(2_FIDELITY_LOGOS)FIDELITY
ASSET MANAGER: GROWTH
SM
SEMIANNUAL REPORT
MARCH 31, 1998
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 11 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 12 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 49 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 53 NOTES TO THE FINANCIAL STATEMENTS.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
FIDELITY ASSET MANAGER: GROWTH 13.40% 38.25% 114.16% 174.32%
FIDELITY AGGR. ASSET ALLOCATION 13.29% 36.06% 119.95% N/A
COMPOSITE
S&P 500 (REGISTERED TRADEMARK) 17.22% 48.00% 174.71% 210.10%
LB AGGREGATE BOND 4.54% 11.99% 39.89% N/A
LB 3 MONTH T-BILL 2.64% 5.58% 27.62% N/A
FLEXIBLE PORTFOLIO FUNDS AVERAGE 8.89% 28.72% 92.77% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, 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 Fidelity Aggressive Asset
Allocation Composite Index, a hypothetical combination of unmanaged
indices. The composite index combines the total returns of the
Standard & Poor's 500 Index, the Lehman Brothers Aggregate Bond Index
and the Lehman Brothers 3 Month Treasury Bill Index weighted according
to the fund's neutral mix. 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 six months average represents a peer group of 211 mutual
funds. The benchmarks listed in the table above include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER: GROWTH 38.25% 16.45% 17.51%
FIDELITY AGGR. ASSET ALLOCATION COMPOSITE 36.06% 17.08% 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.
$10,000 OVER LIFE OF FUND
Asset Manager: Growth S&P 500
LB Aggregate Bond FID Aggr. Comp. (Alt)
00321 SP001
LB001 F0105
1991/12/31 10000.00 10000.00
10000.00 10000.00
1992/01/31 10367.06 9814.00
9863.96 9832.79
1992/02/29 10585.32 9941.58
9928.09 9928.85
1992/03/31 10436.51 9747.72
9872.12 9786.72
1992/04/30 10466.27 10034.30
9943.43 9994.20
1992/05/31 10684.52 10083.47
10131.06 10082.80
1992/06/30 10565.48 9933.23
10270.49 10030.65
1992/07/31 11001.98 10339.50
10480.03 10375.92
1992/08/31 10823.41 10127.54
10586.20 10268.64
1992/09/30 11071.43 10247.04
10711.68 10394.18
1992/10/31 11279.76 10282.91
10569.66 10371.52
1992/11/30 11686.51 10633.55
10572.05 10594.82
1992/12/31 11907.91 10764.35
10740.17 10733.81
1993/01/31 12079.90 10854.77
10946.12 10863.25
1993/02/28 12231.66 11002.39
11137.74 11025.99
1993/03/31 12707.16 11234.54
11184.15 11189.63
1993/04/30 12747.63 10962.67
11262.03 11041.15
1993/05/31 13010.68 11256.47
11276.37 11230.85
1993/06/30 13202.90 11289.11
11480.73 11328.95
1993/07/31 13445.72 11243.95
11545.66 11321.07
1993/08/31 13992.04 11670.10
11748.03 11677.20
1993/09/30 13931.34 11580.24
11780.30 11634.00
1993/10/31 14366.38 11819.95
11824.32 11804.96
1993/11/30 14244.97 11707.66
11723.73 11694.61
1993/12/31 15041.53 11849.32
11787.27 11802.05
1994/01/31 15622.08 12252.20
11946.42 12113.43
1994/02/28 15157.64 11920.17
11738.87 11822.99
1994/03/31 14387.09 11400.45
11449.46 11410.18
1994/04/30 14365.98 11546.37
11358.03 11479.88
1994/05/31 14482.09 11735.73
11356.44 11600.01
1994/06/30 14049.31 11448.21
11331.34 11409.94
1994/07/31 14397.64 11823.71
11556.42 11717.71
1994/08/31 14904.30 12308.48
11570.76 12032.78
1994/09/30 14682.64 12006.92
11400.46 11792.90
1994/10/31 14724.86 12277.08
11390.30 11965.75
1994/11/30 14302.64 11829.95
11365.00 11677.52
1994/12/31 13930.27 12005.39
11443.48 11814.50
1995/01/31 13583.09 12316.69
11669.95 12082.17
1995/02/28 13810.93 12796.67
11947.42 12468.34
1995/03/31 14093.00 13174.30
12020.72 12734.26
1995/04/30 14483.57 13562.28
12188.63 13031.23
1995/05/31 14841.59 14104.36
12660.29 13531.10
1995/06/30 15156.22 14432.01
12753.11 13770.98
1995/07/31 15785.47 14910.57
12724.63 14055.82
1995/08/31 15872.26 14948.00
12878.20 14131.14
1995/09/30 16143.49 15578.81
13003.49 14562.61
1995/10/31 15948.20 15523.19
13172.59 14599.91
1995/11/30 16338.77 16204.66
13369.98 15087.68
1995/12/31 16709.46 16516.76
13557.61 15345.57
1996/01/31 17260.20 17078.99
13647.64 15717.60
1996/02/29 17238.17 17237.31
13410.42 15718.76
1996/03/31 17271.22 17403.31
13317.20 15779.27
1996/04/30 17568.62 17659.83
13242.31 15903.57
1996/05/31 17766.88 18115.28
13215.42 16166.03
1996/06/30 17843.99 18184.30
13392.89 16271.19
1996/07/31 17392.38 17380.92
13429.54 15819.24
1996/08/31 17513.54 17747.48
13407.03 16029.81
1996/09/30 18240.52 18746.31
13640.67 16698.83
1996/10/31 18769.23 19263.33
13942.83 17112.13
1996/11/30 20002.89 20719.45
14181.66 18045.43
1996/12/31 19648.40 20308.99
14049.80 17761.29
1997/01/31 20465.58 21577.90
14092.82 18555.95
1997/02/28 20693.91 21747.07
14127.88 18673.00
1997/03/31 19684.45 20853.48
13971.32 18088.01
1997/04/30 20489.61 22098.44
14180.46 18916.17
1997/05/31 21739.42 23443.79
14314.51 19772.24
1997/06/30 22388.36 24494.07
14484.41 20454.68
1997/07/31 23902.55 26443.06
14875.01 21737.47
1997/08/31 23133.43 24961.72
14748.13 20843.87
1997/09/30 23998.69 26328.88
14965.64 21724.92
1997/10/31 23505.97 25449.49
15182.75 21300.41
1997/11/30 24251.05 26627.55
15252.66 22019.69
1997/12/31 24847.53 27084.74
15406.23 22344.67
1998/01/31 25035.77 27384.30
15604.02 22594.53
1998/02/28 26461.01 29359.26
15592.27 23734.86
1998/03/31 27213.97 30862.74
15645.29 24611.43
IMATRL PRASUN SHR__CHT 19980331 19980424 143632 R00000000000078
$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 March 31, 1998,
the value of the investment would have grown to $27,214 - a 172.14%
increase on the initial investment. For comparison, look at how both
the S&P 500, a widely recognized, unmanaged index of common stocks,
and 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, did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment in the S&P 500 would have grown to $30,863 - a
208.63% increase. If $10,000 was invested in the Lehman Brothers
Aggregate Bond Index, it would have grown to $15,645 - a 56.45%
increase. You can also look at how the Fidelity Aggressive Asset
Allocation Composite Index, did over the same period. The composite
index combines the total returns of the S&P 500 (+208.63%), the Lehman
Brothers Aggregate Bond Index (+56.45%) and the Lehman Brothers
3-month T-Bill Index (+32.39%) 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 $24,611 - a 146.11% 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.
Despite being tested during the period, the U.S. stock and bond
markets performed well during the six months that ended March 31,
1998. Economic trouble in Southeast Asia caused worldwide concern, but
a domestic economic environment of low inflation, low interest rates
and steady growth spelled positive returns for both stocks and bonds.
STOCKS: The U.S. stock market showed its resiliency during the period.
Despite the economic uncertainty in Southeast Asia - and the resulting
concern that U.S. corporate earnings would slow - the stock market
performed well. The Standard & Poor's 500 Index - a measure of the
U.S. stock market - returned 17.22% during this time. In late October,
after several small Southeast Asian countries devalued their
currencies, a full-fledged economic crisis enveloped the region. These
troubles had ripple effects throughout the world, particularly in the
U.S., where the Dow Jones Industrial Average plummeted 550-plus points
in one trading session. Many U.S. corporations with business exposure
to Southeast Asia announced earnings disappointments. Investors showed
their concern by embarking on a "flight to quality," seeking shelter
in stocks of companies with minimal international exposure. Despite
this turbulence, however, the continued strength of the U.S. economy
seemed to buoy the stock market as low interest rates, low inflation
and moderate growth combined to make for a favorable economic
backdrop. After digesting the events that took place in Southeast
Asia, investors regained their attraction to stocks. Through the first
three months of 1998, cash inflows into stock mutual funds were very
strong and the Dow itself was approaching the 9000-point barrier.
BONDS: Similar to their equity counterparts, bonds benefited from the
continued lack of inflationary pressure during the period. The Lehman
Brothers Aggregate Bond Index - a broad gauge of the U.S. taxable
investment-grade bond market - returned 4.54% during this period.
Global volatility and historically low interest rates were the main
stories in the last quarter of 1997. Financial problems in Asia came
to a head in October, resulting in a "flight to quality." Wary stock
investors sought investments offering lower volatility, helping the
U.S. bond market - especially U.S. Treasuries - surge. The Lehman
Brothers Corporate Bond Index returned 4.49% for the six months.
Corporate bonds benefited from continued economic growth and demand
for yield, although they faltered somewhat in January 1998. Investors
feared a slowdown in demand from Asia would eat into corporate
earnings. In spite of record new issuance in February 1998, corporates
rebounded due in part to increased demand on the part of yield-hungry
investors. Mortgage-backed bonds performed well during the period,
even though lower interest rates resulted in more mortgage prepayment
activity. The Lehman Brothers Mortgage-Backed Securities Index
generated a six-month return of 4.04%. High-yield and emerging-market
issues turned in strong performances throughout the first quarter of
1998.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Richard Habermann, Lead Portfolio Manager of
Fidelity Asset Manager: Growth
Q. HOW DID THE FUND PERFORM, DICK?
A. I was pleased with the fund's performance. For the six months that
ended March 31, 1998, the fund had a total return of 13.40%. That
outperformed the 13.29% return of the Fidelity Aggressive Asset
Allocation Composite Index and the 8.89% return of the Lipper flexible
funds average. For the 12 months that ended March 31, 1998, the fund
returned 38.25%, compared to the 36.06% return of the composite index
and the 28.72% return of the Lipper peer group.
Q. HOW DID THE FUND'S ASSET ALLOCATION AFFECT PERFORMANCE?
A. Asset allocation decisions - more than security selection within
the asset classes - helped the fund outperform the composite index and
the peer group during the period. The fund was consistently
overweighted in equities - the best-performing asset class during the
period. However, the fund did not have a significant overweighting in
equities, which helped preserve value when the stock market plummeted
at the end of October in response to financial problems in Asia. In
part, the fund's positioning within the fixed-income portion of the
portfolio was predicated on the relatively small yield differences
between short- and long-maturity securities that existed throughout
much of the period. In this type of environment, I didn't feel the
additional yield offered by longer-maturity securities was worth the
potential risk, particularly during the latter part of the period.
Accordingly, I kept the fund's allocation toward longer-maturity,
fixed-income securities slightly underweighted, while keeping the
money market allocation at near-neutral levels. In an effort to find
additional yield in this environment, I chose to overweight high-yield
securities within the fixed-income allocation, while keeping the
fund's total bond exposure at below-neutral levels. In retrospect, the
decision to overweight high-yield securities relative to
investment-grade bonds was a key contributor of the fund's
fixed-income allocation, as high-yield returns generally outpaced the
returns of comparable investment-grade issues during the six-month
period.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
A. The fund was consistently overweighted in equities, relative to its
neutral mix, which calls for 70% to be invested in stocks, 25% in
bonds and 5% in short-term/money market instruments. Throughout the
period, equities represented anywhere from 72% to 78% of the fund's
net assets, with the equity allocation ending the period at 76.2%. The
fund remained slightly underweighted in bonds, with that allocation
ending the period at 20%, and nearly neutral in short-term
instruments, which represented 3.8% at the end of March. High-yield
securities accounted for about 60% of the bond allocation, or
approximately 12% of the fund's net assets as of March 31.
Q. GOING FORWARD, BRAD LEWIS WILL REPLACE GEORGE VANDERHEIDEN AS THE
INVESTMENT PROFESSIONAL SELECTING THE EQUITY SECURITIES OF THE
PORTFOLIO. HOW WILL THIS CHANGE AFFECT THE FUND?
A. The change will not affect the fund's goal of minimizing risk while
attempting to maximize returns. Brad Lewis, a 13-year veteran of
Fidelity, has developed an impressive track record as the manager of
several funds, including Fidelity Disciplined Equity Fund since 1988.
Unlike George Vanderheiden, who chose stocks for the fund based on
individual company business prospects, Brad uses computer-aided,
quantitative analysis - supported by fundamental research - for
picking stocks. The quantitative discipline may result in the equity
portion of the portfolio being spread out among a larger number of
stocks relative to the larger positions in individual stocks that
George tended to maintain. But overall, the fund's equity portfolio
will continue to seek out and hold stocks that we feel will deliver
the best returns for our shareholders. We are pleased that the equity
investments will continue to be selected by a seasoned veteran like
Brad.
Q. WHICH STOCKS HELPED THE FUND'S PERFORMANCE?
A. Financial stocks, such as Fannie Mae and Freddie Mac, performed
extremely well during this period of low interest rates and robust
capital markets. While a relatively small percentage of net assets,
the fund's European holdings also generated healthy returns. Europe
seems to be trending up as the countries there are entering a phase of
restructuring and consolidation, concurrent with low interest rates
and growing earnings. The health care sector, as a whole, performed
well on the strength of large-capitalization pharmaceutical stocks
that benefited from a "flight to quality" during the Asian crisis -
meaning investors sought out large companies with household names that
they perceived as safe. Pharmaceuticals also reaped the rewards of
accelerated reviews by the Food and Drug Administration. Finally,
retail and wholesale stocks were strong and the fund was heavily
overweighted, relative to the Standard & Poor's 500 Index, in that
sector. In fact, Wal-Mart, which was the fund's fifth largest equity
holding at the end of March, gained 39% during the period versus a 17%
return for the S&P 500.
Q. WHICH STOCKS HURT PERFORMANCE?
A. Consumer nondurables took a hit during the period. Specific to that
sector, tobacco stocks such as RJR Nabisco and Philip Morris weakened
during the period as litigation fears heightened. In addition,
Columbia/HCA's growth was stunted as federal regulators intensified
their investigations into the company's billing practices. Finally,
many technology stocks were punished on fears that worldwide product
demand would slow drastically as a result of the Asian crisis.
Notably, Compaq Computer's stock dropped substantially during the
period as the company struggled with inventory problems.
Q. WHAT WAS YOUR STRATEGY FOR THE FUND'S BOND INVESTMENTS?
A. While bonds were underweighted relative to the fund's neutral
allocation of 25%, I employed several value-added strategies during
the period. As I mentioned earlier, the fund reaped the rewards of its
overweighted position in high-yield bonds, as they handily outpaced
the returns of their investment-grade counterparts. Fred Hoff - who
oversees security selection for Asset Manager: Growth's high-yield
allocation - emphasized securities and sectors that performed
extremely well during the period. Cable and media issues and
commercial mortgage-backed securities (CMBS) - bonds that are backed
by loans on commercial property, such as office buildings or retail
malls - were the biggest contributors to the high-yield sector of the
portfolio. Charlie Morrison - who handles security selection for Asset
Manager: Growth's investment-grade fixed-income allocation - focused
on several strategies during the period. Within the investment-grade
allocation, investments in corporate securities were trimmed slightly
on profit-taking, with a portion of the proceeds deployed to
mortgage-backed securities. This transition proved beneficial, as
mortgage-backed securities performed particularly well toward the end
of the period when interest rates stabilized.
Q. WHAT SECTORS DID YOU TARGET IN THE CORPORATE BOND MARKET?
A. As I mentioned, the high-yield allocation emphasized the cable and
telecommunications industries. Growth in these sectors generally
depends on the health of the U.S. economy - not on Asian markets. In
addition, many of these companies were able to increase their cash
flows and improve their credit ratings by taking advantage of
deregulation and technological advancement in the industry. Within the
fund's investment-grade corporate bond allocation, securities issued
by banking and finance concerns continued to be emphasized. In part,
this stance was predicated on the low interest-rate environment and
its favorable impact on companies in the financial sector.
Q. HOW DID YOU POSITION THE SHORT-TERM/MONEY MARKET PORTION OF THE
PORTFOLIO?
A. I kept the fund's allocation toward short-term instruments - which
were managed by John Todd of our money market group - in a fairly
tight range during the period. As in prior periods, John continued to
manage the fund's short-term allocation with the objective of adding
value relative to a benchmark - the three-month Treasury bill - within
the context of a controlled volatility framework. I increased the
fund's bond allocation while reducing short-term instruments during
the period in response to increasingly favorable inflation conditions
and a slowing economy. At the end of the period, the fund maintained a
near-neutral allocation in short-term/money market instruments, which
performed admirably during the period because of beneficial security
selection.
Q. WHAT'S YOUR OUTLOOK?
A. We're in the midst of the third-longest positive economic cycle in
the post-war U.S. - following a long run in the 1960s when John F.
Kennedy was president and in the 1980s when Ronald Reagan led the
country. So, in its seventh year, the expansion continues to be
remarkably strong. In addition, we're still witnessing decent earnings
growth, moderate restructuring efforts and robust merger activity -
all of which bodes well for improving the efficiency of the American
economy. Even more amazing is that this growth is happening at a time
when inflation is virtually non-existent. In this environment, I think
both the stock and bond markets will benefit. However, I do believe
that we've entered a new period of volatility in the markets, where
one-time events can cause major shake-ups. I think the questions
raised by the Asian financial crisis need to be monitored. Although
the U.S. economy may not be drastically hurt by this turmoil, the
cheapening of Asian goods could cause U.S. manufacturers to move
production outside of the country, which would lead to higher
unemployment and slower growth. Considering that we may be entering a
period of higher volatility in the markets, it makes sense that I
proceed with caution and not stray too far from the fund's neutral mix
in the near future.
DICK HABERMANN ON HOW
THE FUND COMPARES TO
BALANCED FUNDS:
"WHEN EXAMINING FUNDS THAT INVEST
IN MULTIPLE ASSET CLASSES, INVESTORS
SHOULD BE SURE TO DISTINGUISH
BETWEEN ASSET ALLOCATION FUNDS AND
BALANCED FUNDS. ASSET ALLOCATION
FUNDS SHIFT THEIR PORTFOLIO MIXES
AMONG EQUITIES, FIXED-INCOME
SECURITIES AND SHORT-TERM
INSTRUMENTS, WHILE SEEKING TO ADD
VALUE BY TIMING THESE SHIFTS
APPROPRIATELY. IN CONTRAST, MANY
BALANCED-TYPE FUNDS TEND TO KEEP
THEIR ASSET MIXES FAIRLY STATIC, AND
USUALLY MAINTAIN ALLOCATIONS IN ONLY
TWO ASSET CLASSES, STOCKS AND
BONDS. FOR INSTANCE, A `TRADITIONAL'
BALANCED FUND TENDS TO SPLIT ITS
INVESTMENTS BY ALLOCATING ROUGHLY
60% TO EQUITIES AND 40% TO
FIXED-INCOME SECURITIES. REGARDLESS
OF CHANGES IN MARKET CONDITIONS, THE
ECONOMY, VALUATIONS OR OTHER FACTORS,
THE ASSET MIX WITHIN BALANCED FUNDS
STAYS RELATIVELY CONSTANT. IN
CONTRAST, ASSET ALLOCATION FUNDS -
SUCH AS THE FIDELITY ASSET MANAGER
FUNDS - UTILIZE A BLENDED
APPROACH TO ASSET ALLOCATION SHIFTS,
COMBINING THE RESULTS FROM OUR
PROPRIETARY QUANTITATIVE MODEL
WITH COMPANY-BY-COMPANY
SECURITY SELECTION AND
ASSET-CLASS-LEVEL RESEARCH FROM OUR
GLOBAL NETWORK OF ANALYSTS AND
PORTFOLIO MANAGERS."
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 MARCH 31, 1998,
MORE THAN $5.1 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)
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FANNIE MAE 7.1 5.9
PHILIP MORRIS COMPANIES, INC. 4.3 4.9
FREDDIE MAC 2.6 2.2
COLUMBIA/HCA HEALTHCARE CORP. 2.1 1.9
WAL-MART STORES, INC. 2.0 1.6
TOP FIVE MARKET SECTORS AS OF MARCH 31, 1998
(STOCKS ONLY) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
FINANCE 18.6 16.1
UTILITIES 8.7 6.1
TECHNOLOGY 7.7 11.1
RETAIL & WHOLESALE 7.7 6.5
HEALTH 6.6 5.6
TOP FIVE COUNTRIES AS OF MARCH 31, 1998
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO
UNITED STATES 85.5 83.2
UNITED KINGDOM 3.1 2.8
NETHERLANDS 1.8 1.8
FRANCE 1.1 0.9
SWITZERLAND 0.9 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
AS OF MARCH 31, 1998 * AS OF SEPTEMBER 30, 1997 **
ROW: 1, COL: 1, VALUE: 4.0
ROW: 1, COL: 2, VALUE: 20.0
ROW: 1, COL: 3, VALUE: 76.0
STOCKS 74%
BONDS 17%
SHORT-TERM
INVESTMENTS 9%
FOREIGN
INVESTMENTS 9%
STOCKS 76%
BONDS 20%
SHORT-TERM
INVESTMENTS 4%
FOREIGN
INVESTMENTS 10%
ROW: 1, COL: 1, VALUE: 9.0
ROW: 1, COL: 2, VALUE: 17.0
ROW: 1, COL: 3, VALUE: 74.0
*
**
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 WILL DIFFER FROM THE PIE CHART.
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 72.0%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.4%
AEROSPACE & DEFENSE - 0.0%
Gulfstream Aerospace Corp. (a) 47,600 $ 2,065
DEFENSE ELECTRONICS - 0.4%
Raytheon Co.:
Class A 88,177 5,015
Class B 245,900 14,354
19,369
TOTAL AEROSPACE & DEFENSE 21,434
BASIC INDUSTRIES - 2.9%
CHEMICALS & PLASTICS - 1.7%
Air Products & Chemicals, Inc. 56,800 4,707
Dow Chemical Co. 18,900 1,838
du Pont (E.I.) de Nemours & Co. 653,400 44,431
Raychem Corp. 585,700 24,343
Union Carbide Corp. 283,400 14,205
89,524
PACKAGING & CONTAINERS - 0.9%
Bemis Co., Inc. 31,500 1,421
Corning, Inc. 167,600 7,416
Owens-Illinois, Inc. (a) 912,600 39,470
48,307
PAPER & FOREST PRODUCTS - 0.3%
Boise Cascade Corp. 101,100 3,646
Champion International Corp. 178,000 9,668
Willamette Industries, Inc. 73,200 2,750
16,064
TOTAL BASIC INDUSTRIES 153,895
CONSTRUCTION & REAL ESTATE - 1.1%
CONSTRUCTION - 0.7%
Centex Corp. 145,600 5,551
D.R. Horton, Inc. 208,753 4,436
Fleetwood Enterprises, Inc. 346,400 16,129
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
Kaufman & Broad Home Corp. 339,000 $ 11,039
U.S. Home Corp (a). 25,900 1,187
38,342
ENGINEERING - 0.4%
Fluor Corp. 405,300 20,164
TOTAL CONSTRUCTION & REAL ESTATE 58,506
DURABLES - 3.6%
AUTOS, TIRES, & ACCESSORIES - 2.3%
Cummins Engine Co., Inc. 144,500 7,966
Discount Auto Parts, Inc. (a) 176,300 4,275
General Motors Corp. 1,249,045 84,232
Goodyear Tire & Rubber Co. 78,200 5,924
Magna International, Inc. Class A 179,100 13,984
Superior Industries International, Inc. 173,400 5,755
122,136
CONSUMER DURABLES - 0.2%
Minnesota Mining & Manufacturing Co. 111,500 10,167
CONSUMER ELECTRONICS - 0.7%
Newell Co. 107,800 5,222
Philips Electronics NV 193,800 14,232
Philips Electronics NV (Bearer) 222,000 16,310
35,764
HOME FURNISHINGS - 0.0%
HON Industries, Inc. 6,000 221
TEXTILES & APPAREL - 0.4%
Arena Brands Holdings Corp. Class B (a) 5,556 224
Burlington Industries, Inc. (a) 211,900 3,721
Jones Apparel Group, Inc. (a) 71,400 3,931
Liz Claiborne, Inc. 206,000 10,274
NIKE, Inc. Class B 108,600 4,806
Reebok International Ltd. (a) 6,000 183
Warnaco Group, Inc. Class A 39,300 1,543
24,682
TOTAL DURABLES 192,970
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 5.0%
ENERGY SERVICES - 0.3%
McDermott International, Inc. 333,300 $ 13,769
Schlumberger Ltd. 18,100 1,371
15,140
OIL & GAS - 4.7%
Amerada Hess Corp. 186,700 10,887
Amoco Corp. 22,000 1,900
Apache Corp. 17,500 643
Atlantic Richfield Co. 90,500 7,116
British Petroleum PLC:
ADR 443,628 38,180
Ord. 522 8
Burlington Resources, Inc. 805,102 38,595
Chevron Corp. 52,500 4,216
Cooper Cameron Corp. (a) 8,100 489
Elf Aquitaine SA sponsored ADR 77,019 4,987
Enron Oil & Gas Co. 31,200 716
Kerr-McGee Corp. 64,000 4,452
Occidental Petroleum Corp. 1,064,900 31,215
Royal Dutch Petroleum Co. Ord. 105,600 5,983
Royal Dutch Petroleum Co. 1,021,100 58,011
Santa Fe Energy Resources, Inc. 191,400 2,105
Tosco Corp. 683,700 24,100
Total SA:
Class B 47,955 5,764
sponsored ADR 111,951 6,724
USX-Marathon Group 8,900 335
Valero Energy Corp. 65,800 2,196
248,622
TOTAL ENERGY 263,762
FINANCE - 18.4%
BANKS - 1.4%
Credit Suisse Group (Reg.) 143,300 28,688
NationsBank Corp. 204,700 14,930
Providian Financial Corp. 357,300 20,522
Wells Fargo & Co. 30,600 10,136
74,276
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CLOSED END INVESTMENT COMPANY - 0.1%
First NIS Regional Fund (a) 274,200 $ 5,073
CREDIT & OTHER FINANCE - 1.5%
CIT Group, Inc. Class A 92,400 3,015
Fleet Financial Group, Inc. 835,717 71,088
Green Tree Financial Corp. 148,800 4,232
Money Store, Inc. (The) 71,100 2,271
Transamerica Corp. 11,400 1,328
81,934
FEDERAL SPONSORED CREDIT - 9.7%
Freddie Mac 2,915,900 138,323
Fannie Mae 5,995,500 379,215
517,538
INSURANCE - 5.2%
AFLAC, Inc. 142,100 8,988
Allmerica Financial Corp. 157,700 10,073
Allstate Corp. 800,009 73,551
American International Group, Inc. 468,025 58,942
CIGNA Corp. 142,100 29,131
General Re Corp. 68,600 15,135
Loews Corp. 135,900 14,168
MBIA, Inc. 48,900 3,790
MGIC Investment Corp. 332,400 21,835
Nationwide Financial Services, Inc. Class A 11,700 507
PMI Group, Inc. 152,700 12,331
Provident Companies, Inc. 18,200 624
Reliastar Financial Corp. 80,637 3,714
Torchmark Corp. 372,000 17,042
Travelers Property Casualty Corp. Class A 108,800 4,787
UNUM Corp. 31,400 1,733
276,351
SAVINGS & LOANS - 0.3%
Golden West Financial Corp. 132,720 12,716
SECURITIES INDUSTRY - 0.2%
Nomura Securities Co. Ltd. 507,000 5,778
United Asset Management Corp. 214,700 5,851
Waddell & Reed Financial, Inc. Class A (a) 6,500 169
11,798
TOTAL FINANCE 979,686
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 6.6%
DRUGS & PHARMACEUTICALS - 2.7%
American Home Products Corp. 383,800 $ 36,605
Amgen, Inc. 133,000 8,096
Astra AB Class A Free shares 1,176,100 24,229
Gilead Sciences, Inc. (a) 8,800 317
Merck & Co., Inc. 100,000 12,838
Novartis AG (Reg.) 11,375 20,144
Schering-Plough Corp. 463,200 37,838
Sepracor, Inc. (a) 28,100 1,198
141,265
MEDICAL EQUIPMENT & SUPPLIES - 0.7%
Allegiance Corp. 17,120 677
Bard (C.R.), Inc. 91,300 3,355
Baxter International, Inc. 60,800 3,352
Biomet, Inc. 292,800 8,784
Boston Scientific Corp. (a) 71,700 4,840
Johnson & Johnson 42,900 3,145
St. Jude Medical, Inc. (a) 349,107 11,673
Sofamor/Danek Group, Inc. (a) 28,300 2,413
38,239
MEDICAL FACILITIES MANAGEMENT - 3.2%
Columbia/HCA Healthcare Corp. 3,488,925 112,518
Humana, Inc. (a) 775,800 19,250
Tenet Healthcare Corp. 487,900 17,717
United HealthCare Corp. 359,600 23,284
172,769
TOTAL HEALTH 352,273
HOLDING COMPANIES - 0.1%
U.S. Industries, Inc. 199,300 5,991
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
ELECTRICAL EQUIPMENT - 1.4%
Alcatel Alsthom Compagnie Generale d'Electricite
SA sponsored ADR 19,700 749
Alcatel Alsthom Compagnie Generale d'Electricite SA 175,500 32,974
Emerson Electric Co. 100,700 6,564
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
General Electric Co. 334,300 $ 28,812
Grainger (W.W.), Inc. 28,200 2,899
Scientific-Atlanta, Inc. 168,500 3,296
75,294
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
Caterpillar, Inc. 212,900 11,723
Tyco International Ltd. 43,600 2,382
Ultratech Stepper, Inc. (a) 193,600 3,945
18,050
POLLUTION CONTROL - 0.0%
Browning-Ferris Industries, Inc. 11,300 369
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 93,713
MEDIA & LEISURE - 2.6%
BROADCASTING - 0.8%
CBS Corp. 247,500 8,400
Comcast Corp.:
Class A 29,800 1,034
Class A special 58,400 2,062
Cox Communications, Inc. Class A (a) 58,200 2,444
Orion Network Systems, Inc. warrants (a):
1/15/07 (cv .6056) 1,160 19
1/15/07 (cv .4743) 3,950 51
Tele-Communications, Inc. (a):
(TCI Group), Series A 129,911 4,039
(TCI Ventures Group), Series A 681,178 11,963
Time Warner, Inc. 176,189 12,686
42,698
ENTERTAINMENT - 0.3%
Cedar Fair LP (depositary unit) 25,300 696
Disney (Walt) Co. 18,700 1,996
King World Productions, Inc. 91,400 2,673
Royal Caribbean Cruises Ltd. 25,100 1,759
Viacom, Inc. (a):
Class A 83,000 4,409
Class B (non-vtg.) 109,500 5,886
17,419
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.0%
Nintendo Co. Ltd. Ord. 23,000 $ 1,920
LODGING & GAMING - 0.6%
Bally Gaming International, Inc. warrants 7/29/98 (a) 37,500 23
Circus Circus Enterprises, Inc. (a) 369,700 7,764
Fitzgeralds South, Inc. warrants 3/15/99 (i) 410 -
Mirage Resorts, Inc. (a) 437,300 10,632
Sun International Hotels Ltd. Ord. (a) 235,300 11,147
29,566
PUBLISHING - 0.3%
Cognizant Corp. 110,300 6,328
U.S. WEST Media Group 333,600 11,593
17,921
RESTAURANTS - 0.6%
McDonald's Corp. 294,300 17,658
Papa John's International, Inc. (a) 36,100 1,385
Wendy's International, Inc. 493,100 11,002
30,045
TOTAL MEDIA & LEISURE 139,569
NONDURABLES - 4.8%
BEVERAGES - 0.1%
PepsiCo, Inc. 51,400 2,194
TOBACCO - 4.7%
Philip Morris Companies, Inc. 5,451,800 227,272
RJR Nabisco Holdings Corp. 689,784 21,599
UST, Inc. 104,000 3,354
252,225
TOTAL NONDURABLES 254,419
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 97,131 2,969
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 7.7%
APPAREL STORES - 0.4%
Columbia Sportswear Co. 1,400 $ 30
Gap, Inc. 133,350 6,001
Lamonts Apparel, Inc. warrants 6/10/99 (a) 47,666 -
TJX Companies, Inc. 322,400 14,589
20,620
GENERAL MERCHANDISE STORES - 2.7%
Federated Department Stores, Inc. 373,800 19,368
Penney (J.C.) Co., Inc. 153,800 11,641
Proffitts, Inc. (a) 124,100 4,499
Wal-Mart Stores, Inc. 2,131,400 108,302
143,810
GROCERY STORES - 0.3%
Safeway, Inc. (a) 445,800 16,467
RETAIL & WHOLESALE, MISCELLANEOUS - 4.3%
Circuit City Stores, Inc. - Circuit City Group 590,500 25,244
Corporate Express, Inc. (a) 183,600 1,830
Home Depot, Inc. 1,310,300 88,363
Lowe's Companies, Inc. 1,001,600 70,300
Officemax, Inc. (a) 539,375 9,641
Office Depot, Inc. (a) 166,850 5,193
Rex Stores Corp. (a) 62,600 923
Staples, Inc. (a) 353,450 8,196
Toys "R" Us, Inc. (a) 316,700 9,521
U.S. Office Products Co. (a) 356,200 6,768
Viking Office Products, Inc. (a) 221,300 5,145
231,124
TOTAL RETAIL & WHOLESALE 412,021
SERVICES - 0.8%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 35,700 2,218
LEASING & RENTAL - 0.0%
Republic Industries, Inc. (a) 74,100 1,913
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 16,500 678
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
SERVICES - 0.7%
Cendant Corp. (a) 810,959 $ 32,134
Medpartners, Inc. (a) 8,700 89
Reuters Group PLC ADR 62,140 4,012
36,235
TOTAL SERVICES 41,044
TECHNOLOGY - 7.7%
COMMUNICATIONS EQUIPMENT - 0.1%
Andrew Corp. (a) 26,300 521
Globalstar Telecommunications Ltd. warrants 2/15/04 (a)(i) 1,900 266
3Com Corp. (a) 116,700 4,194
4,981
COMPUTER SERVICES & SOFTWARE - 2.5%
Automatic Data Processing, Inc. 215,400 14,661
Black Box Corp. (a) 42,300 1,560
Ceridian Corp. (a) 291,200 15,707
CompUSA, Inc. (a) 123,100 3,201
E Trade Group, Inc. (a) 90,800 2,264
Electronic Data Systems Corp. 550,800 25,268
Electronics for Imaging, Inc. (a) 286,300 7,444
First Data Corp. 340,400 11,063
Microsoft Corp. (a) 284,400 25,454
Oracle Corp. (a) 345,050 10,891
Policy Management Systems Corp. (a) 191,500 15,380
Shared Medical Systems Corp. 2,600 204
133,097
COMPUTERS & OFFICE EQUIPMENT - 1.7%
Adaptec, Inc. (a) 106,000 2,080
Compaq Computer Corp. 860,100 22,255
Hewlett-Packard Co. 173,800 11,015
Ingram Micro, Inc. Class A (a) 33,500 1,244
International Business Machines Corp. 216,900 22,530
Quantum Corp. (a) 29,300 624
SCI Systems, Inc. (a) 475,800 16,950
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Seagate Technology (a) 195,700 $ 4,941
Tech Data Corp. (a) 244,300 9,406
Western Digital Corp. (a) 78,100 1,372
92,417
ELECTRONIC INSTRUMENTS - 0.5%
Applied Materials, Inc. (a) 29,600 1,045
Cognex Corp. (a) 94,800 2,026
KLA-Tencor Corp. (a) 33,100 1,266
Lam Research Corp. (a) 210,400 5,918
Novellus Systems, Inc. (a) 135,000 5,839
Teradyne, Inc. (a) 17,600 705
Thermo Electron Corp. (a) 206,000 8,317
Varian Associates, Inc. 67,200 3,721
28,837
ELECTRONICS - 2.9%
Altera Corp. 44,700 1,687
AMP, Inc. 428,000 18,752
Intel Corp. 464,100 36,229
Methode Electronics, Inc. Class A 172,400 2,575
Micrel, Inc. (a) 18,800 713
Microchip Technology, Inc. (a) 8,700 183
Micron Technology, Inc. (a) 930,200 27,034
Molex, Inc. 177,044 4,747
Motorola, Inc. 90,600 5,493
Solectron Corp. (a) 1,161,000 49,052
Thomas & Betts Corp. 100,200 6,413
Uniphase Corp. (a) 8,400 353
153,231
PHOTOGRAPHIC EQUIPMENT - 0.0%
Polaroid Corp. 17,500 770
TOTAL TECHNOLOGY 413,333
TRANSPORTATION - 0.4%
AIR TRANSPORTATION - 0.0%
Northwest Airlines Corp. Class A (a) 23,700 1,462
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - CONTINUED
RAILROADS - 0.3%
Bombardier, Inc. Class B 148,400 $ 3,664
CSX Corp. 240,000 14,280
17,944
SHIPPING - 0.1%
Stolt-Nielsen SA Class B sponsored ADR 106,400 2,115
Stolt-Nielsen SA 32,500 650
2,765
TRUCKING & FREIGHT - 0.0%
Yellow Corp. (a) 119,600 2,287
TOTAL TRANSPORTATION 24,458
UTILITIES - 8.1%
CELLULAR - 2.8%
AirTouch Communications, Inc. (a) 804,100 39,351
Century Telephone Enterprises, Inc. 24,800 1,516
McCaw International Ltd. warrants 4/15/07 (a)(i) 12,170 61
SK Telecom Ltd. 6 3
Vodafone Group PLC sponsored ADR 705,800 73,315
Vodafone Group PLC 3,312,763 34,636
148,882
ELECTRIC UTILITY - 0.5%
American Electric Power Co., Inc. 203,000 10,201
Consolidated Edison, Inc. 15,400 720
Entergy Corp. 198,300 5,899
Houston Industries, Inc. 90,600 2,605
Niagara Mohawk Power Corp. (a) 108,500 1,411
PG&E Corp. 92,948 3,067
23,903
GAS - 0.0%
Enron Corp. 41,900 1,943
TELEPHONE SERVICES - 4.8%
AT&T Corp. 154,500 10,139
Ameritech Corp. 367,600 18,173
Bell Atlantic Corp. 246,298 25,246
BellSouth Corp. 366,600 24,768
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Deutsche Telekom AG 102,000 $ 2,219
MCI Communications Corp. 1,427,500 70,661
SBC Communications, Inc. 460,368 20,084
Sprint Corp. 731,400 49,507
Telebras sponsored ADR 202,700 26,313
WorldCom, Inc. (a) 197,200 8,492
255,602
TOTAL UTILITIES 430,330
TOTAL COMMON STOCKS
(Cost $2,607,168) 3,840,373
NONCONVERTIBLE PREFERRED STOCKS - 2.5%
CONSTRUCTION & REAL ESTATE - 0.3%
REAL ESTATE INVESTMENT TRUSTS - 0.3%
California Federal Preferred Capital Corp. 9 1/8% 371,066 9,973
Crown America Realty Trust, Series A, 11% 18,230 979
Walden Residential Properties, Inc. 9.20% 83,400 2,210
13,162
FINANCE - 0.2%
CREDIT & OTHER FINANCE - 0.1%
Fresenius Medical Care Capital Trust II 7 7/8% (i) 5,340 5,375
INSURANCE - 0.1%
American Annuity Group Capital Trust II 8 3/4% 1,800 1,945
SIG Capital Trust I 9 1/2% 5,381 5,557
7,502
TOTAL FINANCE 12,877
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Echostar Communications Corp. 12 1/8%, pay-in-kind (c) 2,674 2,982
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 1.3%
BROADCASTING - 1.1%
Adelphia Communications Corp. $13 14,944 $ 1,778
American Radio Systems Corp. 11 3/8%, pay-in-kind 37,662 4,293
CSC Holdings, Inc. 11 1/8%, pay-in-kind 130,853 14,950
Capstar Broadcasting Partners, Inc. 12%, pay-in-kind 4,035 474
Chancellor Media Corp.:
12%, pay-in-kind 25,646 3,103
Series A, $12.25 15,694 2,205
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 2,928 3,323
SFX Broadcasting, Inc. 12 5/8% 48,785 5,757
Sinclair Capital 11 5/8% 50,145 5,541
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 15,967 17,843
59,267
PUBLISHING - 0.2%
Primedia, Inc.:
Series D, $10 41,288 4,387
$9.20 30,238 3,092
7,479
TOTAL MEDIA & LEISURE 66,746
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 (a) 18,200
373
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 2,102 2,575
UTILITIES - 0.6%
CELLULAR - 0.3%
Dobson Communications Corp. 12 1/4%, pay-in-kind (i) 4,108 4,509
Nextel Communications, Inc. 11 1/8%, pay-in-kind (i) 10,921 11,604
16,113
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.3%
Hyperion Telecommunications, Inc. 12 7/8%,
pay-in-kind (Reg.) 2,755 $ 3,154
IXC Communications, Inc. 12 1/2%, pay-in-kind 2,070 2,525
NEXTLINK Communications, Inc. 14%, pay-in-kind 116,711 7,353
Winstar Communications, Inc. 14 1/2% (a)(i) 3,046 3,731
16,763
TOTAL UTILITIES 32,876
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $123,268) 132,056
CORPORATE BONDS - 15.7%
MOODY'S PRINCIPAL
RATINGS (D) AMOUNT (000S)
CONVERTIBLE BONDS - 0.1%
HEALTH - 0.0%
DRUGS & PHARMACEUTICALS - 0.0%
Integrated Process Equipment Corp.
