/98 (g) 7,000,000 6,997,690
TOTAL BANK NOTES
(Cost $15,984,409) 15,989,050
CERTIFICATES OF DEPOSIT - 10.3%
ABN-Amro Bank NV yankee 5.65%, 12/23/97 5,000,000 4,996,921
Banque Nationale de Paris yankee
5 3/4%, 7/31/98 4,500,000 4,492,137
Canadian Imperial Bank of Commerce yankee:
6.20%, 8/1/00 720,000 720,432
5.91%, 8/28/98 9,500,000 9,496,504
Chase Manhattan Bank 5 3/4%, 2/9/98 4,500,000 4,500,042
Deutsche Bank AG yankee 6.20%, 4/10/98 6,000,000 6,007,691
Landesbank Hessen-Thuringen yankee:
5.78%, 1/27/98 4,000,000 3,998,386
5.67%, 2/11/98 2,000,000 1,997,962
PNC Bank 5.6075%, 2/2/98 4,000,000 3,998,025
Rabobank Nederlan, Coop Central yankee:
5.97%, 3/20/98 2,000,000 2,000,801
6.20%, 4/10/98 4,000,000 4,005,128
Sanwa Bank Ltd. Japan yankee
5.65%, 10/27/97 2,000,000 1,999,979
Societe Generale France yankee 6%, 3/3/98 1,000,000 1,000,737
SunTrust Bank Atlanta 5.85%, 11/25/97 9,000,000 9,001,948
Westdeutsche Landesbank yankee
5.83%, 8/3/98 7,000,000 6,991,616
Westpac Banking Corp. yankee
5.885%, 8/27/98 2,500,000 2,498,267
TOTAL CERTIFICATES OF DEPOSIT
(Cost $67,692,847) 67,706,576
COMMERCIAL PAPER - 6.6%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
Bear Stearns Cos., Inc. 5.56%, 1/12/98 $ 10,000,000 $ 9,838,511
Berliner Handels-und Frankfurter Bank yankee
5.70%, 12/1/97 10,000,000 9,904,761
General Motors Acceptance Corp.
5.84%, 11/10/97 4,000,000 3,974,625
Goldman Sachs Group LP 5.83%, 1/26/98 3,000,000 2,945,032
Norfolk Southern Corp. 5.72%, 10/10/97 1,184,000 1,182,148
Textron, Inc. 5.68%, 10/6/97 2,000,000 1,998,140
Triple A One Funding Corp.:
5.56%, 10/7/97 1,296,000 1,294,614
5.56%, 10/9/97 6,424,000 6,415,167
Unifunding, Inc. yankee 5.67%, 11/12/97 6,000,000 5,960,368
TOTAL COMMERCIAL PAPER
(Cost $43,513,442) 43,513,366
MASTER NOTES - 2.4%
Corestates Bank NA Philadelphia PA
6.6123%, 1/30/98 (g) 4,800,000 4,799,903
First Bank National Association
5.5663%, 5/15/98 (g) 4,000,000 3,997,480
Goldman Sachs Group LP (The)
5.7188%, 5/4/98 (e)(g) 7,000,000 6,999,227
TOTAL MASTER NOTES
(Cost $15,797,458) 15,796,610
TIME DEPOSITS - 3.5%
Bank of Tokyo-Mitsubishi Ltd. 5.67%, 10/27/97 10,000,000
10,000,000
Barclays Bank PLC 6 1/2%, 10/1/97 3,000,000 3,000,000
Sumitomo Bank Ltd. 5.70%, 10/21/97 10,000,000 10,000,000
TOTAL TIME DEPOSITS
(Cost $23,000,000) 23,000,000
CASH EQUIVALENTS - 6.5%
MATURITY VALUE
AMOUNT (NOTE 1)
Investment in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.30%, dated
9/30/97 due 10/1/97 $ 314,055 $ 314,000
SHARES
Taxable Central Cash Fund (b) 42,206,078 42,206,078
TOTAL CASH EQUIVALENTS
(Cost $42,520,078) 42,520,078
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $606,031,737) $ 655,237,594
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund
was 5.66%. The yield refers to the income earned by investing in the
fund over the seven-day period, expressed as an annual percentage.
3. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
4. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
5. 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
Goldman Sachs
Group LP (The)
5.7188%, 5/4/98 8/5/97 $7,000,000
6. 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 $15,058,174 or
2.3% of net assets.
7. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
8. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
9. For foreign government obligations not individually rated by S&P or
Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
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 33.3% AAA, AA, A 30.3%
Baa 5.0% BBB 9.5%
Ba 2.2% BB 0.2%
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 Moody's or S&P amounted to 0.2%.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 86.4%
Germany 3.1
Canada 2.5
Netherlands 2.3
United Kingdom 2.2
France 1.1
Others (individually less than 1%) 2.4
TOTAL 100.0%
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $606,261,192. Net unrealized appreciation
aggregated $48,976,402, of which $51,968,987 related to appreciated
investment securities and $2,992,585 related to depreciated investment
securities.
The fund hereby designates approximately $2,804,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 655,237,594
AGREEMENTS OF $314,000) (COST $606,031,737) -
SEE ACCOMPANYING SCHEDULE
CASH 102,124
RECEIVABLE FOR INVESTMENTS SOLD 343,269
RECEIVABLE FOR FUND SHARES SOLD 963,126
DIVIDENDS RECEIVABLE 270,529
INTEREST RECEIVABLE 5,622,762
OTHER RECEIVABLES 4,493
TOTAL ASSETS 662,543,897
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 1,069,265
REGULAR DELIVERY
DELAYED DELIVERY 11,413,553
PAYABLE FOR FUND SHARES REDEEMED 2,188,297
ACCRUED MANAGEMENT FEE 234,528
OTHER PAYABLES AND ACCRUED EXPENSES 235,761
TOTAL LIABILITIES 15,141,404
NET ASSETS $ 647,402,493
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 578,231,541
UNDISTRIBUTED NET INVESTMENT INCOME 3,063,493
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 16,902,286
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 49,205,173
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 52,362,053 SHARES OUTSTANDING $ 647,402,493
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $12.36
PER SHARE ($647,402,493 (DIVIDED BY) 52,362,053 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 2,401,401
DIVIDENDS
INTEREST 30,876,372
TOTAL INCOME 33,277,773
EXPENSES
MANAGEMENT FEE $ 2,672,303
TRANSFER AGENT FEES 1,571,189
ACCOUNTING FEES AND EXPENSES 236,387
NON-INTERESTED TRUSTEES' COMPENSATION 5,121
CUSTODIAN FEES AND EXPENSES 54,247
REGISTRATION FEES 47,918
AUDIT 76,052
LEGAL 3,584
MISCELLANEOUS 2,962
TOTAL EXPENSES BEFORE REDUCTIONS 4,669,763
EXPENSE REDUCTIONS (92,397) 4,577,366
NET INVESTMENT INCOME 28,700,407
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 17,694,129
FOREIGN CURRENCY TRANSACTIONS 18,555 17,712,684
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 33,496,431
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 14,368 33,510,799
NET GAIN (LOSS) 51,223,483
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 79,923,890
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 28,700,407 $ 29,209,104
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 17,712,684 20,668,906
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 33,510,799 (9,434,691)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 79,923,890 40,443,319
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (29,690,585) (32,164,979)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (12,650,000) -
TOTAL DISTRIBUTIONS (42,340,585) (32,164,979)
SHARE TRANSACTIONS 256,470,143 228,615,077
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 39,646,435 29,652,662
COST OF SHARES REDEEMED (252,401,457) (266,521,145)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 43,715,121 (8,253,406)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 81,298,426 24,934
NET ASSETS
BEGINNING OF PERIOD 566,104,067 566,079,133
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 647,402,493 $ 566,104,067
INCOME OF $3,063,493 AND $3,789,498, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 21,571,779 19,790,260
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 3,364,019 2,580,669
REDEEMED (21,232,901) (23,109,490)
NET INCREASE (DECREASE) 3,702,897 (738,561)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 D 1993 C
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 11.63 $ 11.46 $ 10.69 $ 11.07 $ 10.00
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .56 B .61 .56 .45 .46
NET REALIZED AND UNREALIZED 1.02 .20 .68 (.29) 1.04
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS 1.58 .81 1.24 .16 1.50
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.59) (.64) (.47) (.47) (.43)
FROM NET REALIZED GAIN (.26) - - (.04) -
IN EXCESS OF NET REALIZED GAIN - - - (.03) -
TOTAL DISTRIBUTIONS (.85) (.64) (.47) (.54) (.43)
NET ASSET VALUE, END OF PERIOD $ 12.36 $ 11.63 $ 11.46 $ 10.69 $ 11.07
TOTAL RETURN A 14.16% 7.28% 11.99% 1.46% 15.32%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 647,402 $ 566,104 $ 566,079 $ 501,349 $ 199,237
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .77% .82% .79% .71% .65%
NET ASSETS E E
RATIO OF EXPENSES TO AVERAGE NET .76% .80% .79% .71% .65%
ASSETS AFTER EXPENSE REDUCTIONS F F
RATIO OF NET INVESTMENT INCOME 4.74% 5.03% 5.15% 4.92% 5.19%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 112% 148% 157% 83% 47%
AVERAGE COMMISSION RATE G $ .0411 $ .0286
</TABLE>
THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
FOR THE PERIOD OCTOBER 1, 1992 (COMMENCEMENT OF OPERATIONS) TO
SEPTEMBER 30, 1993.
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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
8. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Asset Manager: Income (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 financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Debt securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices in the principal market
(sales prices if the principal market is an exchange) in which such
securities are normally traded. Equity securities for which quotations
are readily available are valued at the last sale price, or if no sale
price, at the closing bid price. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
securities where the ex-dividend date may have passed, are recorded as
soon as the fund is informed of the ex-dividend date. Non-cash
dividends included in dividend income, if any, are recorded at the
fair market value of the securities received. Interest income, which
includes accretion of original issue discount, is accrued as earned.
Investment income is recorded net of foreign taxes withheld where
recovery of such taxes is uncertain.
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 recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, passive foreign investment companies (PFIC),
market discount, non-taxable dividends, 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 and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. 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.
9. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
cash balances into one or more joint trading accounts. These balances
are invested in one or more repurchase agreements for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is
an open-end money market fund available only to investment companies
and other accounts managed by FMR and its affiliates. The Cash Fund
seeks preservation of capital, liquidity, and current income by
investing in U.S. Treasury securities and repurchase agreements for
these securities. Income distributions from the Cash Fund are declared
daily and paid monthly from net interest income. Income distributions
received by the fund are
recorded as interest income in the accompanying financial statements.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $6,999,227 or 1.1% of net assets.
10. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $519,013,143 and $629,914,994, respectively, of which U.S.
government and government agency obligations aggregated $253,749,329
and $414,105,000, respectively.
11. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus
a fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event
that these rates were lower than the contractual rates in effect
during the period, FMR voluntarily implemented the above rates, as
they resulted in the same or a lower management fee. For the period,
the management fee was equivalent to an annual rate of .44% of average
net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .26% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $25,003 for the
period.
12. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $21,684 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $4,447 and $66,266, respectively, under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Asset Manager: Income:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for Moody's and Standard
& Poor's ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Fidelity Asset
Manager: Income (a fund of Fidelity Charles Street Trust) at September
30, 1997, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Asset Manager: Income's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 10, 1997
DISTRIBUTIONS
A total of 19.75% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 7% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1998 of these percentages
for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
William J. Hayes, Vice President
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
George A. Vanderheiden, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H . Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
* INDEPENDENT TRUSTEES
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY'S ASSET ALLOCATION FUNDS
Asset Manager
SM
Asset Manager: Growth
SM
Asset Manager: Income
SM
Fidelity Freedom Funds-
Income, 2000, 2010, 2020, 2030
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
(for the deaf and hearing impaired)
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)FIDELITY
ASSET MANAGER (registered trademark)
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
MARKET RECAP 6 AN OVERVIEW OF THE MARKET'S PERFORMANCE
AND THE FACTORS DRIVING IT.
FUND TALK 7 THE MANAGERS' REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 12 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 13 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 47 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 51 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 56 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 57
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. Asset Manager funds are already diversified because
they invest in stocks, bonds and short-term and money market
instruments, both in the U.S. and overseas. If you have a shorter
investment time horizon, you might want to consider moving some of
your investment into Asset Manager: Income, which generally has a
higher weighting in short-term investments compared with the other
Asset Manager funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER 25.15% 88.59% 207.82%
S&P 500(REGISTERED TRADEMARK) 40.45% 156.94% 339.87%
FLEXIBLE PORTFOLIO FUNDS AVERAGE 23.82% 91.30% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on December 28, 1988. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Standard & Poor's 500 Index - a
widely recognized, unmanaged index of common stocks. To measure how
the fund's performance stacked up against its peers, you can compare
it to the flexible portfolio funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 201 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER 25.15% 13.53% 13.69%
S&P 500 40.45% 20.77% 18.41%
FLEXIBLE PORTFOLIO FUNDS AVERAGE 23.82% 13.61% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's
total return, then taking an arithmetic average. This may produce a
slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971009 142312 S00000000000001
Asset Manager S&P 500
FI Composite Index
00314 SP001
F0001
1988/12/31 10000.00 10000.00
10000.00
1989/01/31 10378.86 10732.00
10291.60
1989/02/28 10219.34 10464.77
10200.52
1989/03/31 10309.07 10708.60
10320.38
1989/04/30 10578.27 11264.38
10593.04
1989/05/31 10887.34 11720.59
10846.43
1989/06/30 11006.98 11653.78
10999.47
1989/07/31 11326.02 12706.12
11415.14
1989/08/31 11355.93 12955.15
11426.55
1989/09/30 11355.93 12902.04
11453.98
1989/10/31 11405.78 12602.71
11519.04
1989/11/30 11485.54 12859.81
11656.23
1989/12/31 11527.69 13168.44
11770.69
1990/01/31 11158.89 12284.84
11486.90
1990/02/28 11243.19 12443.31
11560.30
1990/03/31 11359.10 12773.06
11674.05
1990/04/30 11169.43 12453.74
11566.30
1990/05/31 11759.51 13667.97
12058.22
1990/06/30 11854.35 13575.03
12133.34
1990/07/31 11843.81 13531.59
12207.35
1990/08/31 11443.39 12308.34
11829.78
1990/09/30 11211.58 11708.92
11724.02
1990/10/31 11243.19 11658.57
11808.08
1990/11/30 11780.58 12411.72
12162.21
1990/12/31 12147.79 12758.00
12361.43
1991/01/31 12795.97 13314.25
12597.16
1991/02/28 13354.74 14266.22
12912.59
1991/03/31 13578.25 14611.46
13052.82
1991/04/30 13790.59 14646.53
13138.45
1991/05/31 14137.03 15279.26
13347.09
1991/06/30 13835.29 14579.47
13174.11
1991/07/31 14204.08 15258.87
13438.91
1991/08/31 14528.17 15620.51
13678.12
1991/09/30 14550.52 15359.65
13743.09
1991/10/31 14662.28 15565.47
13865.40
1991/11/30 14405.24 14938.18
13769.87
1991/12/31 15019.76 16647.11
14448.31
1992/01/31 15236.74 16337.47
14290.39
1992/02/29 15526.05 16549.86
14381.71
1992/03/31 15526.05 16227.13
14277.73
1992/04/30 15743.03 16704.21
14453.35
1992/05/31 15899.73 16786.06
14595.28
1992/06/30 15899.73 16535.95
14601.70
1992/07/31 16225.20 17212.27
14998.28
1992/08/31 16152.88 16859.42
14940.69
1992/09/30 16273.42 17058.36
15105.93
1992/10/31 16249.31 17118.06
15045.81
1992/11/30 16610.94 17701.79
15246.52
1992/12/31 16934.14 17919.52
15433.44
1993/01/31 17225.45 18070.05
15626.36
1993/02/28 17402.77 18315.80
15844.19
1993/03/31 17975.71 18702.26
16006.75
1993/04/30 18052.42 18249.67
15909.43
1993/05/31 18435.97 18738.76
16080.30
1993/06/30 18668.08 18793.10
16251.07
1993/07/31 18951.91 18717.93
16271.88
1993/08/31 19493.76 19427.34
16672.16
1993/09/30 19481.53 19277.75
16655.16
1993/10/31 20054.14 19676.80
16826.37
1993/11/30 20015.09 19489.87
16696.81
1993/12/31 20877.83 19725.69
16812.35
1994/01/31 21555.68 20396.37
17142.55
1994/02/28 20877.83 19843.63
16817.52
1994/03/31 19867.84 18978.44
16382.96
1994/04/30 19854.17 19221.37
16425.55
1994/05/31 20018.25 19536.60
16536.26
1994/06/30 19577.74 19057.95
16370.90
1994/07/31 19962.97 19683.05
16716.65
1994/08/31 20430.74 20490.06
17004.51
1994/09/30 20182.51 19988.05
16755.23
1994/10/31 20279.40 20437.78
16915.74
1994/11/30 19974.87 19693.44
16669.99
1994/12/31 19499.59 19985.49
16824.89
1995/01/31 19344.50 20503.72
17139.38
1995/02/28 19640.59 21302.75
17567.66
1995/03/31 19953.26 21931.39
17836.51
1995/04/30 20364.82 22577.27
18157.21
1995/05/31 20847.33 23479.68
18758.73
1995/06/30 21133.35 24025.12
19009.94
1995/07/31 21718.80 24821.79
19252.21
1995/08/31 21861.60 24884.09
19378.96
1995/09/30 22219.16 25934.20
19797.94
1995/10/31 22147.35 25841.62
19910.63
1995/11/30 22563.87 26976.06
20401.22
1995/12/31 23039.92 27495.62
20693.86
1996/01/31 23534.15 28431.57
21046.40
1996/02/29 23417.86 28695.13
20969.12
1996/03/31 23419.07 28971.47
20994.53
1996/04/30 23623.99 29398.51
21081.78
1996/05/31 23872.82 30156.69
21303.90
1996/06/30 24006.08 30271.59
21462.49
1996/07/31 23548.68 28934.19
21122.27
1996/08/31 23696.23 29544.41
21301.30
1996/09/30 24523.08 31207.17
21938.89
1996/10/31 25147.68 32067.87
22393.29
1996/11/30 26337.40 34491.88
23244.14
1996/12/31 25972.41 33808.59
22984.18
1997/01/31 26760.88 35920.96
23740.59
1997/02/28 26981.65 36202.58
23866.65
1997/03/31 25961.97 34715.01
23280.84
1997/04/30 26852.28 36787.50
24125.47
1997/05/31 28171.84 39027.12
24962.14
1997/06/30 28891.29 40775.54
25650.60
1997/07/31 30541.76 44020.05
26959.17
1997/08/31 29724.53 41554.04
26123.97
1997/09/30 30689.57 43829.96
27005.00
IMATRL PRASUN SHR__CHT 19970930 19971009 142315 R00000000000108
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager on December 31, 1988, shortly after
the fund started. As the chart shows, by September 30, 1997, the value
of the investment would have grown to $30,690 - a 206.90% increase on
the initial investment. For comparison, look at how the S&P 500 did
over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $43,830 -
a 338.30% increase. You can also look at how the Fidelity Asset
Allocation Composite Index, a hypothetical combination of unmanaged
indices, did over the same period. The composite index combines the
total returns of the S&P 500 (+338.30%), the Lehman Brothers Aggregate
Bond Index (+116.65%) and the Salomon Brothers 3-month T-Bill Total
Rate of Return Index (+59.53%) according to the fund's neutral mix*,
and assumes monthly rebalancing of the mix. With dividends and capital
gains, if any, reinvested, the same $10,000 investment would have
grown to $27,005 - a 170.05% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market, for
example, has a history of
long-term growth and
short-term volatility. In turn, the
share price and return of a
fund that invests in stocks will
vary. That means if you sell
your shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
* CURRENTLY 50% STOCKS, 40% BONDS AND 10% SHORT-TERM/MONEY MARKET
INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 40%, 40% AND 20%, RESPECTIVELY,
BETWEEN JUNE 1, 1992 AND DECEMBER 31, 1996; 30%, 40%, AND 30%,
RESPECTIVELY, PRIOR TO JUNE 1, 1992.
MARKET RECAP
A common denominator to the strong performances of both the bond and
stock markets during the period was economic bliss. The U.S. economy
continued to grow at a consistent, moderate clip and rising inflation
- - a deterrent to both bonds and stocks - was essentially a non-factor.
STOCKS: The Standard & Poor's 500 Index, a broad measure of the U.S.
stock market, returned 40.45% during the 12 months that ended
September 30, 1997, well above its long-term annual average of
approximately 11%. The stock market spent much of the past 12 months
breaking price and trading volume records. Solid corporate earnings,
large cash inflows into mutual funds, widespread optimism and a
generally favorable interest-rate climate boosted share prices higher,
especially among large-capitalization, household-name stocks. In fact,
a select group of these so-called "blue chips" was responsible for a
significant portion of the S&P 500's gain. Concerns in the springtime
over an overheating economy and earnings shortfall announcements from
several key companies in August provided the only considerable hiccups
in the market's rise. When the Federal Reserve Board raised a key
short-term interest rate in March, an already richly priced market
sold off sharply. From that point, with positive economic news being
the primary catalyst, the market soared. In July, the Dow Jones
Industrial Average surged past the 8000 mark for the first time ever.
August posed an altogether different story, though, as inflation
fears, a weakened dollar and sluggish corporate earnings combined to
erode some of the market's prior gains. The silver lining in this
decline, however, was the overall broadening of the market, as small-
and mid-cap stocks performed well, leading to a strong September.
BONDS: A calm economy, coupled with the absence of the bond market's
chief antagonist - rising inflation - translated into a generally
favorable investment climate for the 12 months that ended September
30, 1997. The Lehman Brothers Aggregate Bond Index - a broad measure
of the U.S. taxable bond market - returned 9.71% over the period.
Through the first half of the year, bonds suffered from the perception
that the economy was expanding too quickly and, in turn, that
inflation would appear. In February, Federal Reserve Board Chairman
Alan Greenspan hinted that the Fed was inclined to raise the rate
banks charge each other for overnight loans - known as the fed funds
target rate - to curb any potential inflation upticks. The Fed acted
in March, raising the fed funds rate by 0.25% to 5.50% in a move
largely anticipated by investors. From April through July, weakening
economic and inflation indicators - along with the Fed's shift to a
more beneficial stance signaling no further rate hikes - helped spark
an across-the-board rally. While some of these gains were lost in
August, as inflation fears cropped up again due to
stronger-than-expected economic data, much of the decline was offset
by a strong September. Relative interest-rate stability provided a
positive backdrop for mortgage-backed securities, as the Salomon
Brothers Mortgage Index returned 9.85% over the 12-month period.
Sustained economic growth and demand for higher yields aided corporate
bonds, as the Lehman Brothers Corporate Bond Index returned 10.83%
over the same time frame.
FUND TALK: THE MANAGERS' OVERVIEW
An interview with Richard Habermann (top left), Portfolio Manager of
Fidelity Asset Manager, as well as George Vanderheiden (top right),
sub-manager for stocks, Charles Morrison (bottom left), sub-manager
for bonds and John Todd (bottom right), sub-manager for
short-term/money market.
Q. HOW DID THE FUND PERFORM, DICK?
D.H. For the 12 months that ended September 30, 1997, the fund had a
total return of 25.15%. That beat the flexible portfolio funds average
tracked by Lipper Analytical Services, which returned 23.82% during
the same period.