6 1/4%, 9/15/04 (i) B- $ 1,930 1,720
RETAIL & WHOLESALE - 0.1%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Sports Authority, Inc. 5 1/4%, 9/15/01 B1 2,190 1,949
TOTAL CONVERTIBLE BONDS 3,669
NONCONVERTIBLE BONDS - 15.6%
AEROSPACE & DEFENSE - 0.3%
AEROSPACE & DEFENSE - 0.1%
BE Aerospace, Inc. 8%, 3/1/08 (i) B1 2,690 2,693
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
AEROSPACE & DEFENSE - CONTINUED
DEFENSE ELECTRONICS - 0.1%
Raytheon Co.:
5.95%, 3/15/01 Baa $ 1,700 $ 1,694
6.45%, 8/15/04 Baa 2,030 2,047
Tracor, Inc. 8 1/2%, 3/1/07 B1 2,270 2,332
6,073
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 5,870 6,208
TOTAL AEROSPACE & DEFENSE 14,974
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 1,150 1,190
General Chemical Corp. 9 1/4%, 8/15/03 B2 1,600 1,656
Huntsman Corp. 9 1/2%, 7/1/07 (i) B2 2,760 2,812
5,658
PACKAGING & CONTAINERS - 0.1%
BWAY Corp., Series B, 10 1/4%, 4/15/07 B2 1,450 1,590
U.S. Can Corp. 10 1/8%, 10/15/06 B2 790 830
2,420
PAPER & FOREST PRODUCTS - 0.0%
Omega Cabinets Ltd. 10 1/2%, 6/15/07 B3 1,730 1,812
TOTAL BASIC INDUSTRIES 9,890
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.1%
American Standard, Inc. 7 3/8%, 2/1/08 Ba3 90 88
Nortek, Inc. 9 1/8%, 9/1/07 B1 4,440 4,595
4,683
CONSTRUCTION - 0.0%
U.S. Home Corp. 8.88%, 8/15/07 B1 2,220 2,281
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE - 0.1%
LNR Property Corp. 9 3/8%, 3/15/08 (i) B1 $ 4,445 $ 4,462
REAL ESTATE INVESTMENT TRUSTS - 0.1%
EOP Operating LP (i):
6 3/8%, 2/15/03 Baa 1,200 1,188
6 3/4%, 2/15/08 Baa 430 426
Weeks Realty LP 6 7/8%, 3/15/05 Baa 1,000 992
2,606
TOTAL CONSTRUCTION & REAL ESTATE 14,032
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 1,440 1,595
Morris Material Handling, Inc. 9 1/2%, 4/1/08 (i) B2 230 231
Navistar International Corp. 8%, 2/1/08 (i) Ba3 3,510 3,497
Oshkosh Truck Corp. 8 3/4%, 3/1/08 (i) B3 3,940 3,979
9,302
TEXTILES & APPAREL - 0.4%
Fruit of The Loom, Inc. 7 3/8%, 11/15/23 Ba1 2,490 2,132
GFSI, Inc. 9 5/8%, 3/1/07 B3 1,890 1,985
Levi Strauss & Co. 7%, 11/1/06 (i) Baa 3,150 3,186
Nine West Group, Inc. (i):
8 3/8%, 8/15/05 Ba2 2,900 2,770
9%, 8/15/07 Ba3 4,750 4,489
Polymer Group, Inc. 8 3/4%, 3/1/08 (i) B2 2,210 2,249
Unifi, Inc. 6 1/2%, 2/1/08 (i) A3 1,020 1,000
Worldtex, Inc. 9 5/8%, 12/15/07 (i) B1 5,630 5,714
23,525
TOTAL DURABLES 32,827
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - 0.1%
OIL & GAS - 0.1%
Occidental Petroleum Corp.:
10.94%, 5/17/00 Baa $ 1,200 $ 1,314
6.39%, 11/9/00 Baa 500 503
8 1/2%, 11/9/01 Baa 530 569
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 2,800 2,982
Petroleum Geo Services ASA 7 1/8%, 3/30/28 Baa 1,300 1,302
6,670
FINANCE - 2.5%
ASSET-BACKED SECURITIES - 0.7%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 7,040 7,850
Capital Equipment Receivables Trust
6.48%, 10/15/06 Baa2 1,000 994
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 1,640 1,641
CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 988 996
CPS Auto Receivables Trust 6%, 8/15/03 Aaa 1,990 1,984
Dayton Hudson Credit Card Master Trust
6 1/4%, 8/25/05 Aaa 1,640 1,647
Ford Credit Auto Owner Trust:
6.40%, 5/15/02 A1 1,060 1,067
6.20%, 12/15/02 Baa3 890 883
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 750 752
6.80%, 6/15/27 Aaa 750 757
6.45%, 9/15/28 Aaa 1,230 1,237
6.68%, 1/15/29 Aaa 2,280 2,304
Key Plastics, Inc. 10 1/4%, 3/15/07 A2 1,280 1,282
MBNA Master Credit Card Trust II Class A
6.55%, 1/15/07 Aaa 3,230 3,305
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,710 1,710
6.70%, 3/15/02 Aaa 810 820
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Premier Auto Trust:
8.05%, 4/4/00 Aaa $ 2,020 $ 2,033
6%, 5/6/00 Aaa 965 966
6.34%, 1/6/03 Aaa 2,470 2,492
Petroleum Enhanced Trust Receivables Offering
Petroleum Trust 6.1875%, 2/5/03 (i) Baa 1,237 1,237
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 1,520 1,522
37,479
BANKS - 0.3%
Banc One Corp. 6 1/4%, 9/1/00 Aa3 1,630 1,636
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
Capital One Bank:
6.74%, 5/31/99 Baa 1,640 1,652
6.42%, 11/12/99 Baa 3,600 3,613
6 3/8%, 2/15/03 Baa 1,240 1,221
Den Danske Bank AS 7.40%, 6/15/10 (g)(i) A1 1,570 1,626
NB Capital Trust IV 8 1/4%, 4/15/27 A1 995 1,083
Summit Bancorp. 8 5/8%, 12/10/02 BBB 650 709
Union Planters National Bank
6.81%, 8/20/01 A3 1,500 1,524
15,756
CREDIT & OTHER FINANCE - 1.0%
Advanced Accessory Systems LLC/AAC
Capital Corp. 9 3/4%, 10/1/07 (i) B3 1,470 1,507
Ahmanson Capital Trust I 8.36%, 12/1/26 (i) Baa 1,800 1,932
AT&T Capital Corp.:
6.65%, 4/30/99 Baa 3,250 3,269
6.16%, 12/3/99 Baa 1,250 1,249
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 440 469
BankAmerica Capital II, Series 2, 8%, 12/15/26 Aa3 990 1,055
Bankers Trust Co. 5.66%, 7/21/98 (g) - 5,000 4,998
BanPonce Trust I 8.327%, 2/1/27 (i) Baa 2,850 3,041
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 3,390 3,410
Countrywide Funding Corp. 6.45%, 2/27/03 A3 1,300 1,302
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Finova Capital Corp. 6.12%, 5/28/02 Baa $ 1,000 $ 999
First Security Capital I 8.41%, 12/15/26 A3 850 926
Ford Motor Credit Co.:
5.73%, 2/23/00 A1 1,500 1,493
6.57%, 3/19/01 A1 2,500 2,530
General Electric Capital Corp.
6.94%, 4/13/09 (f) Aaa 3,000 3,027
General Motors Acceptance Corp.
6 3/4%, 7/10/02 A3 2,730 2,786
Greenpoint Capital Trust I 9.10%, 6/1/27 Ba1 1,580 1,722
Heller Financial, Inc.:
7 7/8%, 11/1/99 A3 2,230 2,285
6 1/4%, 3/1/01 A3 1,650 1,649
Household Finance Corp. 5.646%, 6/4/98 (g) - 5,000 5,000
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 1,550 1,605
Mellon Capital I, Series A, 7.72%, 12/1/26 A2 660 687
Money Store, Inc. 7.30%, 12/1/02 Ba2 850 881
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 1,200 1,250
UNICCO Service Co./UNICCO Finance Corp.
9 7/8%, 10/15/07 B3 5,410 5,532
U.S. Bancorp 8.09%, 11/15/26 A1 990 1,055
U S WEST Capital Funding, Inc. 6.95%, 1/15/37 Baa 1,300 1,355
57,014
SAVINGS & LOANS - 0.3%
Chevy Chase Savings Bank FSB 9 1/4%, 12/1/08 B1 2,160 2,257
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 6,920 7,889
Great West Financial Trust II 8.206%, 2/1/27 A3 1,290 1,365
Great Western Financial Corp. 8.60%, 2/1/02 A3 1,000 1,074
Home Savings of America FSB
6 1/2%, 8/15/04 A3 970 970
Long Island Savings Bank:
6.20%, 4/2/01 Baa 750 749 7%, 6/13/02 Baa 1,210 1,233
15,537
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SECURITIES INDUSTRY - 0.2%
Merrill Lynch & Co., Inc. 5.638%, 7/28/98 (g) - $ 5,000 $ 5,000
Morgan Stanley, Dean Witter, Discover & Co.
5.70%, 1/15/99 (g) A+ 4,600 4,600
9,600
TOTAL FINANCE 135,386
HEALTH - 0.5%
DRUGS & PHARMACEUTICALS - 0.0%
Chattem, Inc. 8 7/8%, 4/1/08 (i) B2 290 294
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 B3 3,270 3,335
McKesson Corp. 6.60%, 3/1/00 A3 1,720 1,738
5,073
MEDICAL FACILITIES MANAGEMENT - 0.4%
Integrated Health Services, Inc.:
9 1/2%, 9/15/07 B2 3,370 3,572
Series A, 9 1/4%, 1/15/08 B2 7,389 7,758
Magellan Health Services, Inc. 9%, 2/15/08 (i) B3 4,070 4,111
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 6,260 6,479
Vencor, Inc. 8 5/8%, 7/15/07 B1 1,260 1,416
23,336
TOTAL HEALTH 28,703
HOLDING COMPANIES - 0.0%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa 2,340 2,464
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.1%
Echostar Communications Corp. secured discount
0%, 6/1/04 (e) B2 $ 3,244 $ 3,114
Motors & Gears, Inc., Series D,
10 3/4%, 11/15/06 B3 610 653
Westinghouse Electric Corp. 8 5/8%, 8/1/12 Ba1 2,830 3,028
6,795
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Bucyrus International, Inc. 9 3/4%, 9/15/07 B1 4,900 4,937
Exide Corp. 10%, 4/15/05 B1 890 941
Goss Graphic System, Inc. 12%, 10/15/06 B2 2,510 2,849
Roller Bearing Holdings, Inc. 0%, 6/15/09 (e)(i) - 4,780 3,107
11,834
POLLUTION CONTROL - 0.2%
Allied Waste North America 10 1/4%, 12/1/06 B2 3,060 3,423
Envirosource, Inc. 9 3/8%, 6/15/03 (i) B3 1,150 1,167
WMX Technologies, Inc.:
8 1/4%, 11/15/99 Baa 440 454
6 1/4%, 10/15/00 Baa 700 699
7.10%, 8/1/26 Baa 1,570 1,624
7,367
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 25,996
MEDIA & LEISURE - 5.5%
BROADCASTING - 4.0%
ACME Television LLC/ACME Financial Corp.
0%, 9/30/04 (e) B3 2,410 1,976
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 9,038 9,297
9 7/8%, 3/1/07 B3 1,860 2,018
8 3/8%, 2/1/08 B3 8,350 8,360
Albritton Communications Co.
8 7/8%, 2/1/08 (i) B3 5,130 5,181
Ascent Entertainment Group, Inc.
0%, 12/15/04 (e) B3 2,760 1,642
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
CSC Holdings, Inc.:
9 1/4%, 11/1/05 B1 $ 1,710 $ 1,821
9 7/8%, 5/15/06 B1 2,480 2,734
7 7/8%, 12/15/07 Ba2 2,320 2,390
10 1/2%, 5/15/16 B1 2,630 3,077
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 5,260 5,497
0%, 2/1/09 (e) B3 1,660 1,241
Century Communications Corp.:
8 3/4%, 10/1/07 Ba3 5,550 5,772
0%, 1/15/08 (i) Ba3 13,980 6,081
Chancellor Radio Broadcasting Company
8 1/8%, 12/15/07 (i) Ba3 7,290 7,399
Citadel Broadcasting Co., Series B,
10 1/4%, 7/1/07 B3 870 964
Comcast UK Cable Partners Ltd. 0%, 11/15/07 (e) B2 5,150 4,249
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Baa 1,480 1,618
8.30%, 5/15/06 Baa 300 330
9%, 9/1/08 Baa 1,010 1,173
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (e) B3 1,380 1,259
Falcon Holdings 0%, 4/15/10 (e)(i) - 5,220 3,306
Falcon Holding L.P./Falcon Funding
8 3/8%, 4/15/10 (i) B2 7,460 7,440
Fox Kids Worldwide, Inc. 0%, 11/1/07 (e)(i) B1 3,690 2,352
Fox/Liberty Networks LLC/FLN Finance, Inc.
0%, 8/15/07 (e) B1 2,310 1,588
FrontierVision Operating Partners LP/
FrontierVision Capital Corp. 11%, 10/15/06 B3 7,082 7,852
FrontierVision Holdings LP/FrontierVision Holdings
Capital Corp. 0%, 9/15/07 (e) Caa 4,491 3,481
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 3,450 3,666
9 3/8%, 12/1/05 B3 4,110 4,244
Hearst-Argyle Television, Inc. 7 1/2%, 11/15/27 Baa 1,440 1,489
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 1,860 2,093
International Cabletel, Inc. 0%, 2/1/06 (e) B3 3,000 2,423
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 $ 2,950 $ 3,061
8 1/4%, 2/15/08 (i) B2 6,300 6,371
LIN Holdings Corp. 0%, 3/1/08 (e)(i) B3 9,100 5,710
LIN Television Corp. 8 3/8%, 3/1/08 (i) B2 4,310 4,342
NTL, Inc.:
10%, 2/15/07 B3 3,440 3,707
0%, 4/1/08 (e)(i) B3 14,210 9,308
Olympus Communications LP/Olympus Capital
Corp. 10 5/8%, 11/15/06 B1 1,540 1,709
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 B2 1,160 1,337
0%, 1/15/07 (e) B2 2,770 2,174
Pegasus Communications Corp., Series B,
9 5/8%, 10/15/05 B3 1,440 1,508
Rogers Cablesystems Ltd. yankee 11%, 12/1/15 B2 3,400 3,927
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 1,225 1,357
Satelites Mexicanos SA de cv
10 1/2%, 11/1/04 (f)(i) B3 7,305 7,524
Sinclair Broadcast Group, Inc. 8 3/4%, 12/15/07 B2 3,650 3,769
TCI Communications, Inc. 6.46%, 3/6/00 Ba1 2,930 2,932
TCI Communications Financing III 9.65%, 3/31/27 Ba3 9,240 10,649
Tele-Communications, Inc. 9 1/4%, 4/15/02 Ba1 1,000 1,094
Telemundo Group, Inc. 7%, 2/15/06 (f) B1 3,090 3,291
Telewest PLC 0%, 10/1/07 (e) B1 8,410 6,791
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 1,615 1,661
7 3/4%, 6/15/05 Ba1 1,100 1,162
8.18%, 8/15/07 Ba1 1,750 1,917
6.95%, 1/15/28 (i) Ba1 1,390 1,347
UIH Australia/Pacific, Inc., Series B,
0%, 5/15/06 (e) B2 7,640 5,253
United International Holdings, Inc. 0%,
2/15/08 (e)(i) B3 12,320 7,700
213,614
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.7%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 $ 7,360 $ 7,728
American Skiing Co. 12%, 7/15/06 B3 3,470 3,886
Bally Total Fitness Holding Corp., Series B,
9 7/8%, 10/15/07 B3 5,260 5,589
Cinemark USA, Inc. 8 1/2%, 8/1/08 (Reg. S) B2 5,120 5,126
Livent, Inc. 9 3/8%, 10/15/04 B1 5,320 5,347
Paramount Communications, Inc.:
5 7/8%, 7/15/00 Ba2 890 874
7 1/2%, 1/15/02 Ba2 630 645
Premier Parks, Inc.:
9 1/4%, 4/1/06 B3 240 245
0%, 4/1/08 (e) B3 390 249
Viacom, Inc.:
6 3/4%, 1/15/03 Ba2 530 529
7 3/4%, 6/1/05 Ba2 2,200 2,307
8%, 7/7/06 B1 5,010 5,123
37,648
LODGING & GAMING - 0.4%
Aladdin Gaming Holdings/Aladdin Capital Units
0%, 3/1/10 (e)(i) Caa 3,970 2,045
Courtyard by Marriott II LP/Courtyard II Finance
Co., Series B, 10 3/4%, 2/1/08 B- 2,910 3,205
HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 4,580 4,798
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 6,420 6,813
8 7/8%, 7/15/07 Ba3 2,390 2,533
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 2,220 2,314
21,708
PUBLISHING - 0.2%
Garden State Newspapers, Inc.:
Series B, 8 3/4%, 10/1/09. B1 3,910 4,003
8 3/4%, 10/1/09 (k) B1 4,250 4,388
News America Holdings, Inc. 8 1/2%, 2/15/05 Baa 710 782
News America, Inc. 6 5/8%, 1/9/08 (i) Baa 590 580
Sun Media Corp. yankee 9 1/2%, 2/15/07 B2 1,234 1,327
11,080
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.2%
Foodmaker, Inc. 9 3/4%, 6/1/02 B2 $ 2,710 $ 2,774
Host Marriott Travel Plazas, Inc. 9 1/2%, 5/15/05 Ba3 4,810 5,111
7,885
TOTAL MEDIA & LEISURE 291,935
NONDURABLES - 0.6%
AGRICULTURE - 0.2%
Purina Mills, Inc. 9%, 3/15/10 (i) B2 7,780 8,033
FOODS - 0.1%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 2,250 2,391
ConAgra, Inc. 7 1/8%, 10/1/26 Baa 1,700 1,790
Smithfield Foods, Inc. 7 5/8%, 2/15/08 (i) Ba3 1,040 1,032
5,213
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products Corp.
8 5/8%, 2/1/08 (i) B3 12,790 12,966
TOBACCO - 0.1%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 1,700 1,748
7%, 7/15/05 A2 1,610 1,640
6.95%, 6/1/06 A2 1,510 1,552
4,940
TOTAL NONDURABLES 31,152
RETAIL & WHOLESALE - 1.2%
APPAREL STORES - 0.1%
AnnTaylor, Inc. 8 3/4%, 6/15/00 B3 5,200 5,200
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (h)(i) - 1,584 55
Specialty Retailers, Inc. 8 1/2%, 7/15/05 Ba3 1,060 1,087
6,342
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.4%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa $ 1,800 $ 1,832
7 1/2%, 7/15/06 Baa 2,000 2,138
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 2,600 2,845
8 1/8%, 10/15/02 Baa 520 553
6.79%, 7/15/27 Baa 1,100 1,116
7%, 2/15/28 Baa 1,360 1,344
Kmart Corp.:
12 1/2%, 3/1/05 Ba2 4,240 5,258
7 3/4%, 10/1/12 Ba2 310 313
8 1/4%, 1/1/22 Ba2 2,480 2,517
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,600 1,628
19,544
GROCERY STORES - 0.5%
Ameriserve Food Distribution, Inc.
8 7/8%, 10/15/06 B1 3,170 3,265
Fleming Companies, Inc., Series B,
10 5/8%, 7/31/07 B3 2,440 2,599
Kroger Co. 8.15%, 7/15/06 Baa 1,000 1,103
Mrs. Fields Original Cookies, Inc.
10 1/8%, 12/1/04 (i) B2 2,000 2,005
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 Caa 3,630 3,612
9 5/8%, 5/1/03 Caa 8,440 8,419
Pueblo Xtra International, Inc.
9 1/2%, 8/1/03 B3 6,600 6,404
27,407
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Central Tractor Farm & Country, Inc.
10 5/8%, 4/1/07 B2 2,220 2,359
J Crew Operating Corp. 10 3/8%, 10/15/07 (i) B3 2,690 2,529
Metals USA, Inc. 8 5/8%, 2/15/08 (i) B2 6,430 6,414
11,302
TOTAL RETAIL & WHOLESALE 64,595
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - 0.4%
LEASING & RENTAL - 0.1%
Brand Scaffold Services, Inc.
10 1/4%, 2/15/08 (i) B3 $ 2,000 $ 2,060
PHH Corp. 5.678%, 6/11/98 (g) - 5,000 5,000
7,060
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 1,830 1,922
SERVICES - 0.2%
Borg-Warner Security Corp. 9 5/8%, 3/15/07 B3 1,150 1,208
Iron Mountain, Inc. 8 3/4%, 9/30/09 B3 2,990 3,087
Medaphis Corp. 9 1/2%, 2/15/05 (i) B2 7,520 7,520
11,815
TOTAL SERVICES 20,797
TECHNOLOGY - 0.4%
COMPUTER SERVICES & SOFTWARE - 0.1%
Federal Data Corp. 10 1/8%, 8/1/05 B3 5,160 5,354
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc.:
7.21%, 7/2/01 Baa 1,750 1,805
6 3/8%, 11/30/01 Baa 1,800 1,809
MediaCom LLC/MediaCom Capital Corp.
8 1/2%, 4/15/08 (i) B2 5,000 5,000
8,614
ELECTRONICS - 0.1%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 2,350 2,538
Fairchild Semiconductor Corp.:
10 1/8%, 3/15/07 B2 1,610 1,668
11.74%, 3/15/08 pay-in-kind (k) - 2,581 2,561
6,767
TOTAL TECHNOLOGY 20,735
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 0.5%
AIR TRANSPORTATION - 0.4%
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa $ 500 $ 536
Kitty Hawk, Inc. 9.95%, 11/15/04 B1 9,290 9,662
US Air, Inc.:
9 5/8%, 2/1/01 B3 1,960 2,070
10%, 7/1/03 B3 2,770 2,926
10 3/8%, 3/1/13 B1 3,340 3,816
19,010
RAILROADS - 0.0%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa 1,500 1,614
SHIPPING - 0.1%
Amer Reefer Co. Ltd. 10 1/4%, 3/1/08 (i) B1 1,270 1,283
Holt Group, Inc. 9 3/4%, 1/15/06 (i) Caa 2,400 2,436
3,719
TOTAL TRANSPORTATION 24,343
UTILITIES - 2.0%
CELLULAR - 0.8%
McCaw International Ltd. 0%, 4/15/07 (e) Caa 12,170 8,093
Nextel International, Inc.
12 1/8%, 4/15/08 (i) Caa 8,600 5,149
Nextel Communications, Inc. (e):
0%, 8/15/04 B2 1,850 1,781
0%, 9/15/07 B2 2,507 1,680
0%, 10/31/07 B2 12,200 7,930
0%, 2/15/08 (i) B2 11,480 7,319
Pagemart Wireless, Inc. 0%, 2/1/08 (e)(i) Caa 7,210 4,470
Rogers Communications, Inc. 8 7/8%, 7/15/07 B2 5,730 5,830
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 405 418
42,670
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
ELECTRIC UTILITY - 0.3%
AES Corp. 8 3/8%, 8/15/07 Ba1 $ 2,760 $ 2,819
Avon Energy Partners Holdings (i):
6.73%, 12/11/02 Baa 1,680 1,701
6.46%, 3/4/08 Baa 1,320 1,304
CalEnergy, Inc. 9 1/2%, 9/15/06 Ba1 1,250 1,353
Calpine Corp. 8 3/4%, 7/15/07 Ba3 2,470 2,550
Hydro-Quebec yankee 7.40%, 3/28/25 A2 1,050 1,219
Israel Electric Corp. Ltd. (i):
yankee 7 7/8%, 12/15/26 A3 660 670
7 3/4%, 12/15/27 A3 1,605 1,619
Long Island Lighting Co. 8 5/8%, 4/15/04 Baa 2,230 2,308
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa 1,600 1,668
Texas Utilities Co., Series C, 6 3/8%, 1/1/08 (i) Baa 980 941
18,152
TELEPHONE SERVICES - 0.9%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa 1,700 1,701
GCI, Inc. 9 3/4%, 8/1/07 B2 610 648
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (e) B3 7,550 5,757 12 1/4%, 9/1/04 B3
4,180 4,703
ICG Holdings, Inc. (e):
0%, 9/15/05 - 2,410 2,061
0%, 5/1/06 - 1,270 1,019
0%, 3/15/07 - 2,660 1,948
McLeodUSA, Inc.:
0%, 3/1/07 (e) B2 5,530 4,189
9 1/4%, 7/15/07 B2 2,330 2,487
8 3/8%, 3/15/08 (i) B2 480 496
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 8,040 8,512
Qwest Communications International, Inc.
0%, 10/15/07 (e) B2 5,030 3,697
Teleport Communications Group, Inc.
0%, 7/1/07 (e) Baa 900 775
Winstar Communications, Inc.
11%, 3/15/08 (i) - 2,210 2,265
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Winstar Equipment 12 1/2%, 3/15/04 B3 $ 1,770 $ 2,027
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,394 1,477
8 7/8%, 1/15/06 Ba1 1,180 1,286
7 3/4%, 4/1/07 Ba1 1,250 1,348
46,396
TOTAL UTILITIES 107,218
TOTAL NONCONVERTIBLE BONDS 831,717
TOTAL CORPORATE BONDS
(Cost $814,573) 835,386
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 1.1%
U.S. TREASURY OBLIGATIONS - 0.7%
5 7/8%, 10/31/98 Aaa 7,090 7,104
7 3/4%, 12/31/99 Aaa 2,964 3,069
6 1/8%, 6/30/01 Aaa 1,720 1,769
7 7/8%, 8/15/01 Aaa 810 864
5 7/8%, 11/30/01 Aaa 595 599
7%, 7/15/06 Aaa 318 344
12 3/4%, 11/15/10
(callable) Aaa 5,140 7,300
7 1/4%, 2/ 15/23 Aaa 2,310 2,636
6 7/8%, 8/15/25 Aaa 11,935 13,311
TOTAL U.S. TREASURY oBLIGATIONS 36,996
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.4%
Federal Home Loan Bank:
7.66%, 7/20/04 Aaa 4,540 4,942
7.59%, 3/10/05 Aaa 2,450 2,669
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Fannie Mae:
6.97%, 4/8/04 Aaa $ 2,060 $ 2,168
7.49%, 3/2/05 Aaa 2,320 2,518
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 2,890 3,002
U.S. Department of Housing and Urban
Development government guaranteed
participation certificates Series 1996-A:
6.83%, 8/1/03 Aaa 4,000 4,153
7.66%, 8/1/15 Aaa 1,200 1,283
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U. U.S. government through
Export-Import Bank) 6.69%, 1/15/09 (i) Aaa 2,047 2,100
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 22,835
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $58,711) 59,831
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.3%
FREDDIE MAC - 0.1%
5 1/2%, 2/1/03 to 5/1/03 Aaa 1,602 1,567
7%, 7/1/01 Aaa 315 318
7 1/2%, 5/1/27 to 2/1/28 Aaa 5,561 5,700
7,585
FANNIE MAE - 2.0%
5 1/2%, 4/1/03 to 6/1/03 Aaa 1,541 1,508
6%, 4/1/00 to 6/1/26 Aaa 25,109 24,642
6%, 4/1/13 (c) Aaa 11,875 11,697
6%, 4/1/28 (c) Aaa 200 193
6 1/2%, 9/1/25 to 5/1/28 Aaa 22,025 21,806
7%, 11/1/26 Aaa 672 679
7%, 4/1/28 (c) Aaa 12,422 12,550
7%, 5/1/28 (c) Aaa 21,789 21,986
7 1/2%, 4/1/28 (c) Aaa 10,188 10,449
105,510
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.2%
6%, 6/15/08 to 9/15/10 Aaa $ 1,525 $ 1,518
6 1/2%, 9/15/08 to 5/15/09 Aaa 7,967 8,051
8%, 5/15/25 Aaa 530 549
10,118
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $118,974) 123,213
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing and Securitization
LLC Series 1997-2 Class 2-B, 7.289%,
12/29/25 (g)(h)(i) (Cost $957) Ba3 1,800 906
COMMERCIAL MORTGAGE SECURITIES - 1.0%
American Southwest Financial Securities Series
1994-C2 Class B2, 8%, 12/25/01 (g)(i) - 1,670 1,693
Asset Securitization Corp. Series 1997-D5
Class A-6, 0%, 2/14/41 BBB 1,200 1,169
Berkeley Federal Bank & Trust FSB Series 1994
Class 1-B, 7.706%, 8/1/24 (g)(i) - 1,900 1,469
Blackrock Capital Funding LLC Series 1996
Class C2, 7.559%, 11/16/26 (g)(i) Aaa 162 163
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (g)(i) BBB 680 688
Bankers Trust Remic Trust 1988-1
Series 1998-S1A Class G,
0%, 11/28/02 (g)(i) Ba2 1,248 1,198
CBM Funding Corp. sequential pay Series 1996-1:
Class A-3PI, 7.08%, 11/1/07 AA 990 1,027
Class B, 7.48%, 2/1/08 A 770 820
CS First Boston Mortgage Securities Corp.
Series 1997-C2 Class D,
7.27%, 4/17/11 Baa 1,810 1,828
DLJ Mortgage Acceptance Corp.
Series 1993-MF12 Class B-2,
10.10%, 9/18/03 (i) - 1,650 1,684
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
Deutsche Mortgage and Asset Receiving Corp.
Series 1998-C1 Class D, 7.231%, 7/15/12 Baa $ 1,420 $ 1,428
Equitable Life Assurance Society of the
United States (The) (i):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,200 1,262
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 1,000 1,056
Franchise Mortgage Acceptance Co. LLC Loan
Receivables Trust (g)(i):
Series 1997-A Class E, 8.104%, 4/15/19 - 500 474
Series 1997-B Class E, 7.891%, 9/15/19 - 1,050 951
First Chicago/Lennar Trust I Series 1997-CHL1 (g):
Class D, 8.132%, 5/29/08 - 1,100 1,097
Class E, 8.132%, 2/28/11 - 1,800 1,573
First Union-Lehman Brothers Commercial Mortgage
Trust sequential pay Series 1997-C2 Class B,
6.79%, 10/18/11 Aa2 3,870 3,917
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc.:
Series 1996-C1 Class F, 7.86%, 11/15/06 (i) Ba3 750 723
Series 1997-C2 Class D, 7.192%, 1/15/08 Baa 490 495
Series 1997-C2 Class E, 7.624%, 4/15/11 Baa 1,040 1,053
GS Mortgage Securities Corp. II Series 1997- GL
Class A2-B, 6.86%, 7/13/30 Aaa 1,590 1,638
GAFCO Franchisee Loan Trust Series 1998-1
Class D, 14 1/2%, 6/1/16 (g)(i) - 1,650 1,305
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 665 662
LTC Commercial Mortgage Pass-Through
Certificates Series 1996-1 Class E,
9.16%, 4/15/28 BB- 500 512
Morgan Stanley Capital I, Inc. sequential pay
Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa 1,720 1,853
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.661%, 5/25/21 (i) - 1,738 1,671
Morgan Stanley Capital I Series 1998-HF1
Class D, 7.10%, 2/15/08 (g) BBB 1,770 1,797
NB Commercial Mortgage sequential pay,
Series FSI Class A, 7.187%, 10/20/23 (i) - 74 74
Nomura Asset Securities Corp. Series 1998 - D6
Class A4, 7.349%, 3/15/30 (g) Baa 1,420 1,413
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
Nomura Depositor Trust Series 1998-ST1A
Class B2, 9.938%, 1/15/03 (g)(i) - $ 1,100 $ 1,093
Oregon Commercial Mortgage, Inc. Series 1995
Class E, 9.455%, 6/25/26 (g)(i) BB 830 844
Penn Mutual Life Insurance Co. (The)
Series 1996-PML (i):
Class K, 7.90%, 11/15/26 - 1,750 1,289
Class L, 7.90%, 11/15/26 - 1,300 623
Resolution Trust Corp. Series 1991-M2 Class A3,
7.542%, 9/25/20 (g) Ba3 632 544
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%, 9/25/24 (i) BB 1,100 1,064
Series 1993-C1 Class E, 6.60%, 10/25/24 (i) B 1,250 525
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 Aaa 528 533
commercial Series 1996-CFL Class E,
7 3/4%, 2/25/28 BB+ 820 832
Series 1996-CFL Class G, 7 3/4%, 2/25/28 (i) - 2,000 1,849
Thirteen Affiliates of General Growth
Properties, Inc. (i):
Series A-2, 6.602%, 11/15/12 Aaa 1,310 1,329
Series D-2, 6.992%, 11/15/12 Baa 1,410 1,409
Series E-2, 7.224%, 11/15/12 Baa 840 834
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (i) Aaa 1,186 1,203
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $48,439) 50,664
FOREIGN GOVERNMENT OBLIGATIONS (J) - 0.1%
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 620 638
Israeli State euro 6 3/8%, 12/19/01 A3 2,410 2,395
Manitoba Province yankee 6 3/8%, 10/15/99 A1 3,000 3,017
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $5,994) 6,050
SUPRANATIONAL OBLIGATIONS - 0.0%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (D) AMOUNT (000S) (000S)
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $1,590) Aaa $ 1,600 $ 1,680
BANK NOTES - 0.1%
Key Bank N.A 5.555%, 8/20/99 (g)
(Cost $4,993) 5,000 4,996
CERTIFICATES OF DEPOSIT - 0.5%
Banque Nationale de paris yankee
5 3/4%, 7/31/98 2,300 2,299
Canadian Imperial Bank of Commerce:
5.91%, 8/28/98 5,000 5,002
yankee 6.20%, 8/1/00 1,950 1,955
Deutsche Bank AG yankee:
6.20%, 4/10/98 4,000 4,000
5.94%, 10/26/98 1,000 1,001
National Westminster Bank PLC yankee
5.94%, 6/26/98 1,000 1,000
RaboBank Nederland Coop Central yankee
6.20%, 4/10/98 3,000 3,000
Societe Generale France yankee
5.91%, 10/15/98 5,000 5,003
Westdeutsche Landesbank yankee
5.83%, 8/3/98 4,000 4,000
Westpac Banking Corp. yankee
5.885%, 8/27/98 1,000 1,000
TOTAL CERTIFICATES OF DEPOSIT
(Cost $28,241) 28,260
MASTER NOTES - 0.1%
First Bank National Association 5.598%, 5/15/98 (g) 2,000 1,999
Goldman Sachs Group LP (The)
5.625%, 5/4/98 (g)(k) 3,000 3,000
TOTAL MASTER NOTES
(Cost $4,999) 4,999
CASH EQUIVALENTS - 4.6%
MATURITY VALUE (NOTE 1)
AMOUNT (000S) (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account, dated 3/31/98
due 4/1/98:
at 5.80% $ 4,129 $ 4,128
at 6.08% 45,775 45,767
49,895
SHARES
Taxable Central Cash Fund (b) 196,146,219 196,146
TOTAL CASH EQUIVALENTS
(Cost $246,041) 246,041
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $4,063,948) $ 5,334,455
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.63%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Security or a portion of the security purchased on a delayed
delivery or when-issued basis (see Note 2 of Notes to Financial
Statements).
(d) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(e) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(f) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(g) The coupon rate shown on floating or
adjustable rate securities represents the
rate at period end.
(h) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.
(i) 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
$267,416,000 or 5.1% of net assets.
(j) 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.
(k) 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 COST
SECURITY DATE (000S)
Fairchild Semiconductor
Corp. 11.74%,
3/15/08 pay-in-kind 4/3/97 $ 2,017
Garden State Newspapers
Inc. 8 3/4%,
10/1/09 2/11/98 $ 4,399
Goldman Sachs Group LP
(The) 5.188%,
5/4/98 8/5/97 $ 3,000
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 5.3% AAA, AA, A 5.0%
Baa 1.6% BBB 2.2%
Ba 2.5% BB 2.5%
B 8.7% B 7.8%
Caa 0.7% CCC 1.1%
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.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 90.1%
United Kingdom 3.1
Netherlands 1.8
France 1.1
Others (individually less than 1%) 3.9
TOTAL 100.0%
INCOME TAX INFORMATION
At March 31,1998, the aggregate cost of investment securities for
income tax purposes was $4,064,550,000. Net unrealized appreciation
aggregated $1,269,905,000 of which $1,322,162,000 related to
appreciated investment securities and $52,257,000 related to
depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 5,334,455
AGREEMENTS OF $49,895) (COST $4,063,948) -
SEE ACCOMPANYING SCHEDULE
CASH 20
RECEIVABLE FOR INVESTMENTS SOLD 8,428
RECEIVABLE FOR FUND SHARES SOLD 10,832
DIVIDENDS RECEIVABLE 6,587
INTEREST RECEIVABLE 17,217
OTHER RECEIVABLES 91
TOTAL ASSETS 5,377,630
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 24,605
REGULAR DELIVERY
DELAYED DELIVERY 57,184
PAYABLE FOR FUND SHARES REDEEMED 95,602
ACCRUED MANAGEMENT FEE 2,570
OTHER PAYABLES AND ACCRUED EXPENSES 1,231
TOTAL LIABILITIES 181,192
NET ASSETS $ 5,196,438
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 3,833,005
UNDISTRIBUTED NET INVESTMENT INCOME 25,397
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 67,540
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 1,270,496
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 256,769 SHARES OUTSTANDING $ 5,196,438
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $20.24
SHARE ($5,196,438 (DIVIDED BY) 256,769 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 28,219
DIVIDENDS
INTEREST 45,379
TOTAL INCOME 73,598
EXPENSES
MANAGEMENT FEE $ 14,036
TRANSFER AGENT FEES 5,081
ACCOUNTING FEES AND EXPENSES 427
NON-INTERESTED TRUSTEES' COMPENSATION 13
CUSTODIAN FEES AND EXPENSES 65
REGISTRATION FEES 332
AUDIT 60
LEGAL 15
MISCELLANEOUS 18
TOTAL EXPENSES BEFORE REDUCTIONS 20,047
EXPENSE REDUCTIONS (291) 19,756
NET INVESTMENT INCOME 53,842
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 87,908
FOREIGN CURRENCY TRANSACTIONS (26) 87,882
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 470,827
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 14 470,841
NET GAIN (LOSS) 558,723
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 612,565
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 53,842 $ 88,541
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 87,882 424,956
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 470,841 517,403
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 612,565 1,030,900
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (90,145) (81,646)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (394,438) (203,145)
TOTAL DISTRIBUTIONS (484,583) (284,791)
SHARE TRANSACTIONS 731,560 1,283,870
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 481,105 282,710
COST OF SHARES REDEEMED (601,691) (953,951)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 610,974 612,629
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 738,956 1,358,738
NET ASSETS
BEGINNING OF PERIOD 4,457,482 3,098,744
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 5,196,438 $ 4,457,482
INCOME OF $25,397 AND $67,056, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 37,682 72,671
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 26,595 17,155
REDEEMED (30,721) (53,787)
NET INCREASE (DECREASE) 33,556 36,039
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 19.97 $ 16.56 $ 14.88 $ 13.91 $ 13.77 $ 11.16
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .22 D .42 D .47 .26 .13 .18
NET REALIZED AND 2.20 4.49 1.44 1.07 .61 2.66
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT 2.42 4.91 1.91 1.33 .74 2.84
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.40) (.43) (.23) (.27) (.18) (.15)
INCOME
FROM NET REALIZED GAIN (1.75) (1.07) - - (.37) (.08)
IN EXCESS OF NET - - - (.09) (.05) -
REALIZED GAIN
TOTAL DISTRIBUTIONS (2.15) (1.50) (.23) (.36) (.60) (.23)
NET ASSET VALUE, $ 20.24 $ 19.97 $ 16.56 $ 14.88 $ 13.91 $ 13.77
END OF PERIOD
TOTAL RETURN B, C 13.40% 31.57% 12.99% 9.95% 5.39% 25.83%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 5,196 $ 4,457 $ 3,099 $ 2,850 $ 3,071 $ 1,243
(IN MILLIONS)
RATIO OF EXPENSES TO .85% A .87% 1.02% 1.03% 1.15% 1.19% E
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .84% A, F .86% F 1.01% F 1.02% F 1.15% 1.19%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 2.29% A 2.36% 2.51% 3.16% 2.64% 3.02%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 52% A 70% 138% 119% 104% 97%
AVERAGE COMMISSION $ .0440 $ .0047 $ .0027
RATE G
</TABLE>
ANNUALIZED
TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
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.
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 MARCH 31, 1998 (UNAUDITED)
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 require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
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
among 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.