Q. HOW DID YOU POSITION THE FUND IN TERMS OF ASSET ALLOCATION?
D.H. During most of the period, the fund was overweighted in stocks
relative to its competitors and its neutral mix targets. This
positioning strategy - in conjunction with beneficial security
selection within the equity and fixed-income sub-portfolios - helped
the fund's performance, as equities proved to be the top-performing
asset over the period. Further, the fund's investments in high-yield
bonds - which are included in its bond-class allocation - proved to be
quite beneficial. I started to increase investments in stocks in the
spring after a significant correction in the market brought valuations
to attractive levels against a very positive backdrop of stable, low
interest rates and favorable earnings growth. The fund's stock
allocation reached a peak of about 64% at the end of July. However,
late
in the period, I cut back the fund's stake in stocks significantly, to
56% of the portfolio at the end of September. With the high valuations
we've seen in the stock market come expectations that can exert a
great deal of influence on stock prices. In other words, any small
change in the overall view of the market can lead to a significant
shift in stock prices. That's the reason behind this move.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
D.H. While smaller in magnitude than earlier in the period, the fund
remains overweighted in stocks relative to the neutral mix, which
calls for 50% to be invested in stocks, 40% in bonds and 10% in
short-term/money market instruments. The neutral mix is meant to be an
optimal combination of securities if valuations
in all three asset classes are at comparable levels. I'll change the
asset allocation if I have a strong view about a particular area. The
stock market rose as much as it did in large part because of an almost
perfect scenario regarding interest rates, economic growth and
corporate earnings. After this run-up, I found my strong view on
stocks to be less compelling. With low interest rates and valuations
at historically high levels, share prices are more likely to react
poorly to even a slight change in investor expectations or any
unforeseen negative news. At the same time, prospects for stocks
remain attractive; hence, they remain slightly overweighted.
Q. WHERE DID YOU PUT THE ASSETS THAT CAME OUT OF THE STOCK PORTION OF
THE FUND?
D.H. I invested them in the short-term/money market portion of the
fund. Presently, that part of the fund equals 13% of the fund's
assets, and bonds 31% - including a stake in high-yield securities. My
feeling is that given an unforeseen event, the bond market - like the
stock market - has a lot less margin for error now after performing
well through most of 1997. In addition, valuations in the bond market
also are relatively high. I don't believe longer-maturity securities
are offering enough yield to compensate an investor for taking on the
added risk and volatility that come with investing in them. Therefore,
the short-term/money market sector was more appealing.
Q. GEORGE, WHICH STOCKS HELPED THE FUND'S PERFORMANCE?
G.V. Despite the stigma of litigation, tobacco giant Philip Morris was
a solid contributor to the fund's performance. Strong growth in
personal computer sales as well as corporate spending on
telecommunications and networking hardware propelled the fund's
technology-related holdings to solid gains. IBM and Compaq Computer
were particularly strong performers.
Q. HAVE RECENT DEVELOPMENTS WITH COLUMBIA/HCA HEALTHCARE AND PHILIP
MORRIS CHANGED YOUR VIEW OF THESE STOCKS?
G.V. After the news broke that the government was investigating the
Medicare billing practices of Columbia/HCA, its market valuation
declined by over $10 billion from its peak this year in March.
However, I believed that any fine imposed by the government was more
than adequately reflected in this market discount. Further, I believed
any fine would be tax-deductible to Columbia/HCA. Consequently, I felt
the impact of the government investigation was already reflected in
the stock price. In addition, management was in the process of seeking
a settlement with the government. When management has cooperated with
the government in similar cases with other companies in the past, the
company's stock price has rebounded during and after the settlement
agreement process. In sum, I felt the stock was attractively priced
with good long-term business prospects, as Columbia's hospitals are in
prime locations and 20% have a monopoly position. As far as Philip
Morris is concerned, litigation has been a way of life for tobacco
companies since the Surgeon General's first warning about the effects
of smoking more than 30 years ago. If investors had decided to sell
Philip Morris after that first warning, they would have missed a more
than 32,700% increase in its price - excluding reinvested dividends -
since that time. While past performance is no guarantee of future
results, this phenomenal increase in the price of Philip Morris
equates to a gain of roughly 18% per year for the past 35 years.
Despite the ongoing tobacco litigation, Philip Morris had strong
business prospects and remained attractively priced to me at the end
of the period. The company has some of the strongest brand names in
the consumer industry and can use this advantage to increase its share
in new global markets.
Q. TURNING TO YOU, CHARLIE, HOW HAVE YOU POSITIONED THE FUND'S BOND
PORTFOLIO?
C.M. I'd highlight three areas. First, I reduced the fund's position
in Treasury bonds from 8.9% on March 31, 1997, to 3.4% at the end of
the period. I directed most of these assets toward purchases in the
corporate market, in order to increase the yield of the fund. This
larger corporate position - up to 18.4% at the end of the period
versus 16.3% at the end of March - was focused primarily on
shorter-term securities. Given the high valuations in the corporate
market, these notes should not underperform as much as longer-term
corporates if the market encounters difficulties. Second, I increased
asset-backed securities - bonds backed by credit cards, or other types
of loans - as a percentage of the fund's fixed-income investments.
Opportunities here included notes backed by home equity and
manufactured housing loans. Third, I maintained the fund's
underweighted exposure to mortgage-backed securities relative to the
overall bond market as represented by the Lehman Brothers Aggregate
Bond Index. Continued high valuations in this market did not represent
a positive risk/reward profile. More specifically, I felt that
concerns regarding potential prepayment activity - meaning the risk
that the mortgage-backed securities might be paid off early - were not
adequately factored into the pricing of these securities.
Q. DID YOU ADD TO PARTICULAR SECTORS IN THE CORPORATE MARKET?
C.M. I targeted the cable and telecommunications industries
aggressively over the period. Companies such as Tele-Communications,
Inc., Time Warner, and WorldCom provided notable opportunities.
WorldCom and related subsidiaries now make up one of the larger
corporate bond positions in the fund. I believed this company - a
provider of local, long distance, Internet and other
telecommunications services - was uniquely positioned to take
advantage of deregulation and technological advancement in the
industry. It had strong revenue growth, outstanding management and
leading-edge technology working in its favor. I'd also like to point
out one area where I decreased the fund's position - yankee bonds,
which are dollar-denominated bonds issued in the U.S. by foreign
banks, governments
and corporations. Most of this selling focused on bonds issued by
state-owned Malaysian oil company Petroliam Nasional (Petronas) and
the Korea Development Bank. I sold out of most of these positions when
currency stability concerns within Southeast Asia first arose in
Thailand. This move proved quite favorable, as most of the region went
on to see significant underperformance in its dollar-denominated
securities.
Q. JOHN, HOW WOULD YOU CHARACTERIZE THE INVESTING ENVIRONMENT FOR
SHORT-TERM/MONEY MARKET INSTRUMENTS?
J.T. Even though the economy continued to grow at an above-trend rate
- - meaning one that is believed to be above its capacity to expand
without generating inflation - there has been little sign of
inflation. Because of the lack of inflation, the Federal Reserve Board
has held off raising short-term interest rates since its meeting in
March. At that time, the Fed raised the rate banks charge each other
for overnight loans - known as the fed funds rate - by 0.25% to 5.50%,
trying to head off inflation before it emerged. At this point, though,
the Fed seems willing to respond with higher interest rates only if
actual evidence of inflation appears.
Q. HOW DID YOU POSITION YOUR SUB-PORTFOLIO?
J.T. As we progressed through March - when the Fed raised rates - I
lowered the sub-portfolio's average maturity to
reflect a neutral stance. In late April and early May, yields in the
market started to factor in a more aggressive Fed posture than I
anticipated. Therefore, I extended the fund's average maturity to take
advantage of the higher yields being offered. As it became evident in
the summer that the Fed was going to hold pat in spite of strong
economic growth - and as long as inflation remained tame - yields for
shorter-term maturities became more attractive, relative to
longer-term rates. In turn, I reduced the fund's maturity through the
end of the period, because we weren't being rewarded for investing in
the longer end of the spectrum.
Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK?
D.H. As we look back over what has been a strong seven-year run for
the stock market, we can see that its main drivers have been declining
interest rates and solid corporate earnings. Looking out over the near
future, I don't think we can expect interest rates to provide much
more of a stimulus for stock prices. As a result, earnings should be
the most critical factor for stock prices going forward, with those
companies that can't meet expectations being penalized. As far as
bonds are concerned, valuations remain on the high side, although as
long as the economy doesn't accelerate too much and inflation remains
tame, bonds should perform reasonably well. One positive factor for
the fixed-income markets is that real interest rates - which are
stated interest rates adjusted for inflation - remain high.
That's usually a positive sign. Inflation remains subdued, because
companies worldwide have little or no pricing power due to a
competitive environment. However, if economic strength accelerates in
Europe, or if Japan shows rapid signs of recovery, inflation pressures
could build. If that's the case, interest rates may rise, which would
be a negative for all of the markets.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
DICK HABERMANN ON THE FUND'S
PERFORMANCE:
"When comparing the fund's returns
to the unusually strong performance
of the Standard & Poor's 500 Index,
investors should note that there are
some significant differences between
the make-up of the fund and the
composition of the index. While the
S&P 500 is made up exclusively of
stocks, Asset Manager invests in
stocks, bonds and short-term/money
market instruments. The fund
allocates assets among these three
categories in order to help control
both volatility and risk relative to
funds or indexes that invest only in
stocks. A single index covering only
one asset class should not be used
as the only benchmark against which
to compare the fund's overall
performance. History teaches us that
it's better to invest for the long term
by diversifying across several asset
classes. That's because the markets
are not predictable. At some point,
the economy will falter and the S&P
will fall back to provide returns more
in line with its historical average.
Asset Manager offers the portfolio
manager the flexibility to reallocate
the components of the fund. That
decision-making mainly comes
down to looking at relative
valuations among the three asset
classes. Given that your investment
horizon and risk tolerance match the
investment objectives of the fund,
you can rest assured that we will do
our best to make sure the fund's asset
allocation is appropriate for your
goals."
FUND FACTS
GOAL: high total return with
reduced risk over the long
term by allocating assets
among stocks, bonds and
short-term and money market
instruments of all types
FUND NUMBER: 314
TRADING SYMBOL: FASMX
START DATE: December 28, 1988
SIZE: as of September 30,
1997, more than $11.8 billion
MANAGER: Richard Habermann,
since 1996; manager, Fidelity
Asset Manager: Income and
Fidelity Asset Manager: Growth,
since 1996; manager, Fidelity
Trend Fund, 1977-1981;
Fidelity Magellan Fund, 1972-
1977; joined Fidelity in 1968
(checkmark)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FEDERAL NATIONAL MORTGAGE ASSOCIATION 4.7 4.1
PHILIP MORRIS COMPANIES, INC. 3.8 5.1
GENERAL MOTORS CORP. 1.7 2.1
FEDERAL HOME LOAN MORTGAGE CORPORATION 1.7 1.7
COLUMBIA/HCA HEALTHCARE CORP. 1.5 1.5
TOP FIVE BOND ISSUERS AS OF SEPTEMBER 30, 1997
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES OF MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
FEDERAL NATIONAL MORTGAGE ASSOCIATION 4.1 5.2
U.S. TREASURY 3.4 8.9
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.9 1.8
FORD MOTOR CREDIT CO. 0.9 0.9
FEDERAL HOME LOAN MORTGAGE CORPORATION 0.8 0.3
</TABLE>
TOP FIVE COUNTRIES AS OF SEPTEMBER 30, 1997
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO
UNITED STATES 82.5 85.0
UNITED KINGDOM 2.3 2.7
NETHERLANDS 1.6 2.1
CANADA 1.3 1.8
FRANCE 0.8 0.9
TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY,
INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT
RISKS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997 * AS OF MARCH 31, 1997 **
ROW: 1, COL: 1, VALUE: 13.0
ROW: 1, COL: 2, VALUE: 31.0
ROW: 1, COL: 3, VALUE: 36.0
ROW: 1, COL: 4, VALUE: 20.0
STOCK CLASS 55%
BOND CLASS 37%
SHORT-TERM CLASS 8%
FOREIGN
INVESTMENTS 12%
STOCK CLASS 56%
BOND CLASS 31%
SHORT-TERM CLASS 13%
FOREIGN
INVESTMENTS 9%
ROW: 1, COL: 1, VALUE: 8.0
ROW: 1, COL: 2, VALUE: 37.0
ROW: 1, COL: 3, VALUE: 55.0
*
**
ASSET ALLOCATIONS IN THE PIE CHARTS REFLECT THE CATEGORIZATION OF
ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME
PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM
TO ACCOUNTING STANDARDS AND MAY DIFFER FROM THE PIE CHART.
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 54.6%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.0%
AEROSPACE & DEFENSE - 0.6%
Boeing Co. 1,327,800 $ 72,282
Gulfstream Aerospace Corp. (a) 102,300 2,967
75,249
DEFENSE ELECTRONICS - 0.3%
Raytheon Co. 604,400 35,735
SHIP BUILDING & REPAIR - 0.1%
Avondale Industries, Inc. (a) 54,600 1,440
Newport News Shipbuilding, Inc. 144,800 3,412
4,852
TOTAL AEROSPACE & DEFENSE 115,836
BASIC INDUSTRIES - 2.5%
CHEMICALS & PLASTICS - 1.6%
Air Products & Chemicals, Inc. 173,400 14,381
du Pont (E.I.) de Nemours & Co. 1,683,800 103,659
Raychem Corp. 555,900 46,974
Union Carbide Corp. 593,500 28,896
193,910
PACKAGING & CONTAINERS - 0.4%
Corning, Inc. 35,700 1,687
Owens-Illinois, Inc. (a) 1,520,100 51,589
53,276
PAPER & FOREST PRODUCTS - 0.5%
Boise Cascade Corp. 342,500 14,406
Champion International Corp. 483,000 29,433
International Paper Co. 118,000 6,497
Ivex Packaging Corp. 9,300 149
Willamette Industries, Inc. 136,700 5,229
55,714
TOTAL BASIC INDUSTRIES 302,900
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.7%
CONSTRUCTION - 0.5%
Centex Corp. 185,290 $ 10,816
D.R. Horton, Inc. 503,410 7,929
Fleetwood Enterprises, Inc. 861,387 28,910
Kaufman & Broad Home Corp. 719,800 15,611
U.S. Home Corp. (a) 54,900 2,121
65,387
ENGINEERING - 0.2%
Fluor Corp. 432,900 23,214
TOTAL CONSTRUCTION & REAL ESTATE 88,601
DURABLES - 3.0%
AUTOS, TIRES, & ACCESSORIES - 2.4%
Circuit City Stores, Inc. - CarMax Group 53,800 891
Cummins Engine Co., Inc. 296,600 23,153
Discount Auto Parts, Inc. (a) 313,400 7,522
Federal-Mogul Corp. 147,400 5,472
General Motors Corp. 3,007,692 201,335
Gentex Corp. (a) 86,600 2,149
Goodyear Tire & Rubber Co. 146,000 10,038
Honda Motor Co. Ltd. 186,000 6,507
Magna International, Inc. Class A 334,700 23,229
Superior Industries International, Inc. 518,300 14,350
294,646
CONSUMER ELECTRONICS - 0.1%
Newell Co., Inc. 280,500 11,220
Philips Electronics NV (Bearer) 36,300 3,068
Philips Electronics NV 11,700 983
15,271
TEXTILES & APPAREL - 0.5%
Arena Brands Holdings Corp. Class B (a) 130,444 5,269
Big Dog Holdings, Inc. 3,700 51
Burlington Industries, Inc. (a) 714,400 10,001
Liz Claiborne, Inc. 204,100 11,213
NIKE, Inc. Class B 532,500 28,223
Reebok International Ltd. 48,200 2,347
57,104
TOTAL DURABLES 367,021
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 4.1%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 653,600 $ 23,856
OIL & GAS - 3.9%
Amerada Hess Corp. 278,300 17,169
Atlantic Richfield Co. 335,500 28,664
British Petroleum PLC:
ADR 891,587 80,967
Ord. 1,550 23
Burlington Resources, Inc. 708,300 36,345
Elf Aquitaine SA sponsored ADR 143,857 9,593
Enron Oil & Gas Co. 76,900 1,711
Kerr-McGee Corp. 180,400 12,414
Louisiana Land & Exploration Co. 521,800 40,863
Mobil Corp. 82,000 6,068
Occidental Petroleum Corp. 1,270,800 32,961
Royal Dutch Petroleum Co. Ord. 389,600 21,893
Royal Dutch Petroleum Co. 1,775,100 98,519
Santa Fe Energy Resources, Inc. 393,800 4,923
Tosco Corp. 1,338,800 46,607
Total SA:
Class B 71,503 8,217
sponsored ADR 209,072 11,982
Union Pacific Resources Group, Inc. 33,600 880
Valero Energy Corp. 122,900 4,033
463,832
TOTAL Energy 487,688
FINANCE - 12.6%
BANKS - 0.7%
Credit Suisse Group (Reg.) 251,800 34,170
NationsBank Corp. 316,600 19,590
Providian Financial Corp. 666,600 26,455
80,215
CLOSED END INVESTMENT COMPANY - 0.1%
First NIS Regional Fund (a) 391,800 7,445
CREDIT & OTHER FINANCE - 1.3%
Fleet Financial Group, Inc. 2,241,934 146,987
Green Tree Financial Corp. 270,700 12,723
159,710
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
FEDERAL SPONSORED CREDIT - 6.4%
Federal Home Loan Mortgage Corporation 5,646,600 $ 199,042
Federal National Mortgage Association 12,067,400 567,168
766,210
INSURANCE - 3.8%
AFLAC, Inc. 216,500 11,745
Aegon NV (Reg.) 213,000 16,973
Allmerica Financial Corp. 314,000 13,796
Allstate Corp. 1,623,513 130,491
American International Group, Inc. 924,525 95,399
CIGNA Corp. 150,300 27,993
Equitable of Iowa Companies 35,100 2,352
General Re Corp. 139,900 27,770
Loews Corp. 248,600 28,076
MGIC Investment Corp. 769,300 44,092
Nationwide Financial Services, Inc. Class A 22,000 613
PMI Group, Inc. 332,700 19,068
Provident Companies, Inc. 21,100 1,420
Reliastar Financial Corp. 194,622 7,748
Torchmark Corp. 662,100 25,987
Travelers Property Casualty Corp. Class A 80,200 3,248
UNUM Corp. 58,700 2,678
459,449
SAVINGS & LOANS - 0.2%
Golden West Financial Corp. 290,900 26,108
SECURITIES INDUSTRY - 0.1%
United Asset Management Corp. 520,500 14,932
TOTAL FINANCE 1,514,069
HEALTH - 4.3%
DRUGS & PHARMACEUTICALS - 1.7%
American Home Products Corp. 376,800 27,506
Amgen, Inc. 400,200 19,185
Astra AB Class A Free shares 2,366,966 43,783
Merck & Co., Inc. 120,000 11,993
Novartis AG (Reg.) 27,500 42,352
Schering-Plough Corp. 1,027,000 52,891
197,710
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 0.4%
Allegiance Corp. 32,160 $ 997
Bard (C.R.), Inc. 230,400 7,819
Baxter International, Inc. 113,600 5,936
Biomet, Inc. 547,000 13,128
Johnson & Johnson 62,600 3,607
St. Jude Medical, Inc. (a) 632,700 22,184
53,671
MEDICAL FACILITIES MANAGEMENT - 2.2%
Columbia/HCA Healthcare Corp. 6,332,822 182,069
Humana, Inc. (a) 1,424,100 33,911
Tenet Healthcare Corp. (a) 911,500 26,547
United HealthCare Corp. 481,900 24,095
266,622
TOTAL HEALTH 518,003
HOLDING COMPANIES- 0.1%
U.S. Industries, Inc. 444,600 12,893
INDUSTRIAL MACHINERY & EQUIPMENT - 1.5%
ELECTRICAL EQUIPMENT - 1.0%
Alcatel Alsthom Compagnie Generale d'Electricite
SA sponsored ADR 37,000 983
Alcatel Alsthom Compagnie Generale d'Electricite SA 302,800 40,435
Emerson Electric Co. 137,800 7,941
General Electric Co. 624,500 42,505
Grainger (W.W.), Inc. 48,800 4,343
Scientific-Atlanta, Inc. 314,800 7,122
Westinghouse Electric Corp. 502,700 13,605
116,934
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Caterpillar, Inc. 715,100 38,572
Ultratech Stepper, Inc. (a) 361,600 12,294
50,866
POLLUTION CONTROL - 0.1%
Browning-Ferris Industries, Inc. 194,500 7,403
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 175,203
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 2.1%
BROADCASTING - 0.4%
Cox Communications, Inc. Class A (a) 94,600 $ 2,607
Chancellor Trust Class I Unit (a)(d) 148 12,651
HSN, Inc. (a) 60,950 2,476
TCI Group Class A 277,582 5,690
Tele-Communications, Inc. (TCI) (Ventures Group) Series A 356,118
7,345
Time Warner, Inc. 296,035 16,042
46,811
ENTERTAINMENT - 0.2%
Cedar Fair LP (depositary unit) 23,800 1,136
King World Productions, Inc. 68,600 2,967
MGM Grand, Inc. 9,700 421
Royal Carribean Cruises Ltd. 231,300 10,119
Viacom, Inc. (a):
Class A 168,100 5,285
Class B (non-vtg.) 213,900 6,765
26,693
LEISURE DURABLES & TOYS - 0.3%
Nintendo Co. Ltd. Ord. 394,400 37,035
LODGING & GAMING - 0.7%
Bally Gaming International, Inc. warrants 7/29/98 (a) 149,100 140
Circus Circus Enterprises, Inc. (a) 742,900 18,712
Fitzgeralds South, Inc. warrants 3/15/99 (a)(e) 1,640 -
Harrah's Entertainment, Inc. (a) 183,800 4,124
HFS, Inc. (a) 296,600 22,078
Mirage Resorts, Inc. (a) 763,800 23,009
Rio Hotel & Casino, Inc. (a) 47,400 992
Sun International Hotels Ltd. Ord. (a) 466,600 16,098
85,153
PUBLISHING - 0.1%
Cognizant Corp. 206,000 8,395
US WEST Media Group 82,100 1,838
10,233
RESTAURANTS - 0.4%
Brinker International, Inc. (a) 229,500 4,088
Lone Star Steakhouse Saloon (a) 202,900 4,236
McDonald's Corp. 641,800 30,565
Papa John's International, Inc. (a) 57,800 1,976
Wendy's International, Inc. 588,900 12,514
53,379
TOTAL MEDIA & LEISURE 259,304
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONDURABLES - 4.5%
BEVERAGES - 0.0%
PepsiCo, Inc. 78,600 $ 3,188
HOUSEHOLD PRODUCTS - 0.0%
Premark International, Inc. 84,500 2,704
TOBACCO - 4.5%
Philip Morris Companies, Inc. 11,129,400 462,566
RJR Nabisco Holdings Corp. 2,152,795 74,002
536,568
TOTAL NONDURABLES 542,460
PRECIOUS METALS - 0.1%
Barrick Gold Corp. 72,100 1,788
Newmont Mining Corp. 191,390 8,601
10,389
RETAIL & WHOLESALE - 4.9%
APPAREL STORES - 0.2%
Gap, Inc. 187,600 9,392
Lamonts Apparel, Inc. warrants 6/10/99 (a) 394,561 -
TJX Companies, Inc. 534,100 16,323
25,715
DRUG STORES - 0.0%
CVS Corp. 93,600 5,324
GENERAL MERCHANDISE STORES - 1.6%
Federated Department Stores, Inc. (a) 773,500 33,357
Proffitts, Inc. (a) 121,100 7,175
Wal-Mart Stores, Inc. 4,000,000 146,500
187,032
GROCERY STORES - 0.2%
Safeway, Inc. (a) 473,400 25,741
RETAIL & WHOLESALE, MISCELLANEOUS - 2.9%
Circuit City Stores, Inc. - Circuit City Group 1,054,700 42,519
Comcast Corp. Class A 16,400 422
Corporate Express, Inc.(a) 342,900 7,244
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
Home Depot, Inc. 2,549,200 $ 132,878
Lowe's Companies, Inc. 1,979,300 76,945
Officemax, Inc. (a) 990,175 15,038
Office Depot, Inc. (a) 311,750 6,293
PEAPOD, Inc. 19,100 239
Rex Stores Corp. (a) 122,900 1,383
Staples, Inc. (a) 413,700 11,428
Toys "R" Us, Inc. (a) 828,800 29,422
U.S. Office Products Co. (a) 309,000 10,892
Viking Office Products, Inc. (a) 432,100 9,398
344,101
TOTAL RETAIL & WHOLESALE 587,913
SERVICES - 0.1%
ADVERTISING - 0.0%
Interpublic Group of Companies, Inc. 66,700 3,423
LEASING & RENTAL - 0.0%
Avis Rent A Car, Inc. 23,100 552
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 60,700 2,165
SERVICES - 0.1%
Boron LePore & Associates, Inc. 7,300 169
Orion Network Systems, Inc. warrants 1/15/07 (a) 16,050 171
Reuters Holdings PLC ADR Class B 99,100 7,061
7,401
TOTAL SERVICES 13,541
TECHNOLOGY - 8.2%
COMMUNICATIONS EQUIPMENT - 0.2%
Andrew Corp. (a) 147,500 3,863
Cisco Systems, Inc. (a) 189,300 13,831
Globalstar Telecommunications Ltd. warrants
2/15/04 (a)(e) 4,540 522
Nokia Corp. AB sponsored ADR 65,500 6,145
24,361
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - 1.8%
Advantage Learning Systems, Inc. 3,700 $ 93
Automatic Data Processing, Inc. 454,400 22,720
Ceridian Corp. (a) 525,400 19,440
CompUSA, Inc. (a) 230,000 8,050
CUC International, Inc. (a) 554,200 17,180
J.D. Edwards & Co. 8,800 295
Electronic Data Systems Corp. 1,076,800 38,226
E Trade Group, Inc. 21,100 992
First Data Corp. 591,600 22,222
Microsoft Corp. (a) 239,500 31,689
Netscape Communications Corp. (a) 35,500 1,278
Network Solutions, Inc. Class A 2,100 46
Oracle Corp. (a) 553,225 20,158
Paychex, Inc. 185,850 6,481
Policy Management Systems Corp. (a) 406,900 25,304
214,174
COMPUTERS & OFFICE EQUIPMENT - 3.1%
Bay Networks, Inc. (a) 206,800 7,988
Compaq Computer Corp. (a) 1,443,700 107,916
Hewlett-Packard Co. 311,600 21,676
Ingram Micro, Inc. Class A (a) 62,600 1,694
International Business Machines Corp. 1,447,400 153,333
Quantum Corp. 70,200 2,690
SCI Systems, Inc. (a) 1,097,200 54,380
Tech Data Corp. (a) 370,700 17,052
Western Digital Corp. 138,100 5,533
372,262
ELECTRONIC INSTRUMENTS - 0.5%
Applied Materials, Inc. (a) 46,200 4,401
Cognex Corp. (a) 156,600 5,148
Lam Research Corp. (a) 454,500 21,134
Novellus Systems, Inc. (a) 74,200 9,349
Thermo Electron Corp. (a) 384,900 15,396
Varian Associates, Inc. 81,300 5,051
60,479
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - 2.6%
AMP, Inc. 960,300 $ 51,436
Intel Corp. 1,094,500 101,036
Methode Electronics, Inc. Class A 93,900 2,418
Micron Technology, Inc. (a) 1,273,100 44,161
Molex, Inc. 192,978 7,864
Motorola, Inc. 89,300 6,418
Power-One, Inc. 3,300 46
Solectron Corp. (a) 2,276,700 101,314
Thomas & Betts Corp. 37,900 2,070
Uniphase Corp. 3,300 250
317,013
TOTAL TECHNOLOGY 988,289
TRANSPORTATION - 0.5%
AIR TRANSPORTATION - 0.0%
Northwest Airlines Corp. Class A (a) 80,600 3,345
RAILROADS - 0.3%
Bombardier, Inc. Class B 277,300 5,622
Burlington Northern Santa Fe Corp. 88,000 8,503
CSX Corp. 369,900 21,639
35,764
SHIPPING - 0.1%
Stolt-Nielsen SA Class B sponsored ADR 234,500 6,801
Stolt-Nielsen SA 95,600 2,545
9,346
TRUCKING & FREIGHT - 0.1%
Roadway Express, Inc. 58,700 1,607
Yellow Corp. (a) 249,200 8,115
9,722
TOTAL TRANSPORTATION 58,177
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - 4.4%
CELLULAR - 1.7%
AirTouch Communications, Inc. (a) 1,827,400 $ 64,758
McCaw International Ltd. warrants 4/15/07 (a)(e) 10,130 25
SK Telecom Ltd. (a) 24 15
Vodafone Group PLC sponsored ADR 2,012,600 108,178
Vodafone Group PLC 4,956,523 26,722
199,698
ELECTRIC UTILITY - 0.2%
American Electric Power Co., Inc. 177,700 8,085
Entergy Corp. 459,200 11,968
Niagara Mohawk Power Corp. (a) 223,800 2,140
PG&E Corp. 48,377 1,122
23,315
GAS - 0.0%
Enron Corp. 106,700 4,108
TELEPHONE SERVICES - 2.5%
AT&T Corp. 340,700 15,097
Ameritech Corp. 376,700 25,051
Bell Atlantic Corp. 514,322 41,371
BellSouth Corp. 687,100 31,778
Deutsche Telekom AG 191,700 3,695
MCI Communications Corp. 2,449,300 71,948
NEXTLINK Communications, Inc.:
Class A 10,000 240warrants 2/1/09 (a) 128,840 -
SBC Communications, Inc. 448,040 27,498
Sprint Corp. 1,508,000 75,400
WorldCom, Inc. (a) 192,600 6,813
298,891
TOTAL UTILITIES 526,012
TOTAL COMMON STOCKS
(Cost $4,267,195) 6,568,299
NONCONVERTIBLE PREFERRED STOCKS - 1.4%
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Crown America Realty Trust Series A 11% pay-in kind 71,592 $ 3,794
Walden Residential Properties, Inc. 9.20% 141,900 3,619
7,413
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.1%
American Annuity Group Capital Trust II 8 3/4% 4,320 4,666
SIG Capital Trust I 9 1/2% (a)(e) 1,399 1,431
6,097
SAVINGS & LOANS - 0.1%
California Federal Preferred Capital Corp. 9 1/8% 482,929 12,616
TOTAL FINANCE 18,713
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT - 0.0%
Fresenius Medical Care Capital Trust 9% 2,131 2,226
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Echostar Communications Corp. 12 1/8% pay-in-kind 3,209 3,369
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.8%
Adelphia Communications Corp. 13% (e) 42,355 4,701
American Radio Systems Corp. 11 3/8% pay-in-kind 80,941 9,470
Cablevision System Corp. 11 1/8%
depositary shares pay-in-kind 201,808 22,098
CapStar Broadcasting Partners, Inc. 12% pay-in-kind 1,798 199
Chancellor Media Corp.:
12% pay-in-kind (e) 54,149 6,200
$12.25 Series A 32,994 4,487
Granite Broadcasting Corp. 12 3/4% pay-in-kind 4,809 5,073
SFX Broadcasting, Inc. 12 5/8% 64,111 7,405
Sinclair Capital 11 5/8% 82,440 8,945
Time Warner, Inc., Series M, 10 1/4% pay-in-kind 24,891 28,376
96,954
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.1%
K-III Communications Corp.:
Series B, $11.625 pay-in-kind 5,800 $ 631
Series D, $10 91,921 9,767
10,398
TOTAL MEDIA & LEISURE 107,352
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Group, Inc., Series B, 14 7/8% 18,400 1,858
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp. $3.52 pay-in-kind 70,123 1,464
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications, Inc. 13 1/2% pay-in-kind 4,014 4,817
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications Corp. 13% pay-in-kind (e) 5,848 6,755
TELEPHONE SERVICES - 0.1%
IXC Communications, Inc. 12 1/2% pay-in-kind (e) 4,150 4,814
NEXTLINK Communications, Inc. 14% pay-in-kind 138,067 8,836
13,650
TOTAL UTILITIES 20,405
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $153,775) 167,617
NONCONVERTIBLE BONDS - 18.4%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (C) AMOUNT (000S)
AEROSPACE & DEFENSE - 0.3%
AEROSPACE & DEFENSE - 0.0%
Argo-Tech Corp. 8 5/8%, 10/1/07 (e) B3 $ 350 350
Be Aerospace, Inc. 9 7/8%, 2/1/06 B2 3,260 3,505
Rohr, Inc. 11 5/8%, 5/15/03 Ba3 1,840 2,075
5,930
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
AEROSPACE & DEFENSE - CONTINUED
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 6.45%, 8/15/04 Baa $ 16,920 $ 16,903
Tracor, Inc. 8 1/2%, 3/1/07 B1 3,380 3,452
20,355
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 11,330 11,925
TOTAL AEROSPACE & DEFENSE 38,210
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.2%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 4,840 5,009
General Chemical Corp. 9 1/4%, 8/15/03 B2 3,850 3,966
Huntsman Corp. 9 1/2%, 7/1/07 (e) B2 5,980 6,264
Sterling Chemicals, Inc. 11 1/4%, 4/1/07 B3 5,380 5,864
21,103
IRON & STEEL - 0.0%
Keystone Consolidated Industries, Inc.
9 5/8%, 8/1/07 (e) B2 1,730 1,776
PACKAGING & CONTAINERS - 0.1%
BWAY Corp. 10 1/4%, 4/15/07 (e) B2 4,270 4,622
Silgan Holdings, Inc. 9%, 6/1/09 B1 2,650 2,703
U.S. Can Corp. 10 1/8%, 10/15/06 B1 1,650 1,749
9,074
PAPER & FOREST PRODUCTS - 0.1%
Florida Coast Paper Co. LLC/Florida Coast Paper
Finance Corp., Series B, 12 3/4%, 6/1/03 Caa 2,680 2,894
Omega Cabinets Ltd. 10 1/2%, 6/15/07 (e) B3 3,620 3,738
Repap New Brunswick, Inc. yankee:
9 7/8%, 7/15/00 B2 480 485
10 5/8%, 4/15/05 Caa 2,150 2,118
Riverwood International Corp. 10 1/4%, 4/1/06 B3 2,650 2,716
Stone Container Corp. 10 3/4%, 10/1/02 B1 7,300 7,811
19,762
TOTAL BASIC INDUSTRIES 51,715
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
CONSTRUCTION & REAL ESTATE - 0.1%
BUILDING MATERIALS - 0.1%
Nortek, Inc.:
9 1/4%, 3/15/07 Ba3 $ 2,310 $ 2,345
9 1/8%, 9/1/07 (e) B1 4,530 4,575
6,920
CONSTRUCTION - 0.0%
U.S. Home Corp. 8.88%, 8/15/07 B1 4,610 4,702
TOTAL CONSTRUCTION & REAL ESTATE 11,622
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Aftermarket Technology Corp. 12%, 8/1/04 B3 1,845 2,055
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 4,050 4,344
Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa 7,970 8,184
United Auto Group, Inc. 11%, 7/15/07 (e) B3 3,680 3,836
18,419
TEXTILES & APPAREL - 0.4%
Dyersburg Corp. 9 3/4%, 9/1/07 (e) B2 2,110 2,163
GFSI, Inc. 9 5/8%, 3/1/07 B3 4,520 4,633
Levi Strauss & Co. 7%, 11/1/06 (e) Baa 31,050 31,540
Nine West Group, Inc. 9%, 8/15/07 (e) Ba3 11,720 11,808
50,144
TOTAL DURABLES 68,563
ENERGY - 0.6%
COAL - 0.1%
Anker Coal Group, Inc. 9 3/4%, 10/1/07 (e) B3 9,740 9,886
OIL & GAS - 0.5%
Belden & Blake Corp. 9 7/8%, 6/15/07 (e) B3 1,560 1,583
Chesapeake Energy Corp.:
7 7/8%, 3/15/04 Ba3 900 878
8 1/2%, 3/15/12 Ba2 250 243
Energy Corp. of America 9 1/2%, 5/15/07 B2 7,970 8,010
Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 5,690 6,074
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Gulf Canada Resources Ltd. yankee
9 5/8%, 7/1/05 Ba2 $ 3,250 $ 3,543
Lomak Petroleum, Inc. 8 3/4%, 1/15/07 B1 1,500 1,504
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa 3,000 2,997
8 1/2%, 11/9/01 Baa 4,370 4,681
Ocean Energy, Inc. 8 7/8%, 7/15/07 (e) B3 5,310 5,301
Pennzoil Co. 9 5/8%, 11/15/99 Baa 7,220 7,693
Petsec Energy, Inc. 9 1/2%, 6/15/07 (e) B3 1,280 1,318
Union Oil Co. 7.67%, 4/19/02 Baa 9,660 10,127
United Refining Co. 10 3/4%, 6/15/07 (e) B2 2,140 2,188
56,140
TOTAL ENERGY 66,026
FINANCE - 7.4%
ASSET-BACKED SECURITIES 1.6%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 14,820 16,821
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 3,000 3,022
CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 9,330 9,359
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 13,310 13,327
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 6,200 6,229
6.80%, 6/15/27 Aaa 6,500 6,589
6.45%, 9/15/28 Aaa 10,250 10,292
6.68%, 1/15/29. AAA 18,680 18,803
MBNA Master Credit Card Trust II
6.50%, 1/15/07 Aaa 26,970 27,172
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 13,560 13,697
6.70%, 3/15/02 Aaa 6,680 6,764
Premier Auto Trust:
8.05%, 4/4/00 Aaa 23,540 23,838
6%, 5/6/00 Aaa 8,060 8,065
6.34%, 1/6/03 Aaa 20,000 20,087
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 11,150 11,200
195,265
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
FINANCE - CONTINUED
BANKS - 1.9%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 $ 21,500 $ 21,711
Banc One Corp.:
6.70%, 3/24/00 Aa3 12,560 12,712
6 1/4%, 9/1/00 Aa3 13,240 13,257
BanPonce Financial Corp. 7.72%, 4/13/00 A3 7,000 7,191
BanPonce Corp. 6.665%, 3/5/01 A3 13,900 14,024
BanPonce Trust I 8.327%, 2/1/27 (e) Baa 20,520 21,210
Bankers Trust Co. 5.66%, 7/21/98 - 25,500 25,491
Capital One Bank:
6.74%, 5/31/99 Baa 12,500 12,602
7.20%, 7/19/99 Baa 28,000 28,389
6.42%, 11/12/99 Baa 14,000 14,003
Den Danske Bank AS 7.40%, 6/15/10 (e)(g) A1 13,080 13,495
Midland Bank PLC yankee 7 5/8%, 6/15/06 Aa3 10,700 11,290
NB Capital Trust IV 8 1/4%, 4/15/27 A1 10,000 10,522
Summit Bancorp. 8 5/8%, 12/10/02 BBB 5,500 5,973
Union Planters National Bank
6.81%, 8/20/01 A3 10,000 10,138
222,008
CREDIT & OTHER FINANCE - 3.1%
AT&T Capital Corp.:
6.39%, 1/22/99 Baa 24,900 25,046
6.26%, 2/18/99 Baa 5,350 5,368
6.41%, 8/13/99 Baa 24,000 24,069
6.16%, 12/3/99 Baa 9,000 8,973
Advanced Accessory Systems LLC/AAC
Capital Corp. 9 3/4%, 10/1/07 (e) B3 5,410 5,410
Ahmanson Capital Trust I
8.36%, 12/1/26 (e) Baa 13,000 13,584
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 3,500 3,664
CIT Group Holdings, Inc. 6 1/4%, 10/4/99 Aa3 20,500 20,541
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 23,400 23,502
Equimar Shipholdings Ltd. 9 7/8%, 7/1/07 (e) B3 4,180 4,013
Finova Capital Corp. 6.12%, 5/28/02 Baa 7,000 6,904
First Security Capital I 8.41%, 12/15/26 A3 5,290 5,610
Ford Motor Credit Co.:
5.73%, 2/23/00 A1 11,500 11,390
5.83%, 2/28/00 A1 22,550 22,382
6.65%, 5/22/00 A1 28,700 29,013
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Ford Motor Credit Co.:
6.20%, 3/12/01 A1 $ 10,000 $ 9,971
6.57%, 3/19/01 A1 11,300 11,395
7%, 9/25/01 A1 19,000 19,416
General Electric Capital Corp.
6.94%, 4/13/09 (k) Aaa 22,500 22,784
General Motors Acceptance Corp.
6 3/4%, 7/10/02 A3 22,160 22,347
GreenPoint Capital Trust I 9.10%, 6/1/27 (e) Ba1 3,400 3,585
Heller Financial, Inc. 7 7/8%, 11/1/99 A2 15,530 16,009
Household Finance Corp. 5.688%, 6/4/98 (g) - 27,000 27,000
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 11,420 11,470
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 10,500 10,842
U.S. West Capital Funding, Inc. 6.95%, 1/15/37 Baa 10,590 10,800
375,088
INSURANCE - 0.2%
Reliance Group 9 3/4%, 11/15/03 B1 5,580 5,873
SunAmerica, Inc. 6.20%, 10/31/99 Baa 17,000 17,000
22,873
SAVINGS & LOANS - 0.4%
Chevy Chase Savings Bank FSB:
9 1/4%, 12/1/05 B1 2,670 2,697
9 1/4%, 12/1/08 B1 4,910 4,984
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 8,210 9,257
Great West Financial Trust II 8.206%, 2/1/27 A3 12,350 12,726
Great Western Financial Corp. 8.60%, 2/1/02 A3 7,000 7,541
Home Savings of America FSB 6 1/2%, 8/15/04 A3 8,080 8,015
Long Island Savings Bank 7%, 6/13/02 Baa 7,200 7,235
52,455
SECURITIES INDUSTRY - 0.2%
Merrill Lynch & Co., Inc. 5.6063%, 7/28/98 (g) - 25,000 25,000
TOTAL FINANCE 892,689
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
HEALTH - 0.4%
DRUGS & PHARMACEUTICALS - 0.0%
ICN Pharmaceuticals, Inc. 9 1/4%, 8/15/05 (e) B1 $ 2,760 $ 2,878
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 (e) B3 6,420 6,677
McKesson Corp. 6.60%, 3/1/00 A3 13,610 13,725
20,402
MEDICAL FACILITIES MANAGEMENT - 0.2%
Integrated Health Services, Inc. (e):
9 1/2%, 9/15/07 B2 7,480 7,676
9 1/4%, 1/15/08 B2 2,770 2,805
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 12,370 12,772
Vencor, Inc. 8 5/8%, 7/15/07 (e) B1 2,610 2,646
25,899
TOTAL HEALTH 49,179
HOLDING COMPANIES - 0.2%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa 21,900 22,716
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Bucyrus International, Inc. 9 3/4%, 9/15/07 (e) B1 6,080 6,140
Continental Global Group, Inc. 11%, 4/1/07 B2 2,110 2,258
Exide Corp. 10%, 4/15/05 B1 1,640 1,755
Goss Graphic System, Inc. 12%, 10/15/06 B2 5,660 6,339
16,492
POLLUTION CONTROL - 0.2%
Allied Waste North America 10 1/4%, 12/1/06 B3 1,870 2,043
Envirosource, Inc. 9 3/8%, 6/15/03 (e) B3 2,400 2,418
WMX Technologies, Inc. 7.10%, 8/1/26 A3 13,025 13,573
18,034
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 34,526
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
MEDIA & LEISURE - 3.1%
BROADCASTING - 1.9%
ACME Television/ACME Financial Corp.
0%, 9/30/04 (e)(f) B3 $ 1,270 $ 930
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 14,514 14,082
9 7/8%, 3/1/07 B3 1,930 1,988
Comcast UK Cable Partners Ltd. 0%, 11/15/07 (f) B2 420 321
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 8,840 9,061
0%, 2/1/09 (f) B3 3,690 2,583
Cablevision System Corp.:
9 1/4%, 11/1/05 B1 4,110 4,295
9 7/8%, 5/15/06 B1 4,195 4,520
9 7/8%, 2/15/13 B1 960 1,037
Century Communications Corp. 8 3/4%, 10/1/07 Ba3 7,840 7,830
Diamond Cable Communications PLC yankee
0%, 9/30/04 (f) B3 5,450 4,769
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (f) Caa 3,180 2,659
Fox/Liberty Networks LLC/FLN Finance, Inc.
0%, 8/15/07 (e)(f) B1 4,795 3,051
Frontiervision Holdings LP/Frontiervision Holdings
Capital Corp. 0%, 9/15/07 (e)(f) Caa 7,820 5,327
Frontiervision Operating Partners
LP/Frontiervision Capital Corp.
11%, 10/15/06 B3 8,620 9,374
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 2,850 2,943
9 3/8%, 12/1/05 B3 4,800 4,764
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 2,850 3,149
International Cabletel, Inc. 0%, 2/1/06 (f) B3 4,550 3,401
Lenfest Communications, Inc. 8 3/8%, 11/1/05 Ba3 4,720 4,750
NTL, Inc. 10%, 2/15/07 B3 7,530 7,850
Olympus Communications LP/Olympus Capital
Corp. 10 5/8%, 11/15/06 B1 3,290 3,566
Panamsat Corp. 12 3/4%, 4/15/05 pay-in-kind - 613 723
Rogers Cablesystems Ltd. yankee
11%, 12/1/15 B2 5,370 6,149
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 2,550 2,792
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Communications Financing III
9.65%, 3/31/27 Ba3 $ 12,650 $ 14,057
TCI Communications, Inc.:
7 3/8%, 2/15/00 Ba1 3,550 3,611
8.65%, 9/15/04 Ba1 13,100 14,179
6.82%, 9/15/10 (g) Ba1 19,280 19,355
Telemundo Group, Inc. 7%, 2/15/06 (k) B1 7,130 7,005
Tele-Communications, Inc. 9 1/4%, 4/15/02 Ba1 8,500 9,267
Telewest PLC 0%, 10/1/07 (f) B1 13,030 9,773
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 25,200 26,019
7 3/4%, 6/15/05 Ba1 10,350 10,745
9.15%, 2/1/23 Ba1 3,550 4,108
230,033
ENTERTAINMENT - 0.3%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 9,890 10,063
Ameristar Casinos, Inc. 10 1/2%, 8/1/04 (e) B3 3,620 3,647
Bally Total Fitness Holding Corp.