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 Fidelity Investments Money Management, Inc.,
(formerly FMR Texas, Inc.) 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 earned
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.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying
securities is fixed at the time the transaction is negotiated. The
market values of the securities purchased on a when-issued or forward
commitment 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 when-issued security. With respect to purchase
commitments, the fund identifies securities
2. OPERATING POLICIES -
CONTINUED
WHEN-ISSUED SECURITIES - CONTINUED
as segregated in its custodial records with a value at least equal to
the amount of the commitment. The payables and receivables associated
with the purchases and sales of when-issued securities having the same
settlement date and broker are offset. When-issued securities that
have been purchased from and sold to different brokers are reflected
as both payables and receivables in the statement of assets and
liabilities under the caption "Delayed delivery." Losses may arise due
to changes in the market value of the underlying securities, if the
counterparty does not perform under the contract, or if the issuer
does not issue the securities due to political, economic, or other
factors.
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 $9,949,000 or 0.2% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,543,908,000 and $1,149,137,000, respectively, of which
U.S. government and government agency obligations aggregated
$298,059,000 and $260,703,000, 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 annualized 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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 annualized rate of .22% 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 $175,000 for the
period.
5. 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 $168,000 under this arrangement.
In addition, the fund has entered into arrangements with its transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's transfer agent fees were reduced by $123,000,
under this arrangement.
6. 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.
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
Brad Lewis, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H . Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Co x *
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
SEMIANNUAL REPORT
MARCH 31, 1998
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 11 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 12 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 36 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 40 NOTES TO THE FINANCIAL STATEMENTS.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 past five year and life of fund total returns would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
FIDELITY ASSET MANAGER: INCOME 6.34% 16.49% 56.66% 70.62%
FIDELITY CONSERVATIVE COMPOSITE 6.46% 16.58% 54.55% N/A
S&P 500 (REGISTERED TRADEMARK) 17.22% 48.00% 174.71% 202.27%
LB AGGREGATE BOND 4.54% 11.99% 39.89% N/A
LB 3 MONTH T-BILL 2.64% 5.58% 27.62% N/A
INCOME FUNDS AVERAGE 7.18% 22.22% 83.24% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years 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 Fidelity Conservative
Composite Index, a hypothetical combination of unmanaged indices. The
composite index combines the total returns of the Standard & Poor's
500 Index, the Lehman Brothers Aggregate Bond Index and the Lehman
Brothers 3 Month Treasury Bill Index, weighted according to the fund's
neutral mix. 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 six months
average represents a peer group of 74 mutual funds. The benchmarks
listed in the table above include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER: INCOME 16.49% 9.39% 10.20%
FIDELITY CONSERVATIVE COMPOSITE 16.58% 9.10% 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.
$10,000 OVER LIFE OF FUND
Asset Manager: Income FID Conserv Composite
S&P 500 LB Aggregate Bond
00328 F0056
SP001 LB001
1992/10/31 10000.00 10000.00
10000.00 10000.00
1992/11/30 10131.75 10058.70
10341.00 10002.26
1992/12/31 10335.71 10137.21
10468.19 10161.31
1993/01/31 10601.78 10234.73
10556.13 10356.17
1993/02/28 10775.92 10335.59
10699.69 10537.45
1993/03/31 11012.63 10403.50
10925.45 10581.36
1993/04/30 11095.59 10390.02
10661.06 10655.05
1993/05/31 11157.79 10454.60
10946.77 10668.61
1993/06/30 11282.63 10544.51
10978.52 10861.96
1993/07/31 11376.79 10568.86
10934.61 10923.40
1993/08/31 11628.47 10733.74
11349.03 11114.86
1993/09/30 11660.07 10744.26
11261.64 11145.39
1993/10/31 11818.44 10814.63
11494.76 11187.03
1993/11/30 11744.57 10772.19
11385.56 11091.87
1993/12/31 11926.14 10827.23
11523.32 11151.98
1994/01/31 12131.02 10961.16
11915.11 11302.55
1994/02/28 11915.04 10840.81
11592.21 11106.19
1994/03/31 11687.39 10689.04
11086.79 10832.38
1994/04/30 11698.18 10705.13
11228.70 10745.88
1994/05/31 11731.10 10753.94
11412.86 10744.37
1994/06/30 11665.22 10715.66
11133.24 10720.63
1994/07/31 11819.10 10865.25
11498.41 10933.57
1994/08/31 11940.44 10974.39
11969.85 10947.14
1994/09/30 11829.82 10895.26
11676.58 10786.02
1994/10/31 11863.39 10965.43
11939.31 10776.41
1994/11/30 11774.41 10899.32
11504.48 10752.47
1994/12/31 11763.68 10979.99
11675.09 10826.72
1995/01/31 11831.41 11125.48
11977.82 11040.99
1995/02/28 12046.30 11310.15
12444.60 11303.50
1995/03/31 12171.32 11427.24
12811.84 11372.84
1995/04/30 12330.59 11567.79
13189.15 11531.71
1995/05/31 12627.09 11830.48
13716.32 11977.95
1995/06/30 12752.88 11944.07
14034.95 12065.77
1995/07/31 12959.19 12038.69
14500.35 12038.82
1995/08/31 13074.38 12116.36
14536.74 12184.11
1995/09/30 13247.66 12280.54
15150.19 12302.65
1995/10/31 13270.83 12357.37
15096.11 12462.64
1995/11/30 13503.77 12551.07
15758.83 12649.39
1995/12/31 13726.82 12688.84
16062.34 12826.91
1996/01/31 13880.66 12828.08
16609.11 12912.09
1996/02/29 13785.70 12798.43
16763.07 12687.65
1996/03/31 13773.58 12815.21
16924.50 12599.45
1996/04/30 13785.38 12856.13
17173.97 12528.60
1996/05/31 13833.79 12944.55
17616.88 12503.16
1996/06/30 13942.35 13032.02
17684.00 12671.06
1996/07/31 13846.45 12955.05
16902.72 12705.74
1996/08/31 13881.96 13031.59
17259.20 12684.44
1996/09/30 14211.73 13272.88
18230.55 12905.49
1996/10/31 14517.86 13463.36
18733.35 13191.37
1996/11/30 14937.29 13765.99
20149.40 13417.32
1996/12/31 14799.54 13699.27
19750.24 13292.57
1997/01/31 15016.25 13910.59
20984.24 13333.27
1997/02/28 15080.03 13966.07
21148.76 13366.44
1997/03/31 14810.26 13791.38
20279.75 13218.32
1997/04/30 15080.75 14079.76
21490.45 13416.19
1997/05/31 15416.69 14340.46
22798.79 13543.01
1997/06/30 15649.97 14569.76
23820.18 13703.76
1997/07/31 16144.31 15021.48
25715.55 14073.31
1997/08/31 15948.38 14810.07
24274.97 13953.26
1997/09/30 16223.60 15102.33
25604.51 14159.05
1997/10/31 16249.53 15130.42
24749.32 14364.46
1997/11/30 16434.63 15324.82
25894.96 14430.60
1997/12/31 16635.67 15474.60
26339.58 14575.90
1998/01/31 16785.91 15630.16
26630.89 14763.03
1998/02/28 17073.26 15866.70
28551.51 14751.91
1998/03/31 17252.00 16078.55
30013.64 14802.06
IMATRL PRASUN SHR__CHT 19980331 19980422 113429 R00000000000068
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager: Income on October 31, 1992,
shortly after the fund started. As the chart shows, by March 31, 1998,
the value of the investment would have grown to $17,252 - a 72.52%
increase on the initial investment. For comparison, look at how both
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, and the S&P 500, a
widely recognized unmanaged index of common stocks, did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 investment in the Lehman Brothers Aggregate Bond Index would
have grown to $14,802 - a 48.02% increase. If $10,000 was invested in
the S&P 500, it would have grown to $30,014 - a 200.14% increase. You
can also look at how the Fidelity Conservative Composite Index did
over the same period. The composite index combines the total returns
of the S&P 500 (+200.14%), the Lehman Brothers Aggregate Bond Index
(+48.02%) and the Lehman Brothers 3 Month T-Bill Index (+28.60%)
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 $16,079 - a 60.79% 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.
Despite being tested during the period, the U.S. stock and bond
markets performed well during the six months that ended March 31,
1998. Economic trouble in Southeast Asia caused worldwide concern, but
a domestic economic environment of low inflation, low interest rates
and steady growth spelled positive returns for both stocks and bonds.
STOCKS: The U.S. stock market showed its resiliency during the period.
Despite the economic uncertainty in Southeast Asia - and the resulting
concern that U.S. corporate earnings would slow - the stock market
performed well. The Standard & Poor's 500 Index - a measure of the
U.S. stock market - returned 17.22% during this time. In late October,
after several small Southeast Asian countries devalued their
currencies, a full-fledged economic crisis enveloped the region. These
troubles had ripple effects throughout the world, particularly in the
U.S., where the Dow Jones Industrial Average plummeted 550-plus points
in one trading session. Many U.S. corporations with business exposure
to Southeast Asia announced earnings disappointments. Investors showed
their concern by embarking on a "flight to quality," seeking shelter
in stocks of companies with minimal international exposure. Despite
this turbulence, however, the continued strength of the U.S. economy
seemed to buoy the stock market as low interest rates, low inflation
and moderate growth combined to make for a favorable economic
backdrop. After digesting the events that took place in Southeast
Asia, investors regained their attraction to stocks. Through the first
three months of 1998, cash inflows into stock mutual funds were very
strong and the Dow itself was approaching the 9000-point barrier.
BONDS: Similar to their equity counterparts, bonds benefited from the
continued lack of inflationary pressure during the period. The Lehman
Brothers Aggregate Bond Index - a broad gauge of the U.S. taxable
investment-grade bond market - returned 4.54% during this period.
Global volatility and historically low interest rates were the main
stories in the last quarter of 1997. Financial problems in Asia came
to a head in October, resulting in a "flight to quality." Wary stock
investors sought investments offering lower volatility, helping the
U.S. bond market - especially U.S. Treasuries - surge. The Lehman
Brothers Corporate Bond Index returned 4.49% for the six months.
Corporate bonds benefited from continued economic growth and demand
for yield, although they faltered somewhat in January 1998. Investors
feared a slowdown in demand from Asia would eat into corporate
earnings. In spite of record new issuance in February 1998, corporates
rebounded due in part to increased demand on the part of yield-hungry
investors. Mortgage-backed bonds performed well during the period,
even though lower interest rates resulted in more mortgage prepayment
activity. The Lehman Brothers Mortgage-Backed Securities Index
generated a six-month return of 4.04%. High-yield and emerging-market
issues turned in strong performances throughout the first quarter of
1998.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Richard Habermann, Lead Portfolio Manager of
Fidelity Asset Manager: Income
Q. HOW DID THE FUND PERFORM, DICK?
A. The fund performed in line with expectations. For the six months
that ended March 31, 1998, the fund had a total return of 6.34%. That
slightly lagged the 6.46% return of the Fidelity Conservative
Composite Index. For the 12 months that ended March 31, 1998, the fund
returned 16.49%, compared to the 16.58% return of the composite index.
The fund's return trailed that of the income funds average tracked by
Lipper Analytical Services, which returned 7.18% and 22.22% in the
six- and 12-month periods, respectively. The funds in the Lipper group
have the flexibility to invest a significant percentage of their
assets in stocks. On average, funds in the Lipper group carry more
than 40% in equities. This fund has a more conservative investment
mandate.
Q. HOW DID YOU POSITION THE FUND IN TERMS OF ASSET ALLOCATION?
A. In light of its conservative investment mandate, the fund generally
invests only about 20% of its assets in equities. However, the fund
did keep a marginally overweighted position - relative to its neutral
target allocation - in equities, helping it to keep pace with the
composite index. While slightly underweighted relative to its neutral
asset mix, the fund also benefited from its substantial position in
bonds. As we learned, the Asian crisis brought with it fears of a
domestic economic slowdown - a catalyst for lower inflation and bond
yields and, hence, higher bond prices. I increased the bond allocation
slightly toward year- end as interest rates stabilized at a lower
level and inflation turned downward. Late in the period, inflation
continued to drop as energy and import prices fell. Accordingly,
longer-maturity securities became a more favorable choice as the yield
curve steepened - meaning the differences in yield between long- and
short-maturity securities widened. At that point, I re-allocated some
of the fund's assets from short-term instruments into bonds during
March.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
A. In keeping with its conservative goals, the fund's asset allocation
remained within a fairly tight range of its neutral mix, which calls
for 20% to be invested in stocks, 50% in bonds and 30% in
short-term/money market instruments. The fund was marginally
overweighted in equities at the end of the period - with a 21.5%
allocation - to take advantage of the favorable environment for stocks
in the first quarter of 1998. But, overall, the fund did not stray far
from its neutral mix since valuations did not seem compelling enough
to do so. The neutral mix is meant to be an optimal combination of
securities assuming valuations among all three asset classes are at
comparable levels.
Q. GOING FORWARD, BRAD LEWIS WILL REPLACE GEORGE VANDERHEIDEN AS THE
INVESTMENT PROFESSIONAL SELECTING THE EQUITY SECURITIES OF THE
PORTFOLIO. HOW WILL THIS CHANGE AFFECT THE FUND?
A. The change will not affect the fund's goal of minimizing risk while
attempting to maximize returns. Brad Lewis, a 13-year veteran of
Fidelity, has developed an impressive track record as the manager of
several funds, including Fidelity Disciplined Equity Fund since 1988.
Unlike George Vanderheiden, who chose stocks for the fund based on
individual company business prospects, Brad uses computer-aided,
quantitative analysis - supported by fundamental research - for
picking stocks. Overall, the fund's equity portfolio will continue to
seek out and hold stocks that we feel will deliver the best returns
for our shareholders. We are pleased that the equity investments will
continue to be selected by a seasoned veteran like Brad.
Q. EVEN THOUGH EQUITIES REPRESENT THE SMALLEST PORTION OF FUND ASSETS,
WHICH STOCKS HELPED THE FUND'S PERFORMANCE?
A. Financial stocks, such as Fannie Mae and Freddie Mac, performed
extremely well during this period of low interest rates and robust
capital markets. The fund's European holdings also generated healthy
returns. Europe seems to be trending up as the companies there are
entering a phase of restructuring and consolidation, concurrent with
low interest rates and growing earnings. The health care sector, as a
whole, performed well on the strength of large-capitalization
pharmaceutical stocks that benefited from a "flight to quality" during
the Asian crisis - meaning investors sought out large companies with
household names that they perceived as safe. Pharmaceuticals also
reaped the rewards of accelerated reviews by the Food and Drug
Administration. Finally, retail and wholesale stocks were strong and
the fund was heavily overweighted, relative to the Standard & Poor's
500 Index, in that sector. In fact, Wal-Mart, one of the fund's larger
equity holdings at the end of March, gained 39% during the period
versus a 17% return for the S&P 500.
Q. WHICH STOCKS HURT PERFORMANCE?
A. Consumer nondurables took a hit during the period. Specific to that
sector, tobacco stocks such as RJR Nabisco and Philip Morris weakened
during the period as litigation fears heightened. In addition, most
technology stocks were punished on fears that worldwide product demand
would slow drastically as a result of the Asian crisis. Notably,
Compaq Computer's stock dropped substantially during the period as the
company struggled with inventory problems.
Q. WHAT WAS THE STRATEGY FOR THE FUND'S BOND INVESTMENTS?
A. As part of its effort to maintain a relatively conservative
risk-return profile, Asset Manager: Income concentrates its bond
investments in the investment-grade sector. Unfortunately, this
strategy can result in relatively modest returns when high-yield
securities - or those with credit ratings below investment-grade -
perform well, as they did during the six-month period. Regardless, the
fund's fixed-income investments - managed separately by Charlie
Morrison of our fixed-income department - performed competitively, and
were helped by increased allocations toward investment-grade corporate
and mortgage-backed securities. The fund's corporate bond allocation -
particularly securities issued by banking and finance concerns -
performed well as interest rates fell and earnings prospects improved.
Mortgage securities also generated healthy returns, partly due to
renewed interest from yield-hungry investors. The fund's fixed-income
exposure was altered slightly during the period. The fund's position
in corporate securities was reduced due to profit taking and the
proceeds were re-deployed largely to favorably priced mortgage-backed
securities.
Q. HOW WAS THE SHORT-TERM/MONEY MARKET PORTION OF THE PORTFOLIO
POSITIONED?
A. I kept the fund's allocation toward short-term instruments - which
were managed by John Todd of our money market group - in a fairly
tight range during the period. As in prior periods, John continued to
manage the fund's short-term allocation with the objective of adding
value relative to a benchmark - the three-month Treasury bill - within
the context of a controlled volatility framework. I increased the
fund's bond allocation while reducing short-term instruments during
the period in response to increasingly favorable inflation conditions
and a slowing economy. At the end of the period, the fund maintained a
near-neutral allocation in short-term/money market instruments. The
short-term/money market segment performed admirably during the period
and was helped by beneficial security selection.
Q. WHAT'S YOUR OUTLOOK?
A. We're in the midst of the third- longest positive economic cycle in
the post-war U.S. - following a long run in the 1960s when John F.
Kennedy was president and in the 1980s when Ronald Reagan led the
country. So, in its seventh year, the expansion continues to be
remarkably strong. In addition, we're still witnessing decent earnings
growth, moderate restructuring efforts and robust merger activity -
all of which bodes well for improving the efficiency of the American
economy. Even more amazing is that this growth is happening without
stimulating the ultimate distress signal for equity and bond investors
- - inflation. In this environment, I think both the stock and bond
markets will benefit. However, I do believe that we've entered a new
period of volatility in the markets, where one-time events can cause
major shake-ups. I think the questions raised by the Asian financial
crisis need to be monitored. Although the U.S. economy may not be
drastically hurt by this turmoil, the cheapening of Asian goods could
cause U.S. manufacturers to move production outside of the country,
which would lead to higher unemployment and slower growth. Considering
that we may be entering a period of higher volatility in the markets,
it makes sense that I proceed with caution and not stray too far from
our neutral mix in the near future.
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
CONSERVATIVE INVESTMENT
STRATEGY:
"IT IS IMPORTANT FOR INVESTORS TO
REMEMBER THAT ASSET MANAGER:
INCOME IS A CONSERVATIVE ASSET
ALLOCATION FUND. ON A NEUTRAL BASIS,
THE FUND HOLDS ONLY 20% OF ITS ASSETS
IN EQUITIES, WITH 50% INVESTED IN
INVESTMENT-GRADE, FIXED-INCOME
SECURITIES AND 30% IN MONEY
MARKET/SHORT-TERM INSTRUMENTS. OF
COURSE, I CAN INCREASE OR DECREASE
EXPOSURE TO ANY OF THE ASSET CLASSES
BASED ON MY MARKET VIEWS. IN THE
INTEREST OF RISK CONTROL, HOWEVER, I
USUALLY CAP THE EQUITY ALLOCATION AT
ABOUT 25%. ASSET MANAGER: INCOME
- - BEING THE MOST CONSERVATIVE
FUND OF THE ASSET MANAGER FAMILY
- - MAY BE A REASONABLE CHOICE FOR
INVESTORS WITH MODERATE TIME
HORIZONS AND THOSE LOOKING FOR A
LOWER-VOLATILITY ALTERNATIVE TO
EQUITY AND BALANCED-TYPE FUNDS. IN
ADDITION, THE FUND'S INCOME
COMPONENT AND MONTHLY DIVIDEND
SCHEDULE MAY BE APPEALING TO
THOSE SEEKING A CONSISTENT INCOME
FLOW WHILE MAINTAINING A SMALL
DEGREE OF STOCK MARKET EXPOSURE.
ALL OF THE ASSET MANAGER FUNDS ARE
VERY RESEARCH- AND
RESOURCE-INTENSIVE FUNDS, DRAWING
UPON THE EXPERTISE OF FIDELITY'S
GLOBAL NETWORK OF PORTFOLIO
MANAGERS AND ANALYSTS. FOR
INVESTORS SEEKING TO REDUCE
EXPOSURE TO MORE AGGRESSIVE ASSET
CLASSES, FUNDS AND SECURITIES, ASSET
MANAGER: INCOME FUND MAY BE AN
APPROPRIATE OPTION."
FUND FACTS
GOAL: HIGH CURRENT INCOME,
AND CAPITAL APPRECIATION
WHEN APPROPRIATE
FUND NUMBER: 328
TRADING SYMBOL: FASIX
START DATE: OCTOBER 1, 1992
SIZE: AS OF MARCH 31, 1998,
MORE THAN $724 MILLION
MANAGER: RICHARD
HABERMANN, SINCE 1996;
MANAGER, FIDELITY ASSET
MANAGER AND FIDELITY ASSET
MANAGER: GROWTH, 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 MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES GREATER THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
FANNIE MAE 12.8 7.2
U.S. TREASURY 8.1 6.3
KEY BANK N.A. 1.1 1.4
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.9 1.2
U.S. DEPARTMENT OF HOUSING & 0.8 0.9
URBAN DEVELOPMENT
</TABLE>
QUALITY DIVERSIFICATION AS OF MARCH 31, 1998
(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, AA, A 3 34.0
8
.
4
BAA 7 5.0
.
2
BA AND BELOW 1 2.3
.
8
NOT RATED 5 0.2
.
0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS.
TOP FIVE STOCKS AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FANNIE MAE 1.9 1.8
PHILIP MORRIS COMPANIES, INC. 1.1 1.4
FREDDIE MAC 0.7 0.6
FLEET FINANCIAL GROUP, INC. 0.6 0.6
VODAFONE GROUP PLC 0.6 0.4
ASSET ALLOCATION
AS OF MARCH 31, 1998 * AS OF SEPTEMBER 30, 1997 **
ROW: 1, COL: 1, VALUE: 28.0
ROW: 1, COL: 2, VALUE: 50.0
ROW: 1, COL: 3, VALUE: 22.0
ROW: 1, COL: 1, VALUE: 33.0
ROW: 1, COL: 2, VALUE: 46.0
ROW: 1, COL: 3, VALUE: 21.0
STOCK CLASS 22%
BOND CLASS 50%
SHORT-TERM CLASS 28%
FOREIGN
INVESTMENTS 11%
STOCK CLASS 21%
BOND CLASS 46%
SHORT-TERM CLASS 33%
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 WILL DIFFER FROM THE PIE CHART.
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 19.8%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.1%
AEROSPACE & DEFENSE - 0.0%
Gulfstream Aerospace Corp. (a) 1,800 $ 78,075
DEFENSE ELECTRONICS - 0.1%
Raytheon Co.:
Class A 3,354 190,759
Class B 9,500 554,563
745,322
TOTAL AEROSPACE & DEFENSE 823,397
BASIC INDUSTRIES - 0.8%
CHEMICALS & PLASTICS - 0.5%
Air Products & Chemicals, Inc. 2,400 198,900
Dow Chemical Co. 700 68,075
du Pont (E.I.) de Nemours & Co. 25,300 1,720,400
Raychem Corp. 22,700 943,469
Union Carbide Corp. 11,000 551,375
3,482,219
PACKAGING & CONTAINERS - 0.2%
Bemis Co., Inc. 1,200 54,150
Corning, Inc. 6,500 287,625
Owens-Illinois, Inc. (a) 35,400 1,531,050
1,872,825
PAPER & FOREST PRODUCTS - 0.1%
Boise Cascade Corp. 3,300 119,006
Champion International Corp. 6,900 374,756
Willamette Industries, Inc. 2,800 105,175
598,937
TOTAL BASIC INDUSTRIES 5,953,981
CONSTRUCTION & REAL ESTATE - 0.3%
CONSTRUCTION - 0.2%
Centex Corp. 6,000 228,750
D.R. Horton, Inc. 8,548 181,645
Fleetwood Enterprises, Inc. 14,102 656,624
Kaufman & Broad Home Corp. 13,000 423,313
U.S. Home Corp. (a) 1,000 45,813
1,536,145
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - CONTINUED
ENGINEERING - 0.1%
Fluor Corp. 15,800 $ 786,050
TOTAL CONSTRUCTION & REAL ESTATE 2,322,195
DURABLES - 1.0%
AUTOS, TIRES, & ACCESSORIES - 0.6%
Cummins Engine Co., Inc. 5,600 308,700
Discount Auto Parts, Inc. (a) 6,900 167,325
General Motors Corp. 47,542 3,206,114
Goodyear Tire & Rubber Co. 3,000 227,250
Magna International, Inc. Class A 6,900 538,732
Superior Industries International, Inc. 7,100 235,631
4,683,752
CONSUMER DURABLES - 0.1%
Minnesota Mining & Manufacturing Co. 5,000 455,938
CONSUMER ELECTRONICS - 0.2%
Newell Co. 4,300 208,281
Philips Electronics NV 7,700 565,469
Philips Electronics NV (Bearer) 9,700 712,636
1,486,386
FURNISHINGS - 0.0%
HON Industries, Inc. 200 7,350
TEXTILES & APPAREL - 0.1%
Burlington Industries, Inc. (a) 8,900 156,306
Jones Apparel Group, Inc. (a) 2,900 159,681
Liz Claiborne, Inc. 9,100 453,863
NIKE, Inc. Class B 4,300 190,275
Reebok International Ltd. (a) 300 9,150
Warnaco Group, Inc. Class A 1,600 62,800
1,032,075
TOTAL DURABLES 7,665,501
ENERGY - 1.4%
ENERGY SERVICES - 0.1%
McDermott International, Inc. 12,900 532,931
Schlumberger Ltd. 800 60,600
593,531
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
OIL & GAS - 1.3%
Amerada Hess Corp. 8,200 $ 478,163
Amoco Corp. 900 77,738
Apache Corp. 700 25,725
Atlantic Richfield Co. 3,700 290,913
British Petroleum PLC:
Ord. 128 1,846
ADR 18,690 1,608,508
Burlington Resources, Inc. 31,265 1,498,766
Chevron Corp. 2,300 184,719
Cooper Cameron Corp. (a) 300 18,113
Elf Aquitaine SA sponsored ADR 2,953 191,207
Enron Oil & Gas Co. 1,200 27,525
Kerr-McGee Corp. 2,800 194,775
Occidental Petroleum Corp. 45,600 1,336,650
Royal Dutch Petroleum Co. Ord. 21,200 1,201,220
Royal Dutch Petroleum Co. 22,100 1,255,556
Santa Fe Energy Resources, Inc. 7,500 82,500
Tosco Corp. 28,100 990,525
Total SA:
Class B 2,037 244,841
sponsored ADR 3,945 236,947
USX-Marathon Group 400 15,050
Valero Energy Corp. 2,600 86,775
10,048,062
TOTAL ENERGY 10,641,593
FINANCE - 5.2%
BANKS - 0.4%
Credit Suisse Group (Reg.) 5,600 1,121,103
NationsBank Corp. 8,500 619,969
Providian Financial Corp. 13,900 798,381
Wells Fargo & Co. 1,200 397,500
2,936,953
CREDIT & OTHER FINANCE - 0.7%
CIT Group, Inc. Class A 3,500 114,188
Fleet Financial Group, Inc. 57,936 4,928,181
Green Tree Financial Corp. 6,400 182,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Money Store, Inc. (The) 2,800 $ 89,425
Transamerica Corp. 400 46,600
5,360,394
FEDERAL SPONSORED CREDIT - 2.5%
Freddie Mac 113,100 5,365,181
Fannie Mae 231,900 14,667,675
20,032,856
INSURANCE - 1.4%
AFLAC, Inc. 5,600 354,200
Allmerica Financial Corp. 6,400 408,800
Allstate Corp. 31,008 2,850,798
American International Group, Inc. 18,175 2,288,914
CIGNA Corp. 5,500 1,127,500
General Re Corp. 2,600 573,625
Loews Corp. 5,300 552,525
MBIA, Inc. 2,000 155,000
MGIC Investment Corp. 12,900 847,369
Nationwide Financial Services, Inc. Class A 400 17,350
PMI Group, Inc. 6,200 500,650
Provident Companies, Inc. 700 24,019
Reliastar Financial Corp. 3,273 150,763
Torchmark Corp. 16,300 746,744
Travelers Property Casualty Corp. Class A 4,300 189,200
UNUM Corp. 1,200 66,225
10,853,682
SAVINGS & LOANS - 0.1%
Golden West Financial Corp. 4,500 431,156
SECURITIES INDUSTRY - 0.1%
Nomura Securities Co. Ltd. 73,000 831,947
United Asset Management Corp. 8,800 239,800
Waddell & Reed Financial, Inc. Class A (a) 300 7,800
1,079,547
TOTAL FINANCE 40,694,588
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - 1.8%
DRUGS & PHARMACEUTICALS - 0.7%
American Home Products Corp. 15,400 $ 1,468,775
Amgen, Inc. 5,200 316,550
Astra AB Class A Free shares 45,966 946,936
Gilead Sciences, Inc. (a) 300 10,800
Merck & Co., Inc. 4,200 539,175
Novartis AG (Reg.) 400 708,369
Schering-Plough Corp. 17,300 1,413,194
Sepracor, Inc. (a) 1,100 46,888
5,450,687
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Allegiance Corp. 620 24,529
Bard (C.R.), Inc. 3,600 132,300
Baxter International, Inc. 2,400 132,300
Biomet, Inc. 11,400 342,000
Boston Scientific Corp. (a) 3,000 202,500
Johnson & Johnson 1,700 124,631
St. Jude Medical, Inc. (a) 14,600 488,188
Sofamor/Danek Group, Inc. (a) 1,100 93,775
1,540,223
MEDICAL FACILITIES MANAGEMENT - 0.9%
Columbia/HCA Healthcare Corp. 136,602 4,405,415
Humana, Inc. (a) 30,900 766,706
Tenet Healthcare Corp. 18,900 686,306
United HealthCare Corp. 14,200 919,450
6,777,877
TOTAL HEALTH 13,768,787
HOLDING COMPANIES - 0.0%
U.S. Industries, Inc. 7,800 234,488
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.4%
Alcatel Alsthom Compagnie Generale d'Electricite SA
sponsored ADR 800 30,400
Alcatel Alsthom Compagnie Generale d'Electricite SA 6,800 1,277,640
Emerson Electric Co. 4,400 286,825
General Electric Co. 13,000 1,120,438
Grainger (W.W.), Inc. 1,100 113,094
Scientific-Atlanta, Inc. 6,500 127,156
2,955,553
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
Caterpillar, Inc. 8,800 $ 484,550
Tyco International Ltd. 1,900 103,788
Ultratech Stepper, Inc. (a) 7,500 152,813
741,151
POLLUTION CONTROL - 0.0%
Browning-Ferris Industries, Inc. 400 13,050
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,709,754
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.3%
CBS Corp. 9,600 325,800
Comcast Corp.:
Class A 1,300 45,094
Class A special 2,300 81,219
Cox Communications, Inc. Class A (a) 2,400 100,800
Tele-Communications, Inc. (a):
(TCI Group), Series A 4,808 149,499
(TCI Ventures Group), Series A 26,384 463,369
Time Warner, Inc. 6,800 489,600
U S WEST Media Group 12,900 448,275
2,103,656
ENTERTAINMENT - 0.1%
Cedar Fair LP (depositary unit) 1,000 27,500
Disney (Walt) Co. 700 74,725
King World Productions, Inc. 3,500 102,375
Royal Caribbean Cruises Ltd. 2,600 182,163
Viacom, Inc.:
Class A 3,100 164,688
Class B (non-vtg.) 4,200 225,750
777,201
LEISURE DURABLES & TOYS - 0.0%
Nintendo Co. Ltd. Ord. 900 75,130
LODGING & GAMING - 0.1%
Circus Circus Enterprises, Inc. (a) 14,100 296,100
Mirage Resorts, Inc. (a) 17,000 413,313
Sun International Hotels Ltd. Ord. (a) 9,200 435,850
1,145,263
PUBLISHING - 0.0%
Cognizant Corp. 4,300 246,713
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.2%
McDonald's Corp. 11,500 $ 690,000
Papa John's International, Inc. (a) 1,500 57,563
Wendy's International, Inc. 21,600 481,950
1,229,513
TOTAL MEDIA & LEISURE 5,577,476
NONDURABLES - 1.3%
BEVERAGES - 0.0%
PepsiCo, Inc. 2,000 85,375
TOBACCO - 1.3%
Philip Morris Companies, Inc. 214,150 8,927,378
RJR Nabisco Holdings Corp. 26,761 837,954
UST, Inc. 4,000 129,000
9,894,332
TOTAL NONDURABLES 9,979,707
PRECIOUS METALS - 0.0%
Newmont Mining Corp. 3,967 121,241
RETAIL & WHOLESALE - 2.1%
APPAREL STORES - 0.1%
Gap, Inc. 5,550 249,750
TJX Companies, Inc. 11,800 533,950
783,700
GENERAL MERCHANDISE STORES - 0.7%
Federated Department Stores, Inc. (a) 15,100 782,369
Penney (J.C.) Co., Inc. 6,800 514,675
Proffitts, Inc. (a) 4,800 174,000
Wal-Mart Stores, Inc. 82,700 4,202,194
5,673,238
GROCERY STORES - 0.1%
Safeway, Inc. (a) 15,800 583,613
RETAIL & WHOLESALE, MISCELLANEOUS - 1.2%
Circuit City Stores, Inc. - Circuit City Group (a) 35,000 1,496,250
Corporate Express, Inc. (a) 7,600 75,763
Home Depot, Inc. 50,800 3,425,825
Lowe's Companies, Inc. 38,900 2,730,294
Officemax, Inc. (a) 20,900 373,588
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
Office Depot, Inc. (a) 6,500 $ 202,313
Rex Stores Corp. (a) 2,400 35,400
Staples, Inc. (a) 13,700 317,669
Toys "R" Us, Inc. (a) 12,900 387,806
U.S. Office Products Co. (a) 15,350 291,650
Viking Office Products, Inc. (a) 8,600 199,950
9,536,508
TOTAL RETAIL & WHOLESALE 16,577,059
SERVICES - 0.2%
ADVERTISING - 0.0%
Interpublic Group of Companies, Inc. 1,350 83,869
LEASING & RENTAL - 0.0%
Republic Industries, Inc. (a) 3,000 77,438
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 600 24,638
SERVICES - 0.2%
Cendant Corp. (a) 31,725 1,257,095
Medpartners, Inc. (a) 400 4,100
Reuters Group PLC ADR 2,386 154,046
1,415,241
TOTAL SERVICES 1,601,186
TECHNOLOGY - 2.1%
COMMUNICATIONS EQUIPMENT - 0.0%
Andrew Corp. (a) 1,000 19,813
3Com Corp. (a) 4,700 168,906
188,719
COMPUTER SERVICES & SOFTWARE - 0.7%
Automatic Data Processing, Inc. 8,400 571,725
Black Box Corp. (a) 1,700 62,688
Ceridian Corp. (a) 10,900 587,919
CompUSA, Inc. (a) 4,800 124,800
E Trade Group, Inc. (a) 3,600 89,775
Electronic Data Systems Corp. 21,300 977,138
Electronics for Imaging, Inc. (a) 11,900 309,400
First Data Corp. 13,200 429,000
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Microsoft Corp. (a) 11,000 $ 984,500
Oracle Corp. (a) 15,175 478,961
Policy Management Systems Corp. (a) 9,200 738,875
Shared Medical Systems Corp. 100 7,838
5,362,619
COMPUTERS & OFFICE EQUIPMENT - 0.5%
Adaptec, Inc. (a) 4,800 94,200
Compaq Computer Corp. 34,200 884,925
Hewlett-Packard Co. 6,800 430,950
Ingram Micro, Inc. Class A (a) 1,300 48,263
International Business Machines Corp. 8,600 893,325
Quantum Corp. (a) 1,300 27,706
SCI Systems, Inc. (a) 24,500 872,813
Seagate Technology (a) 7,900 199,475
Tech Data Corp. (a) 9,500 365,750
Western Digital Corp. (a) 3,000 52,688
3,870,095
ELECTRONIC INSTRUMENTS - 0.1%
Applied Materials, Inc. (a) 1,200 42,375
Cognex Corp. (a) 3,700 79,088
KLA-Tencor Corp. (a) 1,300 49,725
Lam Research Corp. (a) 11,000 309,375
Novellus Systems, Inc. (a) 5,300 229,225
Teradyne, Inc. (a) 800 32,050
Thermo Electron Corp. (a) 8,000 323,000
Varian Associates, Inc. 2,600 143,975
1,208,813
ELECTRONICS - 0.8%
Altera Corp. (a) 2,000 75,500
AMP, Inc. 16,600 727,288
Intel Corp. 18,000 1,405,125
Methode Electronics, Inc. Class A 900 13,444
Micrel, Inc. (a) 900 34,144
Microchip Technology, Inc. (a) 400 8,400
Micron Technology, Inc. (a) 40,700 1,182,844
Molex, Inc. 6,863 184,001
Motorola, Inc. 3,800 230,375
Solectron Corp. (a) 47,600 2,011,100
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Thomas & Betts Corp. 4,300 $ 275,200
Uniphase Corp. (a) 300 12,619
6,160,040
PHOTOGRAPHIC EQUIPMENT - 0.0%
Polaroid Corp. 690 30,360
TOTAL TECHNOLOGY 16,820,646
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.0%
Northwest Airlines Corp. Class A (a) 900 55,519
RAILROADS - 0.1%
Bombardier, Inc. Class B 6,500 160,468
CSX Corp. 9,400 559,300
719,768
SHIPPING - 0.0%
Stolt-Nielsen SA Class B sponsored ADR 3,100 61,613
Stolt-Nielsen SA 2,400 48,000
109,613
TRUCKING & FREIGHT - 0.0%
Yellow Corp. (a) 4,600 87,975
TOTAL TRANSPORTATION 972,875
UTILITIES - 2.2%
CELLULAR - 0.8%
AirTouch Communications, Inc. (a) 33,000 1,614,938
Century Telephone Enterprises, Inc. 1,500 61,125
Vodafone Group PLC 468,961 4,903,134
6,579,197
ELECTRIC UTILITY - 0.1%
American Electric Power Co., Inc. 7,900 396,975
Consolidated Edison, Inc. 700 32,725
Entergy Corp. 7,600 226,100
Houston Industries, Inc. 3,500 100,625
Niagara Mohawk Power Corp. (a) 4,000 52,000
PG&E Corp. 3,663 120,879
929,304
GAS - 0.0%
Enron Corp. 1,600 74,200
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 1.3%
AT&T Corp. 6,200 $ 406,875
Ameritech Corp. 14,300 706,956
Bell Atlantic Corp. 9,578 981,745
BellSouth Corp. 14,200 959,388
Deutsche Telekom AG 4,000 87,032
MCI Communications Corp. 55,800 2,762,100
SBC Communications, Inc. 17,800 776,525
Sprint Corp. 28,300 1,915,556
Telebras sponsored ADR 8,500 1,103,406
WorldCom, Inc. (a) 7,800 335,888
10,035,471
TOTAL UTILITIES 17,618,172
TOTAL COMMON STOCKS
(Cost $92,829,220) 155,082,646
NONCONVERTIBLE BONDS - 22.6%
MOODY'S PRINCIPAL
RATINGS (C) AMOUNT
AEROSPACE & DEFENSE - 0.4%
DEFENSE ELECTRONICS - 0.4%
Raytheon Co.:
5.95%, 3/15/01 Baa1 $ 1,300,000 1,295,489
6.45%, 8/15/04 Baa1 1,620,000 1,633,624
2,929,113
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 900,000 942,489
CONSTRUCTION & REAL ESTATE - 0.3%
REAL ESTATE INVESTMENT TRUSTS - 0.3%
EOP Operating LP (e):
6 3/8%, 2/15/03 Baa1 1,050,000 1,039,479
6 3/4%, 2/15/08 Baa1 380,000 376,895
Weeks Realty LP 6 7/8%, 3/15/05 Baa2 900,000 892,751
2,309,125
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
DURABLES - 0.5%
AUTOS, TIRES, & ACCESSORIES - 0.1%
General Motors Corp. 9 5/8%, 12/1/00 A3 $ 630,000 $ 683,216
TEXTILES & APPAREL - 0.4%
Levi Strauss & Co. 7%, 11/1/06 (e) Baa2 2,440,000 2,468,213
Unifi, Inc. 6 1/2%, 2/1/08 (e) A3 890,000 872,823
3,341,036
TOTAL DURABLES 4,024,252
ENERGY - 0.1%
OIL & GAS - 0.1%
Petroleum Geo Services ASA 7 1/8%, 3/30/28 Baa3 1,200,000 1,202,280
FINANCE - 13.8%
BANKS - 2.0%
Banc One Corp. 6 1/4%, 9/1/00 Aa3 1,300,000 1,304,875
BanPonce Financial Corp.:
6.34%, 3/29/99 A3 310,000 310,812
7.65%, 5/3/00 A3 690,000 707,209
6.69%, 9/21/00 A3 1,000,000 1,009,830
6 3/4%, 8/9/01 A3 1,660,000 1,679,073
BanPonce Corp.:
5 3/4%, 3/1/99 A3 460,000 458,335
6.665%, 3/5/01 A3 1,100,000 1,110,186
Capital One Bank 6 3/8%, 2/15/03 Baa3 1,080,000 1,063,400
Den Danske Bank AS 7.40%, 6/15/10 (e)(g) A1 1,220,000 1,263,883
Firstar Corp. 7.15%, 9/1/00 A3 1,390,000 1,396,047
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 470,000 481,172
Marine Midland Bank euro 5.875%,
3/29/99 (g) A3 1,000,000 996,300
NB Capital Trust IV 8 1/4%, 4/15/27 AA3 660,000 718,040
Provident Bank 6 1/8%, 12/15/00 A3 1,560,000 1,557,566
Signet Banking Corp. 5.875%, 4/15/98 (g) A2 700,000 699,776
Union Planters National Bank
6.81%, 8/20/01 A3 1,000,000 1,015,710
15,772,214
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CLOSED END INVESTMENT COMPANY - 3.3%
Capital Equipment Receivables Trust 6.48%,
10/15/06 Baa2 $ 780,000 $ 775,468
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 799,247 803,091
5.85%, 2/15/03 A3 370,000 368,594
CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 760,203 765,904
CPS Auto Receivables Trust 6%, 8/15/03 Aaa 1,730,000 1,724,864
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 1,300,000 1,300,813
Dayton Hudson Credit Card Master Trust
6 1/4%, 8/25/05 Aaa 1,290,000 1,295,534
Ford Credit Auto Owner Trust:
6.40%, 5/15/02 A1 840,000 845,225
6.20%, 12/15/02 Baa3 780,000 774,150
Green Tree Financial Corp.:
5.80%, 2/15/27 Aaa 942,723 942,422
6.10%, 4/15/27 Aaa 808,692 809,194
6 1/2%, 6/15/27 Aaa 670,000 671,675
6.80%, 6/15/27 Aaa 650,000 656,091
6.45%, 9/15/28 Aaa 950,000 955,634
6.68%, 1/15/29 AAA 1,820,000 1,839,893
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 74,649 74,447
Key Plastics, Inc. 10 1/4%, 3/15/07 A2 1,030,000 1,031,770
MBNA Master Credit Card Trust II Class A
6.55%, 1/15/07 Aaa 2,580,000 2,640,088
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,140,000 1,139,794
6.70%, 3/15/02 Aaa 540,000 546,497
Premier Auto Trust:
4.95%, 2/2/99 A2 81,596 81,431
6%, 5/6/00 Aaa 835,885 836,662
6.35%, 7/6/00 A3 920,000 923,450
6.34%, 1/6/03 Aaa 350,000 353,063
Petroleum Enhanced Trust Receivables
Offering Petroleum Trust 6.1875%, 2/5/03 (e) Baa2 1,101,409
1,101,409
Railcar Trust 7 3/4%, 6/1/04 Aaa 35,640 37,319
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 189,471 189,560
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CLOSED END INVESTMENT COMPANY - CONTINUED
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 $ 39,753 $ 39,778
7.275%, 10/10/00 Baa2 41,649 41,584
8.20%, 1/10/01 Baa2 48,822 49,203
Western Financial Grantor Trust:
6.05%, 11/1/00 Aaa 177,209 177,275
5 7/8%, 3/1/02 Aaa 674,934 687,411
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 1,170,000 1,177,789
25,657,082
CREDIT & OTHER FINANCE - 5.8%
Ahmanson Capital Trust I 8.36%, 12/1/26 (e) Baa2 1,000,000
1,073,600
Associates Corp. North America 7.35%, 7/6/99 Aa3 1,500,000
1,529,550
BCH Cayman Islands Ltd. yankee 7.70%, 7/15/06 A3 270,000 287,901
BankAmerica Capital II, Series 2, 8%, 12/15/26 Aa3 860,000 916,433
Bankers Trust Co. 5.66%, 7/21/98 (g) - 10,000,000 9,995,998
BanPonce Trust I 8.327%, 2/1/27 (e) Baa1 1,550,000 1,653,773
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,570,000 1,579,420
Countrywide Funding Corp. 6.45%, 2/27/03 A3 1,200,000 1,202,004
First Security Capital I 8.41%, 12/15/26 A3 420,000 457,351
Ford Motor Credit Co. 6.57%, 3/19/01 A1 1,700,000 1,720,706
General Electric Capital Corp.