9 7/8%, 10/15/07 (e) B3 7,110 7,110
Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 1,130 1,158
Hollywood Theaters, Inc. 10 5/8%, 8/1/07 (e) B3 630 669
Regal Cinemas, Inc. 8 1/2%, 10/1/07 (e) B1 230 230
Viacom, Inc. 8%, 7/7/06 B1 10,390 10,325
33,202
LODGING & GAMING - 0.4%
American Skiing Co. 12%, 7/15/06 B3 8,130 9,045
Courtyard by Marriott II LP/Courtyard II
Finance Co., Series B, 10 3/4%, 2/1/08 B- 3,800 4,123
HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 6,000 6,165
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 11,600 12,208
8 7/8%, 7/15/07 (e) Ba3 5,180 5,310
Horseshoe Gaming LLC 9 3/8%, 6/15/07 (e) B3 1,340 1,385
Prime Hospitality Corp. 9 3/4%, 4/1/07 - 5,400 5,704
Speedway Motorsports, Inc.
8 1/2%, 8/15/07 (e) Ba3 170 171
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 5,120 5,286
49,397
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.3%
Garden State Newspapers, Inc. 10/1/09 (e) B1 $ 4,917 $ 4,954
News America Holdings, Inc.
7.70%, 10/30/25 Baa 24,320 23,862
Sun Media Corp. yankee:
9 1/2%, 2/15/07 B3 3,950 4,088
9 1/2%, 5/15/07 B3 1,050 1,087
33,991
RESTAURANTS - 0.2%
Foodmaker, Inc. 9 3/4%, 6/1/02 B3 5,990 6,170
Host Marriott Travel Plazas, Inc.
9 1/2%, 5/15/05 Ba3 10,870 11,441
SC International Services, Inc.
9 1/4%, 9/1/07 (e) B2 4,090 4,151
21,762
TOTAL MEDIA & LEISURE 368,385
NONDURABLES - 0.6%
FOODS - 0.2%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 4,370 4,654
ConAgra, Inc. 7 1/8%, 10/1/26 Baa 13,500 14,103
18,757
HOUSEHOLD PRODUCTS - 0.1%
Playtex Products, Inc. 8 7/8%, 7/15/04 (e) B1 4,190 4,232
Revlon Consumer Products Corp.
10 1/2%, 2/15/03 B3 7,070 7,503
11,735
TOBACCO - 0.3%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 13,780 14,090
7%, 7/15/05 A2 13,480 13,479
6.95%, 6/1/06 A2 12,680 12,937
40,506
TOTAL NONDURABLES 70,998
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
RETAIL & WHOLESALE - 1.3%
APPAREL STORES - 0.1%
AnnTaylor, Inc. 8 3/4%, 6/15/00 B3 $ 7,960 $ 7,900
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (e)(j) - 13,118 525
Specialty Retailers, Inc. 8 1/2%, 7/15/05 Ba3 2,280 2,337
10,762
GENERAL MERCHANDISE STORES - 0.7%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa 9,500 9,635
7 1/2%, 7/15/06 Baa 9,000 9,390
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 19,900 22,024
8 1/8%, 10/15/02 Baa 6,340 6,749
6.79%, 7/15/27 Baa 8,750 8,830
K mart Corp.:
12 1/2%, 3/1/05 Ba3 5,810 7,088
7 3/4%, 10/1/12 Ba3 670 640
8 1/4%, 1/1/22 Ba3 5,420 5,217
Parisian, Inc. 9 7/8%, 7/15/03 B1 6,110 6,461
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 12,720 12,919
88,953
GROCERY STORES - 0.5%
Ameriserve Food Distribution, Inc.
10 1/8%, 7/15/07 (e) B3 3,980 4,139
Di Giorgio Corp. 10%, 6/15/07 (e) B3 6,310 6,263
Fleming Companies, Inc. 10 5/8%, 7/31/07 (e) B3 5,110 5,378
Kroger Co. 8.15%, 7/15/06 Baa 7,000 7,557
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 Caa 6,660 6,876
9 5/8%, 5/1/03 B3 15,840 15,663
0%, 11/1/03 (f) Caa 1,170 829
Pueblo Xtra International, Inc.
9 1/2%, 8/1/03 B3 7,500 7,439
Randalls Food Markets, Inc.
9 3/8%, 7/1/07 (e) B2 4,650 4,697
Windy Hill Pet Food, Inc.
9 3/4%, 5/15/07 (e) B3 3,230 3,359
62,200
TOTAL RETAIL & WHOLESALE 161,915
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
SERVICES - 0.4%
ADVERTISING - 0.0%
Lamar Advertising Co. 8 5/8%, 9/15/07 (e) B1 $ 2,610 $ 2,600
LEASING & RENTAL - 0.3%
Hollywood Entertainment Corp.
10 5/8%, 8/15/04 (e) B2 2,430 2,488
PHH Corp. 5.6463%, 6/11/98 (g) - 27,000 26,997
29,485
PRINTING - 0.0%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 4,150 4,233
SERVICES - 0.1%
Borg-Warner Security Corp. 9 5/8%, 3/15/07 B3 2,750 2,846
Orion Network Systems, Inc.:
0%, 1/15/07 (f) B2 11,870 8,072
11 1/4%, 1/15/07 B2 4,180 4,525
15,443
TOTAL SERVICES 51,761
TECHNOLOGY - 0.4%
COMMUNICATIONS EQUIPMENT - 0.0%
Echostar Communications Corp. secured discount
0%, 6/1/04 (f) B2 4,320 3,894
COMPUTER SERVICES & SOFTWARE - 0.1%
Federal Data Corp. 10 1/8%, 8/1/05 (e) B3 4,460 4,549
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc.:
7.21%, 7/2/01 Baa 12,000 12,336
6 3/8%, 11/30/01 Baa 13,775 13,721
26,057
ELECTRONICS - 0.1%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 3,610 4,034
Communications Instruments, Inc.
10%, 9/15/04 (e) B3 330 337
Fairchild Semiconductor Corp.:
10 1/8%, 3/15/07 B2 3,850 4,110
11.74%, 3/15/08 pay-in-kind (d) - 5,110 5,085
13,566
TOTAL TECHNOLOGY 48,066
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.2%
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa $ 6,000 $ 6,482
US Air, Inc.:
9 5/8%, 2/1/01 B3 5,960 6,198
10%, 7/1/03 B3 6,320 6,573
10 3/8%, 3/1/13 B1 7,655 8,498
27,751
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa 10,500 11,077
TOTAL TRANSPORTATION 38,828
UTILITIES - 2.0%
CELLULAR - 0.5%
Clearnet Communications, Inc. yankee
0%, 12/15/05 (f) B3 8,780 6,805
Globalstar LP/Globalstar Capital C Corp.
11 3/8%, 2/15/04 B3 1,750 1,820
Millicom International Cellular SA
0%, 6/1/06 (f) B3 6,490 5,022
McCaw International Ltd. 0%, 4/15/07 (f) CCC 10,130 6,129
MGC Communications, Inc.
13%, 10/1/04 unit (e) Caa 1,870 1,931
Nextel Communications, Inc. 0%, 9/15/07 (e)(f) B3 15,111 9,312
Paging Network, Inc. 8.875%, 2/1/06 B2 1,900 1,862
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 7,010 7,063
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba1 14,960 15,158
7 1/2%, 3/1/06 Ba1 9,150 9,369
Telesystem International Wireless, Inc.
0%, 6/30/07 (e)(f) Caa 820 515
64,986
ELECTRIC UTILITY - 0.6%
AES Corp. 8 3/8%, 8/15/07 Ba1 3,510 3,519
CalEnergy, Inc. 9 1/2%, 9/15/06 Ba2 2,670 2,884
Calpine Corp. 8 3/4%, 7/15/07 (e) Ba3 8,800 8,976
Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa 15,380 15,839
NONCONVERTIBLE BONDS - CONTINUED
PRINCIPAL AMOUNT (000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Israel Electric Corp. yankee
7 7/8%, 12/15/26 (e) A3 $ 9,540 $ 9,987
Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 18,250 18,622
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa 12,700 13,101
72,928
TELEPHONE SERVICES - 0.9%
GCI, Inc. 9 3/4%, 8/1/07 B2 400 415
Hyperion Telecommunicaitons, Inc.:
Series B, 0%, 4/15/03 (f) - 4,530 3,137
12 1/4%, 9/1/04 (e) - 6,770 7,379
ICG Holdings, Inc. 0%, 9/15/05 (f) - 5,060 4,048
McLeod USA, Inc.:
0%, 3/1/07 (f) B3 7,220 5,090
9 1/4%, 7/15/07 (e) B3 3,000 3,165
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 5,400 5,576
Teleport Communications Group, Inc.
0%, 7/1/07 (f) B1 7,270 5,652
Winstar Equipment 12 1/2%, 3/15/04 B3 4,670 5,137
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 10,620 11,295
8 7/8%, 1/15/06 Ba1 9,729 10,483
7 3/4%, 4/1/07 Ba1 38,000 39,837
101,214
TOTAL UTILITIES 239,128
TOTAL NONCONVERTIBLE BONDS
(Cost $2,172,673) 2,214,327
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 5.4%
U.S. TREASURY OBLIGATIONS - 3.4%
7 3/4%, 12/31/99 Aaa 27,225 28,297
6 7/8%, 3/31/00 Aaa 14,780 15,122
10 3/4%, 5/15/03 Aaa 7,360 8,980
11 7/8%, 11/15/03 Aaa 28,988 37,408
12 3/8%, 5/15/04 Aaa 48,000 64,132
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S)
U.S. TREASURY OBLIGATIONS - CONTINUED
7%, 7/15/06 Aaa $ 53,730 $ 56,652
11 3/4%, 2/15/10 (callable) Aaa 21,750 28,764
12 3/4%, 11/15/10 (callable) Aaa 36,500 51,431
8 7/8%, 2/15/19 Aaa 21,610 27,553
7 1/4%, 2/15/23 Aaa 15,468 16,676
6 1/2%, 11/15/26 Aaa 76,433 76,898
TOTAL U.S. TREASURY OBLIGATIONS 411,913
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.0%
Federal Home Loan Bank:
7.70%, 9/20/04 Aaa 2,360 2,540
8.09%, 12/28/04 Aaa 11,000 12,103
6.85%, 5/26/05 Aaa 10,000 10,269
Federal Home Loan Mortgage Corp.
7.35%, 3/22/05 Aaa 5,000 5,284
Federal National Mortgage Association:
6.97%, 4/8/04 Aaa 21,970 22,756
7.49%, 3/2/05 Aaa 4,725 5,042
6.44%, 6/21/05 Aaa 3,500 3,510
Financing Corp. stripped principal:
0%, 4/15/02 to 12/6/02 Aaa 8,345 6,219
0%, 2/3/03 to 12/6/03 Aaa 5,417 3,781
0%, 5/2/04 Aaa 4,033 2,676
0%, 8/8/05 to 11/30/05 Aaa 7,148 4,339
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through Export-
Import Bank) Series 1994-A, 7.12%, 4/15/06 Aaa 24,050 24,797
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
0%, 11/15/01 Aaa 15,700 12,243
8%, 11/15/01 Aaa 5,700 6,074
6 5/8%, 8/15/03 Aaa 22,140 22,589
5 5/8%, 9/15/03 Aaa 26,920 26,161
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
PRINCIPAL AMOUNT (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates Series 1996-A:
6.73%, 8/1/02 Aaa $ 21,675 $ 22,137
6.83%, 8/1/03 Aaa 11,700 11,988
7.57%, 8/1/13 Aaa 10,090 10,515
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) 6.69%, 1/15/09 (e) Aaa 18,416 18,654
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 233,677
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $634,196) 645,590
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 5.5%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.8%
5 1/2%, 8/1/02 to 5/1/03 Aaa 12,961 12,535
6%, 10/1/23 to 9/1/25 Aaa 13,069 12,464
7%, 5/1/99 to 7/1/01 Aaa 5,558 5,613
7 1/2%, 6/1/27 to 7/1/27 Aaa 21,357 21,737
7 1/2%, 10/1/27 (l) Aaa 37,500 38,191
8 1/2%, 2/1/19 to 8/1/22 Aaa 344 362
90,902
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.8%
5 1/2%, 10/1/02 to 2/1/26 Aaa 22,426 21,645
6%, 4/1/00 to 6/1/26 Aaa 160,630 155,794
6 1/2%, 7/1/25 to 6/1/26 Aaa 164,730 160,550
7%, 5/1/00 to 9/1/27 Aaa 63,767 63,568
7 1/2%, 6/1/22 to 4/1/24 Aaa 59 60
7 1/2%, 10/1/27 (l) Aaa 60,772 61,764
463,381
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.9%
6%, 10/15/08 to 12/15/10 Aaa 32,684 32,184
6 1/2%, 12/15/07 to 8/15/09 Aaa 66,659 66,713
8%, 4/15/24 to 12/15/25 Aaa 6,200 6,413
105,310
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $640,970) 659,593
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
PRINCIPAL AMOUNT (000S)
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing and Securitization
LLC Series 1997-2 Class 2-B,
7.2891%, 12/29/25 (e)(j) (Cost $1,808) Ba3 $ 3,400 $ 1,817
COMMERCIAL MORTGAGE SECURITIES - 1.3%
American Southwest Financial Securities
Series 1994-C2 Class B2,
11.683%, 12/25/01 (e)(g) - 3,880 3,919
Bardell Associates Note Trust
12 1/2%, 11/1/08 (d) - 17,351 18,435
Blackrock Capital Funding LLC Series 1996
Class C2, 7.620%, 11/16/26 (e)(g) AAA 2,652 2,678
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (e)(g) BBB 5,378 5,458
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.739%, 8/1/24 (e)(g) - 2,280 1,709
CS First Boston Mortgage Securities Corp. (e)(g):
Series 1994-CFB1 Class E, 7.672%, 1/25/28 Baa 3,795 3,722
Series 1995-AEWI Class E,
9.809%, 11/25/27 - 3,110 3,177
Equitable Life Assurance Society of the
United States (The) (e):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 10,400 10,896
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 8,000 8,442
Series 174, Class D1, 7.77%, 5/15/06 Baa 6,800 7,236
Franchise Mortgage Acceptance Company
LLC Loan Receivables Trust Series 1997-A
Class E, 8.104%, 4/15/19 (e)(g) - 1,471 1,416
Franchise Mortgage Acceptance Corp.
sequential pay, Series 1997-B Class E,
7.89%, 9/15/19 (e)(g) - 1,407 1,266
First Chicago/Lennar Trust I Series 1997-CHL1 (g):
Class D, 8.1338%, 5/29/08 - 2,000 1,989Class E, 8.1338%, 4/1/39 -
3,800 3,139
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1996-C1
Class F, 7.86%, 11/15/06 (e) Ba3 1,250 1,204
GS Mortgage Securities Corp. II Series 1997-GL
Class A2-B, 6.86%, 7/13/30 Aaa 13,230 13,499
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
PRINCIPAL AMOUNT (000S)
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 $ 6,659 $ 6,677
Merrill Lynch Mortgage Investments, Inc.
Series 1994 Class M1-E,
8.1039%, 6/25/22 (e)(g) Ba2 1,060 1,069
Morgan Stanley Capital I, Inc. sequential pay
Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa 13,690 14,352
NB Commercial Mortgage sequential pay, Series
FSI Class A, 7.187%, 10/20/23 (e) - 4,104 4,127
Oregon Commercial Mortgage, Inc.
Series 1995 Class E,
9.8694%, 6/25/26 (e)(g) BB 2,650 2,708
Penn Mutual Life Insurance Co. (The)
Series 1996-PML (e):
Class K, 7.90%, 11/15/26 - 750 484
Class L, 7.90%, 11/15/26 - 600 275
Resolution Trust Corp. floater Series 1991-M2
Class A1, 7.3458%, 9/25/20 (g) Ba3 417 296
SML, Inc. Series 1994-C1 Class C,
9.20%, 9/18/99 (d) - 5,225 4,598
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (e) BB 2,390 2,173
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 4,998 5,068
Series 1996-CFL Class E,
7 3/4%, 2/25/28 BB+ 6,820 6,999
Series 1996-CFL Class G, 7 3/4%, 2/25/28 (e) - 2,700 2,366
Series 1996-CFL Class H, 7 3/4%, 2/25/28 Aaa 1,000 804
Series 1996-C3 Class E,
8.458%, 6/25/30 (e)(g) - 500 481
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (e) Aaa 15,230 15,307
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $148,642) 155,969
COMPLEX MORTGAGE SECURITIES - 0.0%
INTEREST ONLY STRIPS - 0.0%
SML, Inc. commercial Series 1994-C1 Class S,
0.81%, 9/18/99 (h) (Cost $1,802) - 125,474 1,255
FOREIGN GOVERNMENT OBLIGATIONS (J) - 0.3%
PRINCIPAL AMOUNT (000S)
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 $ 4,880 $ 5,058
Israeli State euro 6 3/8%, 12/19/01 A3 13,265 13,215
Newfoundland Province yankee
11 5/8%, 10/15/07 Baa 5,750 7,793
Quebec Province yankee 7.22%, 7/22/36 (k) A2 12,500 13,354
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $38,163) 39,420
SUPRANATIONAL OBLIGATIONS - 0.1%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $12,918) Aaa 13,000 13,130
BANK NOTES - 0.4%
Key Bank N.A 5.6488%, 8/20/99 (g) 25,000 24,976
Morgan Guaranty Trust Co. 5.765%, 3/30/98 (g) 23,000 22,992
TOTAL BANK NOTES
(Cost $47,955) 47,968
CERTIFICATES OF DEPOSIT - 2.0%
ABN-Amro Bank NV yankee 5.65%, 12/23/97 5,000 4,997
Banque Nationale de Paris yankee
5 3/4%, 7/31/98 12,500 12,478
Canadian Imperial Bank of Commerce:
5.91%, 8/28/98 25,000 24,991
yankee 6.20%, 8/1/00 16,760 16,770
Chase Manhattan Bank 5 3/4%, 2/9/98 12,500 12,500
Deutsche Bank AG yankee 6.20%, 4/10/98 15,500 15,520
Landesbank Hessen-Thuringen yankee:
5.78%, 1/27/98 14,500 14,494
5.67%, 2/11/98 6,000 5,994
PNC Bank 5.6075%, 2/2/98 (g) 11,000 10,995
Rabobank Nederland, Coop Central yankee:
5.97%, 3/20/98 8,000 8,003
6.20%, 4/10/98 10,000 10,013
Royal Bank of Canada yankee 5.74%, 1/7/98 15,000 14,992
Sanwa Bank Ltd. Japan yankee
5.65%, 10/27/97 21,000 21,000
Societe Generale France yankee:
5.87%, 11/24/97 3,500 3,501
5.85%, 3/3/98 3,000 2,999
CERTIFICATES OF DEPOSIT - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
SunTrust Bank 5.85%, 11/25/97 $ 25,000 $ 25,005
Westdeutsche Landesbank yankee
5.83%, 8/3/98 21,000 20,975
Westpac Banking Corp. yankee
5.885%, 8/27/98 9,000 8,994
TOTAL CERTIFICATES OF DEPOSIT
(Cost $234,177) 234,221
COMMERCIAL PAPER - 0.7%
Bear Stearns Cos., Inc. 5.56%, 1/12/98 27,900 27,449
Goldman Sachs Group LP 5.83%, 1/26/98 10,000 9,817
Merrill Lynch & Co., Inc. 5.55%, 1/14/98 3,000 2,951
Norfolk Southern Corp. 5.70%, 10/20/97 2,700 2,692
Triple A One Funding Corp. 5.56%, 10/8/97 22,503 22,475
Textron, Inc. 5.68%, 10/6/97 5,600 5,595
Unifunding, Inc. yankee 5.67%, 11/12/97 15,000 14,901
TOTAL COMMERCIAL PAPER
(Cost $85,872) 85,880
MASTER NOTES - 0.4%
Corestates Bank NA 5.6163%, 1/30/98 (g) 12,000 12,000
First Bank National Association
5.663%, 5/15/98 (g) 13,000 12,992
Goldman Sachs Group LP (The)
5.7188%, 5/4/98 (d)(g) 18,000 17,998
TOTAL MASTER NOTES
(Cost $42,992) 42,990
TIME DEPOSITS - 0.6%
Bank of Tokyo-Mitsubishi Ltd. 5.67%, 10/27/97 28,000 28,000
Barclays Bank PLC 6 1/2%, 10/1/97 12,500 12,500
Sumitomo Bank Ltd. 5.70%, 10/21/97 28,000 28,000
TOTAL TIME DEPOSITS
(Cost $68,500) 68,500
CASH EQUIVALENTS - 8.9%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investment in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at dated 9/30/97
due 10/1/97:
at 6.30% $ 163 $ 163
at 5.50% 8,950 8,949
9,112
SHARES
Taxable Central Cash Fund (b) 1,064,250,000 1,064,250
TOTAL CASH EQUIVALENTS
(Cost $1,073,362) 1,073,362
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $9,625,000) $ 12,019,938
LEGEND
10. Non-income producing
11. At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.66%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
12. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
13. 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 (000S)
Bardell Associates Note
Trust 12 1/2%,
11/1/08 4/19/94 $ 18,326
Chancellor Trust
Class I unit 10/12/94 $ 2,990
Fairchild Semiconductor
Corp. 11.74%,
3/15/08 pay-in-kind 4/3/97 $ 4,481
Goldman Sachs Group
LP (The) 5.7188%,
5/4/98 8/5/97 $ 18,000SML, Inc. Series 1994-C1
Class C, 9.20%,
9/18/99 8/11/94 $ 3,398
14. 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
$425,284,000 or 3.6% of net assets.
15. Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
16. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
17. Security represents right to receive monthly interest payments on
an underlying pool of mortgages. Principal shown is the par amount of
the mortgage pool.
18. For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
19. Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
20. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
21. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
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 17.1% AAA, AA, A 16.5%
Baa 4.1% BBB 6.2%
Ba 2.9% BB 1.4%
B 4.7% B 4.5%
Caa 0.2% CCC 0.4%
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 Moody's or S&P amounted to 0.6%. FMR has determined that
unrated debt securities that are lower quality account for 0.6% of the
total value of investment in securities.
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $9,633,599,000. Net unrealized appreciation
aggregated $2,386,339,000, of which $2,484,964,000 related to
appreciated investment securities and $98,625,000 related to
depreciated investment securities.
The fund hereby designates approximately $68,336,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 12,019,938
AGREEMENTS OF $9,112) (COST $9,625,000) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 68,176
RECEIVABLE FOR FUND SHARES SOLD 12,801
DIVIDENDS RECEIVABLE 14,203
INTEREST RECEIVABLE 60,670
OTHER RECEIVABLES 586
TOTAL ASSETS 12,176,374
LIABILITIES
PAYABLE TO CUSTODIAN BANK $ 2,108
PAYABLE FOR INVESTMENTS PURCHASED 90,690
REGULAR DELIVERY
DELAYED DELIVERY 99,376
PAYABLE FOR FUND SHARES REDEEMED 32,024
ACCRUED MANAGEMENT FEE 5,349
OTHER PAYABLES AND ACCRUED EXPENSES 2,726
COLLATERAL ON SECURITIES LOANED, AT VALUE 78,213
TOTAL LIABILITIES 310,486
NET ASSETS $ 11,865,888
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 8,754,675
UNDISTRIBUTED NET INVESTMENT INCOME 21,392
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 694,773
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 2,395,048
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 624,152 SHARES OUTSTANDING $ 11,865,888
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $19.01
PER SHARE ($11,865,888 (DIVIDED BY) 624,152 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 113,461
DIVIDENDS
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $809) 350,325
TOTAL INCOME 463,786
EXPENSES
MANAGEMENT FEE $ 61,215
TRANSFER AGENT FEES 25,058
ACCOUNTING AND SECURITY LENDING FEES 940
NON-INTERESTED TRUSTEES' COMPENSATION 68
CUSTODIAN FEES AND EXPENSES 372
REGISTRATION FEES 61
AUDIT 235
LEGAL 71
INTEREST 32
MISCELLANEOUS 70
TOTAL EXPENSES BEFORE REDUCTIONS 88,122
EXPENSE REDUCTIONS (1,569) 86,553
NET INVESTMENT INCOME 377,233
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 749,550
FOREIGN CURRENCY TRANSACTIONS 31 749,581
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 1,371,405
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 121 1,371,526
NET GAIN (LOSS) 2,121,107
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,498,340
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 377,233 $ 397,024
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 749,581 671,756
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,371,526 3,779
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,498,340 1,072,559
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (418,976) (374,329)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (468,542) -
TOTAL DISTRIBUTIONS (887,518) (374,329)
SHARE TRANSACTIONS 2,000,175 2,206,154
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 871,972 366,382
COST OF SHARES REDEEMED (3,290,756) (3,680,752)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (418,609) (1,108,216)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,192,213 (409,986)
NET ASSETS
BEGINNING OF PERIOD 10,673,675 11,083,661
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 11,865,888 $ 10,673,675
INCOME OF $21,392 AND $54,997, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 114,774 137,775
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 51,553 22,890
REDEEMED (189,437) (229,788)
NET INCREASE (DECREASE) (23,110) (69,123)
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 C 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING OF $ 16.49 $ 15.47 $ 14.58 $ 14.97 $ 13.50
PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .59 B .62 .49 .34 .52
NET REALIZED AND UNREALIZED 3.35 .96 .93 .21 2.01
GAIN (LOSS)
TOTAL FROM INVESTMENT 3.94 1.58 1.42 .55 2.53
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.67) (.56) (.44) (.44) (.87)
FROM NET REALIZED GAIN (.75) - - (.45) (.19)
IN EXCESS OF NET REALIZED GAIN - - (.09) (.05) -
TOTAL DISTRIBUTIONS (1.42) (.56) (.53) (.94) (1.06)
NET ASSET VALUE, END OF PERIOD $ 19.01 $ 16.49 $ 15.47 $ 14.58 $ 14.97
TOTAL RETURN A 25.15% 10.37% 10.09% 3.60% 19.71%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 11,866 $ 10,674 $ 11,084 $ 11,792 $ 7,266
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .79% .95% .97% 1.04% 1.09%
NET ASSETS
RATIO OF EXPENSES TO AVERAGE NET .78% D .93% D .97% 1.04% 1.09%
ASSETS AFTER EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT INCOME TO 3.39% 3.64% 4.27% 3.63% 4.28%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 79% 131% 137% 109% 98%
AVERAGE COMMISSION RATE E $ .0069 $ .0045
</TABLE>
THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL
STATEMENTS).
NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR
SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY
VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF
TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND
COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
13. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Asset Manager (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 financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Equity securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price. Debt securities for which quotations are
readily available are valued by a pricing service at their market
values as determined by their most recent bid prices in the principal
market (sales prices if the principal market is an exchange) in which
such securities are normally traded. Securities (including restricted
securities) for which market quotations are not readily available are
valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily
available are valued at amortized cost or original cost plus accrued
interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
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 recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, passive foreign investment companies (PFIC),
market discount, non-taxable dividends 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 and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. 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.
14. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade. The cost of the foreign currency contracts is
included in the cost basis of the associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC) the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is
an open-end money market fund available only to investment companies
and other accounts managed by FMR and its affiliates. The Cash Fund
seeks preservation of capital, liquidity, and current income by
investing in U.S. Treasury securities and repurchase agreements for
these securities. Income distributions from the Cash Fund are declared
daily and paid monthly from net interest income. Income distributions
received by the fund are recorded as interest income in the
accompanying financial statements.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, restricted securities (excluding 144A
issues) amounted to $58,767,000 or 0.5% of net assets.
15. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $8,074,970,000 and $9,300,549,000, respectively, of which
U.S. government and government agency obligations aggregated
$2,469,735,000 and $4,703,909,000, respectively.
16. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .25%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .55% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .23% of average net assets.
ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's
accounting records and administers the security lending program. The
security lending fee is based on the number and duration of lending
transactions. The accounting fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $953,000 for the
period.
17. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
At period end, the value of the securities loaned and the value of
collateral amounted to $76,597,000 and $78,213,000, respectively.
18. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the period for which
6. BANK BORROWINGS -
CONTINUED
loans were outstanding amounted to $30,477,000 and $17,780,000,
respectively. The weighted average interest rate was 5.90%.
19. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $834,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $34,000 and $701,000, respectively, under these
arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Asset Manager:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for Moody's and Standard
& Poor's ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Fidelity Asset
Manager (a fund of Fidelity Charles Street Trust) at September 30,
1997, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Asset Manager's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1997 by correspondence with the
custodian and the application of alternative auditing procedures where
securities purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 11, 1997
DISTRIBUTIONS
A total of 17.64% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 18% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1998 of these percentages
for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, 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.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
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455 Market Street
San Francisco, CA
950 Northgate Drive
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1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
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4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
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4001 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
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8065 Beneva Road
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1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State 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
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
William J. Hayes, Vice President
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
George A. Vanderheiden, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY'S ASSET ALLOCATION FUNDS
Asset Manager
SM
Asset Manager: Growth
SM
Asset Manager: Income
SM
Fidelity Freedom Funds-
Income, 2000, 2010, 2020, 2030
SM
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 13 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 17 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 19 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 20
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past five years and the life
of fund figures would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT 6.90% 27.04% 37.89%
SALOMON BROTHERS TREASURY/ 7.29% 31.05% N/A
AGENCY 1-5 YEAR INDEX
SHORT-INTERMEDIATE U.S. GOVERNMENT 6.99% 27.58% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on September 13, 1991. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the Salomon Brothers Treasury/Agency 1-5
Year Index - a market capitalization weighted index of U.S. Treasury
and U.S. government agency securities with fixed-rate coupons and
weighted average lives between one and five years. To measure how the
fund stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 96 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT 6.90% 4.90% 5.45%
SALOMON BROTHERS TREASURY/ 7.29% 5.56% N/A
AGENCY 1-5 YEAR INDEX
SHORT-INTERMEDIATE U.S. GOVERNMENT 6.99% 4.97% N/A
FUNDS AVERAGE
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971008 144426 S00000000000001
Spartan Short Int SB Treas
00464 SB025
1991/09/30 10000.00 10000.00
1991/10/31 10124.47 10111.64
1991/11/30 10206.40 10230.09
1991/12/31 10363.10 10424.75
1992/01/31 10270.73 10371.48
1992/02/29 10301.41 10402.37
1992/03/31 10286.46 10376.30
1992/04/30 10374.47 10482.28
1992/05/31 10511.20 10604.40
1992/06/30 10602.19 10741.83
1992/07/31 10620.67 10905.61
1992/08/31 10766.62 11020.09
1992/09/30 10813.25 11151.00
1992/10/31 10714.24 11041.63
1992/11/30 10721.93 11001.39
1992/12/31 10851.32 11125.78
1993/01/31 11000.33 11304.58
1993/02/28 11099.58 11429.83
1993/03/31 11141.22 11469.50
1993/04/30 11190.03 11561.30
1993/05/31 11192.99 11520.78
1993/06/30 11276.42 11645.46
1993/07/31 11314.31 11667.56
1993/08/31 11364.67 11806.69
1993/09/30 11382.56 11847.50
1993/10/31 11391.68 11868.18
1993/11/30 11374.03 11844.38
1993/12/31 11424.48 11892.27
1994/01/31 11516.80 11987.76
1994/02/28 11419.40 11873.00
1994/03/31 11219.00 11752.85
1994/04/30 11165.11 11686.55
1994/05/31 11169.90 11701.57
1994/06/30 11175.51 11720.84
1994/07/31 11292.35 11844.66
1994/08/31 11315.67 11881.50
1994/09/30 11247.75 11817.74
1994/10/31 11255.23 11832.76
1994/11/30 11211.34 11770.42
1994/12/31 11267.16 11800.46
1995/01/31 11430.33 11984.36
1995/02/28 11611.08 12181.58
1995/03/31 11673.28 12248.17
1995/04/30 11797.39 12372.56
1995/05/31 12051.10 12655.63
1995/06/30 12114.07 12730.16
1995/07/31 12143.32 12761.61
1995/08/31 12210.19 12847.47
1995/09/30 12277.38 12914.62
1995/10/31 12383.41 13039.87
1995/11/30 12503.72 13177.86
1995/12/31 12603.00 13288.66
1996/01/31 12715.55 13405.97
1996/02/29 12636.33 13324.93
1996/03/31 12585.83 13282.42
1996/04/30 12564.15 13263.72
1996/05/31 12563.92 13281.01
1996/06/30 12650.02 13394.35
1996/07/31 12698.67 13440.25
1996/08/31 12733.63 13475.67
1996/09/30 12851.01 13621.04
1996/10/31 13025.35 13810.04
1996/11/30 13146.05 13934.71
1996/12/31 13114.89 13900.99
1997/01/31 13166.72 13966.45
1997/02/28 13200.86 13988.55
1997/03/31 13142.47 13956.53
1997/04/30 13254.65 14083.19
1997/05/31 13341.05 14184.07
1997/06/30 13439.43 14292.60
1997/07/31 13624.99 14497.46
1997/08/31 13622.68 14481.60
1997/09/30 13737.33 14613.36
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Intermediate Government Fund on September
30, 1991, shortly after the fund started. As the chart shows, by
September 30, 1997, the value of the investment would have grown to
$13,737 - a 37.37% increase on the initial investment. For comparison,
look at how the Salomon Brothers Treasury/Agency 1-5 Year Index did
over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $14,613 -
a 46.13% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL
DO TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN, AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE
OUT THE MARKET'S UPS AND
DOWNS, YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.36% 6.46% 7.00% 5.55% 6.34%
CAPITAL APPRECIATION RETURN 0.54% -1.79 2.15% -6.73% -1.08%
%
TOTAL RETURN 6.90% 4.67% 9.15% -1.18% 5.26%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.86(CENTS) 29.35(CENTS) 57.47(CENTS)
ANNUALIZED DIVIDEND RATE 6.32% 6.28% 6.15%
30-DAY ANNUALIZED YIELD 5.95% - -
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 $9.36
over the past one month, $9.32 over the past six months and $9.34 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's chief
antagonist - rising inflation -
remained in check throughout
most of the 12 months that ended
September 30, 1997, translating
into a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 9.71% over the
period. Through the first half of the
period, bonds suffered from the
perception of an overheating
economy and, in turn, that inflation
would rear its ugly head. In
February, Federal Reserve Board
Chairman Alan Greenspan hinted
that the Fed was inclined to raise
the rate banks charge each other
for overnight loans - known as the
fed funds target rate - to curb any
potential inflation upticks. The Fed
acted in March, raising the fed
funds rate by 0.25% to 5.50% in a
move largely anticipated by
investors. From April through July,
weakening economic and inflation
indicators - coupled with the Fed's
shift to a more beneficial stance
signaling no intention to raise
short-term rates further - helped
spark an across-the-board rally.
While some of these gains were
lost in August - as inflation fears
cropped up again due to
stronger-than-expected economic
data - much of the decline was
offset by a strong September.
Relative interest-rate stability
provided a positive backdrop for
mortgage-backed securities, as the
Salomon Brothers Mortgage Index
returned 9.85% over the 12-month
period. Sustained economic growth
and demand for higher yields aided
corporate bonds, as the Lehman
Brothers Corporate Bond Index
returned 10.83% over the same
period.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended September 30, 1997, the fund
provided a total return of 6.90%. The fund's performance was in line
with the 6.99% return produced during the same period by the
short-intermediate U.S. government funds average, as tracked by Lipper
Analytical Services. The Salomon Brothers Treasury/Agency 1-5 Year
Index had a 12-month return of 7.29%.
Q. HOW DID YOU RESPOND TO THE BOND MARKET'S UPS AND DOWNS DURING THE
PAST YEAR?
A. In spite of the market's changing direction in reaction to interest
rates moves, the main thrust of my investment strategy remained the
same throughout the year: I managed the fund to have approximately the
same sensitivity to interest-rate movements as the market for 1-5 year
government securities, as represented by the Salomon Brothers
Treasury/Agency 1-5 Year Index. It's my view that very few people can
pinpoint the direction and magnitude of interest-rate changes with any
accuracy and consistency. Given that, I believe that managing a fund
based on the future level of interest rates can backfire if you place
an incorrect bet. So I kept the fund "duration neutral," meaning that
it was essentially no more or no less sensitive to interest-rate
changes than the short-maturity part of the government/agency bond
market.
Q. IN TERMS OF PORTFOLIO COMPOSITION, HOW DID YOU ALLOCATE THE FUND'S
HOLDINGS AMONG VARIOUS SECTORS?
A. Throughout the year, I continued to have a larger stake than the
Salomon Brothers index in agency and mortgage securities, and
simultaneously maintained a relatively small stake in U.S. Treasury
securities. I chose to do so because agencies and mortgage securities
were more attractive given their higher yields. Having relatively
high-yielding agency and mortgage securities - as opposed to investing
more in Treasuries - was a plus for the fund.
Q. CURT, WE UNDERSTAND THAT THE FUND HAS HAD AN INVESTMENT POLICY
CHANGE REGARDING ITS INVESTMENT IN MORTGAGE SECURITIES . . .
A. Yes. Effective November 28, 1997, the fund will adopt a policy that
limits investments in mortgage securities to 40% of the fund's assets.
I do not expect the new policy to have an impact on the fund; at the
end of the period, the fund had only 21.4% invested in mortgage
securities. Going forward, I will continue to manage the fund as a
broad government fund that invests in Treasury and agency securities
as well as mortgage securities.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU CHOOSE?
A. I invested in agency securities that are non-callable - those that
can't be redeemed by their issuer before maturity. Bonds typically are
called when interest rates fall so significantly that the issuer can
save money by issuing new bonds at lower rates. A call option is a
positive feature for issuers because it cuts their borrowing costs.
But holders of callable bonds are often at a disadvantage because they
may have to reinvest the proceeds from a called bond in new,
lower-yielding bonds. I prefer non-callable securities because they
generally perform better than callable bonds when interest rates fall
and bond prices rally, and generally fare no worse than callable bonds
when interest rates rise and bond prices fall.
Q. MORTGAGE-BACKED SECURITIES ARE SIMILARLY SUSCEPTIBLE TO BEING
PRE-PAID BEFORE MATURITY AS HOMEOWNERS REFINANCE WHEN INTEREST RATES
FALL. HOW DOES THAT AFFECT WHICH MORTGAGE SECURITIES YOU CHOOSE?
A. The likelihood of a mortgage security being pre-paid before
maturity because of increased refinancing activity is one of the most
important factors I consider, since it can dramatically affect the
security's price. I tend to emphasize mortgage securities where I
think the level of refinancing activity will not change greatly as
interest rates rise or fall. For example, I chose mortgage securities
where the underlying loans had interest rates well above or well below
current interest rates. These securities are typically less likely to
experience changes in refinancing activity. Similarly, I focused on
"seasoned" mortgages - those that were issued between five and 10
years ago. For a variety of reasons, homeowners with seasoned
mortgages have decided not to refinance, even after being presented
with several attractive opportunities to do so over the years. Because
of that, seasoned mortgages stand only a small chance of being paid
off before maturity by homeowners in the future.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET AND THE FUND?
A. At present, bonds are priced based on a fairly optimistic view:
inflation will remain moderate and the Federal Reserve Board won't
hike interest rates. If inflation rises or the Fed raises rates, the
bond markets would be unpleasantly surprised and are likely to react
negatively. As far as the fund goes, I'll most likely continue to
underweight Treasury securities in favor of higher-yielding agency and
mortgage securities, as long as they remain attractive.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
DICK HABERMANN ON THE FUND'S
PERFORMANCE:
"When comparing the fund's
returns to the unusually strong
performance of the Standard &
Poor's 500 Index, investors should
note that there are some
significant differences between
the make-up of the fund and the
composition of the index. While
the S&P 500 is made up exclusively
of stocks, Asset Manager: Growth
invests in stocks, bonds and
short-term/money market
instruments. The fund allocates
assets among these three
categories in order to help
control both volatility and risk
relative to funds or indexes that
invest only in stocks. A single
index covering only one asset
class should not be used as the
only benchmark against which to
compare the fund's overall
performance. History teaches us
that it's better to invest for the long
term by diversifying across several
asset classes. That's because the
markets are not predictable. At
some point, the economy will
falter and the S&P will fall back
to provide returns more in line
with its historical average. Asset
Manager: Growth offers the
portfolio manager the flexibility to
reallocate the components of the
fund. That decision-making mainly
comes down to looking at relative
valuations among the three asset
classes. Given that your
investment horizon and risk
tolerance match the investment
objectives of the fund, you can rest
assured that we will do our best to
make sure the fund's asset
allocation is appropriate for your
goals."
FUND FACTS
GOAL: maximum total return
over the long term through
investing in stocks, bonds and
short-term and money market
instruments
FUND NUMBER: 321
TRADING SYMBOL: FASGX
START DATE: December 30, 1991
SIZE: as of September 30,
1997, more than $4.4 billion
MANAGER: Richard Habermann,
since 1996; manager, Fidelity
Asset Manager and Fidelity
Asset Manager: Income, since
1996; Fidelity Trend Fund,
1977-1981; Fidelity Magellan
Fund, 1972-1977; joined
Fidelity in 1968
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1997
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 5% 5.2 5.2
5 - 5.99% 8.4 9.9
6 - 6.99% 1.2 5.0
7 - 7.99% 24.9 48.5
8 - 8.99% 25.4 5.2
9 - 9.99% 17.8 10.0
10% AND OVER 17.1 15.8
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 3.6 3.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 2.2 2.3
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997 AS OF MARCH 31, 1997
ROW: 1, COL: 1, VALUE: 0.0
ROW: 1, COL: 2, VALUE: 21.4
ROW: 1, COL: 3, VALUE: 47.2
ROW: 1, COL: 4, VALUE: 31.4
U.S. TREASURY
OBLIGATIONS 32.3%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 42.3%
MORTGAGE-BACKED
SECURITIES 25.0%
SHORT-TERM
INVESTMENTS 0.4%
U.S. TREASURY
OBLIGATIONS 31.4%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 47.2%
MORTGAGE-BACKED
SECURITIES 21.4%
SHORT-TERM
INVESTMENTS 0.0%
ROW: 1, COL: 1, VALUE: 2.0
ROW: 1, COL: 2, VALUE: 25.0
ROW: 1, COL: 3, VALUE: 41.0
ROW: 1, COL: 4, VALUE: 32.0
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 78.6%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 31.4%
8%, 8/15/99 $ 19,510,000 $ 20,253,721
7 3/4%, 12/31/99 6,000,000 6,236,220
7 3/4%, 2/15/01 2,241,000 2,363,560
11 3/4%, 2/15/01 358,000 420,593
5 5/8%, 2/28/01 860,000 851,538
7 7/8%, 8/15/01 6,121,000 6,512,193
36,637,825
U.S. GOVERNMENT AGENCY OBLIGATIONS - 47.2%
Federal National Mortgage Association 5.55%, 1/17/01 1,275,000
1,255,480
Financing Corp. stripped principal 0%, 6/6/02 6,170,000 4,635,213
Government Trust Certificates (assets of Trust guaranteed by
U.S. Government through Defense Security Assistance Agency):
Class 1-C, 9 1/4%, 11/15/01 10,053,970 10,670,982
Class 2-E, 9.40%, 5/15/02 4,634,728 4,914,665
Class T-3, 9 5/8%, 5/15/02 4,631,317 4,909,567
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 1,766,256 1,821,107
Series 1994-F, 8.187%, 12/15/04 3,749,491 3,957,587
Guaranteed Trade Trust Certificates (assets of Trust guaranteed
by U.S. Government through Export-Import Bank)
Series 1993-A, 4.86%, 4/1/98 1,000,000 996,970
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate Series 1994-195,
6.08%, 8/15/04 1,220,000 1,209,984
Private Export Funding Corp. secured:
9 1/2%, 3/31/99 250,000 262,853
5 1/2%, 3/15/01 2,500,000 2,453,700
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
7 1/8%, 8/15/99 11,000,000 11,224,510
7 3/4%, 11/15/99 787,000 814,545
0%, 11/15/00 465,000 385,350
8%, 11/15/01 4,971,000 5,297,247
U.S. Department of Housing and Urban Development
government guaranteed participation certificates
Series 1996-A, 6.59%, 8/1/00 230,000 232,834
55,042,594
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $91,080,153) 91,680,419
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 21.4%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.5%
5 1/2%, 12/1/02 to 7/1/03 $ 5,389,688 $ 5,208,971
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 16.9%
8 1/2%, 1/15/17 to 7/15/17 123,336 130,975
10%, 11/15/09 to 11/15/20 3,567,611 3,949,351
10 1/2%, 2/15/14 to 8/15/19 7,585,160 8,527,528
10 3/4%, 12/15/09 210,325 234,111
11%, 11/15/09 to 6/15/19 2,581,795 2,926,304
11 1/2%, 3/15/10 to 7/15/19 2,934,038 3,370,250
12%, 1/15/14 to 2/15/16 364,232 424,783
12 1/2%, 12/15/10 54,532 63,926
13%, 9/15/14 51,283 60,721
19,687,949
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $24,571,882) 24,896,920
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $115,652,035) $ 116,577,339
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $115,708,178. Net unrealized appreciation
aggregated $869,161, of which $1,107,466 related to appreciated
investment securities and $238,305 related to depreciated investment
securities.
At September 30, 1997, the fund had a capital loss carryforward of
approximately $10,974,000 of which $320,000, $1,404,000, $5,655,000,
$2,404,000 and $1,191,000 will expire on September 30, 2001, 2002,
2003, 2004, and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (COST $115,652,035) - $ 116,577,339
SEE ACCOMPANYING SCHEDULE
CASH 2,070,439
INTEREST RECEIVABLE 1,690,170
TOTAL ASSETS 120,337,948
LIABILITIES
DISTRIBUTIONS PAYABLE $ 89,816
ACCRUED MANAGEMENT FEE 43,119
OTHER PAYABLES AND ACCRUED EXPENSES 66,699
TOTAL LIABILITIES 199,634
NET ASSETS $ 120,138,314
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 130,339,727
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (97,053)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (11,029,664)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 925,304
NET ASSETS, FOR 12,820,674 SHARES OUTSTANDING $ 120,138,314
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.37
PER SHARE ($120,138,314 (DIVIDED BY) 12,820,674 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 8,876,689
INTEREST
EXPENSES
MANAGEMENT FEE $ 538,951
TRANSFER AGENT FEES 296,278
ACCOUNTING FEES AND EXPENSES 61,689
NON-INTERESTED TRUSTEES' COMPENSATION 1,963
CUSTODIAN FEES AND EXPENSES 23,302
REGISTRATION FEES 22,086
AUDIT 45,171
LEGAL 1,014
MISCELLANEOUS 2,170
TOTAL EXPENSES 992,624
NET INVESTMENT INCOME 7,884,065
REALIZED AND UNREALIZED GAIN (LOSS) 178,902
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 135,665
INVESTMENT SECURITIES
NET GAIN (LOSS) 314,567
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 8,198,632
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 7,884,065 $ 8,449,683
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 178,902 (1,688,177)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 135,665 (708,437)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,198,632 6,053,069
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (7,517,929) (8,265,922)
SHARE TRANSACTIONS 51,261,094 44,301,304
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 5,978,419 6,377,996
COST OF SHARES REDEEMED (60,826,140) (65,893,484)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (3,586,627) (15,214,184)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,905,924) (17,427,037)
NET ASSETS
BEGINNING OF PERIOD 123,044,238 140,471,275
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS $ 120,138,314 $ 123,044,238
OF NET INVESTMENT INCOME OF $97,053 AND
$289,091, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 5,495,549 4,686,982
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 639,858 676,595
REDEEMED (6,514,225) (6,973,858)
NET INCREASE (DECREASE) (378,818) (1,610,281)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED SEPTEMBER 30,
1997 1996 1995 1994 B 1993
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.320 $ 9.490 $ 9.290 $ 9.960 $ 10.140
OF PERIOD
INCOME FROM INVESTMENT .603 D .599 .648 .533 .722
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .022 (.167) .174 (.648) (.209)
GAIN (LOSS)
TOTAL FROM INVESTMENT .625 .432 .822 (.115) .513
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.575) (.602) (.622) (.555) (.623)
FROM NET REALIZED GAIN - - - - (.070)
TOTAL DISTRIBUTIONS (.575) (.602) (.622) (.555) (.693)
NET ASSET VALUE, END OF PERIOD $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960
TOTAL RETURN A 6.90% 4.67% 9.15% (1.18)% 5.26%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 120,138 $ 123,044 $ 140,471 $ 132,466 $ 168,292
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .81% .79% .82% .95% .61%
NET ASSETS C
RATIO OF NET INVESTMENT INCOME TO 6.45% 6.54% 6.67% 6.80% 7.19%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 126% 188% 266% 184% 348%
</TABLE>
THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
20. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Short-Intermediate Government 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 financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities 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.