6.94%, 4/13/09 (d) Aaa 1,500,000 1,513,260
General Motors Acceptance Corp.:
6.55%, 4/23/99 A3 2,600,000 2,617,732
6.65%, 5/24/00 A3 1,200,000 1,214,700
6 3/4%, 7/10/02 A3 2,170,000 2,214,702
Heller Financial, Inc.:
7 7/8%, 11/1/99 A3 1,220,000 1,250,110
6 1/4%, 3/1/01 A3 1,440,000 1,438,834
Household Finance Corp. 5.7825%, 6/4/98 - 10,000,000 10,000,000
KeyCorp Institutional Capital, Series A,
7.826%, 12/1/26 A1 900,000 932,112
MCN Investment Corp. 5.84%, 2/1/99 Baa2 730,000 728,423
Mellon Capital I, Series A, 7.72%, 12/1/26 A2 570,000 593,456
Money Store, Inc. 7.30%, 12/1/02 Ba2 750,000 777,188
U.S. Bancorp 8.09%, 11/15/26 A1 860,000 916,425
U S WEST Capital Funding, Inc. 6.95%, 1/15/37 Baa1 1,000,000
1,042,520
45,656,198
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
FINANCE - CONTINUED
SAVINGS & LOANS - 0.4%
Great West Financial Trust II 8.206%, 2/1/27 A3 $ 1,030,000 $
1,090,255
Home Savings of America FSB 6 1/2%, 8/15/04 A3 750,000 750,195
Long Island Savings Bank FSB:
6.20%, 4/2/01 Baa3 700,000 699,440
7%, 6/13/02 Baa 970,000 988,362
3,528,252
SECURITIES INDUSTRY - 2.3%
Merrill Lynch & Co., Inc. 5.5984%, 7/28/98 - 9,000,000 8,999,910
Morgan Stanley, Dean Witter, Discover & Co.
5.60%, 1/15/99 (g) - 9,000,000 8,999,910
17,999,820
TOTAL FINANCE 108,613,566
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
McKesson Corp. 6.60%, 3/1/00 A3 1,150,000 1,162,006
HOLDING COMPANIES - 0.2%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa1 1,830,000 1,927,356
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
POLLUTION CONTROL - 0.4%
WMX Technologies, Inc.:
8 1/4%, 11/15/99 Baa3 970,000 999,876
6 1/4%, 10/15/00 Baa3 600,000 599,070
7.10%, 8/1/26 Baa3 1,240,000 1,282,458
2,881,404
MEDIA & LEISURE - 1.7%
BROADCASTING - 1.1%
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Baa3 480,000 524,693
8.30%, 5/15/06 Baa3 245,000 269,145
9%, 9/1/08 Baa3 670,000 778,078
Hearst-Argyle Television, Inc. 7 1/2%, 11/15/27 Baa3 890,000
920,109
TCI Communications, Inc. 6.46%, 3/6/00 Ba1 1,340,000 1,341,059
Tele Communications, Inc. 9 1/4%, 4/15/02 Ba1 800,000 875,560
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 $ 745,000 $ 766,292
8.18%, 8/15/07 Ba1 1,445,000 1,583,214
6.95%, 1/15/28 (e) Ba1 1,230,000 1,192,116
8,250,266
ENTERTAINMENT - 0.5%
Paramount Communications, Inc.:
5 7/8%, 7/15/00 Ba2 950,000 932,625
7 1/2%, 1/15/02 Ba2 570,000 583,994
Viacom, Inc. (a):
6 3/4%, 1/15/03 Ba2 470,000 469,507
7 3/4%, 6/1/05 Ba2 1,970,000 2,066,038
4,052,164
PUBLISHING - 0.1%
News America Holdings, Inc. 8 1/2%, 2/15/05 Baa3 570,000 627,764
News America, Inc. 6 5/8%, 1/9/08 (e) Baa3 455,000 447,220
1,074,984
TOTAL MEDIA & LEISURE 13,377,414
NONDURABLES - 0.6%
FOODS - 0.1%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 1,000,000 1,052,690
TOBACCO - 0.5%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 1,200,000 1,233,816
7%, 7/15/05 A2 1,250,000 1,273,563
6.95%, 6/1/06 A2 1,180,000 1,212,863
3,720,242
TOTAL NONDURABLES 4,772,932
RETAIL & WHOLESALE - 0.8%
GENERAL MERCHANDISE STORES - 0.8%
Federated Department Stores, Inc.:
10%, 2/15/01 Baa2 2,310,000 2,528,018
8 1/8%, 10/15/02 Baa2 400,000 425,500
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - CONTINUED
Federated Department Stores, Inc.: - continued
6.79%, 7/15/27 Baa2 $ 800,000 $ 811,992
7%, 2/15/28 Baa2 1,180,000 1,166,442
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,100,000 1,119,470
6,051,422
SERVICES - 1.3%
LEASING & RENTAL - 1.3%
PHH Corp. 5.6775%, 6/11/98 - 10,000,000 9,999,000
TECHNOLOGY - 0.2%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc. 7 3/4%, 9/1/99 Baa1 1,300,000 1,329,146
TRANSPORTATION - 0.4%
AIR TRANSPORTATION - 0.4%
AMR Corp. 9 1/2%, 7/15/98 Baa3 2,245,000 2,267,921
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa3 500,000 536,050
2,803,971
UTILITIES - 1.7%
CELLULAR - 0.1%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 875,000 903,814
ELECTRIC UTILITY - 1.0%
Avon Energy Partners Holding (e):
6.73%, 12/11/02 Baa2 1,340,000 1,356,723
6.46%, 3/4/08 Baa2 1,160,000 1,146,184
Israel Electric Corp. Ltd. (e):
yankee 7 7/8%, 12/15/26 A3 660,000 670,296
7 3/4%, 12/15/27 A3 1,275,000 1,285,927
Long Island Lighting Co. 8 5/8%, 4/15/04 Baa3 1,480,000 1,531,474
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa1 1,000,000 1,042,188
Texas Utilities Co., Series C,
6 3/8%, 1/1/08 (e) Baa3 880,000 845,011
7,877,803
GAS - 0.0%
Southwest Gas Corp. 9 3/4%, 6/15/02 Baa2 300,000 336,729
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.6%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa1 $ 1,480,000 $ 1,480,844
Teleport Communications Group, Inc.
0%, 7/1/07 (j) Baa3 850,000 732,309
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 936,000 991,879
8 7/8%, 1/15/06 Ba1 793,000 864,354
7 3/4%, 4/1/07 Ba1 250,000 269,513
4,338,899
TOTAL UTILITIES 13,457,245
TOTAL NONCONVERTIBLE BONDS
(Cost $174,849,135) 177,782,721
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 11.8%
U.S. TREASURY OBLIGATIONS - 8.1%
7 3/4%, 12/31/99 Aaa 9,662,000 10,003,165
6 5/8%, 6/30/01 Aaa 190,000 195,373
7 7/8%, 8/15/01 Aaa 2,910,000 3,105,057
5 7/8%, 11/30/01 Aaa 4,995,000 5,028,566
7%, 7/15/06 Aaa 12,505,000 13,515,154
13 7/8%, 5/15/11 (callable) Aaa 8,760,000 13,257,734
8 1/8%, 8/15/19 Aaa 1,490,000 1,864,124
71/4%, 2/15/23 Aaa 2,305,000 2,630,581
6 7/8%, 8/15/25 Aaa 12,175,000 13,578,899
63,178,653
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.7%
Fannie Mae:
6.97%, 4/8/04 Aaa 1,200,000 1,263,000
7.49%, 3/2/05 Aaa 4,080,000 4,428,718
Federal Farm Credit Bank 6.47%, 6/7/05 Aaa 2,000,000 2,053,440
Federal Home Loan Bank:
7.36%, 7/1/04 Aaa 600,000 643,500
7.59%, 3/10/05 Aaa 680,000 740,880
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Financing Corp. stripped principal:
0%, 5/2/04 Aaa $ 1,009,000 $ 705,160
0%, 6/6/04 Aaa 2,502,000 1,738,865
0%, 11/2/04 Aaa 1,200,000 813,264
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 4,747,853
Government Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Defense Security Assistance Agency):
Class T-3, 9 5/8%, 5/15/02 Aaa 80,625 85,116
Class 1-C, 9 1/4%, 11/15/01 Aaa 407,208 430,827
Class 2-E, 9.40%, 5/15/02 Aaa 1,947,264 2,056,564
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 382,353 389,832
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 887,250 907,978
State of Israel (guaranteed by U.S. Government
through Agency for International Development)
0%, 11/15/01 Aaa 585,000 475,069
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates:
Series 1995-A, 8.27%, 8/1/03 Aaa 1,000,000 1,103,200
Series 1996-A, 6.92%, 8/1/04 Aaa 4,010,000 4,202,921
Series 1996-A, 7.63%, 8/1/14 (callable) Aaa 1,000,000 1,070,080
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) 6.69%, 1/15/09 (e) Aaa 1,367,992 1,403,150
29,259,417
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $91,944,097) 92,438,070
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 13.5%
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
FREDDIE MAC - 0.5%
7%, 7/1/01 Aaa $ 431,965 $ 437,123
7 1/2%, 6/1/27 to 2/1/28 Aaa 3,586,335 3,675,994
8 1/2%, 4/1/21 to 5/1/22 Aaa 112,911 118,503
4,231,620
FANNIE MAE - 12.1%
6%, 12/1/10 to 4/1/28 (f) Aaa 31,680,629 31,120,079
6 1/2%, 9/1/25 to 4/1/28 (f) Aaa 24,080,525 23,828,259
7%, 4/1/28 to 5/1/28 (f) Aaa 28,083,000 28,352,502
7 1/2%, 4/1/28 (f) Aaa 10,987,500 11,269,054
11 1/2%, 11/1/15 Aaa 306,602 347,089
12%, 11/1/19 Aaa 166,351 191,510
95,108,493
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.9%
6 1/2%, 11/15/08 to 6/15/09 Aaa 5,334,308 5,390,755
9 1/2%, 8/15/16 Aaa 3,442 3,742
10%, 11/15/09 to 12/15/17 Aaa 440,499 485,197
11%, 7/15/10 to 12/15/15 Aaa 482,891 545,102
11 1/2%, 7/15/15 to 1/15/16 Aaa 388,059 446,624
6,871,420
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $106,761,180) 106,211,533
COMMERCIAL MORTGAGE SECURITIES - 3.6%
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (e)(g) BBB 450,000 455,344
CBM Funding Corp. sequential pay Series 1996-1:
Class A-1, 7.55%, 7/1/99 AA 130,393 131,696
Class A-2, 6.88%, 7/1/02 AA 1,100,000 1,116,844
Class A-3PI, 7.08%, 11/1/07 AA 870,000 902,625
Class B, 7.48%, 2/1/08 A 680,000 723,988
CS First Boston Mortgage Securities Corp.
Series 1997-C2 Class D, 7.27%, 4/17/11 Baa2 1,450,000 1,464,047
Deutsche Mortgage and Asset Receiving Corp.
Series 1998-C1 Class D, 7.231%, 7/15/12 Baa2 1,320,000 1,327,013
Equitable Life Assurance Society of the United
States (The) (e):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,000,000 1,051,950
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 700,000 739,431
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
Federal Deposit Insurance Corp. Series 1994-C1
Class II-A2, 7.85%, 9/25/25 Aaa $ 386,881 $ 387,848
First Union-Lehman Brothers Commercial Mortgage
Trust sequential pay Series 1997-C2 Class B,
6.79%, 10/18/11 Aa2 3,040,000 3,077,050
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc.:
Series 1997-C2 Class D, 7.192%, 1/15/08 Baa1 450,000 454,617
Series 1997-C2 Class E, 7.624%, 4/15/11 Baa3 950,000 962,320
GS Mortgage Securities Corp. II Series 1997- GL
Class A2-B, 6.86%, 7/13/30 Aaa 1,230,000 1,267,011
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 436,269 434,360
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 7,053 7,053
Morgan Stanley Capital I, Inc.:
Series 1998-HF1 Class D, 7.10%, 2/15/08 (g) BBB 1,530,000
1,553,180
sequential pay Series 1997-C1 Class A-1C,
7.63%, 2/15/20 Aaa 1,150,000 1,239,125
New England Mutual Life Insurance Co.
commercial Series 1993 Class 1-A, 6.70%,
12/15/23 (e) Aaa 18,543 18,543
Nomura Asset Securities Corp. (g):
floater Series 1994-MD-II Class A-6,
6.936%, 7/4/03 - 382,364 386,546
Series 1998 - D6 Class A-4,
7.349%, 3/15/30 Baa2 1,320,000 1,313,400
Resolution Trust Corp.:
commercial Series 1995-C1 Class A-4B,
6.65%, 2/25/27 Aaa 3,840,080 3,835,280
commercial Series 1995-C1Class C,
6.90%, 2/25/27 A2 1,200,000 1,195,875
floater Series 1993-C2 Class A-2,
6.62%, 3/25/25 (g) AAA 77,493 77,542
floater Series 1994-C1 Class A-3,
6.30%, 6/25/26 (g) AAA 297,497 297,729
Structured Asset Securities Corp.:
commercial Series 1996-CFL Class E,
7 3/4%, 2/25/28 BB+ 640,000 649,400
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 541,071 546,229
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
Thirteen Affiliates of General Growth
Properties, Inc. (e):
sequential pay Series A-2,
6.602%, 11/15/12 Aaa $ 1,020,000 $ 1,034,576
Series D-2, 6.992%, 11/15/12 Baa2 1,100,000 1,098,845
Series E-2, 7.224%, 11/15/12 Baa3 660,000 655,189
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $28,112,350) 28,404,656
FOREIGN GOVERNMENT OBLIGATIONS (H) - 0.6%
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 410,000 421,583
Israeli State euro 6 3/8%, 12/19/01 A3 800,000 794,872
Ontario Province yankee 7 3/4%, 6/4/02 Aa3 3,000,000 3,181,830
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $4,327,503) 4,398,285
SUPRANATIONAL OBLIGATIONS - 0.2%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $1,262,012) Aaa 1,270,000 1,333,919
CERTIFICATES OF DEPOSIT - 8.4%
Banque Nationale de Paris yankee
5 3/4%, 7/31/98 4,500,000 4,498,965
Canadian Imperial Bank of Commerce yankee:
5.91%, 8/28/98 9,500,000 9,503,143
6.20%, 8/1/00 720,000 721,771
Deutsche Bank AG yankee:
6.20%, 4/10/98 6,000,000 6,000,428
5.78%, 6/1/98 10,000,000 10,000,294
5.94%, 10/26/98 4,000,000 4,003,209
First National Bank of Chicago 5.65%, 3/3/99 10,000,000 9,991,118
RaboBank Nederland Coop Central yankee
6.20%, 4/10/98 4,000,000 4,000,286
Societe Generale France yankee 5.91%, 10/15/98 8,000,000 8,004,485
Westdeutsche Landesbank yankee 5.83%, 8/3/98 7,000,000 6,999,510
Westpac Banking Corp. yankee 5.885%, 8/27/98 2,500,000 2,500,450
TOTAL CERTIFICATES OF DEPOSIT
(Cost $66,198,371) 66,223,659
BANK NOTES - 1.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
Key Bank N.A. 5.6488%, 8/20/99
(Cost $8,987,895) $ 9,000,000 $ 8,991,360
MASTER NOTES - 1.5%
First Fidelity Bancorp. 8 1/2%, 4/1/98 570,000 570,000
First Bank National Association
5.5975%, 5/15/98 (g) 4,000,000 3,998,720
Goldman Sachs Group LP (The)
5.7188%, 5/4/98 (i) 7,000,000 6,999,230
TOTAL MASTER NOTES
(Cost $11,595,234) 11,567,950
CASH EQUIVALENTS - 16.9%
SHARES
Taxable Central Cash Fund (b) 55,967,473 55,967,473
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 6.08%, dated
3/31/98 due 4/1/98 $ 76,810,970 76,798,000
TOTAL CASH EQUIVALENTS
(Cost $132,765,473) 132,765,473
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $719,632,470) $ 785,200,272
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.63%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(d) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(e) 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
$23,250,580 or 3.2% of net assets.
(f) Security, or a portion of the security, purchased on a delayed
delivery or when-issued basis (see Note 2 of Notes to Financial
Statements).
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) 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.
(i) 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 COST
SECURITY DATE (000S)
Goldman Sachs
Group LP (The)
5.7188%, 5/4/98 8/5/97 $ 7,000,000
(j) Debt Obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and time. The rate shown
is 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 37.8% AAA, AA, A 35.8%
Baa 6.9% BBB 9.1%
Ba 1.7% BB 0.6%
B 0.0% B 0.1%
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 5.0%.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 88.7%
United Kingdom 3.4
Canada 2.0
France 1.8
Germany 1.3
Netherlands 1.0
Others (individually less than 1%) 1.8
TOTAL 100.0%
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $719,824,699. Net unrealized appreciation
aggregated $65,375,573, of which $68,830,009 related to appreciated
investment securities and $3,454,436 related to depreciated investment
securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 785,200,272
AGREEMENTS OF $76,798,000) (COST $719,632,470) -
SEE ACCOMPANYING SCHEDULE
CASH 945
RECEIVABLE FOR INVESTMENTS SOLD 3,386,983
RECEIVABLE FOR FUND SHARES SOLD 6,714,451
DIVIDENDS RECEIVABLE 242,508
INTEREST RECEIVABLE 7,192,890
OTHER RECEIVABLES 3,367
TOTAL ASSETS 802,741,416
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 4,974,083
REGULAR DELIVERY
DELAYED DELIVERY 66,492,965
PAYABLE FOR FUND SHARES REDEEMED 5,972,435
ACCRUED MANAGEMENT FEE 264,587
OTHER PAYABLES AND ACCRUED EXPENSES 196,312
TOTAL LIABILITIES 77,900,382
NET ASSETS $ 724,841,034
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 647,602,672
UNDISTRIBUTED NET INVESTMENT INCOME 2,868,425
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 8,802,799
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 65,567,138
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 57,800,787 SHARES OUTSTANDING $ 724,841,034
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $12.54
PER SHARE ($724,841,034 (DIVIDED BY) 57,800,787 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 983,861
DIVIDENDS
INTEREST 17,044,394
TOTAL INCOME 18,028,255
EXPENSES
MANAGEMENT FEE $ 1,495,474
TRANSFER AGENT FEES 680,783
ACCOUNTING FEES AND EXPENSES 113,457
NON-INTERESTED TRUSTEES' COMPENSATION 1,331
CUSTODIAN FEES AND EXPENSES 17,457
REGISTRATION FEES 56,426
AUDIT 41,123
LEGAL 2,095
MISCELLANEOUS 3,004
TOTAL EXPENSES BEFORE REDUCTIONS 2,411,150
EXPENSE REDUCTIONS (38,164) 2,372,986
NET INVESTMENT INCOME 15,655,269
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 10,425,272
FOREIGN CURRENCY TRANSACTIONS (2,027) 10,423,245
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES 16,361,945
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 20 16,361,965
NET GAIN (LOSS) 26,785,210
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 42,440,479
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 15,655,269 $ 28,700,407
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 10,423,245 17,712,684
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 16,361,965 33,510,799
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 42,440,479 79,923,890
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (15,850,337) (29,690,585)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (15,719,414) (12,650,000)
TOTAL DISTRIBUTIONS (31,569,751) (42,340,585)
SHARE TRANSACTIONS 214,712,730 256,470,143
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 29,849,153 39,646,435
COST OF SHARES REDEEMED (177,994,070) (252,401,457)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 66,567,813 43,715,121
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 77,438,541 81,298,426
NET ASSETS
BEGINNING OF PERIOD 647,402,493 566,104,067
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 724,841,034 $ 647,402,493
INCOME OF $2,868,425 AND $3,063,493, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 17,407,019 21,571,779
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 2,446,532 3,364,019
REDEEMED (14,414,817) (21,232,901)
NET INCREASE (DECREASE) 5,438,734 3,702,897
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA .
NET ASSET VALUE, $ 12.36 $ 11.63 $ 11.46 $ 10.69 $ 11.07 $ 10.00
BEGINNING OF PERIOD
INCOME FROM INVEST-
MENT OPERATIONS
NET INVESTMENT INCOME .28 D .56 D .61 .56 .45 .46
NET REALIZED AND .48 1.02 .20 .68 (.29) 1.04
UNREALIZED GAIN (LOSS)
TOTAL FROM INVEST- .76 1.58 .81 1.24 .16 1.50
MENT OPERATIONS
LESS DISTRIBUTIONS (.29) (.59) (.64) (.47) (.47) (.43)
FROM NET INVEST-
MENT INCOME
FROM NET REALIZED GAIN (.29) (.26) - - (.04) -
IN EXCESS OF NET - - - - (.03) -
REALIZED GAIN
TOTAL DISTRIBUTIONS (.58) (.85) (.64) (.47) (.54) (.43)
NET ASSET VALUE, END $ 12.54 $ 12.36 $ 11.63 $ 11.46 $ 10.69 $ 11.07
OF PERIOD
TOTAL RETURN B, C 6.34% 14.16% 7.28% 11.99% 1.46% 15.32%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 724,841 $ 647,402 $ 566,104 $ 566,079 $ 501,349 $ 199,237
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .71% A .77% .82% .79% .71% E .65% E
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .70% A, F .76% F .80% F .79% .71% .65%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 4.61% A 4.74% 5.03% 5.15% 4.92% 5.19%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 139% A 112% 148% 157% 83% 47%
AVERAGE COMMISSION $ .0420 $ .0411 $ .0286
RATE G
</TABLE>
ANNUALIZED
TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
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.
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 MARCH 31, 1998 (UNAUDITED)
1. 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 require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
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
among 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.
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.
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
2. OPERATING POLICIES - CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
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 Fidelity Investments Money Management, Inc.,
(formerly FMR Texas, Inc.) 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 earned
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. 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 $6,999,230 or 1.0% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $489,539,465 and $380,068,831 respectively, of which U.S.
government and government agency obligations aggregated $364,082,385
and $297,408,158, 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 .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 annualized 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 annualized rate of .20% 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 $8,306 for the period.
5. 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 $7,683 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby interest earned on uninvested cash balances
was used to offset a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$1,960 and $28,521, respectively, under these arrangements.
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
Brad Lewis, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
* 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)
SEMIANNUAL REPORT
MARCH 31, 1998
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 11 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.
INVESTMENTS 12 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.
FINANCIAL STATEMENTS 49 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 53 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 58 THE AUDITORS' OPINION.
ACCOUNTANTS
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
FIDELITY ASSET MANAGER 11.28% 31.54% 89.98% 242.53%
FIDELITY ASSET ALLOCATION COMPOSITE 10.64% 28.38% 86.93% N/A
S&P 500 (REGISTERED TRADEMARK) 17.22% 48.00% 174.71% 415.10%
LB AGGREGATE BOND 4.54% 11.99% 39.89% N/A
LB 3 MONTH T-BILL 2.64% 5.58% 27.62% N/A
FLEXIBLE PORTFOLIO FUNDS AVERAGE 8.89% 28.72% 92.77% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, 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 Fidelity Asset Allocation
Composite Index, a hypothetical combination of unmanaged indices. The
composite index combines the total returns of the Standard & Poor's
500 Index, the Lehman Brothers Aggregate Bond Index and the Lehman
Brothers 3 Month Treasury Bill Index weighted according to the fund's
neutral mix. 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 six months
average represents a peer group of 211 mutual funds. The benchmarks
listed in the table above include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY ASSET MANAGER 31.54% 13.69% 14.22%
FIDELITY ASSET ALLOCATION COMPOSITE 28.38% 13.33% 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.
$10,000 OVER LIFE OF FUND
Asset Manager S&P 500
FID Composite LB Aggregate Bond
Asset Mgr. S&P 500
FID Composite LB Aggr. Bond
1988/12/31 10000.00 10000.00
10000.00 10000.00
1989/01/31 10378.86 10732.00
10291.60 10143.88
1989/02/28 10219.34 10464.77
10200.52 10070.36
1989/03/31 10309.07 10708.60
10320.38 10113.90
1989/04/30 10578.27 11264.38
10593.04 10325.54
1989/05/31 10887.34 11720.59
10846.43 10596.87
1989/06/30 11006.98 11653.78
10999.47 10919.52
1989/07/31 11326.02 12706.12
11415.14 11151.64
1989/08/31 11355.93 12955.15
11426.55 10986.42
1989/09/30 11355.93 12902.04
11453.98 11042.65
1989/10/31 11405.78 12602.71
11519.04 11314.55
1989/11/30 11485.54 12859.81
11656.23 11422.39
1989/12/31 11527.69 13168.44
11770.69 11452.96
1990/01/31 11158.89 12284.84
11486.90 11316.86
1990/02/28 11243.19 12443.31
11560.30 11353.48
1990/03/31 11359.10 12773.06
11674.05 11361.84
1990/04/30 11169.43 12453.74
11566.30 11257.75
1990/05/31 11759.51 13667.97
12058.22 11591.07
1990/06/30 11854.35 13575.03
12133.34 11777.05
1990/07/31 11843.81 13531.59
12207.35 11939.97
1990/08/31 11443.39 12308.34
11829.78 11780.51
1990/09/30 11211.58 11708.92
11724.02 11877.97
1990/10/31 11243.19 11658.57
11808.08 12028.78
1990/11/30 11780.58 12411.72
12162.21 12287.71
1990/12/31 12147.79 12758.00
12361.43 12479.17
1991/01/31 12795.97 13314.25
12597.16 12633.43
1991/02/28 13354.74 14266.22
12912.59 12741.27
1991/03/31 13578.25 14611.46
13052.82 12828.93
1991/04/30 13790.59 14646.53
13138.45 12967.91
1991/05/31 14137.03 15279.26
13347.09 13043.74
1991/06/30 13835.29 14579.47
13174.11 13037.11
1991/07/31 14204.08 15258.87
13438.91 13217.90
1991/08/31 14528.17 15620.51
13678.12 13503.94
1991/09/30 14550.52 15359.65
13743.09 13777.57
1991/10/31 14662.28 15565.47
13865.40 13930.97
1991/11/30 14405.24 14938.18
13769.87 14058.71
1991/12/31 15019.76 16647.11
14448.31 14476.23
1992/01/31 15236.74 16337.47
14290.39 14279.29
1992/02/29 15526.05 16549.86
14381.71 14372.13
1992/03/31 15526.05 16227.13
14277.73 14291.11
1992/04/30 15743.03 16704.21
14453.35 14394.34
1992/05/31 15899.73 16786.06
14595.28 14665.96
1992/06/30 15899.73 16535.95
14601.70 14867.80
1992/07/31 16225.20 17212.27
14998.28 15171.13
1992/08/31 16152.88 16859.42
14940.69 15324.82
1992/09/30 16273.42 17058.36
15105.93 15506.47
1992/10/31 16249.31 17118.06
15045.81 15300.89
1992/11/30 16610.94 17701.79
15246.52 15304.35
1992/12/31 16934.14 17919.52
15433.44 15547.71
1993/01/31 17225.45 18070.05
15626.36 15845.85
1993/02/28 17402.77 18315.80
15844.19 16123.24
1993/03/31 17975.71 18702.26
16006.75 16190.42
1993/04/30 18052.42 18249.67
15909.43 16303.16
1993/05/31 18435.97 18738.76
16080.30 16323.92
1993/06/30 18668.08 18793.10
16251.07 16619.76
1993/07/31 18951.91 18717.93
16271.88 16713.76
1993/08/31 19493.76 19427.34
16672.16 17006.72
1993/09/30 19481.53 19277.75
16655.16 17053.43
1993/10/31 20054.14 19676.80
16826.37 17117.15
1993/11/30 20015.09 19489.87
16696.81 16971.54
1993/12/31 20877.83 19725.69
16812.35 17063.52
1994/01/31 21555.68 20396.37
17142.55 17293.91
1994/02/28 20877.83 19843.63
16817.52 16993.45
1994/03/31 19867.84 18978.44
16382.96 16574.49
1994/04/30 19854.17 19221.37
16425.55 16442.14
1994/05/31 20018.25 19536.60
16536.26 16439.84
1994/06/30 19577.74 19057.95
16370.90 16403.51
1994/07/31 19962.97 19683.05
16716.65 16729.33
1994/08/31 20430.74 20490.06
17004.51 16750.09
1994/09/30 20182.51 19988.05
16755.23 16503.56
1994/10/31 20279.40 20437.78
16915.74 16488.86
1994/11/30 19974.87 19693.44
16669.99 16452.24
1994/12/31 19499.59 19985.49
16824.89 16565.84
1995/01/31 19344.50 20503.72
17139.38 16893.69
1995/02/28 19640.59 21302.75
17567.66 17295.35
1995/03/31 19953.26 21931.39
17836.51 17401.46
1995/04/30 20364.82 22577.27
18157.21 17644.53
1995/05/31 20847.33 23479.68
18758.73 18327.33
1995/06/30 21133.35 24025.12
19009.94 18461.69
1995/07/31 21718.80 24821.79
19252.21 18420.46
1995/08/31 21861.60 24884.09
19378.96 18642.77
1995/09/30 22219.16 25934.20
19797.94 18824.14
1995/10/31 22147.35 25841.62
19910.63 19068.94
1995/11/30 22563.87 26976.06
20401.22 19354.69
1995/12/31 23039.92 27495.62
20693.86 19626.31
1996/01/31 23534.15 28431.57
21046.40 19756.64
1996/02/29 23417.86 28695.13
20969.12 19413.22
1996/03/31 23419.07 28971.47
20994.53 19278.28
1996/04/30 23623.99 29398.51
21081.78 19169.86
1996/05/31 23872.82 30156.69
21303.90 19130.94
1996/06/30 24006.08 30271.59
21462.49 19387.85
1996/07/31 23548.68 28934.19
21122.27 19440.90
1996/08/31 23696.23 29544.41
21301.30 19408.32
1996/09/30 24523.08 31207.17
21938.89 19746.55
1996/10/31 25147.68 32067.87
22393.29 20183.96
1996/11/30 26337.40 34491.88
23244.14 20529.68
1996/12/31 25972.41 33808.59
22984.18 20338.80
1997/01/31 26760.88 35920.96
23740.59 20401.08
1997/02/28 26981.65 36202.58
23866.65 20451.83
1997/03/31 25961.97 34715.01
23280.84 20225.20
1997/04/30 26852.28 36787.50
24125.47 20527.95
1997/05/31 28171.84 39027.12
24962.14 20722.01
1997/06/30 28891.29 40775.54
25650.60 20967.97
1997/07/31 30541.76 44020.05
26959.17 21533.40
1997/08/31 29724.53 41554.04
26123.97 21349.73
1997/09/30 30689.57 43829.96
27005.00 21664.60
1997/10/31 30302.12 42366.04
26722.53 21978.89
1997/11/30 31077.03 44327.16
27401.42 22080.10
1997/12/31 31757.66 45088.26
27759.14 22302.41
1998/01/31 32017.26 45586.93
28066.99 22588.74
1998/02/28 33436.41 48874.66
29081.33 22571.73
1998/03/31 34150.13 51377.53
29878.30 22649.29
IMATRL PRASUN SHR__CHT 19980331 19980408 133545 R00000000000114
$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 March 31, 1998, the value of
the investment would have grown to $34,150 - a 241.50% increase on the
initial investment. For comparison, look at how both the S&P 500, a
widely recognized unmanaged index of common stocks, and 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, did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment in the S&P 500 would have grown to $51,378 - a 413.78%
increase. If $10,000 was invested in the Lehman Brothers Aggregate
Bond Index, it would have grown to $22,648 - a 126.48% 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
(+413.78%), the Lehman Brothers Aggregate Bond Index (+126.48%) and
the Lehman Brothers 3 Month T-Bill Index (+65.48%) 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 $29,959 - a 199.59% 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 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.
Despite being tested during the period, the U.S. stock and bond
markets performed well during the six months that ended March 31,
1998. Economic trouble in Southeast Asia caused worldwide concern, but
a domestic economic environment of low inflation, low interest rates
and steady growth spelled positive returns for both stocks and bonds.
STOCKS: The U.S. stock market showed its resiliency during the period.
Despite the economic uncertainty in Southeast Asia - and the resulting
concern that U.S. corporate earnings would slow - the stock market
performed well. The Standard & Poor's 500 Index - a measure of the
U.S. stock market - returned 17.22% during this time. In late October,
after several small Southeast Asian countries devalued their
currencies, a full-fledged economic crisis enveloped the region. These
troubles had ripple effects throughout the world, particularly in the
U.S., where the Dow Jones Industrial Average plummeted 550-plus points
in one trading session. Many U.S. corporations with business exposure
to Southeast Asia announced earnings disappointments. Investors showed
their concern by embarking on a "flight to quality," seeking shelter
in stocks of companies with minimal international exposure. Despite
this turbulence, however, the continued strength of the U.S. economy
seemed to buoy the stock market as low interest rates, low inflation
and moderate growth combined to make for a favorable economic
backdrop. After digesting the events that took place in Southeast
Asia, investors regained their attraction to stocks. Through the first
three months of 1998, cash inflows into stock mutual funds were very
strong and the Dow itself was approaching the 9000-point barrier.
BONDS: Similar to their equity counterparts, bonds benefited from the
continued lack of inflationary pressure during the period. The Lehman
Brothers Aggregate Bond Index - a broad gauge of the U.S. taxable
investment-grade bond market - returned 4.54% during this period.
Global volatility and historically low interest rates were the main
stories in the last quarter of 1997. Financial problems in Asia came
to a head in October, resulting in a "flight to quality." Wary stock
investors sought investments offering lower volatility, helping the
U.S. bond market - especially U.S. Treasuries - surge. The Lehman
Brothers Corporate Bond Index returned 4.49% for the six months.
Corporate bonds benefited from continued economic growth and demand
for yield, although they faltered somewhat in January 1998. Investors
feared a slowdown in demand from Asia would eat into corporate
earnings. In spite of record new issuance in February 1998, corporates
rebounded due in part to increased demand on the part of yield-hungry
investors. Mortgage-backed bonds performed well during the period,
even though lower interest rates resulted in more mortgage prepayment
activity. The Lehman Brothers Mortgage-Backed Securities Index
generated a six-month return of 4.04%. High-yield and emerging-market
issues turned in strong performances throughout the first quarter of
1998.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Richard Habermann, Lead Portfolio Manager of
Fidelity Asset Manager
Q. HOW DID THE FUND PERFORM, DICK?
A. I was pleased with the fund's performance. For the six months that
ended March 31, 1998, the fund had a total return of 11.28%. That
outperformed the 10.64% return of the Fidelity Asset Allocation
Composite Index and the 8.89% return of the Lipper flexible funds
average. For the 12 months that ended March 31, 1998, the fund
returned 31.54%, compared to the 28.38% return of the composite index
and the 28.72% return of the Lipper peer group.
Q. HOW DID THE FUND'S ASSET ALLOCATION AFFECT PERFORMANCE?
A. Asset allocation decisions - more than security selection within
the asset classes - helped the fund outperform the composite index and
the peer group during the period. The fund was consistently
overweighted in equities - the best-performing asset class during the
period. However, the fund did not have a significant overweighting in
equities, which helped preserve value when the stock market plummeted
at the end of October in response to financial problems in Asia. In
contrast to equities, allocations toward fixed-income securities were
underweighted during the period. In part, the fund's positioning
within the fixed-income portion of the portfolio was predicated on the
relatively small yield differences between short- and long-maturity
securities that existed throughout much of the period. In this type of
environment, I didn't feel the additional yield offered by
longer-maturity securities was worth the potential risk, particularly
during the latter part of the period. Accordingly, I kept the fund's
allocation toward longer-maturity, fixed-income securities slightly
underweighted, while keeping the money market allocation at
near-neutral levels. In an effort to find additional yield in this
environment, I chose to overweight high-yield securities within the
fixed-income allocation, while keeping the fund's total bond exposure
at below-neutral levels. In retrospect, the decision to overweight
high-yield securities relative to investment-grade bonds was a key
driver of the fund's returns, as high-yield returns generally outpaced
the returns of comparable investment-grade issues during the six-month
period.
Q. HOW DOES THE PRESENT ASSET ALLOCATION COMPARE TO THE FUND'S NEUTRAL
MIX?
A. The fund was consistently overweighted in equities, relative to its
neutral mix, which calls for 50% to be invested in stocks, 40% in
bonds and 10% in short-term/money market instruments. Throughout the
period, equities represented anywhere from 56% to 59% of the fund's
net assets, with the equity allocation ending the period at 56.9%. The
fund remained slightly underweighted in bonds, with that allocation
ending the period at 33.7%, and neutral in short-term instruments,
which represented 9.4% at the end of March. High-yield securities
accounted for about 24% of the bond allocation, or approximately 8% of
the fund's net assets as of March 31.
Q. GOING FORWARD, THOMAS SPRAGUE WILL REPLACE GEORGE VANDERHEIDEN AS
THE INVESTMENT PROFESSIONAL SELECTING THE EQUITY SECURITIES OF THE
PORTFOLIO. HOW WILL THIS CHANGE AFFECT THE FUND?
A. The sub-portfolio management change will not affect the fund's goal
of minimizing risk while attempting to maximize returns. Tom Sprague,
a nine-year veteran of Fidelity, has developed an impressive track
record as manager of several of Fidelity's Select portfolios and of
Fidelity Large Cap Stock Fund since 1996. Similar to George
Vanderheiden, Tom chooses stocks based on individual company
prospects. Consequently, the fund's equity portfolio will continue to
seek out and hold stocks that we feel will deliver the best returns
for our shareholders. We are pleased that the equity investments will
continue to be selected by a seasoned veteran like Tom.
Q. WHICH STOCKS HELPED THE FUND'S EQUITY ALLOCATION?
A. Financial stocks, such as top holdings Fannie Mae and Freddie Mac,
performed extremely well during this period of low interest rates and
robust capital markets. The fund's European holdings also generated
healthy returns. Europe seems to be trending up as the countries there
are entering a phase of restructuring and consolidation, concurrent
with low interest rates and growing earnings. The health care sector,
as a whole, performed well on the strength of large-cap pharmaceutical
stocks that benefited from a "flight to quality" during the Asian
crisis - meaning investors sought out large companies with household
names that they perceived as safe. Pharmaceuticals also reaped the
rewards of accelerated reviews by the Food and Drug Administration.