Securities for which quotations are not readily available are valued
at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its
taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
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 generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards, and losses deferred due to wash
sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
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.
21. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
22. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $151,805,050 and $155,949,509, respectively.
23. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .24% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Short-Intermediate Government Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Short-Intermediate Government Fund (a fund of Fidelity
Charles Street Trust) at September 30, 1997, the results of its
operations for the year then ended, and the changes in its net assets
and the financial highlights for the periods indicated in conformity
with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fidelity
Short-Intermediate Government Fund's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1997 by correspondence
with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 7, 1997
DISTRIBUTIONS
A total of 31.74% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
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the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
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0
*
BY PC
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interactive planning tools and news about Fidelity products and
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(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
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INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Dwight D. Churchill, Vice President
Fred L. Henning, Jr., Vice President
Curtis Hollingsworth, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
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Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity
Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline(trademark) 1999, 2001, & 2003
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SHORT-TERM BOND
FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 21 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 25 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 28 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 29
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value), and the effect of the $5 account closeout fee on
an average sized account. You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
SPARTAN SHORT-TERM BOND FUND 6.99% 26.39%
LEHMAN BROTHERS 1-3 YEAR 6.94% 30.19%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.54% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 1, 1992. For example, if you had invested $1,000 in
a fund that had a 5% return, over the past year, the value of your
investment would be $1,050. You can compare the fund's returns to the
performance of the Lehman Brothers 1-3 Year Government/Corporate Bond
Index - a market value weighted performance benchmark for government
and corporate fixed-rate debt issues, with maturities between one and
three years. To measure how the fund's performance stacked up against
its peers, you can compare it to the short investment grade debt funds
average, which reflects the performance of mutual funds with similar
objectives tracked by Lipper Analytical Services, Inc. The past one
year average represents a peer group of 100 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
SPARTAN SHORT-TERM BOND FUND 6.99% 4.79%
LEHMAN BROTHERS 1-3 YEAR 6.94% 5.42%
GOVERNMENT/CORPORATE BOND INDEX
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 6.54% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971008 144426 S00000000000001
Spartan Short-Term Bond LB 1-3 yr
00449 LB013
1992/10/01 10000.00 10000.00
1992/10/31 9933.83 9939.84
1992/11/30 9941.15 9925.83
1992/12/31 10033.23 10019.57
1993/01/31 10177.58 10126.50
1993/02/28 10293.46 10209.11
1993/03/31 10359.82 10242.28
1993/04/30 10422.38 10306.56
1993/05/31 10447.70 10283.07
1993/06/30 10563.40 10360.95
1993/07/31 10625.81 10384.64
1993/08/31 10730.26 10471.58
1993/09/30 10769.15 10505.37
1993/10/31 10828.20 10529.88
1993/11/30 10852.94 10532.97
1993/12/31 10937.02 10575.62
1994/01/31 11008.69 10642.99
1994/02/28 10928.78 10578.50
1994/03/31 10722.16 10524.11
1994/04/30 10602.28 10484.15
1994/05/31 10704.77 10498.36
1994/06/30 10566.90 10525.97
1994/07/31 10645.16 10621.77
1994/08/31 10701.15 10657.62
1994/09/30 10734.70 10633.92
1994/10/31 10721.91 10658.23
1994/11/30 10730.94 10613.53
1994/12/31 10431.41 10633.72
1995/01/31 10514.42 10779.79
1995/02/28 10616.21 10928.94
1995/03/31 10675.48 10990.96
1995/04/30 10781.00 11090.46
1995/05/31 10960.94 11282.47
1995/06/30 11029.96 11343.87
1995/07/31 11074.81 11389.19
1995/08/31 11144.76 11458.21
1995/09/30 11201.30 11514.86
1995/10/31 11299.47 11610.46
1995/11/30 11393.82 11710.38
1995/12/31 11468.73 11799.17
1996/01/31 11568.54 11900.12
1996/02/29 11527.39 11854.8
1996/03/31 11503.70 11846.14
1996/04/30 11516.45 11858.09
1996/05/31 11543.44 11885.49
1996/06/30 11632.79 11972.43
1996/07/31 11672.01 12019.00
1996/08/31 11711.35 12063.29
1996/09/30 11813.69 12173.72
1996/10/31 11944.82 12311.13
1996/11/30 12034.26 12403.43
1996/12/31 12046.05 12405.49
1997/01/31 12096.35 12465.44
1997/02/28 12127.00 12496.34
1997/03/31 12126.30 12486.66
1997/04/30 12218.19 12589.05
1997/05/31 12298.98 12677.02
1997/06/30 12393.08 12765.20
1997/07/31 12531.31 12906.94
1997/08/31 12545.58 12919.10
1997/09/30 12640.61 13018.60
IMATRL PRASUN SHR__CHT 19970930 19971008 144428 R00000000000123
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Term Bond Fund on October 1, 1992, when the
fund started. As the chart shows, by September 30, 1997, the value of
the investment would have grown to $12,639 - a 26.39% increase on the
initial investment which includes 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 and capital gains, if any, reinvested, the same $10,000
investment would have grown to $13,019 - a 30.19% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN, AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.67% 6.67% 6.49% A 6.19% A 7.79%
CAPITAL APPRECIATION RETURN 0.32% -1.22% -2.16% -6.53% -0.11%
TOTAL RETURN 6.99% 5.45% 4.33% -0.34% 7.68%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested. Capital
appreciation and total returns include the effect of the $5 account
closeout fee on an average sized account.
DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.84(CENTS) 29.56(CENTS) 58.27(CENTS)
ANNUALIZED DIVIDEND RATE 6.51% 6.54% 6.45%
30-DAY ANNUALIZED YIELD 6.01% - -
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 $9.04
over the past one month, $9.02 over the past six months and $9.03 over
the past one year, you can compare the fund's income over these three
periods. The 30-day annualized YIELD is a standard formula for all
funds based on the yields of the bonds in the fund, averaged over the
past 30 days. This figure shows you the yield characteristics of the
fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses during the periods shown, the yield
would have been 5.72%.
A NON-TAXABLE DIVIDENDS: DIVIDENDS PAID ARE BASED ON THE FUND'S
INVESTMENT INCOME AND DO NOT REFLECT CURRENCY RELATED LOSSES. AS A
RESULT OF CURRENCY LOSSES, DIVIDENDS PAID DURING 1995 OF APPROXIMATELY
14.2(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL. DIVIDENDS
PAID DURING 1994 OF APPROXIMATELY 11.0(CENTS) PER SHARE WERE A
NON-TAXABLE RETURN OF CAPITAL.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's chief
antagonist - rising inflation -
remained in check throughout
most of the 12 months that ended
September 30, 1997, translating
into a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 9.71% over the
period. Through the first half of the
period, bonds suffered from the
perception of an overheating
economy and, in turn, that inflation
would rear its ugly head. In
February, Federal Reserve Board
Chairman Alan Greenspan hinted
that the Fed was inclined to raise
the rate banks charge each other
for overnight loans - known as the
fed funds target rate - to curb any
potential inflation upticks. The Fed
acted in March, raising the fed
funds rate by 0.25% to 5.50% in a
move largely anticipated by
investors. From April through July,
weakening economic and inflation
indicators - coupled with the Fed's
shift to a more beneficial stance
signaling no intention to raise
short-term rates further - helped
spark an across-the-board rally.
While some of these gains were
lost in August - as inflation fears
cropped up again due to
stronger-than-expected economic
data - much of the decline was
offset by a strong September.
Relative interest-rate stability
provided a positive backdrop for
mortgage-backed securities, as the
Salomon Brothers Mortgage Index
returned 9.85% over the 12-month
period. Sustained economic growth
and demand for higher yields aided
corporate bonds, as the Lehman
Brothers Corporate Bond Index
returned 10.83% over the same
period.
An interview with Andrew Dudley, Portfolio Manager of Spartan
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the 12 months that ended September 30, 1997, the fund had a
total return of 6.99%. That outperformed the 6.54% return of the short
investment grade debt funds average tracked by Lipper Analytical
Services. For the same period, the Lehman Brothers 1-3 Year
Government/Corporate Bond Index returned 6.94%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S PERFORMANCE?
A. The fund benefited from maintaining overweighted positions,
relative to the index, in corporate bonds, asset-backed securities and
commercial mortgage-backed securities - three sectors that offered
yield advantages over comparable Treasuries during the period.
Selecting the right securities and issuers in the corporate sector
also helped the fund perform reasonably well versus its peers.
Q. WHAT ROLE DOES LEHMAN BROTHERS 1-3 YEAR GOVERNMENT/CORPORATE BOND
INDEX PLAY IN THE MANAGEMENT OF THE FUND?
A. It plays a very important role. It's the fund's benchmark index and
includes most of the universe of investment-grade bonds with
maturities between one and three years. I use the index as a starting
point for my investment decisions, managing the fund to be generally
as sensitive to changes in interest rates as the index. In addition, I
refer to the index when deciding how to allocate assets among
different maturities and market sectors - such as corporate or
government securities - based on my view of the relative value of each
maturity or sector.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED DURING THE PERIOD?
A. Corporate bonds and asset-backed securities continued to represent
a large portion of the fund - about 65% at the end of the period.
Roughly one-third of the fund was invested in corporate securities
with ratings below single-A, according to Moody's. I felt the
companies I selected had the most potential for credit improvement. As
the rating of a bond improves, its price increases and its yield
decreases relative to Treasuries. This is known as spread tightening,
as the yield moves closer to the yield offered by comparable
Treasuries, providing the fund and the investor a return advantage.
Q. DID THE FUND TARGET ANY PARTICULAR SECTORS IN THE CORPORATE BOND
MARKET?
A. The fund focused its exposure to securities with three- to
five-year maturities on the cable, telecommunications and media
industries. In fact, a large component of the fund's return came from
those areas of the corporate bond market, as the companies improved
their credit profiles and consequently benefited from increasing
valuations relative to comparable Treasuries. Generally,
longer-maturity bonds enjoy more price appreciation from spread
tightening than short-maturity bonds do. In the shorter-maturity
areas, I focused on banks and finance companies. In combination with
the longer-maturity corporate securities, I maintained an average
maturity below three years, keeping the volatility of the fund
relatively low versus the overall bond market.
Q. WHAT ABOUT ASSET-BACKED SECURITIES AND MORTGAGE-BACKED SECURITIES?
A. The fund's investments in asset-backed securities, or bonds backed
by a pool of loans such as credit cards, has remained relatively
stable, at about 18% of the portfolio. The bulk of the position in
this sector was very high-quality securities - mostly Aaa-rated. These
asset-backed bonds have been a stable component of the fund's returns.
Within the mortgage sector, the fund primarily focused on commercial
mortgage-backed securities (CMBS) - bonds that are backed by loans on
commercial property, such as office buildings or retail malls. The
market for these securities has gained considerable acceptance among
investors, leading to better returns for the issues. At the end of the
period, about 7% of the fund's portfolio was invested in
mortgage-backed securities, with a majority of those assets invested
in CMBS issues.
Q. WHAT'S YOUR OUTLOOK FOR THE OVERALL BOND MARKET?
A. I think caution will be the name of the game going into the next 12
months. Given the solid performance of many of the spread sectors -
segments of the fixed income market that can offer yield advantages,
or spreads, over comparable Treasuries - I think there's less room for
them to do much better in the near future. In light of this, I take
comfort in the fact that more than 60% of the fund is A-rated or
better. That said, I believe there exists a number of improving
situations in this market. At the same time, I intend to be more
cautious with the fund's core corporate holdings by targeting the
higher-quality issues. This is particularly true in a period where
yield advantages offered by non-Treasury securities are so narrow.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
ANDREW DUDLEY ON
USING FIDELITY RESEARCH:
"Fidelity's research enhances our
ability to find individual securities
and build portfolios that offer the
best returns relative to risk in the
high-grade bond market. We focus
our resources on analyzing credit
ratings, as well as valuing the cash
flow structures of securities. Within
the corporate bond arena, credit
analysts help me identify
industries that are undergoing
positive changes and find individual
corporate bonds where the credit
profiles of the issuers are not fully
valued in the prices of the
securities. Quantitative analysts
help to value the underlying
structural components of
individual bonds by assessing cash
flow characteristics. Because of
Fidelity's research depth, we are
well positioned to continue to find
opportunities in the
investment-grade bond market."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 449
TRADING SYMBOL: FTBDX
START DATE: October 1, 1992
SIZE: as of September 30, 1997,
more than $287 million
MANAGER: Andrew Dudley,
since February 1997;
manager, Fidelity Short-Term
Bond Fund, since February
1997; joined Fidelity in 1996
(checkmark)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA 4 38.8
1
.
8
AA 4 4.8
.
1
A 1 13.8
6
.
9
BAA 2 28.4
4
.
6
BA 8 6.7
.
4
NOT RATED 1 1.8
.
9
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW
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 SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 2.3 2.2
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 1.7 1.7
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997 * AS OF MARCH 31, 1997 **
CORPORATE BONDS 64.9%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 23.1%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 7.2%
SHORT-TERM
INVESTMENTS 2.3%
OTHER 2.5%
CORPORATE BONDS 67.9%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 15.0%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 9.8%
SHORT-TERM
INVESTMENTS 5.7%
OTHER 1.6%
ROW: 1, COL: 1, VALUE: 2.5
ROW: 1, COL: 2, VALUE: 2.3
ROW: 1, COL: 3, VALUE: 7.2
ROW: 1, COL: 4, VALUE: 23.1
ROW: 1, COL: 5, VALUE: 64.90000000000001
ROW: 1, COL: 1, VALUE: 1.6
ROW: 1, COL: 2, VALUE: 5.7
ROW: 1, COL: 3, VALUE: 9.800000000000001
ROW: 1, COL: 4, VALUE: 15.0
ROW: 1, COL: 5, VALUE: 67.90000000000001
* FOREIGN
INVESTMENTS 5.7%
** FOREIGN
INVESTMENTS 3.0%
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 64.9%
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.3%
CHEMICALS & PLASTICS - 1.3%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,500 $ 3,704
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,160 1,270
ENERGY - 1.5%
OIL & GAS - 1.5%
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa3 580 577
Pennzoil Co. 9 5/8%, 11/15/99 Baa3 630 671
Ras Laffan Liquid Natural Gas Co. Ltd. yankee
7.628%, 9/15/06 (c) A3 700 723
Tosco Corp. 7%, 7/15/00 Baa2 2,200 2,235
4,206
FINANCE - 36.6%
ASSET-BACKED SECURITIES - 18.3%
Capita Equipment Receivables Trust
6.57%, 3/15/01 Aa3 810 817
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 4,625 4,649
6.45%, 9/15/02 A3 1,330 1,318
5.85%, 2/15/03 A3 690 683
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 380 383
Chase Manhattan Grantor Trust
5.90%, 11/15/01 Aaa 1,859 1,858
Chevy Chase Auto Receivables
Trust 6.20%, 3/20/04 Aaa 1,200 1,200
Contimortgage Home Equity Loan
Trust 6.26%, 7/15/12 Aaa 2,450 2,453
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 538 541
Fidelity Funding Auto Trust
6.99%, 11/15/02 (c) Aaa 559 563
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 2,117 2,119
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 1,216 1,225
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 249 248
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Green Tree Financial Corp.: - continued
5.80%, 2/15/27 Aaa $ 2,659 $ 2,654
6.10%, 4/15/27 Aaa 2,041 2,042
6.45%, 5/15/27 Aaa 1,320 1,325
6 1/2%, 6/15/27 Aaa 770 774
6.65%, 7/15/27 Aaa 1,611 1,617
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 131 131
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,130 1,130
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,280 1,293
6 1/8%, 11/15/04 Aaa 897 914
Onyx Acceptance Grantor Trust 6.20%, 6/15/03 Aaa 2,222 2,224
Petroleum Enhanced Trust Receivables Offering
Petroleum Trust 6.1875%, 2/5/03 (c) Baa2 1,677 1,677
Premier Auto Trust:
4.95%, 2/2/99 A2 40 40
8.05%, 4/4/00 Aaa 5,360 5,428
6%, 5/6/00 Aaa 980 980
6.35%, 7/6/00 A3 1,690 1,692
Reliance Auto Receivables Corp., Inc.
6.10%, 7/15/02 (c) Aaa 929 929
Standard Credit Card Master Trust I:
7.65%, 2/15/00 A2 700 703
6 3/4%, 6/7/00 Aaa 1,000 1,004
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 440 440
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 268 268
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 212 212
7.275%, 10/10/00 Baa2 201 202
8.20%, 1/10/01 Baa2 203 206
Western Financial Grantor Trust:
6.20%, 2/1/02 Aaa 645 651
5 7/8%, 3/1/02 Aaa 1,515 1,542
WFS Financial Owner Trust:
7.05%, 11/20/03 Aaa 2,510 2,550
6.90%, 12/20/03 Aaa 1,630 1,667
52,352
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - 9.3%
Banc One Corp. 6.70%, 3/24/00 Aa3 $ 1,250 $ 1,265
Banco Latinoamer Exportaciones Euro
6.90%, 12/6/99 (c) Baa2 550 559
BanPonce Financial Corp.:
6.642%, 4/8/99 A3 1,410 1,423
7.65%, 5/3/00 A3 1,140 1,165
6.88%, 6/16/00 A3 510 517
BanPonce Corp.:
6.378%, 4/8/99 A3 940 940
6.488%, 3/3/00 A3 800 804
Capital One Bank 6.42%, 11/12/99 Baa3 2,200 2,200
First Chicago Corp. 9 7/8%, 7/1/99 A2 2,450 2,600
First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 910 965
First Union Corp. 6.60%, 6/15/00 A1 500 505
First USA Bank 6 1/2%, 12/23/99 Aa2 1,700 1,711
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 860 895
KeyCorp. 7.45%, 4/5/00 A1 1,100 1,125
Korea Development Bank:
yankee 6 1/4%, 5/1/00 A1 2,535 2,498
7 1/8%, 9/17/01 A1 920 925
Mellon Financial Co. 6.30%, 6/1/00 A2 600 600
Signet Banking Corp. 5.9375%, 4/15/98 (d) Baa2 3,950 3,935
Union Planters National Bank 6.53%, 8/20/99 A3 1,960 1,975
26,607
CREDIT & OTHER FINANCE - 8.7%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa3 2,500 2,520
6.16%, 12/3/99 Baa3 1,940 1,934
Aristar, Inc. 7 1/2%, 7/1/99 Baa1 2,010 2,051
Associates Corp. of North America
6 3/8%, 8/15/99 Aa3 1,200 1,205
Boatmens Auto Trust 6.35%, 10/15/01 A2 610 612
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,720 1,727
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa1 1,942 1,957
Finova Capital Corp. 6.27%, 9/29/00 Baa1 580 581
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
General Motors Acceptance Corp.:
5.45%, 3/1/99 A3 $ 3,030 $ 3,002
6.55%, 4/23/99 A3 1,850 1,865
6 3/8%, 4/26/99 A3 2,500 2,514
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,450 1,451
North American Mortgage Co.
5.80%, 11/2/98 Baa2 750 748
Salton Sea Funding Corp. 7.02%, 5/30/00 Baa3 1,325 1,335
Sears, Roebuck Acceptance Corp.
6.17%, 1/29/99 A2 1,000 1,004
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 303 305
24,811
SAVINGS & LOANS - 0.3%
Golden West Financial Corp.
8 5/8%, 8/30/98 A3 100 102
Long Island Savings Bank FSB Melville NY
7%, 6/13/02 Baa3 750 754
856
TOTAL FINANCE 104,626
MEDIA & LEISURE - 6.4%
BROADCASTING - 6.4%
Bell Cablemedia PLC yankee:
0%, 7/15/04 (b) Baa3 1,000 918
0%, 9/15/05 (b) Baa3 700 607
Continental Cablevision, Inc. 8 1/2%, 9/15/01 Baa2 1,844 1,968
TCI Communications, Inc. 6 3/8%, 9/15/99 Ba1 3,600 3,597
Tele Communications, Inc.:
9%, 1/2/02 Ba1 730 785
8.25%, 1/15/03 Ba1 2,400 2,535
Time Warner, Inc.:
7.45%, 2/1/98 Ba1 1,980 1,988
7.95%, 2/1/00 Ba1 5,880 6,071
18,469
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
NONDURABLES - 3.7%
FOODS - 2.0%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa3 $ 1,690 $ 1,706
Nabisco, Inc. 8%, 1/15/00 Baa2 3,910 4,040
5,746
TOBACCO - 1.7%
Philip Morris Companies, Inc.:
7 3/8%, 2/15/99 A2 650 658
7 1/8%, 12/1/99 A2 1,650 1,678
7 1/4%, 9/15/01 A2 1,400 1,432
RJR Nabisco, Inc. 8%, 1/15/00 Baa3 1,040 1,057
4,825
TOTAL NONDURABLES 10,571
RETAIL & WHOLESALE - 2.1%
GENERAL MERCHANDISE STORES - 2.1%
Dayton Hudson Corp.:
10%, 12/1/00 Baa1 1,078 1,185
6.80%, 10/1/01 Baa1 1,600 1,623
Federated Department Stores, Inc.
10%, 2/15/01 Baa2 2,000 2,214
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,100 1,116
6,138
TECHNOLOGY - 3.9%
COMPUTERS & OFFICE EQUIPMENT - 3.9%
Comdisco, Inc.:
5 3/4%, 1/19/99 Baa2 3,900 3,891
6.18%, 2/12/99 Baa1 520 522
6 1/2%, 4/30/99 Baa1 1,000 1,005
6.86%, 7/29/99 Baa1 1,580 1,596
6.55%, 2/4/00 Baa1 4,000 4,028
11,042
TRANSPORTATION - 1.5%
AIR TRANSPORTATION - 1.5%
Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 1,090 1,101
United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,180 3,184
4,285
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
UTILITIES - 7.5%
CELLULAR - 0.8%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 $ 2,370 $ 2,402
ELECTRIC UTILITY - 1.7%
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa1 2,000 1,999
Ohio Edison Co.:
8 3/4%, 2/15/98 Baa2 950 960
7 3/8%, 9/15/02 Baa2 900 924
Texas Utilities Electric Co. 7 3/8%, 11/1/99 Baa1 1,000 1,021
4,904
GAS - 2.9%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 500 509
8.43%, 9/17/98 Ba1 440 447
8.875%, 7/15/99 Baa3 5,500 5,747
Florida Gas Transmission Co.