Finally, retail stocks were strong and the fund was heavily
overweighted, relative to the Standard & Poor's 500 Index, in that
sector. In fact, Wal-Mart, which was the fund's fifth largest equity
holding at the end of March, gained 39% during the period versus a 17%
return for the S&P 500.
Q. WHICH STOCKS HURT PERFORMANCE?
A. Consumer nondurables took a hit during the period. Specific to that
sector, tobacco stocks such as RJR Nabisco and top holding Philip
Morris weakened during the period as litigation fears heightened. In
addition, most technology stocks were punished on fears that worldwide
product demand would slow drastically as a result of the Asian crisis.
Notably, Compaq Computer's stock dropped substantially during the
period as the company struggled with inventory problems.
Q. WHAT WAS YOUR STRATEGY FOR THE FUND'S BOND INVESTMENTS?
A. While bonds were underweighted relative to the fund's neutral
allocation of 40%, I employed several value-added strategies during
the period. As I mentioned earlier, the fund reaped the rewards of its
overweighted position in high-yield bonds, as they handily outpaced
the returns of their investment-grade counterparts. Fred Hoff - who
oversees security selection for Asset Manager's high-yield allocation
- - emphasized securities and sectors that performed extremely well
during the period. Cable and media issues and commercial
mortgage-backed securities (CMBS) - bonds that are backed by loans on
commercial property, such as office buildings or retail malls - were
the biggest contributors to the high-yield sector of the portfolio.
Charlie Morrison - who handles security selection for Asset Manager's
investment-grade, fixed-income allocation - focused on several
strategies during the period. Within the investment-grade allocation,
investments in corporate securities were trimmed slightly on
profit-taking, with a portion of the proceeds deployed to
mortgage-backed securities. This transition proved beneficial, as
mortgage-backed securities performed particularly well toward the end
of the period when interest rates stabilized.
Q. WHAT SECTORS DID YOU TARGET IN THE CORPORATE BOND MARKET?
A. As I mentioned, the high-yield allocation emphasized the cable and
telecommunications industries. Growth in these sectors generally
depends on the health of the U.S. economy - not on Asian markets. In
addition, many of these companies were able to increase their cash
flows and improve their credit ratings by taking advantage of
deregulation and technological advancement in the industry. Within the
fund's investment-grade corporate bond allocation, securities issued
by banking and finance concerns continued to be emphasized. In part,
this stance was predicated on the low interest-rate environment and
its favorable impact on companies in the financial sector.
Q. HOW DID YOU POSITION THE SHORT-TERM/MONEY MARKET PORTION OF THE
PORTFOLIO?
A. I kept the fund's allocation toward short-term instruments - which
were managed by John Todd of our money market group - in a fairly
tight range during the period. As in prior periods, John continued to
manage the fund's short-term allocation with the objective of adding
value relative to a benchmark - the three-month Treasury bill - within
the context of a controlled volatility framework. I increased the
fund's bond allocation while reducing short-term instruments during
the period in response to increasingly favorable inflation conditions
and a slowing economy. At the end of the period, the fund maintained a
near-neutral allocation in short-term/money market instruments, which
performed admirably during the period because of beneficial security
selection.
Q. WHAT'S YOUR OUTLOOK?
A. We're in the midst of the third-longest positive economic cycle in
the post-war U.S. - following a long run in the 1960s when John F.
Kennedy was president and in the 1980s when Ronald Reagan led the
country. So, in its seventh year, the expansion continues to be
remarkably strong. In addition, we're still witnessing decent earnings
growth, moderate restructuring efforts and robust merger activity -
all of which bodes well for improving the efficiency of the American
economy. Even more amazing is that this growth is happening at a time
when inflation is virtually non-existent. In this environment, I think
both the stock and bond markets will benefit. However, I do believe
that we've entered a new period of volatility in the markets, where
one-time events can cause major shake-ups. I think the questions
raised by the Asian financial crisis need to be monitored. Although
the U.S. economy may not be drastically hurt by this turmoil, the
cheapening of Asian goods could cause U.S. manufacturers to move
production outside of the country, which would lead to higher
unemployment and slower growth. Considering that we may be entering a
period of higher volatility in the markets, it makes sense that I
proceed with caution and not stray too far from our neutral mix in the
near future.
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 HOW THE
FUND COMPARES TO BALANCED
FUNDS:
"WHEN EXAMINING FUNDS THAT INVEST
IN MULTIPLE ASSET CLASSES, INVESTORS
SHOULD BE SURE TO DISTINGUISH
BETWEEN ASSET ALLOCATION FUNDS AND
BALANCED FUNDS. ASSET ALLOCATION
FUNDS SHIFT THEIR PORTFOLIO MIXES
BETWEEN EQUITIES, FIXED-INCOME
SECURITIES AND SHORT-TERM
INSTRUMENTS, WHILE SEEKING TO ADD
VALUE BY TIMING THESE SHIFTS
APPROPRIATELY. IN CONTRAST, MANY
BALANCED-TYPE FUNDS TEND TO KEEP
THEIR ASSET MIXES FAIRLY STATIC, AND
USUALLY MAINTAIN ALLOCATIONS IN
ONLY TWO ASSET CLASSES, STOCKS AND
BONDS. FOR INSTANCE, A `TRADITIONAL'
BALANCED FUND TENDS TO SPLIT ITS
INVESTMENTS BY ALLOCATING ROUGHLY
60% TO EQUITIES AND 40% TO
FIXED-INCOME SECURITIES.
REGARDLESS OF CHANGES IN MARKET
CONDITIONS, THE ECONOMY,
VALUATIONS OR OTHER FACTORS, THE
ASSET MIX WITHIN BALANCED FUNDS
STAYS RELATIVELY CONSTANT. IN
CONTRAST, ASSET ALLOCATION FUNDS -
SUCH AS THE FIDELITY ASSET MANAGER
FUNDS - UTILIZE A BLENDED
APPROACH TO ASSET ALLOCATION SHIFTS,
COMBINING THE RESULTS FROM OUR
PROPRIETARY QUANTITATIVE MODEL
WITH COMPANY-BY-COMPANY
SECURITY SELECTION AND
ASSET-CLASS-LEVEL RESEARCH FROM OUR
GLOBAL NETWORK OF ANALYSTS AND
PORTFOLIO MANAGERS."
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 MARCH 31, 1998,
MORE THAN $12.9 BILLION
MANAGER: RICHARD HABERMANN,
SINCE 1996; MANAGER, FIDELITY
ASSET MANAGER: INCOME AND
FIDELITY ASSET MANAGER: GROWTH,
SINCE 1996; FIDELITY TREND
FUND, 1977-1981; FIDELITY
MAGELLAN FUND, 1972-1977;
JOINED FIDELITY IN 1968
(CHECKMARK)
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
FANNIE MAE 5.1 4.7
PHILIP MORRIS COMPANIES, INC. 3.1 3.8
FREDDIE MAC 1.9 1.7
COLUMBIA/HCA HEALTHCARE CORP. 1.5 1.5
WAL-MART STORES, INC. 1.5 1.2
TOP FIVE BOND ISSUERS AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
(WITH MATURITIES GREATER THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
FANNIE MAE 6.2 4.1
U.S. TREASURY OBLIGATIONS 2.7 3.4
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION 0.7 0.9
FREDDIE MAC 0.7 0.8
FORD MOTOR CREDIT CO. 0.6 0.9
</TABLE>
TOP FIVE COUNTRIES AS OF MARCH 31, 1998
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO
UNITED STATES 81.2 82.5
UNITED KINGDOM 2.4 2.3
NETHERLANDS 1.4 1.6
FRANCE 1.0 0.8
CANADA 0.8 1.3
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
AS OF MARCH 31, 1998 * AS OF SEPTEMBER 30, 1997 **
ROW: 1, COL: 1, VALUE: 9.0
ROW: 1, COL: 2, VALUE: 34.0
ROW: 1, COL: 3, VALUE: 57.0
STOCK CLASS 56%
BOND CLASS 31%
SHORT-TERM CLASS 13%
FOREIGN
INVESTMENTS 9%
STOCK CLASS 57%
BOND CLASS 34%
SHORT-TERM CLASS 9%
FOREIGN
INVESTMENTS 9%
ROW: 1, COL: 1, VALUE: 13.0
ROW: 1, COL: 2, VALUE: 31.0
ROW: 1, COL: 3, VALUE: 56.0
*
**
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 WILL DIFFER FROM THE PIE CHART.
INVESTMENTS MARCH 31, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 53.0%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.3%
AEROSPACE & DEFENSE - 0.0%
Gulfstream Aerospace Corp. (a) 87,200 $ 3,782
DEFENSE ELECTRONICS - 0.3%
Raytheon Co.:
Class A 158,799 9,032
Class B 450,600 26,304
35,336
TOTAL AEROSPACE & DEFENSE 39,118
BASIC INDUSTRIES - 2.0%
CHEMICALS & PLASTICS - 1.2%
Air Products & Chemicals, Inc. 110,600 9,166
Dow Chemical Co. 34,600 3,365
du Pont (E.I.) de Nemours & Co. 1,196,500 81,362
Raychem Corp. 1,072,600 44,580
Union Carbide Corp. 519,200 26,025
164,498
PACKAGING & CONTAINERS - 0.6%
Bemis Co., Inc. 57,700 2,604
Corning, Inc. 307,000 13,585
Owens-Illinois, Inc. 1,544,500 66,800
82,989
PAPER & FOREST PRODUCTS - 0.2%
Boise Cascade Corp. 154,000 5,554
Champion International Corp. 326,000 17,706
Willamette Industries, Inc. 134,000 5,033
28,293
TOTAL BASIC INDUSTRIES 275,780
CONSTRUCTION & REAL ESTATE - 0.8%
CONSTRUCTION - 0.5%
Centex Corp. 283,980 10,827
D.R. Horton, Inc. 407,209 8,653
Fleetwood Enterprises, Inc. 672,087 31,294
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
CONSTRUCTION - CONTINUED
Kaufman & Broad Home Corp. 616,000 $ 20,059
U.S. Home Corp. (a) 44,900 2,057
72,890
ENGINEERING - 0.3%
Fluor Corp. 760,500 37,835
TOTAL CONSTRUCTION & REAL ESTATE 110,725
DURABLES - 2.7%
AUTOS, TIRES, & ACCESSORIES - 1.6%
Cummins Engine Co., Inc. 264,600 14,586
Discount Auto Parts, Inc. (a) 313,400 7,600
General Motors Corp. 2,248,492 151,633
Goodyear Tire & Rubber Co. 143,200 10,847
Magna International, Inc. Class A 328,100 25,617
Superior Industries International, Inc. 338,600 11,237
221,520
CONSUMER DURABLES - 0.2%
Minnesota Mining & Manufacturing Co. 233,200 21,265
CONSUMER ELECTRONICS - 0.5%
Newell Co. 197,600 9,571
Philips Electronics NV 364,500 26,768
Philips Electronics NV (Bearer) 431,600 31,709
68,048
HOME FURNISHINGS - 0.0%
HON Industries, Inc. 11,000 404
TEXTILES & APPAREL - 0.4%
Arena Brands Holdings Corp. Class B (a) 130,444 5,269
Burlington Industries, Inc. (a) 413,300 7,259
Jones Apparel Group, Inc. (a) 135,100 7,439
Liz Claiborne, Inc. 392,500 19,576
NIKE, Inc. Class B 198,100 8,766
Reebok International Ltd. (a) 11,000 336
Warnaco Group, Inc. Class A 74,300 2,916
51,561
TOTAL DURABLES 362,798
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 3.7%
ENERGY SERVICES - 0.2%
McDermott International, Inc. 610,400 $ 25,217
Schlumberger Ltd. 35,800 2,712
27,929
OIL & GAS - 3.5%
Amerada Hess Corp. 352,500 20,555
Amoco Corp. 41,600 3,593
Apache Corp. 33,000 1,213
Atlantic Richfield Co. 176,700 13,893
British Petroleum PLC:
ADR 839,078 72,213
Ord. 1,574 23
Burlington Resources, Inc. 1,474,545 70,686
Chevron Corp. 101,900 8,184
Cooper Cameron Corp. (a) 15,800 954
Elf Aquitaine SA sponsored ADR 141,057 9,133
Enron Oil & Gas Co. 57,100 1,310
Kerr-McGee Corp. 130,400 9,071
Occidental Petroleum Corp. 2,049,800 60,085
Royal Dutch Petroleum Co. Ord. 389,600 22,075
Royal Dutch Petroleum Co. 1,664,500 94,564
Santa Fe Energy Resources, Inc. 350,600 3,857
Tosco Corp. 1,353,400 47,707
Total SA:
Class B 87,903 10,566
sponsored ADR 204,972 12,311
USX-Marathon Group 17,300 651
Valero Energy Corp. 120,500 4,022
466,666
TOTAL ENERGY 494,595
FINANCE - 13.8%
BANKS - 1.0%
Credit Suisse Group (Reg.) 263,100 52,672
NationsBank Corp. 402,300 29,343
Providian Financial Corp. 654,500 37,593
Wells Fargo & Co. 56,300 18,649
138,257
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CLOSED END INVESTMENT COMPANY - 0.0%
First NIS Regional Fund (a) 274,300 $ 5,075
CREDIT & OTHER FINANCE - 1.6%
CIT Group, Inc. Class A 167,100 5,452
Fleet Financial Group, Inc. 2,315,934 196,999
Green Tree Financial Corp. 295,500 8,403
Money Store, Inc. (The) 131,400 4,197
Transamerica Corp. 22,000 2,563
217,614
FEDERAL SPONSORED CREDIT - 7.0%
Freddie Mac 5,340,200 253,326
Fannie Mae 10,947,900 692,455
945,781
INSURANCE - 3.8%
AFLAC, Inc. 264,600 16,736
Allmerica Financial Corp. 307,800 19,661
Allstate Corp. 1,465,013 134,690
American International Group, Inc. 857,325 107,969
CIGNA Corp. 261,900 53,690
General Re Corp. 123,900 27,335
Loews Corp. 250,000 26,063
MBIA, Inc. 95,200 7,378
MGIC Investment Corp. 609,000 40,004
Nationwide Financial Services, Inc. Class A 21,600 937
PMI Group, Inc. 297,500 24,023
Provident Companies, Inc. 33,500 1,149
Reliastar Financial Corp. 156,991 7,231
Torchmark Corp. 696,600 31,913
Travelers Property Casualty Corp. Class A 201,900 8,884
UNUM Corp. 57,600 3,179
510,842
SAVINGS & LOANS - 0.2%
Golden West Financial Corp. 213,400 20,446
SECURITIES INDUSTRY - 0.2%
Nomura Securities Co. Ltd. 1,280,000 14,588
United Asset Management Corp. 419,600 11,434
Waddell & Reed Financial, Inc. Class A (a) 12,800 333
26,355
TOTAL FINANCE 1,864,370
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 4.8%
DRUGS & PHARMACEUTICALS - 1.9%
American Home Products Corp. 725,200 $ 69,166
Amgen, Inc. 243,700 14,835
Astra AB Class A Free shares 2,167,466 44,652
Gilead Sciences, Inc. (a) 16,300 587
Merck & Co., Inc. 196,400 25,213
Novartis AG (Reg.) 20,800 36,835
Schering-Plough Corp. 817,000 66,739
Sepracor, Inc. (a) 51,700 2,204
260,231
MEDICAL EQUIPMENT & SUPPLIES - 0.5%
Allegiance Corp. 31,560 1,249
Bard (C.R.), Inc. 171,400 6,299
Baxter International, Inc. 111,400 6,141
Biomet, Inc. 536,300 16,089
Boston Scientific Corp. (a) 141,100 9,524
Johnson & Johnson 78,500 5,755
St. Jude Medical, Inc. (a) 635,316 21,243
Sofamor/Danek Group, Inc. (a) 57,800 4,927
71,227
MEDICAL FACILITIES MANAGEMENT - 2.4%
Columbia/HCA Healthcare Corp. 6,449,622 208,000
Humana, Inc. (a) 1,458,300 36,184
Tenet Healthcare Corp. 893,600 32,449
United HealthCare Corp. 586,600 37,982
314,615
TOTAL HEALTH 646,073
HOLDING COMPANIES - 0.1%
U.S. Industries, Inc. 330,600 9,936
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
ELECTRICAL EQUIPMENT - 1.0%
Alcatel Alsthom Compagnie Generale d'Electricite SA
sponsored ADR 36,300 1,379
Alcatel Alsthom Compagnie Generale d'Electricite SA 322,100 60,519
Emerson Electric Co. 190,600 12,425
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
ELECTRICAL EQUIPMENT - CONTINUED
General Electric Co. 612,200 $ 52,764
Grainger (W.W.), Inc. 51,700 5,315
Scientific-Atlanta, Inc. 308,600 6,037
138,439
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
Caterpillar, Inc. 414,700 22,834
Tyco International Ltd. 84,400 4,610
Ultratech Stepper, Inc. (a) 354,500 7,223
34,667
POLLUTION CONTROL - 0.0%
Browning-Ferris Industries, Inc. 17,700 577
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 173,683
MEDIA & LEISURE - 1.9%
BROADCASTING - 0.6%
CBS Corp. 453,300 15,384
Comcast Corp.:
Class A 54,600 1,894
Class A special 106,900 3,775
Cox Communications, Inc. Class A (a) 106,700 4,481
Orion Network Systems, Inc. (a):
warrants 1/15/07 2,550 41
warrants 1/15/07 8,520 111
Tele-Communications, Inc. (a):
(TCI Group), Series A 228,582 7,107
(TCI Ventures Group), Series A 1,247,436 21,908
Time Warner, Inc. 323,682 23,305
78,006
ENTERTAINMENT - 0.3%
Cedar Fair LP (depositary unit) 46,600 1,282
Disney (Walt) Co. 34,200 3,651
King World Productions, Inc. 167,500 4,899
Royal Caribbean Cruises Ltd. 111,400 7,805
Viacom, Inc. (a):
Class A 145,400 7,724
Class B (non-vtg.) 200,600 10,782
36,143
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
LEISURE DURABLES & TOYS - 0.0%
Nintendo Co. Ltd. Ord. 46,000 $ 3,840
LODGING & GAMING - 0.4%
Bally Gaming International, Inc. warrants 7/29/98 (a) 149,100 93
Circus Circus Enterprises, Inc. (a) 677,000 14,217
Fitzgeralds South, Inc. warrants 3/15/99 (a)(e) 1,640 -
Mirage Resorts, Inc. (a) 801,500 19,486
Sun International Hotels Ltd. Ord. (a) 440,900 20,888
54,684
PUBLISHING - 0.2%
Cognizant Corp. 201,900 11,584
U.S. WEST Media Group 610,900 21,229
32,813
RESTAURANTS - 0.4%
McDonald's Corp. 542,300 32,538
Papa John's International, Inc. (a) 67,600 2,594
Wendy's International, Inc. 1,011,500 22,569
57,701
TOTAL MEDIA & LEISURE 263,187
NONDURABLES - 3.5%
BEVERAGES - 0.0%
PepsiCo, Inc. 94,200 4,021
TOBACCO - 3.5%
Philip Morris Companies, Inc. 10,109,200 421,427
RJR Nabisco Holdings Corp. 1,263,295 39,557
UST, Inc. 190,600 6,147
467,131
TOTAL NONDURABLES 471,152
PRECIOUS METALS - 0.0%
Newmont Mining Corp. 188,890 5,773
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - 5.6%
APPAREL STORES - 0.3%
Columbia Sportswear Co. 2,600 $ 55
Gap, Inc. 260,750 11,734
Lamonts Apparel, Inc. warrants 6/10/99 (a) 394,561 -
TJX Companies, Inc. 534,100 24,168
35,957
GENERAL MERCHANDISE STORES - 2.0%
Federated Department Stores, Inc. (a) 749,200 38,818
Penney (J.C.) Co., Inc. 301,100 22,790
Proffitts, Inc. (a) 227,200 8,236
Wal-Mart Stores, Inc. 3,903,800 198,362
268,206
GROCERY STORES - 0.2%
Safeway, Inc. (a) 746,000 27,555
RETAIL & WHOLESALE, MISCELLANEOUS - 3.1%
Circuit City Stores, Inc. - Circuit City Group 997,000 42,622
Corporate Express, Inc. (a) 342,900 3,418
Home Depot, Inc. 2,399,800 161,837
Lowe's Companies, Inc. 1,834,500 128,759
Officemax, Inc. (a) 987,875 17,658
Office Depot, Inc. (a) 305,550 9,510
Rex Stores Corp. (a) 115,300 1,701
Staples, Inc. (a) 648,550 15,038
Toys "R" Us, Inc. (a) 617,500 18,564
U.S. Office Products Co. (a) 662,000 12,578
Viking Office Products, Inc. (a) 405,300 9,423
421,108
TOTAL RETAIL & WHOLESALE 752,826
SERVICES - 0.6%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 65,400 4,063
LEASING & RENTAL - 0.0%
Republic Industries, Inc. (a) 139,900 3,611
PRINTING - 0.0%
Donnelley (R.R.) & Sons Co. 30,400 1,248
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
SERVICES - 0.5%
Cendant Corp. (a) 1,498,323 $ 59,371
Medpartners, Inc. (a) 16,500 169
Reuters Group PLC ADR 114,220 7,374
66,914
TOTAL SERVICES 75,836
TECHNOLOGY - 5.8%
COMMUNICATIONS EQUIPMENT - 0.1%
Andrew Corp. (a) 51,300 1,016
Globalstar Telecommunications Ltd. warrants 2/15/04 (a)(e) 4,540 636
3Com Corp. (a) 221,200 7,949
9,601
COMPUTER SERVICES & SOFTWARE - 1.9%
Automatic Data Processing, Inc. 394,500 26,851
Black Box Corp. (a) 77,900 2,873
Ceridian Corp. (a) 515,100 27,783
CompUSA, Inc. (a) 225,500 5,863
E Trade Group, Inc. (a) 171,800 4,284
Electronic Data Systems Corp. 1,008,900 46,283
Electronics for Imaging, Inc. (a) 570,900 14,843
First Data Corp. 623,500 20,264
Microsoft Corp. (a) 520,900 46,621
Oracle Corp. (a) 648,825 20,479
Policy Management Systems Corp. (a) 406,900 32,679
Shared Medical Systems Corp. 4,800 376
249,199
COMPUTERS & OFFICE EQUIPMENT - 1.3%
Adaptec, Inc. (a) 228,900 4,492
Compaq Computer Corp. 1,619,400 41,902
Hewlett-Packard Co. 318,700 20,198
Ingram Micro, Inc. Class A (a) 61,400 2,279
International Business Machines Corp. 405,900 42,163
Quantum Corp. (a) 52,000 1,108
SCI Systems, Inc. (a) 1,085,600 38,675
Seagate Technology (a) 372,300 9,401
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Tech Data Corp. (a) 449,000 $ 17,287
Western Digital Corp. (a) 142,000 2,494
179,999
ELECTRONIC INSTRUMENTS - 0.4%
Applied Materials, Inc. (a) 54,200 1,914
Cognex Corp. (a) 174,500 3,730
KLA-Tencor Corp. (a) 63,300 2,421
Lam Research Corp. (a) 454,500 12,783
Novellus Systems, Inc. (a) 268,900 11,630
Teradyne, Inc. (a) 33,900 1,358
Thermo Electron Corp. (a) 377,300 15,233
Varian Associates, Inc. 124,100 6,872
55,941
ELECTRONICS - 2.1%
Altera Corp. (a) 90,600 3,420
AMP, Inc. 783,800 34,340
Intel Corp. 850,000 66,353
Methode Electronics, Inc. Class A 93,900 1,403
Micrel, Inc. (a) 36,900 1,400
Microchip Technology, Inc. (a) 16,500 347
Micron Technology, Inc. (a) 1,747,100 50,775
Molex, Inc. 326,096 8,743
Motorola, Inc. 175,700 10,652
Solectron Corp. (a) 2,245,700 94,881
Thomas & Betts Corp. 193,700 12,397
Uniphase Corp. (a) 15,200 639
285,350
PHOTOGRAPHIC EQUIPMENT - 0.0%
Polaroid Corp. 34,900 1,536
TOTAL TECHNOLOGY 781,626
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.0%
Northwest Airlines Corp. Class A (a) 43,300 2,671
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - CONTINUED
RAILROADS - 0.3%
Bombardier, Inc. Class B 277,300 $ 6,846
CSX Corp. 444,200 26,430
33,276
SHIPPING - 0.0%
Stolt-Nielsen SA Class B sponsored ADR 168,800 3,355
Stolt-Nielsen SA 88,600 1,772
5,127
TRUCKING & FREIGHT - 0.0%
Yellow Corp. (a) 219,100 4,190
TOTAL TRANSPORTATION 45,264
UTILITIES - 5.8%
CELLULAR - 2.0%
AirTouch Communications, Inc. (a) 1,559,100 76,298
Century Telephone Enterprises, Inc. 45,500 2,781
McCaw International Ltd. warrants 4/15/07 (a)(e) 22,840 114
SK Telecom Ltd. 24 14
Vodafone Group PLC sponsored ADR 1,307,900 135,858
Vodafone Group PLC 4,956,523 51,822
266,887
ELECTRIC UTILITY - 0.3%
American Electric Power Co., Inc. 374,800 18,834
Consolidated Edison, Inc. 29,300 1,370
Entergy Corp. 363,200 10,805
Houston Industries, Inc. 166,700 4,793
Niagara Mohawk Power Corp. (a) 186,600 2,426
PG&E Corp. 171,577 5,662
43,890
GAS - 0.0%
Enron Corp. 76,800 3,562
TELEPHONE SERVICES - 3.5%
AT&T Corp. 300,700 19,733
Ameritech Corp. 673,200 33,281
Bell Atlantic Corp. 451,022 46,230
BellSouth Corp. 671,500 45,368
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Deutsche Telekom AG 187,900 $ 4,088
MCI Communications Corp. 2,634,800 130,423
SBC Communications, Inc. 843,080 36,779
Sprint Corp. 1,339,400 90,661
Telebras sponsored ADR 386,900 50,224
WorldCom, Inc. (a) 369,100 15,894
472,681
TOTAL UTILITIES 787,020
TOTAL COMMON STOCKS
(Cost $4,158,013) 7,159,762
NONCONVERTIBLE PREFERRED STOCKS - 1.6%
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
California Federal Preferred Capital Corp. 9 1/8% 621,326 16,698
Crown America Realty Trust, Series A, 11% 39,392 2,115
Walden Residential Properties, Inc. 9.20% 141,900 3,760
22,573
FINANCE - 0.1%
INSURANCE - 0.1%
American Annuity Group Capital Trust II 8 3/4% 4,320 4,669
SIG Capital Trust I 9 1/2% 4,358 4,500
9,169
INDUSTRIAL MACHINERY & EQUIPMENT - 0.0%
ELECTRICAL EQUIPMENT - 0.0%
Echostar Communications Corp. 12 1/8%, pay-in-kind (j) 5,553 6,192
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.8%
Adelphia Communications Corp. $13 31,848 3,790
American Radio Systems Corp. 11 3/8%, pay-in-kind 80,941 9,227
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
CSC Holdings, Inc. 11 1/8%, pay-in-kind 213,189 $ 24,357
CapStar Broadcasting Partners, Inc. 12%, pay-in-kind 8,483 997
Chancellor Media Corp.:
12%, pay-in-kind 54,149 6,552
Series A, $12.25 32,994 4,636
Granite Broadcasting Corp. 12 3/4%, pay-in-kind 6,229 7,070
SFX Broadcasting, Inc. 12 5/8% 73,388 8,660
Sinclair Capital 11 5/8% 82,440 9,110
Time Warner, Inc., Series M, 10 1/4%, pay-in-kind 28,456 31,800
106,199
PUBLISHING - 0.1%
Primedia, Inc.:
Series D, $10 91,921 9,767
$9.20 45,675 4,670
14,437
TOTAL MEDIA & LEISURE 120,636
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 (a) 70,123
1,436
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications, Inc. 13 1/2%, pay-in-kind 4,433 5,430
UTILITIES - 0.4%
CELLULAR - 0.2%
Dobson Communications Corp. 12 1/4%,
pay-in-kind (e) 4,615 5,065
Nextel Communications, Inc. 11 1/8%, pay-in-kind (e) 15,551 16,523
21,588
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.2%
Hyperion Telecommunications, Inc. 12 7/8%,
pay-in-kind (Reg.) 5,680 $ 6,504
IXC Communications, Inc. 12 1/2%, pay-in-kind 4,407 5,377
NEXTLINK Communications, Inc. 14%, pay-in-kind 204,680 12,895
Winstar Communications, Inc. 14 1/2% (a)(e) 6,172 7,561
32,337
TOTAL UTILITIES 53,925
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $202,333) 221,219
CORPORATE BONDS - 19.0%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED)(C) AMOUNT (000S)
CONVERTIBLE BONDS - 0.0%
HEALTH - 0.0%
DRUGS & PHARMACEUTICALS - 0.0%
Integrated Process Equipment Corp.
6 1/4%, 9/15/04 (e) B- $ 3,770 3,360
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Sports Authority, Inc. 5 1/4%, 9/15/01 B1 4,270 3,800
TOTAL CONVERTIBLE BONDS 7,160
NONCONVERTIBLE BONDS - 19.0%
AEROSPACE & DEFENSE - 0.4%
AEROSPACE & DEFENSE - 0.0%
BE Aerospace, Inc. 8%, 3/1/08 (e) B1 5,140 5,146
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
AEROSPACE & DEFENSE - CONTINUED
DEFENSE ELECTRONICS - 0.3%
Raytheon Co.:
5.95%, 3/15/01 Baa $ 12,560 $ 12,516
6.45%, 8/15/04 Baa 16,920 17,062
Tracor, Inc. 8 1/2%, 3/1/07 B1 3,380 3,473
33,051
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc.
9 1/4%, 12/1/06 B1 9,330 9,866
TOTAL AEROSPACE & DEFENSE 48,063
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Acetex Corp. yankee 9 3/4%, 10/1/03 B1 2,220 2,298
General Chemical Corp. 9 1/4%, 8/15/03 B2 3,850 3,985
Huntsman Corp. 9 1/2%, 7/1/07 (e) B2 5,980 6,092
12,375
PACKAGING & CONTAINERS - 0.1%
BWAY Corp., Series B, 10 1/4%, 4/15/07 B2 3,200 3,508
U.S. Can Corp. 10 1/8%, 10/15/06 B2 1,650 1,733
5,241
PAPER & FOREST PRODUCTS - 0.0%
Omega Cabinets Ltd. 10 1/2%,
6/15/07 B3 3,620 3,792
TOTAL BASIC INDUSTRIES 21,408
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.0%
Nortek, Inc. 9 1/8%, 9/1/07 B1 5,490 5,682
CONSTRUCTION - 0.0%
U.S. Home Corp. 8.88%, 8/15/07 B1 4,610 4,737
REAL ESTATE - 0.1%
LNR Property Corp. 9 3/8%, 3/15/08 (e) B1 7,380 7,408
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - 0.2%
EOP Operating LP (e):
6 3/8%, 2/15/03 Baa $ 10,000 $ 9,900
6 3/4%, 2/15/08 Baa 3,500 3,471
Weeks Realty LP 6 7/8%, 3/15/05 Baa 8,200 8,134
21,505
TOTAL CONSTRUCTION & REAL ESTATE 39,332
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Blue Bird Body Co. 10 3/4%, 11/15/06 B2 3,100 3,433
Morris Material Handling, Inc. 9 1/2%,
4/1/08 (e) B2 380 381
Navistar International Corp.
8%, 2/1/08 (e) Ba3 4,950 4,931
Oshkosh Truck Corp. 8 3/4%, 3/1/08 (e) B3 5,610 5,666
14,411
TEXTILES & APPAREL - 0.5%
Fruit of The Loom, Inc. 7 3/8%, 11/15/23 Ba1 4,520 3,871
GFSI, Inc. 9 5/8%, 3/1/07 B3 4,520 4,746
Levi Strauss & Co. 7%, 11/1/06 (e) Baa 31,050 31,409
Nine West Group, Inc. (e):
8 3/8%, 8/15/05 Ba2 2,670 2,550
9%, 8/15/07 Ba3 8,690 8,212
Polymer Group, Inc. 8 3/4%, 3/1/08 (e) B2 3,910 3,978
Unifi, Inc. 6 1/2%, 2/1/08 (e) A3 8,120 7,963
Worldtex, Inc. 9 5/8%, 12/15/07 (e) B1 7,620 7,734
70,463
TOTAL DURABLES 84,874
ENERGY - 0.3%
OIL & GAS - 0.3%
Occidental Petroleum Corp.:
6.39%, 11/9/00 Baa 3,000 3,018
8 1/2%, 11/9/01 Baa 4,370 4,692
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Ocean Energy, Inc. 8 7/8%, 7/15/07 B3 $ 5,700 $ 6,071
Petroleum Geo Services ASA 7 1/8%, 3/30/28 Baa 10,700 10,720
Union Oil Co. 7.67%, 4/19/02 Baa 9,660 10,201
34,702
FINANCE - 6.5%
ASSET-BACKED SECURITIES - 1.9%
Airplanes Pass Through Trust Class D
10 7/8%, 3/15/19 Ba2 14,820 16,524
CPS Auto Grantor Trust:
6.55%, 12/15/02 Aaa 7,792 7,851
6%, 8/15/03 Aaa 16,430 16,381
Capital Equipment Receivables Trust
6.48%, 10/15/06 Baa 8,150 8,103
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 13,310 13,318
Dayton Hudson Credit Card Master Trust
6 1/4%, 8/25/05 Aaa 13,300 13,357
Ford Credit Auto Owner Trust:
6.40%, 5/15/02 A1 9,550 9,609
6.20%, 12/15/02 Baa 7,380 7,325
Green Tree Financial Corp.:
6 1/2%, 6/15/27 Aaa 6,200 6,216
6.80%, 6/15/27 Aaa 6,500 6,561
6.45%, 9/15/28 Aaa 10,250 10,311
6.68%, 1/15/29 AAA 18,680 18,884
Key Plastics, Inc. 10 1/4%, 3/15/07 A2 10,310 10,328
MBNA Master Credit Card Trust II Class A
6.55%, 1/15/07 Aaa 26,970 27,598
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 13,560 13,558 6.70%, 3/15/02 Aaa 6,680 6,760
Petroleum Enhanced Trust Receivables
Offering Petroleum Trust 6.1875%, 2/5/03 (e) Baa 10,280 10,280
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Premier Auto Trust:
8.05%, 4/4/00 Aaa $ 16,030 $ 16,136
6%, 5/6/00 Aaa 8,021 8,028
6.34%, 1/6/03 Aaa 20,000 20,175
WFS Financial Owner Trust 6.55%, 10/20/04 Aaa 11,150 11,224
258,527
BANKS - 0.8%
Banc One Corp. 6 1/4%, 9/1/00 Aa3 13,240 13,290
BanPonce Financial Corp. 7.72%, 4/13/00 A3 7,000 7,190
BanPonce Corp. 6.665%, 3/5/01 A3 13,900 14,029
Capital One Bank:
6.74%, 5/31/99 Baa 12,500 12,590
6.42%, 11/12/99 Baa 14,000 14,050
6 3/8%, 2/15/03 Baa 9,860 9,708
Den Danske Bank AS 7.40%,
6/15/10 (e)(f) A1 13,080 13,550
NB Capital Trust IV 8 1/4%, 4/15/27 AA3 6,625 7,208
Summit Bancorp. 8 5/8%, 12/10/02 BBB 5,500 5,995
Union Planters National Bank 6.81%, 8/20/01 A3 10,000 10,157
107,767
CREDIT & OTHER FINANCE - 3.0%
AT&T Capital Corp.:
6.41%, 8/13/99 Baa 24,000 24,085
6.16%, 12/3/99 Baa 9,000 8,995
Advanced Accessory Systems LLC/AAC
Capital Corp. 9 3/4%, 10/1/07 (e) B3 3,050 3,126
Ahmanson Capital Trust I
8.36%, 12/1/26 (e) Baa 13,000 13,957
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 1,280 1,365
BankAmerica Capital II, Series 2,
8%, 12/15/26 Aa3 8,200 8,738
Bankers Trust Co. 5.66%, 7/21/98 (f) - 25,500 25,490
BanPonce Trust I 8.327%, 2/1/27 (e) Baa 20,520 21,894
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 23,400 23,540
Countrywide Funding Corp. 6.45%, 2/27/03 A3 10,900 10,918
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Finova Capital Corp. 6.12%, 5/28/02 Baa $ 7,000 $ 6,993
First Security Capital I 8.41%, 12/15/26 A3 5,290 5,760
Ford Motor Credit Co.:
5.73%, 2/23/00 A1 11,500 11,445
5.83%, 2/28/00 A1 22,550 22,481
6.20%, 3/12/01 A1 10,000 10,023
6.57%, 3/19/01 A1 11,300 11,438
7%, 9/25/01 A1 19,000 19,512
General Electric Capital Corp.
6.94%, 4/13/09 (i) Aaa 22,500 22,699
General Motors Acceptance Corp.
6 3/4%, 7/10/02 A3 22,160 22,616
Greenpoint Capital Trust I 9.10%, 6/1/27 Ba1 3,400 3,706
Heller Financial, Inc.:
7 7/8%, 11/1/99 A3 15,530 15,913
6 1/4%, 3/1/01 A3 13,690 13,679
Household Finance Corp. 5.646%, 6/4/98 (f) - 27,000 27,000
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 11,420 11,827
Mellon Capital I, Series A, 7.72%, 12/1/26 A2 5,470 5,695
Money Store, Inc. 7.30%, 12/1/02 Ba2 8,750 9,067
Nordstrom Credit, Inc. 7 1/4%, 4/30/02 A2 10,500 10,941
U.S. Bancorp 8.09%, 11/15/26 A1 8,200 8,738
UNICCO Service Co./UNICCO Finance Corp.
9 7/8%, 10/15/07 B3 5,270 5,389
U S WEST Capital Funding, Inc.
6.95%, 1/15/37 Baa 10,590 11,040
398,070
SAVINGS & LOANS - 0.4%
Chevy Chase Savings Bank FSB
9 1/4%, 12/1/08 B1 4,910 5,131
First Nationwide Parent Holdings Ltd.
12 1/2%, 4/15/03 B3 8,210 9,359
Great West Financial Trust II 8.206%, 2/1/27 A3 12,350 13,072
Great Western Financial Corp. 8.60%, 2/1/02 A3 7,000 7,518
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
SAVINGS & LOANS - CONTINUED
Home Savings of America FSB
6 1/2%, 8/15/04 A3 $ 8,080 $ 8,082
Long Island Savings Bank:
6.20%, 4/2/01 Baa 6,250 6,245 7%, 6/13/02 Baa 9,680 9,863
59,270
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 5.638%,
7/28/98 (f) - 25,000 25,000
Morgan Stanley, Dean Witter, Discover & Co.
5.70%, 1/15/99 (f) A+ 25,400 25,400
50,400
TOTAL FINANCE 874,034
HEALTH - 0.4%
DRUGS & PHARMACEUTICALS - 0.0%
Chattem, Inc. 8 7/8%, 4/1/08 (e) B2 470 476
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Graham-Field Health Products, Inc.
9 3/4%, 8/15/07 B3 6,420 6,548
McKesson Corp. 6.60%, 3/1/00 A3 13,610 13,752
20,300
MEDICAL FACILITIES MANAGEMENT - 0.3%
Integrated Health Services, Inc.:
9 1/2%, 9/15/07 B2 7,230 7,664
Series A, 9 1/4%, 1/15/08 B2 12,620 13,251
Magellan Health Services, Inc.
9%, 2/15/08 (e) B3 4,520 4,565
Tenet Healthcare Corp. 8 5/8%, 1/15/07 Ba3 10,890 11,271
Vencor, Inc. 8 5/8%, 7/15/07 B1 2,600 2,922
39,673
TOTAL HEALTH 60,449
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HOLDING COMPANIES - 0.2%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa $ 21,900 $ 23,065
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.1%
Echostar Communications Corp. secured
discount 0%, 6/1/04 (d) B2 5,950 5,712
Motors & Gears, Inc., Series D,
10 3/4%, 11/15/06 B3 1,170 1,252
Westinghouse Electric Corp. 8 5/8%, 8/1/12 Ba1 5,440 5,821
12,785
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Bucyrus International, Inc. 9 3/4%, 9/15/07 B1 9,950 10,025
Exide Corp. 10%, 4/15/05 B1 1,640 1,734
Goss Graphic System, Inc. 12%, 10/15/06 B2 5,660 6,424
Roller Bearing Holdings, Inc.
0%, 6/15/09 (d)(e) - 9,790 6,364
24,547
POLLUTION CONTROL - 0.2%
Envirosource, Inc. 9 3/8%, 6/15/03 (e) B3 2,400 2,436
WMX Technologies, Inc.:
8 1/4%, 11/15/99 Baa 3,675 3,788
6 1/4%, 10/15/00 Baa 5,750 5,741
7.10%, 8/1/26 Baa 13,025 13,471
25,436
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 62,768
MEDIA & LEISURE - 4.4%
BROADCASTING - 3.1%
ACME Television LLC/ACME Financial Corp.
0%, 9/30/04 (d) B3 4,730 3,879
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B3 17,344 17,841 9 7/8%, 3/1/07 B3 3,670 3,982 8
3/8%, 2/1/08 B3 5,320 5,327
Albritton Communications Co.
8 7/8%, 2/1/08 (e) B3 4,000 4,040
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Ascent Entertainment Group, Inc.
0%, 12/15/04 (d) B3 $ 5,240 $ 3,118
CSC Holdings, Inc.:
9 1/4%, 11/1/05 B1 4,110 4,377
9 7/8%, 5/15/06 B1 3,585 3,952
10 1/2%, 5/15/16 B1 5,120 5,990
CapStar Broadcasting Partners, Inc.:
9 1/4%, 7/1/07 B2 9,970 10,419 0%, 2/1/09 (d) B3 3,690 2,758
Century Communications Corp.:
8 3/4%, 10/1/07 Ba3 7,840 8,154 0%, 1/15/08 (e) Ba3 13,400 5,829
Chancellor Radio Broadcasting Company
8 1/8%, 12/15/07 (e) Ba3 12,210 12,393
Citadel Broadcasting Co., Series B,
10 1/4%, 7/1/07 B3 2,120 2,348
Comcast UK Cable Partners Ltd. 0%, 11/15/07 (d) B2 6,670 5,503
Continental Cablevision, Inc.:
8 5/8%, 8/15/03 Baa 8,070 8,821
8.30%, 5/15/06 Baa 805 884
9%, 9/1/08 Baa 7,280 8,454
Echostar Satellite Broadcasting Corp.
0%, 3/15/04 (d) B3 3,180 2,902
Falcon Holdings 0%, 4/15/10 (d)(e) - 8,660 5,484
Falcon Holding L.P./Falcon Funding
8 3/8%, 4/15/10 (e) B2 12,380 12,347
Fox Kids Worldwide, Inc. 0%, 11/1/07 (d)(e) B1 7,260 4,628
Fox/Liberty Networks LLC/FLN Finance, Inc.
0%, 8/15/07 (d) B1 4,795 3,297
FrontierVision Operating Partners LP/
Frontiervision Capital Corp. 11%, 10/15/06 B3 11,060 12,263
FrontierVision Holdings LP/FrontierVision
Holdings Capital Corp. 0%, 9/15/07 (d) Caa 8,330 6,456
Granite Broadcasting Corp.:
10 3/8%, 5/15/05 B3 4,160 4,420
9 3/8%, 12/1/05 B3 6,580 6,794
Hearst-Argyle Television, Inc. 7 1/2%, 11/15/27 Baa 14,760 15,259
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 4,150 4,669
International Cabletel, Inc. 0%, 2/1/06 (d) B3 5,560 4,490
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Lenfest Communications, Inc.:
8 3/8%, 11/1/05 Ba3 $ 5,730 $ 5,945 8 1/4%, 2/15/08 (e) B2 3,580
3,620
LIN Holdings Corp. 0%, 3/1/08 (d)(e) B3 930 584
NTL, Inc.:
10%, 2/15/07 B3 7,530 8,114
0%, 4/1/08 (d)(e) B3 24,450 16,015
Olympus Communications LP/Olympus
Capital Corp 10 5/8%, 11/15/06 B1 3,530 3,918
Orion Network Systems, Inc.:
11 1/4%, 1/15/07 B2 2,550 2,939 0%, 1/15/07 (d) B2 5,980 4,694
Pegasus Communications Corp., Series B,
9 5/8%, 10/15/05 B3 2,560 2,682
Rogers Cablesystems Ltd. yankee 11%, 12/1/15 B2 5,370 6,202
SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 2,550 2,824
Satelites Mexicanos SA de cv
10 1/2%, 11/1/04 (e)(f) B3 7,270 7,488
Sinclair Broadcast Group, Inc.
8 3/4%, 12/15/07 B2 7,050 7,279
TCI Communications Financing III
9.65%, 3/31/27 Ba3 15,980 18,417
TCI Communication, Inc.:
7 3/8%, 2/15/00 Ba1 3,550 3,616
8.65%, 9/15/04 Ba1 8,100 8,885
6.82%, 9/15/10 (f) Ba1 19,280 19,337
Tele-Communications, Inc. 9 1/4%, 4/15/02 Ba1 8,500 9,303
Telemundo Group, Inc. 7%, 2/15/06 (i) B1 7,130 7,593
Telewest PLC 0%, 10/1/07 (d) B1 15,350 12,395
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 12,800 13,166
7 3/4%, 6/15/05 Ba1 10,350 10,936
8.18%, 8/15/07 Ba1 14,375 15,750
6.95%, 1/15/28 (e) Ba1 11,500 11,146
UIH Australia/Pacific, Inc., Series B,
0%, 5/15/06 (d) B2 12,890 8,862
United International Holdings, Inc.
0%, 2/15/08 (d)(e) B3 18,870 11,794
424,582
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.7%
AMC Entertainment, Inc. 9 1/2%, 3/15/09 B2 $ 13,670 $ 14,354
American Skiing Co. 12%, 7/15/06 B3 8,130 9,106
Bally Total Fitness Holding Corp., Series B,
9 7/8%, 10/15/07 B3 9,410 9,998
Cinemark USA, Inc. 8 1/2%, 8/1/08 (Reg. S) B2 10,000 10,013
Livent, Inc. 9 3/8%, 10/15/04 B1 6,860 6,894
Paramount Communications, Inc.:
5 7/8%, 7/15/00 Ba2 7,170 7,039 7 1/2%, 1/15/02 Ba2 3,345 3,427
Premier Parks, Inc.:
9 1/4%, 4/1/06 B3 400 409
0%, 4/1/08 (d) B3 650 414
Viacom, Inc.:
6 3/4%, 1/15/03 Ba2 7,410 7,402
7 3/4%, 6/1/05 Ba2 18,050 18,930
8%, 7/7/06 B1 8,730 8,926
96,912
LODGING & GAMING - 0.3%
Aladdin Gaming Holdings/Aladdin Capital
Units 0%, 3/1/10 (d)(e) Caa 7,370 3,796
Courtyard by Marriott II LP/Courtyard II
Finance Co., Series B, 10 3/4%, 2/1/08 B- 3,800 4,185
HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 6,000 6,285
HMH Properties, Inc.:
9 1/2%, 5/15/05 Ba3 10,600 11,249
8 7/8%, 7/15/07 Ba3 5,180 5,491
Sun International Hotels Ltd./Sun International
North America, Inc. yankee 9%, 3/15/07 Ba3 5,120 5,338
36,344
PUBLISHING - 0.2%
Garden State Newspapers, Inc.:
Series B, 8 3/4%, 10/1/09 B1 7,917 8,105 8 3/4%, 10/1/09 (h) B1
8,160 8,425
News America Holdings, Inc. 8 1/2%, 2/15/05 Baa 5,770 6,355
News America, Inc. 6 5/8%, 1/9/08 (e) Baa 1,510 1,484
24,369
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.1%
Foodmaker, Inc. 9 3/4%, 6/1/02 B2 $ 5,990 $ 6,132
Host Marriott Travel Plazas, Inc.
9 1/2%, 5/15/05 Ba3 9,550 10,147
16,279
TOTAL MEDIA & LEISURE 598,486
NONDURABLES - 0.5%
FOODS - 0.1%
Chiquita Brands International, Inc.
9 5/8%, 1/15/04 B1 4,370 4,643
ConAgra, Inc. 7 1/8%, 10/1/26 Baa 13,500 14,211
18,854
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products Corp.
8 5/8%, 2/1/08 (e) B3 13,880 14,071
TOBACCO - 0.3%
Philip Morris Companies, Inc.:
7 1/4%, 9/15/01 A2 13,780 14,168
7%, 7/15/05 A2 13,480 13,734
6.95%, 6/1/06 A2 12,680 13,033
40,935
TOTAL NONDURABLES 73,860
RETAIL & WHOLESALE - 1.3%
APPAREL STORES - 0.1%
AnnTaylor, Inc. 8 3/4%, 6/15/00 B3 7,460 7,460
Lamonts Apparel, Inc. 10 1/4%, 11/1/99
pay-in-kind (e)(k) - 13,118 459
Specialty Retailers, Inc. 8 1/2%, 7/15/05 Ba3 2,280 2,337
10,256
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 0.7%
Dayton Hudson Corp.:
6.80%, 10/1/01 Baa $ 9,500 $ 9,669
7 1/2%, 7/15/06 Baa 9,000 9,619
Federated Department Stores, Inc.:
10%, 2/15/01 Baa 19,900 21,778 8 1/8%, 10/15/02 Baa 6,340 6,744
6.79%, 7/15/27 Baa 8,750 8,881 7%, 2/15/28 Baa 10,800 10,676
Kmart Corp.:
12 1/2%, 3/1/05 Ba2 7,160 8,878
7 3/4%, 10/1/12 Ba2 670 677
8 1/4%, 1/1/22 Ba2 5,420 5,501
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 12,720 12,945
95,368
GROCERY STORES - 0.4%
Ameriserve Food Distribution, Inc.
8 7/8%, 10/15/06 B1 6,510 6,705
Fleming Companies, Inc., Series B,
10 5/8%, 7/31/07 B3 5,110 5,442
Kroger Co. 8.15%, 7/15/06 Baa 7,000 7,723
Mrs. Fields Original Cookies, Inc.
10 1/8%, 12/1/04 (e) B2 3,890 3,900
Pathmark Stores, Inc.:
12 5/8%, 6/15/02 Caa 6,660 6,627
9 5/8%, 5/1/03 Caa 15,290 15,252
Pueblo Xtra International, Inc. 9 1/2%, 8/1/03 B3 11,250 10,913
56,562
RETAIL & WHOLESALE, MISCELLANEOUS - 0.1%
Central Tractor Farm & Country, Inc.
10 5/8%, 4/1/07 B2 4,140 4,399
J Crew Operating Corp.
10 3/8%, 10/15/07 (e) B3 5,240 4,926
Metals USA, Inc. 8 5/8%, 2/15/08 (e) B2 7,760 7,741
17,066
TOTAL RETAIL & WHOLESALE 179,252
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
SERVICES - 0.4%
LEASING & RENTAL - 0.2%
Brand Scaffold Services, Inc.
10 1/4%, 2/15/08 (e) B3 $ 3,640 $ 3,749
PHH Corp. 5.678%, 6/11/98 (f) - 27,000 26,997
30,746
PRINTING - 0.1%
Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 4,180 4,389
SERVICES - 0.1%
Borg-Warner Security Corp. 9 5/8%, 3/15/07 B3 2,750 2,888
Iron Mountain, Inc. 8 3/4%, 9/30/09 B3 4,225 4,362
Medaphis Corp. 9 1/2%, 2/15/05 (e) B2 8,450 8,450
15,700
TOTAL SERVICES 50,835
TECHNOLOGY - 0.4%
COMPUTER SERVICES & SOFTWARE - 0.1%
Federal Data Corp. 10 1/8%, 8/1/05 B3 7,520 7,802
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc.:
7.21%, 7/2/01 Baa 12,000 12,380
6 3/8%, 11/30/01 Baa 13,775 13,840
MediaCom LLC/MediaCom Capital Corp.
8 1/2%, 4/15/08 (e) B2 8,290 8,290
34,510
ELECTRONICS - 0.1%
Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 5,160 5,573
Fairchild Semiconductor Corp.:
10 1/8%, 3/15/07 B2 3,850 3,990
11.74%, 3/15/08 pay-in-kind (h) - 5,734 5,690
15,253
TOTAL TECHNOLOGY 57,565
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 0.4%
AIR TRANSPORTATION - 0.3%
Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa $ 6,000 $ 6,433
Kitty Hawk, Inc. 9.95%, 11/15/04 B1 15,168 15,775
US Air, Inc.:
9 5/8%, 2/1/01 B3 5,960 6,295
10%, 7/1/03 B3 6,320 6,676
10 3/8%, 3/1/13 B1 7,185 8,209
43,388
RAILROADS - 0.1%
Burlington Northern Santa Fe Corp.
7.29%, 6/1/36 Baa 10,500 11,300
SHIPPING - 0.0%
Amer Reefer Co. Ltd. 10 1/4%, 3/1/08 (e) B1 2,200 2,222
Holt Group, Inc. 9 3/4%, 1/15/06 (e) Caa 4,170 4,233
6,455
TOTAL TRANSPORTATION 61,143
UTILITIES - 2.2%
CELLULAR - 0.6%
McCaw International Ltd.
0%, 4/15/07 (d) Caa 22,840 15,189
Nextel International, Inc.
12 1/8%, 4/15/08 (e) Caa 14,540 8,706
Nextel Communications, Inc. (d):
0%, 8/15/04 B2 3,540 3,407 0%, 9/15/07 B2 4,781 3,203 0%,
10/31/07 B2 24,360 15,834 0%, 2/15/08 (e) B2 16,940 10,799
Pagemart Wireless, Inc.
0%, 2/1/08 (d)(e) Caa 13,640 8,457
Rogers Communications, Inc.
8 7/8%, 7/15/07 B2 8,610 8,761
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 8,316 8,590
82,946
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
ELECTRIC UTILITY - 0.7%
AES Corp. 8 3/8%, 8/15/07 Ba1 $ 3,510 $ 3,585
Avon Energy Partners Holdings (e):
6.73%, 12/11/02 Baa 13,550 13,719 6.46%, 3/4/08 Baa 10,920
10,790
CalEnergy, Inc. 9 1/2%, 9/15/06 Ba1 2,670 2,890
Calpine Corp. 8 3/4%, 7/15/07 Ba3 5,320 5,493
Israel Electric Corp. yankee (e):
7 7/8%, 12/15/26 A3 6,380 6,480 7 3/4%, 12/15/27 A3 12,960
13,071
Long Island Lighting Co. 8 5/8%, 4/15/04 Baa 18,250 18,885
NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 Baa 12,700 13,236
Texas Utilities Co., Series C,
6 3/8%, 1/1/08 (e) Baa 8,140 7,816
95,965
TELEPHONE SERVICES - 0.9%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa 14,020 14,028
GCI, Inc. 9 3/4%, 8/1/07 B2 1,600 1,700
Hyperion Telecommunications, Inc.:
Series B, 0%, 4/15/03 (d) B3 12,470 9,508 12 1/4%, 9/1/04 B3
6,970 7,841
ICG Holdings, Inc. (d):
0%, 9/15/05 - 5,060 4,326
0%, 5/1/06 - 2,590 2,078
0%, 3/15/07 - 5,180 3,794
McLeodUSA, Inc.:
0%, 3/1/07 (d) B2 2,525 1,913
9 1/4%, 7/15/07 B2 2,000 2,135
8 3/8%, 3/15/08 (e) B2 800 827
NEXTLINK Communications, Inc.
9 5/8%, 10/1/07 B3 11,370 12,038
Qwest Communications International, Inc.
0%, 10/15/07 (d) B2 10,320 7,585
Teleport Communications Group, Inc.
0%, 7/1/07 (d) Baa 7,650 6,591
Winstar Communications, Inc.
11%, 3/15/08 (e) - 3,660 3,752
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Winstar Equipment 12 1/2%, 3/15/04 B3 $ 3,760 $ 4,305
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 10,620 11,254
8 7/8%, 1/15/06 Ba1 9,729 10,604
7 3/4%, 4/1/07 Ba1 7,450 8,031
112,310
TOTAL UTILITIES 291,221
TOTAL NONCONVERTIBLE BONDS 2,561,057
TOTAL CORPORATE BONDS
(Cost $2,513,293) 2,568,217
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 4.3%
U.S. TREASURY OBLIGATIONS - 2.7%
7 3/4%, 12/31/99 Aaa 71,638 74,168
6 7/8%, 3/31/00 Aaa 1,480 1,515
6 1/4%, 10/31/01 Aaa 10,405 10,600
5 7/8%, 11/30/01 Aaa 26,072 26,247
11 7/8%, 11/15/03 Aaa 2,788 3,600
12 3/8%, 5/15/04 Aaa 48,000 64,260
7%, 7/15/06 Aaa 1,090 1,178
11 3/4%, 2/15/10 (callable) Aaa 21,750 28,965
12 3/4%, 11/15/10 (callable) Aaa 17,680 25,111
8 7/8%, 2/15/19 Aaa 1,360 1,818
7 1/4%, 2/15/23 Aaa 1,738 1,983
6 7/8%, 8/15/25 Aaa 100,245 111,804
6 1/2% 11/15/26 Aaa 7,140 7,620
TOTAL U.S. TREASURY OBLIGATIONS 358,869
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 - 1.6%
Federal Home Loan Bank:
7.70%, 9/20/04 Aaa $ 2,360 $ 2,581
8.09%, 12/28/04 Aaa 11,000 12,281
6.85%, 5/26/05 Aaa 10,000 10,488
Freddie Mac 7.35%, 3/22/05 Aaa 5,000 5,382
Fannie Mae:
6.97%, 4/8/04 Aaa 21,970 23,123
7.49%, 3/2/05 . Aaa 4,725 5,129
6.44%, 6/21/05 Aaa 3,500 3,589
Financing Corp.:
0%, 4/15/02 Aaa 2,276 1,806
0%, 5/11/02 Aaa 2,275 1,790
0%, 12/6/02 Aaa 3,794 2,899
stripped principal 0%, 12/6/03 Aaa 3,385 2,434
0%, 2/3/03 Aaa 2,032 1,531
0%, 5/2/04 Aaa 4,033 2,812
0%, 8/8/05 Aaa 5,482 3,534
0%, 11/30/05 Aaa 1,666 1,054
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 23,039 23,936
State of Israel (guaranteed by U.S. Government
through Agency for International Development):
0%, 11/15/01 Aaa 1,700 1,381
6 5/8%, 8/15/03 Aaa 22,140 22,929 5 5/8%, 9/15/03 Aaa 26,920
26,677
U.S. Department of Housing and Urban
Development government guaranteed
participation certificates Series 1996-A:
6.73%, 8/1/02 Aaa 22,400 23,027 6.83%, 8/1/03 Aaa 11,700
12,147 7.57%, 8/1/13 Aaa 10,090 10,762
U.S. Trade Trust Certificates (assets of Trust
guaranteed by U.S. government through
Export-Import Bank) 6.69%, 1/15/09 (e) Aaa 17,871 18,331
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 219,623
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $571,870) 578,492
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 7.4%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
FREDDIE MAC - 0.7%
5 1/2%, 8/1/02 to 5/1/03 Aaa $ 11,956 $ 11,703
6%, 10/1/23 to 9/1/25 Aaa 12,656 12,269
7%, 5/1/99 to 7/1/01 Aaa 4,819 4,873
7 1/2%, 6/1/25 to 3/1/28 Aaa 55,518 56,906
8 1/2%, 2/1/19 to 3/1/22 Aaa 326 343
86,094
FANNIE MAE - 6.0%
5 1/2%, 10/1/02 to 2/1/26 Aaa 21,153 20,615
6%, 4/1/00 to 6/1/26 Aaa 148,428 145,633
6%, 4/1/13 (j) Aaa 97,375 95,915
6%, 4/1/28 (j) Aaa 4,400 4,250
6 1/2%, 7/1/25 to 3/1/28 Aaa 188,806 186,919
7%, 8/1/25 to 11/1/26 Aaa 10,388 10,491
7%, 4/1/28 (j) Aaa 127,281 128,594
7%, 5/1/28 (j) Aaa 125,762 126,901
7 1/2%, 4/1/28 (j) Aaa 88,310 90,573
809,891
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.7%
6%, 10/15/08 to 12/15/10 Aaa 30,535 30,391
6 1/2%, 12/15/07 to 8/15/09 Aaa 61,543 62,190
8%, 4/15/24 to 12/15/25 Aaa 5,363 5,552
98,133
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $974,420) 994,118
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing and Securitization
LLC Series 1997-2 Class 2-B, 7.289%,
12/29/25 (e)(f)(k) (Cost $1,807) Ba3 3,400 1,712
COMMERCIAL MORTGAGE SECURITIES - 2.2%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
American Southwest Financial Securities
Series 1994-C2 Class B2, 8%,
12/25/01 (e)(f) - $ 3,880 $ 3,935
Asset Securitization Corp. Series 1997-D5
Class A6, 6.69%, 2/14/41 (f) BBB 3,300 3,215
Bardell Associates Note Trust
12 1/2%, 11/1/08 (h) - 16,976 18,037
Blackrock Capital Funding LLC Series 1996
Class C2, 7.559%, 11/16/26 (e)(f) AAA 1,510 1,511
BKB Commercial Mortgage Trust Series 1997-C1
Class D, 7.83%, 2/25/43 (e)(f) BBB 5,378 5,442
Bankers Trust Remic Trust 1988-1
Series 1998-S1A Class G, 8.617%,
11/28/02 (e)(f) Ba2 3,301 3,169
Berkeley Federal Bank & Trust FSB Series 1994
Class 1B, 7.706%, 8/1/24 (e)(f) - 2,280 1,763
CBM Funding Corp. sequential pay
Series 1996-1:
Class A3PI, 7.08%, 11/1/07 AA 8,220 8,528
Class B, 7.48%, 2/1/08 A 6,410 6,825
CS First Boston Mortgage Securities Corp.
Series 1997-C2 Class D, 7.27%, 4/17/11 Baa 14,700 14,842
Deutsche Mortgage and Asset Receiving Corp.
Series 1998-C1 Class D, 7.231%, 7/15/12 Baa 11,800 11,863
Equitable Life Assurance Society of the United
States (The) (e):
Series 174 Class B1, 7.33%, 5/15/06 Aa2 10,400 10,940
Series 1996-1 Class C1, 7.52%, 5/15/06 A2 8,000 8,451
Series 174, Class D1, 7.77%, 5/15/06 Baa 6,800 7,170
Franchise Mortgage Acceptance Company LLC
Loan Receivables Trust (e)(f):
Series 1997-A Class E,
8.104%, 4/15/19 - 1,471 1,395
Series1997-B Class E,
7.891%, 9/15/19 - 2,307 2,090
First Chicago/Lennar Trust I, Series 1997-CHL1 (f):
Class D, 8.132%, 5/29/08 - 2,000 1,994 Class E, 8.132%, 2/28/11 -
3,800 3,321
First Union-Lehman Brothers Commercial
Mortgage Trust sequential pay Series 1997-C2
Class B, 6.79%, 10/18/11 Aa2 31,350 31,732
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.:
Series1996-C1 Class F, 7.86%,
11/15/06 (e) Ba3 $ 1,250 $ 1,205 Series 1997-C2 Class D, 7.192%,
1/15/08 Baa 4,120 4,162 Series 1997-C2 Class E, 7.624%, 4/15/11
Baa 8,770 8,884
Series 1997-C2 Class F, 6 3/4%, 4/16/29 - 1,100 950
GS Mortgage Securities Corp. II Series 1997- GL
Class A2-B, 6.86%, 7/13/30 Aaa 13,230 13,628
GAFCO Franchisee Loan Trust Series 1998-1
Class D, 14 1/2%, 6/1/16 (e)(f) - 4,600 3,638
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2, 7.15%, 4/25/25 Aa2 5,224 5,201
Morgan Stanley Capital I, Inc. sequential pay
Series 1997-C1 Class A1C, 7.63%, 2/15/20 Aaa 13,690 14,751
Morgan Stanley Capital I Series 1998-HF1
Class D, 7.10%, 2/15/08 (f) BBB 14,900 15,126
NB Commercial Mortgage sequential pay,
Series FSI Class A, 7.187%, 10/20/23 (e) - 633 631
Nomura Depositor Trust Series 1998-ST1A
Class B2, 9.938%, 1/15/03 (e)(f) - 2,975 2,955
Nomura Asset Securities Corp. Series 1998 - D6
Class A4, 7.349%, 3/15/30 (f) Baa 11,800 11,741
Oregon Commercial Mortgage, Inc.
Series 1995 Class E, 9.455%, 6/25/26 (e)(f) BB 2,650 2,696
Penn Mutual Life Insurance Co. (The)
Series 1996-PML (e):
Class K, 7.90%, 11/15/26 - 750 552
Class L, 7.90%, 11/15/26 - 600 288
Resolution Trust Corp. Series 1991-M2 (f):
Class A1, 7.131%, 9/25/20 Ba3 399 351
Class A3, 7.542%, 9/25/20 Ba3 1,716 1,475
Structured Asset Securities Corp.:
Series 1995-C1 Class E, 7 3/8%,
9/25/24 (e) BB 2,390 2,312
sequential pay Series 1996 Class A-2A,
7 3/4%, 2/25/28 AAA 4,208 4,248
Series 1996-CFL Class E, 7 3/4%, 2/25/28 BB+ 6,820 6,920
Series 1996-CFL Class G,
7 3/4%, 2/25/28 (e) - 3,700 3,420
Series 1996-CFL Class H, 7 3/4%, 2/25/28 (e) - 1,000 816
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED)(C) AMOUNT (000S) (000S)
Thirteen Affiliates of General Growth
Properties, Inc. (e):
sequential pay Series A-2,
6.602%, 11/15/12 Aaa $ 10,590 $ 10,741
Series D-2, 6.992%, 11/15/12 Baa 11,380 11,368
Series E-2, 7.224%, 11/15/12 Baa 6,760 6,711
Wells Fargo Capital Markets Apartment Financing
Trust 6.56%, 12/29/05 (e) Aaa 8,767 8,892
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $283,867) 289,885
FOREIGN GOVERNMENT OBLIGATIONS (G) - 0.2%
Export Development Corp. yankee
8 1/8%, 8/10/99 Aa2 4,880 5,018
Israeli State euro 6 3/8%, 12/19/01 A3 13,265 13,180
Newfoundland Province yankee
11 5/8%, 10/15/07 Baa 5,750 7,860
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $25,663) 26,058
SUPRANATIONAL OBLIGATIONS - 0.1%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $12,918) Aaa 13,000 13,653
BANK NOTES - 0.2%
Key Bank N.A 5.555%, 8/20/99 (f)
(Cost $24,966) 25,000 24,975
CERTIFICATES OF DEPOSIT - 1.8%
Australia & New Zealand Banking Group
yankee Ltd. 5.825%, 7/28/98 20,000 20,004
Bank of Tokyo-Mitsubishi Ltd. yankee
6.03%, 4/20/98 28,000 28,003
Banque Nationale de paris yankee
5 3/4%, 7/31/98 12,500 12,497
Canadian Imperial Bank of Commerce:
5.91%, 8/28/98 25,000 25,008 yankee 6.20%, 8/1/00 16,760
16,801
CERTIFICATES OF DEPOSIT - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Deutsche Bank AG yankee:
6.20%, 4/10/98 $ 15,500 $ 15,501
5.94%, 10/26/98 10,000 10,008
First National Bank of Chicago 5.65%, 3/3/99 25,000 24,978
RaboBank Nederland Coop Central yankee
6.20%, 4/10/98 10,000 10,001
Sanwa Bank Ltd. yankee 6.20%, 4/20/98 28,000 28,005
Societe Generale France yankee
5.91%, 10/15/98 21,600 21,612
Westdeutsche Landesbank yankee 5.83%, 8/3/98 21,000 20,999
Westpac Banking Corp. yankee 5.885%, 8/27/98 9,000 9,002
TOTAL CERTIFICATES OF DEPOSIT
(Cost $242,298) 242,419
MASTER NOTES - 0.2%
First Bank National Association
5.598%, 5/15/98 (f) 13,000 12,994
Goldman Sachs Group LP (The)
5.625%, 5/4/98 (f)(h) 18,000 17,998
TOTAL MASTER NOTES
(Cost $30,930) 30,992
CASH EQUIVALENTS - 10.0%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account, dated
3/31/98 due 4/1/98:
at 5.80% $ 4,725 4,724
at 6.08% 172,458 172,429
177,153
SHARES
Taxable Central Cash Fund (b) 1,176,903,739 1,176,904
TOTAL CASH EQUIVALENTS
(Cost $1,354,057) 1,354,057
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $10,396,435) $ 13,505,559
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield of the Taxable Central Cash
Fund was 5.63%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(e) 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
$579,988,000 or 4.5% of net assets.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) 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.
(h) 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 COST
SECURITY DATE (000S)
Bardell Associates Note
Trust 12 1/2%,
11/1/08 4/19/94 $ 18,326
Fairchild Semiconductor
Corp. 11.74%, 3/15/08
pay-in-kind 4/3/97 $ 4,481
Garden State Newspapers
8 3/4%, 10/1/09 2/11/98 $ 8,446
Goldman Sachs Group
LP (The) 5.625%,
5/4/98 8/5/97 $ 18,000
(i) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(j) Security or a portion of the security purchased on a delayed
delivery or when-issued basis (see Note 2 of Notes to Financial
Statements).
(k) 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 17.2% AAA, AA, A 16.8%
Baa 4.9% BBB 6.2%
Ba 2.7% BB 1.9%
B 5.5% B 4.9%
Caa 0.5% CCC 0.8%
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 0.5%. FMR has determined that
unrated debt securities that are lower quality account for 0.5% of the
total value of investment in securities.
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $10,401,054,000. Net unrealized appreciation
aggregated $3,104,505,000, of which $3,201,732,000 related to
appreciated investment securities and $97,227,000 related to
depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) MARCH 31, 1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 13,505,559
AGREEMENTS OF $177,153) (COST $10,396,435) -
SEE ACCOMPANYING SCHEDULE
CASH 39
RECEIVABLE FOR INVESTMENTS SOLD 26,608
RECEIVABLE FOR FUND SHARES SOLD 10,532
DIVIDENDS RECEIVABLE 12,627
INTEREST RECEIVABLE 65,415
OTHER RECEIVABLES 507
TOTAL ASSETS 13,621,287
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 59,918
REGULAR DELIVERY
DELAYED DELIVERY 447,975
PAYABLE FOR FUND SHARES REDEEMED 54,217
ACCRUED MANAGEMENT FEE 5,794
OTHER PAYABLES AND ACCRUED EXPENSES 2,898
COLLATERAL ON SECURITIES LOANED, AT VALUE 114,980
TOTAL LIABILITIES 685,782
NET ASSETS $ 12,935,505
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 9,462,902
UNDISTRIBUTED NET INVESTMENT INCOME 5,921
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 357,449
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 3,109,233
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES
NET ASSETS, FOR 660,278 SHARES OUTSTANDING $ 12,935,505
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $19.59
SHARE ($12,935,505 (DIVIDED BY) 660,278 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1998
INVESTMENT INCOME $ 56,189
DIVIDENDS
INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF $513) 182,383
TOTAL INCOME 238,572
EXPENSES
MANAGEMENT FEE $ 33,080
TRANSFER AGENT FEES 12,587
ACCOUNTING AND SECURITY LENDING FEES 484
NON-INTERESTED TRUSTEES' COMPENSATION 42
CUSTODIAN FEES AND EXPENSES 158
REGISTRATION FEES 136
AUDIT 130
LEGAL 41
MISCELLANEOUS 56
TOTAL EXPENSES BEFORE REDUCTIONS 46,714
EXPENSE REDUCTIONS (690) 46,024
NET INVESTMENT INCOME 192,548
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 410,921
FOREIGN CURRENCY TRANSACTIONS (58) 410,863
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 714,185
INVESTMENT SECURITIES
NET GAIN (LOSS) 1,125,048
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,317,596
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED YEAR ENDED
MARCH 31, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 192,548 $ 377,233
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 410,863 749,581
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 714,185 1,371,526
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,317,596 2,498,340
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (208,019) (418,976)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (679,851) (468,542)
TOTAL DISTRIBUTIONS (887,870) (887,518)
SHARE TRANSACTIONS 1,170,184 2,000,175
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 873,417 871,972
COST OF SHARES REDEEMED (1,403,710) (3,290,756)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 639,891 (418,609)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,069,617 1,192,213
NET ASSETS
BEGINNING OF PERIOD 11,865,888 10,673,675
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 12,935,505 $ 11,865,888
INCOME OF $5,921 AND $21,392, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 61,869 114,774
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 48,076 51,553
REDEEMED (73,819) (189,437)
NET INCREASE (DECREASE) 36,126 (23,110)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31,
1998 1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 19.01 $ 16.49 $ 15.47 $ 14.58 $ 14.97 $ 13.50
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME .30 D .59 D .62 .49 .34 .52
NET REALIZED AND 1.72 3.35 .96 .93 .21 2.01
UNREALIZED GAIN
(LOSS)
TOTAL FROM INVESTMENT 2.02 3.94 1.58 1.42 .55 2.53
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.33) (.67) (.56) (.44) (.44) (.87)
INCOME
FROM NET REALIZED GAIN (1.11) (.75) - - (.45) (.19)
IN EXCESS OF NET - - - (.09) (.05) -
REALIZED GAIN
TOTAL DISTRIBUTIONS (1.44) (1.42) (.56) (.53) (.94) (1.06)
NET ASSET VALUE, $ 19.59 $ 19.01 $ 16.49 $ 15.47 $ 14.58 $ 14.97
END OF PERIOD
TOTAL RETURN B, C 11.28% 25.15% 10.37% 10.09% 3.60% 19.71%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 12,936 $ 11,866 $ 10,674 $ 11,084 $ 11,792 $ 7,266
PERIOD (IN MILLIONS)
RATIO OF EXPENSES TO .77% A .79% .95% .97% 1.04% 1.09%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .76% A, E .78% E .93% E .97% 1.04% 1.09%
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS
RATIO OF NET INVESTMENT 3.19% A 3.39% 3.64% 4.27% 3.63% 4.28%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 78% A 79% 131% 137% 109% 98%
AVERAGE COMMISSION $ .0462 $ .0069 $ .0045
RATE F
</TABLE>
ANNUALIZED
TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
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.
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 MARCH 31, 1998
1. 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 require management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
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
among 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.
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.
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
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
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 Fidelity Investments Money Management, Inc.,
(formerly FMR Texas, Inc.) 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 earned
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.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying
securities is fixed at the time the transaction is negotiated. The
market values of the securities purchased on a when-issued or forward
commitment 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 when-issued security. With respect to purchase
commitments, the fund identifies securities
2. OPERATING POLICIES -
CONTINUED
WHEN-ISSUED SECURITIES - CONTINUED
as segregated in its custodial records with a value at least equal to
the amount of the commitment. The payables and receivables associated
with the purchases and sales of when-issued securities having the same
settlement date and broker are offset. When-issued securities that
have been purchased from and sold to different brokers are reflected
as both payables and receivables in the statement of assets and
liabilities under the caption "Delayed delivery." Losses may arise due
to changes in the market value of the underlying securities, if the
counterparty does not perform under the contract, or if the issuer
does not issue the securities due to political, economic, or other
factors.
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 $50,150,000 or 0.4% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $4,555,890,000 and $4,294,347,000, respectively, of which
U.S. government and government agency obligations aggregated
$2,626,339,000 and $2,250,280,000, 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 .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 annualized 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
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
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 annualized
rate of .21% 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 $249,000 for the
period.
5. 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 $111,565,000 and $114,980,000, respectively.
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 $348,000 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 $1,000 and $341,000, 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 March 31, 1998,
the results of its operations for the six months 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 March 31, 1998 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
May 7, 1998
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
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
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BUYING SHARES
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BUYING SHARES
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Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
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400 East Las Colinas Blvd.
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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
Robert A. Lawrence, Vice President
Richard C. Habermann, Vice President
Thomas Sprague, Vice President
Charles S. Morrison, Vice President
John Todd, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* 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
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(2_FIDELITY_LOGOS)FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
SEMIANNUAL REPORT
MARCH 31, 1998
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.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT 3.20% 7.87% 27.25% 42.30%
LB 1-5 U.S. GOVERNMENT BOND 3.39% 8.32% 31.75% N/A
SB TREAS/AGENCY 1-5 YEAR 3.43% 8.29% 31.78% N/A
SHORT-INTERMEDIATE U.S. GOVERNMENT 3.13% 7.95% 28.00% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, 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 Lehman Brothers 1-5 Year
U.S. Government Bond Index - a market value weighted performance
benchmark for government fixed-rate debt issues with maturities
between one and five years and the Salomon Brothers Treasury/Agency
1-5 Year Index - a market value 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 six months 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 MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
FIDELITY SHORT-INTERMEDIATE GOVERNMENT 7.87% 4.94% 5.53%
LB 1-5 U.S. GOVERNMENT BOND 8.32% 5.67% N/A
SB TREAS/AGENCY 1-5 YEAR 8.29% 5.67% N/A
SHORT-INTERMEDIATE U.S. GOVERNMENT 7.95% 5.05% 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
Short-Intermediate Govt. LB 1-5 Year U.S. Govt
00464 LB069
1991/09/30 10000.00 10000.00
1991/10/31 10124.47 10116.21
1991/11/30 10206.40 10230.40
1991/12/31 10363.10 10424.16
1992/01/31 10270.73 10373.36
1992/02/29 10301.41 10400.56
1992/03/31 10286.46 10376.96
1992/04/30 10374.47 10477.88
1992/05/31 10511.20 10606.46
1992/06/30 10602.19 10742.90
1992/07/31 10620.67 10908.11
1992/08/31 10766.62 11016.23
1992/09/30 10813.25 11147.05
1992/10/31 10714.24 11038.93
1992/11/30 10721.93 11002.29
1992/12/31 10851.32 11123.90
1993/01/31 11000.33 11297.65
1993/02/28 11099.58 11429.82
1993/03/31 11141.22 11469.61
1993/04/30 11190.03 11555.70
1993/05/31 11192.99 11518.61
1993/06/30 11276.42 11640.89
1993/07/31 11314.31 11662.02
1993/08/31 11364.67 11800.04
1993/09/30 11382.56 11838.47
1993/10/31 11391.68 11867.25
1993/11/30 11374.03 11842.07
1993/12/31 11424.48 11889.05
1994/01/31 11516.80 11986.60
1994/02/28 11419.40 11867.25
1994/03/31 11219.00 11751.26
1994/04/30 11165.11 11683.38
1994/05/31 11169.90 11695.74
1994/06/30 11175.51 11713.50
1994/07/31 11292.35 11842.07
1994/08/31 11315.67 11878.93
1994/09/30 11247.75 11815.55
1994/10/31 11255.23 11830.38
1994/11/30 11211.34 11771.26
1994/12/31 11267.16 11797.11
1995/01/31 11430.33 11976.26
1995/02/28 11611.08 12179.01
1995/03/31 11673.28 12246.67
1995/04/30 11797.39 12372.55
1995/05/31 12051.10 12655.77
1995/06/30 12114.07 12729.50
1995/07/31 12143.32 12758.95
1995/08/31 12210.19 12847.06
1995/09/30 12277.38 12918.99
1995/10/31 12383.41 13042.84
1995/11/30 12503.72 13178.16
1995/12/31 12603.00 13290.78
1996/01/31 12715.55 13409.91
1996/02/29 12636.33 13319.32
1996/03/31 12585.83 13279.31
1996/04/30 12564.15 13268.52
1996/05/31 12563.92 13277.51
1996/06/30 12650.02 13392.38
1996/07/31 12698.67 13440.48
1996/08/31 12733.63 13474.42
1996/09/30 12851.01 13620.75
1996/10/31 13025.35 13807.54
1996/11/30 13146.05 13936.34
1996/12/31 13114.89 13902.18
1997/01/31 13166.72 13965.11
1997/02/28 13200.86 13991.64
1997/03/31 13142.47 13949.60
1997/04/30 13254.65 14083.80
1997/05/31 13341.05 14185.40
1997/06/30 13439.43 14294.87
1997/07/31 13624.99 14500.54
1997/08/31 13622.68 14483.91
1997/09/30 13737.33 14615.63
1997/10/31 13851.70 14752.29
1997/11/30 13885.72 14781.29
1997/12/31 13981.27 14891.21
1998/01/31 14136.15 15062.04
1998/02/28 14137.61 15059.34
1998/03/31 14176.84 15110.82
IMATRL PRASUN SHR__CHT 19980331 19980408 122532 R00000000000081
$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 March
31, 1998, the value of the investment would have grown to $14,177 - a
41.77% increase on the initial investment. For comparison, look at how
the Lehman Brothers 1-5 Year U.S. Government Bond Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment would have grown to $15,111 - a 51.11%
increase. Beginning with this report, the fund will compare its
performance to that of the Lehman Brothers 1-5 Year U.S. Government
Bond Index rather than the Salomon Brothers Treasury/Agency 1-5 Year
Index. The indexes include the same type of bonds, and their
performance is not materially different. The fund is changing to the
Lehman Brothers index mainly because Lehman Brothers indexes are used
by most other Fidelity bond funds. For comparison, both indexes are
shown on page 4.
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
SIX MONTHS YEARS ENDED SEPTEMBER 30,
ENDED
MARCH 31,
1998 1997 1996 1995 1994 1993
DIVIDEND RETURN 2.88% 6.36% 6.46% 7.00% 5.55% 6.34%
CAPITAL RETURN 0.32% 0.54% -1.79% 2.15% -6.73% -1.08%
TOTAL RETURN 3.20% 6.90% 4.67% 9.15% -1.18% 5.26%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital 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, if any, are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.61(CENTS) 26.69(CENTS) 56.04(CENTS)
ANNUALIZED DIVIDEND RATE 5.77% 5.69% 5.99%
30-DAY ANNUALIZED YIELD 5.61% - -
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 $9.41
over the past one month, $9.41 over the past six months and $9.36 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
A continued lack of inflationary
pressure resulted in a relatively
favorable investing climate for
bonds during the six months that
ended March 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable investment-grade bond
market - returned 4.54% during
this period. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in Asia
came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower
volatility, helping the U.S. bond
market - especially U.S.