7 3/4%, 11/1/97 (c) Baa2 1,560 1,562
8,265
TELEPHONE SERVICES - 2.1%
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,176 1,251
7.55%, 4/1/04 Ba1 3,800 3,940
8 7/8%, 1/15/06 Ba1 627 676
5,867
TOTAL UTILITIES 21,438
TOTAL NONCONVERTIBLE BONDS
(Cost $185,340) 185,749
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 20.5%
U.S. TREASURY OBLIGATIONS - 17.9%
9 1/4%, 8/15/98 Aaa 15,370 15,831
5 1/2%, 11/15/98 Aaa 10,000 9,977
8 7/8%, 2/15/99 Aaa 7,720 8,032
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - CONTINUED
8%, 8/15/99 Aaa $ 1,000 $ 1,038
7 3/4%, 12/31/99 Aaa 2,000 2,079
6 7/8%, 3/31/00 Aaa 1,859 1,902
5 3/4%, 10/31/00 Aaa 2,905 2,891
7 7/8%, 8/15/01 Aaa 4,240 4,511
10 3/4%, 5/15/03 Aaa 3,975 4,850
51,111
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.6%
Israel Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) Series 1994-1,
6.88%, 1/26/03 Aaa 705 717
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class C-1, 9 1/4%, 11/15/01 Aaa 4,559 4,838
Class T-3, 9 5/8%, 5/15/02 Aaa 421 446
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1994-C,
6.61%, 9/15/99 Aaa 294 296
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,159 1,178
7,475
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $58,685) 58,586
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.6%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.7%
7%, 8/1/99 to 7/1/01 Aaa 1,768 1,785
12%, 11/1/19 Aaa 147 168
1,953
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
11 1/2%, 11/1/15 Aaa 554 629
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.7%
11%, 2/15/10 to 9/15/19 Aaa $ 2,671 $ 3,007
11 1/2%, 5/15/13 to 7/15/15 Aaa 881 1,010
12%, 2/15/16 Aaa 835 973
4,990
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $7,566) 7,572
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
PRIVATE SPONSOR - 0.3%
GE Capital Mortgage Services, Inc.
planned amortization class Series 1994-2
Class A-4, 6%, 1/25/09 Aaa 750 743
U.S. GOVERNMENT AGENCY - 0.2%
Federal National Mortgage Association:
planned amortization class Series 155-PC,
5 1/4%, 3/25/13 Aaa 56 56
Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 564 568
624
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,365) 1,367
COMMERCIAL MORTGAGE SECURITIES - 6.7%
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 4/25/00 (c)(d) AA 1,810 1,817
Blackrock Capital Funding LLC Series 1996
Class C2, 7.6195%, 11/16/26 (c)(d) Aaa 239 241
CBM Funding Corp. sequential pay Series 1996-1:
Class A-1, 7.55%, 7/1/99 AA 140 142
Class A-2, 6.88%, 7/1/02 AA 870 884
CS First Boston Mortgage Securities Corp.:
Series 1995-AEWI Class A-1,
6.665%, 11/25/27 Aaa 185 185
floater Series 1994-CFB1 Class A-1,
6.2063%, 1/25/28 (d) Aaa 213 213
Equitable Life Assurance Society of the
United States floater Series 174 Class D-2,
6.7063%, 5/15/03 (c)(d) Baa2 1,000 1,002
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa $ 1,094 $ 1,099
Series 1996-C1 Class 1A, 6 3/4%, 5/25/26 Aaa 1,977 1,986
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 626 627
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 97 97
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9213%, 7/4/03 (d) - 1,249 1,256
Oregon Commercial Mortgage, Inc.
Series 1995-1 Class A, 7.15%, 6/25/26 (c) Aaa 1,552 1,556
Resolution Trust Corp.:
floater Series 1993-C2
Class A-2, 6.5575%, 3/25/25 (d) Aaa 1,036 1,038
floater Series 1994-C1
Class A-3, 6.2375%, 6/25/26 (d) Aaa 1,543 1,544
Series 1995-C1
Class A-4A, 6 1/4%, 2/25/27 Aaa 22 22
Series 1995-C2
Class A-1B, 6 1/4%, 5/25/27 Aaa 81 81
SC Finance Corp. floater
7.2063%, 8/1/04 (c)(d) - 4,300 4,303
Structured Asset Securities Corp.:
sequential pay Series 1993-C1 Class A-1A,
6.60%, 10/25/24 AA+ 203 203
sequential pay Series 1995-C4 Class A-1A,
6.90%, 6/25/26 Aaa 318 317
Series 1996-C3 Class A,
6 3/4%, 6/25/30 (c) Aaa 685 686
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $19,300) 19,299
FOREIGN GOVERNMENT OBLIGATIONS - 1.4%
Slovenian Republic euro 7%, 8/6/01
(Cost $3,797) A3 3,800 3,870
CERTIFICATES OF DEPOSIT - 1.1%
Canadian Imperial Bank of Commerce New York
yankee 6.20%, 8/1/00 (Cost $3,107) Aa3 3,100 3,102
CASH EQUIVALENTS - 2.3%
MATURITY VALUE NOTE
AMOUNT (000S) (000S)
Investment in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.06%, dated
9/30/97 due 10/1/97
(Cost $6,464) $ 6,465 $ 6,464
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $285,624) $ 286,009
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
2. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
3. 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 $17,575,000 or
6.1% of net assets.
4. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
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 59.3% AAA, AA, A 57.2%
Baa 24.6% BBB 33.8%
Ba 8.5% BB 3.5%
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 Moody's or S&P amounted to 1.9%.
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $285,641,000. Net unrealized appreciation
aggregated $368,000, of which $1,288,000 related to appreciated
investment securities and $920,000 related to depreciated investment
securities.
At September 30, 1997, the fund had a capital loss carryforward of
approximately $79,520,000 of which $39,973,000, $35,409,000, and
$4,138,000 will expire on September 30, 2003, 2004, and 2005,
respectively.
The fund intends to elect to defer to its fiscal year ending September
30, 1998 approximately $2,165,000 of losses recognized during the
period November 1, 1996 to September 30, 1997.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 286,009
AGREEMENTS OF $6,464) (COST $285,624) - SEE
ACCOMPANYING SCHEDULE
CASH 802
RECEIVABLE FOR INVESTMENTS SOLD 4
INTEREST RECEIVABLE 3,565
TOTAL ASSETS 290,380
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 2,557
DISTRIBUTIONS PAYABLE 257
ACCRUED MANAGEMENT FEE 90
OTHER PAYABLES AND ACCRUED EXPENSES 4
TOTAL LIABILITIES 2,908
NET ASSETS $ 287,472
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 370,319
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (1,512)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (81,720)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 385
NET ASSETS, FOR 31,769 SHARES OUTSTANDING $ 287,472
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.05
PER SHARE ($287,472 (DIVIDED BY) 31,769 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 21,450
INTEREST
EXPENSES
MANAGEMENT FEE $ 1,991
NON-INTERESTED TRUSTEES' COMPENSATION 7
TOTAL EXPENSES BEFORE REDUCTIONS 1,998
EXPENSE REDUCTIONS (471) 1,527
NET INVESTMENT INCOME 19,923
REALIZED AND UNREALIZED GAIN (LOSS) (2,472)
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 3,201
INVESTMENT SECURITIES
NET GAIN (LOSS) 729
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 20,652
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 19,923 $ 28,025
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) (2,472) (3,969)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 3,201 (706)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 20,652 23,350
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (19,752) (28,023)
SHARE TRANSACTIONS 115,689 93,000
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 16,035 23,083
COST OF SHARES REDEEMED (188,730) (289,546)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (57,006) (173,463)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (56,106) (178,136)
NET ASSETS
BEGINNING OF PERIOD 343,578 521,714
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF $ 287,472 $ 343,578
NET INVESTMENT INCOME OF $1,512 AND $1,708,
RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 12,804 10,225
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 1,775 2,536
REDEEMED (20,894) (31,809)
NET INCREASE (DECREASE) (6,315) (19,048)
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1997 1996 1995 1994 D 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.020 $ 9.130 $ 9.330 $ 9.990 $ 10.000
OF PERIOD
INCOME FROM INVESTMENT .588 C .598 .584 .574 .747
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .025 (.112) (.199) (.604) (.009)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .613 .486 .385 (.030) .738
OPERATIONS
LESS DISTRIBUTIONS (.583) (.596) (.443) (.477) (.747)
FROM NET INVESTMENT INCOME
IN EXCESS OF NET - - - (.033) (.001)
INVESTMENT INCOME
IN EXCESS OF NET - - - (.010) -
REALIZED GAIN
RETURN OF CAPITAL - - (.142) (.110) -
TOTAL DISTRIBUTIONS (.583) (.596) (.585) (.630) (.748)
NET ASSET VALUE, $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
END OF PERIOD
TOTAL RETURN A, B 7.00% 5.47% 4.35% (.32)% 7.69%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 287 $ 344 $ 522 $ 798 $ 1,471
(IN MILLIONS)
RATIO OF EXPENSES TO AVERAGE .50% .65% .65% .54% E .20% E
NET ASSETS E
RATIO OF EXPENSES TO AVERAGE .50% .64% .65% .54% .20%
NET ASSETS AFTER EXPENSE F
REDUCTIONS
RATIO OF NET INVESTMENT INCOME 6.50% 6.52% 6.45% 6.42% 7.32%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 105% 134% 159% 97% 112%
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
D 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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
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
financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities 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.
Securities (including restricted securities) for which market
quotations are not readily available are valued at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
securities with remaining maturities of sixty days or less for which
quotations are not readily available are valued at amortized cost or
original cost plus accrued interest, both of which approximate current
value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward
currency contracts disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming
2. OPERATING POLICIES -
CONTINUED
RESTRICTED SECURITIES - CONTINUED
negotiations and expense, and prompt sale at an acceptable price may
be difficult. At the end of the period, the fund had no investments in
restricted securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $314,573,000 and $376,107,000, respectively, of which U.S.
government and government agency obligations aggregated $166,859,000
and $222,979,000, 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.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $9,000 for the period.
5. EXPENSE REDUCTIONS.
Effective March 1, 1997, FMR voluntarily agreed to reimburse operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) above an annual rate of .38% of the funds
average net assets. For the period, the reimbursement reduced expenses
by $464,000.
In addition, FMR has entered into an arrangement on behalf of the fund
with the fund's custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the fund's
expenses. During the period, the fund's expenses were reduced by
$7,000 under this arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Spartan Short-Term Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for Moody's and Standard
& Poor's ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Spartan Short-Term
Bond Fund (a fund of Fidelity Charles Street Trust) at September 30,
1997, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for the periods
indicated in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
Spartan Short-Term Bond Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at
September 30, 1997 by correspondence with the custodian and the
application of alternative auditing procedures where securities
purchased were not yet received by the custodian, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 7, 1997
DISTRIBUTIONS
A total of 16.74% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, 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.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)SPARTAN(registered trademark)
INVESTMENT GRADE BOND
FUND
ANNUAL REPORT
SEPTEMBER 30, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.
PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 7 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.
INVESTMENT CHANGES 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 20 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 24 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 27 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 28
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
The stock and bond markets have performed well through the end of
September 1997, despite experiencing some short-term volatility in the
spring and again in August. The Standard & Poor's 500 Index was up
roughly 30% year-to-date through September, almost three times its
historical annual average. The bond markets - primarily influenced by
positive news on the inflation front - have posted moderate returns
through the first nine months of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value), and the effect of the $5 account closeout fee on
an average sized account. You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain expenses, the fund's total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
SPARTAN INVESTMENT GRADE BOND 9.42% 44.77%
LEHMAN BROTHERS AGGREGATE BOND INDEX 9.71% 39.71%
CORPORATE DEBT BBB FUNDS AVERAGE 10.89% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year or since the fund
started on October 1, 1992. For example, if you had invested $1,000 in
a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare the fund's returns to the
performance of the Lehman Brothers Aggregate Bond Index - a market
value weighted performance benchmark for investment-grade fixed-rate
debt issues, including government, corporate, asset-backed and
mortgage-backed securities, with maturities of at least one year. To
measure how the fund's performance stacked up against its peers, you
can compare it to the corporate debt BBB funds average, which reflects
the performance of mutual funds with similar objectives tracked by
Lipper Analytical Services, Inc. The past one year average represents
a peer group of 111 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
SPARTAN INVESTMENT GRADE BOND 9.42% 7.68%
LEHMAN BROTHERS AGGREGATE BOND INDEX 9.71% 6.92%
CORPORATE DEBT BBB FUNDS AVERAGE 10.89% N/A
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970930 19971015 121344 S00000000000001
Spartan Inv. Grade Bond LB Aggregate Bond
00448 LB001
1992/10/31 10000.00 10000.00
1992/11/30 10100.23 10002.26
1992/12/31 10335.59 10161.31
1993/01/31 10596.70 10356.17
1993/02/28 10934.98 10537.45
1993/03/31 10996.47 10581.36
1993/04/30 11037.29 10655.05
1993/05/31 11079.89 10668.61
1993/06/30 11441.55 10861.96
1993/07/31 11610.81 10923.40
1993/08/31 12007.92 11114.86
1993/09/30 12042.87 11145.39
1993/10/31 12141.98 11187.03
1993/11/30 11929.42 11091.87
1993/12/31 11964.69 11151.98
1994/01/31 12214.15 11302.55
1994/02/28 11792.85 11106.19
1994/03/31 11397.64 10832.38
1994/04/30 11282.21 10745.88
1994/05/31 11210.53 10744.37
1994/06/30 11204.45 10720.63
1994/07/31 11398.73 10933.57
1994/08/31 11397.63 10947.14
1994/09/30 11230.00 10786.02
1994/10/31 11206.19 10776.41
1994/11/30 11239.11 10752.47
1994/12/31 11345.82 10826.72
1995/01/31 11550.30 11040.99
1995/02/28 11770.37 11303.50
1995/03/31 11913.47 11372.84
1995/04/30 12065.51 11531.71
1995/05/31 12568.89 11977.95
1995/06/30 12662.03 12065.77
1995/07/31 12620.61 12038.82
1995/08/31 12779.07 12184.11
1995/09/30 12908.15 12302.65
1995/10/31 13077.08 12462.64
1995/11/30 13271.87 12649.39
1995/12/31 13457.19 12826.91
1996/01/31 13549.06 12912.09
1996/02/29 13313.02 12687.65
1996/03/31 13212.86 12599.45
1996/04/30 13123.30 12528.60
1996/05/31 13089.70 12503.16
1996/06/30 13253.71 12671.06
1996/07/31 13286.45 12705.74
1996/08/31 13264.80 12684.44
1996/09/30 13484.04 12905.49
1996/10/31 13773.70 13191.37
1996/11/30 13994.27 13417.32
1996/12/31 13876.70 13292.57
1997/01/31 13922.68 13333.27
1997/02/28 13947.96 13366.44
1997/03/31 13789.56 13218.32
1997/04/30 14004.68 13416.19
1997/05/31 14125.14 13543.01
1997/06/30 14285.21 13703.76
1997/07/31 14673.39 14073.31
1997/08/31 14551.15 13953.26
1997/09/30 14477.00 13971.00
IMATRL PRASUN SHR__CHT 19970930 19971015 121346 R00000000000062
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Investment Grade Bond Fund on October 1, 1992,
when the fund started. As the chart shows, by September 30, 1997, the
value of the investment would have grown to $14,477 - a 44.77%
increase on the initial investment which includes the effect of the $5
account closeout fee. For comparison, look at how the Lehman Brothers
Aggregate Bond Index did over the same period. With dividends and
capital gains, if any, reinvested the same $10,000 investment would
have grown to $13,971 - a 39.71% increase.
UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF
INTEREST RATES. IN TURN, THE SHARE
PRICE, RETURN AND YIELD OF A
FUND THAT INVESTS IN BONDS WILL
VARY. THAT MEANS IF YOU SELL
YOUR SHARES DURING A MARKET
DOWNTURN, YOU MIGHT LOSE
MONEY. BUT IF YOU CAN RIDE OUT
THE MARKET'S UPS AND DOWNS,
YOU MAY HAVE A GAIN.
(CHECKMARK)
TOTAL RETURN COMPONENTS
YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1997 1996 1995 1994 1993
DIVIDEND RETURN 6.73% 6.33% 7.66% 6.24% 8.77%
CAPITAL APPRECIATION RETURN 2.69% -1.88% 7.27% -13.01% 9.37%
TOTAL RETURN 9.42% 4.45% 14.93% -6.77% 18.14%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. A dividend return reflects the actual dividends
paid by the fund. A capital appreciation return reflects both the
amount paid by the fund to shareholders as capital gain distributions
and changes in the fund's share price. Both returns assume the
dividends or capital gains paid by the fund are reinvested. Capital
appreciation and total returns include the effect of the $5 account
closeout fee on an average sized account.
DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.29(CENTS) 32.47(CENTS) 64.29(CENTS)
ANNUALIZED DIVIDEND RATE 6.30% 6.41% 6.37%
30-DAY ANNUALIZED YIELD 6.19% - -
DIVIDENDS per share show the income paid by the fund for a set period
and do not reflect any tax reclassifications. If you annualize this
number, based on an average share price of $10.21 over the past one
month, $10.10 over the past six months and $10.10 over the past one
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on
the yields of the bonds in the fund, averaged over the past 30 days.
This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. If Fidelity had not
reimbursed certain fund expenses, the yield would have been 5.98%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
The bond market's chief
antagonist - rising inflation -
remained in check throughout
most of the 12 months that ended
September 30, 1997, translating
into a generally favorable investing
climate. The Lehman Brothers
Aggregate Bond Index - a broad
measure of the U.S. taxable bond
market - returned 9.71% over the
period. Through the first half of the
period, bonds suffered from the
perception of an overheating
economy and, in turn, that inflation
would rear its ugly head. In
February, Federal Reserve Board
Chairman Alan Greenspan hinted
that the Fed was inclined to raise
the rate banks charge each other
for overnight loans - known as the
fed funds target rate - to curb any
potential inflation upticks. The Fed
acted in March, raising the fed
funds rate by 0.25% to 5.50% in a
move largely anticipated by
investors. From April through July,
weakening economic and inflation
indicators - coupled with the Fed's
shift to a more beneficial stance
signaling no intention to raise
short-term rates further - helped
spark an across-the-board rally.
While some of these gains were
lost in August - as inflation fears
cropped up again due to
stronger-than-expected economic
data - much of the decline was
offset by a strong September.
Relative interest-rate stability
provided a positive backdrop for
mortgage-backed securities, as the
Salomon Brothers Mortgage Index
returned 9.85% over the 12-month
period. Sustained economic growth
and demand for higher yields aided
corporate bonds, as the Lehman
Brothers Corporate Bond Index
returned 10.83% over the same
period.
An interview with Kevin Grant, Portfolio Manager of Spartan Investment
Grade Bond Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the 12 months that ended September 30, 1997, the fund had a
total return of 9.42%. That lagged the corporate debt BBB funds
average tracked by Lipper Analytical Services, which returned 10.89%.
The Lehman Brothers Aggregate Bond Index returned 9.71% during the
same period.
Q. WHY DID THE FUND UNDERPERFORM THE LIPPER AVERAGE?
A. The corporate debt BBB funds average tracked by Lipper includes
funds that can invest in equities as well as high-yield bonds, which
are lower-quality than investment-grade bonds. During the period,
equities and high-yield bonds outperformed investment-grade bonds.
Since the fund only invests in the higher-quality issues, it
underperformed the Lipper average.
Q. WHAT ROLE DOES THE LEHMAN BROTHERS AGGREGATE BOND INDEX PLAY IN THE
MANAGEMENT OF THE FUND?
A. It plays a very important role. It's the fund's benchmark index and
includes most of the universe of investment-grade bonds with
maturities of one year or more. I use the index as a starting point
for my investment decisions, managing the fund to be generally as
sensitive to changes in interest rates as the index. In addition, I
refer to the index when deciding how to allocate assets among
different maturities and market sectors - such as corporate or
government securities - based on my view of the relative value of each
maturity or sector.
Q. WHAT AREAS OF THE BOND MARKET DID YOU TARGET?
A. During the period, the fund continued to find attractive
opportunities among bank capital securities, putable corporate bonds
and short-maturity corporate bonds. Bank capital securities resulted
from a regulatory change created by Federal Reserve Board policy about
a year ago. The change allows banks to issue long-term bonds and
deduct the interest payments from their taxes, unlike preferred stock
where dividends are not tax-deductible. This created a new market,
with many of these bonds offering attractive yields. Put bonds are
corporate issues that give investors the option to redeem the
securities at some point prior to their actual maturities.
Q. DID THE FUND FIND ATTRACTIVE OPPORTUNITIES IN ANY OTHER AREAS OF
THE MARKET?
A. Among corporate bonds, the fund invested a fair amount of its
assets in telecommunications and cable companies. For instance,
WorldCom has been a good performer because it quickly improved its
balance sheet and, as a result, was able to ground itself firmly in
the investment-grade market. Investors are starting to appreciate
WorldCom's improving credit story, so the fund reaped the rewards from
the price appreciation of these bonds. Cable companies also benefited
by improving the credit quality of their balance sheets.
Q. SIX MONTHS AGO, YOU SAID THAT MORTGAGE-BACKED SECURITIES WERE
EXPENSIVE. WAS THAT STILL THE CASE?
A. Yes. Mortgage-backed securities were expensive, so the fund was
underweighted in these issues relative to the index during the period.
On top of that, mortgage-backed securities haven't performed much
better than Treasuries. The fund benefited from the underweighted
position because it was able to own more corporate bonds, which
performed pretty well. The fund also invested in asset-backed
securities, which are described at length in my additional comments at
the end of this interview.
Q. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET?
A. The past two years have been wonderful for investors in most
financial assets. I think it would be imprudent to expect this
environment to continue. Because of that, I plan to maintain a fairly
defensive posture. Rather than investing aggressively in corporate
bonds, I will continue to seek out companies where management has a
consistent track record of maintaining their investment-grade ratings.
In addition, the list of upgrade situations - when companies
materially improve their balance sheets - is shrinking. So, I'll be
very selective. The mortgage market is quite precarious. Considering
the 10-year Treasury was hovering near 6% at the end of the period and
interest rates are as low as they've been in about a year and a half,
I think prepayment risk is becoming more of an issue. Prepayment risk
is the risk that mortgage holders will pay off their mortgages before
the maturity date, usually in the form of refinancing at a lower
interest rate. This forces mortgage-backed bond investors to reinvest
at a lower interest rate. These factors tell me that it's probably a
time to be defensive and hold more government bonds than over the past
few years.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
ANDREW DUDLEY ON
USING FIDELITY RESEARCH:
"Fidelity's research enhances our
ability to find individual securities
and build portfolios that offer the
best returns relative to risk in the
high-grade bond market. We focus
our resources on analyzing credit
ratings, as well as valuing the cash
flow structures of securities. Within
the corporate bond arena, credit
analysts help me identify
industries that are undergoing
positive changes and find individual
corporate bonds where the credit
profiles of the issuers are not fully
valued in the prices of the
securities. Quantitative analysts
help to value the underlying
structural components of
individual bonds by assessing cash
flow characteristics. Because of
Fidelity's research depth, we are
well positioned to continue to find
opportunities in the
investment-grade bond market."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 449
TRADING SYMBOL: FTBDX
START DATE: October 1, 1992
SIZE: as of September 30, 1997,
more than $287 million
MANAGER: Andrew Dudley,
since February 1997;
manager, Fidelity Short-Term
Bond Fund, since February
1997; joined Fidelity in 1996
(checkmark)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1997
(MOODY'S RATINGS) % % OF FUND'S INVESTMENTS
O 6 MONTHS AGO
F
F
U
N
D
'
S
I
N
V
E
S
T
M
E
N
T
S
AAA 6 58.5
1
.