Treasuries - surge. The Lehman
Brothers Corporate Bond Index
returned 4.49% for the six-month
period. Corporate bonds benefited
from continued economic growth
and demand for yield, although
they faltered somewhat in January
1998. Investors feared a slowdown
in demand in Asia would eat into
corporate earnings. In spite of
record new issuance in February
1998, corporates rebounded due
in part to increased demand on the
part of yield-hungry investors.
Mortgage-backed bonds performed
well during the period, even
though lower interest rates resulted
in more mortgage prepayment
activity. The Lehman Brothers
Mortgage-Backed Securities Index
generated a six-month return of
4.04%. High-yield and
emerging-market issues performed
very well throughout the first
quarter of 1998.
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the six-month period that ended March 31, 1998, the fund
provided a total return of 3.20%. To get a sense of how the fund did
compared to its competitors, the short-intermediate U.S. government
funds average returned 3.13% for the same six-month period, according
to Lipper Analytical Services. Additionally, the Lehman Brothers 1-5
Year U.S. Government Bond Index - which tracks the types of securities
in which the fund invests - returned 3.39% for the six-month period.
For the 12-month period that ended March 31, 1998, the fund had a
total return of 7.87%. That performance compared to the
short-intermediate U.S. government funds average's 7.95% return and
the Lehman Brothers 1-5 Year U.S. Government Bond Index's 8.32%
return.
Q. HOW DID YOU ALLOCATE THE FUND'S INVESTMENTS DURING THE PAST SIX
MONTHS?
A. I continued to have a larger stake than the Lehman Brothers index
in agency and mortgage securities, and maintained a smaller stake in
Treasury securities. I did that because agency and mortgage securities
generally offered an attractive amount of additional yield compared to
Treasury securities. That was especially the case in the final months
of 1997. During that timeframe, economic and currency problems in Asia
prompted more investors to seek out U.S. Treasury securities, which
are among the highest-quality securities in the world because they are
backed by the full faith and credit of the U.S. government. As the
demand for Treasuries grew, their yields fell and their prices rose.
Agency securities, on the other hand, didn't rally as much, so their
yield advantage over Treasuries grew and their prices looked
relatively inexpensive, in my opinion. Given that, I added some
additional agency holdings at year end.
Q. HOW DID THE FUND'S ALLOCATION CHANGE IN 1998?
A. In the beginning of 1998, agency prices strengthened and their
yield advantage over Treasuries diminished. To take advantage of that
strength, I sold some of the fund's agency holdings to lock in their
gains in January and February. Agency securities looked inexpensive
again in March and their yields once again became more attractive
relative to Treasuries. So I once again bought more at the end of the
period. With mortgages, I used periods of weakness and strength to buy
and sell mortgage securities throughout the period in much the same
fashion.
Q. WITHIN THE AGENCY SECTOR, WHICH SECURITIES DID YOU FOCUS ON?
A. I emphasized agency securities that are non-callable - those that
can't be redeemed by their issuers before maturity. Securities
typically are "called" - or redeemed - when interest rates fall enough
so that the issuer can save money by issuing new securities at lower
rates. A call is a positive for issuers because it gives them the
opportunity to cut their borrowing costs. But holders of callable
bonds are often at a disadvantage because they may have to reinvest
the proceeds from the called bonds 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. WHAT'S YOUR OUTLOOK FOR THE BOND MARKET AND THE FUND?
A. At the end of the period, bonds were selling at prices that
reflected the best-case scenario - low inflation and falling interest
rates. To illustrate, the yield on a Treasury security with a two-year
maturity was virtually the same as the yield on very-short-maturity
securities. To me, that suggests that many investors are expecting the
Federal Reserve Board to lower interest rates. If the Fed surprises
investors by hiking interest rates instead, bonds could suffer. But no
matter what the direction of interest rates, I'll continue to manage
the fund with approximately the same
interest-rate sensitivity as the short-intermediate part of the
government/agency market.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
CURT HOLLINGSWORTH ON
MORTGAGE-BACKED SECURITIES:
"Mortgage securities are pools of
individual home loans. Certificates
backed by these loans are sold to
investors, who collect interest and
principal when homeowners make
monthly mortgage payments.
Recently, falling interest rates have
incited a wave of home mortgage
refinancings, subjecting some
mortgage-backed securities to
higher `prepayment risk' - the risk
that mortgage holders will pay off
their mortgages before maturity,
leaving those who hold the prepaid
securities to reinvest at lower
interest rates.
"The likelihood that a mortgage
security will be prepaid is one of
the most important factors I consider
in choosing mortgage securities for
the fund, because prepayment
activity can dramatically affect
mortgage securities' prices. I focus
on finding those securities that I
think are less susceptible to a
pickup or slowdown in the pace of
refinancings. For example, `seasoned'
mortgage securities have been through
several refinancing periods, but the
mortgage holders haven't shown
a propensity to prepay in spite of
being presented several attractive
opportunities to do so."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 464
TRADING SYMBOL: FLMGX
START DATE: September 13, 1991
SIZE: as of March 31, 1998,
more than $126 million
MANAGER: Curt Hollingsworth,
since 1991; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
(checkmark)
INVESTMENT CHANGES
COUPON DISTRIBUTION AS OF MARCH 31, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 8.0 5.2
5%
5 - 22.2 8.4
5.99%
6 - 21.0 1.2
6.99%
7 - 6.9 24.9
7.99%
8 - 11.2 25.4
8.99%
9 - 15.3 17.8
9.99%
10% AND 14.0 17.1
OVER
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE
FUND'S INVESTMENTS, EXCLUDING
SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1998
6 MONTHS AGO
YEARS 3.4 3.6
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 MARCH 31, 1998
6 MONTHS AGO
YEARS 2.2 2.2
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 MARCH 31, 1998 AS OF SEPTEMBER 30, 1997
ROW: 1, COL: 1, VALUE: 1.4
ROW: 1, COL: 2, VALUE: 34.3
ROW: 1, COL: 3, VALUE: 45.8
ROW: 1, COL: 4, VALUE: 18.5
MORTGAGE-BACKED
SECURITIES 21.4%
U.S. TREASURY
OBLIGATIONS 31.4%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 47.2%
SHORT-TERM
INVESTMENTS 0.0%
MORTGAGE-BACKED
SECURITIES 18.5%
U.S. TREASURY
OBLIGATIONS 45.8%
U.S. GOVERNMENT
AGENCY OBLIGATIONS 34.3%
SHORT-TERM
INVESTMENTS 1.4%
ROW: 1, COL: 1, VALUE: 0.0
ROW: 1, COL: 2, VALUE: 47.2
ROW: 1, COL: 3, VALUE: 31.4
ROW: 1, COL: 4, VALUE: 21.4
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 80.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 45.8%
8%, 8/15/99 $ 8,000,000 $ 8,250,000
5 7/8%, 8/31/99 11,000,000 11,039,490
7 3/4%, 12/31/99 740,000 766,129
7 3/4%, 2/15/01 5,860,000 6,186,871
5 5/8%, 2/28/01 10,751,000 10,747,667
6 1/2%, 8/31/01 20,000,000 20,512,400
57,502,557
U.S. GOVERNMENT AGENCY OBLIGATIONS - 34.3%
Financing Corp. stripped principal:
0%, 4/5/01 2,103,000 1,769,675
0%, 5/11/01 3,513,000 2,939,257
0%, 6/6/02 6,170,000 4,848,386
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 8,949,636 9,468,715
Class 2-E, 9.40%, 5/15/02 4,130,808 4,362,670
Class T-3, 9 5/8%, 5/15/02 4,031,274 4,255,776
Guaranteed Export Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank):
Series 1994-A, 7.12%, 4/15/06 1,692,001 1,757,896
Series 1994-F, 8.187%, 12/15/04 5,381,859 5,713,893
Series 1995-A, 6.28%, 6/15/04 1,720,588 1,740,908
Series 1997-A, 6.104%, 7/15/03 2,291,667 2,297,396
Guaranteed Trade Trust Certificates (assets of Trust
guaranteed by U.S. Government through
Export-Import Bank) Series 1993-A, 4.86%, 4/1/98 500,000 500,000
Overseas Private Investment Corp. U.S. Government
guaranteed participation certificate Series 1994-195,
6.08%, 8/15/04 1,171,200 1,174,011
Private Export Funding Corp. secured:
9 1/2%, 3/31/99 250,000 259,103
5.65%, 3/15/03 1,350,000 1,341,482
State of Israel (guaranteed by U.S. Government through
Agency for International Development) 6.05%, 8/15/00 400,000 402,324
U.S. Department of Housing and Urban Development
government guaranteed participation certificates
Series 1996-A, 6.59%, 8/1/00 230,000 233,765
43,065,257
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $100,490,080) 100,567,814
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 18.5%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
FREDDIE MAC - 3.8%
5 1/2%, 12/1/02 to 7/1/03 $ 4,843,454 $ 4,743,071
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 14.7%
8 1/2%, 1/15/17 to 7/15/17 77,393 82,737
9 1/2%, 4/15/16 to 4/15/28 813,854 881,645
10%, 11/15/09 to 11/15/20 3,189,775 3,515,405
10 1/2%, 2/15/14 to 8/15/19 6,870,620 7,695,985
10 3/4%, 12/15/09 184,636 204,251
11%, 11/15/09 to 6/15/19 2,285,194 2,584,525
11 1/2%, 3/15/10 to 7/15/19 2,662,368 3,047,414
12%, 1/15/14 to 2/15/16 318,640 370,809
12 1/2%, 12/15/10 50,191 58,621
13%, 9/15/14 35,062 41,416
18,482,808
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $22,942,289) 23,225,879
CASH EQUIVALENTS - 1.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury Obligations) in a joint
trading account at 5.92%, dated
3/31/98 due 4/1/98 $ 1,755,289 1,755,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $125,187,369) $ 125,548,693
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $125,187,369. Net unrealized appreciation
aggregated $361,324, of which $774,741 related to appreciated
investment securities and $413,417 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 MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 125,548,693
AGREEMENTS OF $1,755,000) (COST $125,187,369) -
SEE ACCOMPANYING SCHEDULE
CASH 402
RECEIVABLE FOR FUND SHARES SOLD 141,391
INTEREST RECEIVABLE 1,364,687
TOTAL ASSETS 127,055,173
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 580,586
PAYABLE FOR FUND SHARES REDEEMED 156,828
DISTRIBUTIONS PAYABLE 81,250
ACCRUED MANAGEMENT FEE 45,721
OTHER PAYABLES AND ACCRUED EXPENSES 50,332
TOTAL LIABILITIES 914,717
NET ASSETS $ 126,140,456
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 136,015,269
UNDISTRIBUTED NET INVESTMENT INCOME 64,492
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) (10,300,629)
ON INVESTMENTS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 361,324
NET ASSETS, FOR 13,424,475 SHARES OUTSTANDING $ 126,140,456
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.40
SHARE ($126,140,456 (DIVIDED BY) 13,424,475 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 4,196,470
INTEREST
EXPENSES
MANAGEMENT FEE $ 272,170
TRANSFER AGENT FEES 141,406
ACCOUNTING FEES AND EXPENSES 30,521
NON-INTERESTED TRUSTEES' COMPENSATION 237
CUSTODIAN FEES AND EXPENSES 13,725
REGISTRATION FEES 17,258
AUDIT 17,111
LEGAL 5,125
MISCELLANEOUS 622
TOTAL EXPENSES 498,175
NET INVESTMENT INCOME 3,698,295
REALIZED AND UNREALIZED GAIN (LOSS) 729,035
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (563,980)
INVESTMENT SECURITIES
NET GAIN (LOSS) 165,055
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 3,863,350
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 3,698,295 $ 7,884,065
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 729,035 178,902
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (563,980) 135,665
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 3,863,350 8,198,632
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (3,536,750) (7,517,929)
SHARE TRANSACTIONS 28,652,055 51,261,094
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 3,031,063 5,978,419
COST OF SHARES REDEEMED (26,007,576) (60,826,140)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 5,675,542 (3,586,627)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 6,002,142 (2,905,924)
NET ASSETS
BEGINNING OF PERIOD 120,138,314 123,044,238
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 126,140,456 $ 120,138,314
INCOME AND DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $64,492 AND $97,053, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 3,043,647 5,495,549
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 322,117 639,858
REDEEMED (2,761,963) (6,514,225)
NET INCREASE (DECREASE) 603,801 (378,818)
</TABLE>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, 1998
(UNAUDITED) 1997 1996 1995 1994 1993
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, BEGINNING $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960 $ 10.140
OF PERIOD
INCOME FROM INVESTMENT .279 D .603 D .599 .648 .533 .722
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .018 .022 (.167) .174 (.648) (.209)
UNREALIZED
GAIN (LOSS)
TOTAL FROM INVESTMENT .297 .625 .432 .822 (.115) .513
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.267) (.575) (.602) (.622) (.555) (.623)
INCOME
FROM NET REALIZED - - - - - (.070)
GAIN
TOTAL DISTRIBUTIONS (.267) (.575) (.602) (.622) (.555) (.693)
NET ASSET VALUE, $ 9.400 $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960
END OF PERIOD
TOTAL RETURN B, C 3.20% 6.90% 4.67% 9.15% (1.18)% 5.26%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 126,140 $ 120,138 $ 123,044 $ 140,471 $ 132,466 $ 168,292
(000 OMITTED)
RATIO OF EXPENSES TO .80% A .81% .79% .82% .95% .61% E
AVERAGE NET ASSETS
RATIO OF NET INVESTMENT 5.95% A 6.45% 6.54% 6.67% 6.80% 7.19%
INCOME TO AVERAGE NET
ASSETS
PORTFOLIO TURNOVER RATE 168% A 126% 188% 266% 184% 348%
</TABLE>
ANNUALIZED
TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN.
NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
1. 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 require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities 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 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.
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.
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 gain/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.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $108,232,684 and $101,257,721, 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 .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 annualized 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 annualized rate of .23% 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.
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
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
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
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
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
Capital & Income
Ginnie Mae
Government Securities
Intermediate Bond
International 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 1999, 2001, & 2003
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 1-800-544-4774
SM
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)SPARTAN(registered trademark)
INVESTMENT GRADE BOND
FUND
SEMIANNUAL REPORT
MARCH 31, 1998
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.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
SPARTAN INV. GRADE BOND 4.60% 11.93% 40.36% 51.45%
LB AGGREGATE BOND 4.54% 11.99% 39.89% N/A
INTERMEDIATE INVESTMENT GRADE DEBT 3.94% 10.78% 34.98% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years 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 intermediate
investment grade debt funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past six months average represents a peer group of
221 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 MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN INV. GRADE BOND 11.93% 7.02% 7.84%
LB AGGREGATE BOND 11.99% 6.94% N/A
INTERMEDIATE INVESTMENT GRADE DEBT 10.78% 6.17% 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
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 14755.76 14159.05
1997/10/31 14949.72 14364.46
1997/11/30 14998.03 14430.60
1997/12/31 15164.78 14575.90
1998/01/31 15358.71 14763.03
1998/02/28 15371.17 14751.91
1998/03/31 15431.42 14802.60
IMATRL PRASUN SHR__CHT 19980331 19980408 111144 R00000000000068
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Investment Grade Bond Fund on October 31, 1992,
shortly after the fund started. As the chart shows, by March 31, 1998,
the value of the investment would have grown to $15,431 - a 54.31%
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 would have grown
to $14,802 - a 48.02% 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
SIX MONTHS YEARS ENDED SEPTEMBER 30,
ENDED
MARCH 31,
1998 1997 1996 1995 1994 1993
DIVIDEND RETURN 3.14% 6.73% 6.33% 7.66% 6.24% 8.77%
CAPITAL RETURN 1.46% 2.69% -1.88% 7.27% -13.01% 9.37%
TOTAL RETURN 4.60% 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 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, if any, are reinvested. Capital and total
returns include the effect of the $5 account closeout fee on an
average-sized account.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 5.42(CENTS) 31.80(CENTS) 64.28(CENTS)
ANNUALIZED DIVIDEND RATE 6.14% 6.15% 6.28%
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
$10.40 over the past one month, $10.37 over the past six months and
$10.23 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 5.77%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A continued lack of inflationary
pressure resulted in a relatively
favorable investing climate for
bonds during the six months that
ended March 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable investment-grade bond
market - returned 4.54% during
this period. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in Asia
came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower
volatility, helping the U.S. bond
market - especially U.S.
Treasuries - surge. The Lehman
Brothers Corporate Bond Index
returned 4.49% for the six-month
period. Corporate bonds
benefited from continued
economic growth and demand for
yield, although they faltered
somewhat in January 1998.
Investors feared a slowdown in
demand in Asia would eat into
corporate earnings. In spite of
record new issuance in February
1998, corporates rebounded due
in part to increased demand on the
part of yield-hungry investors.
Mortgage-backed bonds
performed well during the period,
even though lower interest rates
resulted in more mortgage
prepayment activity. The Lehman
Brothers Mortgage-Backed
Securities Index generated a
six-month return of 4.04%.
High-yield and emerging-market
issues performed very well
throughout the first quarter of
1998.
An interview with Kevin Grant, Portfolio Manager of Spartan Investment
Grade Bond Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. I'm pleased with the fund's performance. For the six months that
ended March 31, 1998, the fund returned 4.60%. This topped the
intermediate investment grade debt funds average tracked by Lipper
Analytical Services, which returned 3.94%.The Lehman Brothers
Aggregate Bond Index returned 4.54% during the six-month period. For
the 12 months that ended March 31, 1998, the fund produced an 11.93%
return, while the Lipper average and Lehman Brothers index returned
10.78% and 11.99%, respectively.
Q. WHAT FACTORS LED TO THE FUND'S SOLID SHOWING?
A. I positioned the fund defensively beginning last summer. Last July,
I began to notice disturbing trends in the Asian markets. While the
fund didn't have a considerable amount of direct Asian exposure, I
began to lighten up on some of the positions that were indirectly
affected by the goings-on in Asia. For example, the fund had a
position in one of Mobil's liquefied natural gas projects in the
Middle East, and this project had long-term contracts to sell the gas
to South Korea. As events in Asia unfolded, Korean markets were
negatively affected as were these particular bonds. By selling
positions such as these before the Asian decline peaked, the fund
avoided significant losses when the Asian markets fell in October
1997.
Q. WERE THERE ANY OTHER DEVELOPMENTS THAT HELPED THE FUND'S
PERFORMANCE?
A. A second factor I'd highlight was the situation within the
mortgage-backed sector. Six months ago, the fund was underweighted
relative to its index in mortgage-backed issues because I didn't feel
prices were appropriate for the level of risk involved. Mortgage
securities continued to be expensive until January 1998, when interest
rates plummeted due to Asian concerns and corporate bonds cheapened.
In December and January - as investors began to realize that lower
rates would mean higher mortgage prepayment risk - mortgage-backed
issues dramatically underperformed both Treasuries and corporates.
Correspondingly, the fund's underweighting in mortgage-backed
investments helped significantly. When mortgage-backed issues
cheapened in January, I increased the fund's mortgage-related
positions to the point of being overweighted relative to the index.
This overweighting helped performance in February and March, as
mortgage-backed bonds rebounded and performed well.
Q. CLOSER TO HOME, THE U.S. BOND MARKET ENJOYED A NICE RUN DURING THE
PERIOD . . .
A. It really did. We had a very strong domestic economy and virtually
no inflationary pressure during the period. A lot of market followers
have dubbed it the "Goldilocks" economy, meaning that it's not too hot
and not too cold, but just right. I don't know when these pleasant
conditions will end, but at this point it seems like everything is in
place for the U.S economy to be able to maintain its strength. The
Asian crises also helped the U.S. economy to an extent. Because of
their problems, Asian companies are trying to export their way out of
a recession by exporting higher volumes of products at lower prices.
This trend also helped keep inflation at bay in the U.S.
Q. WERE THERE ANY SECTORS THAT
CONTRIBUTED TO PERFORMANCE?
A. The wave of consolidation within the banking sector - which
continued to be prevalent throughout the period - helped boost the
credit quality of many of the fund's positions. When a bank with a
single A rating acquires a bank with a BBB rating, the BBB bank gets
an almost instantaneous quality upgrade. This strategy has worked
beautifully for the fund over the past few years, as a number of its
lower-quality banks have been benefactors of such acquisitions. An
example within the portfolio would be H.F. Ahmanson, a savings and
loan institution that was acquired by Washington Mutual during the
period.
Q. WHAT'S YOUR OUTLOOK?
A. Knock on wood, but the outlook appears encouraging. Because capital
markets reward issuers for carrying less debt, the bond market
benefits when companies receive credit upgrades. Earnings and cash
flows also appear healthy at this point. Mortgage-backed bonds may
remain cheap, since interest rates and inflation should remain low,
and volatility throughout the market looks to be minimal. In terms of
the portfolio, I may look to add to the fund's corporate bond
positions, either through real estate investment trusts or standard
corporate issues. In an environment such as we've seen - where yields
on corporate, mortgage-backed and asset-backed bonds are attractive -
it's not conducive to good performance to own a lot of
government-backed securities.
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.
KEVIN GRANT DISCUSSES THE
BENEFITS OF REAL ESTATE
INVESTMENT TRUSTS:
"REAL ESTATE INVESTMENT TRUSTS
- - COMMONLY KNOWN AS REITS -
HAVE BECOME QUITE POPULAR IN
RECENT YEARS. REITS ARE PUBLICLY
TRADED COMPANIES THAT MANAGE
REAL ESTATE PORTFOLIOS. FOR EXAMPLE,
REITS INVEST IN A WIDE VARIETY OF
REAL ESTATE, FROM SHOPPING CENTERS
TO OFFICE BUILDINGS AND APARTMENTS.
MOST REITS TYPICALLY ISSUE ONLY
EQUITY, BUT THERE ARE A FEW LARGER
REITS THAT ISSUE DEBT AS WELL.
"THERE WERE A COUPLE OF FORCES AT
WORK THAT MADE BONDS ISSUED BY
REITS ATTRACTIVE DURING THE PERIOD.
FIRST, THEY WERE PRICED
INEXPENSIVELY RELATIVE TO CORPORATE
BONDS. SECOND, THE STOCK MARKET
LATELY HAS BEEN PUNISHING ISSUERS
THAT HAVE AN ABUNDANCE OF
OUTSTANDING DEBT. BECAUSE OF THIS, I
FELT THAT MOST REITS WOULDN'T BE
ADDING DEBT TO THEIR BALANCE
SHEETS. TO ME, CHEAP PRICES AND THE
LIKELIHOOD THAT REITS WOULD NOT
BECOME OVER-LEVERAGED EQUATED TO A
SOUND BOND INVESTMENT. I MAY TRY
TO ADD TO THE FUND'S REIT
EXPOSURE, BUT IT COULD BE A
CHALLENGE BECAUSE ATTRACTIVE
REITS COULD BE HARD TO FIND.
HOWEVER, THERE ARE SOME BONDS HERE
AND THERE THAT MAY MAKE SENSE TO
OWN. GOING FORWARD, I'LL KEEP AN
EYE OUT FOR ANY INTERESTING
OPPORTUNITIES."
FUND FACTS
GOAL: HIGH CURRENT INCOME
FUND NUMBER: 448
TRADING SYMBOL: FSIBX
START DATE: OCTOBER 1, 1992
SIZE: AS OF MARCH 31, 1998,
MORE THAN $819 MILLION
MANAGER: KEVIN GRANT, SINCE
1997; ALSO MANAGER OF SEVERAL
FIDELITY INVESTMENT-GRADE
TAXABLE BOND FUNDS; JOINED
FIDELITY IN 1993
(CHECKMARK)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF MARCH 31, 1998
(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 61.2
6
.
9
AA 4 3.5
.
2
A 6 11.0
.
9
BAA 1 14.6
4
.
5
BA 3 4.2
.
0
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 MARCH 31, 1998
6 MONTHS AGO
YEARS 7.5 8.4
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 MARCH 31, 1998
6 MONTHS AGO
YEARS 4.5 4.5
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 MARCH 31, 1998 * AS OF SEPTEMBER 30, 1997 **
CORPORATE BONDS 30.1%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 12.2%
U.S. GOVERNMENT
AGENCY-MORTGAGE
BACKED SECURITIES 30.0%
OTHER 3.2%
SHORT-TERM
INVESTMENTS 24.5%
CORPORATE BONDS 37.1%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 39.4%
U.S. GOVERNMENT
AGENCY-MORTGAGE
BACKED SECURITIES 13.3%
OTHER 4.7%
SHORT-TERM
INVESTMENTS 5.5%
ROW: 1, COL: 1, VALUE: 24.5
ROW: 1, COL: 2, VALUE: 3.2
ROW: 1, COL: 3, VALUE: 30.0
ROW: 1, COL: 4, VALUE: 12.2
ROW: 1, COL: 5, VALUE: 30.1
ROW: 1, COL: 1, VALUE: 5.5
ROW: 1, COL: 2, VALUE: 4.7
ROW: 1, COL: 3, VALUE: 13.3
ROW: 1, COL: 4, VALUE: 39.4
ROW: 1, COL: 5, VALUE: 37.1
* FOREIGN
INVESTMENTS 17.4%
** FOREIGN
INVESTMENTS 5.6%
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 30.1%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
AEROSPACE & DEFENSE - 0.5%
DEFENSE ELECTRONICS - 0.5%
Raytheon Co. 6.45%, 8/15/04 Baa1 $ 5,000,000 $ 5,042,050
CONSTRUCTION & REAL ESTATE - 0.3%
REAL ESTATE INVESTMENT TRUSTS - 0.3%
EOP Operating L.P.:
6 5/8%, 2/15/05 (a) Baa1 1,250,000 1,240,138
6 3/4%, 2/15/08 (a) Baa1 2,000,000 1,983,660
3,223,798
DURABLES - 1.9%
CONSUMER ELECTRONICS - 0.5%
Sony Corp. 6 1/8%, 3/4/03 Aa3 5,000,000 4,988,450
TEXTILES & APPAREL - 1.4%
Levi Strauss & Co. 7%, 11/1/06 (a) Baa2 8,550,000 8,648,859
Unifi, Inc. 6 1/2%, 2/1/08 (a) A3 5,000,000 4,903,500
13,552,359
TOTAL DURABLES 18,540,809
ENERGY - 0.4%
OIL & GAS - 0.4%
Petroleum Geo Services ASA
7 1/8%, 3/30/28 Baa3 3,400,000 3,406,460
FINANCE - 13.5%
ASSET-BACKED SECURITIES - 4.2%
Arcadia Automobile Receivables Trust
6 1/2%, 6/17/02 Aaa 14,000,000 14,122,500
Capital Equipment Receivables Trust
6.48%, 10/15/06 Baa2 1,760,000 1,749,774
Contimortgage Home Equity Loan Trust
6.26%, 7/15/12 Aaa 5,000,000 5,003,125
Ford Credit Auto Owner Trust:
6.40%, 5/15/02 A1 1,730,000 1,740,761
6.20%, 12/15/02 Baa3 1,790,000 1,776,575
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 294,767 294,952
Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 1,005,154 1,005,777
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Key Auto Finance Trust Class C
6.65%, 10/15/03 Baa3 $ 660,000 $ 660,309
Key Plastics, Inc. 10 1/4%, 3/15/07 A2 2,250,000 2,253,867
MBNA Master Credit Card Trust II Class A
6.55%, 1/15/07 Aaa 5,000,000 5,116,450
PNC Student Loan Trust I 6.314%, 1/25/01 Aaa 5,700,000 5,736,537
Premier Auto Trust:
8.05%, 4/4/00 Aaa 537,981 541,511
6%, 5/6/00 Aaa 945,346 946,225
40,948,363
BANKS - 2.6%
ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 1,750,000 1,780,310
Banc One Corp. 6.70%, 3/24/00 Aa3 2,100,000 2,125,200
BanPonce Corp.:
5 3/4%, 3/1/99 A3 690,000 687,502
6.378%, 4/8/99 A3 770,000 771,040
Capital One Bank:
6.42%, 11/12/99 Baa3 4,000,000 4,014,240
6 3/8%, 2/15/03 Baa3 2,400,000 2,363,112
Central Fidelity Banks, Inc. 8.15%, 11/15/02 A1 1,000,000 1,076,450
Citicorp 7.20%, 6/15/07 A1 1,850,000 1,946,737
Fleet/Norstar Financial Group, Inc. 9%, 12/1/01 A3 250,000 271,400
Hartford National Corp. 9.85%, 6/1/99 A3 1,650,000 1,716,561
Kansallis-Osake-Pankki 10%, 5/1/02 A3 430,000 485,827
NB Capital Trust IV 8 1/4%, 4/15/27 A1 3,980,000 4,330,001
Provident Bank 6 1/8%, 12/15/00 A3 210,000 209,672
Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,000,000 1,090,030
Union Planters Corp. 6 3/4%, 11/1/05 Baa2 1,200,000 1,212,924
Union Planters National Bank 6.81%, 8/20/01 A3 1,000,000 1,015,710
25,096,716
CREDIT & OTHER FINANCE - 5.0%
AT&T Capital Corp.:
6.41%, 8/13/99 Baa3 2,000,000 2,007,100
6.16%, 12/3/99 Baa3 750,000 749,550
Associates Corp. of North America:
6 7/8%, 2/15/00 Aa3 1,000,000 1,018,710
7 1/2%, 5/15/99 Aa3 3,000,000 3,048,450
BCH Cayman Islands Ltd. yankee
7.70%, 7/15/06 A3 180,000 191,934
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Bank of New York Co., Inc.
Capital I 7.97%, 12/31/26 A1 $ 3,000,000 $ 3,190,050
BankBoston Capital Trust II 7 3/4%, 12/15/26 A2 1,750,000 1,792,700
BanPonce Trust I 8.327%, 2/1/27 (a) Baa1 1,960,000 2,091,222
Chase Capital I 7.67%, 12/1/26 Aa3 10,570,000 10,827,168
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,960,000 1,971,760
First Security Capital I 8.41%, 12/15/26 A3 5,420,000 5,902,001
First Union Institutional Capital I 8.04%, 12/1/26 BBB 2,000,000
2,117,060
Fleet Mortgage Group 6 1/2%, 9/15/99 A2 250,000 251,690
General Electric Capital Corp. 6.94%,
4/13/09 (c) Aaa 1,750,000 1,765,470
General Motors Acceptance Corp.
6.65%, 5/24/00 A3 2,520,000 2,550,870
JPM Capital Trust II 7.95%, 2/1/27 Aa2 4,620,000 4,867,909
KeyCorp Institutional Capital Series A
7.826%, 12/1/26 A1 1,100,000 1,139,248
MCN Investment Corp. 6.03%, 2/1/01 Baa2 800,000 799,320
PNC Institutional Capital Trust
8.315%, 5/15/27 (a) A2 2,000,000 2,161,580
48,443,792
INSURANCE - 0.5%
Executive Risk Capital Trust 8 5/8%, 2/1/27 Baa3 2,750,000
3,010,618
Protective Life Corp. 7.95%, 7/1/04 A3 400,000 429,564
SunAmerica, Inc. 6.20%, 10/31/99 Baa1 1,500,000 1,501,800
4,941,982
SAVINGS & LOANS - 1.2%
Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa2 5,000,000 5,281,000
Great West Financial Trust II 8.206%, 2/1/27 A3 4,000,000 4,234,000
Long Island Savings Bank 6.20%, 4/2/01 Baa3 1,550,000 1,548,760
11,063,760
TOTAL FINANCE 130,494,613
HOLDING COMPANIES - 0.3%
Norfolk Southern Corp. 7.05%, 5/1/37 Baa1 2,510,000 2,643,532
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
POLLUTION CONTROL - 0.7%
WMX Technologies, Inc.:
6 1/4%, 4/1/99 Baa3 $ 2,200,000 $ 2,201,782
7.10%, 8/1/26 Baa3 4,000,000 4,136,960
6,338,742
MEDIA & LEISURE - 3.3%
BROADCASTING - 2.0%
Continental Cablevision, Inc.:
8.30%, 5/15/06 Baa3 735,000 807,434
9%, 9/1/08 Baa3 1,450,000 1,683,900
Hearst-Argyle Television, Inc.
7 1/2%, 11/15/27 Baa3 2,750,000 2,843,033
TCI Communication, Inc.:
7 1/4%, 6/15/99 Ba1 9,350,000 9,454,814
7 3/8%, 2/15/00 Ba1 1,000,000 1,018,500
Time Warner, Inc. 9 1/8%, 1/15/13 Ba1 3,000,000 3,569,640
19,377,321
ENTERTAINMENT - 0.8%
Viacom, Inc. 7 3/4%, 6/1/05 Ba2 7,000,000 7,341,250
PUBLISHING - 0.5%
News America, Inc. 6 5/8%, 1/9/08 (a) Baa3 1,400,000 1,376,060
Time Warner Entertainment Co. LP:
10.15%, 5/1/12 Baa3 500,000 643,970
8 7/8%, 10/1/12 Baa3 750,000 882,375
8 3/8%, 3/15/23 Baa3 1,750,000 1,993,863
4,896,268
RESTAURANTS - 0.0%
Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 500,000 482,395
TOTAL MEDIA & LEISURE 32,097,234
NONDURABLES - 0.9%
FOODS - 0.2%
ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 2,040,000 2,147,488
TOBACCO - 0.7%
Philip Morris Companies, Inc.:
7%, 7/15/05 A2 2,000,000 2,037,700
6.95%, 6/1/06 A2 4,000,000 4,111,400
6,149,100
TOTAL NONDURABLES 8,296,588
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
RETAIL & WHOLESALE - 1.1%
GENERAL MERCHANDISE STORES - 0.9%
Dayton Hudson Corp. 6.40%, 2/15/03 Baa1 $ 1,000,000 $ 1,001,040
Federated Department Stores, Inc.:
8 1/2%, 6/15/03 Baa2 4,000,000 4,365,520
6.79%, 7/15/27 Baa2 2,000,000 2,029,980
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,400,000 1,424,780
8,821,320
GROCERY STORES - 0.2%
American Stores Co. 7 1/2%, 5/1/37 Baa2 2,000,000 2,194,860
TOTAL RETAIL & WHOLESALE 11,016,180
TECHNOLOGY - 0.9%
COMPUTERS & OFFICE EQUIPMENT - 0.6%
Comdisco, Inc. 6 3/8%, 11/30/01 Baa1 6,000,000 6,028,440
ELECTRONICS - 0.3%
Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 2,600,000 2,641,938
TOTAL TECHNOLOGY 8,670,378
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 0.4%
Delta Air Lines, Inc. equipment trust certificate
8.54%, 1/2/07 Baa1 2,478,736 2,711,786
United Air Lines, Inc. 10 1/4%, 7/15/21 Baa3 1,000,000 1,329,530
4,041,316
RAILROADS - 0.7%
Burlington Northern Santa Fe Corp.:
6 7/8%, 12/1/27 Baa2 2,000,000 1,990,000
6.53%, 7/15/37 Baa2 5,000,000 5,078,000
7,068,000
TOTAL TRANSPORTATION 11,109,316
UTILITIES - 5.2%
CELLULAR - 1.0%
Airtouch Communications, Inc. 7%, 10/1/03 Baa2 9,500,000 9,747,285
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 279,000 288,187
10,035,472
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - 2.6%
Avon Energy Partners Holdings:
7.05%, 12/11/07 (a) Baa2 $ 6,000,000 $ 6,184,200
6.46%, 3/4/08 (a) Baa2 3,200,000 3,161,888
British Columbia Hydro & Power Authority
yankee 12 1/2%, 1/15/14 Aa2 410,000 446,006
DR Investment yankee 7.10%, 5/15/02 (a) Baa1 2,000,000 2,049,125
Hydro-Quebec yankee 8%, 2/1/13 A2 250,000 280,450
Israel Electric Corp. Ltd.:
yankee 7 1/4%, 12/15/06 (a) A3 1,000,000 1,024,970
7 3/4%, 12/15/27 (a) A3 5,195,000 5,239,521
Philadelphia Electric Co. 1st & ref. mtg.:
8 5/8%, 6/1/22 Baa1 300,000 317,418
8 1/4%, 9/1/22 Baa1 100,000 103,470
7 3/4%, 5/1/23 Baa1 1,000,000 1,008,150
Texas Utilities Co., Series C, 6 3/8%,
1/1/08 (a) Baa3 5,925,000 5,689,422
25,504,620
GAS - 0.4%
Mitchell Energy & Development Corp.
8%, 7/15/99 Baa3 2,520,000 2,571,559
Panhandle Eastern Corp. 8 5/8%, 12/1/99 A3 1,000,000 1,039,810
3,611,369
TELEPHONE SERVICES - 1.2%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa1 3,460,000 3,461,972
GTE Corp. 7.83%, 5/1/23 Baa1 1,000,000 1,047,480
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 3,486,000 3,694,114
7 3/4%, 4/1/07 Ba1 2,920,000 3,147,906
11,351,472
TOTAL UTILITIES 50,502,933
TOTAL NONCONVERTIBLE BONDS
(Cost $286,780,685) 291,382,633
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 12.2%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
U.S. TREASURY OBLIGATIONS - 9.3%
5 1/2%, 12/31/00 Aaa $ 6,220,000 $ 6,198,603
6 3/8%, 9/30/01 Aaa 35,000,000 35,771,050
5 7/8%, 11/30/01 Aaa 7,030,000 7,077,242
7%, 7/15/06 Aaa 9,685,000 10,467,354
6 7/8%, 8/15/25 Aaa 22,735,000 25,356,573
6 3/8%, 8/15/27 Aaa 360,000 380,250
6 1/8%, 11/15/27 Aaa 4,850,000 4,973,530
90,224,602
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.9%
Fannie Mae 6.72%, 8/1/05 Aaa 1,740,000 1,812,854
Federal Home Loan Bank:
7.31%, 6/16/04 Aaa 5,000,000 5,350,000
7.36%, 7/1/04 Aaa 7,900,000 8,472,750
7.87%, 10/20/04 Aaa 1,700,000 1,873,723
Financing Corporation 0%, 3/26/04 Aaa 5,606,000 3,934,011
Freddie Mac 8.115%, 1/31/05 Aaa 4,350,000 4,869,260
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 28,497 28,645
U.S. Department of Housing and Urban
Development Government guaranteed
participation certificates Series 1995-A,
8.24%, 8/1/04 Aaa 1,000,000 1,116,920
27,458,163
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $116,782,997) 117,682,765
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 30.0%
FANNIE MAE - 27.4%
5 1/2%, 1/1/09 to 3/1/11 Aaa 15,597,073 15,129,449
6%, 4/1/13 (e) Aaa 73,500,000 72,876,719
6%, 1/1/24 to 11/1/25 Aaa 6,471,022 5,786,940
6 1/2%, 12/1/02 to 4/1/28 Aaa 93,623,498 92,491,329
6 1/2%, 4/1/13 (e) Aaa 17,000,000 16,840,271
7%, 4/1/13 to 5/1/13 (e) Aaa 59,280,000 60,014,839
8%, 12/1/21 to 12/1/24 Aaa 750,675 778,109
9 1/2%, 4/1/17 to 12/1/18 Aaa 1,335,394 1,442,037
265,359,693
FREDDIE MAC - 0.1%
7%, 6//1/01 to 7/1/01 Aaa 606,327 613,567
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
GOVERNMENT NATIONAL MORTGAGE ASSOCATION - 2.5%
6%, 10/15/08 to 5/15/09 Aaa $ 3,805,117 $ 3,787,237
7 1/2%, 12/15/25 to 2/15/28 Aaa 19,354,800 19,844,998
9 1/2%, 7/15/16 to 3/15/22 Aaa 829,650 900,312
24,532,547
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $290,441,925) 290,505,807
COMMERCIAL MORTGAGE SECURITIES - 1.2%
BKB Commercial Mortgage Trust Series 1997-C1
Class A-1, 6 7/8%, 2/25/43 (a) AAA 180,242 179,792
CS First Boston Mortgage Securities Corp.
Series 1997-C2 Class D, 7.27%, 4/17/11 Baa2 2,200,000 2,221,313
Equitable Life Assurance Society of the United
States (The):
Series 174 Class B1,
7.33%, 5/15/06 (a) Aa2 1,000,000 1,051,950
Series 1996-1 Class C1,
7.52%, 5/15/06 (a) A2 1,000,000 1,056,330
General Motors Acceptance Corp. Commercial
Mortgage Securities, Inc. Series 1997-C2
Class E, 7.624%, 4/15/11 Baa3 1,880,000 1,904,381
Oregon Commercial Mortgage, Inc. Series 1995-1
Class A, 7.15%, 6/25/26 (a)(d) AAA 53,083 53,000
Structured Asset Securities Corp. sequential pay
Series 1996 Class A-2A, 7 3/4%, 2/25/28 AAA 1,515,000 1,529,440
Thirteen Affiliates of General Growth
Properties, Inc. sequential pay Series A-2,
6.602%, 11/15/12 (a) Aaa 3,000,000 3,042,870
Wells Fargo Capital Markets Apartment
Financing Trust 6.56%, 12/29/05 (a) Aaa 575,661 583,842
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $11,417,582) 11,622,918
FOREIGN GOVERNMENT OBLIGATIONS - 1.2%
Alberta Province yankee 9 1/4%, 4/1/00 Aa2 1,650,000 1,748,324
Manitoba Province yankee 6 7/8%, 9/15/02 A1 6,300,000 6,466,131
New Brunswick Province yankee
7 5/8%, 2/15/13 A1 500,000 556,000
FOREIGN GOVERNMENT OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
Ontario Province 7%, 8/4/05 Aa3 $ 2,000,000 $ 2,103,280
Saskatchewan Province yankee
8 1/2%, 7/15/22 A3 300,000 365,298
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $11,043,936) 11,239,033
SUPRANATIONAL OBLIGATIONS - 0.5%
Inter American Development Bank yankee
6.29%, 7/16/27 (Cost $4,968,550) Aaa 5,000,000 5,251,650
CERTIFICATES OF DEPOSIT - 12.7%
Bank of Tokyo-Mitsubishi Ltd. yankee:
6%, 4/13/98 - 3,000,000 3,000,140
6%, 4/23/98 Aa2 37,000,000 37,003,511
Canadian Imperial Bank of Commerce
NY Branch yankee 6.20%, 8/1/00 Aa3 2,500,000 2,506,150
Sanwa Bank Ltd. Japan yankee:
6 1/2%, 4/13/98 - 35,000,000 35,004,274
6.23%, 4/27/98 - 5,000,000 5,001,354
Sumitomo Bank Ltd. Japan yankee:
6.05%, 4/13/98 - 35,000,000 35,002,156
6.05%, 4/27/98 A1 5,000,000 5,000,736
TOTAL CERTIFICATES OF DEPOSIT
(Cost $122,503,750) 122,518,321
CASH EQUIVALENTS - 12.1%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.92%, dated
3/31/98 due 4/1/98 $ 116,842,225 116,823,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $960,762,425) $ 967,026,127
LEGEND
(a) 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
$51,721,929 or 6.3% of net assets.
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 57.9% AAA, AA, A 56.1%
Baa 14.2% BBB 17.5%
Ba 2.9% BB 0.9%
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.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 82.6%
Japan 12.9
Canada 1.5
United Kingdom 1.2
Others (individually less than 1%) 1.8
TOTAL 100.0%
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $960,815,966. Net unrealized appreciation
aggregated $6,210,161, of which $8,298,128 related to appreciated
investment securities and $2,087,967 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>
MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 967,026,127
AGREEMENTS OF $116,823,000) (COST $960,762,425) -
SEE ACCOMPANYING SCHEDULE
CASH 12,329
RECEIVABLE FOR INVESTMENTS SOLD 963,013
RECEIVABLE FOR FUND SHARES SOLD 1,539,350
INTEREST RECEIVABLE 8,506,223
TOTAL ASSETS 978,047,042
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 5,901,448
REGULAR DELIVERY
DELAYED DELIVERY 149,731,829
PAYABLE FOR FUND SHARES REDEEMED 1,763,850
DISTRIBUTIONS PAYABLE 533,729
ACCRUED MANAGEMENT FEE 256,168
TOTAL LIABILITIES 158,187,024
NET ASSETS $ 819,860,018
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 812,176,418
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (244,978)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 1,664,876
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 6,263,702
NET ASSETS, FOR 78,868,180 SHARES OUTSTANDING $ 819,860,018
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $10.40
PER SHARE ($819,860,018 (DIVIDED BY) 78,868,180 SHARES)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 22,211,226
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,210,675
NON-INTERESTED TRUSTEES' COMPENSATION 1,207
TOTAL EXPENSES BEFORE REDUCTIONS 2,211,882
EXPENSE REDUCTIONS (918,273) 1,293,609
NET INVESTMENT INCOME 20,917,617
REALIZED AND UNREALIZED GAIN (LOSS) 9,311,652
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (1,796,640)
ON INVESTMENT SECURITIES
NET GAIN (LOSS) 7,515,012
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 28,432,629
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 20,917,617 $ 25,681,700
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 9,311,652 487,898
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (1,796,640) 11,421,374
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 28,432,629 37,590,972
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (20,961,528) (25,739,925)
SHARE TRANSACTIONS 386,546,119 359,111,379
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 18,169,448 21,867,052
COST OF SHARES REDEEMED (143,080,243) (185,908,497)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 261,635,324 195,069,934
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 269,106,425 206,920,981
NET ASSETS
BEGINNING OF PERIOD 550,753,593 343,832,612
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF $ 819,860,018 $ 550,753,593
NET INVESTMENT INCOME OF $244,978 AND
$201,067, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 37,182,325 35,504,616
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 1,750,012 2,160,519
REDEEMED (13,775,785) (18,406,632)
NET INCREASE (DECREASE) 25,156,552 19,258,503
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
MARCH 31, 1998 (COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
</TABLE>
SELECTED PER-SHARE DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940 $ 10.000
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .316 D .640 D .655 .693 .668 .799
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND .152 .273 (.211) .673 (1.384) .940
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .468 .913 .444 1.366 (.716) 1.739
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.318) (.643) (.634) (.686) (.704) (.798)
INCOME
IN EXCESS OF NET - - - - - (.001)
INVESTMENT INCOME
IN EXCESS OF NET - - - (.020) (.010) -
REALIZED GAIN
TOTAL DISTRIBUTIONS (.318) (.643) (.634) (.706) (.714) (.799)
NET ASSET VALUE, $ 10.400 $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940
END OF PERIOD
TOTAL RETURN B, C 4.61% 9.43% 4.46% 14.94% (6.75)% 18.17%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF $ 819,860 $ 550,754 $ 343,833 $ 147,620 $ 106,207 $ 128,860
PERIOD (000 OMITTED)
RATIO OF EXPENSES TO .38% A, E .48% E .65% .65% .65% .65%
AVERAGE NET ASSETS
RATIO OF NET INVESTMENT 6.15% A 6.36% 6.35% 6.92% 6.90% 7.58%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 311% A 194% 169% 147% 44% 55%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C 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).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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).
NOTES TO FINANCIAL STATEMENTS
For the period ended March 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Investment Grade Bond Fund (the fund) is a fund of Fidelity
Charles Street Trust (the trust) and is authorized to issue an
unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended (the 1940 Act), as an
open-end management investment company organized as a Massachusetts
business trust. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. 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
among 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, 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.
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.
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. With respect to purchase commitments, the fund
identifies securities as segregated
2. OPERATING POLICIES -
CONTINUED
DELAYED DELIVERY TRANSACTIONS - CONTINUED
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, 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 $1,163,570,058 and $957,176,018, respectively, of which
U.S. government and government agency obligations aggregated
$1,018,862,546 and $902,383,631, 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 $5,888 for the period.
5. EXPENSE REDUCTIONS.
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 $912,775.
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 $5,498 under these arrangements.
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Securities
Intermediate Bond
International 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 Timeline1999, 2001 & 2003
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)SPARTAN(registered trademark)
SHORT-TERM BOND
FUND
SEMIANNUAL REPORT
MARCH 31, 1998
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 22 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 26 NOTES TO THE FINANCIAL STATEMENTS.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
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:
In the first quarter of 1998, the U.S. stock and bond markets
responded differently to lingering uncertainty over the direction of
the U.S. and global economies. On the one hand, the U.S. stock market
soared to record heights as corporate earnings proved to be stronger
than expected and investors shrugged off concerns about the effects of
economic difficulties in Asia. On the other hand, two factors tempered
returns in the bond market. First, interest-rate levels were generally
positive, but were low enough to encourage a flood of new issuance
that dampened performance. Second, there were concerns that continued
economic strength might lead to eventual inflation, even though
inflation indicators remained benign during the quarter.
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 MARCH 31, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
SPARTAN SHORT-TERM BOND 3.14% 7.52% 25.85% 30.38%
LB 1-3 GOVT/CORP 3.12% 7.52% 31.08% N/A
SHORT INVESTMENT GRADE DEBT 2.77% 7.00% 29.33% N/A
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year or since
the fund 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 six months average represents a
peer group of 103 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 MARCH 31, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
SPARTAN SHORT-TERM BOND FUND 7.52% 4.71% 4.94%
LB 1-3 GOVT/CORP 7.52% 5.56% N/A
SHORT INVESTMENT GRADE DEBT FUNDS AVERAGE 7.00% 5.27% 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
Spartan Short-Term Bond LB 1-3 Year Govt/Corp
00449 LB013
1992/10/31 10000.00 10000.00
1992/11/30 10007.37 9985.91
1992/12/31 10100.06 10080.21
1993/01/31 10245.37 10187.78
1993/02/28 10362.03 10270.90
1993/03/31 10428.83 10304.27
1993/04/30 10491.81 10368.93
1993/05/31 10517.30 10345.31
1993/06/30 10633.77 10423.65
1993/07/31 10696.60 10447.49
1993/08/31 10801.74 10534.96
1993/09/30 10840.89 10568.95
1993/10/31 10900.33 10593.61
1993/11/30 10925.24 10596.72
1993/12/31 11009.87 10639.63
1994/01/31 11082.02 10707.40
1994/02/28 11001.58 10642.53
1994/03/31 10793.58 10587.81
1994/04/30 10672.90 10547.60
1994/05/31 10776.08 10561.90
1994/06/30 10637.30 10589.67
1994/07/31 10716.07 10686.05
1994/08/31 10772.43 10722.12
1994/09/30 10806.21 10698.28
1994/10/31 10793.34 10722.74
1994/11/30 10802.42 10677.76
1994/12/31 10500.90 10698.07
1995/01/31 10584.46 10845.03
1995/02/28 10686.93 10995.09
1995/03/31 10746.59 11057.48
1995/04/30 10852.82 11157.58
1995/05/31 11033.96 11350.76
1995/06/30 11103.44 11412.52
1995/07/31 11148.58 11458.12
1995/08/31 11219.00 11527.56
1995/09/30 11275.92 11584.55
1995/10/31 11374.74 11680.73
1995/11/30 11469.71 11781.25
1995/12/31 11545.13 11870.58
1996/01/31 11645.60 11972.14
1996/02/29 11604.18 11926.54
1996/03/31 11580.33 11917.84
1996/04/30 11593.17 11929.86
1996/05/31 11620.33 11957.43
1996/06/30 11710.28 12044.89
1996/07/31 11749.76 12091.74
1996/08/31 11789.36 12136.30
1996/09/30 11892.38 12247.39
1996/10/31 12024.38 12385.64
1996/11/30 12114.43 12478.50
1996/12/31 12126.29 12480.57
1997/01/31 12176.93 12540.88
1997/02/28 12207.78 12571.97
1997/03/31 12207.08 12562.23
1997/04/30 12299.58 12665.24
1997/05/31 12380.91 12753.75
1997/06/30 12475.64 12842.46
1997/07/31 12614.79 12985.06
1997/08/31 12629.16 12997.28
1997/09/30 12724.82 13097.39
1997/10/31 12809.73 13191.70
1997/11/30 12835.18 13224.86
1997/12/31 12919.79 13312.12
1998/01/31 13047.83 13440.63
1998/02/28 13069.40 13454.10
1998/03/31 13120.91 13506.54
IMATRL PRASUN SHR__CHT 19980331 19980408 111337 R00000000000068
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Short-Term Bond Fund on October 31, 1992, shortly
after the fund started. As the chart shows, by March 31, 1998, the
value of the investment would have grown to $13,121 - a 31.21%
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 $13,507 - a 35.07% 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
ENDED (COMMENCEMENT
MARCH 31, OF OPERATIONS) TO
SEPTEMBER 30,
1998 1997 1996 1995 1994 1993
</TABLE>
DIVIDEND RETURN 3.25% 6.67% 6.67% 6.49% 6.19% 7.79%
CAPITAL RETURN -0.11% 0.32% -1.22% -2.16% -6.53% -0.11%
TOTAL RETURN 3.14% 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 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, if any, paid by the fund are reinvested. Capital and total
returns include the effect of the $5 account closeout fee on an
average-sized account.
DIVIDENDS AND YIELD
PERIODS ENDED MARCH 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 4.91(CENTS) 29.16(CENTS) 58.72(CENTS)
ANNUALIZED DIVIDEND RATE 6.39% 6.46% 6.50%
30-DAY ANNUALIZED YIELD 5.85% - -
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 $
9.05 over the past one month, $9.05 over the past six months and $9.04
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 5.60%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
A continued lack of inflationary
pressure resulted in a relatively
favorable investing climate for
bonds during the six months that
ended March 31, 1998. The
Lehman Brothers Aggregate Bond
Index - a broad gauge of the U.S.
taxable investment-grade bond
market - returned 4.54% during
this period. Global volatility and
historically low interest rates were
the main stories in the last quarter
of 1997. Financial problems in Asia
came to a head in October,
resulting in a "flight to quality."
Wary stock investors sought
investments offering lower volatility,
helping the U.S. bond market -
especially U.S. Treasuries - surge.
The Lehman Brothers Corporate
Bond Index returned 4.49% for the
six-month period. Corporate bonds
benefited from continued economic
growth and demand for yield,
although they faltered somewhat in
January 1998. Investors feared a
slowdown in demand in Asia would
eat into corporate earnings. In spite
of record new issuance in February
1998, corporates rebounded due
in part to increased demand on the
part of yield-hungry investors.
Mortgage-backed bonds performed
well during the period, even though
lower interest rates resulted in more
mortgage prepayment activity. The
Lehman Brothers Mortgage-Backed
Securities Index generated a
six-month return of 4.04%.
High-yield and emerging-market
issues performed very well
throughout the first quarter of 1998.
An interview with Andrew Dudley, Portfolio Manager of Spartan
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY?
A. For the six months that ended March 31, 1998, the fund had a total
return of 3.14%. That outperformed the 2.77% 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 3.12%. For the 12 months that
ended March 31, 1998, the fund returned 7.52%, while the Lipper
average returned 7.00% and the Lehman Brothers index returned 7.52%.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
A. The fund benefited from maintaining overweighted positions,
relative to the index, in corporate bonds, asset-backed securities and
mortgage-backed securities. Generally, these so-called spread products
offered attractive yield spreads - or yield advantages - over
comparable Treasuries during the period.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED?
A. Corporate bonds and asset-backed securities - bonds backed by a
pool of loans such as credit cards - accounted for about 61% of the
fund's assets at the end of the period. Specifically, about 43% of the
fund was invested in corporate bonds and 18% in asset-backed
securities. Corporate bonds, as a group, offered only neutral returns
during the six-month period, after weakening in the fourth quarter of
1997 during the economic slowdown in Asia, and then stabilizing in the
first quarter of 1998. The fund was able to generate modest returns
from its corporate position by emphasizing the better-performing
sectors, such as cable, media and telecommunications. Growth in these
sectors is much more dependent on the health of the U.S. economy,
rather than on Asian markets. In addition, asset-backed securities
were a very stable component of the portfolio because of their high
credit quality. In fact, a majority of the fund's asset-backed
position was rated Aaa. These securities offered the fund a way to get
additional yield without taking on the credit risks associated with
many corporate bonds.
Q. WHAT ABOUT MORTGAGE-BACKED SECURITIES?
A. More than half of the fund's mortgage-backed holdings were invested
in 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.
Q. HOW MUCH OVERALL IMPACT DID THE ASIAN SITUATION HAVE ON THE FUND'S
PERFORMANCE?
A. Not much. The Asian situation definitely weakened the corporate
bond market, but as I said, I shielded the portfolio from many of
these ill effects by buying securities in sectors that were more
dependent on the domestic economy. In fact, I sold many of the fund's
corporate positions that did have exposure to Asia in October, helping
its performance versus the benchmark and the peer group. Longer-term,
I see Asia as an opportunity. The Asian turmoil has caused spread
volatility in non-Treasuries, which allows me to apply Fidelity's
strong research to find attractive securities that have been unfairly
repriced in the past few months.
Q. WHAT'S YOUR OUTLOOK FOR THE
BOND MARKET?
A. The yield curve was very flat at the end of the period, meaning
longer-term bonds were not offering much of a yield advantage over
short-term issues. As a result, many buyers of fixed-income securities
tried to get additional yield by buying non-Treasury securities.
Consequently, I think increased demand for these spread products will
benefit their pricing. In addition, the equity markets generated
healthy gains in the first quarter of 1998, which bodes well for
high-grade corporate bonds in the next few months. I also expect
asset-backed securities to continue to perform well as investors seek
out defensive instruments in periods of turmoil. Finally,
opportunities in the mortgage-backed sector will depend on the level
of interest rates. These securities may underperform other
fixed-income securities in the short term if the market rallies and
prepayment - or refinancing - levels remain high. If that's the case,
I may increase the fund's position in mortgage-backed bonds in
anticipation of a rebound and outperformance in the long term.
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 THE FLAT YIELD
CURVE:
"The yield curve is defined as the
yield difference between shorter-
and longer-maturity Treasuries.
Typically, the two points of reference
used in this equation are the
two-year and the 30-year Treasuries.
Historically, the yield curve has been
positive - or upward sloping -
with shorter-maturity Treasuries
yielding less than longer-maturity
Treasuries. While the curve remained
positive at the end of the period, the
difference between the yields offered
by short- and long-term Treasuries
has fallen - or flattened - to a
level that is low by historical
standards. At the end of March, the
difference in yield between the
two-year and the 30-year Treasury
was about 0.40%, while the variance
between the two-year and the
10-year Treasury was even smaller
at about 0.10%. There are several
factors that have an impact on the
shape of the yield curve, including
the strength of the economy, current
and future expected levels of
inflation and near-term expectations
regarding the Federal Reserve
Board's monetary policy. Over the
past six months, Fed policy was
expected to remain neutral and
long-term inflation was pegged at
about 1.5% to 2.0% - the perfect
environment for longer rates to
decline relative to shorter rates.
Consequently, the yield curve
has flattened."
FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 449
TRADING SYMBOL: FTBDX
START DATE: October 1, 1992
SIZE: as of March 31, 1998,
more than $323 million
MANAGER: Andrew Dudley,
since 1997; manager, Fidelity
Short-Term Bond Fund and
Fidelity Advisor Short-Fixed
Income Fund, since 1997;
joined Fidelity in 1996
(checkmark)
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF MARCH 31, 1998
(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 41.8
3
.
3
AA 7 4.1
.
5
A 1 16.9
3
.
9
BAA 2 24.6
3
.
9
BA 7 8.4
.
1
NOT RATED 1 1.9
.
3
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 MARCH 31, 1998
6 MONTHS AGO
YEARS 2.3 2.3
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 MARCH 31, 1998
6 MONTHS AGO
YEARS 1.8 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 MARCH 31, 1998 * AS OF SEPTEMBER 30, 1997 **
CORPORATE BONDS 61.4%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 26.3%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 5.7%
OTHER 3.6%
SHORT-TERM
INVESTMENTS 3.0%
CORPORATE BONDS 64.9%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 23.1%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 7.2%
OTHER 2.5%
SHORT-TERM
INVESTMENTS 2.3%
ROW: 1, COL: 1, VALUE: 3.0
ROW: 1, COL: 2, VALUE: 3.6
ROW: 1, COL: 3, VALUE: 5.7
ROW: 1, COL: 4, VALUE: 26.3
ROW: 1, COL: 5, VALUE: 61.4
ROW: 1, COL: 1, VALUE: 2.3
ROW: 1, COL: 2, VALUE: 2.5
ROW: 1, COL: 3, VALUE: 7.2
ROW: 1, COL: 4, VALUE: 23.1
ROW: 1, COL: 5, VALUE: 64.90000000000001
* FOREIGN
INVESTMENTS 5.8%
** FOREIGN
INVESTMENTS 5.7%
INVESTMENTS MARCH 31, 1998 (UNAUDITED)
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
NONCONVERTIBLE BONDS - 61.4%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 1.1%
Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,500 $ 3,664
CONSTRUCTION & REAL ESTATE - 0.7%
REAL ESTATE INVESTMENT TRUSTS - 0.7%
EOP Operating LP 6 3/8%, 2/15/03 (c) Baa1 1,190 1,178
Weeks Realty LP 6 7/8%, 3/15/05 Baa2 1,100 1,091
2,269
DURABLES - 0.4%
AUTOS, TIRES, & ACCESSORIES - 0.4%
General Motors Corp. 9 5/8%, 12/1/00 A3 1,160 1,258
ENERGY - 0.2%
OIL & GAS - 0.2%
Occidental Petroleum Corp. 6.09%, 11/29/99 Baa3 580 581
FINANCE - 36.2%
ASSET-BACKED SECURITIES - 17.7%
CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 426 430
CPS Auto Receivables Trust 6%, 8/15/03 Aaa 3,000 2,991
Capital Equipment Receivables Trust:
6.57%, 3/15/01 Aa3 810 821
6.45%, 8/15/02 Aa3 1,700 1,708
Case Equipment Loan Trust:
6.15%, 9/15/02 Aaa 3,011 3,026
6.45%, 9/15/02 A3 1,330 1,320
5.85%, 2/15/03 A3 690 687
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 380 384
Chase Manhattan Corp. 6.45%, 3/29/01 Aaa 1,900 1,912
Chevy Chase Auto Receivables Trust:
6.20%, 3/20/04 Aaa 1,014 1,016
5.97%, 10/20/04 Aaa 2,020 2,015
Citibank Credit Card Master Trust I 5 3/4%,
1/15/03 Aaa 1,300 1,293
Contimortgage Home Equity Loan Trust:
6.26%, 7/15/12 Aaa 2,450 2,452
6.30%, 7/15/12 Aaa 1,100 1,100
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Fidelity Funding Auto Trust
6.99%, 11/15/02 (c) Aaa $ 436 $ 440
Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 1,515 1,516
General Motors Acceptance Corp. Grantor
Trust 1995-A, 7.15%, 3/15/00 Aaa 761 763
Green Tree Financial Corp.:
5 1/2%, 1/31/00 Aaa 163 163
5.80%, 2/15/27 Aaa 1,547 1,547
6.10%, 4/15/27 Aaa 1,471 1,472
6.45%, 5/15/27 Aaa 1,157 1,160
6 1/2%, 6/15/27 Aaa 770 772
6.65%, 7/15/27 Aaa 766 768
Key Auto Finance Trust Class C
6.65%, 10/15/03 Baa3 310 310
KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 79 80
Norwest Automobile Trust 6.30%, 5/15/03 A2 1,130 1,133
Olympic Automobile Receivables Trust:
6.40%, 9/15/01 Aaa 1,280 1,280
6 1/8%, 11/15/04 Aaa 739 753
Onyx Acceptance Grantor Trust:
6.20%, 6/15/03 Aaa 1,744 1,748
5.95%, 7/15/04 Aaa 2,600 2,597
Petroleum Enhanced Trust Receivables Offering
Petroleum Trust 6.1875%, 2/5/03 (c) Baa2 1,499 1,499
Premier Auto Trust:
4.95%, 2/2/99 A2 22 22
8.05%, 4/4/00 Aaa 3,650 3,674
6%, 5/6/00 Aaa 975 976
6.35%, 7/6/00 A3 1,690 1,696
5.82%, 12/6/02 Aaa 3,000 2,992
Reliance Auto Receivables Corp., Inc.
6.10%, 7/15/02 (c) Aaa 632 632
Standard Credit Card Master Trust I
6 3/4%, 6/7/00 Aaa 1,000 1,002
TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 315 315
Toyota Auto Receivables Grantor Trust
6.15%, 1/15/99 Baa2 169 168
Tranex Auto Receivables Owner Trust
6.33%, 8/15/03 (c) Aaa 1,026 1,029
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
ASSET-BACKED SECURITIES - CONTINUED
Union Federal Savings Bank Grantor Trust:
6.975%, 7/10/00 Baa2 $ 143 $ 143
7.275%, 10/10/00 Baa2 142 141
8.20%, 1/10/01 Baa2 147 148
WFS Financial Owner Trust:
7.05%, 11/20/03 Aaa 2,510 2,588
6.90%, 12/20/03 Aaa 1,630 1,681
Western Financial Grantor Trust 5 7/8%,
3/1/02 Aaa 1,121 1,141
57,504
BANKS - 9.0%
BancOne Corp. 6.70%, 3/24/00 Aa3 1,250 1,265
Banco Latinoamericano Exportaciones SA euro:
6.45%, 9/13/99 (c) Baa2 930 927
6.90%, 12/4/99 (c) Baa2 550 559
BanPonce Corp.:
6.378%, 4/8/99 A3 940 941
6.488%, 3/3/00 A3 800 805
BanPonce Financial Corp.:
7.65%, 5/3/00 A3 1,140 1,168
6.88%, 6/16/00 A3 510 517
Capital One Bank:
6.42%, 11/12/99 Baa3 2,200 2,208
6 3/8%, 2/15/03 Baa3 900 886
First Chicago Corp. 9 7/8%, 7/1/99 A2 2,450 2,560
First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 910 951
First USA Bank 6 1/2%, 12/23/99 Aa2 1,700 1,713
Kansallis-Osake-Pankki yankee
9 3/4%, 12/15/98 A3 860 880
KeyCorp. 7.45%, 4/5/00 A1 1,100 1,126
Mellon Financial Co. 6.30%, 6/1/00 A2 600 603
NationsBank Corp. 5 3/4%, 3/15/01 Aa3 3,000 2,981
Popular, Inc. 6.40%, 8/25/00 A3 1,410 1,415
Providian National Bank 6.70%, 3/15/03 Baa3 1,800 1,792
Signet Banking Corp. 5 7/8%, 4/15/98 (d) A2 3,950 3,949
Union Planters National Bank 6.53%, 8/20/99 A3 1,960 1,973
29,219
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 8.6%
AT&T Capital Corp.:
6.65%, 4/30/99 Baa3 $ 2,500 $ 2,514
6.16%, 12/3/99 Baa3 1,940 1,939
Aristar, Inc. 7 1/2%, 7/1/99 Baa1 2,010 2,045
Associates Corp. of North America
6 3/8%, 8/15/99 Aa3 1,200 1,206
Boatmens Auto Trust 6.35%, 10/15/01 A2 610 612
Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,720 1,730
Edison Mission Energy Funding Corp.
6.77%, 9/15/03 (c) Baa1 1,805 1,826
Finova Capital Corp. 6.27%, 9/29/00 Baa1 580 581
General Motors Acceptance Corp.:
5.45%, 3/1/99 A3 3,030 3,017
6.55%, 4/23/99 A3 1,850 1,863
9%, 10/15/02 (e) A3 3,000 3,320
Heller Financial, Inc. 6 1/4%, 3/1/01 A3 1,500 1,499
MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,450 1,447
Money Store, Inc. 7.30%, 12/1/02 Ba2 650 674
North American Mortgage Co. 5.80%, 11/2/98 Baa2 750 749
Salton Sea Funding Corp. 7.02%, 5/30/00 Baa3 1,025 1,032
Union Acceptance Corp. 7.075%, 7/10/02 Baa2 229 230
U.S. West Capital Funding, Inc.
6.85%, 1/15/02 Baa1 1,540 1,569
27,853
SAVINGS & LOANS - 0.9%
Golden West Financial Corp. 8 5/8%, 8/30/98 A3 100 101
Great Western Financial Corp. 6 3/8%, 7/1/00 A3 1,025 1,027
Long Island Savings Bank 6.20%, 4/2/01 Baa3 850 849
Long Island Savings Bank FSB Melville NY
7%, 6/13/02 Baa3 970 988
2,965
TOTAL FINANCE 117,541
HOLDING COMPANIES - 0.9%
Norfolk Southern Corp.:
6.70%, 5/1/00 Baa1 2,000 2,025
6.95%, 5/1/02 Baa1 800 820
2,845
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
POLLUTION CONTROL - 0.2%
WMX Technologies, Inc. 6 1/4%, 10/15/00 Baa3 $ 750 $ 749
MEDIA & LEISURE - 6.7%
BROADCASTING - 4.7%
Continental Cablevision, Inc. 8 1/2%, 9/15/01 Baa3 1,854 1,971
TCI Communications, Inc.:
6 3/8%, 9/15/99 Ba1 3,075 3,084
7 3/8%, 2/15/00 Ba1 1,815 1,849
8%, 8/1/05 Ba1 1,285 1,381
Tele Communications, Inc. 9%, 1/2/02 Ba1 730 789
Time Warner, Inc.:
7.95%, 2/1/00 Ba1 4,030 4,145
7 3/4%, 6/15/05 Ba1 1,850 1,955
15,174
ENTERTAINMENT - 1.3%
Paramount Communications, Inc.:
5 7/8%, 7/15/00 Ba2 1,190 1,168
7 1/2%, 1/15/02 Ba2 647 663
Viacom, Inc.:
6 3/4%, 1/15/03 Ba2 1,545 1,544
7 3/4%, 6/1/05 Ba2 745 781
4,156
PUBLISHING - 0.7%
News America Holdings, Inc. 8 5/8%, 2/1/03 Baa3 2,100 2,284
TOTAL MEDIA & LEISURE 21,614
NONDURABLES - 1.8%
FOODS - 0.6%
Dole Food, Inc. 6 3/4%, 7/15/00 Baa3 1,990 2,006
TOBACCO - 1.2%
Philip Morris Companies, Inc.:
7 1/8%, 12/1/99 A2 2,300 2,335
7 1/4%, 9/15/01 A2 1,400 1,439
3,774
TOTAL NONDURABLES 5,780
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
RETAIL & WHOLESALE - 2.8%
GENERAL MERCHANDISE STORES - 2.8%
Dayton Hudson Corp.:
10%, 12/1/00 Baa1 $ 1,078 $ 1,178
6.80%, 10/1/01 Baa1 1,600 1,628
notes 9 3/4%, 7/1/02 Baa1 930 1,046
Federated Department Stores, Inc.:
10%, 2/15/01 Baa2 2,285 2,502
8 1/8%, 10/15/02 Baa2 1,595 1,697
Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 1,100 1,119
9,170
TECHNOLOGY - 3.4%
COMPUTERS & OFFICE EQUIPMENT - 3.4%
Comdisco, Inc.:
5 3/4%, 1/19/99 Baa2 3,900 3,893
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 4,500 4,539
11,033
TRANSPORTATION - 1.2%
RAILROADS - 1.2%
CSX Corp.:
9 1/2%, 8/1/00 Baa2 2,500 2,674
7.05%, 5/1/02 Baa2 1,250 1,278
3,952
UTILITIES - 5.8%
CELLULAR - 0.1%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba1 230 238
ELECTRIC UTILITY - 1.8%
Avon Energy Partners Holdings
6.73%, 12/11/02 (c) Baa2 1,000 1,013
Indiana Michigan Power Co. 6.40%, 3/1/00 Baa1 2,000 2,008
Ohio Edison Co. 7 3/8%, 9/15/02 Baa2 900 932
Philadelphia Electric Co. 5 5/8%, 11/1/01 Baa1 840 824
Texas Utilities Electric Co. 7 3/8%, 11/1/99 Baa1 1,000 1,019
5,796
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
UTILITIES - CONTINUED
GAS - 2.0%
Arkla, Inc.:
8.60%, 9/15/98 Ba2 $ 500 $ 504
8.43%, 9/17/98 Ba1 440 444
8 7/8%, 7/15/99 Baa1 5,500 5,693
6,641
TELEPHONE SERVICES - 1.9%
Cable & Wireless Communications PLC
6 3/8%, 3/6/03 Baa1 1,300 1,301
Teleport Communications Group, Inc.
0%, 7/1/07 (b) Baa3 1,110 956
WorldCom, Inc.:
9 3/8%, 1/15/04 Ba1 1,176 1,246
7.55%, 4/1/04 Ba1 1,740 1,833
8 7/8%, 1/15/06 Ba1 627 683
6,019
TOTAL UTILITIES 18,694
TOTAL NONCONVERTIBLE BONDS
(Cost $199,083) 199,150
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 21.8%
U.S. TREASURY OBLIGATIONS - 19.3%
5 1/2% 11/15/98 Aaa 2,000 1,999
5 7/8% 1/31/99 Aaa 16,655 16,700
8 7/8%, 2/15/99 Aaa 11,720 12,046
7 3/4%, 12/31/99 Aaa 8,915 9,230
6 7/8%, 3/31/00 Aaa 17,704 18,124
5 3/4% 10/31/00 Aaa 4,220 4,233
62,332
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.5%
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 4,058 4,293
Class T-3, 9 5/8%, 5/15/02 Aaa 366 387
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
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 $ 207 $ 208
Series 1995-A, 6.28%, 6/15/04 Aaa 1,529 1,547
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 641 654
Private Export Funding Corp. secured
6.86%, 4/30/04 Aaa 1,076 1,101
8,190
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $70,795) 70,522
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 4.5%
FANNIE MAE - 2.0%
6 1/2%, 12/1/12 to 1/1/13 Aaa 5,778 5,793
11 1/2%, 11/1/15 Aaa 508 575
6,368
FREDDIE MAC - 0.5%
7%, 8/1/99 to 7/1/01 Aaa 1,542 1,559
12%, 11/1/19 Aaa 131 151
1,710
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.0%
9 1/2%, 5/15/16 to 4/15/28 Aaa 2,018 2,186
11%, 2/15/10 to 9/15/19 Aaa 2,335 2,622
11 1/2%, 5/15/13 to 2/15/14 Aaa 851 973
12%, 2/15/16 Aaa 728 847
6,628
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $14,763) 14,706
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.2%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
PRIVATE SPONSOR - 0.2%
GE Capital Mortgage Services, Inc. planned
amortization class Series 1994-2 Class A-4,
6%, 1/25/09 (Cost $733) Aaa $ 750 $ 746
COMMERCIAL MORTGAGE SECURITIES - 5.5%
Allied Capital Commercial Mortgage Trust
sequential pay Series 1998-1 Class A,
6.31%, 5/25/03 (c) Aaa 1,948 1,938
BKB Commercial Mortgage Trust Series 1997-C1
Class B, 7.218%, 2/25/43 (c)(d) AA 1,810 1,807
Bankers Trust Remic Trust 1988-1 floater
Series 1998-S1A Class D,
6.5219%, 11/28/02 (c)(d) Baa2 2,270 2,261
Blackrock Capital Funding LLC Series 1996
Class C2, 7.5585%, 11/16/26 (c)(d) AAA 97 97
CBM Funding Corp. sequential pay Series 1996-1:
Class A-1, 7.55%, 7/1/99 AA 102 103
Class A-2, 6.88%, 7/1/02 AA 870 883
CS First Boston Mortgage Securities Corp.
sequential pay Series 1997-SPICE Class A,
6.653%, 6/20/03 (c) - 3,101 3,103
Equitable Life Assurance Society of the United
States floater Series 174 Class D-2,
6.7375%, 5/15/03 (c)(d) Baa2 1,000 1,000
Federal Deposit Insurance Corp. sequential pay:
Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa 898 900
Series 1996-C1 Class 1A, 6 3/4%, 5/25/26 Aaa 1,782 1,784
Kidder Peabody Acceptance Corp. sequential pay,
Series 1993-M1 Class A-2,
7.15%, 4/25/25 Aa2 491 489
Meritor Mortgage Security Corp. Series 1987-1
Class A-3, 9.40%, 6/1/99 Baa3 12 12
Nomura Asset Securities Corp. floater
Series 1994-MD-II Class A-6,
6.9369% 7/4/03 (d) - 1,249 1,262
Oregon Commercial Mortgage, Inc. Series 1995-1
Class A, 7.15%, 6/25/26 (c)(d) AAA 478 477
Resolution Trust Corp.:
floater Series 1993-C2
Class A-2, 6.62%, 3/25/25 (d) AAA 312 313
floater Series 1994-C1
Class A-3, 6.30%, 6/25/26 (d) AAA 907 907
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS (A) AMOUNT (000S) (000S)
Structured Asset Securities Corp. Series 1996-C3
Class A, 6 3/4%, 6/25/30 (c) AAA $ 613 $ 615
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $17,971) 17,951
FOREIGN GOVERNMENT OBLIGATIONS - 0.9%
Ontario Province:
euro 8 1/2%, 2/28/01 Aa3 800 850
global bond 6 1/8%, 6/28/00 Aa3 1,000 1,003
5 3/4%, 11/7/00 Aa3 1,010 1,004
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $2,869) 2,857
SUPRANATIONAL OBLIGATIONS - 1.7%
African Development Bank:
9.30%, 7/1/00 Aa1 3,540 3,779
7 3/4%, 12/15/01 Aa1 1,670 1,757
TOTAL SUPRANATIONAL OBLIGATIONS
(Cost $5,562) 5,536
CERTIFICATES OF DEPOSIT - 1.0%
Canadian Imperial Bank of Commerce NY
Branch yankee 6.20%, 8/1/00
(Cost $3,107) Aa3 3,100 3,107
CASH EQUIVALENTS - 3.0%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.92%, dated
3/31/98 due 4/1/98 $ 9,547 9,545
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $324,428) $ 324,120
LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(b) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(c) 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
$20,401,000 or 6.3% of net assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 63.2% AAA, AA, A 61.0%
Baa 23.9% BBB 31.3%
Ba 7.1% BB 1.6%
B 0.0% B 0.3%
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 1.3%.
INCOME TAX INFORMATION
At March 31, 1998, the aggregate cost of investment securities for
income tax purposes was $324,429,000. Net unrealized depreciation
aggregated $309,000, of which $1,043,000 related to appreciated
investment securities and $1,352,000 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 $2,156,000 of losses recognized during the
period November 1, 1996 to September 30, 1997.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
(EXCEPT PER-SHARE AMOUNT) MARCH 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 324,120
AGREEMENTS OF $9,545) (COST $324,428) -
SEE ACCOMPANYING SCHEDULE
RECEIVABLE FOR INVESTMENTS SOLD 3
RECEIVABLE FOR FUND SHARES SOLD 779
INTEREST RECEIVABLE 3,558
TOTAL ASSETS 328,460
LIABILITIES
PAYABLE TO CUSTODIAN BANK $ 14
PAYABLE FOR INVESTMENTS PURCHASED 3,138
PAYABLE FOR FUND SHARES REDEEMED 1,098
DISTRIBUTIONS PAYABLE 223
ACCRUED MANAGEMENT FEE 99
OTHER PAYABLES AND ACCRUED EXPENSES 5
TOTAL LIABILITIES 4,577
NET ASSETS $ 323,883
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 407,099
DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (1,396)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (81,512)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (308)
NET ASSETS, FOR 35,829 SHARES OUTSTANDING $ 323,883
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $9.04
SHARE ($323,883 (DIVIDED BY) 35,829 SHARES)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 10,089
INTEREST
EXPENSES
MANAGEMENT FEE $ 946
NON-INTERESTED TRUSTEES' COMPENSATION 1
TOTAL EXPENSES BEFORE REDUCTIONS 947
EXPENSE REDUCTIONS (396) 551
NET INVESTMENT INCOME 9,538
REALIZED AND UNREALIZED GAIN (LOSS) 208
NET REALIZED GAIN (LOSS) ON INVESTMENT SECURITIES
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (693)
INVESTMENT SECURITIES
NET GAIN (LOSS) (485)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 9,053
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1998 SEPTEMBER 30,
(UNAUDITED) 1997
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS $ 9,538 $ 19,923
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 208 (2,472)
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (693) 3,201
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 9,053 20,652
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (9,422) (19,752)
SHARE TRANSACTIONS 112,598 115,689
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 7,934 16,035
COST OF SHARES REDEEMED (83,752) (188,730)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 36,780 (57,006)
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 36,411 (56,106)
NET ASSETS
BEGINNING OF PERIOD 287,472 343,578
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF $ 323,883 $ 287,472
NET INVESTMENT INCOME OF $1,396 AND
$1,512, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 12,433 12,804
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 877 1,775
REDEEMED (9,250) (20,894)
NET INCREASE (DECREASE) 4,060 (6,315)
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992
MARCH 31, 1998 (COMMENCEMENT
OF OPERATIONS) TO
SEPTEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
NET ASSET VALUE, $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990 $ 10.000
BEGINNING OF PERIOD
INCOME FROM INVESTMENT .295 D .588 D .598 .584 .574 .747
OPERATIONS
NET INVESTMENT INCOME
NET REALIZED AND (.013) .025 (.112) (.199) (.604) (.009)
UNREALIZED GAIN (LOSS)
TOTAL FROM INVESTMENT .282 .613 .486 .385 (.030) .738
OPERATIONS
LESS DISTRIBUTIONS
FROM NET INVESTMENT (.292) (.583) (.596) (.443) (.477) (.747)
INCOME
IN EXCESS OF NET - - - - (.033) (.001)
INVESTMENT INCOME
IN EXCESS OF NET - - - - (.010) -
REALIZED GAIN
RETURN OF CAPITAL - - - (.142) (.110) -
TOTAL DISTRIBUTIONS (.292) (.583) (.596) (.585) (.630) (.748)
NET ASSET VALUE, $ 9.040 $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
END OF PERIOD
TOTAL RETURN B, C 3.15% 7.00% 5.47% 4.35% (.32)% 7.69%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD $ 324 $ 287 $ 344 $ 522 $ 798 $ 1,471
(IN MILLIONS)
RATIO OF EXPENSES TO .38% A, E .50% .65% .65% .54% E .20% E
AVERAGE NET ASSETS
RATIO OF EXPENSES TO .38% A .50% .64% F .65% .54% .20%
AVERAGE NET ASSETS AFTER
EXPENSE REDUCTIONS
RATIO OF NET INVESTMENT 6.54% A 6.50% 6.52% 6.45% 6.42% 7.32%
INCOME TO AVERAGE
NET ASSETS
PORTFOLIO TURNOVER RATE 116% A 105% 134% 159% 97% 112%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR
PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C 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).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
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 March 31, 1998 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Term Bond (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 require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities 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. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. 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
among the funds in the trust.
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, 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 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 $201,086,000 and $165,675,000, respectively, of which U.S.
government and
3. PURCHASE AND SALES OF INVESTMENTS - CONTINUED
government agency obligations aggregated $121,179,000 and
$103,744,000, 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 $4,000 for the period.
5. EXPENSE REDUCTIONS.
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 $392,000.
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 $4,000 under these arrangements.
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
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
OREGON
16850 SW 72 Avenue
Tigard, 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
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
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Securities
Intermediate Bond
International 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