2
AA 3 3.2
.
5
A 1 10.3
1
.
0
BAA 1 15.1
4
.
6
BA 4 4.8
.
2
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW
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 SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 8.4 8.0
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1997
6 MONTHS AGO
YEARS 4.5 4.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1997 * AS OF MARCH 31, 1997 **
CORPORATE BONDS 37.1%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 39.4%
U.S. GOVERNMENT
AGENCY - MORTGAGE
BACKED SECURITIES 13.3%
SHORT-TERM
INVESTMENTS 5.5%
OTHER 4.7%
CORPORATE BONDS 31.6%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 34.3%
U.S. GOVERNMENT
AGENCY - MORTGAGE
BACKED SECURITIES 19.6%
SHORT-TERM
INVESTMENTS 8.1%
OTHER 6.4%
ROW: 1, COL: 1, VALUE: 4.7
ROW: 1, COL: 2, VALUE: 5.5
ROW: 1, COL: 3, VALUE: 13.3
ROW: 1, COL: 4, VALUE: 39.4
ROW: 1, COL: 5, VALUE: 37.1
ROW: 1, COL: 1, VALUE: 6.4
ROW: 1, COL: 2, VALUE: 8.1
ROW: 1, COL: 3, VALUE: 19.6
ROW: 1, COL: 4, VALUE: 34.3
ROW: 1, COL: 5, VALUE: 31.6
* FOREIGN
INVESTMENTS 5.6%
** FOREIGN
INVESTMENTS 5.9%
INVESTMENTS SEPTEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 37.1%
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
AEROSPACE & DEFENSE - 0.9%
DEFENSE ELECTRONICS - 0.9%
Raytheon Co. 6.45%, 8/15/04 Baa $ 5,000,000 $ 4,995,046
DURABLES - 0.7%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa 870,000 893,325
TEXTILES & APPAREL - 0.5%
Levi Strauss & Co. 7%, 11/1/06 (a) Baa 3,000,000 3,047,400
TOTAL DURABLES 3,940,725
ENERGY - 0.1%
OIL & GAS - 0.1%
Pennzoil Co. 9 5/8%, 11/15/99 Baa 730,000 777,779
FINANCE - 19.2%
ASSET-BACKED SECURITIES - 6.1%
Arcadia Automobile Receivables Trust
6 1/2%, 6/17/02 Aaa 14,000,000 14,113,750
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 5,000,000 5,006,250
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 411,913 412,299
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 1,394,586 1,395,018
MBNA Master Credit Card Trust II
6.55%, 1/15/07 Aaa 5,000,000 5,037,500
PNC Student Loan Trust I 6.314%, 1/25/01 Aaa 5,700,000 5,714,250
Premier Auto Trust:
8.05%, 4/4/00 Aaa 790,000 799,998
6%, 5/6/00 Aaa 950,000 950,589
33,429,654
BANKS - 5.1%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 1,750,000 1,767,185
Banc One Corp. 6.70%, 3/24/00 Aa3 2,100,000 2,125,431
BanPonce Corp.:
5 3/4%, 3/1/99 A3 690,000 684,459
6.378%, 4/8/99 A3 770,000 769,615
Capital One Bank 6.42%, 11/12/99 Baa 4,000,000 4,000,880
Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa 1,000,000
1,070,320
Export-Import Bank of Korea 6 3/8%, 2/15/06 A1 6,000,000 5,623,140
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Fleet/Norstar Financial Group, Inc. 9%, 12/1/01 A3 $ 250,000 $
271,658
Hartford National Corp. 9.85%, 6/1/99 A3 1,650,000 1,745,222
Kansallis-Osake-Pankki 10%, 5/1/02 A3 430,000 486,992
Korea Development Bank 6 5/8%, 11/21/03 A1 1,000,000 973,750
Midland Bank PLC yankee 7 5/8%, 6/15/06 Aa3 1,300,000 1,371,708
NB Capital Trust IV 8 1/4%, 4/15/27 A1 3,250,000 3,419,553
Provident Bank 6 1/8%, 12/15/00 A3 210,000 208,513
Summit Bancorp 8 5/8%, 12/10/02 BBB 1,000,000 1,086,000
Union Planters Corp. 6 3/4%, 11/1/05 Baa 1,200,000 1,191,444
Union Planters National Bank 6.81%, 8/20/01 A3 1,000,000 1,013,750
27,809,620
CREDIT & OTHER FINANCE - 5.4%
AT&T Capital Corp.:
6.41%, 8/13/99 Baa 2,000,000 2,005,740
6.16%, 12/3/99 Baa 750,000 747,728
Associates Corp. of North America:
7 1/2%, 5/15/99 Aa3 3,000,000 3,063,120
6 7/8%, 2/15/00 Aa3 1,000,000 1,016,830
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 500,000 523,490
BankBoston Capital Trust II 7 3/4%, 12/15/26 Baa 1,750,000
1,742,353
BanPonce Trust I 8.327%, 2/1/27 (a) Baa 1,960,000 2,025,954
Chase Capital I 7.67%, 12/1/26 A1 3,850,000 3,870,790
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,960,000 1,968,546
First Security Capital I 8.41%, 12/15/26 A3 5,420,000 5,747,531
Fleet Mortgage Group 6 1/2%, 9/15/99 A2 250,000 251,600
General Electric Capital Corp.
6.94%, 4/13/09 (c) Aaa 1,750,000 1,772,050
General Motors Acceptance Corp.
6.65%, 5/24/00 A3 2,520,000 2,546,183
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 1,100,000 1,104,785
MCN Investment Corp. 6.03%, 2/1/01 Baa 800,000 792,120
29,178,820
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
INSURANCE - 0.9%
Executive Risk Capital Trust 8 5/8%, 2/1/27 Baa $ 2,750,000 $
2,838,578
Protective Life Corp. 7.95%, 7/1/04 A3 400,000 425,280
SunAmerica, Inc. 6.20%, 10/31/99 Baa 1,500,000 1,499,985
4,763,843
SAVINGS & LOANS - 1.7%
Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa 5,000,000 5,364,150
Great West Financial Trust II 8.206%, 2/1/27 A3 4,000,000 4,121,760
9,485,910
TOTAL FINANCE 104,667,847
HOLDING COMPANIES - 0.5%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa 2,510,000 2,603,523
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
POLLUTION CONTROL - 1.2%
WMX Technologies, Inc.:
6 1/4%, 4/1/99 A3 2,200,000 2,204,532
7.10%, 8/1/26 A3 4,000,000 4,168,240
6,372,772
MEDIA & LEISURE - 2.4%
BROADCASTING - 1.8%
TCI Communication, Inc.:
7 1/4%, 6/15/99 Ba1 5,350,000 5,410,562
7 3/8%, 2/15/00 Ba1 1,000,000 1,017,130
Time Warner, Inc. 9 1/8%, 1/15/13 Ba1 3,000,000 3,442,770
9,870,462
PUBLISHING - 0.5%
Time Warner Entertainment Co. LP:
10.15%, 5/1/12 Baa 250,000 313,895
8 7/8%, 10/1/12 Baa 750,000 856,185
8 3/8%, 3/15/23 Baa 1,750,000 1,879,500
3,049,580
RESTAURANTS - 0.1%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa 500,000 474,875
TOTAL MEDIA & LEISURE 13,394,917
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
NONDURABLES - 2.5%
FOODS - 0.4%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa $ 2,040,000 $ 2,131,004
TOBACCO - 2.1%
Philip Morris Companies, Inc.:
7%, 7/15/05 A2 2,000,000 1,999,860
6.95%, 6/1/06 A2 4,000,000 4,081,080
RJR Nabisco, Inc. 8 1/2%, 7/1/07 Baa 5,000,000 5,206,050
11,286,990
TOTAL NONDURABLES 13,417,994
RETAIL & WHOLESALE - 2.0%
GENERAL MERCHANDISE STORES - 1.6%
Dayton Hudson Corp. 6.40%, 2/15/03 Baa 1,000,000 990,790
Federated Department Stores, Inc.:
8 1/2%, 6/15/03 Baa 4,000,000 4,340,920
6.79%, 7/15/27 Baa 2,000,000 2,018,200
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,400,000 1,421,854
8,771,764
GROCERY STORES - 0.4%
American Stores Co. 7 1/2%, 5/1/37 Baa 2,000,000 2,141,780
TOTAL RETAIL & WHOLESALE 10,913,544
TECHNOLOGY - 1.6%
COMPUTERS & OFFICE EQUIPMENT - 1.1%
Comdisco, Inc. 6 3/8%, 11/30/01 Baa 6,000,000 5,976,360
ELECTRONICS - 0.5%
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 2,600,000 2,642,562
TOTAL TECHNOLOGY 8,618,922
TRANSPORTATION - 1.7%
AIR TRANSPORTATION - 0.8%
Delta Air Lines, Inc. equipment trust certificate
8.54%, 1/2/07 Baa 2,600,864 2,811,040
United Air Lines, Inc. 10 1/4%, 7/15/21 Baa 1,000,000 1,261,710
4,072,750
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
TRANSPORTATION - CONTINUED
RAILROADS - 0.9%
Burlington Northern Santa Fe Corp.
6.53%, 7/15/37 Baa $ 5,000,000 $ 5,043,400
TOTAL TRANSPORTATION 9,116,150
UTILITIES - 4.3%
CELLULAR - 0.5%
360 Degrees Communications Co.:
7 1/8%, 3/1/03 Ba1 1,610,000 1,631,461
7 1/2%, 3/1/06 Ba1 1,300,000 1,331,122
2,962,583
ELECTRIC UTILITY - 1.5%
British Columbia Hydro & Power Authority
yankee 12 1/2%, 1/15/14 Aa2 410,000 457,749
DR Investment yankee 7.10%, 5/15/02 (a) Baa 2,000,000 2,046,800
Hydro-Quebec yankee 8%, 2/1/13 A2 250,000 271,898
Ohio Edison Co. 8 3/4%, 2/15/98 Baa 4,000,000 4,040,960
Philadelphia Electric Co. 1st & ref. mtg.:
8 5/8%, 6/1/22 Baa 300,000 316,758
8 1/4%, 9/1/22 Baa 100,000 104,063
7 3/4%, 5/1/23 Baa 1,000,000 1,031,020
8,269,248
GAS - 0.7%
Mitchell Energy & Development Corp.
8%, 7/15/99 Ba1 2,520,000 2,583,554
Panhandle Eastern Corp. 8 5/8%, 12/1/99 A3 1,000,000 1,047,330
3,630,884
TELEPHONE SERVICES - 1.6%
GTE Corp. 7.83%, 5/1/23 A3 1,000,000 1,027,340
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 3,486,000 3,707,605
7 3/4%, 4/1/07 Ba1 3,800,000 3,983,692
8,718,637
TOTAL UTILITIES 23,581,352
TOTAL NONCONVERTIBLE BONDS
(Cost $198,963,415) 202,400,571
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 39.4%
MOODY'S RATING PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (A) AMOUNT (000S) (000S)
U.S. TREASURY OBLIGATIONS - 33.6%
5 1/2%, 12/31/00 Aaa $ 29,900,000 $ 29,521,466
6 3/8%, 3/31/01 Aaa 48,000,000 48,607,680
6 5/8%, 6/30/01 Aaa 15,905,000 16,242,981
12 3/8%, 5/15/04 Aaa 2,880,000 3,847,939
7%, 7/15/06 Aaa 66,610,000 70,231,586
9%, 11/15/18 Aaa 11,781,000 15,177,227
183,628,879
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.8%
Federal Home Loan Bank:
7.31%, 6/16/04 Aaa 5,000,000 5,266,400
7.36%, 7/1/04 Aaa 7,900,000 8,362,861
7.87%, 10/20/04 Aaa 1,700,000 1,850,348
Federal Home Loan Mortgage Corporation
8.115%, 1/31/05 Aaa 4,350,000 4,785,000
Federal National Mortgage Association
6.72%, 8/1/05 Aaa 1,740,000 1,773,704
Financing Corporation 0%, 3/26/04 (d) Aaa 5,606,000 3,746,770
Guaranteed Export Trust Certificates (assets of
Trust guaranteed by U.S. Government
through Export-Import Bank) Series 1994-C,
6.61%, 9/15/99 Aaa 40,497 40,763
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
0%, 11/15/01 (d) Aaa 3,280,000 2,557,613
5.89%, 8/15/05 Aaa 2,280,000 2,216,821
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates Series 1995-A,
8.24%, 8/1/04 Aaa 1,000,000 1,100,590
31,700,870
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $211,887,063) 215,329,749
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 13.3%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1%
7%, 6/1/01 to 7/1/01 Aaa $ 711,542 $ 718,636
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 11.6%
5 1/2%, 1/1/09 to 3/1/11 Aaa 16,488,717 15,814,041
6%, 10/1/23 to 11/1/25 Aaa 6,728,406 6,415,725
6 1/2%, 12/1/02 to 1/1/26 Aaa 12,053,574 11,859,836
7%, 9/1/27 Aaa 27,126,012 27,015,610
8%, 12/1/21 to 12/1/24 Aaa 904,467 934,761
9 1/2%, 4/1/17 to 12/1/18 Aaa 1,438,055 1,556,739
63,596,712
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.6%
6%, 10/15/08 to 5/15/09 Aaa 4,013,609 3,952,335
9%, 7/15/24 to 8/15/26 Aaa 3,406,660 3,635,217
9 1/2%, 7/15/16 to 3/15/22 Aaa 938,351 1,020,506
8,608,058
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $72,279,298) 72,923,406
COMMERCIAL MORTGAGE SECURITIES - 1.5%
BKB Commercial Mortgage Trust Series 1997-C1
Class A-1, 6 7/8%, 12/28/98 (a) Aaa 2,771,201 2,767,737
CS First Boston Mortgage Securities Corp. Series
1995-AEWI Class A-1, 6.665%, 11/25/27 Aaa 28,537 28,502
Equitable Life Assurance Society of the
United States (The):
Series 174 Class B1, 7.33%, 5/15/06 (a) Aa2 1,000,000 1,047,690
Series 1996-1 Class C1, 7.52%, 5/15/06 (a) A2 1,000,000 1,055,230
Oregon Commercial Mortgage, Inc. Series 1995-1
Class A, 7.15%, 6/25/26 (a) Aaa 180,086 180,592
Resolution Trust Corp. Series 1995-C1 Class A-4A,
6 1/4%, 2/25/27 Aaa 3,899 3,894
Structured Asset Securities Corp. sequential pay:
Series 1995-C4 Class A-1A, 6.90%, 6/25/26 Aaa 96,388 96,056
Series 1996 Class A-2A, 7 3/4%, 2/25/28 Aaa 1,799,439 1,824,744
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%,12/29/05 (a) Aaa 1,000,000 1,005,030
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $7,871,649) 8,009,475
FOREIGN GOVERNMENT OBLIGATIONS - 1.7%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
Alberta Province yankee 9 1/4%, 4/1/00 Aa2 $ 1,650,000 $ 1,767,117
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 1,070,000 1,108,948
Israeli State 6 3/8%, 12/15/05 A3 2,000,000 1,931,400
New Brunswick Province yankee
7 5/8%, 2/15/13 A1 500,000 538,245
Ontario Province 7%, 8/4/05 Aa3 2,000,000 2,060,020
Quebec Province yankee 7.22%, 7/22/36 (c) A2 1,400,000 1,495,690
Saskatchewan Province yankee
8 1/2%, 7/15/22 A3 300,000 347,664
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $8,979,478) 9,249,084
SUPRANATIONAL OBLIGATIONS - 1.5%
African Development Bank 7 3/4%, 12/15/01 Aa1 3,000,000 3,152,100
Inter American Development Bank yankee
6.29%, 7/16/27 Aaa 5,000,000 5,049,950
TOTAL SUPRANATIONAL OBLIGATIONS
(Cost $8,073,090) 8,202,050
CASH EQUIVALENTS - 5.5%
MATURITY
AMOUNT
Investment in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.06%, dated
9/30/97 due 10/1/97 $ 30,110,068 30,105,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $538,158,993) $ 546,219,335
LEGEND
6. 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 $13,176,433 or
2.4% of net assets.
7. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
8. Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date.
9. Debt obligation initially issued in zero coupon form which converts
to coupon form at a specified rate and date.
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 74.8% AAA, AA, A 71.6%
Baa 14.4% BBB 21.0%
Ba 4.2% BB 1.0%
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.
INCOME TAX INFORMATION
At September 30, 1997, the aggregate cost of investment securities for
income tax purposes was $538,374,807. Net unrealized appreciation
aggregated $7,844,528, of which $8,408,444 related to appreciated
investment securities and $563,916 related to depreciated investment
securities.
At September 30, 1997, the fund had a capital loss carryforward of
approximately $6,771,000 of which $105,000, $446,000 and $6,220,000
will expire on September 30, 2003, 2004, and 2005, respectively.
The fund intends to elect to defer to its fiscal year ending September
30, 1998, approximately $606,000 of losses recognized during the
period November 1, 1996 to September 30, 1997.
At September 30, 1997, the fund was required to defer approximately
$54,000 of losses on futures contracts.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SEPTEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 546,219,335
AGREEMENTS OF $30,105,000) (COST $538,158,993) -
SEE ACCOMPANYING SCHEDULE
CASH 284,433
INTEREST RECEIVABLE 6,917,358
TOTAL ASSETS 553,421,126
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 2,139,830
DISTRIBUTIONS PAYABLE 357,026
ACCRUED MANAGEMENT FEE 170,677
TOTAL LIABILITIES 2,667,533
NET ASSETS $ 550,753,593
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 550,541,094
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (201,067)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (7,646,776)
ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 8,060,342
NET ASSETS, FOR 53,711,628 SHARES OUTSTANDING $ 550,753,593
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $10.25
PER SHARE ($550,753,593 (DIVIDED BY) 53,711,628 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1997
INVESTMENT INCOME $ 27,612,178
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,624,538
NON-INTERESTED TRUSTEES' COMPENSATION 1,627
TOTAL EXPENSES BEFORE REDUCTIONS 2,626,165
EXPENSE REDUCTIONS (695,687) 1,930,478
NET INVESTMENT INCOME 25,681,700
REALIZED AND UNREALIZED GAIN (LOSS) 487,898
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 11,421,374
ON INVESTMENT SECURITIES
NET GAIN (LOSS) 11,909,272
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 37,590,972
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 25,681,700 $ 19,418,378
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 487,898 (6,833,471)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 11,421,374 (5,538,097)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 37,590,972 7,046,810
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (25,739,925) (19,294,801)
SHARE TRANSACTIONS 359,111,379 432,893,618
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 21,867,052 16,270,304
COST OF SHARES REDEEMED (185,908,497) (240,703,507)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 195,069,934 208,460,415
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 206,920,981 196,212,424
NET ASSETS
BEGINNING OF PERIOD 343,832,612 147,620,188
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET $ 550,753,593 $ 343,832,612
INVESTMENT INCOME OF $201,067 AND $269,538,
RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 35,504,616 42,285,053
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 2,160,519 1,618,766
REDEEMED (18,406,632) (23,963,038)
NET INCREASE (DECREASE) 19,258,503 19,940,781
</TABLE>
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
(COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
1997 1996 1995 1994 D 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.980 $ 10.170 $ 9.510 $ 10.940 $ 10.000
OF PERIOD
INCOME FROM INVESTMENT OPERATIONS .640 C .655 .693 .668 .799
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED .273 (.211) .673 (1.384) .940
GAIN (LOSS)
TOTAL FROM INVESTMENT OPERATIONS .913 .444 1.366 (.716) 1.739
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.643) (.634) (.686) (.704) (.798)
IN EXCESS OF NET INVESTMENT - - - - (.001)
INCOME
IN EXCESS OF NET REALIZED GAIN - - (.020) (.010) -
TOTAL DISTRIBUTIONS (.643) (.634) (.706) (.714) (.799)
NET ASSET VALUE, END OF PERIOD $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940
TOTAL RETURN A, B 9.43% 4.46% 14.94% (6.75)% 18.17%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 550,754 $ 343,833 $ 147,620 $ 106,207 $ 128,860
(000 OMITTED)
RATIO OF EXPENSES TO AVERAGE .48% .65% .65% .65% .65%
NET ASSETS E
RATIO OF NET INVESTMENT INCOME 6.36% 6.35% 6.92% 6.90% 7.58%
TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 194% 169% 147% 44% 55%
</TABLE>
G TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE.
H THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
I NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
J 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, NET INVESTMENT INCOME PER SHARE
MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX
DIFFERENCES.
K FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1997
10. 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 financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities 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.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income
receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Purchases and sales of securities are translated into U.S. dollars at
the contractual currency exchange rates established at the time of
each trade.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward
currency contracts, disposition of foreign currencies, and the
difference between the amount of net investment income accrued and the
U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are
included with the net realized and unrealized gain or loss on
investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. 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.
11. 1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, futures
transactions, market discount, capital loss carryforwards and losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
12. 2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
13. 3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $928,627,940 and $761,871,795, respectively, of which U.S.
government and government agency obligations aggregated $717,766,291
and $680,558,023, respectively.
14. 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.
To offset the cost of providing these services, FMR or its affiliates
collect certain transaction fees from the fund's shareholders which
amounted to $14,762 for the period.
15. 5. EXPENSE REDUCTIONS.
Effective March 1, 1997, FMR voluntarily agreed to reimburse the
fund's operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) above an annual rate of .38%
of average net assets. For the period, the reimbursement reduced the
expenses by $692,259.
In addition, FMR has entered into arrangements on behalf of the fund
with the fund's custodian and transfer agent whereby credits realized
as a result of uninvested cash balances were used to reduce a portion
of the fund's expenses. During the period, the fund's expenses were
reduced by $3,428 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Spartan Investment Grade Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments (except for Moody's and Standard
& Poor's ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Spartan Investment
Grade Bond Fund (a fund of Fidelity Charles Street Trust) at September
30, 1997, the results of its operations for the year then ended, and
the changes in its net assets and the financial highlights for the
periods indicated in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Spartan Investment Grade Bond Fund's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at September 30, 1997 by
correspondence with the custodian and the application of alternative
auditing procedures where securities purchased were not yet received
by the custodian, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 7, 1997
DISTRIBUTIONS
A total of 34.73% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate
the service, and on your first call, the system will help you create a
personal identification number (PIN) for security.
SM
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
For quotes.*
For account balances and holdings.
To review orders and mutual
fund activity.
To change your PIN.
To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
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
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
Longwood, FL
4001 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1055 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State 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
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Kevin Grant, Vice President
Arthur S. Loring, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Global Bond
Government Securities
Intermediate Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan High Income
Spartan Investment Grade Bond
Spartan Limited Maturity Government
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE