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Previous: BT ALEX BROWN CASH RESERVE FUND INC, N-30D, 1998-11-17 |
Next: INDEPENDENT RESEARCH AGENCY FOR LIFE INSURANCE INC, SC 13E3/A, 1998-11-17 |
FIDELITY
ASSET MANAGER: GROWTH SM
ANNUAL REPORT
SEPTEMBER 30, 1998
(2_FIDELITY_LOGOS)(registered trademark)
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 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 44 Statements of assets and liabilities,
operations, and changes in net assets,
as well as financial highlights.
NOTES 48 Notes to the financial statements.
REPORT OF INDEPENDENT 53 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 54
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. Asset Manager funds are already diversified because
they invest in stocks, bonds and short-term and money market
instruments, both in the U.S. and overseas. If you have a shorter
investment time horizon, you might want to consider moving some of
your investment into Asset Manager: Income, which generally has a
higher weighting in short-term investments compared with the other
Asset Manager funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the life of fund total returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER PAST 1 PAST 5 LIFE OF
30, 1998 YEAR YEARS FUND
FIDELITY ASSET 5.33% 81.45% 154.80%
MANAGER: GROWTH
Fidelity Aggressive 9.98% 105.38% n/a
Composite
S&P 500 (registered trademark) 9.05% 147.93% 188.48%
LB Aggregate Bond 11.51% 41.66% 67.15%
LB 3 Month T-Bill 5.50% 29.17% n/a
Flexible Portfolio 2.20% 74.61% n/a
Funds Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on 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 one year average
represents a peer group of 196 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 SEPTEMBER PAST 1 PAST 5 LIFE OF
30, 1998 YEAR YEARS FUND
FIDELITY ASSET 5.33% 12.65% 14.85%
MANAGER: GROWTH
Fidelity Aggressive 9.98% 15.48% n/a
Composite
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Asset Manager: Growth S&P 500 LB Aggregate Bond FID Aggressive Composite
00321 SP001 LB001 F0022
1991/12/31 10000.00 10000.00 10000.00 10000.00
1992/01/31 10367.06 9814.00 9864.00 9832.79
1992/02/29 10585.32 9941.58 9928.12 9928.85
1992/03/31 10436.51 9747.72 9872.52 9786.72
1992/04/30 10466.27 10034.30 9943.60 9994.20
1992/05/31 10684.52 10083.47 10131.53 10082.80
1992/06/30 10565.48 9933.23 10271.35 10030.65
1992/07/31 11001.98 10339.50 10480.89 10375.92
1992/08/31 10823.41 10127.54 10586.74 10268.64
1992/09/30 11071.43 10247.04 10712.72 10394.18
1992/10/31 11279.76 10282.91 10570.25 10371.52
1992/11/30 11686.51 10633.55 10572.36 10594.82
1992/12/31 11907.91 10764.35 10740.46 10733.81
1993/01/31 12079.90 10854.77 10946.68 10863.25
1993/02/28 12231.66 11002.39 11138.24 11025.99
1993/03/31 12707.16 11234.54 11185.02 11189.63
1993/04/30 12747.63 10962.67 11263.32 11041.15
1993/05/31 13010.68 11256.47 11277.96 11230.85
1993/06/30 13202.90 11289.11 11482.09 11328.95
1993/07/31 13445.72 11243.95 11547.54 11321.07
1993/08/31 13992.04 11670.10 11749.62 11677.20
1993/09/30 13931.34 11580.24 11781.35 11634.00
1993/10/31 14366.38 11819.95 11824.94 11804.96
1993/11/30 14244.97 11707.66 11724.43 11694.61
1993/12/31 15041.53 11849.32 11787.74 11802.05
1994/01/31 15622.08 12252.20 11946.87 12113.43
1994/02/28 15157.64 11920.17 11739.00 11822.99
1994/03/31 14387.09 11400.45 11449.04 11410.18
1994/04/30 14365.98 11546.37 11357.45 11479.88
1994/05/31 14482.09 11735.73 11356.32 11600.01
1994/06/30 14049.31 11448.21 11331.33 11409.94
1994/07/31 14397.64 11823.71 11556.82 11717.71
1994/08/31 14904.30 12308.48 11570.69 12032.78
1994/09/30 14682.64 12006.92 11400.60 11792.90
1994/10/31 14724.86 12277.08 11390.34 11965.75
1994/11/30 14302.64 11829.95 11365.28 11677.52
1994/12/31 13930.27 12005.39 11443.70 11814.50
1995/01/31 13583.09 12316.69 11670.29 12082.17
1995/02/28 13810.93 12796.67 11948.04 12468.34
1995/03/31 14093.00 13174.30 12020.93 12734.26
1995/04/30 14483.57 13562.28 12189.22 13031.23
1995/05/31 14841.59 14104.36 12660.94 13531.10
1995/06/30 15156.22 14432.01 12753.37 13770.98
1995/07/31 15785.47 14910.57 12725.31 14055.82
1995/08/31 15872.26 14948.00 12879.29 14131.14
1995/09/30 16143.49 15578.81 13004.21 14562.61
1995/10/31 15948.20 15523.19 13173.27 14599.91
1995/11/30 16338.77 16204.66 13370.87 15087.68
1995/12/31 16709.46 16516.76 13558.06 15345.57
1996/01/31 17260.20 17078.99 13647.54 15717.60
1996/02/29 17238.17 17237.31 13410.08 15718.76
1996/03/31 17271.22 17403.31 13316.21 15779.27
1996/04/30 17568.62 17659.83 13241.64 15903.57
1996/05/31 17766.88 18115.28 13215.15 16166.03
1996/06/30 17843.99 18184.30 13392.24 16271.19
1996/07/31 17392.38 17380.92 13428.39 15819.24
1996/08/31 17513.54 17747.48 13405.57 16029.81
1996/09/30 18240.52 18746.31 13638.82 16698.83
1996/10/31 18769.23 19263.33 13941.60 17112.15
1996/11/30 20002.89 20719.45 14180.01 18045.43
1996/12/31 19648.40 20308.99 14048.13 17761.28
1997/01/31 20465.58 21577.90 14091.68 18555.94
1997/02/28 20693.91 21747.07 14126.91 18672.99
1997/03/31 19684.45 20853.48 13970.10 18088.00
1997/04/30 20489.61 22098.44 14179.65 18916.16
1997/05/31 21739.42 23443.79 14314.36 19772.23
1997/06/30 22388.36 24494.07 14484.70 20454.67
1997/07/31 23902.55 26443.06 14875.79 21737.47
1997/08/31 23133.43 24961.72 14749.34 20843.86
1997/09/30 23998.69 26328.88 14967.63 21724.91
1997/10/31 23505.97 25449.49 15184.66 21300.40
1997/11/30 24251.05 26627.55 15254.51 22019.68
1997/12/31 24847.53 27084.74 15408.58 22344.66
1998/01/31 25035.77 27384.30 15605.81 22594.52
1998/02/28 26461.01 29359.26 15593.33 23734.85
1998/03/31 27213.97 30862.74 15646.35 24611.42
1998/04/30 26689.59 31173.22 15727.71 24822.27
1998/05/31 26850.93 30637.36 15877.12 24588.12
1998/06/30 27536.66 31881.84 16012.08 25344.79
1998/07/31 27119.85 31542.30 16045.70 25174.73
1998/08/31 24134.92 26981.92 16307.25 22735.27
1998/09/30 25277.79 28710.38 16688.84 23893.79
IMATRL PRASUN SHR__CHT 19980930 19981005 150312 R00000000000084
</TABLE>
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager: Growth Fund on December 31, 1991,
shortly after the fund started. As the chart shows, by September 30,
1998, the value of the investment would have grown to $25,278 - a
152.78% increase on the initial investment. For comparison, look at
how both the S&P 500 Index, 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 Index would
have grown to $28,710 - a 187.10% increase. If $10,000 was invested in
the Lehman Brothers Aggregate Bond Index, it would have grown to
$16,689 - a 66.89% 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 Index (+187.10%), the Lehman Brothers Aggregate Bond Index
(+66.89%) and the Lehman Brothers 3-month T-Bill Index (+36.09%)
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 $23,894 - a 138.94% increase.
(checkmark)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.
* CURRENTLY 70% STOCKS, 25% BONDS AND 5% SHORT-TERM/MONEY MARKET
INSTRUMENTS EFFECTIVE
JANUARY 1, 1997; 65%, 30% AND 5%, RESPECTIVELY, PRIOR TO JANUARY 1,
1997.
MARKET RECAP
Against a backdrop of financial and economic instability in many of
the world's developed and emerging markets on the one hand, and a
resilient domestic economy on the other, the U.S. stock and bond
markets experienced extreme volatility during the 12-month period that
ended September 30, 1998.
STOCKS: The 12-month period that drew to a close on September 30,
1998, is one equity investors will remember for years to come. The
period began as it ended: with unusually volatile markets. In October
1997, the Dow Jones Industrial Average - an index of 30 blue-chip
stocks - tumbled over 550 points in one day on the news of worsening
economic conditions in Asia. The Dow rebounded the following day,
however, rising 330 points as investors focused on higher-quality
stocks with strong liquidity and minimal international exposure. This
trend continued in the first and second quarters of 1998, as U.S.
economic growth chugged along on the rails of near-record lows for
inflation, unemployment and interest rates. Unfortunately, emerging
markets - particularly in Russia and Latin America - seemed to catch
the so-called "Asian contagion," causing a free-fall in the U.S. stock
market. On August 31, the Dow plunged 512.61 points - erasing all
previous gains for the year. Appropriately, the Dow closed on
September 30 with a 237.90 loss, triggered by investor disappointment
over a lower-than-hoped-for reduction in the federal funds rate. For
the 12-month period ending September 30, 1998, the Dow eked out a
barely positive gain of 0.40%, while the Standard & Poor's 500 Index -
a market-capitalization weighted index of 500 widely held U.S. stocks
- - returned 9.05%.
BONDS: As a safe haven from turbulent stock markets worldwide, bond
markets reaped the benefits from the flight to quality by anxious
investors during the 12-month period ending September 30, 1998. The
Lehman Brothers Aggregate Bond Index - a broad measure of the U.S.
taxable investment-grade bond market - returned 11.51% over the past
year, over two and one-half times higher than the 4.54% return
generated for the six-month period ending March 31, 1998. The buying
surge sent Treasury-bond yields - which move in the opposite direction
of bond prices - to their lowest level in over three decades, as the
yield on the benchmark 30-year bond fell to 4.96%. In spite of the
global economic crisis that dominated the period, the U.S. enjoyed low
interest rates, low inflation and a stable economy, which aided the
performance of corporate bonds. The Lehman Brothers Corporate Bond
Index returned 11.07% for the 12-month period. Mortgage-backed bonds
also performed well, although lower interest rates resulted in higher
refinancing activity. The Lehman Brothers Mortgage Backed Securities
Index had a 12-month return of 8.62%. Interest rates fell even lower
late in the period, as the Federal Reserve lowered the fed funds rate
by 0.25%, the first rate cut in nearly three years. The period's
biggest losers were shareholders of emerging-market debt, as the JP
Morgan Emerging Markets Bond Index lost 20.89% over the past 12
months.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Richard Habermann, Portfolio Manager of Fidelity
Asset Manager: Growth
(PHOTOGRAPH OF RICHARD HABERMANN)
Q. HOW DID THE FUND PERFORM, DICK?
A. For the 12-month period that ended September 30, 1998, the fund
returned 5.33%. That trailed the 9.98% return of the Fidelity
Aggressive Composite Index, but beat the 2.20% return of the flexible
portfolio funds average, according to Lipper Analytical Services. The
fund's competitive performance relative to its peer group was due in
large part to the fund's balanced approach to asset allocation. Many
funds within the peer group were fairly aggressive in terms of asset
allocation and security exposure - factors that detracted from peer
group performance late in the period as equity markets stumbled. In
contrast, the fund's bond allocation may have benefited performance
relative to its peers.
Q. WHAT WAS YOUR STRATEGY IN TERMS OF ASSET ALLOCATION?
A. The fund's neutral mix generally calls for 70% to be invested in
stocks, 25% in bonds and 5% in short-term/money market instruments.
Given the market volatility we witnessed throughout the period,
however - particularly during the past six months - the percentage in
stocks was scaled back and the fund's exposure to bonds was increased.
This decision was made during the summer months based on a belief that
global market turmoil could creep into U.S. corporate circles and have
a negative impact on earnings growth. In retrospect, this turned out
to be a sound strategy. Another adjustment was made during the last
month of the period, when the fund's stock exposure was ramped back up
based on two factors. First, the International Monetary Fund - which
provides financial assistance to countries with struggling economies -
devised bailout plans for both Asia and Russia. Second, the U.S.
Federal Reserve Board appeared ready to stoke the economy by lowering
interest rates, which it eventually did in late September. Whenever
investors are given reason to be confident, stocks generally perform
well. Overall, I was happy with these allocation shifts.
Q. HOW DID THE FUND'S EQUITY SUBPORTFOLIO PERFORM DURING THE PERIOD?
A. In terms of the fund's equity positions - which are managed by Brad
Lewis - industry selection was positive but individual security
selection within those industries hurt performance relative to the
Standard & Poor's 500 Index. For instance, the fund was
well-represented in the technology sector, but while technology stocks
accounted for approximately one-fourth of the S&P 500's gain, the
fund's technology positions were largely a drag on performance.
Looking back on the period, we simply didn't own enough of the names
that did really well. The fund had positions in strong performers such
as Microsoft, for example, but not enough to positively influence
performance relative to the S&P 500. Some of the individual
disappointments included financial-related holdings Chase Manhattan
and Lehman Brothers, both of which suffered as global capital market
conditions deteriorated toward the end of the period. Additionally,
the fund's exposure to pharmaceutical stocks in general was beneficial
as interest in defensive areas of the market peaked toward the close
of the period.
Q. WHICH EQUITY INVESTMENTS BENEFITED THE FUND'S PERFORMANCE?
A. Home mortgage financers Fannie Mae and Freddie Mac continued their
strong run during the period. Many homeowners took advantage of the
lower interest rates prevalent in the U.S. to refinance their
mortgages. Both companies benefited from increased refinancing volume,
as well as attractive yield spreads between mortgage-related bonds and
Treasury bonds. Another strong performer was retail store chain
Wal-Mart, which benefited from strong consumer spending.
Q. WHAT ABOUT THE BOND PORTION OF THE FUND?
A. While turning in positive returns, the fund's fixed-income
investments lagged the fixed-income benchmark during the period. There
were two primary reasons for this. First, the fund's tactical
allocation toward high-yield securities - which are managed by Fred
Hoff - benefited performance throughout much of the period but proved
a net negative down the stretch as the market corrected. Second, the
fund's investment-grade bond exposure - which is overseen by Charlie
Morrison - was overweighted in corporate and mortgage-backed bonds,
both of which underperformed as a flight to quality caused U.S.
Treasuries to outperform all other fixed-income sectors. During the
last two months of the period, this flight to quality was spurred
primarily by the ongoing troubles in overseas markets. Simultaneously,
stock investors became concerned with their risk exposure and many
opted for more conservative investments. As a result, U.S. Treasury
bonds benefited tremendously. While corporate and mortgage-backed
securities performed well over the period, they were unable to keep
pace with Treasuries.
Q. WHAT WAS YOUR STRATEGY WITH RESPECT TO THE FUND'S SHORT-TERM/MONEY
MARKET INVESTMENTS?
A. Unlike six months ago, when we were focusing on investments with
shorter maturities, the unpredictability of the stock market caused us
to take a somewhat longer-term approach. John Todd, who manages the
fund's short-term/money market subportfolio, began to look at
securities with one-year maturities during the second half of the
period. As uncertainty continued to prevail in the financial markets,
however, John began to look more closely at the three- to six-month
range. Throughout the summer months, it appeared unlikely that the Fed
would take action and cut interest rates, yet the market itself had
been pricing in a potential rate tightening. On average, the fund's
short-term investments were longer in maturity than the three-month
Treasury bill benchmark and had more exposure to higher-yielding
investments. This helped relative performance during the period.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. I think it's important that shareholders of the fund understand
that the market is going to go through this sort of volatility every
now and then. The returns we've seen over the past year are much
closer to the market's historical yearly average than the 20% returns
some investors have become accustomed to. Should the Fed lower
interest rates again - thus making it easier for corporations to
borrow or raise capital - we could see increased growth and better
valuations across the board. In terms of equities, we may also begin
to see more stocks participate in the market's gains. This would be an
attractive development and would play nicely to our stock-picking
strengths.
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.
(CHECKMARK)FUND FACTS
GOAL: MAXIMUM TOTAL RETURN
OVER THE LONG TERM THROUGH
INVESTING IN STOCKS, BONDS AND
SHORT-TERM AND MONEY MARKET
INSTRUMENTS
FUND NUMBER: 321
TRADING SYMBOL: FASGX
START DATE: DECEMBER 30, 1991
SIZE: AS OF SEPTEMBER 30,
1998, MORE THAN $4.5 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
DICK HABERMANN ON THE
CONCERNS POSED BY HEDGE
FUNDS:
"THERE'S BEEN A LOT OF TALK ABOUT HEDGE
FUNDS LATELY, PARTICULARLY WITH THE RECENT
NEAR-COLLAPSE OF LONG-TERM CAPITAL
MANAGEMENT. NOT ALL INVESTORS MAY BE
FAMILIAR WITH HOW THESE TYPES OF FUNDS
OPERATE, NOR HOW THEY CAN POTENTIALLY
AFFECT OTHER TYPES OF INVESTMENTS SUCH
AS MUTUAL FUNDS.
"A HEDGE FUND SEEKS TO TAKE ADVANTAGE
OF INEFFICIENCIES IN CAPITAL MARKETS. THIS
COULD BE IN STOCKS, BONDS,
EMERGING-MARKET DEBT OR OTHER
INVESTMENTS. HEDGE FUNDS CAN BE HIGHLY
LEVERAGED AND TYPICALLY TAKE AMPLE
INVESTMENT RISKS. OF COURSE, THE
ATTRACTIVENESS TO INVESTORS IS THE
POTENTIALLY LUCRATIVE RETURNS THEY CAN
PROVIDE.
"IN THE CASE OF LONG-TERM CAPITAL,
THE FUND HAD RATHER EXTREME LEVERAGE
WITHIN ITS BOND ALLOCATION.
UNFORTUNATELY, THE MARKET TURMOIL LATE
IN THE PERIOD FORCED FIRMS SUCH AS
LONG-TERM CAPITAL TO `UNWIND' SOME OF
THESE LEVERAGED STRATEGIES BY SELLING
LARGE AMOUNTS OF SECURITIES. AFTER
REALIZING THAT SUCH A CONTINUING GLUT OF
SUPPLY HITTING THE MARKETS WOULD BE
PARALYZING, A NUMBER OF ENTITIES
COLLABORATED ON A FINANCIAL PLAN TO
ASSIST LONG-TERM CAPITAL.
"WHAT DOES THIS TYPE OF SITUATION MEAN
FOR FUNDS SUCH AS THE ASSET MANAGERS?
WELL, IF LONG-TERM CAPITAL HAD UNLEASHED
ALL OF ITS BOND HOLDINGS, IT WOULD HAVE
PUT INCREDIBLE LIQUIDITY PRESSURE ON
SOME OF THE SECTORS IN WHICH WE INVEST.
INVESTORS ALSO WOULD HAVE HAD DIFFICULTY
DETERMINING WHETHER PRICING WAS FAIR OR
NOT. IN ESSENCE, THIS ONE SITUATION COULD
HAVE PLUNGED THE U.S. DIRECTLY INTO A
CAPITAL MARKETS `FREEZE.' FORTUNATELY, IT
DIDN'T COME TO THAT, AND IN THE END,
INVESTORS HOPEFULLY BECAME MORE
EDUCATED ABOUT THE RISKS THAT HEDGE
FUNDS TAKE."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP TEN STOCKS AS OF SEPTEMBER 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS IN THESE
INVESTMENTS STOCKS 6 MONTHS AGO
BellSouth 4.6 0.5
Corp.
Microsoft 3.2 0.5
Corp.
AT&T Corp. 2.6 0.2
Wal-Mart 2.3 2.0
Stores, Inc.
Guidant Corp. 2.2 0.0
Fannie Mae 2.2 7.1
Chrysler Corp. 2.0 0.0
Heinz (H.J.) 2.0 0.0
Co.
Ford Motor 2.0 0.0
Co.
Texaco, Inc. 2.0 0.0
</TABLE>
<TABLE>
<CAPTION>
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TOP TEN MARKET SECTORS (STOCKS ONLY) AS OF
SEPTEMBER 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS IN THESE
INVESTMENTS MARKET SECTORS 6 MONTHS AGO
Utilities 14.7 8.7
Finance 10.9 18.6
Health 9.0 6.6
Technology 9.0 7.7
Retail & Wholesale 7.0 7.7
Nondurables 4.8 4.8
Durables 4.6 3.6
Energy 2.8 5.0
Media & Leisure 2.8 3.9
Construction & Real 1.8 1.4
Estate
</TABLE>
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1998*
ROW: 1, COL: 1, VALUE: 71.0
ROW: 1, COL: 2, VALUE: 23.0
ROW: 1, COL: 3, VALUE: 6.0
STOCK CLASS 71%
BOND CLASS 23%
SHORT-TERM CLASS 6%
*FOREIGN
INVESTMENTS 2%
AS OF MARCH 31, 1998**
ROW: 1, COL: 1, VALUE: 76.0
ROW: 1, COL: 2, VALUE: 20.0
ROW: 1, COL: 3, VALUE: 4.0
STOCK CLASS 76%
BOND CLASS 20%
SHORT-TERM CLASS 4%
*FOREIGN
INVESTMENTS 10%
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 SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 68.9%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.0%
Gulfstream Aerospace 47,600 $ 1,916
Corp. (a)
BASIC INDUSTRIES - 0.3%
CHEMICALS & PLASTICS - 0.1%
Quaker State Corp. 239,900 3,494
PACKAGING & CONTAINERS - 0.2%
Owens-Illinois, Inc. (a) 483,400 12,085
TOTAL BASIC INDUSTRIES 15,579
CONSTRUCTION & REAL ESTATE - 1.6%
BUILDING MATERIALS - 0.7%
Fortune Brands, Inc. 286,200 8,479
Masco Corp. 1,021,800 25,162
33,641
CONSTRUCTION - 0.6%
Centex Corp. 145,600 5,023
D.R. Horton, Inc. 208,753 3,340
Fleetwood Enterprises, Inc. 346,400 10,457
Kaufman & Broad Home 339,000 7,945
Corp.
U.S. Home Corp. (a) 25,900 761
27,526
ENGINEERING - 0.3%
Fluor Corp. 258,700 10,623
TOTAL CONSTRUCTION & REAL 71,790
ESTATE
DURABLES - 4.6%
AUTOS, TIRES, & ACCESSORIES - 4.2%
Chrysler Corp. 1,918,100 91,829
Dana Corp. 358,900 13,391
Ford Motor Co. 1,920,000 90,120
195,340
HOME FURNISHINGS - 0.0%
HON Industries, Inc. 6,000 142
TEXTILES & APPAREL - 0.4%
Arena Brands Holdings 5,556 139
Corp. Class B
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - CONTINUED
TEXTILES & APPAREL - CONTINUED
Jones Apparel Group, 142,800 $ 3,275
Inc. (a)
VF Corp. 396,500 14,720
18,134
TOTAL DURABLES 213,616
ENERGY - 2.8%
ENERGY SERVICES - 0.2%
McDermott International, 333,300 8,978
Inc.
OIL & GAS - 2.6%
Ashland, Inc. 382,500 17,691
British Petroleum Co. PLC 4 0
British Petroleum Co. PLC 27 2
ADR
Sun Co., Inc. 305,900 9,789
Texaco, Inc. 1,434,300 89,913
117,395
TOTAL ENERGY 126,373
FINANCE - 10.6%
BANKS - 0.3%
Chase Manhattan Corp. 288,100 12,460
NationsBank Corp. 41,500 2,220
14,680
CREDIT & OTHER FINANCE - 1.4%
Equitable Companies (The), 469,200 19,413
Inc.
First Chicago NBD Corp. 680,300 46,601
66,014
FEDERAL SPONSORED CREDIT - 3.2%
Fannie Mae 1,588,500 102,061
Freddie Mac 866,400 42,833
144,894
INSURANCE - 4.7%
Allmerica Financial Corp. 80,800 4,818
Allstate Corp. 1,872,018 78,040
American General Corp. 240,100 15,336
CIGNA Corp. 962,100 63,619
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
INSURANCE - CONTINUED
Lincoln National Corp. 273,100 $ 22,462
MGIC Investment Corp. 332,400 12,257
Nationwide Financial 150,100 6,820
Services, Inc. Class A
Provident Companies, Inc. 233,700 7,887
Reliastar Financial Corp. 351 14
Travelers Property Casualty 108,800 3,475
Corp. Class A
214,728
SAVINGS & LOANS - 0.4%
Golden West Financial 248,020 20,291
Corp.
SECURITIES INDUSTRY - 0.6%
Lehman Brothers Holdings, 545,600 15,413
Inc.
Morgan Stanley, Dean 320,600 13,806
Witter, Discover & Co.
29,219
TOTAL FINANCE 489,826
HEALTH - 9.0%
DRUGS & PHARMACEUTICALS - 5.1%
Allergan, Inc. 47,700 2,784
Amgen, Inc. (a) 901,901 68,150
Bristol-Myers Squibb Co. 414,700 43,077
Mylan Laboratories, Inc. 143,200 4,224
Schering-Plough Corp. 605,800 62,738
Warner-Lambert Co. 718,500 54,247
235,220
MEDICAL EQUIPMENT & SUPPLIES - 3.9%
Allegiance Corp. 34,240 1,019
Becton, Dickinson & Co. 1,009,200 41,503
Cardinal Health, Inc. 335,300 34,620
Guidant Corp. 1,385,500 102,873
180,015
TOTAL HEALTH 415,235
INDUSTRIAL MACHINERY & EQUIPMENT - 1.7%
ELECTRICAL EQUIPMENT - 1.0%
Honeywell, Inc. 696,000 44,588
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Ingersoll-Rand Co. 913,100 $ 34,641
TOTAL INDUSTRIAL MACHINERY & 79,229
EQUIPMENT
MEDIA & LEISURE - 1.9%
BROADCASTING - 1.2%
Loral Orion Network
Systems, Inc. warrants
1/15/07:
(CV ratio .47) (a) 3,950 34
(CV ratio .6) (a) 1,160 13
Tele-Communications, Inc. 1,432,800 56,058
(TCI Group) Series A (a)
56,105
ENTERTAINMENT - 0.2%
Alliance Gaming 2,959 6
Corp. (a)(k)
Viacom, Inc. Class B 109,500 6,351
(non-vtg.) (a)
6,357
LODGING & GAMING - 0.0%
Aladdin Gaming 36,000 0
Enterprises, Inc. warrants
3/1/10 (a)(f)
Fitzgeralds South, Inc. 410 0
warrants 3/15/99 (a)(f)
0
PUBLISHING - 0.5%
Gannet Co., Inc. 266,900 14,296
New York Times Co. (The) 342,400 9,416
Class A
23,712
TOTAL MEDIA & LEISURE 86,174
NONDURABLES - 4.8%
FOODS - 3.0%
Heinz (H.J.) Co. 1,772,100 90,599
Quaker Oats Co. 776,600 45,819
136,418
HOUSEHOLD PRODUCTS - 1.5%
Clorox Co. 383,200 31,614
Colgate-Palmolive Co. 573,700 39,298
70,912
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONDURABLES - CONTINUED
TOBACCO - 0.3%
Philip Morris Companies, 256,300 $ 11,806
Inc.
TOTAL NONDURABLES 219,136
PRECIOUS METALS - 0.1%
Battle Mountain Gold Co. 95,900 581
Homestake Mining Co. 331,900 4,024
4,605
RETAIL & WHOLESALE - 7.0%
APPAREL STORES - 0.7%
Gap, Inc. 133,350 7,034
Lamonts Apparel, Inc.:
Class A warrants 48,477 12
1/31/08 (a)
Class A (a) 78,017 49
Class B warrants 15,407 4
1/31/08 (a)
Limited, Inc. (The) 767,900 16,846
TJX Companies, Inc. 644,800 11,486
35,431
GENERAL MERCHANDISE STORES - 3.9%
Dayton Hudson Corp. 692,800 24,768
Federated Department 373,800 13,597
Stores, Inc. (a)
K mart Corp. (a) 960,100 11,461
May Department Stores 443,300 22,830
Co. (The)
Wal-Mart Stores, Inc. 1,944,700 106,229
178,885
GROCERY STORES - 0.9%
Safeway, Inc. (a) 863,900 40,063
RETAIL & WHOLESALE, MISCELLANEOUS - 1.5%
Ebay, Inc. (a) 1,400 63
Lowe's Companies, Inc. 2,003,200 63,727
Office Depot, Inc. (a) 166,850 3,744
Rex Stores Corp. (a) 62,600 665
68,199
TOTAL RETAIL & WHOLESALE 322,578
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - 0.3%
LEASING & RENTAL - 0.1%
Hertz Corp. Class A 144,000 $ 5,958
PRINTING - 0.2%
Donnelley (R.R.) & Sons 277,000 9,747
Co.
TOTAL SERVICES 15,705
TECHNOLOGY - 8.9%
COMMUNICATIONS EQUIPMENT - 1.5%
Cisco Systems, Inc. (a) 143,550 8,873
Globalstar 1,900 48
Telecommunications Ltd.
warrants 2/15/04 (a)(f)
Lucent Technologies, Inc. 861,420 59,492
68,413
COMPUTER SERVICES & SOFTWARE - 4.4%
24/7 Media, Inc. (a) 2,300 25
American Management 47,700 1,306
Systems, Inc. (a)
Compuware Corp. (a) 525,100 30,915
Entrust Technologies, 5,200 77
Inc. (a)
Galileo International, Inc. 71,600 2,703
Keane, Inc. (a) 114,500 4,022
Microsoft Corp. (a) 1,354,000 149,025
Novell, Inc. (a) 387,500 4,747
Sabre Group Holdings, Inc. 96,100 2,883
Class A (a)
Sterling Software, Inc. (a) 95,400 2,629
Synopsys, Inc. (a) 117,200 3,904
202,236
COMPUTERS & OFFICE EQUIPMENT - 2.0%
Dell Computer Corp. (a) 412,800 27,142
Ingram Micro, Inc. Class 230,600 12,352
A (a)
Lexmark International 382,000 26,477
Group, Inc. (a)
Sun Microsystems, Inc. (a) 477,300 23,776
89,747
PHOTOGRAPHIC EQUIPMENT - 1.0%
Eastman Kodak Co. 615,900 47,617
TOTAL TECHNOLOGY 408,013
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 1.1%
AMR Corp. (a) 887,800 $ 49,217
UTILITIES - 14.2%
CELLULAR - 0.0%
Century Telephone 37,200 1,758
Enterprises, Inc.
McCaw International Ltd. 12,170 61
warrants 4/15/07 (a)(f)
1,819
ELECTRIC UTILITY - 6.7%
Baltimore Gas & Electric 239,400 7,990
Co.
Consolidated Edison, Inc. 941,000 49,050
DTE Energy Co. 751,600 33,963
Edison International 243,000 6,242
FirstEnergy Corp. 122,800 3,814
FPL Group, Inc. 748,500 52,161
Hawaiian Electric 143,700 5,928
Industries, Inc.
Houston Industries, Inc. 1,297,300 40,378
Montana Power Co. 95,900 4,286
PECO Energy Co. 967,500 35,374
Public Service Enterprise 934,700 36,745
Group, Inc.
Southern Co. 1,077,700 31,725
307,656
GAS - 0.4%
Columbia Energy Group 92,100 5,399
El Paso Energy Corp. 286,300 9,287
Western Resources, Inc. 95,800 3,964
18,650
TELEPHONE SERVICES - 7.1%
AT&T Corp. 2,015,700 117,792
BellSouth Corp. 2,791,600 210,053
Pathnet, Inc. warrants 8,200 123
4/15/08 (a)(f)
327,968
TOTAL UTILITIES 656,093
TOTAL COMMON STOCKS 3,175,085
(Cost $2,980,770)
NONCONVERTIBLE PREFERRED STOCKS - 2.0%
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
California Federal 298,366 $ 7,608
Preferred Capital Corp.
$2.28
Crown America Realty Trust 17,430 857
Series A, $5.50
Walden Residential 83,400 1,949
Properties, Inc. $2.30
10,414
FINANCE - 0.3%
CREDIT & OTHER FINANCE - 0.1%
Fresenius Medical Care 5,340 5,010
Capital Trust II 7.875%
INSURANCE - 0.2%
American Annuity Group 1,800 1,800
Capital Trust II 8.75%
SIG Capital Trust I 9.5% 5,381 5,182
6,982
TOTAL FINANCE 11,992
MEDIA & LEISURE - 0.9%
BROADCASTING - 0.7%
Adelphia Communications 14,944 1,726
Corp. $13.00
CSC Holdings, Inc. 144,369 15,881
11.125% pay-in-kind
Echostar Communications 2,839 2,740
Corp. 12.125%
pay-in-kind
Granite Broadcasting Corp. 3,114 3,114
12.75% pay-in-kind
SFX Broadcasting, Inc. 25,932 3,086
12.625% pay-in-kind
Sinclair Capital 11.625% 50,145 5,265
31,812
PUBLISHING - 0.2%
PRIMEDIA, Inc.:
$9.20 43,811 4,250
Series D, $10.00 41,288 4,088
8,338
TOTAL MEDIA & LEISURE 40,150
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General 18,200 378
Holdings Corp.
$3.52 pay-in-kind (a)
NONCONVERTIBLE PREFERRED STOCKS -
CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - 0.1%
COMMUNICATIONS EQUIPMENT - 0.1%
Intermedia 2,247 $ 2,472
Communications, Inc.
13.5% pay-in-kind
UTILITIES - 0.5%
CELLULAR - 0.3%
Nextel Communications, 14,912 13,048
Inc. 11.125%
pay-in-kind
TELEPHONE SERVICES - 0.2%
Hyperion 2,935 2,407
Telecommunication, Inc.
12.875% pay-in-kind
IXC Communications, Inc. 2,202 2,334
12.5% pay-in-kind
NEXTLINK 125,022 6,501
Communications, Inc.
14% pay-in-kind
11,242
TOTAL UTILITIES 24,290
TOTAL NONCONVERTIBLE 89,696
PREFERRED STOCKS
(Cost $92,478)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CORPORATE BONDS - 17.0%
MOODY'S PRINCIPAL
RATINGS AMOUNT (000S)
(UNAUDITED)
(B)
CONVERTIBLE BONDS - 0.2%
HEALTH - 0.1%
DRUGS & PHARMACEUTICALS - 0.0%
Integrated Process B- $ 1,930 1,226
Equipment Corp. 6.25%
9/15/04 (b)(f)
MEDICAL FACILITIES MANAGEMENT - 0.1%
Tenet Healthcare Corp. 6% B1 2,005 1,679
12/1/05
TOTAL HEALTH 2,905
NONDURABLES - 0.1%
FOODS - 0.1%
Chiquita Brands B3 3,530 3,248
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Sports Authority, Inc. (The) B1 2,480 1,854
5.25% 9/15/01
TOTAL CONVERTIBLE BONDS 8,007
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - 16.8%
AEROSPACE & DEFENSE - 0.2%
DEFENSE ELECTRONICS - 0.1%
Raytheon Co.:
5.95% 3/15/01 Baa1 $ 1,700 $ 1,729
6.45% 8/15/02 Baa1 2,030 2,112
3,841
SHIP BUILDING & REPAIR - 0.1%
Newport News B1 5,870 6,222
Shipbuilding, Inc. 9.25%
12/1/06
TOTAL AEROSPACE & DEFENSE 10,063
BASIC INDUSTRIES - 0.2%
CHEMICALS & PLASTICS - 0.1%
Huntsman Corp. 9.5% B2 2,760 2,650
7/1/07 (f)
Praxair, Inc. 6.625% A3 1,210 1,266
10/15/07
3,916
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, Inc.:
7.15% 5/15/05 Ba1 2,890 2,890
7.8% 5/15/18 Ba1 1,450 1,382
4,272
TOTAL BASIC INDUSTRIES 8,188
CONSTRUCTION & REAL ESTATE - 0.3%
BUILDING MATERIALS - 0.0%
American Standard Cos., Ba3 1,460 1,465
Inc. 7.375% 4/14/05
CONSTRUCTION - 0.1%
U.S. Home Corp. 8.88% B1 2,220 2,198
8/15/07
REAL ESTATE - 0.1%
LNR Property Corp. B1 4,445 4,101
9.375% 3/15/08
REAL ESTATE INVESTMENT TRUSTS - 0.1%
CenterPoint Properties Baa2 530 526
Corp. 6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 1,200 1,199
6.75% 2/15/08 Baa1 570 567
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
Weeks Realty LP 6.875% Baa2 $ 1,000 $ 979
3/15/05
3,271
TOTAL CONSTRUCTION & REAL ESTATE 11,035
DURABLES - 0.9%
AUTOS, TIRES, & ACCESSORIES - 0.4%
Blue Bird Body Co. 10.75% B2 1,730 1,786
11/15/06
Breed Technologies, Inc. B3 5,290 4,364
9.25% 4/15/08 (f)
Federal-Mogul Corp. Ba2 8,110 8,118
7.875% 7/1/10
Oshkosh Truck Co. 8.75% B3 3,940 3,743
3/1/08
18,011
CONSUMER DURABLES - 0.1%
Corning Consumer B3 5,380 4,331
Products Co. 9.625%
5/1/08 (f)
HOME FURNISHINGS - 0.0%
Omega Cabinets Ltd. B3 1,730 1,522
10.5% 6/15/07
TEXTILES & APPAREL - 0.4%
Levi Strauss & Co. 7% Baa2 3,150 3,074
11/1/06 (f)
Nine West Group, Inc. 9% Ba3 1,980 1,703
8/15/07
Unifi, Inc. 6.5% 2/1/08 A3 1,020 1,021
WestPoint Stevens, Inc. Ba3 4,415 4,481
7.875% 6/15/08
Worldtex, Inc. 9.625% B1 6,580 5,856
12/15/07
16,135
TOTAL DURABLES 39,999
ENERGY - 0.3%
COAL - 0.1%
P&L Coal Holdings Corp. B2 4,200 4,200
9.625% 5/15/08 (f)
ENERGY SERVICES - 0.0%
Ocean Rig Norway AS B3 2,810 2,129
10.25% 6/1/08 (f)
OIL & GAS - 0.2%
Chesapeake Energy Corp. B1 1,870 1,636
9.625% 5/1/05
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Occidental Petroleum
Corp.:
6.39% 11/9/00 Baa3 $ 500 $ 509
8.5% 11/9/01 Baa2 530 573
10.94% 5/17/00 Baa3 1,200 1,306
Oryx Energy Co.:
8% 10/15/03 Ba1 560 593
8.125% 10/15/05 Ba1 370 384
8.375% 7/15/04 Ba1 1,410 1,509
Petroleum Geo-Services Baa3 1,450 1,399
ASA 7.125% 3/30/28
USX-Marathon Group Baa2 445 462
6.85% 3/1/08
8,371
TOTAL ENERGY 14,700
FINANCE - 2.5%
BANKS - 0.8%
BankBoston Corp. 6.625% A3 600 618
2/1/04
BankBoston NA (Bearer) A2 500 504
6.375% 3/25/08
BanPonce Corp. 6.665% A3 1,650 1,701
3/5/01
BanPonce Financial Corp. A3 1,000 1,033
7.72% 4/13/00
Barclays Bank PLC yankee A1 3,750 3,817
5.95% 7/15/01
Capital One Bank:
6.375% 2/15/03 Baa3 1,240 1,267
6.42% 11/12/99 Baa3 3,600 3,618
8.125% 3/1/00 Baa3 1,640 1,687
Capital One Financial Ba1 1,700 1,736
Corp. 7.125% 8/1/08
Citicorp 5.625% 2/15/01 Aa3 1,200 1,209
Den Danske Bank AS A1 3,290 3,367
6.375% 6/15/08 (f)(i)
Fleet Credit Card LLC A1 900 922
6.45% 10/30/00
Fleet/Norstar Financial A3 930 1,037
Group, Inc. 9.9%
6/15/01
Huntington National Bank A1 5,570 5,654
5.875% 1/15/01
NationsBank NA 5.92% Aa2 2,650 2,704
6/8/01
NB Capital Trust IV 8.25% Aa2 995 1,093
4/15/27
Providian National Bank Baa3 1,020 1,070
6.7% 3/15/03
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Summit Bancorp 8.625% - $ 650 $ 728
12/10/02
Union Planters National A3 1,500 1,558
Bank 6.81% 8/20/01
35,323
CREDIT & OTHER FINANCE - 1.3%
Ahmanson Capital Trust I Baa2 1,800 1,976
8.36% 12/1/26 (f)
Associates Corp. of North Aa3 1,550 1,598
America 6% 4/15/03
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 1,250 1,265
6.25% 5/15/01 Baa3 3,250 3,301
BankAmerica Capital II 8% Aa2 990 1,070
12/15/26
BanPonce Trust I 8.327% A3 2,850 2,914
2/1/27
BCH Cayman Islands Ltd. A2 440 466
yankee 7.7% 7/15/06
Countrywide Funding A3 1,300 1,349
Corp. 6.45% 2/27/03
ERP Operating LP 6.55% A3 600 609
11/15/01
Farmers Insurance A2 1,100 1,111
Exchange Capital 7.05%
7/15/28 (f)
Finova Capital Corp. Baa1 1,000 1,023
6.12% 5/28/02
First Security Capital I A3 850 949
8.41% 12/15/26
Ford Motor Credit Co.:
5.73% 2/23/00 A1 1,500 1,514
6.57% 3/19/01 A1 2,500 2,585
General Electric Capital Aaa 3,000 3,022
Corp. 6.94%
4/13/09 (e)
General Motors A3 2,730 2,860
Acceptance Corp. 6.75%
7/10/02
GS Escrow Corp.:
7% 8/1/03 (f) Ba1 860 859
7.125% 8/1/05 (f) Ba1 3,000 2,962
Heller Financial, Inc.:
6.25% 3/1/01 A3 1,650 1,683
7.875% 11/1/99 A3 2,230 2,286
KeyCorp Institutional A1 1,550 1,653
Capital A 7.826%
12/1/26
Macsaver Financial Ba1 4,810 3,583
Services, Inc. 7.6%
8/1/07
Mellon Capital I 7.72% A2 660 699
12/1/26
Money Store, Inc. 7.3% A2 850 907
12/1/02
Nordstrom Credit, Inc. A2 1,200 1,279
7.25% 4/30/02
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
PNC Funding Corp. A3 $ 5,570 $ 5,916
6.875% 3/1/03
Premier Auto Trust 5.45% P-1 3,100 3,108
6/8/99
Time Warner Telecom B2 1,100 1,100
LLC/Time Warner
Telecom, Inc. 9.75%
7/15/08
U.S. Bancorp 8.09% A1 990 1,080
11/15/26
UNICCO Service B3 5,710 5,282
Co./UNICCO Finance
Corp. 9.875%
10/15/07
60,009
SAVINGS & LOANS - 0.3%
Chevy Chase Savings Bank B1 2,160 2,095
FSB 9.25% 12/1/08
First Nationwide Parent Ba3 5,920 6,836
Holdings Ltd. 12.5%
4/15/03
Great Western Finance A3 1,290 1,401
Trust II 8.206% 2/1/27
Great Western Financial A3 1,000 1,090
Corp. 8.6% 2/1/02
Home Savings of America A3 970 1,007
FSB 6.5% 8/15/04
Long Island Savings Bank
FSB:
6.2% 4/2/01 Baa3 1,250 1,262
7% 6/13/02 Baa3 1,210 1,263
14,954
SECURITIES INDUSTRY - 0.1%
Amvescap PLC 6.375% A3 1,650 1,696
5/15/03
Morgan Stanley, Dean - 4,600 4,600
Witter, Discover & Co.
5.75% 1/15/99 (i)
6,296
TOTAL FINANCE 116,582
HEALTH - 0.5%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
Graham-Field Health Caa1 3,290 1,941
Products, Inc. 9.75%
8/15/07
McKesson Corp. 6.6% A3 1,720 1,750
3/1/00
3,691
MEDICAL FACILITIES MANAGEMENT - 0.4%
Fountain View, Inc. 11.25% Caa1 3,180 2,798
4/15/08 (f)
Integrated Health Services, B2 3,799 3,609
Inc. 9.25% 1/15/08
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - CONTINUED
Magellan Health Services, B3 $ 2,860 $ 2,445
Inc. 9% 2/15/08 (f)
Tenet Healthcare Corp.:
8.125% 12/1/08 (f) Ba3 2,080 2,096
8.625% 1/15/07 Ba3 6,090 6,303
17,251
TOTAL HEALTH 20,942
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
ELECTRICAL EQUIPMENT - 0.0%
Motors & Gears, Inc. B3 610 598
10.75% 11/15/06
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Bucyrus International, Inc. B1 4,900 3,675
9.75% 9/15/07
Roller Bearing Holding, Inc. - 4,780 2,796
0% 6/15/09 (d)(f)
Thermadyne Manufacturing B3 1,330 1,170
LLC 9.875%
6/1/08
Tyco International Group
SA yankee:
6.125% 6/15/01 Baa1 2,650 2,706
6.375% 6/15/05 Baa1 1,030 1,086
11,433
POLLUTION CONTROL - 0.2%
Allied Waste North B2 3,060 3,305
America, Inc. 10.25%
12/1/06
Envirosource, Inc. 9.75% B3 1,150 1,052
6/15/03
WMX Technologies, Inc.:
6.25% 10/15/00 Baa3 700 713
7.1% 8/1/26 Baa3 1,570 1,686
8.25% 11/15/99 Baa3 440 454
7,210
TOTAL INDUSTRIAL MACHINERY & 19,241
EQUIPMENT
MEDIA & LEISURE - 6.1%
BROADCASTING - 4.5%
ACME Television B3 2,410 1,868
LLC/ACME Financial
Corp. 0% 9/30/04 (d)
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Adelphia Communications
Corp.:
9.5% 2/15/04 B2 $ 9,038 $ 9,257
pay-in-kind
9.875% 3/1/07 B2 10,210 11,027
Allbritton Communications B3 5,130 5,079
Co. 8.875% 2/1/08
Ascent Entertainment B3 2,920 1,606
Group, Inc. 0%
12/15/04 (d)
CBS Radio, Inc. 11.375% - 3,766 4,256
1/15/09 pay-in-kind
Century Communications
Corp.:
0% 1/15/08 Ba3 23,480 11,094
8.75% 10/1/07 Ba3 1,670 1,754
Chancellor Media Corp. Ba3 4,860 4,884
9% 10/1/08 (f)
Classic Communications, Caa1 570 319
Inc. 0% 8/1/08
Unit (d)(f)
Clear Channel Baa3 1,350 1,329
Communications, Inc.
6.875% 6/15/18
Comcast UK Cable Partners B2 6,330 5,222
Ltd. 0% 11/15/07 (d)
Continental Cablevision,
Inc.:
8.3% 5/15/06 Baa3 700 792
8.625% 8/15/03 Baa3 1,480 1,651
9% 9/1/08 Baa3 1,190 1,431
CSC Holdings, Inc.:
9.25% 11/1/05 B1 1,710 1,804
9.875% 5/15/06 B1 3,220 3,429
10.5% 5/15/16 B1 2,630 2,972
Diamond Cable Caa1 2,360 1,888
Communications PLC
yankee
0% 12/15/05 (d)
Echostar Communications B2 2,084 2,016
Corp. 0% 6/1/04 (d)
Echostar Satellite B3 1,380 1,228
Broadcasting Corp. 0%
3/15/04 (d)
Falcon Holdings Group
LP/Falcon Funding:
0% 4/15/10 (d) B2 13,260 8,984
8.375% 4/15/10 B2 2,980 2,987
Fox/Liberty Networks B1 2,485 1,653
LLC/FLN Finance, Inc.
0% 8/15/07 (d)
FrontierVision Holdings Caa1 5,771 4,646
LP/FrontierVision
Holdings Capital Corp.
0% 9/15/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
FrontierVision Operating B3 $ 8,282 $ 9,069
Partners LP/
FrontierVision Capital
Corp. 11% 10/15/06
Granite Broadcasting
Corp.:
8.875% 5/15/08 B3 4,100 3,844
9.375% 12/1/05 B3 5,530 5,406
10.375% 5/15/05 B3 2,030 2,060
Hearst-Argyle Television, Baa3 1,060 1,096
Inc. 7.5% 11/15/27
Intermedia Capital Partners B2 1,860 2,065
IV LP / Intermedia
Partners IV Capital Corp.
11.25% 8/1/06
International Cabletel, Inc. B3 3,000 2,370
0% 2/1/06 (d)
Iridium Operating B3 6,750 5,434
LLC/Iridium Capital
Corp. 11.25% 7/15/05
Lenfest Communications, B2 4,280 4,323
Inc. 8.25% 2/15/08
LIN Holdings Corp. 0% B3 9,100 5,949
3/1/08 (d)(f)
NTL, Inc.:
0% 4/1/08 (d)(f) B3 12,990 7,826
10% 2/15/07 B3 2,900 2,929
Olympus Communications B1 1,540 1,694
LP/Olympus Capital
Corp. 10.625%
11/15/06
Orion Network Systems,
Inc.:
0% 1/15/07 (d) B2 2,210 1,381
11.25% 1/15/07 B2 920 851
Pegasus Communications B3 2,070 1,987
Corp. 9.625%
10/15/05
Renaissance Media Group B3 3,980 2,677
LLC/Renaissance 0%
4/15/08 (d)(f)
Rogers Cablesystems Ltd. B2 3,400 3,842
yankee 11% 12/1/15
Satelites Mexicanos SA de B3 5,735 3,842
CV 10.125%
11/1/04 (f)
Sinclair Broadcast Group, B2 3,650 3,595
Inc. 8.75% 12/15/07
TCI Communications Ba2 7,950 9,461
Financing III 9.65%
3/31/27
TCI Communications, Inc.:
6.46% 3/6/00 Baa3 2,930 2,981
8.75% 8/1/15 Baa3 1,605 2,005
9.25% 4/15/02 Baa3 1,000 1,122
9.8% 2/1/12 Baa3 1,790 2,393
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
Telewest PLC:
yankee 0% 10/1/07 (d) B1 $ 12,600 $ 10,301
9.625% 10/1/06 B1 980 985
Time Warner, Inc.:
6.875% 6/15/18 Baa3 1,770 1,829
7.75% 6/15/05 Baa3 1,100 1,226
7.95% 2/1/00 Baa3 1,615 1,668
8.18% 8/15/07 Baa3 1,750 2,040
UIH Australia/Pacific, Inc. B2 3,520 1,408
0% 5/15/06 (d)
United International B3 9,970 4,736
Holdings, Inc. 0%
2/15/08 (d)
207,571
ENTERTAINMENT - 0.7%
AMC Entertainment, Inc. B2 4,970 4,622
9.5% 3/15/09
American Skiing Co. 12% B3 3,470 3,539
7/15/06
Bally Total Fitness Holding B3 3,050 2,852
Corp. 9.875%
10/15/07
Cinemark USA, Inc. 8.5% B2 4,740 4,562
8/1/08
Livent, Inc. 9.375% B1 950 637
10/15/04
Paramount Ba2 600 628
Communications, Inc.
7.5% 1/15/02
Premier Parks, Inc. 0% B3 3,180 1,972
4/1/08 (d)
United Artists Theatre Co. Caa1 2,670 2,470
9.75% 4/15/08
Viacom, Inc.:
6.75% 1/15/03 Ba2 1,920 1,971
7.75% 6/1/05 Ba2 5,830 6,296
8% 7/7/06 B1 1,800 1,809
31,358
LODGING & GAMING - 0.5%
Aladdin Gaming Caa2 3,600 1,044
Holdings/Aladdin
Capital Corp. 0%
3/1/10 (d)
Courtyard by Marriott II B- 2,910 3,012
LP/Courtyard II Finance
Co. 10.75% 2/1/08
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 2,560 2,566
7.875% 8/1/08 Ba2 11,710 11,564
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
Signature Resorts, Inc. B3 $ 3,120 $ 2,215
9.75% 10/1/07
Sun International Hotels Ba3 2,220 2,264
Ltd./Sun International
North America, Inc.
yankee 9% 3/15/07
22,665
PUBLISHING - 0.3%
Garden State Newspapers, B1 8,160 7,854
Inc. Series B, 8.75%
10/1/09
News America Holdings,
Inc.:
7.7% 10/30/25 Baa3 2,150 2,299
8.5% 2/15/05 Baa3 2,040 2,299
News America, Inc. 7.25% Baa3 1,300 1,332
5/18/18
13,784
RESTAURANTS - 0.1%
Host Marriott Travel Plazas, Ba3 5,180 5,284
Inc. 9.5% 5/15/05
NE Restaurant Co., Inc. B3 1,750 1,706
10.75% 7/15/08 (f)
6,990
TOTAL MEDIA & LEISURE 282,368
NONDURABLES - 0.3%
FOODS - 0.0%
ConAgra, Inc. 7.125% Baa1 1,700 1,835
10/1/26
HOUSEHOLD PRODUCTS - 0.2%
Revlon Consumer Products B3 8,790 8,570
Corp. 8.625% 2/1/08
TOBACCO - 0.1%
Philip Morris Companies,
Inc.:
6.95% 6/1/06 A2 1,510 1,605
7% 7/15/05 A2 1,610 1,721
7.25% 9/15/01 A2 1,700 1,781
5,107
TOTAL NONDURABLES 15,512
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 1.3%
APPAREL STORES - 0.2%
AnnTaylor, Inc. 8.75% B3 $ 5,690 $ 5,576
6/15/00
Specialty Retailers, Inc. Ba3 1,060 981
8.5% 7/15/05
6,557
GENERAL MERCHANDISE STORES - 0.3%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 1,800 1,879
7.5% 7/15/06 A3 2,000 2,242
Federated Department
Stores, Inc.:
6.79% 7/15/27 Baa2 1,100 1,162
7% 2/15/28 Baa2 1,360 1,374
8.125% 10/15/02 Baa2 520 568
Kmart Corp.:
7.75% 10/1/12 Ba2 310 313
8.25% 1/1/22 Ba2 2,480 2,449
12.5% 3/1/05 Ba2 4,240 5,215
15,202
GROCERY STORES - 0.6%
Ameriserve Food B1 1,390 1,230
Distribution, Inc. 8.875%
10/15/06
Kroger Co. 6% 7/1/00 Baa3 2,400 2,432
Meyer (Fred), Inc. 7.45% Ba2 5,580 5,831
3/1/08
Mrs. Fields Original B2 1,480 1,376
Cookies, Inc. 10.125%
12/1/04
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 10,400 9,932
12.625% 6/15/02 Caa2 1,940 1,828
Pueblo Xtra International,
Inc.:
9.5% 8/1/03 B3 4,050 3,645
9.5% 8/1/03 B3 1,710 1,539
27,813
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Amazon.com, Inc. 0% Caa2 3,440 1,858
5/1/08 (d)
Central Tractor Farm & B2 980 951
Country, Inc. 10.625%
4/1/07
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
J Crew Operating Corp. Caa1 $ 2,140 $ 1,712
10.375% 10/15/07
Metals USA, Inc. 8.625% B2 6,430 5,594
2/15/08
10,115
TOTAL RETAIL & WHOLESALE 59,687
SERVICES - 0.4%
PRINTING - 0.1%
Sullivan Graphics, Inc. Caa1 1,830 1,848
12.75% 8/1/05
SERVICES - 0.3%
Borg-Warner Security B3 1,150 1,265
Corp. 9.625% 3/15/07
Iron Mountain, Inc. 8.75% B3 2,590 2,564
9/30/09
La Petite Academy, Inc./La B3 4,530 4,383
Petite Academy Holding
Co. 10% 5/15/08
Medaphis Corp. 9.5% B2 7,520 6,618
2/15/05
14,830
TOTAL SERVICES 16,678
TECHNOLOGY - 0.4%
COMPUTER SERVICES & SOFTWARE - 0.2%
Federal Data Corp. B3 6,800 6,137
10.125% 8/1/05
ICG Services, Inc. 0% - 7,560 3,667
5/1/08 (d)
PSINet, Inc. 10% 2/15/05 B3 1,200 1,200
11,004
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Comdisco, Inc.:
6.375% 11/30/01 Baa1 1,800 1,848
7.21% 7/2/01 Baa1 1,750 1,834
3,682
ELECTRONIC INSTRUMENTS - 0.1%
Telecommunications B3 3,680 3,349
Techniques Co. 9.75%
5/15/08 (f)
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.0%
Fairchild Semiconductor - $ 2,734 $ 2,200
Corp. 11.74% 3/15/08
pay-in-kind (k)
TOTAL TECHNOLOGY 20,235
TRANSPORTATION - 0.8%
AIR TRANSPORTATION - 0.5%
Atlas Air, Inc. 9.25% B3 8,000 7,480
4/15/08 (f)
Delta Air Lines, Inc. Baa3 500 533
9.875% 5/15/00
Kitty Hawk, Inc. 9.95% B1 8,040 8,080
11/15/04
US Air, Inc. 9.625% B1 1,960 2,009
2/1/01
US Airways Group, Inc. Ba2 3,340 3,549
10.375% 3/1/13
21,651
RAILROADS - 0.2%
Burlington Northern Santa Baa2 1,500 1,697
Fe Corp. 7.29% 6/1/36
Canadian National Baa2 2,500 2,564
Railway Co. 6.9%
7/15/28
CSX Corp. 6.46% Baa2 1,990 2,083
6/22/05
Norfolk Southern Corp. Baa1 2,340 2,580
7.05% 5/1/37
Wisconsin Central Baa2 1,000 1,037
Transportation Corp.
6.625% 4/15/08
9,961
SHIPPING - 0.1%
Amer Reefer Co. Ltd. B1 1,270 1,029
10.25% 3/1/08
Cenargo International PLC Ba3 3,190 2,584
9.75% 6/15/08 (f)
Holt Group, Inc. 9.75% Caa1 2,890 2,023
1/15/06 (f)
5,636
TOTAL TRANSPORTATION 37,248
UTILITIES - 2.2%
CELLULAR - 0.9%
AirTouch Communications, Baa2 2,660 2,799
Inc. 6.35% 6/1/05
Cable & Wireless Baa1 1,700 1,738
Communications PLC
6.375% 3/6/03
McCaw International Ltd. Caa1 14,590 6,857
0% 4/15/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Millicom International Caa1 $ 3,890 $ 2,392
Cellular SA 0%
6/1/06 (d)
Nextel Communications,
Inc.:
0% 9/15/07 (d) B2 1,647 1,046
0% 10/31/07 (d) B2 13,380 8,061
0% 2/15/08 (d) B2 3,870 2,274
Nextel International, Inc. Caa1 8,600 3,440
0% 4/15/08 (d)
Pagemart Nationwide, Inc. B3 340 304
0% 2/1/05 (d)
PageMart Wireless, Inc. 0% Caa2 2,800 1,498
2/1/08 (d)
Rogers Communications, B2 6,560 6,429
Inc. 8.875% 7/15/07
Teligent, Inc.:
0% 3/1/08 (d) Caa1 4,190 1,645
11.5% 12/1/07 Caa1 3,310 2,582
41,065
ELECTRIC UTILITY - 0.2%
Avon Energy Partners
Holdings:
6.46% 3/4/08 (f) Baa2 1,320 1,353
6.73% 12/11/02 (f) Baa2 1,680 1,752
Hydro-Quebec yankee A2 1,050 1,292
7.4% 3/28/25 (e)
Israel Electric Corp. Ltd.:
yankee 7.875% A3 660 657
12/15/26 (f)
7.75% 12/15/27 (f) A3 1,605 1,524
Niagara Mohawk Power Ba3 3,490 3,717
Corp. 7.75% 10/1/08
Texas Utilities Co. 6.375% Baa3 660 670
1/1/08
10,965
TELEPHONE SERVICES - 1.1%
Dobson Wireline Co. - 7,550 6,569
12.25% 6/15/08 (f)
GST Network Funding, Inc. - 3,260 1,565
0% 5/1/08 (d)(f)
Hyperion
Telecommunications, Inc.:
0% 4/15/03 (d) B3 4,460 3,044
12.25% 9/1/04 B3 4,870 4,773
Level 3 Communications, B3 3,440 3,234
Inc. 9.125% 5/1/08
McLeodUSA, Inc.:
0% 3/1/07 (d) B2 5,530 4,023
9.25% 7/15/07 B2 2,330 2,394
NEXTLINK B3 7,240 7,023
Communications, Inc.
9.625% 10/1/07
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Pathnet, Inc. 12.25% - $ 8,200 $ 6,232
4/15/08 (f)
WinStar Communications, - 6,710 4,596
Inc. 11% 3/15/08 (d)
WorldCom, Inc.:
7.75% 4/1/07 Baa2 1,940 2,217
8.875% 1/15/06 Baa2 1,180 1,294
9.375% 1/15/04 Baa2 1,394 1,456
48,420
TOTAL UTILITIES 100,450
TOTAL NONCONVERTIBLE BONDS 772,928
TOTAL CORPORATE BONDS 780,935
(Cost $813,146)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 1.1%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.2%
Fannie Mae 7.49% Aaa 2,320 2,653
3/2/05
U.S. Department of
Housing and Urban
Development government
guaranteed participation
certificates Series
1996-A:
6.83% 8/1/03 Aaa 4,000 4,319
7.66% 8/1/15 Aaa 1,200 1,381
8,353
U.S. TREASURY OBLIGATIONS - 0.9%
U.S. Treasury Bills, yield at 4,500 4,496
date of purchase 4.98%
to 4.99% 10/8/98 (h)
U.S. Treasury Bonds:
7.125% 2/15/23 Aaa 2,310 2,916
7.625% 2/15/25 Aaa 10,640 14,326
12.75% 11/15/10 Aaa 5,140 7,647
(callable)
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 2,600 2,659
5.875% 11/30/01 Aaa 1,495 1,560
6.625% 6/30/01 Aaa 920 973
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
U.S. TREASURY OBLIGATIONS - CONTINUED
U.S. Treasury Notes -
continued
7% 7/15/06 Aaa $ 5,767 $ 6,719
7.875% 8/15/01 Aaa 810 885
42,181
TOTAL U.S. GOVERNMENT AND 50,534
GOVERNMENT AGENCY OBLIGATIONS
(Cost $46,753)
</TABLE>
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED
SECURITIES - 2.4%
FANNIE MAE - 1.6%
5.5% 6/17/03 to 7/1/03 Aaa 1,222 1,224
6% 4/5/03 to 4/1/28 Aaa 26,925 27,137
6.5% 12/1/12 to 7/1/28 Aaa 12,926 13,179
7% 10/1/28 (g)(l) Aaa 27,594 28,371
7.5% 6/1/27 to 8/1/28 Aaa 4,440 4,580
74,491
FREDDIE MAC - 0.2%
5.5% 5/11/03 Aaa 1,305 1,301
7% 7/1/01 Aaa 312 315
7.5% 5/1/27 to 4/1/28 Aaa 4,490 4,626
6,242
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.6%
6% 6/15/08 to 9/15/10 Aaa 1,327 1,352
6.5% 9/15/08 to Aaa 7,114 7,298
5/15/09
7% 1/15/28 to 7/15/28 Aaa 8,048 8,307
7.5% 4/15/23 to Aaa 10,665 11,057
8/15/28
8% 5/15/25 Aaa 489 510
28,524
TOTAL U.S. GOVERNMENT AGENCY - 109,257
MORTGAGE-BACKED SECURITIES
(Cost $106,150)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Ba3 $ 1,800 $ 753
Servicing and
Securitization LLC Series
1997-2 Class 2-B,
7.2236% 12/29/25 (f)(i)
(Cost $957)
</TABLE>
ASSET-BACKED SECURITIES - 0.9%
Airplanes Pass Through Ba2 7,040 7,286
Trust 10.875% 3/15/19
BankAmerica Aaa 1,510 1,531
Manufacturing Housing
Contract 6.2% 4/10/09
Capita Equipment Baa2 1,000 1,018
Receivables Trust 6.48%
10/15/06
Chase Manhattan Auto Aaa 1,820 1,852
Owner Trust 5.85%
5/15/03
Chevy Chase Auto Aaa 959 970
Receivables Trust 5.91%
12/15/04
Contimortgage Home Aaa 1,640 1,647
Equity Loan Trust 6.26%
7/15/12
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 1,061 1,065
6.55% 8/15/02 Aaa 757 766
CPS Auto Receivables Trust Aaa 1,803 1,824
6% 8/15/03
CSXT Trade Receivables Aaa 1,780 1,848
Master Trust 6%
7/25/04
Dayton Hudson Credit Aaa 1,640 1,717
Card Master Trust 6.25%
8/25/05
Ford Credit Auto Owner
Trust:
6.2% 12/15/02 Baa3 890 906
6.4% 5/15/02 A1 1,060 1,084
6.4% 12/15/02 Baa3 490 492
Green Tree Financial
Corp.:
6.5% 6/15/27 Aaa 427 428
6.68% 1/15/29 AAA 2,280 2,346
6.8% 6/15/27 Aaa 750 759
Key Auto Finance Trust A2 1,161 1,167
6.3% 10/15/03
MBNA Master Credit Card Aaa 3,230 3,427
Trust II 6.55% 1/15/07
Olympic Automobile
Receivables Trust:
6.4% 9/15/01 Aaa 1,710 1,734
6.7% 3/15/02 Aaa 810 825
ASSET-BACKED SECURITIES - CONTINUED
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
Petroleum Enhanced Trust Baa2 $ 1,082 $ 1,082
Receivables Offering
Petroleum Trust 6.125%
2/5/03 (f)(i)
Premier Auto Trust:
6% 5/6/00 Aaa 423 424
6.34% 1/6/03 Aaa 2,470 2,532
Prime Credit Card Master Aaa 1,230 1,290
Trust 6.75% 11/15/05
UAF Auto Grantor Trust Aaa 1,847 1,860
6.1% 1/15/03 (f)
WFS Financial Owner Trust Aaa 1,520 1,554
6.55% 10/20/04
TOTAL ASSET-BACKED SECURITIES 43,434
(Cost $43,082)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 1.2%
Bankers Trust Remic Trust Ba2 1,248 1,212
1988-1 Series 1998-S1A
Class G, 8.6764%
11/28/02 (f)(i)
Berkeley Federal Bank & - 1,900 1,482
Trust FSB Series 1994
Class 1-B 7.7518%
8/1/24 (f)(i)
BKB Commercial Mortgage BBB 680 695
Trust Series 1997-C1
Class D, 7.83%
2/25/43 (f)(i)
CBM Funding Corp.
sequential pay Series
1996-1:
Class A-3PI, 7.08% AA 990 1,046
11/1/07
Class B, 7.48% 2/1/08 A 770 819
CS First Boston Mortgage
Securities Corp.:
Series 1997-C2 Class D, Baa2 1,810 1,813
7.27% 1/17/35
Series 1998-C1 Class D, BBB 2,030 2,074
7.17% 1/17/12
Series 1998-FLI Class E, Baa2 2,210 2,184
6.5063%
1/10/13 (f)(i)
Deutsche Mortgage & Baa2 1,420 1,477
Asset Receiving Corp.
Series 1998-C1 Class D,
7.231% 7/15/12
DLJ Mortgage Acceptance - 1,650 1,715
Corp. Series 1993-MF12
Class B-2, 10.1%
9/18/03 (f)
Equitable Life Assurance
Society of the United
States (The):
sequential pay Series Aaa 2,600 2,838
174 Class A1, 7.24%
5/15/06 (f)
Series 174 Class B1, Aa2 1,200 1,297
7.33% 5/15/06 (f)
Series 1996-1 Class A2 1,000 1,083
C1, 7.52% 5/15/06 (f)
First Chicago/Lennar Trust I
Series 1997-CHL1:
Class D, 8.1319% - 1,100 1,037
4/13/39 (i)
Class E, 8.1319% - 1,800 1,471
4/1/39 (i)
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
First Union-Lehman Aa2 $ 3,870 $ 4,109
Brothers Commercial
Mortgage Trust
sequential pay Series
1997-C2 Class B, 6.79%
11/18/29
FMAC Loan Receivables
Trust 1998-C:
Series 1997-A Class E, - 500 422
8.1059%
4/15/19 (f)(i)
Series 1997-B Class E, - 1,050 831
7.8912%
9/15/19 (f)(i)
GAFCO Franchisee Loan - 1,650 1,338
Trust Series 1998-1 Class
D, 14.5% 6/1/16 (f)(i)
General Motors Ba3 750 692
Acceptance Corp.
Commercial Mortgage
Securities, Inc. Series
1996-C1 Class F, 7.86%
10/15/28 (f)
GS Mortgage Securities
Corp. II:
Series 1997-GL Class Aaa 1,590 1,686
A2-B, 6.86% 7/13/30
Series 1998-GLII:
Class D, 7.1905% Baa2 490 498
4/13/31 (f)(i)
Class E, 7.1905% Baa3 1,750 1,707
4/13/31 (f)(i)
Kidder Peabody Aa2 423 425
Acceptance Corp. I
sequential pay Series
1993-M1 Class A-2,
7.15% 4/25/25
LTC Commercial Mortgage
Pass Through
Certificates:
Series 1996-1 Class E, BB- 500 510
9.16% 4/15/28
Series 1998-1 Class A, AAA 1,062 1,073
6.029% 5/30/30 (f)
Morgan Stanley Capital I,
Inc.:
Series 1996-MBL1 Class - 1,711 1,703
E, 8.3667%
5/25/21 (f)(i)
Series 1998-CF1:
Class D, 7.35% Baa2 1,689 1,706
1/15/12
Class E, 7.35% Baa3 586 560
12/15/12
Series 1998-HF1 Class BBB 1,770 1,866
D, 7.1% 2/15/30 (i)
Nomura Asset Securities Baa2 1,420 1,510
Corp. Series 1998-D6
Class A-4, 7.5956%
3/17/28 (i)
Nomura Depositor Trust
floater Series
1998-ST1A:
Class B-2, 9.8906% - 1,100 1,002
1/15/03 (f)(i)
Class B2-A, 9.8906% - 300 273
2/15/34 (f)(i)
Penn Mutual Life Insurance
Co. (The)/Penn Insurance
& Annuity Co. Series
1996-PML:
Class K, 7.9% - 1,750 1,308
11/15/26 (f)
Class L, 7.9% - 1,300 641
11/15/26 (f)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(B)
Resolution Trust Corp. Ba3 $ 598 $ 496
Series 1991-M2
Class A-3, 7.2498%
9/25/20 (i)
Structured Asset Securities
Corp.:
sequential pay Series AAA 330 332
1996 Class A-2A,
7.75% 2/25/28
Series 1993-C1 Class E, B 1,250 563
6.6% 10/25/24 (f)
Series 1995-C1 Class E, BB 1,100 1,072
7.375% 9/25/24 (f)
Series 1996-CFL:
Class E, 7.75% BB+ 820 841
2/25/28
Class G, 7.75% - 2,000 1,853
2/25/28 (f)
Thirteen Affiliates of General
Growth Properties, Inc.:
sequential pay Series Aaa 1,310 1,378
A-2, 6.602%
12/15/10 (f)
Series D-2, 6.992% Baa2 1,410 1,420
12/15/10 (f)
Series E-2, 7.224% Baa3 840 824
12/15/10 (f)
Wells Fargo Capital Aaa 1,186 1,226
Markets Apartment
Financing Trust Series
APT Class 1, 6.56%
12/29/05 (f)
TOTAL COMMERCIAL MORTGAGE 56,108
SECURITIES
(Cost $53,596)
</TABLE>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 0.1%
Export Development Corp. Aa2 620 636
yankee 8.125%
8/10/99 (j)
Israeli State euro 6.375% Aaa 2,410 2,495
12/19/01 (j)
Manitoba Province yankee Aa3 3,000 3,037
6.375% 10/15/99 (j)
TOTAL FOREIGN GOVERNMENT AND 6,168
GOVERNMENT AGENCY OBLIGATIONS
(Cost $5,994)
SUPRANATIONAL OBLIGATIONS - 0.0%
Inter American Aaa 1,600 1,756
Development Bank
yankee 6.29% 7/16/27
(Cost $1,590)
BANK NOTES - 0.1%
Key Bank NA 5.6175% 5,000 4,995
8/20/99 (i)
(Cost $4,993)
CERTIFICATES OF DEPOSIT - 0.9%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Abbey National Treasury $ 5,000 $ 5,002
Services PLC euro
5.51% 12/4/98
ABN-AMRO Bank NV 4,000 4,002
yankee euro 5.64%
12/14/98
Bank of Scotland Treasury 5,000 5,004
Services euro 5.64%
12/29/98
Bayerische Hypotheken und 1,800 1,803
Wechsel Bank AG
yankee 5.7% 3/30/99
Canadian Imperial Bank of 1,950 1,992
Commerce, New York
yankee 6.2% 8/1/00
Deutsche Bank AG yankee 1,000 1,000
5.94% 10/26/98
RaboBank Nederland 5,000 5,017
Coop. Central yankee
5.68% 6/4/99
Societe Generale, France 5,000 5,001
yankee 5.91%
10/15/98
Swiss Bank Corp. yankee 3,600 3,606
5.65% 3/24/99
Toronto-Dominion Bank 5,000 5,017
yankee 5.68% 6/4/99
Westdeutsche Landesbank 5,000 5,007
Girozentrale yankee
5.63% 2/8/99
TOTAL CERTIFICATES OF DEPOSIT 42,451
(Cost $42,347)
COMMERCIAL PAPER - 1.1%
Citibank Credit Card 1,600 1,597
Master Trust I (Dakota
Certificate Program)
5.53% 10/13/98
Commonwealth Bank of 4,600 4,504
Australia yankee 5.35%
3/1/99
Daimler-Benz North 5,000 4,980
America Corp. yankee
5.53% 10/29/98
du Pont (E.I.) de Nemours 1,600 1,594
& Co. 5.53% 10/26/98
Enterprise Funding Corp. 3,300 3,271
5.4% 12/4/98
Fleet Funding Corp. 5.5% 4,800 4,781
10/28/98
General Electric Capital 3,000 2,982
Corp. 5.51% 11/12/98
Generale de Banque SA 5,300 5,191
yankee 5.36% 2/24/99
Kitty Hawk Funding Corp. 2,000 1,994
5.53% 10/23/98
Monsanto Co.:
5.51% 12/1/98 2,000 1,983
5.52% 11/19/98 1,000 993
Morgan (JP) & Co., Inc. 5,300 5,269
5.5% 11/10/98
Southern Co. 5.52% 2,000 1,996
10/15/98
Three Rivers Funding Corp. 2,000 1,983
5.51% 12/1/98
COMMERCIAL PAPER - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Transamerica Finance $ 2,000 $ 1,967
Corp. 5.47%
1/26/99
Triple A One Funding 5,000 4,991
Corp. 5.55%
10/14/98
TOTAL COMMERCIAL PAPER 50,076
(Cost $50,038)
MASTER NOTES - 0.1%
Goldman Sachs Group 3,000 3,000
L.P. (The) 5.6875%
1/27/99 (i)
(Cost $3,000)
CASH EQUIVALENTS - 4.2%
MATURITY
AMOUNT (000S)
Investments in $ 127 127
repurchase
agreements
(U.S. Treasury
obligations), in a
joint trading account
at 5.77%,
dated 9/30/98 due
10/1/98
SHARES (000S)
Taxable Central Cash 192,458 192,458
Fund (c)
TOTAL CASH EQUIVALENTS 192,585
(Cost $192,585)
TOTAL INVESTMENT IN $ 4,606,833
SECURITIES - 100%
(Cost $4,437,479)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION UNDERLYING UNREALIZED
DATE FACE AMOUNT GAIN/LOSS
(000S) (000S)
PURCHASED
225 S&P 500 Stock Dec. 1998 $ 57,712 $ 1,095
Index Contracts
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.3%
</TABLE>
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.36%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(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.
(f) 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 $140,932,000 or 3.1% of net assets.
(g) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(h) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $3,497,000.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) For Foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to the 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).
<TABLE>
<CAPTION>
<S> <C> <C>
SECURITY ACQUISTION ACQUISITION
DATE COST (000S)
Alliance Gaming Corp. 7/28/98 $ 253
Fairchild Semiconductor Corp. 11.74% 3/15/08 pay-in-kind 4/3/97 - $ 2,463
9/15/98
</TABLE>
(l) A portion of the security was sold 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 investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 6.8% AAA, AA, A 6.3%
Baa 2.6% BBB 2.9%
Ba 3.0% BB 3.3%
B 8.0% B 7.8%
Caa 1.1% CCC 1.0%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 1.0%. FMR has determined that
unrated debt securities that are lower quality account for 0.2% of the
total value of investment in securities.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $4,443,127,000. Net unrealized appreciation
aggregated $163,706,000, of which $454,870,551 related to appreciated
investment securities and $291,164,551 related to depreciated
investment securities.
The fund hereby designates approximately $408,906,000 as a capital
gain dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN
THOUSANDS (EXCEPT
PER-SHARE AMOUNT)
SEPTEMBER 30,
1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE $ 4,606,833
(INCLUDING REPURCHASE
AGREEMENTS OF $127) (COST
$4,437,479) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON $ (20,563)
A DELAYED DELIVERY BASIS
RECEIVABLE FOR SECURITIES SOLD ON 20,428 (135)
A DELAYED DELIVERY BASIS
RECEIVABLE FOR INVESTMENTS SOLD, 69,026
REGULAR DELIVERY
CASH 1,312
RECEIVABLE FOR FUND SHARES SOLD 4,236
DIVIDENDS RECEIVABLE 5,403
INTEREST RECEIVABLE 18,479
OTHER RECEIVABLES 170
TOTAL ASSETS 4,705,324
LIABILITIES
PAYABLE FOR INVESTMENTS 64,910
PURCHASED
REGULAR DELIVERY
DELAYED DELIVERY 41,990
PAYABLE FOR FUND SHARES 56,515
REDEEMED
ACCRUED MANAGEMENT FEE 2,260
PAYABLE FOR DAILY VARIATION ON 1,772
FUTURES CONTRACTS
OTHER PAYABLES AND ACCRUED 1,045
EXPENSES
TOTAL LIABILITIES 168,492
NET ASSETS $ 4,536,832
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 3,530,451
UNDISTRIBUTED NET INVESTMENT 97,677
INCOME
ACCUMULATED UNDISTRIBUTED NET 738,387
REALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION 170,317
(DEPRECIATION) ON INVESTMENTS
NET ASSETS, FOR 241,376 SHARES $ 4,536,832
OUTSTANDING
NET ASSET VALUE, OFFERING PRICE $18.80
AND REDEMPTION PRICE PER
SHARE ($4,536,832 (DIVIDED BY)
241,376 SHARES)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT INCOME $ 61,577
DIVIDENDS
INTEREST 98,269
TOTAL INCOME 159,846
EXPENSES
MANAGEMENT FEE $ 28,667
TRANSFER AGENT FEES 10,402
ACCOUNTING FEES AND EXPENSES 864
NON-INTERESTED TRUSTEES' COMPENSATION 25
CUSTODIAN FEES AND EXPENSES 144
REGISTRATION FEES 266
AUDIT 105
LEGAL 26
MISCELLANEOUS 19
TOTAL EXPENSES BEFORE REDUCTIONS 40,518
EXPENSE REDUCTIONS (1,600) 38,918
NET INVESTMENT INCOME 120,928
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 774,249
FOREIGN CURRENCY TRANSACTIONS 545
FUTURES CONTRACTS (11,189) 763,605
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES (630,324)
ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 26
FUTURES CONTRACTS 1,095
DELAYED DELIVERY COMMITMENTS (135) (629,338)
NET GAIN (LOSS) 134,267
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 255,195
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS $ 120,928 $ 88,541
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 763,605 424,956
CHANGE IN NET UNREALIZED (629,338) 517,403
APPRECIATION (DEPRECIATION)
NET INCREASE (DECREASE) IN 255,195 1,030,900
NET ASSETS RESULTING
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (90,146) (81,646)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (394,442) (203,145)
TOTAL DISTRIBUTIONS (484,588) (284,791)
SHARE TRANSACTIONS 1,213,472 1,283,870
NET PROCEEDS FROM SALES OF
SHARES
REINVESTMENT OF DISTRIBUTIONS 481,109 282,710
COST OF SHARES REDEEMED (1,385,838) (953,951)
NET INCREASE (DECREASE) IN 308,743 612,629
NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN 79,350 1,358,738
NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 4,457,482 3,098,744
END OF PERIOD (INCLUDING $ 4,536,832 $ 4,457,482
UNDISTRIBUTED NET INVESTMENT
INCOME OF $97,677 AND
$67,056, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 61,872 72,671
ISSUED IN REINVESTMENT OF 26,595 17,155
DISTRIBUTIONS
REDEEMED (70,304) (53,787)
NET INCREASE (DECREASE) 18,163 36,039
FINANCIAL HIGHLIGHTS
YEARS
ENDED
SEPTEMBE
R 30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 19.97 $ 16.56 $ 14.88 $ 13.91 $ 13.77
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
NET INVESTMENT .49 B .42 B .47 .26 .13
INCOME
NET REALIZED .49 4.49 1.44 1.07 .61
AND UNREALIZED
GAIN (LOSS)
TOTAL FROM .98 4.91 1.91 1.33 .74
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.40) (.43) (.23) (.27) (.18)
INVESTMENT
INCOME
FROM NET (1.75) (1.07) - - (.37)
REALIZED GAIN
IN EXCESS OF NET - - - (.09) (.05)
REALIZED GAIN
TOTAL (2.15) (1.50) (.23) (.36) (.60)
DISTRIBUTIONS
NET ASSET VALUE, $ 18.80 $ 19.97 $ 16.56 $ 14.88 $ 13.91
END OF PERIOD
TOTAL RETURN A 5.33% 31.57% 12.99% 9.95% 5.39%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 4,537 $ 4,457 $ 3,099 $ 2,850 $ 3,071
OF PERIOD
(IN MILLIONS)
RATIO OF EXPENSES .84% .87% 1.02% 1.03% 1.15%
TO AVERAGE
NET ASSETS
RATIO OF EXPENSES .80% C .86% C 1.01% C 1.02% C 1.15%
TO AVERAGE
NET ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF NET 2.49% 2.36% 2.51% 3.16% 2.64%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 150% 70% 138% 119% 104%
RATE
A 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).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
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."
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
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
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.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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, 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
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
balances into one or more joint trading accounts. These balances are
invested in one or more repurchase agreements for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, 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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market. Buying futures tends to increase the
fund's exposure to the underlying instrument, while selling futures
tends to decrease the fund's exposure to the underlying instrument or
hedge other fund investments. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation margin
reflected in the Statement of Assets and Liabilities. The underlying
face amount at value of any open futures contracts at period end is
shown in the
2. OPERATING POLICIES -
CONTINUED
FUTURES CONTRACTS - CONTINUED
schedule of investments under the caption "Futures Contracts." This
amount reflects each contract's exposure to the underlying instrument
at period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
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 $2,206,000 or 0.0% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $6,864,874,000 and $6,808,509,000, respectively, of which
U.S. government and government agency obligations aggregated
$811,971,000 and $800,276,000, respectively.
The market value of futures contracts opened and closed during the
period amounted to $414,953,000 and $347,147,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of 0.59% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of 0.21% of average net assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
ACCOUNTING FEES. FSC maintains the fund's accounting records and
administers the security lending program. 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 $791,000 for the
period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $2,478,000. The weighted average interest rate was 5.79%. During
the period, the fund paid interest expenses amounting to $400.
6. EXPENSE REDUCTIONS.
FMR 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 $1,310,000 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 $13,000 and $277,000, respectively, under these
arrangements.
7. LITIGATION.
The fund is engaged in litigation against the obligor on the inflation
adjusted debt of Siderurgica Brasileiras SA, contesting the
calculation of the principal adjustment. The probability of success of
this litigation cannot be predicted and the amount of recovery cannot
be estimated. Any recovery from this litigation would inure to the
benefit of the fund. As of period end, the fund no longer holds
Siderurgica Brasileiras SA debt securities.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Asset Manager: Growth:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Asset Manager: Growth (a fund of Fidelity Charles Street
Trust) at September 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Asset Manager: Growth's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 1998
DISTRIBUTIONS
The Board of Trustees of (Fidelity Asset Manager: Growth) voted to pay
to shareholders of record at the opening of business on record date,
the following distributions derived from capital gains realized from
sales of portfolio securities, and dividends derived from net
investment income:
PAY DATE 12/22/97
RECORD DATE 12/19/97
DIVIDENDS $.40
SHORT-TERM
CAPITAL GAINS $.44
LONG-TERM
CAPITAL GAINS $1.31
LONG-TERM CAPITAL
GAIN BREAKDOWN:
28% rate 58.76%
20% rate 41.24%
A total of 3.24% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 25.00% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PC_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PC_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
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(registered trademark) -
Income, 2000, 2010, 2020, 2030
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
(for the deaf and hearing impaired)
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress SM (AUTOMATED_GRAPHIC) 1-800-544-5555
(AUTOMATED_GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
AMG-ANN-1198 64293
1.537733.101
(FIDELITY LOGO)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
FIDELITY
ASSET MANAGER: INCOME SM
ANNUAL REPORT
SEPTEMBER 30, 1998
(2 Fidelity logos) (registered trademark)
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 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 33 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 37 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 42 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 43
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. Asset Manager funds are already diversified because
they invest in stocks, bonds and short-term and money market
instruments, both in the U.S. and overseas. If you have a shorter
investment time horizon, you might want to consider moving some of
your investment into Asset Manager: Income, which generally has a
higher weighting in short-term investments compared with the other
Asset Manager funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). If Fidelity had not reimbursed certain fund
expenses, the past five year and life of fund total returns would have
been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, 1998 YEAR YEARS FUND
FIDELITY ASSET 8.06% 50.35% 73.38%
MANAGER: INCOME
FIDELITY CONSERVATIVE 9.55% 53.99% N/A
COMPOSITE
S&P 500 (REGISTERED TRADEMARK) 9.05% 147.93% 181.19%
LB AGGREGATE BOND 11.51% 41.66% 54.99%
LB 3 MONTH T-BILL 5.50% 29.17% N/A
INCOME FUNDS 2.92% 65.66% N/A
AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on 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 one year average represents a peer
group of 80 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 PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, 1998 YEAR YEARS FUND
FIDELITY ASSET 8.06% 8.50% 9.61%
MANAGER: INCOME
FIDELITY CONSERVATIVE 9.55% 9.02% N/A
COMPOSITE
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Asset Manager: Income S&P 500 FID Conserv Composite LB Aggregate Bond
00328 SP001 F0056 LB001
1992/10/31 10000.00 10000.00 10000.00 10000.00
1992/11/30 10131.75 10341.00 10058.70 10002.00
1992/12/31 10335.71 10468.19 10137.21 10161.03
1993/01/31 10601.78 10556.13 10234.73 10356.12
1993/02/28 10775.92 10699.69 10335.59 10537.36
1993/03/31 11012.63 10925.45 10403.50 10581.61
1993/04/30 11095.59 10661.06 10390.02 10655.68
1993/05/31 11157.79 10946.77 10454.60 10669.54
1993/06/30 11282.63 10978.52 10544.51 10862.65
1993/07/31 11376.79 10934.61 10568.86 10924.57
1993/08/31 11628.47 11349.03 10733.74 11115.75
1993/09/30 11660.07 11261.64 10744.26 11145.76
1993/10/31 11818.44 11494.76 10814.63 11187.00
1993/11/30 11744.57 11385.56 10772.19 11091.91
1993/12/31 11926.14 11523.32 10827.23 11151.81
1994/01/31 12131.02 11915.11 10961.16 11302.36
1994/02/28 11915.04 11592.21 10840.81 11105.70
1994/03/31 11687.39 11086.79 10689.04 10831.39
1994/04/30 11698.18 11228.70 10705.13 10744.74
1994/05/31 11731.10 11412.86 10753.94 10743.66
1994/06/30 11665.22 11133.24 10715.66 10720.03
1994/07/31 11819.10 11498.41 10865.25 10933.36
1994/08/31 11940.44 11969.85 10974.39 10946.48
1994/09/30 11829.82 11676.58 10895.26 10785.56
1994/10/31 11863.39 11939.31 10965.43 10775.86
1994/11/30 11774.41 11504.48 10899.32 10752.15
1994/12/31 11763.68 11675.09 10979.99 10826.34
1995/01/31 11831.41 11977.82 11125.48 11040.70
1995/02/28 12046.30 12444.60 11310.15 11303.47
1995/03/31 12171.32 12811.84 11427.24 11372.42
1995/04/30 12330.59 13189.15 11567.79 11531.63
1995/05/31 12627.09 13716.32 11830.48 11977.91
1995/06/30 12752.88 14034.95 11944.07 12065.35
1995/07/31 12959.19 14500.35 12038.69 12038.80
1995/08/31 13074.38 14536.74 12116.36 12184.47
1995/09/30 13247.66 15150.19 12280.54 12302.66
1995/10/31 13270.83 15096.11 12357.37 12462.60
1995/11/30 13503.77 15758.83 12551.07 12649.53
1995/12/31 13726.82 16062.34 12688.84 12826.63
1996/01/31 13880.66 16609.11 12828.08 12911.28
1996/02/29 13785.70 16763.07 12798.43 12686.63
1996/03/31 13773.58 16924.50 12815.21 12597.82
1996/04/30 13785.38 17173.97 12856.13 12527.27
1996/05/31 13833.79 17616.88 12944.55 12502.22
1996/06/30 13942.35 17684.00 13032.02 12669.75
1996/07/31 13846.45 16902.72 12955.05 12703.96
1996/08/31 13881.96 17259.20 13031.59 12682.36
1996/09/30 14211.73 18230.55 13272.88 12903.03
1996/10/31 14517.86 18733.35 13463.56 13189.48
1996/11/30 14937.29 20149.40 13765.93 13415.02
1996/12/31 14799.54 19750.24 13699.20 13290.26
1997/01/31 15016.25 20984.24 13910.53 13331.46
1997/02/28 15080.03 21148.76 13966.00 13364.79
1997/03/31 14810.26 20279.75 13791.31 13216.44
1997/04/30 15080.75 21490.45 14079.69 13414.69
1997/05/31 15416.69 22798.79 14340.39 13542.13
1997/06/30 15649.97 23820.18 14569.69 13703.28
1997/07/31 16144.31 25715.55 15021.41 14073.27
1997/08/31 15948.38 24274.97 14810.00 13953.64
1997/09/30 16223.60 25604.51 15102.26 14160.16
1997/10/31 16249.53 24749.32 15130.35 14365.48
1997/11/30 16434.63 25894.96 15324.75 14431.56
1997/12/31 16635.67 26339.58 15474.53 14577.32
1998/01/31 16785.91 26630.89 15630.08 14763.91
1998/02/28 17073.26 28551.51 15866.63 14752.10
1998/03/31 17252.00 30013.64 16078.48 14802.26
1998/04/30 17223.94 30315.57 16174.34 14879.23
1998/05/31 17348.60 29794.45 16217.39 15020.58
1998/06/30 17557.06 31004.70 16438.99 15148.25
1998/07/31 17487.06 30674.50 16442.93 15180.07
1998/08/31 17108.65 26239.58 16124.17 15427.50
1998/09/30 17530.85 27920.49 16545.04 15788.50
IMATRL PRASUN SHR__CHT 19980930 19981006 112651 R00000000000074
</TABLE>
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager: Income Fund on October 31, 1992,
shortly after the fund started. As the chart shows, by September 30,
1998, the value of the investment would have grown to $17,531 - a
75.31% 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
Index, 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 $15,789 - a 57.89% increase. If $10,000 was
invested in the S&P 500 Index, it would have grown to $27,920 - a
179.20% 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 Index (+179.20%), the Lehman Brothers
Aggregate Bond Index (+57.89%) and the Lehman Brothers 3 Month T-Bill
Index (+32.19%) 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 $16,545 -
a 65.45% increase.
(checkmark)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.
* 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.
Against a backdrop of financial and economic instability in many of
the world's developed and emerging markets on the one hand, and a
resilient domestic economy on the other, the U.S. stock and bond
markets experienced extreme volatility during the 12-month period that
ended September 30, 1998.
STOCKS: The 12-month period that drew to a close on September 30,
1998, is one equity investors will remember for years to come. The
period began as it ended: with unusually volatile markets. In October
1997, the Dow Jones Industrial Average - an index of 30 blue-chip
stocks - tumbled over 550 points in one day on the news of worsening
economic conditions in Asia. The Dow rebounded the following day,
however, rising 330 points as investors focused on higher-quality
stocks with strong liquidity and minimal international exposure. This
trend continued in the first and second quarters of 1998, as U.S.
economic growth chugged along on the rails of near-record lows for
inflation, unemployment and interest rates. Unfortunately, emerging
markets - particularly in Russia and Latin America - seemed to catch
the so-called "Asian contagion," causing a free-fall in the U.S. stock
market. On August 31, the Dow plunged 512.61 points - erasing all
previous gains for the year. Appropriately, the Dow closed on
September 30 with a 237.90 loss, triggered by investor disappointment
over a lower-than-hoped-for reduction in the federal funds rate. For
the 12-month period ending September 30, 1998, the Dow eked out a
barely positive gain of 0.40%, while the Standard & Poor's 500 Index -
a market-capitalization weighted index of 500 widely held U.S. stocks
- - returned 9.05%.
BONDS: As a safe haven from turbulent stock markets worldwide, bond
markets reaped the benefits from the flight to quality by anxious
investors during the 12-month period ending September 30, 1998. The
Lehman Brothers Aggregate Bond Index - a broad measure of the U.S.
taxable investment-grade bond market - returned 11.51% over the past
year, over two and one-half times higher than the 4.54% return
generated for the six-month period ending March 31, 1998. The buying
surge sent Treasury-bond yields - which move in the opposite direction
of bond prices - to their lowest level in over three decades, as the
yield on the benchmark 30-year bond fell to 4.96%. In spite of the
global economic crisis that dominated the period, the U.S. enjoyed low
interest rates, low inflation and a stable economy, which aided the
performance of corporate bonds. The Lehman Brothers Corporate Bond
Index returned 11.07% for the 12-month period. Mortgage-backed bonds
also performed well, although lower interest rates resulted in higher
refinancing activity. The Lehman Brothers Mortgage Backed Securities
Index had a 12-month return of 8.62%. Interest rates fell even lower
late in the period, as the Federal Reserve lowered the fed funds rate
by 0.25%, the first rate cut in nearly three years. The period's
biggest losers were shareholders of emerging-market debt, as the JP
Morgan Emerging Markets Bond Index lost 20.89% over the past 12
months.
FUND TALK: THE MANAGER'S OVERVIEW
(PHOTOGRAPH OF RICHARD HABERMANN)
An interview with Richard Habermann, Portfolio Manager of Fidelity
Asset Manager: Income
Q. HOW DID THE FUND PERFORM, DICK?
A. For the 12-month period that ended September 30, 1998, the fund
returned 8.06%. That trailed the 9.55% return of the Fidelity
Conservative Composite Index, but beat the 2.92% return of the income
funds average, according to Lipper Analytical Services. The fund's
competitive performance relative to its peer group was due in large
part to the fund's balanced approach to asset allocation. Many funds
within the peer group were fairly aggressive in terms of asset
allocation and security exposure - factors that detracted from peer
group performance late in the period as equity markets stumbled. In
contrast, the fund's comparatively high bond allocation benefited the
fund's performance relative to its peers.
Q. WHAT WAS YOUR STRATEGY IN TERMS OF ASSET ALLOCATION?
A. Due to its conservative investment mandate, the fund typically
invests only about 20% of its assets in stocks. Given the market
volatility we've seen during the period, however - particularly during
the past six months - this percentage was scaled back and the fund's
exposure to bonds was increased. This decision was made during the
summer months based on a belief that global market turmoil could creep
into U.S. corporate circles and have a negative impact on earnings
growth. In retrospect, this turned out to be a sound strategy. Another
adjustment was made during the last month of the period, when the
fund's stock exposure was ramped back up based on two factors. First,
equity valuations generally improved as many markets observed
significant declines late in the period. Second, the U.S. Federal
Reserve Board appeared ready to stoke the economy by lowering interest
rates, which it eventually did in late September. Whenever investors
are given reason to be confident, stocks generally perform well.
Overall, I was happy with these allocation shifts.
Q. HOW DID THE BOND PORTION OF THE FUND FARE DURING THE PERIOD?
A. While turning in positive returns, the fund's fixed-income
investments - which are overseen by Charlie Morrison - lagged the
fixed-income benchmark during the period. This was primarily due to
the fund's overweighting in corporate and mortgage-backed bonds, both
of which underperformed as a general flight to quality caused U.S.
Treasuries to outpace all other fixed-income sectors. During the last
two months of the period, this flight to quality was spurred primarily
by the ongoing troubles in overseas markets. Simultaneously, stock
investors became concerned with their risk exposure and many opted for
more conservative investments. As a result, U.S. Treasury bonds
benefited tremendously. While corporate and mortgage-backed securities
performed well over the period, they were unable to keep pace with
Treasuries.
Q. WHAT ABOUT THE STOCK PORTION OF THE FUND?
A. In terms of the fund's equity positions - which are managed by Brad
Lewis - industry selection was positive but individual security
selection within those industries hurt performance relative to the
Standard & Poor's 500 Index. For instance, the fund was
well-represented in the technology sector, but while technology stocks
accounted for approximately one-fourth of the S&P 500's gain, they
contributed negatively to the fund. Looking back on the period, we
simply didn't own enough of the names that did really well. The fund
had positions in strong performers such as Microsoft, for example, but
not enough to positively influence performance relative to the S&P
500. Some of the individual disappointments included financial-related
holdings Chase Manhattan and Lehman Brothers, both of which suffered
as global capital market conditions deteriorated toward the end of the
period. Additionally, the fund's exposure to pharmaceutical stocks in
general was beneficial as interest in defensive areas of the market
peaked toward the close of the period.
Q. WHICH EQUITY INVESTMENTS BENEFITED THE FUND'S PERFORMANCE?
A. Home mortgage financers Fannie Mae and Freddie Mac continued their
strong run during the period. Many homeowners took advantage of the
lower interest rates prevalent in the U.S. to refinance their
mortgages. Both companies benefited from increased refinancing volume,
as well as attractive yield spreads between mortgage-related bonds and
Treasury bonds. Another strong performer was retail store chain
Wal-Mart, which benefited from strong consumer spending.
Q. WHAT WAS YOUR STRATEGY WITH RESPECT TO THE FUND'S SHORT-TERM/MONEY
MARKET INVESTMENTS?
A. Unlike six months ago, when we were focusing on investments with
shorter maturities, the unpredictability of the stock market caused us
to take a somewhat longer-term approach. John Todd, who manages the
fund's short-term/money market subportfolio, began to look at
securities with one-year maturities during the second half of the
period. As uncertainty continued to prevail in the financial markets,
however, John began to look more closely at the three- to six-month
range. Throughout the summer months, it appeared unlikely that the Fed
would take action and cut interest rates, yet the market itself had
been pricing in a potential rate tightening. On average, the fund's
short-term investments were longer in maturity than the three-month
Treasury bill benchmark and had more exposure to higher-yielding
investments. This helped relative performance during the period.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. I think it's important that shareholders of the fund understand
that the market is going to go through this sort of volatility every
now and then. The returns we've seen over the past year are much
closer to the market's historical yearly average than the 20% returns
some investors have become accustomed to. Should the Fed lower
interest rates again - thus making it easier for corporations to
borrow or raise capital - we could see increased growth and better
valuations across the board. In terms of equities, we may also begin
to see more stocks participate in the market's gains. This would be an
attractive development and would play nicely to our stock-picking
strengths.
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.
(CHECKMARK)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 SEPTEMBER 30,
1998, MORE THAN $776 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
DICK HABERMANN ON THE
CONCERNS POSED BY HEDGE
FUNDS:
"THERE'S BEEN A LOT OF TALK ABOUT HEDGE
FUNDS LATELY, PARTICULARLY WITH THE RECENT
NEAR-COLLAPSE OF LONG-TERM CAPITAL
MANAGEMENT. NOT ALL INVESTORS MAY BE
FAMILIAR WITH HOW THESE TYPES OF FUNDS
OPERATE, NOR HOW THEY CAN POTENTIALLY
AFFECT OTHER TYPES OF INVESTMENTS SUCH
AS MUTUAL FUNDS.
"A HEDGE FUND SEEKS TO TAKE ADVANTAGE
OF INEFFICIENCIES IN CAPITAL MARKETS. THIS
COULD BE IN STOCKS, BONDS,
EMERGING-MARKET DEBT OR OTHER
INVESTMENTS. HEDGE FUNDS CAN BE HIGHLY
LEVERAGED AND TYPICALLY TAKE AMPLE
INVESTMENT RISKS. OF COURSE, THE
ATTRACTIVENESS TO INVESTORS IS THE
POTENTIALLY LUCRATIVE RETURNS THEY CAN
PROVIDE.
"IN THE CASE OF LONG-TERM CAPITAL, THE
FUND HAD RATHER EXTREME LEVERAGE WITHIN
ITS BOND ALLOCATION. UNFORTUNATELY, THE
MARKET TURMOIL LATE IN THE PERIOD FORCED
FIRMS SUCH AS LONG-TERM CAPITAL TO
`UNWIND' SOME OF THESE LEVERAGED
STRATEGIES BY SELLING LARGE AMOUNTS OF
SECURITIES. AFTER REALIZING THAT SUCH A
CONTINUING GLUT OF SUPPLY HITTING THE
MARKETS WOULD BE PARALYZING, A NUMBER
OF ENTITIES COLLABORATED ON A FINANCIAL
PLAN TO ASSIST LONG-TERM CAPITAL.
"WHAT DOES THIS TYPE OF SITUATION MEAN
FOR FUNDS SUCH AS THE ASSET MANAGERS?
WELL, IF LONG-TERM CAPITAL HAD UNLEASHED
ALL OF ITS BOND HOLDINGS, IT WOULD HAVE PUT
INCREDIBLE LIQUIDITY PRESSURE ON SOME OF
THE SECTORS IN WHICH WE INVEST. INVESTORS
ALSO WOULD HAVE HAD DIFFICULTY
DETERMINING WHETHER PRICING WAS FAIR OR
NOT. IN ESSENCE, THIS ONE SITUATION COULD
HAVE PLUNGED THE U.S. DIRECTLY INTO A
CAPITAL MARKETS `FREEZE.' FORTUNATELY, IT
DIDN'T COME TO THAT, AND IN THE END,
INVESTORS HOPEFULLY BECAME MORE
EDUCATED ABOUT THE RISKS HEDGE FUNDS
TAKE."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE BOND ISSUERS AS OF SEPTEMBER 30,
1998
(WITH MATURITIES MORE % OF FUND'S % OF FUND'S INVESTMENTS
THAN ONE YEAR) INVESTMENTS IN THESE BOND ISSUERS
6 MONTHS AGO
FANNIE MAE 12.4 12.8
U.S. TREASURY 5.0 8.1
GOVERNMENT 2.4 0.9
NATIONAL MORTGAGE
ASSOCIATION
U.S. DEPARTMENT OF 0.8 0.8
HOUSING
AND URBAN
DEVELOPMENT
VIACOM, INC. 0.8 0.3
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30,
1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA, AA, A 36.0 38.4
BAA 9.6 7.2
BA AND BELOW 2.1 1.8
NOT RATED 0.0 5.0
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS.
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE STOCKS AS OF SEPTEMBER 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
BellSouth Corp. 1.1 0.1
Warner-Lambert Co. 1.1 0.0
Microsoft Corp. 0.7 0.1
Tele-Communications 0.6 0.0
, Inc. (TCI Group)
Series A
AT&T Corp. 0.6 0.1
</TABLE>
ASSET ALLOCATION
AS OF SEPTEMBER 30, 1998*
ROW: 1, COL: 1, VALUE: 32.0
ROW: 1, COL: 2, VALUE: 49.0
ROW: 1, COL: 3, VALUE: 19.0
STOCK CLASS 19%
BOND CLASS 49%
SHORT-TERM CLASS 32%
*FOREIGN
INVESTMENTS 13%
AS OF MARCH 31, 1998 **
ROW: 1, COL: 1, VALUE: 28.0
ROW: 1, COL: 2, VALUE: 50.0
ROW: 1, COL: 3, VALUE: 22.0
STOCK CLASS 22%
BOND CLASS 50%
SHORT-TERM CLASS 28%
**FOREIGN
INVESTMENTS 11%
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 SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
COMMON STOCKS - 19.1%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 0.0%
Gulfstream 1,800 $ 72,450
Aerospace
Corp. (a)
BASIC INDUSTRIES - 0.1%
CHEMICALS & PLASTICS - 0.0%
Quaker State 10,100 147,081
Corp.
PACKAGING & CONTAINERS - 0.1%
Owens-Illinois, 20,100 502,500
Inc. (a)
TOTAL BASIC INDUSTRIES 649,581
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.2%
Fortune Brands, 13,800 408,825
Inc.
Masco Corp. 40,200 989,925
1,398,750
CONSTRUCTION - 0.1%
Centex Corp. 6,000 207,000
D.R. Horton, Inc. 8,548 136,768
Fleetwood 14,102 425,704
Enterprises,
Inc.
Kaufman & 13,000 304,688
Broad Home
Corp.
U.S. Home 1,000 29,375
Corp. (a)
1,103,535
ENGINEERING - 0.1%
Fluor Corp. 10,500 431,156
TOTAL CONSTRUCTION & 2,933,441
REAL ESTATE
DURABLES - 1.1%
AUTOS, TIRES, & ACCESSORIES - 1.0%
Chrysler Corp. 77,900 3,729,463
Dana Corp. 15,100 563,419
Ford Motor Co. 80,000 3,755,000
8,047,882
HOME FURNISHINGS - 0.0%
HON Industries, 200 4,725
Inc.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.1%
Jones Apparel 5,800 $ 133,038
Group, Inc. (a)
VF Corp. 16,500 612,563
745,601
TOTAL DURABLES 8,798,208
ENERGY - 0.7%
ENERGY SERVICES - 0.0%
McDermott 12,900 347,494
International,
Inc.
OIL & GAS - 0.7%
Ashland, Inc. 17,500 809,375
British Petroleum 1 15
Co. PLC:
Ord.
ADR 1 87
Sun Co., Inc. 14,700 470,400
Texaco, Inc. 65,700 4,118,569
5,398,446
TOTAL ENERGY 5,745,940
FINANCE - 2.7%
BANKS - 0.1%
Chase 11,900 514,675
Manhattan
Corp.
NationsBank 1,700 90,950
Corp.
605,625
CREDIT & OTHER FINANCE - 0.3%
Equitable 18,800 777,850
Companies
(The), Inc.
First Chicago 26,700 1,828,950
NBD Corp.
2,606,800
FEDERAL SPONSORED CREDIT - 0.7%
Fannie Mae 61,500 3,951,375
Freddie Mac 33,600 1,661,100
5,612,475
INSURANCE - 1.2%
Allmerica 3,300 196,763
Financial
Corp.
Allstate Corp. 84,016 3,502,417
American 9,900 632,363
General Corp.
CIGNA Corp. 43,700 2,889,663
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
INSURANCE - CONTINUED
Lincoln National 14,700 $ 1,209,075
Corp.
MGIC Investment 12,900 475,688
Corp.
Nationwide 6,200 281,713
Financial
Services, Inc.
Class A
Provident 9,800 330,750
Companies,
Inc.
Reliastar 14 546
Financial
Corp.
Travelers 4,300 137,331
Property
Casualty Corp.
Class A
9,656,309
SAVINGS & LOANS - 0.1%
Golden West 9,200 752,675
Financial
Corp.
SECURITIES INDUSTRY - 0.3%
Lehman Brothers 21,400 604,550
Holdings, Inc.
Morgan Stanley, 12,500 538,281
Dean Witter,
Discover &
Co.
PaineWebber 50,000 1,500,000
Group, Inc.
2,642,831
TOTAL FINANCE 21,876,715
HEALTH - 3.7%
DRUGS & PHARMACEUTICALS - 2.7%
Allergan, Inc. 52,300 3,053,013
Amgen, Inc. (a) 35,300 2,667,356
Bristol-Myers 16,300 1,693,163
Squibb Co.
Mylan 106,800 3,150,600
Laboratories,
Inc.
Schering-Plough 24,700 2,557,994
Corp.
Warner-Lambert 111,500 8,418,250
Co.
21,540,376
MEDICAL EQUIPMENT & SUPPLIES - 1.0%
Allegiance Corp. 1,240 36,890
Becton, 49,000 2,015,125
Dickinson &
Co.
Cardinal Health, 14,700 1,517,775
Inc.
Guidant Corp. 54,500 4,046,625
7,616,415
TOTAL HEALTH 29,156,791
INDUSTRIAL MACHINERY & EQUIPMENT -
0.4%
ELECTRICAL EQUIPMENT - 0.2%
Honeywell, Inc. 29,000 1,857,813
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
INDUSTRIAL MACHINERY & EQUIPMENT -
CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Ingersoll-Rand 35,900 $ 1,361,956
Co.
TOTAL INDUSTRIAL 3,219,769
MACHINERY & EQUIPMENT
MEDIA & LEISURE - 0.8%
BROADCASTING - 0.6%
Tele-Communicat 125,200 4,898,450
ions, Inc. (TCI
Group) Series
A (a)
ENTERTAINMENT - 0.0%
Royal Carribean 2,800 74,375
Cruises Ltd.
Viacom, Inc. 4,200 243,600
Class B
(non-vtg.) (a)
317,975
PUBLISHING - 0.2%
Gannet Co., Inc. 6,100 326,731
New York Times 29,600 814,000
Co. (The)
Class A
1,140,731
TOTAL MEDIA & LEISURE 6,357,156
NONDURABLES - 1.1%
FOODS - 0.7%
Heinz (H.J.) Co. 70,000 3,578,750
Quaker Oats 35,500 2,094,500
Co.
5,673,250
HOUSEHOLD PRODUCTS - 0.4%
Clorox Co. 16,800 1,386,000
Colgate-Palmoliv 26,300 1,801,550
e Co.
3,187,550
TOTAL NONDURABLES 8,860,800
PRECIOUS METALS - 0.0%
Battle Mountain 4,100 24,856
Gold Co.
Homestake 14,300 173,388
Mining Co.
198,244
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - 1.8%
APPAREL STORES - 0.2%
Gap, Inc. 5,550 $ 292,763
Limited, Inc. 32,100 704,194
(The)
TJX Companies, 23,600 420,375
Inc.
1,417,332
GENERAL MERCHANDISE STORES - 1.1%
Dayton Hudson 27,200 972,400
Corp.
Federated 45,100 1,640,513
Department
Stores, Inc. (a)
K mart Corp. (a) 39,900 476,306
May Department 28,700 1,478,050
Stores Co.
(The)
Wal-Mart 71,300 3,894,763
Stores, Inc.
8,462,032
GROCERY STORES - 0.2%
Safeway, Inc. (a) 36,200 1,678,775
RETAIL & WHOLESALE, MISCELLANEOUS - 0.3%
Ebay, Inc. (a) 100 4,506
Lowe's 77,800 2,475,013
Companies,
Inc.
Office Depot, 6,500 145,844
Inc. (a)
Rex Stores 2,400 25,500
Corp. (a)
2,650,863
TOTAL RETAIL & 14,209,002
WHOLESALE
SERVICES - 0.1%
LEASING & RENTAL - 0.0%
Hertz Corp. 6,000 248,250
Class A
PRINTING - 0.1%
Donnelley (R.R.) 11,100 390,581
& Sons Co.
TOTAL SERVICES 638,831
TECHNOLOGY - 2.5%
COMMUNICATIONS EQUIPMENT - 0.4%
Cisco Systems, 6,450 398,691
Inc. (a)
Lucent 38,580 2,664,431
Technologies,
Inc.
3,063,122
COMPUTER SERVICES & SOFTWARE - 1.1%
24/7 Media, 100 1,075
Inc. (a)
American 2,300 62,963
Management
Systems,
Inc. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Compuware 24,900 $ 1,465,988
Corp. (a)
Entrust 200 2,963
Technologies,
Inc. (a)
Galileo 3,400 128,350
International,
Inc.
Keane, Inc. (a) 5,500 193,188
Microsoft 53,400 5,877,338
Corp. (a)
Novell, Inc. (a) 18,500 226,625
Sabre Group 3,900 117,000
Holdings, Inc.
Class A (a)
Sterling 4,600 126,788
Software,
Inc. (a)
Synopsys, 5,500 183,219
Inc. (a)
8,385,497
COMPUTERS & OFFICE EQUIPMENT - 0.9%
Apple Computer, 100,000 3,812,500
Inc. (a)
Dell Computer 11,200 736,400
Corp. (a)
Ingram Micro, 10,900 583,831
Inc. Class
A (a)
Lexmark 18,000 1,247,625
International
Group, Inc. (a)
Sun 22,700 1,130,744
Microsystems,
Inc. (a)
7,511,100
PHOTOGRAPHIC EQUIPMENT - 0.1%
Eastman Kodak 13,800 1,066,913
Co.
TOTAL TECHNOLOGY 20,026,632
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
AMR Corp. (a) 37,400 2,073,363
UTILITIES - 3.4%
CELLULAR - 0.0%
Century 1,500 70,875
Telephone
Enterprises,
Inc.
ELECTRIC UTILITY - 1.6%
Baltimore Gas & 10,600 353,775
Electric Co.
Consolidated 37,100 1,933,838
Edison, Inc.
DTE Energy Co. 29,400 1,328,513
Edison 10,200 262,013
International
FirstEnergy 5,200 161,525
Corp.
FPL Group, Inc. 33,900 2,362,406
Hawaiian 6,300 259,875
Electric
Industries, Inc.
Houston 50,800 1,581,150
Industries, Inc.
Montana Power 4,100 183,219
Co.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
PECO Energy 40,500 $ 1,480,781
Co.
Public Service 36,300 1,427,044
Enterprise
Group, Inc.
Southern Co. 45,400 1,336,463
Group
12,670,602
GAS - 0.1%
Columbia 4,400 257,950
Energy Group
El Paso Energy 13,700 444,394
Corp.
Western 4,200 173,775
Resources, Inc.
876,119
TELEPHONE SERVICES - 1.7%
AT&T Corp. 80,000 4,675,000
BellSouth Corp. 114,500 8,616,125
13,291,125
TOTAL UTILITIES 26,908,721
TOTAL COMMON STOCKS 151,725,64
(Cost $142,305,843) 4
NONCONVERTIBLE BONDS - 18.5%
MOODY'S PRINCIPAL
RATINGS AMOUNT
(UNAUDITED)
(B)
AEROSPACE & DEFENSE - 0.4%
DEFENSE ELECTRONICS - 0.4%
Raytheon Co.:
5.95% Baa1 $ 1,300,000 1,322,269
3/15/01
6.45% Baa1 1,620,000 1,685,092
8/15/02
3,007,361
BASIC INDUSTRIES - 1.2%
CHEMICALS & PLASTICS - 0.8%
Methanex Corp. A2 900,000 930,312
yankee
8.875%
11/15/01
Praxair, Inc. A3 5,000,000 5,230,100
6.625%
10/15/07
6,160,412
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
BASIC INDUSTRIES - CONTINUED
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois,
Inc.:
7.15% Ba1 $ 2,330,000 $ 2,329,765
5/15/05
7.8% Ba1 1,350,000 1,286,257
5/15/18
3,616,022
TOTAL BASIC INDUSTRIES 9,776,434
CONSTRUCTION & REAL ESTATE - 0.4%
REAL ESTATE INVESTMENT TRUSTS - 0.4%
CenterPoint Baa2 490,000 486,614
Properties
Corp. 6.75%
4/1/05
EOP Operating
LP:
6.375% Baa1 1,050,000 1,049,349
2/15/03
6.75% Baa1 480,000 477,662
2/15/08
Weeks Realty LP Baa2 900,000 880,650
6.875%
3/15/05
2,894,275
DURABLES - 0.4%
TEXTILES & APPAREL - 0.4%
Levi Strauss & Baa2 2,440,000 2,380,952
Co. 7%
11/1/06 (e)
Unifi, Inc. 6.5% A3 890,000 891,157
2/1/08
3,272,109
ENERGY - 0.4%
OIL & GAS - 0.4%
Oryx Energy
Co.:
8% 10/15/03 Ba1 510,000 540,279
8.125% Ba1 230,000 238,625
10/15/05
8.375% Ba1 450,000 481,581
7/15/04
Petroleum Baa3 1,300,000 1,254,500
Geo-Services
ASA 7.125%
3/30/28
USX-Marathon Baa2 300,000 311,295
Group 6.85%
3/1/08
2,826,280
FINANCE - 8.5%
BANKS - 3.0%
BankBoston A3 500,000 515,385
Corp. 6.625%
2/1/04
BankBoston NA A2 400,000 403,184
(Bearer)
6.375%
3/25/08
BanPonce Corp.:
5.75% A3 460,000 460,474
3/1/99
6.665% A3 1,100,000 1,133,781
3/5/01
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
FINANCE - CONTINUED
BANKS - CONTINUED
BanPonce
Financial
Corp.:
6.34% A3 $ 310,000 $ 311,252
3/29/99
6.69% A3 1,000,000 1,027,310
9/21/00
6.75% A3 1,660,000 1,719,146
8/9/01
7.65% A3 690,000 714,716
5/3/00
Barclays Bank A1 2,350,000 2,391,760
PLC yankee
5.95%
7/15/01
Capital One Baa3 1,080,000 1,103,350
Bank 6.375%
2/15/03
Capital One Ba1 1,120,000 1,144,024
Financial
Corp. 7.125%
8/1/08
Citicorp 5.625% Aa3 800,000 805,760
2/15/01
Den Danske A1 2,190,000 2,241,465
Bank AS
6.375%
6/15/08 (e)(g
)
Fleet Credit Card A1 600,000 614,616
LLC 6.45%
10/30/00
Fleet/Norstar A3 630,000 702,803
Financial
Group, Inc.
9.9%
6/15/01
Huntington A1 670,000 680,151
National Bank
5.875%
1/15/01
Kansallis-Osake- A3 470,000 473,986
Pankki, New
York yankee
9.75%
12/15/98
Marine Midland A3 1,000,000 992,500
Bank NA euro
5.9375%
3/29/99 (g)
NationsBank NA Aa2 1,850,000 1,887,594
5.92%
6/8/01
NB Capital Trust Aa3 660,000 724,753
IV 8.25%
4/15/27
Provident Bank, A3 1,560,000 1,579,578
Cincinnati
6.125%
12/15/00
Providian Baa3 950,000 996,788
National Bank
6.7%
3/15/03
Union Planters A3 1,000,000 1,038,870
National Bank
6.81%
8/20/01
23,663,246
CREDIT & OTHER FINANCE - 3.8%
Ahmanson Baa2 1,000,000 1,097,840
Capital Trust I
8.36%
12/1/26 (e)
Associates Corp. Aa3 1,050,000 1,082,445
of North
America 6%
4/15/03
BankAmerica Aa3 860,000 929,161
Capital II 8%
12/15/26
BanPonce Trust I A3 1,550,000 1,584,968
8.327%
2/1/27
BCH Cayman A2 270,000 285,887
Islands Ltd.
yankee 7.7%
7/15/06
Countrywide A3 1,200,000 1,245,060
Funding Corp.
6.45%
2/27/03
ERP Operating A3 400,000 405,668
LP 6.55%
11/15/01
Farmers A2 710,000 717,214
Insurance
Exchange
Capital 7.05%
7/15/28 (e)
First Security A3 420,000 468,896
Capital I
8.41%
12/15/26
Ford Motor A1 1,700,000 1,757,766
Credit Co.
6.57%
3/19/01
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
General Electric Aaa $ 1,500,000 $ 1,510,770
Capital Corp.
6.94%
4/13/09 (d)
General Motors A3 2,170,000 2,273,075
Acceptance
Corp. 6.75%
7/10/02
GS Escrow
Corp.:
7% Ba1 550,000 549,230
8/1/03 (e)
7.125% Ba1 1,900,000 1,875,775
8/1/05 (e)
Heller Financial,
Inc.:
6.25% A3 1,440,000 1,469,030
3/1/01
7.875% A3 1,220,000 1,250,415
11/1/99
KeyCorp A1 900,000 959,733
Institutional
Capital A
7.826%
12/1/26
MCN Investment Baa3 730,000 730,358
Corp. 5.84%
2/1/99
Mellon Capital I A2 570,000 603,989
7.72%
12/1/26
Money Store, A2 750,000 800,250
Inc. 7.3%
12/1/02
PNC Funding A3 530,000 562,929
Corp. 6.875%
3/1/03
Premier Auto P-1 7,100,000 7,117,750
Trust 5.45%
6/8/99
U.S. Bancorp A1 860,000 938,613
8.09%
11/15/26
30,216,822
SAVINGS & LOANS - 0.5%
Great Western A3 1,030,000 1,118,518
Finance Trust II
8.206%
2/1/27
Home Savings of A3 750,000 778,598
America FSB
6.5% 8/15/04
Long Island
Savings Bank
FSB:
6.2% 4/2/01 Baa3 700,000 706,727
7% 6/13/02 Baa3 970,000 1,012,350
3,616,193
SECURITIES INDUSTRY - 1.2%
Amvescap PLC A3 700,000 719,355
6.375%
5/15/03
Morgan Stanley, A 9,000,000 8,999,370
Dean Witter,
Discover &
Co. 5.75%
1/15/99 (g)
9,718,725
TOTAL FINANCE 67,214,986
HEALTH - 0.1%
MEDICAL EQUIPMENT & SUPPLIES - 0.1%
McKesson Corp. A3 1,150,000 1,170,137
6.6% 3/1/00
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
Tyco
International
Group SA
yankee:
6.125% Baa1 $ 1,800,000 $ 1,838,034
6/15/01
6.375% Baa1 700,000 737,842
6/15/05
2,575,876
POLLUTION CONTROL - 0.4%
WMX
Technologies,
Inc.:
6.25% Baa3 600,000 610,776
10/15/00
7.1% 8/1/26 Baa3 1,240,000 1,331,698
8.25% Baa3 970,000 999,866
11/15/99
2,942,340
TOTAL INDUSTRIAL MACHINERY & 5,518,216
EQUIPMENT
MEDIA & LEISURE - 3.1%
BROADCASTING - 1.7%
Clear Channel Baa3 900,000 885,834
Communicatio
ns, Inc.
6.875%
6/15/18
Continental
Cablevision,
Inc.:
8.3% Baa3 605,000 684,322
5/15/06
8.625% Baa3 480,000 535,358
8/15/03
9% 9/1/08 Baa3 790,000 950,180
Hearst-Argyle Baa3 650,000 672,113
Television, Inc.
7.5%
11/15/27
TCI
Communicatio
ns, Inc.:
6.46% Baa3 1,340,000 1,363,289
3/6/00
8.75% Baa3 1,400,000 1,748,992
8/1/15
9.25% Baa3 800,000 897,816
4/15/02
9.8% 2/1/12 Baa3 1,190,000 1,590,685
Time Warner,
Inc.:
6.875% Baa3 1,200,000 1,239,984
6/15/18
7.95% Baa3 745,000 769,384
2/1/00
8.18% Baa3 1,445,000 1,684,451
8/15/07
13,022,408
ENTERTAINMENT - 0.9%
Paramount Ba2 585,000 612,682
Communicatio
ns, Inc. 7.5%
1/15/02
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - CONTINUED
Viacom, Inc.:
6.75% Ba2 $ 1,815,000 $ 1,863,551
1/15/03
7.75% Ba2 4,350,000 4,697,391
6/1/05
7,173,624
PUBLISHING - 0.5%
News America
Holdings, Inc.:
7.7% Baa3 1,390,000 1,486,466
10/30/25
8.5% Baa3 1,525,000 1,718,660
2/15/05
News America, Baa3 830,000 850,194
Inc. 7.25%
5/18/18
4,055,320
TOTAL MEDIA & LEISURE 24,251,352
NONDURABLES - 0.6%
FOODS - 0.1%
ConAgra, Inc. Baa1 1,000,000 1,079,520
7.125%
10/1/26
TOBACCO - 0.5%
Philip Morris
Companies,
Inc.:
6.95% A2 1,180,000 1,254,281
6/1/06
7% 7/15/05 A2 1,250,000 1,336,500
7.25% A2 1,200,000 1,256,928
9/15/01
3,847,709
TOTAL NONDURABLES 4,927,229
RETAIL & WHOLESALE - 0.5%
GENERAL MERCHANDISE STORES - 0.3%
Federated
Department
Stores, Inc.:
6.79% Baa2 800,000 845,416
7/15/27
7% 2/15/28 Baa2 1,180,000 1,191,977
8.125% Baa2 400,000 436,940
10/15/02
2,474,333
GROCERY STORES - 0.2%
Kroger Co. 6% Baa3 1,530,000 1,550,104
7/1/00
TOTAL RETAIL & WHOLESALE 4,024,437
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
TECHNOLOGY - 0.2%
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc. Baa1 $ 1,300,000 $ 1,325,298
7.75%
9/1/99
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.0%
Delta Air Lines, Baa3 500,000 532,810
Inc. 9.875%
5/15/00
RAILROADS - 0.7%
Canadian Baa2 950,000 974,377
National
Railway Co.
6.9%
7/15/28
CSX Corp. Baa2 1,340,000 1,402,685
6.46%
6/22/05
Norfolk Southern Baa1 1,830,000 2,017,429
Corp. 7.05%
5/1/37
Wisconsin Baa2 900,000 932,949
Central
Transportation
Corp. 6.625%
4/15/08
5,327,440
TOTAL TRANSPORTATION 5,860,250
UTILITIES - 1.3%
CELLULAR - 0.4%
AirTouch Baa2 1,790,000 1,883,868
Communicatio
ns, Inc. 6.35%
6/1/05
Cable & Baa1 1,480,000 1,513,108
Wireless
Communicatio
ns PLC
6.375%
3/6/03
3,396,976
ELECTRIC UTILITY - 0.6%
Avon Energy
Partners
Holdings:
6.46% Baa2 1,160,000 1,188,814
3/4/08 (e)
6.73% Baa2 1,340,000 1,397,794
12/11/02 (
e)
Israel Electric
Corp. Ltd.:
7.75% A3 1,275,000 1,210,676
12/15/27 (
e)
yankee A3 660,000 656,713
7.875%
12/15/26 (
e)
Texas Utilities Baa3 580,000 588,526
Co. 6.375%
1/1/08
5,042,523
GAS - 0.1%
Southwest Gas Baa2 300,000 337,830
Corp. 9.75%
6/15/02
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.2%
WorldCom, Inc.:
8.875% Baa2 $ 793,000 $ 869,889
1/15/06
9.375% Baa2 936,000 977,839
1/15/04
1,847,728
TOTAL UTILITIES 10,625,057
TOTAL NONCONVERTIBLE 146,693,4
BONDS 21
(Cost $143,539,692)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 8.5%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 3.5%
Fannie Mae:
6% 5/15/08 Aaa 1,900,000 2,048,428
6.97% Aaa 1,200,000 1,320,000
4/8/04
7.49% Aaa 4,080,000 4,665,235
3/2/05
Federal Farm Aaa 2,000,000 2,181,560
Credit Bank
6.47%
6/7/05
Federal Home
Loan Bank:
7.36% Aaa 600,000 675,372
7/1/04
7.59% Aaa 680,000 780,830
3/10/05
Freddie Mac Aaa 1,300,000 1,408,056
6.505%
7/1/04
Government Aaa 4,310,000 4,921,934
Loan Trusts
(assets of Trust
guaranteed by
U.S.
Government
through
Agency for
International
Development)
8.5% 4/1/06
Government
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Defense
Security
Assistance
Agency):
Class 1-C, Aaa 356,961 381,242
9.25%
11/15/01
Class 2-E, Aaa 1,690,118 1,795,582
9.4%
5/15/02
Class T-3, Aaa 68,625 72,811
9.625%
5/15/02
Israel Export Aaa 344,118 358,605
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1994-1,
6.88%
1/26/03
Private Export Aaa 819,000 858,017
Funding Corp.
secured 6.86%
4/30/04
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department
of Housing
and Urban
Development
government
guaranteed
participation
certificates:
Series Aaa $ 1,000,000 $ 1,141,050
1995-A,
8.27%
8/1/03
Series
1996-A:
6.92% Aaa 4,010,000 4,398,890
8/1/04
7.63% Aaa 1,000,000 1,149,480
8/1/14
28,157,092
U.S. TREASURY OBLIGATIONS - 5.0%
U.S. Treasury
Bonds:
7.125% Aaa 2,305,000 2,909,694
2/15/23
7.625% Aaa 13,610,000 18,324,640
2/15/25
8.125% Aaa 1,490,000 2,041,062
8/15/19
13.875% Aaa 7,060,000 11,192,289
5/15/11
(callable)
U.S. Treasury
Notes:
5.375% Aaa 1,060,000 1,084,020
2/15/01
5.625% Aaa 350,000 354,267
11/30/99
6.625% Aaa 990,000 1,046,618
6/30/01
7% 7/15/06 Aaa 531,000 618,615
7.5% Aaa 1,740,000 1,896,322
11/15/01
39,467,527
TOTAL U.S. GOVERNMENT AND 67,624,61
GOVERNMENT AGENCY 9
OBLIGATIONS
(Cost $63,138,390)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 14.3%
FANNIE MAE - 11.4%
6% 12/1/10 to Aaa 30,552,610 30,831,549
4/1/28
6.5% 9/1/25 to Aaa 26,994,784 27,454,237
7/1/28
7% 10/1/28 (f) Aaa 21,066,000 21,658,481
7.5% 10/1/09 Aaa 9,760,438 10,069,273
to 6/1/28
11.5% 11/1/15 Aaa 273,904 307,482
90,321,022
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES -
CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
FREDDIE MAC - 0.5%
7% 7/1/01 to Aaa $ 318,977 $ 321,943
8/1/01
7.5% 2/1/28 to Aaa 2,880,269 2,967,570
4/1/28
8.5% 4/1/21 to Aaa 96,226 100,611
5/1/22
12% 11/1/19 Aaa 141,861 163,266
3,553,390
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.4%
6.5% 11/15/08 Aaa 4,848,632 4,971,303
to 6/15/09
7% 3/15/28 to Aaa 6,048,653 6,243,298
7/15/28
7.5% 2/15/24 Aaa 6,726,928 6,973,104
to 8/15/28
9.5% 8/15/16 Aaa 3,399 3,671
10% 11/15/09 Aaa 379,741 410,758
to 12/15/17
11% 7/15/10 to Aaa 354,001 393,565
12/15/15
11.5% 7/15/15 Aaa 340,815 384,170
to 1/15/16
19,379,869
TOTAL U.S. GOVERNMENT 113,254,2
AGENCY - 81
MORTGAGE-BACKED
SECURITIES
(Cost $110,078,812)
</TABLE>
ASSET-BACKED SECURITIES - 3.7%
BankAmerica Aaa 950,000 963,359
Manufacturing
Housing
Contract 6.2%
4/10/09
Capital Baa2 780,000 794,188
Equipment
Receivables
Trust 6.48%
10/15/06
Case Equipment
Loan Trust:
5.85% Aa2 370,000 370,101
2/15/03
6.15% Aaa 744,415 748,368
9/15/02
Chase Aaa 1,190,000 1,211,194
Manhattan
Auto Owner
Trust 5.85%
5/15/03
Chevy Chase Aaa 648,429 656,382
Auto
Receivables
Trust 5.91%
12/15/04
Contimortgage Aaa 1,300,000 1,305,681
Home Equity
Loan Trust
6.26%
7/15/12
CPS Auto
Grantor Trust:
6.09% Aaa 975,823 979,787
11/15/03
6.55% Aaa 581,960 588,870
8/15/02
CPS Auto Aaa 1,567,729 1,585,366
Receivables
Trust 6%
8/15/03
CSXT Trade Aaa 1,200,000 1,246,125
Receivables
Master Trust
6% 7/25/04
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
Dayton Hudson Aaa $ 1,290,000 $ 1,350,191
Credit Card
Master Trust
6.25%
8/25/05
Ford Credit Auto
Owner Trust:
6.2% Baa3 780,000 794,438
12/15/02
6.4% A1 840,000 858,774
5/15/02
6.4% Baa3 450,000 452,250
12/15/02
Green Tree
Financial
Corp.:
5.8% Aaa 46,712 46,712
2/15/27
6.1% Aaa 465,596 466,467
4/15/27
6.5% Aaa 381,575 382,052
6/15/27
6.68% AAA 1,820,000 1,872,325
1/15/29
6.8% Aaa 650,000 657,917
6/15/27
Key Auto A2 934,329 938,709
Finance Trust
6.3%
10/15/03
KeyCorp Auto A3 39,821 39,831
Grantor Trust
5.8%
7/15/00
MBNA Master Aaa 2,580,000 2,737,741
Credit Card
Trust II 6.55%
1/15/07
Olympic
Automobile
Receivables
Trust:
6.4% Aaa 1,140,000 1,156,031
9/15/01
6.7% Aaa 540,000 549,747
3/15/02
Petroleum Baa2 963,817 963,516
Enhanced Trust
Receivables
Offering
Petroleum Trust
6.125%
2/5/03 (e)(g)
Premier Auto
Trust:
6% 5/6/00 Aaa 366,591 366,932
6.34% Aaa 350,000 358,750
1/6/03
6.35% A3 920,000 926,035
7/6/00
Prime Credit Aaa 950,000 996,009
Card Master
Trust 6.75%
11/15/05
Railcar Trust Aaa 33,354 35,573
7.75%
6/1/04
TMS Auto Aaa 127,135 127,731
Grantor Trust
5.9%
9/15/02
UAF Auto Aaa 1,252,260 1,261,261
Grantor Trust
6.1%
1/15/03 (e)
Union Federal Baa2 33,503 33,733
Savings Bank
Grantor Trust
8.2%
1/10/01
Union Federal Baa2 26,924 27,126
Savings Bank
Trust
7.275%
10/10/00
Western
Financial
Grantor Trust:
5.875% Aaa 475,344 481,732
3/1/02
6.05% Aaa 115,496 116,940
11/1/00
WFS Financial Aaa 1,170,000 1,196,325
Owner Trust
6.55%
10/20/04
TOTAL ASSET-BACKED 29,644,26
SECURITIES 9
(Cost $29,049,896)
COMMERCIAL MORTGAGE SECURITIES -
3.9%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
BKB Commercial BBB $ 450,000 $ 459,773
Mortgage Trust
Series
1997-C1
Class D,
7.83%
2/25/43 (e)(g
)
CBM Funding
Corp.
sequential pay
Series 1996-1:
Class A-1, AA 80,321 80,772
7.55%
7/1/99
Class A-2, AA 1,100,000 1,133,000
6.88%
7/1/02
Class A-3PI, AA 870,000 919,209
7.08%
11/1/07
Class B, A 680,000 722,925
7.48%
2/1/08
CS First Boston
Mortgage
Securities
Corp.:
Series Baa2 1,450,000 1,452,719
1997-C2
Class D,
7.27%
1/17/35
Series BBB 1,290,000 1,317,816
1998-C1
Class D,
7.17%
1/17/12
Series Baa2 1,400,000 1,383,813
1998-FLI
Class E,
6.5063%
1/10/13 (e)
(g)
Deutsche Baa2 1,320,000 1,372,800
Mortgage &
Asset
Receiving
Corp. Series
1998-C1
Class D,
7.231%
7/15/12
Equitable Life
Assurance
Society of the
United States
(The):
sequential Aaa 1,600,000 1,746,384
pay Series
174 Class
A1,
7.24%
5/15/06
(e)
Series 174 Aa2 1,000,000 1,081,190
Class B1,
7.33%
5/15/06 (
e)
Series A2 700,000 758,443
1996-1
Class C1,
7.52%
5/15/06 (
e)
Federal Deposit Aaa 251,955 251,640
Insurance
Corp. Remic
Trust
sequential pay
Series
1994-C1
Class II-A2,
7.85%
9/25/25
First Aa2 3,040,000 3,228,100
Union-Lehman
Brothers
Commercial
Mortgage Trust
sequential pay
Series
1997-C2 Class
B, 6.79%
11/18/29
GS Mortgage
Securities
Corp. II:
Series Aaa 1,230,000 1,304,464
1997-GL
Class A2-B,
6.86%
7/13/30
Series
1998-GLII:
Class D, Baa2 450,000 457,106
7.1905%
4/13/31
(e)(g)
Class E, Baa3 1,420,000 1,384,770
7.1905%
4/13/31
(e)(g)
Kidder Peabody Aa2 277,259 278,386
Acceptance
Corp. I
sequential pay
Series
1993-M1
Class A-2,
7.15%
4/25/25
LTC Commercial AAA 972,360 982,453
Mortgage Pass
Through
Certificates
Series 1998-1
Class A,
6.029%
5/30/30 (e)
COMMERCIAL MORTGAGE SECURITIES -
CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
Morgan Stanley
Capital I, Inc.:
Series
1998-CF1:
Class D, Baa2 $ 1,064,000 $ 1,074,640
7.35%
1/15/12
Class E, Baa3 371,000 354,305
7.35%
12/15/1
2
Series BBB 1,530,000 1,612,716
1998-HF1
Class D,
7.1%
2/15/30 (g)
Nomura Asset
Securities
Corp.:
floater Series - 273,227 273,227
1994-MD-II
Class A-6,
9.9213%
7/7/03 (g)
Series Baa2 1,320,000 1,403,944
1998-D6
Class A-4,
7.5956%
3/17/28 (g)
Resolution Trust
Corp.:
floater Series AAA 87,809 87,850
1994-C1
Class A-3,
6.2375%
6/25/26 (g)
Series
1995-C1:
Class A-4B, Aaa 704,730 702,527
6.65%
2/25/27
Class C, A2 1,200,000 1,207,875
6.9%
2/25/27
Structured Asset
Securities
Corp.:
sequential pay AAA 338,039 340,205
Series 1996
Class A-2A,
7.75%
2/25/28
Series BB+ 640,000 656,600
1996-CFL
Class E,
7.75%
2/25/28
Thirteen Affiliates of
General Growth
Properties, Inc.:
sequential pay Aaa 1,020,000 1,073,030
Series A-2,
6.602%
12/15/10 (
e)
Series D-2, Baa2 1,100,000 1,107,612
6.992%
12/15/10 (
e)
Series E-2, Baa3 660,000 647,071
7.224%
12/15/10 (
e)
TOTAL COMMERCIAL 30,857,36
MORTGAGE SECURITIES 5
(Cost $30,014,283)
FOREIGN GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 0.6%
Export Aa2 410,000 420,258
Development
Corp. yankee
8.125%
8/10/99 (h)
Israeli State euro Aaa 800,000 828,240
6.375%
12/19/01 (h)
Ontario Province Aa3 3,000,000 3,268,650
yankee global
7.75%
6/4/02 (h)
TOTAL FOREIGN GOVERNMENT 4,517,148
AND
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $4,327,503)
SUPRANATIONAL OBLIGATIONS - 0.2%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
Inter American Aaa $ 1,270,000 $ 1,393,850
Development
Bank yankee
6.29%
7/16/27
(Cost
$1,262,012)
BANK NOTES - 1.1%
Key Bank NA 9,000,000 8,991,450
5.6175%
8/20/99 (g)
(Cost
$8,987,895)
CERTIFICATES OF DEPOSIT - 10.7%
Abbey National 9,000,000 9,003,460
Treasury
Services PLC
euro
5.51%
12/4/98
ABN-AMRO 5,000,000 5,002,830
Bank NV
yankee euro
5.64%
12/14/98
Bank of Scotland 10,000,000 10,007,136
Treasury
Services euro
5.64%
12/29/98
Bayerische 3,700,000 3,707,013
Hypotheken
und Wechsel
Bank AG
yankee 5.7%
3/30/99
Canadian 720,000 735,336
Imperial Bank
of Commerce,
New York
yankee 6.2%
8/1/00
Deutsche Bank 4,000,000 4,000,944
AG yankee
5.94%
10/26/98
First National 10,000,000 10,013,103
Bank of
Chicago
5.65%
3/3/99
RaboBank 9,000,000 9,030,601
Nederland
Coop. Central
yankee
5.68%
6/4/99
Societe 8,000,000 8,000,946
Generale,
France yankee
5.91%
10/15/98
Swiss Bank 7,200,000 7,211,385
Corp. yankee
5.65%
3/24/99
Toronto-Dominio 9,000,000 9,030,601
n Bank yankee
5.68%
6/4/99
Westdeutsche 9,000,000 9,012,047
Landesbank
Girozentrale
yankee
5.63%
2/8/99
TOTAL CERTIFICATES OF 84,755,402
DEPOSIT
(Cost $84,611,736)
COMMERCIAL PAPER - 12.9%
CIESCO L.P. 205,000 204,761
5.51%
10/9/98
Citibank Credit
Card Master
Trust I
(Dakota
Certificate
Program):
5.5% 5,000,000 4,970,945
11/10/9
8
5.53% 4,600,000 4,591,904
10/13/9
8
Commonwealth 9,000,000 8,812,382
Bank of
Australia
yankee 5.35%
3/1/99
COMMERCIAL PAPER - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT
(UNAUDITED)
(B)
Daimler-Benz $ 10,000,000 $ 9,959,322
North America
Corp. yankee
5.53%
10/29/98
Enterprise 2,400,000 2,379,016
Funding Corp.
5.4%
12/4/98
Fleet Funding 5,000,000 4,980,500
Corp. 5.5%
10/28/98
General Electric 10,000,000 9,939,333
Capital Corp.
5.51%
11/12/98
Generale de 3,000,000 2,938,315
Banque SA
yankee 5.36%
2/24/99
Lehman Brothers 8,000,000 7,960,182
Holdings, Inc.
5.55%
11/4/98
Monsanto Co.:
5.51% 4,200,000 4,163,278
12/1/98
5.52% 2,000,000 1,985,953
11/19/98
Morgan (JP) & 10,300,000 10,240,146
Co., Inc. 5.5%
11/10/98
Salomon Smith 10,000,000 9,909,700
Barney 5.45%
12/3/98
Three Rivers 5,000,000 4,956,453
Funding Corp.
5.51%
12/1/98
Transamerica 4,000,000 3,934,090
Finance Corp.
5.47%
1/26/99
Triple A One
Funding
Corp.:
5.55% 500,000 499,052
10/14/98
5.57% 10,000,000 9,968,100
10/23/98
TOTAL COMMERCIAL 102,393,432
PAPER
(Cost $102,324,510)
MASTER NOTES - 0.9%
Goldman Sachs 7,000,000 7,000,000
Group L.P.
(The) 5.6875%
1/27/99 (g)
(Cost
$7,000,000)
CASH EQUIVALENTS - 5.6%
MATURITY
AMOUNT
Investments in $ 116,019 116,000
repurchase
agreements
(U.S. Treasury
obligations), in
a joint
trading
account at
5.77%, dated
9/30/98 due
10/1/98
SHARES
Taxable Central 44,374,880 44,374,880
Cash Fund (c)
TOTAL CASH 44,490,880
EQUIVALENTS
(Cost $44,490,880)
TOTAL INVESTMENT IN $ 793,341,761
SECURITIES - 100%
(Cost $771,131,452)
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.36%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(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
$26,622,895 or 3.4% of net assets.
(f) 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 the securities by FMR,
the fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 35.2% AAA, AA, A 32.2%
Baa 9.2% BBB 11.2%
Ba 2.0% BB 2.0%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 0.0%.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:
United States of America 86.7%
United Kingdom 3.2
Germany 2.1
Canada 1.9
Netherlands 1.8
Australia 1.1
France 1.0
Others (individually less than 1%) 2.2
TOTAL 100.0%
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $771,399,017. Net unrealized appreciation
aggregated $21,942,744, of which $34,171,419 related to appreciated
investment securities and $12,228,675 related to depreciated
investment securities.
The fund hereby designates approximately $23,418,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30,
1998
ASSETS
INVESTMENT IN SECURITIES, AT VALUE $ 793,341,761
(INCLUDING REPURCHASE
AGREEMENTS OF $116,000)
(COST $771,131,452) -
SEE ACCOMPANYING SCHEDULE
CASH 6,931
RECEIVABLE FOR INVESTMENTS SOLD 5,023,975
RECEIVABLE FOR FUND SHARES SOLD 5,986,350
DIVIDENDS RECEIVABLE 182,914
INTEREST RECEIVABLE 6,799,568
OTHER RECEIVABLES 4,580
TOTAL ASSETS 811,346,079
LIABILITIES
PAYABLE FOR INVESTMENTS $ 6,034,310
PURCHASED
REGULAR DELIVERY
DELAYED DELIVERY 21,526,154
PAYABLE FOR FUND SHARES 7,199,144
REDEEMED
ACCRUED MANAGEMENT FEE 275,339
OTHER PAYABLES AND ACCRUED 194,963
EXPENSES
TOTAL LIABILITIES 35,229,910
NET ASSETS $ 776,116,169
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 703,736,998
UNDISTRIBUTED NET INVESTMENT 2,979,130
INCOME
ACCUMULATED UNDISTRIBUTED NET 47,189,732
REALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION 22,210,309
(DEPRECIATION) ON INVESTMENTS
AND ASSETS AND LIABILITIES IN
FOREIGN CURRENCIES
NET ASSETS, FOR 62,322,318 $ 776,116,169
SHARES OUTSTANDING
NET ASSET VALUE, OFFERING PRICE $12.45
AND REDEMPTION PRICE
PER SHARE ($776,116,169 (DIVIDED BY)
62,322,318 SHARES)
STATEMENT OF OPERATIONS
YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT INCOME $ 2,083,780
DIVIDENDS
INTEREST 35,876,180
TOTAL INCOME 37,959,960
EXPENSES
MANAGEMENT FEE $ 3,112,844
TRANSFER AGENT FEES 1,446,968
ACCOUNTING FEES AND EXPENSES 243,745
NON-INTERESTED TRUSTEES' 2,769
COMPENSATION
CUSTODIAN FEES AND EXPENSES 55,404
REGISTRATION FEES 105,848
AUDIT 81,941
LEGAL 3,717
INTEREST 1,125
MISCELLANEOUS 3,143
TOTAL EXPENSES BEFORE 5,057,504
REDUCTIONS
EXPENSE REDUCTIONS (129,318) 4,928,186
NET INVESTMENT INCOME 33,031,774
REALIZED AND UNREALIZED GAIN
(LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 48,797,198
FOREIGN CURRENCY TRANSACTIONS 25,535
FUTURES CONTRACTS (83,229) 48,739,504
CHANGE IN NET UNREALIZED
APPRECIATION (DEPRECIATION)
ON:
INVESTMENT SECURITIES (26,995,548)
ASSETS AND LIABILITIES IN 684 (26,994,864)
FOREIGN CURRENCIES
NET GAIN (LOSS) 21,744,640
NET INCREASE (DECREASE) IN NET $ 54,776,414
ASSETS RESULTING
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS $ 33,031,774 $ 28,700,407
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 48,739,504 17,712,684
CHANGE IN NET UNREALIZED (26,994,864) 33,510,799
APPRECIATION (DEPRECIATION)
NET INCREASE (DECREASE) IN 54,776,414 79,923,890
NET ASSETS RESULTING
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (33,064,721) (29,690,585)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (15,719,836) (12,650,000)
TOTAL DISTRIBUTIONS (48,784,557) (42,340,585)
SHARE TRANSACTIONS 467,138,900 256,470,143
NET PROCEEDS FROM SALES OF
SHARES
REINVESTMENT OF DISTRIBUTIONS 46,026,633 39,646,435
COST OF SHARES REDEEMED (390,443,714) (252,401,457)
NET INCREASE (DECREASE) IN 122,721,819 43,715,121
NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN 128,713,676 81,298,426
NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 647,402,493 566,104,067
END OF PERIOD (INCLUDING $ 776,116,169 $ 647,402,493
UNDISTRIBUTED NET INVESTMENT
INCOME OF $2,979,130 AND
$3,063,493, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 37,636,367 21,571,779
ISSUED IN REINVESTMENT OF 3,745,437 3,364,019
DISTRIBUTIONS
REDEEMED (31,421,539) (21,232,901)
NET INCREASE (DECREASE) 9,960,265 3,702,897
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED
SEPTEMBER
30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 12.36 $ 11.63 $ 11.46 $ 10.69 $ 11.07
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
NET INVESTMENT .57 B .56 B .61 .56 .45
INCOME
NET REALIZED .39 1.02 .20 .68 (.29)
AND UNREALIZED
GAIN (LOSS)
TOTAL FROM .96 1.58 .81 1.24 .16
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.58) (.59) (.64) (.47) (.47)
INVESTMENT
INCOME
FROM NET (.29) (.26) - - (.04)
REALIZED GAIN
IN EXCESS OF NET - - - - (.03)
REALIZED GAIN
TOTAL (.87) (.85) (.64) (.47) (.54)
DISTRIBUTIONS
NET ASSET VALUE, $ 12.45 $ 12.36 $ 11.63 $ 11.46 $ 10.69
END OF PERIOD
TOTAL RETURN A 8.06% 14.16% 7.28% 11.99% 1.46%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 776,116 $ 647,402 $ 566,104 $ 566,079 $ 501,349
OF PERIOD
(000 OMITTED)
RATIO OF EXPENSES .71% .77% .82% .79% .71% C
TO AVERAGE
NET ASSETS
RATIO OF EXPENSES .69% D .76% D .80% D .79% .71%
TO AVERAGE
NET ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF NET 4.62% 4.74% 5.03% 5.15% 4.92%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 156% 112% 148% 157% 83%
RATE
</TABLE>
A 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).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C 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.
D 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).
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
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, 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, futures
transactions, foreign currency transactions, market discount,
partnerships 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
repurchase agreements for U.S. Treasury or Federal Agency obligations.
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the SEC, the fund may invest in the Taxable Central Cash Fund (the
Cash Fund) managed by Fidelity Investments Money Management, 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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market. Buying futures tends to increase the
fund's exposure to the underlying instrument, while selling futures
tends to decrease the fund's exposure to the underlying instrument or
hedge other fund investments. Losses may arise from changes in the
value of the underlying instruments or if the counterparties do not
perform under the contracts' terms. Gains (losses) are realized upon
the expiration or closing of the futures contracts. Futures contracts
are valued at the settlement price established each day by the board
of trade or exchange on which they are traded.
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
2. OPERATING POLICIES -
CONTINUED
RESTRICTED SECURITIES - CONTINUED
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 $983,607,207 and $895,280,181, respectively, of which U.S.
government and government agency obligations aggregated $539,682,244
and $497,246,493, respectively.
The market value of futures contracts opened and closed during the
period amounted to $15,194,736 and $15,111,507, 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 annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .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 $40,394 for the
period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund
5. BANK BORROWINGS -
CONTINUED
must pledge to the bank securities having a market value in excess of
220% of the total bank borrowings. The interest rate on the borrowings
is the bank's base rate, as revised from time to time. The maximum
loan and the average daily loan balance during the period for which
the loan was outstanding amounted to $7,000,000. The weighted average
interest rate was 5.79%.
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 $59,522 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 $3,790 and $66,006, respectively, under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Asset Manager: Income:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, 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
Asset Manager: Income (a fund of Fidelity Charles Street Trust) at
September 30, 1998, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fidelity
Asset Manager: Income's management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included
confirmation of securities at September 30, 1998 by correspondence
with the custodian and brokers, provide a reasonable basis for the
opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 1998
DISTRIBUTIONS
The Board of Trustees of Asset Manager: Income voted to pay to
shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales
of portfolio securities and dividends from net investment income.
PAY DATE 12/8/1997
RECORD DATE 12/5/1997
DIVIDENDS $.10
SHORT-TERM
CAPITAL GAINS $.11
LONG-TERM
CAPITAL GAINS $.18
LONG-TERM
CAPITAL GAIN PERCENTAGES:
28% rate 54.16%
20% rate 45.84%
A total of 9.91% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 5.63% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PC_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PC_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
8880 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(registered trademark) -
Income, 2000, 2010, 2020, 2030
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
(for the deaf and hearing impaired)
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress(registered trademark)(AUTOMATED GRAPHIC)
1-800-544-5555
(AUTOMATED GRAPHIC)AUTOMATED LINE FOR QUICKEST SERVICE
AMI-ANN-1198 64295
1.537737.101
(FIDELITY LOGO GRAPHIC)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
FIDELITY
ASSET MANAGER SM
ANNUAL REPORT
SEPTEMBER 30, 1998
(2 fidelity logo graphics)(registered trademark)
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 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 47 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 51 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 57 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 58
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will
greatly reduce your vulnerability to any single decline. We know from
experience, for example, that stock prices have gone up over longer
periods of time, have significantly outperformed other types of
investments and have stayed ahead of inflation.
Second, you can further manage your investing risk through
diversification. Asset Manager funds are already diversified because
they invest in stocks, bonds and short-term and money market
instruments, both in the U.S. and overseas. If you have a shorter
investment time horizon, you might want to consider moving some of
your investment into Asset Manager: Income, which generally has a
higher weighting in short-term investments compared with the other
Asset Manager funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
FIDELITY 5.34% 65.94% 224.25%
ASSET
MANAGER
FIDELITY ASSET 10.26% 79.01% N/A
ALLOC.
COMPOSITE
S&P 9.05% 147.93% 379.18%
500 (REGISTERED TRADEMARK)
LB 11.51% 41.66% N/A
AGGREGATE
BOND
LB 3 5.50% 29.17% N/A
MONTH
T-BILL
FLEXIBLE 2.20% 74.61% N/A
PORTFOLIO FUNDS
AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on 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 one year average
represents a peer group of 196 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 PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, 1998 YEAR YEARS FUND
FIDELITY ASSET 5.34% 10.66% 12.81%
MANAGER
FIDELITY ASSET 10.26% 12.35% N/A
ALLOC. COMPOSITE
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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Asset Manager S&P 500 FID Composite LB Aggregate Bond
00314 SP001 F0001 LB001
1988/12/31 10000.00 10000.00 10000.00 10000.00
1989/01/31 10378.86 10732.00 10291.00 10144.00
1989/02/28 10219.34 10464.77 10197.15 10070.96
1989/03/31 10309.07 10708.60 10317.27 10114.27
1989/04/30 10578.27 11264.38 10591.40 10325.66
1989/05/31 10887.34 11720.59 10843.16 10597.22
1989/06/30 11006.98 11653.78 11000.71 10919.38
1989/07/31 11326.02 12706.12 11417.74 11151.96
1989/08/31 11355.93 12955.15 11428.48 10986.91
1989/09/30 11355.93 12902.04 11455.90 11042.94
1989/10/31 11405.78 12602.71 11522.01 11314.60
1989/11/30 11485.54 12859.81 11660.61 11422.09
1989/12/31 11527.69 13168.44 11773.72 11452.93
1990/01/31 11158.89 12284.84 11489.86 11316.64
1990/02/28 11243.19 12443.31 11563.62 11352.85
1990/03/31 11359.10 12773.06 11677.41 11360.80
1990/04/30 11169.43 12453.74 11568.93 11256.28
1990/05/31 11759.51 13667.97 12063.04 11589.47
1990/06/30 11854.35 13575.03 12138.55 11776.06
1990/07/31 11843.81 13531.59 12214.42 11938.57
1990/08/31 11443.39 12308.34 11836.99 11778.59
1990/09/30 11211.58 11708.92 11732.94 11876.35
1990/10/31 11243.19 11658.57 11816.72 12027.18
1990/11/30 11780.58 12411.72 12171.45 12285.77
1990/12/31 12147.79 12758.00 12375.20 12477.42
1991/01/31 12795.97 13314.25 12612.31 12632.14
1991/02/28 13354.74 14266.22 12928.50 12739.52
1991/03/31 13578.25 14611.46 13072.01 12827.42
1991/04/30 13790.59 14646.53 13159.33 12965.95
1991/05/31 14137.03 15279.26 13368.30 13041.16
1991/06/30 13835.29 14579.47 13195.05 13034.64
1991/07/31 14204.08 15258.87 13460.27 13215.82
1991/08/31 14528.17 15620.51 13701.07 13501.28
1991/09/30 14550.52 15359.65 13767.80 13775.36
1991/10/31 14662.28 15565.47 13892.40 13928.26
1991/11/30 14405.24 14938.18 13800.43 14056.40
1991/12/31 15019.76 16647.11 14483.69 14473.88
1992/01/31 15236.74 16337.47 14324.82 14277.03
1992/02/29 15526.05 16549.86 14415.92 14369.83
1992/03/31 15526.05 16227.13 14310.83 14289.36
1992/04/30 15743.03 16704.21 14490.29 14392.25
1992/05/31 15899.73 16786.06 14632.19 14664.26
1992/06/30 15899.73 16535.95 14639.36 14866.63
1992/07/31 16225.20 17212.27 15039.10 15169.91
1992/08/31 16152.88 16859.42 14981.08 15323.12
1992/09/30 16273.42 17058.36 15149.80 15505.47
1992/10/31 16249.31 17118.06 15079.20 15299.24
1992/11/30 16610.94 17701.79 15270.71 15302.30
1992/12/31 16934.14 17919.52 15451.18 15545.61
1993/01/31 17225.45 18070.05 15645.18 15844.09
1993/02/28 17402.77 18315.80 15862.99 16121.36
1993/03/31 17975.71 18702.26 16026.45 16189.07
1993/04/30 18052.42 18249.67 15929.04 16302.39
1993/05/31 18435.97 18738.76 16099.89 16323.58
1993/06/30 18668.08 18793.10 16271.19 16619.04
1993/07/31 18951.91 18717.93 16292.28 16713.77
1993/08/31 19493.76 19427.34 16693.27 17006.26
1993/09/30 19481.53 19277.75 16676.91 17052.18
1993/10/31 20054.14 19676.80 16848.35 17115.27
1993/11/30 20015.09 19489.87 16718.78 16969.79
1993/12/31 20877.83 19725.69 16835.95 17061.43
1994/01/31 21555.68 20396.37 17167.48 17291.76
1994/02/28 20877.83 19843.63 16839.86 16990.88
1994/03/31 19867.84 18978.44 16404.98 16571.21
1994/04/30 19854.17 19221.37 16446.23 16438.64
1994/05/31 20018.25 19536.60 16557.01 16436.99
1994/06/30 19577.74 19057.95 16393.43 16400.83
1994/07/31 19962.97 19683.05 16740.57 16727.21
1994/08/31 20430.74 20490.06 17028.41 16747.28
1994/09/30 20182.51 19988.05 16779.05 16501.09
1994/10/31 20279.40 20437.78 16940.26 16486.24
1994/11/30 19974.87 19693.44 16692.49 16449.97
1994/12/31 19499.59 19985.49 16849.63 16563.48
1995/01/31 19344.50 20503.72 17166.04 16891.44
1995/02/28 19640.59 21302.75 17596.46 17293.45
1995/03/31 19953.26 21931.39 17866.53 17398.94
1995/04/30 20364.82 22577.27 18188.34 17642.53
1995/05/31 20847.33 23479.68 18791.94 18325.29
1995/06/30 21133.35 24025.12 19045.37 18459.07
1995/07/31 21718.80 24821.79 19288.08 18418.46
1995/08/31 21861.60 24884.09 19416.00 18641.32
1995/09/30 22219.16 25934.20 19835.62 18822.14
1995/10/31 22147.35 25841.62 19948.68 19066.83
1995/11/30 22563.87 26976.06 20440.58 19352.83
1995/12/31 23039.92 27495.62 20738.15 19623.77
1996/01/31 23534.15 28431.57 21091.65 19753.29
1996/02/29 23417.86 28695.13 21013.65 19409.58
1996/03/31 23419.07 28971.47 21038.24 19273.71
1996/04/30 23623.99 29398.51 21126.64 19165.78
1996/05/31 23872.82 30156.69 21349.66 19127.45
1996/06/30 24006.08 30271.59 21509.31 19383.76
1996/07/31 23548.68 28934.19 21168.86 19436.09
1996/08/31 23696.23 29544.41 21349.30 19403.05
1996/09/30 24523.08 31207.17 21989.95 19740.67
1996/10/31 25147.68 32067.87 22445.85 20178.91
1996/11/30 26337.40 34491.88 23299.15 20523.97
1996/12/31 25972.41 33808.59 23039.08 20333.09
1997/01/31 26760.88 35920.96 23797.99 20396.13
1997/02/28 26981.65 36202.58 23924.36 20447.12
1997/03/31 25961.97 34715.01 23336.66 20220.15
1997/04/30 26852.28 36787.50 24184.71 20523.46
1997/05/31 28171.84 39027.12 25025.61 20718.43
1997/06/30 28891.29 40775.54 25714.32 20964.98
1997/07/31 30541.76 44020.05 27028.71 21531.03
1997/08/31 29724.53 41554.04 26192.17 21348.02
1997/09/30 30689.57 43829.96 27076.55 21663.97
1997/10/31 30302.12 42366.04 26793.06 21978.10
1997/11/30 31077.03 44327.16 27474.00 22079.20
1997/12/31 31757.66 45088.26 27832.67 22302.20
1998/01/31 32017.26 45586.93 28142.45 22587.67
1998/02/28 33436.41 48874.66 29158.68 22569.60
1998/03/31 34150.13 51377.53 29958.64 22646.33
1998/04/30 33888.64 51894.39 30185.13 22764.09
1998/05/31 33540.00 51002.33 30053.98 22980.35
1998/06/30 34328.81 53074.04 30779.48 23175.68
1998/07/31 34434.22 52508.80 30654.98 23224.35
1998/08/31 30990.80 44917.08 28652.90 23602.91
1998/09/30 32328.02 47794.47 29854.03 24155.22
IMATRL PRASUN SHR__CHT 19980930 19981006 111711 R00000000000120
</TABLE>
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Asset Manager Fund on December 31, 1988, shortly
after the fund started. As the chart shows, by September 30, 1998, the
value of the investment would have grown to $32,328 - a 223.28%
increase on the initial investment. For comparison, look at how both
the S&P 500 Index, 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 Index would
have grown to $47,794 - a 377.94% increase. If $10,000 was invested in
the Lehman Brothers Aggregate Bond Index, it would have grown to
$24,155 - a 141.55% 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 Index (+377.94%), the Lehman
Brothers Aggregate Bond Index (+141.55%) and the Lehman Brothers 3
Month T-Bill Index (+70.10%) 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 $29,854 - a 198.54% increase.
(checkmark)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.
* CURRENTLY 50% STOCKS, 40% BONDS AND 10% SHORT-TERM/MONEY MARKET
INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 40%, 40% AND 20%, RESPECTIVELY,
BETWEEN JUNE 1, 1992 AND DECEMBER 31, 1996; 30%, 40%, AND 30%,
RESPECTIVELY, PRIOR TO JUNE 1, 1992.
MARKET RECAP
Against a backdrop of financial and economic instability in many of
the world's developed and emerging markets on the one hand, and a
resilient domestic economy on the other, the U.S. stock and bond
markets experienced extreme volatility during the 12-month period that
ended September 30, 1998.
STOCKS: The 12-month period that drew to a close on September 30,
1998, is one equity investors will remember for years to come. The
period began as it ended: with unusually volatile markets. In October
1997, the Dow Jones Industrial Average - an index of 30 blue-chip
stocks - tumbled over 550 points in one day on the news of worsening
economic conditions in Asia. The Dow rebounded the following day,
however, rising 330 points as investors focused on higher-quality
stocks with strong liquidity and minimal international exposure. This
trend continued in the first and second quarters of 1998, as U.S.
economic growth chugged along on the rails of near-record lows for
inflation, unemployment and interest rates. Unfortunately, emerging
markets - particularly in Russia and Latin America - seemed to catch
the so-called "Asian contagion," causing a free-fall in the U.S. stock
market. On August 31, the Dow plunged 512.61 points - erasing all
previous gains for the year. Appropriately, the Dow closed on
September 30 with a 237.90 loss, triggered by investor disappointment
over a lower-than-hoped-for reduction in the federal funds rate. For
the 12-month period ending September 30, 1998, the Dow eked out a
barely positive gain of 0.40%, while the Standard & Poor's 500 Index -
a market-capitalization weighted index of 500 widely held U.S. stocks
- - returned 9.05%.
BONDS: As a safe haven from turbulent stock markets worldwide, bond
markets reaped the benefits from the flight to quality by anxious
investors during the 12-month period ending September 30, 1998. The
Lehman Brothers Aggregate Bond Index - a broad measure of the U.S.
taxable investment-grade bond market - returned 11.51% over the past
year, over two and one-half times higher than the 4.54% return
generated for the six-month period ending March 31, 1998. The buying
surge sent Treasury-bond yields - which move in the opposite direction
of bond prices - to their lowest level in over three decades, as the
yield on the benchmark 30-year bond fell to 4.96%. In spite of the
global economic crisis that dominated the period, the U.S. enjoyed low
interest rates, low inflation and a stable economy, which aided the
performance of corporate bonds. The Lehman Brothers Corporate Bond
Index returned 11.07% for the 12-month period. Mortgage-backed bonds
also performed well, although lower interest rates resulted in higher
refinancing activity. The Lehman Brothers Mortgage Backed Securities
Index had a 12-month return of 8.62%. Interest rates fell even lower
late in the period, as the Federal Reserve lowered the fed funds rate
by 0.25%, the first rate cut in nearly three years. The period's
biggest losers were shareholders of emerging-market debt, as the JP
Morgan Emerging Markets Bond Index lost 20.89% over the past 12
months.
FUND TALK: THE MANAGER'S OVERVIEW
(PHOTOGRAPH OF RICHARD HABERMANN)
An interview with Richard Habermann, Portfolio Manager of Fidelity
Asset Manager
Q. HOW DID THE FUND PERFORM, DICK?
A. For the 12-month period that ended September 30, 1998, the fund
returned 5.34%. That trailed the 10.26% return of the Fidelity Asset
Allocation Composite Index, but beat the 2.20% return of the flexible
portfolio funds average, according to Lipper Analytical Services. The
fund's competitive performance relative to its peer group was due in
large part to Asset Manager's balanced approach to asset allocation.
Many funds within the peer group were fairly aggressive in terms of
asset allocation and security exposure - factors that detracted from
peer group performance late in the period as equity markets stumbled.
In contrast, Asset Manager's comparatively high bond allocation
benefited the fund's performance relative to its peers.
Q. WHAT WAS YOUR STRATEGY IN TERMS OF ASSET ALLOCATION?
A. The fund's neutral mix generally calls for 50% to be invested in
stocks, 40% in bonds and 10% in short-term/money market instruments.
Given the market volatility we witnessed throughout the period,
however - particularly during the past six months - the percentage in
stocks was scaled back and the fund's exposure to bonds was increased.
This decision was made during the summer months based on a belief that
global market turmoil could creep into U.S. corporate circles and have
a negative impact on earnings growth. In retrospect, this turned out
to be a sound strategy. Another adjustment was made during the last
month of the period, when the fund's stock exposure was ramped back up
based on two factors. First, equity valuations generally improved as
many markets observed significant declines late in the period. Second,
the U.S. Federal Reserve Board appeared ready to stoke the economy by
lowering interest rates, which it eventually did in late September.
Whenever investors are given reason to be confident, stocks generally
perform well. Overall, I was happy with these allocation shifts.
Q. HOW DID THE FUND'S EQUITY SUBPORTFOLIO PERFORM DURING THE PERIOD?
A. In terms of the fund's equity positions - which are managed by Tom
Sprague - industry selection was positive but individual security
selection within those industries hurt performance relative to the
Standard & Poor's 500 Index. For instance, the fund was
well-represented in the technology sector, but while technology stocks
accounted for approximately one-fourth of the S&P 500's gain, Asset
Manager's technology positions were largely a drag on performance.
Looking back on the period, we simply didn't own enough of the names
that did really well. The fund had positions in strong performers such
as Microsoft, for example, but not enough to positively influence
performance relative to the S&P 500. Some of the individual
disappointments included French telecommunications equipment company
Alcatel, as well as multi-franchise business and consumer services
company Cendant. Lastly, the fund's exposure to pharmaceutical stocks
in general was beneficial as interest in defensive areas of the market
peaked towards the end of the period.
Q. WHICH EQUITY INVESTMENTS BENEFITED THE FUND'S PERFORMANCE?
A. Home mortgage financers Fannie Mae and Freddie Mac continued their
strong run during the period. Many homeowners took advantage of the
lower interest rates prevalent in the U.S. to refinance their
mortgages. Both companies benefited from increased refinancing volume,
as well as attractive yield spreads between mortgage-related bonds and
Treasury bonds. Another strong performer was retail-store chain
Wal-Mart, which benefited from strong consumer spending.
Q. WHAT ABOUT THE BOND PORTION OF THE FUND?
A. While turning in positive returns, the fund's fixed-income
investments lagged the fixed-income benchmark during the period. There
were two primary reasons for this. First, the fund's tactical
allocation toward high-yield securities - which are managed by Fred
Hoff - benefited performance throughout much of the period but proved
a net negative down the stretch as the market corrected. Second, the
fund's investment-grade bond exposure - which is overseen by Charlie
Morrison - was overweighted in corporate and mortgage-backed bonds,
both of which underperformed as a flight to quality caused U.S.
Treasuries to outperform all other fixed-income sectors. During the
last two months of the period, this flight to quality was spurred
primarily by the ongoing troubles in overseas markets. Simultaneously,
stock investors became concerned with their risk exposure and many
opted for more conservative investments. As a result, U.S. Treasury
bonds benefited tremendously. While corporate and mortgage-backed
securities performed well over the period, they were unable to keep
pace with Treasuries.
Q. WHAT WAS YOUR STRATEGY WITH RESPECT TO THE FUND'S SHORT-TERM/MONEY
MARKET INVESTMENTS?
A. Unlike six months ago, when we were focusing on investments with
shorter maturities, the unpredictability of the stock market caused us
to take a somewhat longer-term approach. John Todd, who manages the
fund's short-term/money market subportfolio, began to look at
securities with one-year maturities during the second half of the
period. As uncertainty continued to prevail in the financial markets,
however, John began to look more closely at the three- to six-month
range. Throughout the summer months, it appeared unlikely that the Fed
would take action and cut interest rates, yet the market itself had
been pricing in a potential rate tightening. On average the fund's
short-term investments were longer in maturity than the three-month
Treasury bill benchmark and had more exposure to higher-yielding
investments. This helped relative performance during the period.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD?
A. I think it's important that shareholders of the fund understand
that the market is going to go through this sort of volatility every
now and then. The returns we've seen
over the past year are much closer to the market's historical yearly
average than the 20% returns some investors have become accustomed to.
Should the Fed lower interest rates again - thus making it easier for
corporations to borrow or raise capital - we could see increased
growth and better valuations across the board. In terms of equities,
we may also begin to see more stocks participate in the market's
gains. This would be an attractive development and would play nicely
to our stock-picking strengths.
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.
(CHECKMARK)FUND FACTS
GOAL: HIGH TOTAL RETURN WITH
REDUCED RISK OVER THE LONG TERM
BY ALLOCATING ASSETS AMONG
STOCKS, BONDS AND SHORT-TERM
AND MONEY MARKET INSTRUMENTS
OF ALL TYPES
FUND NUMBER: 314
TRADING SYMBOL: FASMX
START DATE: DECEMBER 28, 1988
SIZE: AS OF SEPTEMBER 30, 1998,
MORE THAN $11.5 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
DICK HABERMANN ON THE
CONCERNS POSED BY HEDGE
FUNDS:
"THERE'S BEEN A LOT OF TALK ABOUT HEDGE
FUNDS LATELY, PARTICULARLY WITH THE
RECENT NEAR-COLLAPSE OF LONG-TERM
CAPITAL MANAGEMENT. NOT ALL INVESTORS
MAY BE FAMILIAR WITH HOW THESE TYPES OF
FUNDS OPERATE, NOR HOW THEY CAN
POTENTIALLY AFFECT OTHER TYPES OF
INVESTMENTS SUCH AS MUTUAL FUNDS.
"A HEDGE FUND SEEKS TO TAKE ADVANTAGE
OF INEFFICIENCIES IN CAPITAL MARKETS. THIS
COULD BE IN STOCKS, BONDS,
EMERGING-MARKET DEBT OR OTHER
INVESTMENTS. HEDGE FUNDS CAN BE HIGHLY
LEVERAGED AND TYPICALLY TAKE AMPLE
INVESTMENT RISKS. OF COURSE, THE
ATTRACTIVENESS TO INVESTORS IS THE
POTENTIALLY LUCRATIVE RETURNS THEY CAN
PROVIDE.
"IN THE CASE OF LONG-TERM CAPITAL, THE
FUND HAD RATHER EXTREME LEVERAGE WITHIN
ITS BOND ALLOCATION. UNFORTUNATELY, THE
MARKET TURMOIL LATE IN THE PERIOD FORCED
FIRMS SUCH AS LONG-TERM CAPITAL TO
`UNWIND' SOME OF THESE LEVERAGED
STRATEGIES BY SELLING LARGE AMOUNTS OF
SECURITIES. AFTER REALIZING THAT SUCH A
CONTINUING GLUT OF SUPPLY HITTING THE
MARKETS WOULD BE PARALYZING, A NUMBER
OF ENTITIES COLLABORATED ON A FINANCIAL
PLAN TO ASSIST LONG-TERM CAPITAL.
"WHAT DOES THIS TYPE OF SITUATION MEAN
FOR FUNDS SUCH AS THE ASSET MANAGERS?
WELL, IF LONG-TERM CAPITAL HAD UNLEASHED
ALL OF ITS BOND HOLDINGS, IT WOULD HAVE PUT
INCREDIBLE LIQUIDITY PRESSURE ON SOME OF
THE SECTORS IN WHICH WE INVEST. INVESTORS
ALSO WOULD HAVE HAD DIFFICULTY
DETERMINING WHETHER PRICING WAS FAIR
OR NOT. IN ESSENCE, THIS ONE SITUATION
COULD HAVE PLUNGED THE U.S. DIRECTLY
INTO A CAPITAL MARKETS `FREEZE.'
FORTUNATELY, IT DIDN'T COME TO THAT, AND
IN THE END, INVESTORS HOPEFULLY BECAME
MORE EDUCATED ABOUT THE RISKS HEDGE
FUNDS TAKE."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE STOCKS AS OF SEPTEMBER 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS IN
INVESTMENTS THESE STOCKS 6 MONTHS AGO
PHILIP MORRIS 1.7 3.1
COMPANIES, INC.
MERCK & CO., INC. 1.5 0.2
BRISTOL-MYERS SQUIBB 1.2 0.0
CO.
MICROSOFT CORP. 1.0 0.3
GENERAL ELECTRIC CO. 1.0 0.4
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE BONDS ISSUERS AS OF SEPTEMBER 30,
1998
(WITH MATURITIES MORE % OF FUND'S % OF FUND'S INVESTMENTS IN
THAN ONE YEAR) INVESTMENTS THESE ISSUERS 6 MONTHS AGO
FANNIE MAE 5.1 6.2
U.S. TREASURY 2.6 2.7
GOVERNMENT 1.9 0.7
NATIONAL MORTGAGE
ASSOCIATION
FREDDIE MAC 0.7 0.7
FORD MOTOR CREDIT 0.6 0.6
CO.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE MARKET SECTORS AS OF SEPTEMBER 30,
1998
% OF FUND'S % OF FUND'S INVESTMENTS IN
INVESTMENTS THESE MARKET SECTORS
6 MONTHS AGO
FINANCE 13.3 18.5
TECHNOLOGY 10.0 6.2
HEALTH 8.9 5.2
MEDIA & LEISURE 8.2 7.2
UTILITIES 5.6 8.4
</TABLE>
ASSET ALLOCATION
AS OF SEPTEMBER 30, 1998 *
ROW: 1, COL: 1, VALUE: 49.0
ROW: 1, COL: 2, VALUE: 38.0
ROW: 1, COL: 3, VALUE: 13.0
STOCK CLASS 49%
BOND CLASS 38%
SHORT-TERM CLASS 13%
*FOREIGN
INVESTMENTS 6%
AS OF MARCH 31, 1998 **
ROW: 1, COL: 1, VALUE: 57.0
ROW: 1, COL: 2, VALUE: 34.0
ROW: 1, COL: 3, VALUE: 9.0
STOCK CLASS 57%
BOND CLASS 34%
SHORT-TERM CLASS 9%
**FOREIGN
INVESTMENTS 9%
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 SEPTEMBER 30, 1998
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 47.6%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.2%
AEROSPACE & DEFENSE - 0.8%
AlliedSignal, Inc. 581,480 $ 20,570
Gulfstream 939,700 37,823
Aerospace
Corp. (a)
Sundstrand Corp. 658,400 30,533
88,926
DEFENSE ELECTRONICS - 0.2%
Raytheon Co.:
Class A 324,299 16,803
Class B 117,800 6,354
23,157
SHIP BUILDING & REPAIR - 0.2%
General Dynamics 506,100 25,400
Corp.
TOTAL AEROSPACE & DEFENSE 137,483
BASIC INDUSTRIES - 1.0%
CHEMICALS & PLASTICS - 0.3%
Cytec Industries, 103,800 1,855
Inc. (a)
du Pont (E.I.) de 134,800 7,566
Nemours & Co.
Great Lakes 510,300 19,838
Chemical Corp.
29,259
METALS & MINING - 0.2%
Aluminum Co. of 400,000 28,400
America
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, 2,029,300 50,733
Inc. (a)
PAPER & FOREST PRODUCTS - 0.1%
Stone Container 982,700 8,476
Corp. (a)
TOTAL BASIC INDUSTRIES 116,868
CONSTRUCTION & REAL ESTATE - 0.2%
BUILDING MATERIALS - 0.1%
Masco Corp. 703,600 17,326
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Starwood Hotels & 365,000 11,133
Resorts Trust
TOTAL CONSTRUCTION & REAL 28,459
ESTATE
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 0.7%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Federal-Mogul Corp. 418,300 $ 19,556
CONSUMER ELECTRONICS - 0.1%
Black & Decker 293,100 12,200
Corp.
HOME FURNISHINGS - 0.4%
Leggett & Platt, Inc. 2,171,400 45,057
TEXTILES & APPAREL - 0.0%
Arena Brands 130,444 3,261
Holdings Corp.
Class B
TOTAL DURABLES 80,074
ENERGY - 2.5%
ENERGY SERVICES - 0.3%
Halliburton Co. 1,134,500 32,404
OIL & GAS - 2.2%
Anadarko Petroleum 333,400 13,107
Corp.
British Petroleum Co. 417,678 36,442
PLC ADR
Coastal Corp. (The) 1,078,600 36,403
Occidental Petroleum 647,100 13,913
Corp.
Royal Dutch 457,100 21,769
Petroleum Co. (NY
Registry Gilder
1.25)
Texaco, Inc. 406,300 25,470
Tosco Corp. 1,068,000 22,962
Total SA:
Class B 79,703 10,008
sponsored ADR 506,572 31,819
USX-Marathon 928,700 32,911
Group
Valero Energy Co. 772,400 15,351
260,155
TOTAL ENERGY 292,559
FINANCE - 6.9%
BANKS - 1.7%
Bank of New York 1,778,400 48,684
Co., Inc.
Citicorp 668,200 62,101
NationsBank Corp. 874,800 46,802
Norwest Corp. 700,000 25,069
U.S. Bancorp 410,100 14,584
197,240
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 1.5%
American Express 284,200 $ 22,061
Co.
Associates First 479,000 31,255
Capital Corp.
Fleet Financial 1,069,734 78,559
Group, Inc.
Household 1,080,700 40,526
International, Inc.
Providian Financial 100,000 8,481
Corp.
180,882
FEDERAL SPONSORED CREDIT - 1.3%
Fannie Mae 1,767,300 113,549
Freddie Mac 852,200 42,131
155,680
INSURANCE - 2.0%
AFLAC, Inc. 1,070,200 30,568
Allstate Corp. 406,326 16,939
AMBAC, Inc. 1,272,200 61,066
American 309,938 23,865
International
Group, Inc.
MBIA, Inc. 463,900 24,906
MGIC Investment 180,000 6,638
Corp.
Progressive Corp. 120,000 13,530
Travelers Property 370,000 11,817
Casualty Corp.
Class A
UNUM Corp. 868,000 43,129
232,458
SAVINGS & LOANS - 0.4%
Ahmanson (H.F.) & 796,000 44,178
Co.
TOTAL FINANCE 810,438
HEALTH - 8.5%
DRUGS & PHARMACEUTICALS - 5.1%
American Home 1,083,400 56,743
Products Corp.
Amgen, Inc. (a) 100,000 7,556
Bristol-Myers Squibb 1,344,100 139,618
Co.
Lilly (Eli) & Co. 500,000 39,156
Merck & Co., Inc. 1,345,200 174,287
Pfizer, Inc. 391,000 41,422
Schering-Plough 990,200 102,548
Corp.
Warner-Lambert Co. 525,100 39,645
600,975
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 2.4%
Bergen Brunswig 744,800 $ 37,659
Corp. Class A
Biomet, Inc. 908,700 31,521
Cardinal Health, Inc. 380,100 39,245
Guidant Corp. 100,000 7,425
Johnson & Johnson 513,100 40,150
McKesson Corp. 410,300 37,594
Medtronic, Inc. 242,600 14,040
Omnicare, Inc. 1,522,300 53,661
Sofamor/Danek 286,700 25,516
Group, Inc. (a)
286,811
MEDICAL FACILITIES MANAGEMENT - 1.0%
Health Management 1,551,900 28,322
Associates, Inc.
Class A (a)
HEALTHSOUTH 1,808,600 19,103
Corp. (a)
Humana, Inc. (a) 1,273,900 20,860
Lincare Holdings, 430,000 16,663
Inc. (a)
Tenet Healthcare 1,072,800 30,843
Corp. (a)
115,791
TOTAL HEALTH 1,003,577
INDUSTRIAL MACHINERY & EQUIPMENT - 3.1%
ELECTRICAL EQUIPMENT - 1.2%
Alcatel Alsthom 107,400 9,125
Compagnie
Generale
d'Electricite SA
Alcatel Alsthom 507,000 8,619
Compagnie
Generale
d'Electricite SA
sponsored ADR
Emerson Electric Co. 140,000 8,715
General Electric Co. 1,456,300 115,867
142,326
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
Case Corp. 463,800 10,088
Ingersoll-Rand Co. 472,000 17,907
Tyco International 2,010,200 111,064
Ltd.
139,059
POLLUTION CONTROL - 0.7%
Waste Management, 1,800,345 86,529
Inc.
TOTAL INDUSTRIAL MACHINERY 367,914
& EQUIPMENT
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 2.2%
BROADCASTING - 0.7%
CBS Corp. 760,800 $ 18,449
Clear Channel 539,400 25,622
Communications,
Inc. (a)
Loral Orion Network
Systems, Inc.
warrants
1/15/07:
(CV ratio .47) (a) 8,520 72
(CV ratio .6) (a) 2,550 28
MediaOne Group, 458,000 20,352
Inc. (a)
Time Warner, Inc. 269,347 23,585
88,108
ENTERTAINMENT - 0.3%
Alliance Gaming 11,764 24
Corp. (a)(k)
Carnival Corp. 870,800 27,702
Premier Parks, 352,000 6,160
Inc. (a)
33,886
LODGING & GAMING - 0.2%
Aladdin Gaming 67,100 1
Enterprises, Inc.
warrants
3/1/10 (a)(f)
Fitzgeralds South, 1,640 0
Inc. warrants
3/15/99 (a)(f)
Harrah's 1,330,300 17,710
Entertainment,
Inc. (a)
17,711
PUBLISHING - 0.1%
Gannet Co., Inc. 200,000 10,713
RESTAURANTS - 0.9%
Darden Restaurants, 1,844,900 29,518
Inc.
Marriott 843,700 20,143
International, Inc.
Class A
McDonald's Corp. 730,400 43,596
Papa John's 306,500 10,115
International,
Inc. (a)
103,372
TOTAL MEDIA & LEISURE 253,790
NONDURABLES - 4.3%
BEVERAGES - 0.5%
PepsiCo, Inc. 1,914,800 56,367
FOODS - 1.0%
Heinz (H.J.) Co. 120,000 6,135
Hershey Foods Corp. 268,600 18,382
Quaker Oats Co. 575,000 33,925
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONDURABLES - CONTINUED
FOODS - CONTINUED
Ralston Purina Co. 555,700 $ 16,254
Sara Lee Corp. 798,000 43,092
117,788
HOUSEHOLD PRODUCTS - 1.2%
Avon Products, Inc. 497,400 13,958
Clorox Co. 268,600 22,160
Gillette Co. 1,138,400 43,544
Procter & Gamble 868,400 61,602
Co.
141,264
TOBACCO - 1.6%
Philip Morris 4,252,200 195,867
Companies, Inc.
TOTAL NONDURABLES 511,286
RETAIL & WHOLESALE - 3.5%
APPAREL STORES - 0.2%
Lamonts Apparel,
Inc.:
Class A warrants 401,276 100
1/31/08 (a)
Class A (a)(l) 645,784 404
Class B warrants 127,531 32
1/31/08 (a)
Payless ShoeSource, 471,100 19,492
Inc. (a)
20,028
DRUG STORES - 0.8%
CVS Corp. 748,400 32,789
Rite Aid Corp. 1,475,800 52,391
Walgreen Co. 100,000 4,406
89,586
GENERAL MERCHANDISE STORES - 1.1%
Consolidated Stores 893,350 17,532
Corp. (a)
Costco Companies, 380,000 18,003
Inc. (a)
Federated 448,600 16,318
Department Stores,
Inc. (a)
Saks Holdings, 1,216,675 27,299
Inc. (a)
Wal-Mart Stores, Inc. 849,300 46,393
125,545
GROCERY STORES - 0.9%
Albertson's, Inc. 330,000 17,861
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - CONTINUED
Meyer (Fred), Inc. (a) 413,000 $ 16,055
Safeway, Inc. (a) 1,649,400 76,491
110,407
RETAIL & WHOLESALE, MISCELLANEOUS - 0.5%
Bed Bath & Beyond, 570,000 13,324
Inc. (a)
Circuit City Stores, 755,000 25,151
Inc. - Circuit City
Group
Home Depot, Inc. 696,600 27,516
65,991
TOTAL RETAIL & WHOLESALE 411,557
SERVICES - 0.9%
ADVERTISING - 0.3%
Interpublic Group of 448,400 24,186
Companies, Inc.
Omnicom Group, 303,000 13,635
Inc.
37,821
EDUCATIONAL SERVICES - 0.2%
Apollo Group, Inc. 617,100 17,202
Class A (a)
SERVICES - 0.4%
AccuStaff, Inc. (a) 911,500 13,274
Cendant Corp. (a) 1,483,322 17,244
Computer Horizons 782,000 19,501
Corp. (a)
50,019
TOTAL SERVICES 105,042
TECHNOLOGY - 9.5%
COMMUNICATIONS EQUIPMENT - 0.7%
Aspect 878,100 21,074
Telecommunication
s Corp. (a)
Cisco Systems, 864,300 53,425
Inc. (a)
Globalstar 4,540 114
Telecommunication
s Ltd. warrants
2/15/04 (a)(f)
Lucent Technologies, 80,000 5,525
Inc.
80,138
COMPUTER SERVICES & SOFTWARE - 3.2%
America Online, Inc. 373,800 41,585
Automatic Data 288,800 21,588
Processing, Inc.
BMC Software, Inc. 385,400 23,148
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTER SERVICES & SOFTWARE - CONTINUED
Ciber, Inc. (a) 700,000 $ 14,131
CompUSA, Inc. (a) 767,600 13,289
Compuware 676,000 39,800
Corp. (a)
Equifax, Inc. 751,100 26,805
IMS Health, Inc. 332,400 20,588
Keane, Inc. (a) 415,100 14,580
Microsoft Corp. (a) 1,095,800 120,606
Shared Medical 384,300 20,440
Systems Corp.
SunGard Data 542,900 17,101
Systems, Inc. (a)
373,661
COMPUTERS & OFFICE EQUIPMENT - 2.8%
Comdisco, Inc. 3,324,700 45,299
Compaq Computer 850,000 26,881
Corp.
Comverse 308,200 12,598
Technology, Inc. (a)
EMC Corp. (a) 665,400 38,053
Fore Systems, Inc. (a) 2,478,900 41,212
International Business 555,200 71,066
Machines Corp.
Pitney Bowes, Inc. 1,178,400 64,296
Symbol Technologies, 593,500 30,454
Inc.
329,859
ELECTRONIC INSTRUMENTS - 0.3%
Applied Materials, 267,100 6,744
Inc. (a)
KLA-Tencor Corp. (a) 320,000 7,960
Novellus Systems, 230,600 6,053
Inc. (a)
Perkin-Elmer Corp. 79,500 5,461
Varian Associates, 400,000 14,100
Inc.
40,318
ELECTRONICS - 2.5%
Altera Corp. (a) 685,200 24,068
Analog Devices, 1,183,500 19,010
Inc. (a)
Intel Corp. 1,230,200 105,490
Linear Technology 587,000 29,350
Corp.
Maxim Integrated 365,200 10,180
Products, Inc. (a)
Micron Technology, 1,438,300 43,778
Inc. (a)
Sanmina Corp. (a) 736,500 20,714
Solectron Corp. (a) 258,100 12,389
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - CONTINUED
Vitesse 907,900 $ 21,449
Semiconductor
Corp. (a)
Xilinx, Inc. (a) 100,000 3,500
289,928
TOTAL TECHNOLOGY 1,113,904
TRANSPORTATION - 0.0%
TRUCKING & FREIGHT - 0.0%
CNF Transportation, 115,200 3,355
Inc.
UTILITIES - 3.1%
CELLULAR - 0.2%
McCaw International 22,840 114
Ltd. warrants
4/15/07 (a)(f)
Metrocall, Inc. (a) 3,300 16
SK Telecom Ltd. 24 11
Vodafone Group PLC 167,200 18,852
sponsored ADR
18,993
ELECTRIC UTILITY - 0.1%
PG&E Corp. 562,700 17,971
TELEPHONE SERVICES - 2.8%
AT&T Corp. 1,489,500 87,043
Bell Atlantic Corp. 250,000 12,109
Global TeleSystems 440,000 14,850
Group, Inc. (a)
MCI WorldCom, 2,355,786 115,139
Inc. (a)
Pathnet, Inc. 13,610 204
warrants
4/15/08 (a)(f)
Qwest 887,848 27,801
Communications
International,
Inc. (a)
SBC 798,980 35,505
Communications,
Inc.
Telebras sponsored 456,100 32,127
ADR (a)
WinStar 200,000 4,750
Communications,
Inc. (a)
329,528
TOTAL UTILITIES 366,492
TOTAL COMMON STOCKS 5,602,798
(Cost $5,232,990)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE PREFERRED STOCKS - 1.3%
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.2%
REAL ESTATE INVESTMENT TRUSTS - 0.2%
California Federal Preferred Capital Corp. $2.28 621,326 $ 15,844
Crown America Realty Trust Series A, $5.50 37,592 1,849
Walden Residential Properties, Inc. $2.30 141,900 3,317
21,010
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.0%
Fresenius Medical Care Capital Trust II 7.875% 3,769 3,536
INSURANCE - 0.1%
American Annuity Group Capital Trust II 8.75% 4,320 4,320
SIG Capital Trust I 9.5% 4,358 4,196
8,516
TOTAL FINANCE 12,052
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.5%
Adelphia Communications Corp. $13.00 31,848 3,678
CSC Holdings, Inc. 11.125% pay-in-kind 235,464 25,901
Echostar Communications Corp. 12.125% pay-in-kind 5,895 5,689
Granite Broadcasting Corp. 12.75% pay-in-kind 6,626 6,626
SFX Broadcasting, Inc. 12.625% pay-in-kind 39,011 4,642
Sinclair Capital 11.625% 82,440 8,656
55,192
PUBLISHING - 0.1%
PRIMEDIA, Inc.:
$9.20 68,349 6,630
Series D, $10.00 91,921 9,100
15,730
TOTAL MEDIA & LEISURE 70,922
RETAIL & WHOLESALE - 0.0%
GROCERY STORES - 0.0%
Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 70,123 1,455
NONCONVERTIBLE PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - 0.0%
COMMUNICATIONS EQUIPMENT - 0.0%
Intermedia Communications, Inc. 13.5% pay-in-kind 4,737 $ 5,211
UTILITIES - 0.4%
CELLULAR - 0.2%
Nextel Communications, Inc. 11.125% pay-in-kind 22,031 19,277
TELEPHONE SERVICES - 0.2%
Hyperion Telecommunication, Inc. 12.875% pay-in-kind 6,051 4,962
IXC Communications, Inc. 12.5% pay-in-kind 4,687 4,968
NEXTLINK Communications, Inc. 14% pay-in-kind 219,257 11,401
21,331
TOTAL UTILITIES 40,608
TOTAL NONCONVERTIBLE PREFERRED STOCKS 151,258
(Cost $153,760)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 20.9%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (B) AMOUNT (000S)
CONVERTIBLE BONDS - 0.1%
HEALTH - 0.0%
DRUGS & PHARMACEUTICALS - 0.0%
Integrated Process Equipment Corp. 6.25% B- $ 3,770 2,394
9/15/04 (f)
MEDICAL FACILITIES MANAGEMENT - 0.0%
Tenet Healthcare Corp. 6% 12/1/05 B1 3,420 2,864
TOTAL HEALTH 5,258
NONDURABLES - 0.1%
FOODS - 0.1%
Chiquita Brands International, Inc. 7% 3/28/01 B3 5,910 5,437
RETAIL & WHOLESALE - 0.0%
RETAIL & WHOLESALE, MISCELLANEOUS - 0.0%
Sports Authority, Inc. (The) 5.25% 9/15/01 B1 4,740 3,543
TOTAL CONVERTIBLE BONDS 14,238
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - 20.8%
AEROSPACE & DEFENSE - 0.3%
DEFENSE ELECTRONICS - 0.2%
Raytheon Co.:
5.95% 3/15/01 Baa1 $ 12,560 $ 12,775
6.45% 8/15/02 Baa1 16,920 17,600
30,375
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc. 9.25% B1 9,330 9,890
12/1/06
TOTAL AEROSPACE & DEFENSE 40,265
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.1%
Huntsman Corp. 9.5% 7/1/07 (f) B2 5,980 5,741
Praxair, Inc. 6.625% 10/15/07 A3 10,000 10,460
16,201
PACKAGING & CONTAINERS - 0.3%
Owens-Illinois, Inc.:
7.15% 5/15/05 Ba1 22,680 22,678
7.8% 5/15/18 Ba1 12,000 11,433
34,111
TOTAL BASIC INDUSTRIES 50,312
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.0%
American Standard Cos., Inc. Ba3 2,450 2,459
7.375% 4/14/05
CONSTRUCTION - 0.1%
U.S. Home Corp. 8.88% 8/15/07 B1 4,610 4,564
REAL ESTATE - 0.1%
LNR Property Corp. 9.375% 3/15/08 B1 7,380 6,808
REAL ESTATE INVESTMENT TRUSTS - 0.2%
CenterPoint Properties Corp. 6.75% 4/1/05 Baa2 4,360 4,330
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
EOP Operating LP:
6.375% 2/15/03 Baa1 $ 10,000 $ 9,994
6.75% 2/15/08 Baa1 4,520 4,498
Weeks Realty LP 6.875% 3/15/05 Baa2 8,200 8,024
26,846
TOTAL CONSTRUCTION & REAL ESTATE 40,677
DURABLES - 0.8%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Blue Bird Body Co. 10.75% 11/15/06 B2 3,580 3,696
Breed Technologies, Inc. 9.25% 4/15/08 (f) B3 8,695 7,173
Federal-Mogul Corp. 7.875% 7/1/10 Ba2 13,570 13,583
Oshkosh Truck Co. 8.75% 3/1/08 B3 5,610 5,330
29,782
CONSUMER DURABLES - 0.1%
Corning Consumer Products Co. 9.625% B3 9,000 7,245
5/1/08 (f)
HOME FURNISHINGS - 0.0%
Omega Cabinets Ltd. 10.5% 6/15/07 B3 3,620 3,186
TEXTILES & APPAREL - 0.5%
Levi Strauss & Co. 7% 11/1/06 (f) Baa2 31,050 30,299
Nine West Group, Inc. 9% 8/15/07 Ba3 3,640 3,130
Unifi, Inc. 6.5% 2/1/08 A3 8,120 8,131
WestPoint Stevens, Inc. 7.875% 6/15/08 Ba3 7,430 7,541
Worldtex, Inc. 9.625% 12/15/07 B1 9,220 8,206
57,307
TOTAL DURABLES 97,520
ENERGY - 0.5%
COAL - 0.1%
P&L Coal Holdings Corp. 9.625% 5/15/08 (f) B2 7,100 7,100
ENERGY SERVICES - 0.0%
Ocean Rig Norway AS 10.25% 6/1/08 (f) B3 4,750 3,598
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - 0.4%
Chesapeake Energy Corp. 9.625% 5/1/05 B1 $ 3,130 $ 2,739
Occidental Petroleum Corp.:
6.39% 11/9/00 Baa3 3,000 3,056
8.5% 11/9/01 Baa2 4,370 4,725
Oryx Energy Co.:
8% 10/15/03 Ba1 4,620 4,894
8.125% 10/15/05 Ba1 2,470 2,563
8.375% 7/15/04 Ba1 4,700 5,030
Petroleum Geo-Services ASA 7.125% 3/30/28 Baa3 11,650 11,242
Union Oil Co. of California 7.67% 4/19/02 Baa2 9,660 10,287
USX-Marathon Group 6.85% 3/1/08 Baa2 3,050 3,165
47,701
TOTAL ENERGY 58,399
FINANCE - 6.3%
BANKS - 1.8%
BankBoston Corp. 6.625% 2/1/04 A3 4,570 4,711
BankBoston NA (Bearer) 6.375% 3/25/08 A2 3,400 3,427
BanPonce Corp. 6.665% 3/5/01 A3 13,900 14,327
BanPonce Financial Corp. 7.72% 4/13/00 A3 7,000 7,229
Barclays Bank PLC yankee 5.95% 7/15/01 A1 24,650 25,088
Capital One Bank:
6.375% 2/15/03 Baa3 9,860 10,073
6.42% 11/12/99 Baa3 14,000 14,070
7.35% 6/20/00 Baa3 3,925 4,017
8.125% 3/1/00 Baa3 8,575 8,822
Capital One Financial Corp. 7.125% 8/1/08 Ba1 11,450 11,696
Citicorp 5.625% 2/15/01 Aa3 8,100 8,158
Den Danske Bank AS 6.375% 6/15/08 (f)(i) A1 22,050 22,568
Fleet Credit Card LLC 6.45% 10/30/00 A1 6,100 6,249
Fleet/Norstar Financial Group, Inc. 9.9% A3 6,400 7,140
6/15/01
Huntington National Bank 5.875% 1/15/01 A1 6,820 6,923
NationsBank NA 5.92% 6/8/01 Aa2 18,250 18,621
NB Capital Trust IV 8.25% 4/15/27 Aa2 6,625 7,275
Providian National Bank 6.7% 3/15/03 Baa3 8,450 8,866
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
BANKS - CONTINUED
Summit Bancorp 8.625% 12/10/02 BBB+ $ 5,500 $ 6,163
Union Planters National Bank 6.81% 8/20/01 A3 10,000 10,389
205,812
CREDIT & OTHER FINANCE - 3.7%
Ahmanson Capital Trust I 8.36% 12/1/26 (f) Baa2 13,000 14,272
Associates Corp. of North America 6% 4/15/03 Aa3 10,650 10,979
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 9,000 9,111
6.25% 5/15/01 Baa3 14,800 15,034
6.41% 8/13/99 Baa3 24,000 24,202
BankAmerica Capital II 8% 12/15/26 Aa2 8,200 8,859
BanPonce Trust I 8.327% 2/1/27 A3 20,520 20,983
BCH Cayman Islands Ltd. yankee 7.7% 7/15/06 A2 1,280 1,355
Countrywide Funding Corp. 6.45% 2/27/03 A3 10,900 11,309
ERP Operating LP 6.55% 11/15/01 A3 3,900 3,955
Farmers Insurance Exchange Capital 7.05% A2 7,240 7,314
7/15/28 (f)
Finova Capital Corp. 6.12% 5/28/02 Baa1 7,000 7,164
First Security Capital I 8.41% 12/15/26 A3 5,290 5,906
Ford Motor Credit Co.:
global 7% 9/25/01 A1 19,000 19,879
5.73% 2/23/00 A1 11,500 11,606
5.83% 2/28/00 A1 22,550 22,790
6.2% 3/12/01 A1 10,000 10,254
6.57% 3/19/01 A1 11,300 11,684
General Electric Capital Corp. 6.94% Aaa 22,500 22,662
4/13/09 (e)
General Motors Acceptance Corp. 6.75% A3 22,160 23,213
7/10/02
GS Escrow Corp.:
7% 8/1/03 (f) Ba1 5,700 5,692
7.125% 8/1/05 (f) Ba1 20,250 19,992
Heller Financial, Inc.:
6.25% 3/1/01 A3 13,690 13,966
7.875% 11/1/99 A3 15,530 15,917
KeyCorp Institutional Capital A 7.826% A1 11,420 12,178
12/1/26
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
Macsaver Financial Services, Inc. 7.6% 8/1/07 Ba1 $ 8,000 $ 5,960
Mellon Capital I 7.72% 12/1/26 A2 5,470 5,796
Money Store, Inc. 7.3% 12/1/02 A2 8,750 9,336
Morgan Guaranty Trust Co., NY 5.5438% - 29,000 28,986
9/27/99 (i)
Nordstrom Credit, Inc. 7.25% 4/30/02 A2 10,500 11,195
Premier Auto Trust 5.45% 6/8/99 - 29,000 29,073
Time Warner Telecom LLC/Time Warner Telecom, B2 1,830 1,830
Inc. 9.75% 7/15/08
U.S. Bancorp 8.09% 11/15/26 A1 8,200 8,950
UNICCO Service Co./UNICCO Finance Corp. B3 6,510 6,022
9.875% 10/15/07
437,424
SAVINGS & LOANS - 0.5%
Chevy Chase Savings Bank FSB 9.25% 12/1/08 B1 4,910 4,763
First Nationwide Parent Holdings Ltd. 12.5% Ba3 8,210 9,480
4/15/03
Great Western Finance Trust II 8.206% 2/1/27 A3 12,350 13,411
Great Western Financial Corp. 8.6% 2/1/02 A3 7,000 7,632
Home Savings of America FSB 6.5% 8/15/04 A3 8,080 8,388
Long Island Savings Bank FSB:
6.2% 4/2/01 Baa3 10,550 10,651
7% 6/13/02 Baa3 9,680 10,103
64,428
SECURITIES INDUSTRY - 0.3%
Amvescap PLC 6.375% 5/15/03 A3 6,150 6,320
Morgan Stanley, Dean Witter, Discover & Co. - 25,400 25,398
5.75% 1/15/99 (i)
31,718
TOTAL FINANCE 739,382
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
HEALTH - 0.4%
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Graham-Field Health Products, Inc. 9.75% Caa1 $ 6,340 $ 3,741
8/15/07
McKesson Corp. 6.6% 3/1/00 A3 13,610 13,848
17,589
MEDICAL FACILITIES MANAGEMENT - 0.2%
Fountain View, Inc. 11.25% 4/15/08 (f) Caa1 5,260 4,629
Integrated Health Services, Inc. 9.25% 1/15/08 B2 6,480 6,156
Magellan Health Services, Inc. 9% 2/15/08 (f) B3 3,550 3,035
Tenet Healthcare Corp.:
8.125% 12/1/08 (f) Ba3 3,480 3,506
8.625% 1/15/07 Ba3 9,690 10,029
27,355
TOTAL HEALTH 44,944
INDUSTRIAL MACHINERY & EQUIPMENT - 0.6%
ELECTRICAL EQUIPMENT - 0.0%
Motors & Gears, Inc. 10.75% 11/15/06 B3 1,170 1,147
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Bucyrus International, Inc. 9.75% 9/15/07 B1 9,950 7,463
Roller Bearing Holding, Inc. 0% 6/15/09 (d)(f) - 9,790 5,727
Thermadyne Manufacturing LLC 9.875% 6/1/08 B3 2,270 1,998
Tyco International Group SA yankee:
6.125% 6/15/01 Baa1 18,270 18,656
6.375% 6/15/05 Baa1 7,690 8,106
41,950
POLLUTION CONTROL - 0.2%
Envirosource, Inc. 9.75% 6/15/03 B3 2,400 2,196
WMX Technologies, Inc.:
6.25% 10/15/00 Baa3 5,750 5,853
7.1% 8/1/26 Baa3 13,025 13,988
8.25% 11/15/99 Baa3 3,675 3,788
25,825
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 68,922
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 5.4%
BROADCASTING - 3.7%
ACME Television LLC/ACME Financial Corp. 0% B3 $ 4,730 $ 3,666
9/30/04 (d)
Adelphia Communications Corp.:
9.5% 2/15/04 pay-in-kind B2 17,344 17,763
9.875% 3/1/07 B2 8,990 9,709
Allbritton Communications Co. 8.875% 2/1/08 B3 4,000 3,960
Ascent Entertainment Group, Inc. 0% B3 5,500 3,025
12/15/04 (d)
CBS Radio, Inc. 11.375% 1/15/09 pay-in-kind - 8,094 9,146
Century Communications Corp.:
0% 1/15/08 Ba3 29,330 13,858
8.75% 10/1/07 Ba3 3,230 3,392
Chancellor Media Corp. 9% 10/1/08 (f) Ba3 8,140 8,181
Classic Communications, Inc. 0% 8/1/08 Caa1 940 526
Unit (d)(f)
Clear Channel Communications, Inc. 6.875% Baa3 9,100 8,957
6/15/18
Comcast UK Cable Partners Ltd. 0% B2 9,190 7,582
11/15/07 (d)
Continental Cablevision, Inc.:
8.3% 5/15/06 Baa3 4,125 4,666
8.625% 8/15/03 Baa3 8,070 9,001
9% 9/1/08 Baa3 8,500 10,223
CSC Holdings, Inc.:
9.25% 11/1/05 B1 4,110 4,336
9.875% 5/15/06 B1 4,825 5,139
10.5% 5/15/16 B1 5,120 5,786
Diamond Cable Communications PLC yankee 0% Caa1 3,935 3,148
12/15/05 (d)
Echostar Communications Corp. 0% 6/1/04 (d) B2 3,830 3,706
Echostar Satellite Broadcasting Corp. 0% B3 3,180 2,830
3/15/04 (d)
Falcon Holdings Group LP/Falcon Funding:
0% 4/15/10 (d) B2 21,990 14,898
8.375% 4/15/10 B2 4,950 4,962
Fox/Liberty Networks LLC/FLN Finance, Inc. 0% B1 4,895 3,255
8/15/07 (d)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
FrontierVision Holdings LP/FrontierVision Caa1 $ 10,470 $ 8,428
Holdings Capital Corp. 0% 9/15/07 (d)
FrontierVision Operating Partners LP/ B3 13,060 14,301
FrontierVision Capital Corp. 11% 10/15/06
Granite Broadcasting Corp.:
8.875% 5/15/08 B3 6,840 6,413
9.375% 12/1/05 B3 8,290 8,103
10.375% 5/15/05 B3 2,450 2,487
Hearst-Argyle Television, Inc. 7.5% 11/15/27 Baa3 10,820 11,188
Intermedia Capital Partners IV LP / Intermedia B2 4,150 4,607
Partners IV Capital Corp. 11.25% 8/1/06
International Cabletel, Inc. 0% 2/1/06 (d) B3 5,560 4,392
Iridium Operating LLC/Iridium Capital Corp. B3 11,360 9,145
11.25% 7/15/05
Lenfest Communications, Inc. 8.25% 2/15/08 B2 2,430 2,454
LIN Holdings Corp. 0% 3/1/08 (d)(f) B3 930 608
NTL, Inc.:
0% 4/1/08 (d)(f) B3 22,350 13,466
10% 2/15/07 B3 6,340 6,403
Olympus Communications LP/Olympus Capital B1 3,530 3,883
Corp. 10.625% 11/15/06
Orion Network Systems, Inc.:
0% 1/15/07 (d) B2 4,800 3,000
11.25% 1/15/07 B2 2,020 1,869
Pegasus Communications Corp. 9.625% B3 3,610 3,466
10/15/05
Renaissance Media Group LLC/Renaissance 0% B3 6,655 4,475
4/15/08 (d)(f)
Rogers Cablesystems Ltd. yankee 11% 12/1/15 B2 5,370 6,068
Satelites Mexicanos SA de CV 10.125% B3 9,030 6,050
11/1/04 (f)
Sinclair Broadcast Group, Inc. 8.75% 12/15/07 B2 6,050 5,959
TCI Communications Financing III 9.65% Ba2 13,740 16,351
3/31/27
TCI Communications, Inc.:
6.375% 5/1/03 Baa3 1,235 1,291
8.25% 1/15/03 Baa3 430 478
8.75% 8/1/15 Baa3 13,230 16,528
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
BROADCASTING - CONTINUED
TCI Communications, Inc.: - continued
9.25% 4/15/02 Baa3 $ 8,500 $ 9,539
9.8% 2/1/12 Baa3 12,130 16,214
Telewest PLC:
yankee 0% 10/1/07 (d) B1 23,800 19,457
9.625% 10/1/06 B1 1,660 1,668
Time Warner, Inc.:
6.875% 6/15/18 Baa3 12,180 12,586
7.75% 6/15/05 Baa3 10,350 11,539
7.95% 2/1/00 Baa3 12,800 13,219
8.18% 8/15/07 Baa3 14,375 16,757
UIH Australia/Pacific, Inc. 0% 5/15/06 (d) B2 5,930 2,372
United International Holdings, Inc. 0% B3 15,380 7,306
2/15/08 (d)
433,785
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc. 9.5% 3/15/09 B2 9,235 8,589
American Skiing Co. 12% 7/15/06 B3 8,130 8,293
Bally Total Fitness Holding Corp. 9.875% B3 5,450 5,096
10/15/07
Cinemark USA, Inc. 8.5% 8/1/08 B2 9,030 8,691
Livent, Inc. 9.375% 10/15/04 B1 1,220 817
Paramount Communications, Inc. 7.5% 1/15/02 Ba2 3,885 4,069
Premier Parks, Inc. 0% 4/1/08 (d) B3 5,340 3,311
United Artists Theatre Co. 9.75% 4/15/08 Caa1 4,430 4,098
Viacom, Inc.:
6.75% 1/15/03 Ba2 17,450 17,917
7.75% 6/1/05 Ba2 32,750 35,365
8% 7/7/06 B1 2,970 2,985
99,231
LODGING & GAMING - 0.3%
Aladdin Gaming Holdings/Aladdin Capital Caa2 6,710 1,946
Corp. 0% 3/1/10 (d)
Courtyard by Marriott II LP/Courtyard II Finance B- 3,800 3,933
Co. 10.75% 2/1/08
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - CONTINUED
HMH Properties, Inc.:
7.875% 8/1/05 Ba2 $ 4,300 $ 4,311
7.875% 8/1/08 Ba2 19,650 19,404
Signature Resorts, Inc. 9.75% 10/1/07 B3 5,160 3,664
Sun International Hotels Ltd./Sun International Ba3 3,120 3,182
North America, Inc. yankee 9% 3/15/07
36,440
PUBLISHING - 0.5%
Garden State Newspapers, Inc. Series B, 8.75% B1 16,077 15,474
10/1/09
News America Holdings, Inc.:
7.7% 10/30/25 Baa3 14,260 15,250
8.5% 2/15/05 Baa3 13,525 15,243
News America, Inc. 7.25% 5/18/18 Baa3 8,460 8,666
54,633
RESTAURANTS - 0.1%
Host Marriott Travel Plazas, Inc. 9.5% 5/15/05 Ba3 10,180 10,384
NE Restaurant Co., Inc. 10.75% 7/15/08 (f) B3 2,880 2,808
13,192
TOTAL MEDIA & LEISURE 637,281
NONDURABLES - 0.6%
FOODS - 0.1%
ConAgra, Inc. 7.125% 10/1/26 Baa1 13,500 14,574
HOUSEHOLD PRODUCTS - 0.1%
Revlon Consumer Products Corp. 8.625% B3 13,880 13,533
2/1/08
TOBACCO - 0.4%
Philip Morris Companies, Inc.:
6.95% 6/1/06 A2 12,680 13,478
7% 7/15/05 A2 13,480 14,413
7.25% 9/15/01 A2 13,780 14,434
42,325
TOTAL NONDURABLES 70,432
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - 1.3%
APPAREL STORES - 0.1%
AnnTaylor, Inc. 8.75% 6/15/00 B3 $ 8,270 $ 8,105
Specialty Retailers, Inc. 8.5% 7/15/05 Ba3 2,280 2,109
10,214
GENERAL MERCHANDISE STORES - 0.5%
Dayton Hudson Corp.:
6.8% 10/1/01 A3 9,500 9,915
7.5% 7/15/06 A3 9,000 10,087
Federated Department Stores, Inc.:
6.79% 7/15/27 Baa2 8,750 9,247
7% 2/15/28 Baa2 10,800 10,910
8.125% 10/15/02 Baa2 6,340 6,925
K mart Corp.:
7.75% 10/1/12 Ba2 670 677
8.25% 1/1/22 Ba2 5,420 5,352
12.5% 3/1/05 Ba2 7,160 8,807
61,920
GROCERY STORES - 0.5%
Ameriserve Food Distribution, Inc. 8.875% B1 2,870 2,540
10/15/06
Kroger Co. 6% 7/1/00 Baa3 15,800 16,008
Meyer (Fred), Inc. 7.45% 3/1/08 Ba2 9,320 9,739
Mrs. Fields Original Cookies, Inc. 10.125% B2 2,870 2,669
12/1/04
Pathmark Stores, Inc.:
9.625% 5/1/03 Caa1 18,870 18,021
12.625% 6/15/02 Caa2 3,530 3,327
Pueblo Xtra International, Inc.:
9.5% 8/1/03 B3 7,410 6,669
9.5% 8/1/03 B3 2,300 2,070
61,043
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Amazon.com, Inc. 0% 5/1/08 (d) Caa2 5,730 3,094
Central Tractor Farm & Country, Inc. 10.625% B2 1,820 1,765
4/1/07
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED
J Crew Operating Corp. 10.375% 10/15/07 Caa1 $ 4,900 $ 3,920
Metals USA, Inc. 8.625% 2/15/08 B2 7,760 6,751
15,530
TOTAL RETAIL & WHOLESALE 148,707
SERVICES - 0.2%
PRINTING - 0.0%
Sullivan Graphics, Inc. 12.75% 8/1/05 Caa1 4,180 4,222
SERVICES - 0.2%
Borg-Warner Security Corp. 9.625% 3/15/07 B3 2,750 3,025
Iron Mountain, Inc. 8.75% 9/30/09 B3 3,655 3,618
La Petite Academy, Inc./La Petite Academy B3 7,560 7,314
Holding Co. 10% 5/15/08
Medaphis Corp. 9.5% 2/15/05 B2 8,450 7,436
21,393
TOTAL SERVICES 25,615
TECHNOLOGY - 0.5%
COMPUTER SERVICES & SOFTWARE - 0.2%
Federal Data Corp. 10.125% 8/1/05 B3 10,250 9,251
ICG Services, Inc. 0% 5/1/08 (d) - 12,630 6,126
PSINet, Inc. 10% 2/15/05 B3 1,990 1,990
17,367
COMPUTERS & OFFICE EQUIPMENT - 0.2%
Comdisco, Inc.:
6.375% 11/30/01 Baa1 13,775 14,146
7.21% 7/2/01 Baa1 12,000 12,575
26,721
ELECTRONIC INSTRUMENTS - 0.1%
Telecommunications Techniques Co. 9.75% B3 6,230 5,669
5/15/08 (f)
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.0%
Fairchild Semiconductor Corp. 11.74% 3/15/08 - $ 6,074 $ 4,888
pay-in-kind (k)
TOTAL TECHNOLOGY 54,645
TRANSPORTATION - 1.0%
AIR TRANSPORTATION - 0.4%
Atlas Air, Inc. 9.25% 4/15/08 (f) B3 13,265 12,403
Delta Air Lines, Inc. 9.875% 5/15/00 Baa3 6,000 6,394
Kitty Hawk, Inc. 9.95% 11/15/04 B1 13,128 13,194
US Air, Inc. 9.625% 2/1/01 B1 3,960 4,059
US Airways Group, Inc. 10.375% 3/1/13 Ba2 7,185 7,634
43,684
RAILROADS - 0.5%
Burlington Northern Santa Fe Corp. 7.29% Baa2 10,500 11,879
6/1/36
Canadian National Railway Co. 6.9% 7/15/28 Baa2 9,010 9,241
CSX Corp. 6.46% 6/22/05 Baa2 13,650 14,289
Norfolk Southern Corp. 7.05% 5/1/37 Baa1 21,900 24,143
Wisconsin Central Transportation Corp. 6.625% Baa2 4,870 5,048
4/15/08
64,600
SHIPPING - 0.1%
Amer Reefer Co. Ltd. 10.25% 3/1/08 B1 2,200 1,782
Cenargo International PLC 9.75% 6/15/08 (f) Ba3 5,360 4,342
Holt Group, Inc. 9.75% 1/15/06 (f) Caa1 4,970 3,479
9,603
TOTAL TRANSPORTATION 117,887
UTILITIES - 2.1%
CELLULAR - 0.8%
AirTouch Communications, Inc. 6.35% 6/1/05 Baa2 18,260 19,218
Cable & Wireless Communications PLC 6.375% Baa1 14,020 14,334
3/6/03
McCaw International Ltd. 0% 4/15/07 (d) Caa1 26,890 12,638
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
CELLULAR - CONTINUED
Millicom International Cellular SA 0% Caa1 $ 6,510 $ 4,004
6/1/06 (d)
Nextel Communications, Inc.:
0% 9/15/07 (d) B2 3,156 2,004
0% 10/31/07 (d) B2 26,320 15,858
0% 2/15/08 (d) B2 6,125 3,598
Nextel International, Inc. 0% 4/15/08 (d) Caa1 14,540 5,816
Pagemart Nationwide, Inc. 0% 2/1/05 (d) B3 630 564
PageMart Wireless, Inc. 0% 2/1/08 (d) Caa2 5,120 2,739
Rogers Communications, Inc. 8.875% 7/15/07 B2 9,980 9,780
Teligent, Inc.:
0% 3/1/08 (d) Caa1 7,010 2,751
11.5% 12/1/07 Caa1 5,500 4,290
97,594
ELECTRIC UTILITY - 0.5%
Avon Energy Partners Holdings:
6.46% 3/4/08 (f) Baa2 10,920 11,191
6.73% 12/11/02 (f) Baa2 13,550 14,134
Israel Electric Corp. Ltd.:
yankee 7.875% 12/15/26 (f) A3 6,380 6,348
7.75% 12/15/27 (f) A3 12,960 12,306
Niagara Mohawk Power Corp. 7.75% 10/1/08 Ba3 5,830 6,209
Texas Utilities Co. 6.375% 1/1/08 Baa3 5,470 5,550
55,738
TELEPHONE SERVICES - 0.8%
Dobson Wireline Co. 12.25% 6/15/08 (f) - 12,690 11,040
GST Network Funding, Inc. 0% 5/1/08 (d)(f) - 5,450 2,616
Hyperion Telecommunications, Inc.:
0% 4/15/03 (d) B3 7,380 5,037
12.25% 9/1/04 B3 8,130 7,967
Level 3 Communications, Inc. 9.125% 5/1/08 B3 5,710 5,367
McLeodUSA, Inc.:
0% 3/1/07 (d) B2 6,005 4,369
9.25% 7/15/07 B2 2,000 2,055
NEXTLINK Communications, Inc. 9.625% B3 10,240 9,933
10/1/07
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
Pathnet, Inc. 12.25% 4/15/08 (f) - $ 13,610 $ 10,344
WinStar Communications, Inc. 11% - 11,160 7,645
3/15/08 (d)
WorldCom, Inc.:
7.75% 4/1/07 Baa2 3,890 4,444
8.875% 1/15/06 Baa2 9,729 10,672
9.375% 1/15/04 Baa2 10,620 11,095
92,584
TOTAL UTILITIES 245,916
TOTAL NONCONVERTIBLE BONDS 2,440,904
TOTAL CORPORATE BONDS 2,455,142
(Cost $2,474,187)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 3.4%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.8%
Fannie Mae:
5.75% 6/15/05 Aaa 3,555 3,740
6% 5/15/08 Aaa 2,840 3,062
7.49% 3/2/05 Aaa 4,725 5,403
Federal Home Loan Bank:
7.7% 9/20/04 Aaa 2,360 2,708
8.09% 12/28/04 Aaa 11,000 12,911
Financing Corp. 0% 4/5/02 Aaa 2,276 1,945
Financing Corp. Coupon Strip:
0% 5/11/02 Aaa 2,275 1,929
0% 8/8/05 Aaa 5,482 3,953
0% 11/30/05 Aaa 1,666 1,182
Freddie Mac 7.35% 3/22/05 Aaa 5,000 5,684
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
U.S. Department of Housing and Urban
Development government guaranteed
participation certificates Series 1996-A:
6.73% 8/1/02 Aaa $ 22,400 $ 23,738
6.83% 8/1/03 Aaa 11,700 12,634
7.57% 8/1/13 Aaa 10,090 11,564
90,453
U.S. TREASURY OBLIGATIONS - 2.6%
U.S. Treasury Bills, yield at date of purchase 10,975 10,966
4.97% to 4.98% 10/8/98 (h)
U.S. Treasury Bonds:
6.5% 11/15/26 Aaa 7,140 8,519
7.125% 2/15/23 Aaa 1,738 2,194
7.625% 2/15/25 Aaa 112,455 151,411
8.875% 2/15/19 Aaa 1,360 1,987
10.75% 5/15/03 Aaa 13,750 17,351
10.75% 8/15/05 Aaa 5,080 6,938
11.75% 2/15/10 (callable) Aaa 21,750 30,243
12.75% 11/15/10 (callable) Aaa 17,680 26,302
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 5,400 5,522
5.5% 5/31/03 Aaa 3,100 3,252
5.625% 11/30/99 Aaa 24,473 24,771
5.875% 2/15/00 Aaa 1,885 1,919
6.625% 6/30/01 Aaa 6,600 6,977
7% 7/15/06 Aaa 6,340 7,386
7.875% 11/15/04 Aaa 3,500 4,143
309,881
TOTAL U.S. GOVERNMENT AND 400,334
GOVERNMENT AGENCY OBLIGATIONS
(Cost $372,533)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 7.5%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
FANNIE MAE - 5.0%
5.5% 6/17/03 to 9/1/13 Aaa $ 19,229 $ 19,218
6% 4/5/03 to 4/1/28 Aaa 207,530 209,296
6.5% 1/1/13 to 7/1/28 Aaa 158,464 161,330
7% 10/1/28 (g)(m) Aaa 133,962 137,730
7.5% 8/1/24 to 7/1/28 Aaa 61,940 63,899
591,473
FREDDIE MAC - 0.6%
5.5% 5/11/03 Aaa 10,398 10,365
6% 10/1/23 to 9/1/25 Aaa 11,998 12,028
7% 1/22/01 to 8/1/01 Aaa 3,446 3,475
7.5% 6/1/25 to 4/1/28 Aaa 48,832 50,313
8.5% 2/1/19 to 8/1/22 Aaa 273 285
76,466
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.9%
6% 10/15/08 to 12/15/10 Aaa 27,976 28,493
6.5% 12/15/07 to 8/15/09 Aaa 55,242 56,660
7% 2/15/28 to 7/15/28 Aaa 57,407 59,254
7.5% 3/15/22 to 8/15/28 Aaa 68,547 71,072
8% 4/15/24 to 12/15/25 Aaa 4,411 4,596
220,075
TOTAL U.S. GOVERNMENT AGENCY - 888,014
MORTGAGE-BACKED SECURITIES
(Cost $858,134)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.0%
PRIVATE SPONSOR - 0.0%
Credit-Based Asset Servicing and Securitization Ba3 3,400 1,422
LLC Series 1997-2 Class 2-B, 7.2236%
12/29/25 (f)(i)
(Cost $1,807)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES - 2.6%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
Airplanes Pass Through Trust 10.875% Ba2 $ 14,820 $ 15,339
3/15/19
BankAmerica Manufacturing Housing Contract Aaa 9,930 10,070
6.2% 4/10/09
Capita Equipment Receivables Trust 6.48% Baa2 8,150 8,298
10/15/06
Chase Manhattan Auto Owner Trust 5.85% Aaa 12,180 12,397
5/15/03
Chevy Chase Auto Receivables Trust 5.91% Aaa 6,597 6,678
12/15/04
Contimortgage Home Equity Loan Trust 6.26% Aaa 13,310 13,368
7/15/12
CPS Auto Grantor Trust:
6.09% 11/15/03 Aaa 8,707 8,742
6.55% 8/15/02 Aaa 5,965 6,036
CPS Auto Receivables Trust 6% 8/15/03 Aaa 14,889 15,056
CSXT Trade Receivables Master Trust 6% Aaa 12,240 12,710
7/25/04
Dayton Hudson Credit Card Master Trust 6.25% Aaa 13,300 13,921
8/25/05
Ford Credit Auto Owner Trust:
6.2% 12/15/02 Baa3 7,380 7,517
6.4% 5/15/02 A1 10,051 10,276
6.4% 12/15/02 Baa3 4,070 4,090
Green Tree Financial Corp.:
6.5% 6/15/27 Aaa 3,531 3,535
6.68% 1/15/29 AAA 18,680 19,217
6.8% 6/15/27 Aaa 6,500 6,579
Key Auto Finance Trust 6.3% 10/15/03 A2 9,352 9,396
MBNA Master Credit Card Trust II 6.55% Aaa 26,970 28,619
1/15/07
Olympic Automobile Receivables Trust:
6.4% 9/15/01 Aaa 13,560 13,751
6.7% 3/15/02 Aaa 6,680 6,801
Petroleum Enhanced Trust Receivables Offering Baa2 8,996 8,993
Petroleum Trust 6.125% 2/5/03 (f)(i)
Premier Auto Trust:
6% 5/6/00 Aaa 3,517 3,520
6.34% 1/6/03 Aaa 20,000 20,500
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
Prime Credit Card Master Trust 6.75% 11/15/05 Aaa $ 14,250 $ 14,940
UAF Auto Grantor Trust 6.1% 1/15/03 (f) Aaa 12,685 12,776
WFS Financial Owner Trust 6.55% 10/20/04 Aaa 11,150 11,401
TOTAL ASSET-BACKED SECURITIES 304,526
(Cost $297,934)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMERCIAL MORTGAGE SECURITIES - 2.9%
MOODY'S RATINGS
(UNAUDITED) (B)
Atherton Franchisee Loan Funding LLP Series BB 2,047 1,658
1998-A Class E, 8.25% 5/15/20 (f)
Bankers Trust Remic Trust 1988-1 Series Ba2 3,301 3,205
1998-S1A Class G, 8.6764% 11/28/02 (f)(i)
Bardell Associates Note Trust 12.5%, - 16,577 17,613
11/1/08 (k)
Berkeley Federal Bank & Trust FSB Series 1994 - 2,280 1,778
Class 1-B 7.7518% 8/1/24 (f)(i)
BKB Commercial Mortgage Trust Series 1997-C1 BBB 5,378 5,495
Class D, 7.83% 2/25/43 (f)(i)
CBM Funding Corp. sequential pay Series
1996-1:
Class A-3PI, 7.08% 11/1/07 AA 8,220 8,685
Class B, 7.48% 2/1/08 A 6,410 6,815
CS First Boston Mortgage Securities Corp.:
Series 1997-C2 Class D, 7.27% 1/17/35 Baa2 14,700 14,728
Series 1998-C1 Class D, 7.17% 1/17/12 BBB 13,430 13,720
Series 1998-FLI Class E, 6.5063% Baa2 14,600 14,431
1/10/13 (f)(i)
Deutsche Mortgage & Asset Receiving Corp. Baa2 11,800 12,272
Series 1998-C1 Class D, 7.231% 7/15/12
Equitable Life Assurance Society of the United
States (The):
sequential pay Series 174 Class A1, 7.24% Aaa 16,800 18,337
5/15/06 (f)
Series 174:
Class B1, 7.33% 5/15/06 (f) Aa2 10,400 11,244
Class D1, 7.77% 5/15/06 (f) Baa2 6,800 7,180
Series 1996-1 Class C1, 7.52% 5/15/06 (f) A2 8,000 8,668
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
First Chicago/Lennar Trust I Series 1997-CHL1:
Class D, 8.1319% 4/13/39 (i) - $ 2,000 $ 1,885
Class E, 8.1319% 4/1/39 (i) - 3,800 3,105
First Union-Lehman Brothers Commercial Aa2 31,350 33,290
Mortgage Trust sequential pay Series 1997-C2
Class B, 6.79% 11/18/29
FMAC Loan Receivables Trust 1998-C:
Series 1997-A Class E, 8.1059% - 1,471 1,242
4/15/19 (f)(i)
Series 1997-B Class E, 7.8912% - 2,307 1,827
9/15/19 (f)(i)
GAFCO Franchisee Loan Trust Series 1998-1 - 4,600 3,729
Class D, 14.5% 6/1/16 (f)(i)
General Motors Acceptance Corp. Commercial Ba3 1,250 1,154
Mortgage Securities, Inc. Series 1996-C1
Class F, 7.86% 10/15/28 (f)
GS Mortgage Securities Corp. II:
Series 1997-GL Class A2-B, 6.86% 7/13/30 Aaa 13,230 14,031
Series 1998-GLII:
Class D, 7.1905% 4/13/31 (f)(i) Baa2 4,120 4,185
Class E, 7.1905% 4/13/31 (f)(i) Baa3 13,588 13,251
Kidder Peabody Acceptance Corp. I Aa2 3,320 3,334
sequential pay Series 1993-M1 Class A-2,
7.15% 4/25/25
LTC Commercial Mortgage Pass Through AAA 8,771 8,862
Certificates Series 1998-1 Class A, 6.029%
5/30/30 (f)
Morgan Stanley Capital I, Inc.:
Series 1998-CF1:
Class D, 7.35% 1/15/12 Baa2 11,142 11,253
Class E, 7.35% 12/15/12 Baa3 3,848 3,675
Series 1998-HF1 Class D, 7.1% 2/15/30 (i) BBB 14,900 15,706
Nomura Asset Securities Corp. Series 1998-D6 Baa2 11,800 12,550
Class A-4, 7.5956% 3/17/28 (i)
Nomura Depositor Trust floater Series
1998-ST1A:
Class B-2, 9.8906% 1/15/03 (f)(i) - 2,975 2,711
Class B2-A, 9.8906% 2/15/34 (f)(i) - 500 456
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
Penn Mutual Life Insurance Co. (The)/Penn
Insurance & Annuity Co. Series 1996-PML:
Class K, 7.9% 11/15/26 (f) - $ 750 $ 561
Class L, 7.9% 11/15/26 (f) - 600 296
Resolution Trust Corp.:
floater Series 1991-M2 Class A1, 6.7373% Ba3 345 293
9/25/20 (i)
Series 1991-M2 Class A-3, 7.2498% Ba3 1,623 1,347
9/25/20 (i)
Structured Asset Securities Corp.:
sequential pay Series 1996 Class A-2A, AAA 2,629 2,646
7.75% 2/25/28
Series 1995-C1 Class E, 7.375% 9/25/24 (f) BB 2,390 2,329
Series 1996-CFL:
Class E, 7.75% 2/25/28 BB+ 6,820 6,997
Class G, 7.75% 2/25/28 (f) - 3,700 3,427
Class H, 7.75% 2/25/28 (f) - 1,000 806
Thirteen Affiliates of General Growth Properties, Inc.:
sequential pay Series A-2, 6.602% Aaa 10,590 11,141
12/15/10 (f)
Series D-2, 6.992% 12/15/10 (f) Baa2 11,380 11,459
Series E-2, 7.224% 12/15/10 (f) Baa3 6,760 6,628
Wells Fargo Capital Markets Apartment Aaa 8,767 9,066
Financing Trust Series APT Class 1, 6.56%
12/29/05 (f)
TOTAL COMMERCIAL MORTGAGE SECURITIES 339,071
(Cost $328,872)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 0.2%
MOODY'S RATINGS
(UNAUDITED) (B)
Export Development Corp. yankee 8.125% Aa2 4,880 5,002
8/10/99 (j)
Israeli State euro 6.375% 12/19/01 (j) Aaa 13,265 13,733
Newfoundland Province yankee 11.625% Baa1 5,750 8,192
10/15/07 (j)
TOTAL FOREIGN GOVERNMENT AND 26,927
GOVERNMENT AGENCY OBLIGATIONS
(Cost $25,664)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SUPRANATIONAL OBLIGATIONS - 0.1%
MOODY'S RATINGS PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) (B) AMOUNT (000S) (000S)
Inter American Development Bank yankee 6.29% Aaa $ 13,000 $ 14,268
7/16/27
(Cost $12,918)
BANK NOTES - 0.2%
Key Bank NA 5.6175% 8/20/99 (i) 25,000 24,976
(Cost $24,966)
CERTIFICATES OF DEPOSIT - 2.3%
Abbey National Treasury Services PLC euro 5.51% 27,000 27,010
12/4/98
ABN-AMRO Bank NV yankee euro 5.64% 12/14/98 28,000 28,016
Bank of Scotland Treasury Services euro 5.64% 12,000 12,009
12/29/98
Bayerische Hypotheken-und Wechselbank AG yankee 10,100 10,119
5.7% 3/30/99
Bayerische Landesbank Girozentrale yankee 5.33% 27,000 27,012
2/26/99
Canadian Imperial Bank of Commerce, New York 16,760 17,117
yankee 6.2% 8/1/00
Deutsche Bank AG yankee:
5.19% 12/1/98 5,000 4,999
5.94% 10/26/98 10,000 10,002
First National Bank of Chicago 5.65% 3/3/99 25,000 25,033
RaboBank Nederland Coop. Central yankee 5.68% 25,000 25,085
6/4/99
Societe Generale, France yankee 5.91% 10/15/98 21,600 21,603
Swiss Bank Corp. yankee 5.65% 3/24/99 20,000 20,032
Toronto-Dominion Bank yankee 5.68% 6/4/99 25,000 25,085
Westdeutsche Landesbank Girozentrale yankee 5.63% 19,000 19,025
2/8/99
TOTAL CERTIFICATES OF DEPOSIT 272,147
(Cost $271,440)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
COMMERCIAL PAPER - 1.8%
Citibank Credit Card Master Trust I
(Dakota Certificate Program):
5.5% 11/10/98 6,000 5,965
5.53% 10/13/98 7,600 7,587
COMMERCIAL PAPER - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
Commonwealth Bank of Australia yankee 5.35% $ 25,000 $ 24,479
3/1/99
Daimler-Benz North America Corp. yankee 5.53% 8,000 7,967
10/29/98
Enterprise Funding Corp. 5.4% 12/4/98 13,000 12,886
General Electric Capital Corp. 5.51% 11/12/98 19,000 18,885
Generale de Banque SA yankee 5.36% 2/24/99 22,400 21,939
Kitty Hawk Funding Corp. 5.53% 10/23/98 19,000 18,939
Monsanto Co.:
5.51% 12/1/98 7,800 7,732
5.52% 11/3/98 7,000 6,966
5.52% 11/19/98 5,600 5,561
Salomon Smith Barney 5.45% 12/3/98 25,000 24,774
Three Rivers Funding Corp. 5.51% 12/1/98 9,113 9,034
Transamerica Finance Corp. 5.47% 1/26/99 12,000 11,802
Triple A One Funding Corp.:
5.55% 10/14/98 9,500 9,482
5.57% 10/23/98 19,000 18,939
TOTAL COMMERCIAL PAPER 212,937
(Cost $212,765)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MASTER NOTES - 0.2%
Goldman Sachs Group L.P. (The) 5.6875% 1/27/99 (i) 18,000 18,000
(Cost $18,000)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 9.0%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at:
5%, dated 9/30/98 due 10/1/98 $ 2,731 2,731
5.77%, dated 9/30/98 due 10/1/98 6,129 6,128
SHARES (000S)
Taxable Central Cash Fund (c) 1,051,993 1,051,993
TOTAL CASH EQUIVALENTS 1,060,852
(Cost $1,060,852)
TOTAL INVESTMENT IN SECURITIES - 100% $ 11,772,672
(Cost $11,346,822)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS
EXPIRATION UNDERLYING UNREALIZED
DATE FACE AMOUNT GAIN (LOSS)
(000S) (000S)
PURCHASED
568 S&P 500 Stock Index Contracts Dec. 1998 $ 145,692 $ 2,768
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 1.2%
</TABLE>
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.36%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(d) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date.
(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.
(f) 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 $459,021,000 or 4.0% of net assets.
(g) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(h) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $8,566,000.
(i) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(j) For Foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to the 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).
SECURITY ACQUISTION DATE ACQUISITION
COST (000S)
Alliance Gaming Corp. 7/28/98 $ 1,006
Bardell Associates Note Trust 12.5%, 11/1/08 4/19/94 $ 16,845
Fairchild Semi- 4/3/97 - 9/15/98 $ 5,472
conductor Corp. 11.74% 3/15/08 pay-in-kind
(l) Affiliated company (see Note 8 of Notes to Financial Statements).
(m) A portion of the security was sold 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 investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 19.4% AAA, AA, A 18.4%
Baa 7.5% BBB 7.8%
Ba 2.9% BB 3.1%
B 5.0% B 4.9%
Caa 0.8% CCC 0.8%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 0.8%. FMR has determined that
unrated debt securities that are lower quality account for 0.1% of the
total value of investment in securities.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $11,419,188,000. Net unrealized appreciation
aggregated $353,484,000, of which $1,056,555,000 related to
appreciated investment securities and $703,071,000 related to
depreciated investment securities.
The fund hereby designates approximately $725,618,000 as a capital
gain dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE $ 11,772,672
(INCLUDING REPURCHASE
AGREEMENTS OF $8,859) (COST
$11,346,822) -
SEE ACCOMPANYING SCHEDULE
COMMITMENT TO SELL SECURITIES ON $ (55,519)
A DELAYED DELIVERY BASIS
RECEIVABLE FOR SECURITIES SOLD ON 55,156 (363)
A DELAYED DELIVERY BASIS
RECEIVABLE FOR INVESTMENTS SOLD, 175,248
REGULAR DELIVERY
CASH 878
RECEIVABLE FOR FUND SHARES SOLD 8,442
DIVIDENDS RECEIVABLE 8,951
INTEREST RECEIVABLE 65,740
OTHER RECEIVABLES 750
TOTAL ASSETS 12,032,318
LIABILITIES
PAYABLE FOR INVESTMENTS 155,314
PURCHASED
REGULAR DELIVERY
DELAYED DELIVERY 196,586
PAYABLE FOR FUND SHARES 77,428
REDEEMED
ACCRUED MANAGEMENT FEE 5,241
PAYABLE FOR DAILY VARIATION ON 4,473
FUTURES CONTRACTS
OTHER PAYABLES AND ACCRUED 2,341
EXPENSES
COLLATERAL ON SECURITIES LOANED, 15,040
AT VALUE
TOTAL LIABILITIES 456,423
NET ASSETS $ 11,575,895
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 8,966,390
UNDISTRIBUTED NET INVESTMENT 18,489
INCOME
ACCUMULATED UNDISTRIBUTED NET 2,162,562
REALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
NET UNREALIZED APPRECIATION 428,454
(DEPRECIATION) ON INVESTMENTS
AND ASSETS AND LIABILITIES IN
FOREIGN CURRENCIES
NET ASSETS, FOR 634,669 SHARES $ 11,575,895
OUTSTANDING
NET ASSET VALUE, OFFERING PRICE $18.24
AND REDEMPTION PRICE
PER SHARE ($11,575,895 (DIVIDED BY)
634,669 SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS
YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT INCOME $ 102,092
DIVIDENDS
INTEREST (INCLUDING INCOME ON 382,908
SECURITIES LOANED OF $956)
TOTAL INCOME 485,000
EXPENSES
MANAGEMENT FEE $ 66,671
TRANSFER AGENT FEES 25,098
ACCOUNTING AND SECURITY LENDING 989
FEES
NON-INTERESTED TRUSTEES' 70
COMPENSATION
CUSTODIAN FEES AND EXPENSES 369
REGISTRATION FEES 146
AUDIT 224
LEGAL 70
INTEREST 3
MISCELLANEOUS 60
TOTAL EXPENSES BEFORE 93,700
REDUCTIONS
EXPENSE REDUCTIONS (2,346) 91,354
NET INVESTMENT INCOME 393,646
REALIZED AND UNREALIZED GAIN
(LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 2,250,398
FOREIGN CURRENCY TRANSACTIONS 876
FUTURES CONTRACTS (28,646) 2,222,628
CHANGE IN NET UNREALIZED
APPRECIATION (DEPRECIATION)
ON:
INVESTMENT SECURITIES (1,969,086)
ASSETS AND LIABILITIES IN 87
FOREIGN CURRENCIES
FUTURES CONTRACTS 2,768
DELAYED DELIVERY (363) (1,966,594)
COMMITMENTS
NET GAIN (LOSS) 256,034
NET INCREASE (DECREASE) IN NET $ 649,680
ASSETS RESULTING
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS $ 393,646 $ 377,233
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 2,222,628 749,581
CHANGE IN NET UNREALIZED (1,966,594) 1,371,526
APPRECIATION (DEPRECIATION)
NET INCREASE (DECREASE) IN 649,680 2,498,340
NET ASSETS RESULTING
FROM OPERATIONS
DISTRIBUTIONS TO SHAREHOLDERS (405,621) (418,976)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (679,853) (468,542)
TOTAL DISTRIBUTIONS (1,085,474) (887,518)
SHARE TRANSACTIONS 2,109,183 2,000,175
NET PROCEEDS FROM SALES OF
SHARES
REINVESTMENT OF DISTRIBUTIONS 1,066,099 871,972
COST OF SHARES REDEEMED (3,029,481) (3,290,756)
NET INCREASE (DECREASE) IN 145,801 (418,609)
NET ASSETS RESULTING
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN (289,993) 1,192,213
NET ASSETS
NET ASSETS
BEGINNING OF PERIOD 11,865,888 10,673,675
END OF PERIOD (INCLUDING $ 11,575,895 $ 11,865,888
UNDISTRIBUTED NET INVESTMENT
INCOME OF $18,489 AND
$21,392, RESPECTIVELY)
OTHER INFORMATION
SHARES
SOLD 110,919 114,774
ISSUED IN REINVESTMENT OF 58,413 51,553
DISTRIBUTIONS
REDEEMED (158,815) (189,437)
NET INCREASE (DECREASE) 10,517 (23,110)
FINANCIAL HIGHLIGHTS
YEARS
ENDED
SEPTEMB
ER 30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 19.01 $ 16.49 $ 15.47 $ 14.58 $ 14.97
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
NET INVESTMENT .61 B .59 B .62 .49 .34
INCOME
NET REALIZED .37 3.35 .96 .93 .21
AND UNREALIZED
GAIN (LOSS)
TOTAL FROM .98 3.94 1.58 1.42 .55
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.64) (.67) (.56) (.44) (.44)
INVESTMENT
INCOME
FROM NET (1.11) (.75) - - (.45)
REALIZED GAIN
IN EXCESS OF NET - - - (.09) (.05)
REALIZED GAIN
TOTAL (1.75) (1.42) (.56) (.53) (.94)
DISTRIBUTIONS
NET ASSET VALUE, $ 18.24 $ 19.01 $ 16.49 $ 15.47 $ 14.58
END OF PERIOD
TOTAL RETURN A 5.34% 25.15% 10.37% 10.09% 3.60%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 11,576 $ 11,866 $ 10,674 $ 11,084 $ 11,792
OF PERIOD
(IN MILLIONS)
RATIO OF EXPENSES .76% .79% .95% .97% 1.04%
TO AVERAGE
NET ASSETS
RATIO OF EXPENSES .74% C .78% C .93% C .97% 1.04%
TO AVERAGE
NET ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF NET 3.19% 3.39% 3.64% 4.27% 3.63%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 136% 79% 131% 137% 109%
RATE
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 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 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."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
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 interest income,
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.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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, and losses
deferred due to wash sales and futures.
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.
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
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., 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.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the stock market. Buying futures tends to increase the
fund's exposure to the underlying instrument, while selling futures
tends to decrease the fund's exposure to the underlying instrument or
hedge other fund investments. Futures contracts involve, to varying
degrees, risk of loss in excess of the futures variation
2. OPERATING POLICIES -
CONTINUED
FUTURES CONTRACTS - CONTINUED
margin reflected in the Statement of Assets and Liabilities. The
underlying face amount at value of any open futures contracts at
period end is shown in the schedule of investments under the caption
"Futures Contracts." This amount reflects each contract's exposure to
the underlying instrument at period end. Losses may arise from changes
in the value of the underlying instruments or if the counterparties do
not perform under the contracts' terms. Gains (losses) are realized
upon the expiration or closing of the futures contracts. Futures
contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
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 $22,525,000 or 0.2% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $15,314,639,000 and $15,923,932,000, respectively, of which
U.S. government and government agency obligations aggregated
$5,308,461,000 and $5,297,346,000, respectively.
The market value of futures contracts opened and closed during the
period amounted to $518,110,000 and $346,540,000, 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 annual rate of 0.54% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
TRANSFER AGENT FEES - CONTINUED
of all shareholder reports, except proxy statements. For the period,
the transfer agent fees were equivalent to an annual rate of 0.20% 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 $1,582,000 for the
period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the
period for which the loan was outstanding amounted to $17,946,000. The
weighted average interest rate was 5.79%.
6. 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 $13,960,000 and $15,040,000, respectively.
7. EXPENSE REDUCTIONS.
FMR 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 $1,479,000 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 $134,000 and $733,000, respectively, under these
arrangements.
8. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of
at least 5% of the voting securities. Transactions during the period
with companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME (000S)
Lamonts Apparel, Inc. $ - $ - $ - $ 404
TOTALS $ - $ - $ - $ 404
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, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Asset Manager (a fund of Fidelity Charles Street Trust) at
September 30, 1998, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated,
in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fidelity
Asset Manager's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 10, 1998
DISTRIBUTIONS
The Board of Trustees of (Fidelity Asset Manager) voted to pay to
shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales
of portfolio securities, and dividends derived from net investment
income:
PAY DATE 12/22/97
RECORD DATE 12/19/97
DIVIDENDS $.19
SHORT-TERM
CAPITAL GAINS $.39
LONG-TERM
CAPITAL GAINS $.72
LONG-TERM CAPITAL
GAIN BREAKDOWN:
28% rate 59.72%
20% rate 40.28%
A total of 6.40% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
A total of 16.15% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PC_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PC_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
8880 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
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
Asset Manager SM
Asset Manager: Growth SM
Asset Manager: Income SM
Fidelity Freedom Funds(registered trademark)-
Income, 2000, 2010, 2020, 2030
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(registered trademark)(AUTOMATED GRAPHIC)
1-800-544-5555
(AUTOMATED GRAPHIC)AUTOMATED LINE FOR QUICKEST SERVICE
FAA-ANN-1198 64296
1.537740.101
(FIDELITY LOGO GRAPHIC)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
FIDELITY
SHORT-INTERMEDIATE
GOVERNMENT
FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
(2 Fidelity Logo Graphics)(registered trademark)
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 14 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 18 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 21 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 22
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)
0DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, life of fund total returns and
dividends would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED SEPTEMBER PAST 1 PAST 5 LIFE OF
30, 1998 YEAR YEARS FUND
FIDELITY 7.82% 30.12% 48.67%
SHORT-INTERMEDIATE
GOVERNMENT
LB 1-5 YEAR US 9.12% 34.72% N/A
GOVERNMENT BOND
SB TREAS/AGENCY 9.12% 34.59% N/A
1-5 YEAR
SHORT-INTERMEDIATE 8.25% 29.67% N/A
US GOVERNMENT
FUNDS AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on September 13, 1991. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's
returns to the performance of the 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's performance
stacked up against its peers, you can compare it to the
short-intermediate U.S. government funds average, which reflects the
performance of mutual funds with similar objectives tracked by Lipper
Analytical Services, Inc. The past one year average represents a peer
group of 101 mutual funds. These benchmarks reflect reinvestment of
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, 1998 YEAR YEARS FUND
FIDELITY 7.82% 5.41% 5.78%
SHORT-INTERMEDIAT
E GOVERNMENT
LB 1-5 YEAR US 9.12% 6.14% N/A
GOVERNMENT BOND
SB TREAS/AGENCY 1-5 9.12% 6.12% N/A
YEAR
SHORT-INTERMEDIAT 8.25% 5.31% N/A
E US GOVERNMENT
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
1998/04/30 14226.61 15183.42
1998/05/31 14298.73 15274.23
1998/06/30 14360.91 15361.00
1998/07/31 14425.64 15427.08
1998/08/31 14596.14 15663.77
1998/09/30 14811.37 15948.57
IMATRL PRASUN SHR__CHT 19980930 19981007 121754 R00000000000087
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Short-Intermediate Government Fund on September
30, 1991, shortly after the fund started. As the chart shows, by
September 30, 1998 the value of the investment would have grown to
$14,811 - a 48.11% 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 $15,949 -
a 59.49% increase. Going forward, 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.
(checkmark)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.
TOTAL RETURN COMPONENTS
YEARS
ENDED
SEPTEM
BER 30,
1998 1997 1996 1995 1994
DIVIDEND 6.22% 6.36% 6.46% 7.00% 5.55%
RETURNS
CAPITAL 1.60% 0.54% -1.79% 2.15% -6.73%
RETURNS
TOTAL RETURNS 7.82% 6.90% 4.67% 9.15% -1.18%
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, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED PAST 1 PAST 6 PAST 1
SEPTEMBER 30, MONTH MONTHS YEAR
1998
DIVIDENDS PER 4.91(CENTS) 29.35(CENTS) 56.04(CENTS)
SHARE
ANNUALIZED 6.31% 6.23% 5.96%
DIVIDEND
RATE
30-DAY 4.90% - -
ANNUALIZED
YIELD
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 $9.46
over the past one month, $9.40 over the past six months and $9.40 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
As a safe haven from turbulent stock
markets worldwide, bond markets
reaped the benefits from the flight to
quality by anxious investors during
the 12-month period ending
September 30, 1998. The Lehman
Brothers Aggregate Bond Index - a
broad measure of the U.S. taxable
investment-grade bond market -
returned 11.51% over the past year,
two and one-half times higher than the
4.54% return generated for the
six-month period ending March 31,
1998. The buying surge sent
Treasury-bond yields - which move
in the opposite direction of bond
prices - to their lowest level in over
three decades, as the yield on the
benchmark 30-year bond fell to
4.96%. In spite of the global economic
crisis that dominated the period, the
U.S. enjoyed low interest rates, low
inflation and a stable economy, which
aided the performance of corporate
bonds. The Lehman Brothers
Corporate Bond Index returned
11.07% for the 12-month period.
Mortgage-backed bonds also
performed well, although lower
interest rates resulted in higher
refinancing activity. The Lehman
Brothers Mortgage Backed Securities
Index had a 12-month return of
8.62%. Interest rates fell even lower
late in the period, as the Federal
Reserve lowered the fed funds rate by
0.25%, the first rate cut in nearly three
years. The period's biggest losers were
shareholders of emerging-market
debt, as the JP Morgan Emerging
Markets Bond Index lost 20.89%
over the past 12 months.
(PHOTOGRAPH OF CURT HOLLINGSWORTH)
An interview with Curt Hollingsworth, Portfolio Manager of Fidelity
Short-Intermediate Government Fund
Q. HOW DID THE FUND PERFORM, CURT?
A. For the 12-month period that ended September 30, 1998, the fund
provided a total return of 7.82%. To get a sense of how the fund did
relative to its competitors, the short-intermediate U.S. government
funds average returned 8.25% for the same 12-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 9.12% for the same one-year
period.
Q. ALTHOUGH THE FUND POSTED DECENT GAINS, IT LAGGED BOTH ITS PEERS AND
THE LEHMAN BROTHERS 1-5 YEAR U.S. GOVERNMENT BOND INDEX DURING THE
PAST YEAR. WHAT EXPLAINS THAT UNDERPERFORMANCE?
A. The fund had more mortgage-backed and agency securities and fewer
Treasury securities than the index and many of its peers. While their
relatively high yields gave the fund an advantage over the index and
its peers during much of the past year, agency and mortgage securities
significantly lagged Treasuries during the final two months of the
period. Amid warnings about corporate profit shortfalls, some poor
economic data and a general aversion to risk, investors increasingly
shunned U.S. and foreign stocks, as well as many types of bonds, in
favor of the relative safety of Treasuries. In addition to the growing
demand, there was also a diminished supply of Treasuries as the U.S.
government curtailed its borrowing needs in the wake of a Federal
budget surplus. The net result of this much stronger demand and
somewhat weaker supply was a healthy Treasury rally in August and
September. While agency and mortgage security prices also moved higher
during the late summer, their gains were rather small in comparison to
Treasuries.
Q. GIVEN THAT MOST TYPES OF BONDS TEND TO PERFORM WELL WHEN INTEREST
RATES FALL, WHY WEREN'T INVESTORS AS ENTHUSIASTIC ABOUT AGENCY AND
MORTGAGE SECURITIES AS THEY WERE ABOUT TREASURIES?
A. Although they carry the implicit, or indirect, backing of the U.S.
government, agency securities are not perceived to be as safe as
Treasuries - which are backed by the full faith and credit of the U.S.
government. In times of uncertainty, Treasuries - more than agency
securities - tend to be the safe haven of choice for many investors.
Mortgage securities, on the other hand, were beset by prepayments. As
homeowners refinanced their mortgages to take advantage of falling
interest rates, their loans were prepaid and many mortgage securities
made up of those loans were retired before their maturity. That often
forced mortgage security holders to forfeit their high-yielding
securities and reinvest the proceeds at lower interest rates.
Q. DID YOU ALTER THE WAY IN WHICH THE FUND'S INVESTMENTS WERE
ALLOCATED AMONG TREASURY, AGENCY AND MORTGAGE SECURITIES?
A. Yes, I made some modifications. When several of the fund's mortgage
securities were prepaid, I reinvested most of the proceeds in agency
securities. It's my view that mortgage prepayment activity will
continue to be strong and ultimately could hamstring the mortgage
market's performance. In comparison, I felt that agencies offered more
attractive value. I also sold some of the fund's holdings in Treasury
securities in order to add more agency securities. Here's why: During
the past several months the spread - or difference in yield - between
Treasury and agency securities widened to nearly 0.50%, the widest
level in about five years. That widening spread signifies that
investors were demanding more compensation for accepting the slightly
higher risk of buying agency securities versus Treasuries. In my view,
that spread is particularly wide when viewed on a historical basis. In
anticipation of the spread narrowing to a more historical norm and
agencies outpacing Treasuries as a result, I added to the fund's
agency holdings.
Q. WHICH AGENCY SECURITIES DID YOU CHOOSE?
A. I continued to favor non-callable securities - those that can't be
redeemed by their issuers before maturity. Some agency securities can
be "called" - or redeemed - by their issuers as a way to reduce their
debt costs. Because they can't be redeemed prior to maturity,
non-callable securities tend to perform better than their callable
counterparts when interest rates fall and generally keep pace with
callable bonds when interest rates rise.
Q. WHAT'S YOUR OUTLOOK?
A. In light of a slowing global economy, it appears that the Federal
Reserve is poised to lower interest rates further. Given that, I
believe that mortgage securities will continue to be challenged by
relatively high prepayment activity. As long as that's the case, I
probably will continue to place more emphasis on Treasury and agency
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.
(CHECKMARK)FUND FACTS
GOAL: high current income
with preservation of capital
FUND NUMBER: 464
TRADING SYMBOL: FLMGX
START DATE: September 13, 1991
SIZE: as of September 30, 1998,
more than $133 million
MANAGER: Curt Hollingsworth,
since 1991; manager, various
Fidelity and Spartan
government and mortgage
funds; joined Fidelity in 1983
CURT HOLLINGSWORTH ON THE
LEHMAN BROTHERS 1-5 YEAR
U.S. GOVERNMENT BOND
INDEX AND ITS ROLE IN
MANAGING THE FUND:
"The Lehman Brothers 1-5 Year U.S.
Government Bond Index plays a
very important role in managing
the fund. It's the fund's benchmark
and includes most of the universe
of investment-grade bonds with
maturities between one and five
years. I use the index as a starting
point for my investment decisions,
managing the fund to be generally
as sensitive to changes in interest
rates as the index. In addition, I refer
to the index when deciding how to
allocate assets among different
maturities and sectors - such
as Treasury and agency securities
- - based on my view of the relative
value of each maturity or sector."
NOTE TO SHAREHOLDERS:
Effective the close of business
on June 26, 1998, Fidelity
Short-Intermediate Government
Fund shares are no longer available
to new accounts. Shareholders of
the fund on that date may continue
to purchase shares in accounts
existing on that date. On October 19,
1998, after the end of the period,
the Board of Trustees of Fidelity
Short-Intermediate Government
Fund voted to present a proposal
to shareholders to merge Fidelity
Short-Intermediate Government
Fund into Fidelity Intermediate
Government Income Fund. A
shareholder meeting is scheduled to
be held on April 14, 1999. On or
about February 16, 1999,
shareholders will be sent proxy
materials asking them to vote on this
and any other proposals.
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
COUPON DISTRIBUTION AS OF SEPTEMBER 30,
1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
LESS THAN 5% 0.0 8.0
5 - 5.99% 10.2 22.2
6 - 6.99% 18.0 21.0
7 - 7.99% 18.1 6.9
8 - 8.99% 12.3 11.2
9 - 9.99% 17.6 15.3
10 - 10.99% 7.3 9.1
11 - 11.99% 3.7 4.5
12% AND OVER 8.9 0.4
</TABLE>
COUPON DISTRIBUTION SHOWS THE RANGE OF STATED RATES ON THE FUND'S
INVESTMENTS, EXCLUDING SHORT-TERM INVESTMENTS.
AVERAGE YEARS TO MATURITY AS OF SEPTEMBER
30, 1998
6 MONTHS AGO
YEARS 3.4 3.4
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1998
6 MONTHS AGO
YEARS 2.3 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 CAN INFLUENCE A
BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S
ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1998
ROW: 1, COL: 1, VALUE: 15.0
ROW: 1, COL: 2, VALUE: 16.8
ROW: 1, COL: 3, VALUE: 64.3
ROW: 1, COL: 4, VALUE: 3.9
MORTGAGE-BACKED
SECURITIES 15.0%
U.S. TREASURY
OBLIGATIONS 16.8%
U.S. GOVERNMENT AGENCY
OBLIGATIONS 64.3%
SHORT-TERM
INVESTMENTS 3.9%
AS OF MARCH 31, 1998
ROW: 1, COL: 1, VALUE: 18.0
ROW: 1, COL: 2, VALUE: 45.8
ROW: 1, COL: 3, VALUE: 34.3
ROW: 1, COL: 4, VALUE: 1.9
MORTGAGE-BACKED
SECURITIES 18.5%
U.S. TREASURY
OBLIGATIONS 45.8%
U.S. GOVERNMENT AGENCY
OBLIGATIONS 34.3%
SHORT-TERM
INVESTMENTS 1.4%
INVESTMENTS SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
- - 81.1%
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS -
64.3%
Fannie Mae:
5.75% $ 3,000,000 $ 3,129,360
4/15/03
6.74% 380,000 416,871
5/13/04
8.25% 10,000,000 10,723,400
12/18/00
12% 10,000,000 11,442,200
11/13/00
Farm Credit 4,000,000 4,793,760
Systems
Financial
Assistance
Corp.
9.375%
7/21/03
Federal 350,000 373,517
Agricultural
Mortgage
Corp. 6.92%
2/10/02
Government
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Defense
Security
Assistance
Agency):
Class 1-C, 8,825,964 9,426,306
9.25%
11/15/01
Class 2-E, 3,585,314 3,809,037
9.4%
5/15/02
Class T-3, 3,955,274 4,196,545
9.625%
5/15/02
Guaranteed
Export Trust
Certificates
(assets of
Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank):
Series 3,840,000 3,975,821
1995-A,
6.28%
6/15/04
Series 1,615,078 1,745,415
1994-A,
7.12%
4/15/06
Series 1994-F, 4,940,777 5,334,853
8.187%
12/15/04
Guaranteed 2,083,333 2,141,458
Trade Trust
Certificates
(assets of
Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1997-A,
6.104%
7/15/03
Israel Export 1,800,000 1,875,780
Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1994-1,
6.88%
1/26/03
Overseas Private 1,122,400 1,168,070
Investment
Corp. U.S.
Government
guaranteed
participation
certificate
Series
1994-195,
6.08%
8/15/04
(callable)
Private Export
Funding
Corp.:
secured 5.65% 1,215,000 1,236,955
3/15/03
5.82% 3,500,000 3,636,185
6/15/03 (a)
State of Israel
(guaranteed
by U.S.
Government
through
Agency for
International
Development):
5.25% 1,000,000 1,008,420
9/15/00
6.05% 5,780,000 5,909,530
8/15/00
6.625% 7,000,000 7,564,060
8/15/03
U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
- - CONTINUED
PRINCIPAL VALUE
AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS -
CONTINUED
U.S. Department $ 230,000 $ 236,348
of Housing
and Urban
Development
government
guaranteed
participation
certificates
Series
1996-A,
6.59%
8/1/00
84,143,891
U.S. TREASURY OBLIGATIONS - 16.8%
U.S. Treasury 20,200,000 22,081,024
Notes 7.875%
8/15/01
TOTAL U.S. 106,224,
GOVERNMENT AND 915
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $104,312,652)
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES -
15.0%
FREDDIE MAC - 3.2%
5.5% 12/1/02 4,258,135 4,244,680
to 7/1/03
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
- - 11.8%
8.5% 1/15/17 51,984 55,363
to 7/15/17
9.5% 4/15/16 659,103 711,824
to 11/15/20
10% 11/15/09 2,712,127 2,938,004
to 11/15/20
10.5% 2/15/14 5,731,204 6,293,860
to 8/15/19
10.75% 178,569 195,265
12/15/09
11% 11/15/09 1,991,280 2,209,561
to 6/15/19
11.5% 3/15/10 2,300,564 2,586,889
to 7/15/19
12% 3/20/14 to 270,308 307,145
2/15/16
12.5% 39,115 44,766
12/15/10
13% 9/15/14 34,479 39,962
15,382,639
TOTAL U.S. 19,627,3
GOVERNMENT AGENCY 19
- -
MORTGAGE-BACKED
SECURITIES
(Cost $19,585,958)
CASH EQUIVALENTS - 3.9%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in $ 5,074,813 $ 5,074,000
repurchase
agreements
(U.S. Treasury
obligations), in
a joint trading
account at
5.77%,
dated
9/30/98 due
10/1/98
(Cost
$5,074,000)
TOTAL INVESTMENT IN $ 130,926,2
SECURITIES - 100% 34
(Cost $128,972,610)
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
$3,636,185 or 2.7% of net assets.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $128,972,610. Net unrealized appreciation
aggregated $1,953,624, of which $2,220,303 related to appreciated
investment securities and $266,679 related to depreciated investment
securities.
At September 30, 1998, the fund had a capital loss carryforward of
approximately $10,705,000 of which $40,000, $1,404,000, $5,655,000,
$2,404,000, and $1,202,000 will expire on September 30, 2001, 2002,
2003, 2004, and 2005, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30,
1998
ASSETS
INVESTMENT IN $ 130,926,234
SECURITIES, AT
VALUE
(INCLUDING
REPURCHASE
AGREEMENTS OF
$5,074,000)
(COST
$128,972,61
0) -
SEE
ACCOMPANYING
SCHEDULE
CASH 59
RECEIVABLE FOR 275,599
FUND SHARES
SOLD
INTEREST 2,194,159
RECEIVABLE
TOTAL ASSETS 133,396,051
LIABILITIES
PAYABLE FOR FUND $ 84,438
SHARES
REDEEMED
DISTRIBUTIONS 115,986
PAYABLE
ACCRUED 47,533
MANAGEMENT
FEE
OTHER PAYABLES 39,373
AND ACCRUED
EXPENSES
TOTAL LIABILITIES 287,330
NET ASSETS $ 133,108,721
NET ASSETS
CONSIST OF:
PAID IN CAPITAL $ 141,232,703
UNDISTRIBUTED NET 627,332
INVESTMENT
INCOME
ACCUMULATED (10,704,938)
UNDISTRIBUTED
NET REALIZED
GAIN (LOSS)
ON INVESTMENTS
NET UNREALIZED 1,953,624
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET ASSETS, FOR $ 133,108,721
13,978,785
SHARES
OUTSTANDING
NET ASSET VALUE, $9.52
OFFERING PRICE
AND
REDEMPTION
PRICE
PER SHARE
($133,108,72
1 (DIVIDED BY)
13,978,785
SHARES)
STATEMENT OF OPERATIONS
YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT $ 8,918,030
INCOME
INTEREST (INCLUDING
INCOME ON
SECURITIES
LOANED OF
$785)
EXPENSES
MANAGEMENT FEE $ 549,634
TRANSFER AGENT 277,563
FEES
ACCOUNTING FEES 61,038
AND EXPENSES
NON-INTERESTED 1,214
TRUSTEES'
COMPENSATION
CUSTODIAN FEES 23,854
AND EXPENSES
REGISTRATION FEES 25,533
AUDIT 38,164
LEGAL 5,252
MISCELLANEOUS 657
TOTAL EXPENSES 982,909
NET INVESTMENT 7,935,121
INCOME
REALIZED AND 649,418
UNREALIZED GAIN
(LOSS)
NET REALIZED
GAIN (LOSS) ON
INVESTMENT
SECURITIES
CHANGE IN NET 1,028,320
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENT
SECURITIES
NET GAIN (LOSS) 1,677,738
NET INCREASE $ 9,612,859
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE
(DECREASE) IN
NET ASSETS
OPERATIONS $ 7,935,121 $ 7,884,065
NET INVESTMENT
INCOME
NET REALIZED 649,418 178,902
GAIN (LOSS)
CHANGE IN NET 1,028,320 135,665
UNREALIZED
APPRECIATION
(DEPRECIATION)
NET INCREASE 9,612,859 8,198,632
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
DISTRIBUTIONS TO (7,535,429) (7,517,929)
SHAREHOLDERS
FROM NET
INVESTMENT
INCOME
SHARE 54,016,902 51,261,094
TRANSACTIONS
NET PROCEEDS
FROM SALES OF
SHARES
REINVESTMENT 6,398,701 5,978,419
OF DISTRIBUTIONS
COST OF SHARES (49,522,626) (60,826,140)
REDEEMED
NET INCREASE 10,892,977 (3,586,627)
(DECREASE) IN
NET ASSETS
RESULTING
FROM SHARE
TRANSACTIONS
TOTAL 12,970,407 (2,905,924)
INCREASE
(DECREASE) IN
NET ASSETS
NET ASSETS
BEGINNING OF 120,138,314 123,044,238
PERIOD
END OF PERIOD $ 133,108,721 $ 120,138,314
(INCLUDING
UNDISTRIBUTED
NET
INVESTMENT
INCOME AND
DISTRIBUTIONS
IN EXCESS OF
NET
INVESTMENT
INCOME OF
$627,332
AND
$97,053,
RESPECTIVELY)
OTHER
INFORMATION
SHARES
SOLD 5,742,399 5,495,549
ISSUED IN 679,888 639,858
REINVESTMENT OF
DISTRIBUTIONS
REDEEMED (5,264,176) (6,514,225)
NET INCREASE 1,158,111 (378,818)
(DECREASE)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED
SEPTEMBER
30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 9.370 $ 9.320 $ 9.490 $ 9.290 $ 9.960
BEGINNING OF
PERIOD
INCOME FROM .591 A .603 A .599 .648 .533
INVESTMENT
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED .119 .022 (.167) .174 (.648)
AND
UNREALIZED
GAIN (LOSS)
TOTAL FROM .710 .625 .432 .822 (.115)
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.560) (.575) (.602) (.622) (.555)
INVESTMENT
INCOME
NET ASSET VALUE, $ 9.520 $ 9.370 $ 9.320 $ 9.490 $ 9.290
END OF PERIOD
TOTAL RETURN 7.82% 6.90% 4.67% 9.15% (1.18)%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 133,109 $ 120,138 $ 123,044 $ 140,471 $ 132,466
OF PERIOD
(000 OMITTED)
RATIO OF EXPENSES .78% .81% .79% .82% .95%
TO
AVERAGE NET
ASSETS
RATIO OF NET 6.29% 6.45% 6.54% 6.67% 6.80%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 253% 126% 188% 266% 184%
RATE
</TABLE>
A NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1998
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 quotations are not readily available are valued
at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
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, market
discount, capital loss carryforwards and losses deferred due to wash
sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences that will reverse in a subsequent period. Any
taxable income or gain remaining at fiscal year end is distributed in
the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
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 $314,117,122 and $306,609,748, 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 annual rate of .44% of average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annual rate of .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.
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, there were no loans outstanding.
6. PROPOSED REORGANIZATION.
The Board of Trustees of Fidelity Short-Intermediate Government Fund
has approved an Agreement and Plan of Reorganization ("Agreement")
between the fund and Fidelity Intermediate Government Income Fund
("Reorganization"). The Agreement provides for the transfer of all of
the assets of the fund to Fidelity Intermediate Government Income Fund
in exchange solely for the number of shares of Fidelity Intermediate
Government Income Fund having the same aggregate net asset value as
the outstanding shares of the fund as of the close of business of the
New York Stock Exchange on the day that the Reorganization is
effective and the assumption by Fidelity Intermediate Government
Income Fund of all of the liabilities of the fund. The Reorganization
can be consummated only if, among other things, it is approved by the
vote of a majority (as defined by the 1940 Act) of outstanding voting
securities of the fund. A Special Meeting of Shareholders ("Meeting")
of the fund will be held on April, 14, 1999 to vote on the Agreement.
A detailed description of the proposed transaction and voting
information will be sent to shareholders of the fund in February 1999.
If the Agreement is approved at the Meeting, the Reorganization is
expected to become effective on or about April 29, 1999.
Effective June 26, 1998 the fund's shares are no longer available for
purchase or exchange to new accounts of the fund pending the proposed
Reorganization.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Fidelity Short-Intermediate Government Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Short-Intermediate Government Fund (a fund of Fidelity
Charles Street Trust) at September 30, 1998, the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated in conformity with generally accepted
accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fidelity Short-Intermediate Government Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included
confirmation of securities at September 30, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
DISTRIBUTIONS
A total of 25.09% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(PC_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(PC_GRAPHIC)
FIDELITY ON-LINE XPRESS+TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
INVESTMENT ADVISER
Fidelity Management & Research
Company
Boston, MA
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
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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 Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Strategic Income Bond
Target Timeline SM 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 (registered trademark)(AUTOMATED GRAPHIC)
1-800-544-4774
(AUTOMATED GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
FSG-ANN-1198 64332
1.537608.101
(Fidelity Logo Graphic)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SPARTAN(REGISTERED TRADEMARK)
INVESTMENT GRADE BOND
FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
(2 Fidelity Logo Graphics)(registered trademark)
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 23 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 27 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 30 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 31
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
SPARTAN INV. 10.95% 35.94% 60.64%
GRADE BOND
LB AGGREGATE 11.51% 41.66% 54.99%
BOND
INTERMEDIATE 10.02% 35.84% N/A
INVESTMENT
GRADE DEBT
FUNDS
AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on 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 one
year average represents a peer group of 218 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 PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
SPARTAN INV. 10.95% 6.33% 8.22%
GRADE BOND
LB AGGREGATE 11.51% 7.21% 7.58%
BOND
INTERMEDIATE 10.02% 6.31% N/A
INVESTMENT
GRADE DEBT
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
1992/10/01 10000.00 10000.00
1992/10/31 9812.23 9816.93
1992/11/30 9910.58 9818.90
1992/12/31 10141.51 9975.02
1993/01/31 10397.72 10166.54
1993/02/28 10729.65 10344.45
1993/03/31 10789.98 10387.90
1993/04/30 10830.04 10460.61
1993/05/31 10871.84 10474.21
1993/06/30 11226.71 10663.80
1993/07/31 11392.79 10724.58
1993/08/31 11782.44 10912.26
1993/09/30 11816.73 10941.72
1993/10/31 11913.99 10982.21
1993/11/30 11705.42 10888.86
1993/12/31 11740.02 10947.66
1994/01/31 11984.80 11095.45
1994/02/28 11571.41 10902.39
1994/03/31 11183.62 10633.10
1994/04/30 11070.36 10548.04
1994/05/31 11000.02 10546.98
1994/06/30 10994.05 10523.78
1994/07/31 11184.69 10733.20
1994/08/31 11183.61 10746.08
1994/09/30 11019.13 10588.11
1994/10/31 10995.76 10578.59
1994/11/30 11028.07 10555.31
1994/12/31 11132.78 10628.14
1995/01/31 11333.41 10838.58
1995/02/28 11549.35 11096.54
1995/03/31 11689.77 11164.23
1995/04/30 11838.95 11320.53
1995/05/31 12332.88 11758.63
1995/06/30 12424.27 11844.47
1995/07/31 12383.63 11818.41
1995/08/31 12539.11 11961.42
1995/09/30 12665.77 12077.44
1995/10/31 12831.52 12234.45
1995/11/30 13022.66 12417.96
1995/12/31 13204.49 12591.82
1996/01/31 13294.65 12674.92
1996/02/29 13063.03 12454.38
1996/03/31 12964.75 12367.20
1996/04/30 12876.88 12297.94
1996/05/31 12843.90 12273.35
1996/06/30 13004.84 12437.81
1996/07/31 13036.96 12471.39
1996/08/31 13015.72 12450.19
1996/09/30 13230.84 12666.82
1996/10/31 13515.06 12948.03
1996/11/30 13731.49 13169.44
1996/12/31 13616.13 13046.96
1997/01/31 13661.24 13087.41
1997/02/28 13686.05 13120.13
1997/03/31 13530.63 12974.49
1997/04/30 13741.70 13169.11
1997/05/31 13859.90 13294.22
1997/06/30 14016.97 13452.42
1997/07/31 14397.86 13815.63
1997/08/31 14277.92 13698.20
1997/09/30 14478.69 13900.93
1997/10/31 14669.01 14102.50
1997/11/30 14716.41 14167.37
1997/12/31 14880.02 14310.46
1998/01/31 15070.31 14493.63
1998/02/28 15082.54 14482.04
1998/03/31 15146.56 14531.28
1998/04/30 15223.90 14606.84
1998/05/31 15376.86 14745.60
1998/06/30 15483.26 14870.94
1998/07/31 15517.96 14902.17
1998/08/31 15686.01 15145.08
1998/09/30 16063.60 15499.47
IMATRL PRASUN SHR__CHT 19980930 19981006 115405 R00000000000075
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Spartan Investment Grade Bond Fund on October 1, 1992,
when the fund started. As the chart shows, by September 30, 1998, the
value of the investment would have grown to $16,064 - a 60.64%
increase on the initial investment. For comparison, look at how the
Lehman Brothers Aggregate Bond Index did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $15,499 - a 54.99% increase.
(checkmark)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.
TOTAL RETURN COMPONENTS
YEARS
ENDED
SEPTEM
BER 30,
1998 1997 1996 1995 1994
DIVIDEND 6.56% 6.72% 6.33% 7.65% 6.24%
RETURNS
CAPITAL 4.39% 2.71% -1.87% 7.29% -12.99%
RETURNS
TOTAL RETURNS 10.95% 9.43% 4.46% 14.94% -6.75%
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, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED PAST 1 PAST 6 PAST 1
SEPTEMBER 30, MONTH MONTHS YEAR
1998
DIVIDENDS PER 5.28(CENTS) 31.92(CENTS) 63.72(CENTS)
SHARE
ANNUALIZED 6.07% 6.08% 6.12%
DIVIDEND
RATE
30-DAY 5.69% - -
ANNUALIZED
YIELD
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
$10.58 over the past one month, $10.47 over the past six months and
$10.42 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 5.50%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
As a safe haven from turbulent stock
markets worldwide, bond markets
reaped the benefits from the flight to
quality by anxious investors during
the 12-month period ending
September 30, 1998. The Lehman
Brothers Aggregate Bond Index - a
broad measure of the U.S. taxable
investment-grade bond market -
returned 11.51% over the past year,
two and one-half times higher than the
4.54% return generated for the
six-month period ending March 31,
1998. The buying surge sent
Treasury-bond yields - which move
in the opposite direction of bond
prices - to their lowest level in over
three decades, as the yield on the
benchmark 30-year bond fell to
4.96%. In spite of the global economic
crisis that dominated the period, the
U.S. enjoyed low interest rates, low
inflation and a stable economy, which
aided the performance of corporate
bonds. The Lehman Brothers
Corporate Bond Index returned
11.07% for the 12-month period.
Mortgage-backed bonds also
performed well, although lower
interest rates resulted in higher
refinancing activity. The Lehman
Brothers Mortgage Backed Securities
Index had a 12-month return of
8.62%. Interest rates fell even lower
late in the period, as the Federal
Reserve lowered the fed funds rate by
0.25%, the first rate cut in nearly three
years. The period's biggest losers were
shareholders of emerging-market
debt, as the JP Morgan Emerging
Markets Bond Index lost 20.89%
over the past 12 months.
(PHOTOGRAPH OF KEVIN GRANT)
An interview with Kevin Grant, Portfolio Manager of Spartan Investment
Grade Bond Fund
Q. HOW DID THE FUND PERFORM, KEVIN?
A. For the 12-month period that ended September 30, 1998, the fund had
a total return of 10.95%. In comparison, the fund outpaced the
intermediate investment grade debt funds average tracked by Lipper
Analytical Services, which returned 10.02%. The fund lagged the Lehman
Brothers Aggregate Bond Index, which returned 11.51% during the same
period.
Q. WHAT FACTORS CONTRIBUTED TO THE FUND'S UNDERPERFORMANCE OF THE
LEHMAN BROTHERS INDEX?
A. Historically, the fund is overweighted in corporate bonds as well
as mortgage-backed and asset-backed securities relative to Treasury
bonds. The Lehman Brothers Aggregate Bond Index tends to have over 20%
of its assets in short- and intermediate-maturity Treasuries. For many
years, we've been able to replace the short-term Treasuries that the
fund would ordinarily hold with short-term, high-grade corporate
bonds. Over the long haul, the yield advantage of the short-term
corporate bonds helps generate better total return than the government
bonds. However, in the environment we experienced in August and
September, the markets cared only about government-guaranteed bonds
and Treasuries benefited from a massive flight to quality. While this
situation was good for Treasury bonds, it caused the fund to
underperform the Lehman Brothers Aggregate Bond Index because the
rally was for the most part limited to Treasuries.
Q. WHAT OTHER FACTORS INFLUENCED THE FUND'S PERFORMANCE?
A. During the past few months of the period, we witnessed an extreme
demand for safety that we haven't seen since 1987. At the end of the
period, the Federal Reserve Board cut the federal funds rate - the
interest rate charged by Federal Reserve district banks to banks
needing overnight loans - to 5.25%, yet the yield on the two-year
Treasury dropped to 4.25%, while their prices went up. This yield
spread between the federal funds rate and two-year Treasuries
indicated that the bond market believes the Federal Reserve would cut
rates further. During the past few months, we've seen the price of
two-year Treasuries rise by two percentage points, while prices on
many corporate bonds, regardless of credit quality, have barely
budged. This is a very unusual event. Assuming we don't have defaults
on investment-grade corporate bonds, their yield advantage over
government securities could produce an attractive return advantage.
Q. WHAT WAS YOUR STRATEGY DURING THE PERIOD?
A. For most of the year, I felt the mortgage securities market was
expensive relative to Treasuries and I kept the fund's positions close
to the index. As it turns out, we experienced a massive re-pricing of
these securities and the mortgage market was much cheaper as the
period drew to a close. In fact, over the past eight to 10 years,
mortgage rates have ranged anywhere from 80 to 130 basis points (.80
to 1.30 percentage points) higher than the 10-year Treasury bond. At
the end of the period, the yield spread between Ginnie Mae mortgage
bonds and the 10-year Treasury was over 200 points. As a result, I
increased the fund's position in mortgage-backed bonds to take
advantage of the interest-rate advantage over Treasuries.
Additionally, the fund held approximately 32% of its assets in
corporate bonds during the period. This sector contributed to
performance until we had the massive flight to quality - and to
Treasuries - at the end of the summer. The fund's overweighted
position in corporate bonds relative to the index hurt performance.
Q. WHAT'S YOUR OUTLOOK?
A. I think we need to take a cautious view. A number of market and
economic indicators point to the possibility of a recession in the
U.S. next year. As a result, I have positioned the fund relatively
defensively. However, I will continue to look closely at
mortgage-backed securities and may look to add to the fund's
positions. Corporate bonds also will continue to be a focus for the
fund, but over the short term I may not add to existing holdings. I
see more value in the mortgage market, particularly in those bonds
with high-quality Aaa ratings. While there is prepayment or
refinancing risk with mortgages, at these interest rate levels we are
better compensated for prepayment risk than at any time in recent
years.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
(CHECKMARK)FUND FACTS
GOAL: high current income
FUND NUMBER: 448
TRADING SYMBOL: FSIBX
START DATE: October 1, 1992
SIZE: as of September 30,
1998 more than $1.2 billion
MANAGER: Kevin Grant, since
1997; also manager of several
Fidelity investment-grade
taxable bond funds; joined
Fidelity in 1993
KEVIN GRANT ON THE FUND'S
BENCHMARK, THE LEHMAN
BROTHERS AGGREGATE BOND
INDEX, AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"The Lehman Brothers Aggregate
Bond Index - a market value
weighted benchmark of
investment-grade fixed-rate debt
issues with maturities of at least
one year - plays a very important
role in the management of the
fund. It's the fund's benchmark
index and includes most of the
universe of investment-grade
bonds with maturities of one year
or more. I use the index as a
guideline for the structure of the
overall bond market, managing the
fund to be generally as sensitive to
changes in interest rates as the
index. In addition, I refer to the
index when deciding how to
allocate assets among different
maturities and market sectors -
such as corporate, mortgage or
government securities - based on
my view of the relative value of
each maturity or sector."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30,
1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 56.5 46.9
AA 3.8 4.2
A 6.9 6.9
BAA 18.9 14.5
BA AND BELOW 2.9 3.0
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS BA OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF SEPTEMBER
30, 1998
6 MONTHS AGO
YEARS 7.8 7.5
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.
DURATION AS OF SEPTEMBER 30, 1998
6 MONTHS AGO
YEARS 4.2 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 CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30,1998 *
ROW: 1, COL: 1, VALUE: 11.0
ROW: 1, COL: 2, VALUE: 3.4
ROW: 1, COL: 3, VALUE: 31.8
ROW: 1, COL: 4, VALUE: 21.1
ROW: 1, COL: 5, VALUE: 32.7
CORPORATE BONDS 32.7%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 21.1%
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES 31.8%
OTHER 3.4%
SHORT-TERM
INVESTMENTS 11.0%
* FOREIGN INVESTMENTS 6.7%
AS OF MARCH 31, 1998 **
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
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%
** FOREIGN INVESTMENTS 17.4%
INVESTMENTS SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE BONDS - 29.4%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
AEROSPACE & DEFENSE - 0.4%
DEFENSE ELECTRONICS - 0.4%
Raytheon Co. Baa1 $ 5,000 $ 5,201
6.45%
8/15/02
BASIC INDUSTRIES - 0.6%
PACKAGING & CONTAINERS - 0.6%
Owens-Illinois,
Inc.:
7.15% Ba1 2,600 2,600
5/15/05
7.35% Ba1 2,450 2,453
5/15/08
7.8% Ba1 3,000 2,858
5/15/18
7,911
CONSTRUCTION & REAL ESTATE - 1.5%
REAL ESTATE INVESTMENT TRUSTS - 1.5%
CenterPoint Baa2 1,100 1,092
Properties
Corp. 6.75%
4/1/05
EOP Operating
LP:
6.625% Baa1 8,010 8,006
2/15/05
6.75% Baa1 2,270 2,259
2/15/08
7.25% Baa1 8,000 7,549
2/15/18
18,906
DURABLES - 1.0%
TEXTILES & APPAREL - 1.0%
Levi Strauss & Baa2 8,550 8,343
Co. 7%
11/1/06 (b)
Unifi, Inc. 6.5% A3 5,000 5,007
2/1/08
13,350
ENERGY - 1.3%
OIL & GAS - 1.3%
Oryx Energy
Co.:
8.125% Ba1 6,500 6,744
10/15/05
8.375% Ba1 5,000 5,351
7/15/04
Petroleum Baa3 3,670 3,542
Geo-Services
ASA 7.125%
3/30/28
USX-Marathon Baa2 670 695
Group 6.85%
3/1/08
16,332
FINANCE - 10.9%
BANKS - 4.5%
ABN-Amro Bank Aa3 1,750 1,821
NV, Chicago
6.625%
10/31/01
BankAmerica Aa3 500 583
Corp. 10%
2/1/03
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
FINANCE - CONTINUED
BANKS - CONTINUED
BankBoston NA A2 $ 10,800 $ 10,886
(Bearer)
6.375%
3/25/08
BanPonce Corp.:
5.75% A3 690 691
3/1/99
6.378% A3 770 773
4/8/99
Barclays Bank
PLC yankee:
5.875% A1 4,500 4,541
7/15/00
5.95% A1 5,400 5,496
7/15/01
Capital One
Bank:
6.375% Baa3 2,400 2,452
2/15/03
6.42% Baa3 4,000 4,020
11/12/99
Capital One Ba1 2,900 2,962
Financial
Corp. 7.125%
8/1/08
Central Fidelity A1 1,000 1,104
Banks, Inc.
8.15%
11/15/02
Fleet/Norstar A3 250 277
Financial
Group, Inc. 9%
12/1/01
Kansallis-Osake- A3 430 492
Pankki, New
York 10%
5/1/02
MBNA Corp.:
6.34% Baa2 800 819
6/2/03
6.875% Baa2 3,600 3,790
11/15/02
NB Capital Trust Aa3 3,980 4,370
IV 8.25%
4/15/27
Provident Bank, A3 210 213
Cincinnati
6.125%
12/15/00
Providian Baa3 7,750 7,824
National Bank
6.25%
5/7/01
Summit Bancorp BBB 1,000 1,121
8.625%
12/10/02
Union Planters Baa2 1,200 1,240
Corp. 6.75%
11/1/05
Union Planters A3 1,000 1,039
National Bank
6.81%
8/20/01
56,514
CREDIT & OTHER FINANCE - 5.4%
Associates Corp.
of North
America:
6% 4/15/03 Aa3 2,400 2,474
6% 7/15/05 Aa3 10,000 10,311
AT&T Capital
Corp.:
6.16% Baa3 750 759
12/3/99
6.41% Baa3 2,000 2,017
8/13/99
Bank of New A1 3,000 3,269
York, Inc.
Capital I
7.97%
12/31/26
BankBoston A2 1,750 1,736
Capital Trust II
7.75%
12/15/26
BanPonce Trust I A3 1,960 2,004
8.327%
2/1/27
BCH Cayman A2 180 191
Islands Ltd.
yankee 7.7%
7/15/06
Chase Capital I Aa3 10,570 10,815
7.67%
12/1/26
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - CONTINUED
ERP Operating A3 $ 1,000 $ 1,014
LP 6.55%
11/15/01
First Security A3 5,420 6,051
Capital I
8.41%
12/15/26
First Union BBB+ 2,000 2,171
Institutional
Capital I
8.04%
12/1/26
Fleet Mortgage A2 250 253
Group, Inc.
6.5%
9/15/99
General Electric Aaa 1,750 1,763
Capital Corp.
6.94%
4/13/09 (a)
GS Escrow Ba1 5,300 5,232
Corp. 7.125%
8/1/05 (b)
Household A2 8,000 8,124
Finance Corp.
6% 5/8/00
KeyCorp A1 1,100 1,173
Institutional
Capital A
7.826%
12/1/26
MCN Investment Baa3 800 814
Corp. 6.03%
2/1/01
Morgan (J.P.) Aa3 4,620 4,795
Capital Trust II
7.95%
2/1/27
PNC Institutional A2 2,000 2,186
Capital Trust
8.315%
5/15/27 (b)
Spieker Baa2 1,650 1,672
Properties LP
6.9%
1/15/04
68,824
INSURANCE - 0.4%
Executive Risk Baa3 2,750 2,767
Capital Trust
8.675%
2/1/27
Protective Life A3 400 454
Corp. 7.95%
7/1/04
SunAmerica, Inc. Baa1 1,500 1,514
6.2%
10/31/99
4,735
SAVINGS & LOANS - 0.5%
Great Western A3 4,000 4,344
Finance Trust II
8.206%
2/1/27
Long Island Baa3 1,550 1,565
Savings Bank
FSB 6.2%
4/2/01
5,909
SECURITIES INDUSTRY - 0.1%
Amvescap PLC A3 1,500 1,541
6.375%
5/15/03
TOTAL FINANCE 137,523
INDUSTRIAL MACHINERY & EQUIPMENT - 1.2%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Tyco Baa1 8,000 8,169
International
Group SA
yankee
6.125%
6/15/01
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 0.5%
WMX
Technologies,
Inc.:
6.25% Baa3 $ 2,200 $ 2,208
4/1/99
7.1% 8/1/26 Baa3 4,000 4,296
6,504
TOTAL INDUSTRIAL MACHINERY & 14,673
EQUIPMENT
MEDIA & LEISURE - 4.3%
BROADCASTING - 2.7%
Clear Channel
Communicatio
ns, Inc.:
6.875% Baa3 5,000 4,921
6/15/18
7.25% Baa3 2,500 2,540
10/15/27
Continental
Cablevision,
Inc.:
8.3% Baa3 735 831
5/15/06
9% 9/1/08 Baa3 1,710 2,057
Cox Baa2 2,560 2,699
Communicatio
ns, Inc. 6.4%
8/1/08
TCI
Communicatio
ns, Inc.:
6.375% Baa3 350 366
5/1/03
6.875% Baa3 1,240 1,344
2/15/06
8.25% Baa3 120 133
1/15/03
8.75% Baa3 7,000 8,745
8/1/15
9.8% 2/1/12 Baa3 3,150 4,211
Time Warner,
Inc.:
6.875% Baa3 2,020 2,087
6/15/18
9.125% Baa3 3,000 3,767
1/15/13
33,701
ENTERTAINMENT - 0.7%
Viacom, Inc. Ba2 7,950 8,585
7.75%
6/1/05
PUBLISHING - 0.9%
News America Baa3 6,000 6,631
Holdings, Inc.
8% 10/17/16
News America, Baa3 1,400 1,440
Inc. 6.625%
1/9/08
Time Warner
Entertainment
Co. LP:
8.375% Baa2 1,750 2,106
3/15/23
8.875% Baa2 750 935
10/1/12
10.15% Baa2 500 676
5/1/12
11,788
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.0%
Darden Baa1 $ 500 $ 492
Restaurants,
Inc. 6.375%
2/1/06
TOTAL MEDIA & LEISURE 54,566
NONDURABLES - 0.7%
FOODS - 0.2%
ConAgra, Inc. Baa1 2,040 2,202
7.125%
10/1/26
TOBACCO - 0.5%
Philip Morris
Companies,
Inc.:
6.95% A2 4,000 4,252
6/1/06
7% 7/15/05 A2 2,000 2,138
6,390
TOTAL NONDURABLES 8,592
RETAIL & WHOLESALE - 1.1%
GENERAL MERCHANDISE STORES - 0.6%
Dayton Hudson A3 1,000 1,045
Corp. 6.4%
2/15/03
Federated
Department
Stores, Inc.:
6.79% Baa2 2,000 2,114
7/15/27
8.5% Baa2 4,000 4,494
6/15/03
7,653
GROCERY STORES - 0.5%
American Stores Baa2 2,000 2,264
Co. 7.5%
5/1/37
Kroger Co. 6% Baa3 3,470 3,516
7/1/00
5,780
TOTAL RETAIL & WHOLESALE 13,433
TECHNOLOGY - 0.5%
COMPUTERS & OFFICE EQUIPMENT - 0.5%
Comdisco, Inc. Baa1 6,000 6,161
6.375%
11/30/01
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
TRANSPORTATION - 1.1%
AIR TRANSPORTATION - 0.3%
Delta Air Lines, Baa1 $ 2,479 $ 2,739
Inc. equipment
trust certificate
8.54%
1/2/07
United Air Lines, Baa3 1,000 1,378
Inc. 10.25%
7/15/21
4,117
RAILROADS - 0.8%
Burlington
Northern
Santa Fe
Corp.:
6.53% Baa2 5,000 5,246
7/15/37
6.875% Baa2 2,000 2,083
12/1/27
Norfolk Southern Baa1 2,510 2,767
Corp. 7.05%
5/1/37
10,096
TOTAL TRANSPORTATION 14,213
UTILITIES - 4.8%
CELLULAR - 1.1%
360 Degrees
Communicatio
ns Co.:
7.125% Baa1 279 298
3/1/03
7.5% 3/1/06 Baa1 2,150 2,411
AirTouch Baa2 7,000 7,367
Communicatio
ns, Inc. 6.35%
6/1/05
Cable & Baa1 4,330 4,427
Wireless
Communicatio
ns PLC
6.375%
3/6/03
14,503
ELECTRIC UTILITY - 2.0%
Avon Energy
Partners
Holdings:
6.46% Baa2 3,200 3,279
3/4/08 (b)
7.05% Baa2 6,000 6,436
12/11/07 (
b)
British Columbia Aa2 410 435
Hydro &
Power
Authority
yankee 12.5%
1/15/14
DR Investments Baa1 2,000 2,104
yankee 7.1%
5/15/02 (b)
Hydro-Quebec A2 250 298
yankee 8%
2/1/13
Israel Electric
Corp. Ltd.:
yankee 7.25% A3 1,000 1,021
12/15/06 (
b)
7.75% A3 5,195 4,933
12/15/27 (
b)
Philadelphia
Electric Co. 1st
& ref. mtg.:
7.75% Baa1 1,000 1,037
5/1/23
8.25% Baa1 100 105
9/1/22
8.625% Baa1 300 316
6/1/22
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Texas Utilities Baa3 $ 5,265 $ 5,342
Co. 6.375%
1/1/08
25,306
GAS - 0.3%
Mitchell Energy Baa3 2,520 2,562
&
Development
Corp.
8% 7/15/99
Panhandle A3 1,000 1,035
Eastern Corp.
8.625%
12/1/99
3,597
TELEPHONE SERVICES - 1.4%
GTE Corp. Baa1 1,000 1,068
7.83%
5/1/23
WorldCom, Inc.:
6.4% Baa2 12,370 13,053
8/15/05
9.375% Baa2 3,486 3,642
1/15/04
17,763
TOTAL UTILITIES 61,169
TOTAL NONCONVERTIBLE 372,030
BONDS
(Cost $361,729)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 21.1%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.3%
Fannie Mae Aaa 1,800 1,894
5.75%
6/15/05
Federal Home
Loan Bank:
7.31% Aaa 5,000 5,598
6/16/04
7.36% Aaa 7,900 8,892
7/1/04
7.87% Aaa 1,700 1,968
10/20/04
Financing Corp. Aaa 5,606 4,335
Coupon Strip
0% 3/26/04
Freddie Mac Aaa 4,350 5,113
8.115%
1/31/05
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
U.S. GOVERNMENT AGENCY OBLIGATIONS -
CONTINUED
Guaranteed Aaa $ 16 $ 17
Export Trust
Certificates
(assets of Trust
guaranteed by
U.S.
Government
through
Export-Import
Bank) Series
1994-C,
6.61%
9/15/99
U.S. Department Aaa 1,000 1,163
of Housing
and Urban
Development
government
guaranteed
participation
certificates
Series
1995-A,
8.24%
8/1/04
TOTAL U.S. GOVERNMENT AGENCY 28,980
OBLIGATIONS
U.S. TREASURY OBLIGATIONS - 18.8%
U.S. Treasury Aaa 16,300 21,946
Bond 7.625%
2/15/25
U.S. Treasury
Notes:
5.875% Aaa 530 540
2/15/00
5.875% Aaa 30,500 31,825
11/30/01
6.375% Aaa 15,400 16,247
9/30/01
7% 7/15/06 Aaa 144,020 167,783
TOTAL U.S. TREASURY OBLIGATIONS 238,341
TOTAL U.S. GOVERNMENT AND 267,321
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $252,653)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 31.8%
FANNIE MAE - 30.0%
5.5% 1/1/09 to Aaa 14,416 14,358
4/1/11
6% 2/1/13 to Aaa 89,480 90,348
11/1/25
6.5% 12/16/03 Aaa 211,528 215,091
to 10/1/28
7% 10/1/28 (e) Aaa 41,375 42,539
7.5% 10/1/28 Aaa 15,000 15,478
8% 10/1/28 Aaa 652 677
9.5% 4/1/17 to Aaa 1,017 1,097
12/1/18
TOTAL FANNIE MAE 379,588
FREDDIE MAC - 0.0%
7% 6/1/01 to Aaa 496 501
7/1/01
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES -
CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
1.8%
6% 10/15/08 to Aaa $ 3,492 $ 3,557
5/15/09
7.5% 1/15/26 Aaa 17,511 18,159
to 8/15/28
9.5% 7/15/16 Aaa 617 666
to 3/15/22
TOTAL GOVERNMENT NATIONAL 22,382
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT 402,471
AGENCY -
MORTGAGE-BACKED
SECURITIES
(Cost $393,864)
</TABLE>
ASSET-BACKED SECURITIES - 3.3%
Arcadia Aaa 14,000 14,298
Automobile
Receivables
Trust
6.5%
6/17/02
Capita Baa2 1,760 1,792
Equipment
Receivables
Trust
6.48%
10/15/06
Chevy Chase Aaa 1,475 1,494
Auto
Receivables
Trust
5.91%
12/15/04
Contimortgage Aaa 5,000 5,022
Home Equity
Loan Trust
6.26%
7/15/12
Ford Credit Auto
Owner Trust:
6.2% Baa3 1,790 1,823
12/15/02
6.4% A1 1,730 1,769
5/15/02
6.4% Baa3 1,020 1,025
12/15/02
Ford Credit Aaa 192 193
Grantor Trust
5.9%
10/15/00
Green Tree Aaa 579 580
Financial
Corp. 6.1%
4/15/27
Key Auto
Finance Trust:
6.3% A2 2,041 2,051
10/15/03
6.65% Baa3 599 605
10/15/03
MBNA Master Aaa 5,000 5,306
Credit Card
Trust II
6.55%
1/15/07
PNC Student Aaa 5,700 5,799
Loan Trust I
6.314%
1/25/01
Premier Auto Aaa 415 415
Trust 6%
5/6/00
TOTAL ASSET-BACKED 42,172
SECURITIES
(Cost $41,238)
COMMERCIAL MORTGAGE SECURITIES -
1.6%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
CS First Boston
Mortgage
Securities
Corp.:
Series 1998 Baa2 $ 5,260 $ 5,199
FLI Class E,
6.5063%
1/10/13 (b)
(c)
Series Baa2 2,200 2,204
1997-C2
Class D,
7.27%
1/17/35
Equitable Life
Assurance
Society of the
United States
(The):
Series 174 Aa2 1,000 1,081
Class B1,
7.33%
5/15/06 (b)
Series 1996-1 A2 1,000 1,083
Class C1,
7.52%
5/15/06 (b)
GS Mortgage Baa3 2,000 1,950
Securities
Corp. II Series
1998-GLII
Class E,
7.1905%
4/13/31 (b)(c
)
Morgan Stanley
Capital I, Inc.
Series
1998-CF1:
Class D, Baa2 3,125 3,156
7.35%
1/15/12
Class E, Baa3 1,074 1,026
7.35%
12/15/12
Structured Asset AAA 947 953
Securities
Corp.
sequential pay
Series 1996
Class A-2A,
7.75%
2/25/28
Thirteen Aaa 3,000 3,156
Affiliates of
General
Growth
Properties, Inc.
sequential pay
Series A-2,
6.602%
12/15/10 (b)
Wells Fargo Aaa 576 595
Capital
Markets
Apartment
Financing Trust
6.56%,
12/29/05 (b)
TOTAL COMMERCIAL 20,403
MORTGAGE SECURITIES
(Cost $19,964)
FOREIGN GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 1.1%
Manitoba A1 6,300 6,684
Province
yankee
6.875%
9/15/02
New Brunswick A1 500 563
Province
yankee
7.625%
2/15/13
Ontario Province Aa3 2,000 2,204
7%, 8/4/05
Quebec Province A2 4,000 4,381
7% 1/30/07
Saskatchewan A2 300 391
Province
yankee 8.5%
7/15/22
TOTAL FOREIGN GOVERNMENT 14,223
AND
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $13,481)
SUPRANATIONAL OBLIGATIONS - 0.4%
Inter American Aaa 5,000 5,488
Development
Bank yankee
6.29%
7/16/27
(Cost $4,969)
CERTIFICATES OF DEPOSIT - 2.2%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
Canadian Aa3 $ 2,500 $ 2,553
Imperial Bank
of Commerce,
New York
yankee 6.2%
8/1/00
Sumitomo Bank - 25,000 25,005
Ltd. Japan
yankee
6.04%
10/19/98
TOTAL CERTIFICATES OF DEPOSIT 27,558
(Cost $27,504)
CASH EQUIVALENTS - 9.1%
MATURITY
AMOUNT (000S)
Investments in $ 114,689 114,671
repurchase
agreements
(U.S. Treasury
obligations), in
a joint
trading
account at
5.77%, dated
9/30/98 due
10/1/98
(Cost
$114,671)
TOTAL INVESTMENT IN $ 1,266,337
SECURITIES - 100%
(Cost $1,230,073)
LEGEND
(a) 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.
(b) 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 $46,598,000 or 3.8% of net assets.
(c) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when
applicable, the final maturity date.
(d) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(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 investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 67.1% AAA, AA, A 67.4%
Baa 18.6% BBB 17.4%
Ba 2.9% BB 3.0%
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $1,230,127,000. Net unrealized appreciation
aggregated $36,211,000, of which $37,961,000 related to appreciated
investment securities and $1,750,000 related to depreciated investment
securities.
The fund hereby designates approximately $1,100,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN
THOUSANDS (EXCEPT
PER-SHARE
AMOUNT) SEPTEMB
ER 30, 1998
ASSETS
INVESTMENT IN $ 1,266,337
SECURITIES, AT
VALUE
(INCLUDING
REPURCHASE
AGREEMENTS OF
$114,671)
(COST
$1,230,073)
- -
SEE
ACCOMPANYING
SCHEDULE
RECEIVABLE FOR 15,413
INVESTMENTS
SOLD
RECEIVABLE FOR 2,010
FUND SHARES
SOLD
INTEREST 12,446
RECEIVABLE
TOTAL ASSETS 1,296,206
LIABILITIES
PAYABLE FOR $ 15,493
INVESTMENTS
PURCHASED
REGULAR
DELIVERY
DELAYED 58,303
DELIVERY
PAYABLE FOR FUND 930
SHARES
REDEEMED
DISTRIBUTIONS 814
PAYABLE
ACCRUED 374
MANAGEMENT
FEE
OTHER PAYABLES 1
AND ACCRUED
EXPENSES
TOTAL LIABILITIES 75,915
NET ASSETS $ 1,220,291
NET ASSETS
CONSIST OF:
PAID IN CAPITAL $ 1,180,848
DISTRIBUTIONS IN (14)
EXCESS OF NET
INVESTMENT
INCOME
ACCUMULATED 3,193
UNDISTRIBUTED
NET REALIZED
GAIN (LOSS) ON
INVESTMENTS
AND FOREIGN
CURRENCY
TRANSACTIONS
NET UNREALIZED 36,264
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET ASSETS, FOR $ 1,220,291
114,029
SHARES
OUTSTANDING
NET ASSET VALUE, $10.70
OFFERING PRICE
AND
REDEMPTION
PRICE PER SHARE
($1,220,291
(DIVIDED BY) 114,029
SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN
THOUSANDS YEAR
ENDED SEPTEMBER
30, 1998
INVESTMENT $ 53,196
INCOME
INTEREST
EXPENSES
MANAGEMENT FEE $ 5,189
NON-INTERESTED 3
TRUSTEES'
COMPENSATION
TOTAL EXPENSES 5,192
BEFORE
REDUCTIONS
EXPENSE (2,086) 3,106
REDUCTIONS
NET INVESTMENT 50,090
INCOME
REALIZED AND 11,120
UNREALIZED GAIN
(LOSS)
NET REALIZED
GAIN (LOSS) ON
INVESTMENT
SECURITIES
CHANGE IN NET 28,204
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENT
SECURITIES
NET GAIN (LOSS) 39,324
NET INCREASE $ 89,414
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN YEAR ENDED YEAR ENDED
THOUSANDS SEPTEMBER 30, SEPTEMBER 30,
1998 1997
INCREASE
(DECREASE) IN
NET ASSETS
OPERATIONS $ 50,090 $ 25,682
NET INVESTMENT
INCOME
NET REALIZED 11,120 488
GAIN (LOSS)
CHANGE IN NET 28,204 11,421
UNREALIZED
APPRECIATION
(DEPRECIATION)
NET INCREASE 89,414 37,591
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
DISTRIBUTIONS TO (50,184) (25,740)
SHAREHOLDERS
FROM NET
INVESTMENT
INCOME
SHARE 918,877 359,111
TRANSACTIONS
NET PROCEEDS
FROM SALES OF
SHARES
REINVESTMENT 43,355 21,867
OF DISTRIBUTIONS
COST OF SHARES (331,925) (185,908)
REDEEMED
NET INCREASE 630,307 195,070
(DECREASE) IN
NET ASSETS
RESULTING
FROM SHARE
TRANSACTIONS
TOTAL 669,537 206,921
INCREASE
(DECREASE) IN
NET ASSETS
NET ASSETS
BEGINNING OF 550,754 343,833
PERIOD
END OF PERIOD $ 1,220,291 $ 550,754
(INCLUDING
DISTRIBUTIONS
IN EXCESS OF
NET
INVESTMENT
INCOME OF
$14 AND
$201,
RESPECTIVELY)
OTHER
INFORMATION
SHARES
SOLD 87,981 35,505
ISSUED IN 4,148 2,161
REINVESTMENT OF
DISTRIBUTIONS
REDEEMED (31,812) (18,407)
NET INCREASE 60,317 19,259
(DECREASE)
FINANCIAL HIGHLIGHTS
YEARS
ENDED
SEPTEMB
ER 30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 10.250 $ 9.980 $ 10.170 $ 9.510 $ 10.940
BEGINNING OF
PERIOD
INCOME FROM .634B .640 B .655 .693 .668
INVESTMENT
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED .453 .273 (.211) .673 (1.384)
AND UNREALIZED
GAIN (LOSS)
TOTAL FROM 1.087 .913 .444 1.366 (.716)
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.637) (.643) (.634) (.686) (.704)
INVESTMENT
INCOME
IN EXCESS OF NET - - - (.020) (.010)
REALIZED GAIN
TOTAL (.637) (.643) (.634) (.706) (.714)
DISTRIBUTIONS
NET ASSET VALUE, $ 10.700 $ 10.250 $ 9.980 $ 10.170 $ 9.510
END OF PERIOD
TOTAL RETURN A 10.95% 9.43% 4.46% 14.94% (6.75)%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 1,220 $ 551 $ 344 $ 148 $ 106
OF PERIOD
(IN MILLIONS)
RATIO OF EXPENSES .38% C .48% C .65% .65% .65%
TO AVERAGE
NET ASSETS
RATIO OF NET 6.11% 6.36% 6.35% 6.92% 6.90%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 222% 194% 169% 147% 44%
RATE
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1998
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.
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.
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, futures and excise tax regulations. 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.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
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.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by
the SEC, the fund, along with other registered investment companies
having management contracts with FMR, may participate in an interfund
lending program. This program
provides an alternative credit facility allowing the fund to borrow
from, or lend money to, other participating funds.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell
securities on a delayed delivery basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of
the underlying securities and the date when the securities will be
delivered and paid for are fixed at the time the transaction is
negotiated. The market values of the securities purchased or sold on a
delayed delivery basis are identified as such in the fund's schedule
of investments. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, 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 $2,276,450,000 and $1,680,571,000, respectively, of which
U.S. government and government agency obligations aggregated
$1,778,752,000 and $1,416,157,000, 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 .60% of the fund's average net assets. On June 27,
1998 FMR reduced the management fee rate for Spartan Investment Grade
Bond Fund from .65% to .60%.
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 $12,000 for the period. Effective June 27, 1998 these
transaction fees were eliminated.
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 $2,075,000.
Effective January 1, 1999, the fund's expense limitation will be
changed from .38% to .50% of average net assets.
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 $11,000 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Spartan Investment Grade Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Spartan Investment Grade Bond Fund (a fund of Fidelity Charles Street
Trust) at September 30, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Spartan Investment Grade Bond Fund's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
DISTRIBUTIONS
A total of 18.35% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
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 E. Grant, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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 Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline SM 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)
TouchTone Xpress(registered trademark)(AUTOMATED GRAPHIC)
1-800-544-5555
(AUTOMATED GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
SIG-ANN-1198 64333
1.703372.101
(FIDELITY LOGO GRAPHIC)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
SPARTAN(REGISTERED TRADEMARK)
SHORT-TERM BOND
FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
(2 FIDELITY LOGO GRAPHICS)(REGISTERED TRADEMARK)
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 23 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 27 NOTES TO THE FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT 30 THE AUDITORS' OPINION.
ACCOUNTANTS
DISTRIBUTIONS 31
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE
SUBMITTED FOR THE GENERAL INFORMATION
OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS
IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL 1-800-544-8888 FOR A
FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:
The stock and bond markets continued to be influenced by competing
factors as the third quarter of 1998 ended. On the one hand, low
inflation, low unemployment and moderate growth in the U.S. economy
provided a foundation for positive returns. But growing concerns about
U.S. corporate earnings, combined with fears about the health of the
economies and financial markets in Japan, Russia and many emerging
markets, led to a continuation of the volatility that has marked most
of the year.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.
If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you the
information you need to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
SPARTAN 7.33% 25.98% 35.67%
SHORT-TERM
BOND
LB 1-3 YEAR 7.87% 33.67% N/A
GOVT/CORP
SHORT 6.68% 30.31% N/A
INVESTMENT
GRADE DEBT
FUNDS
AVERAGE
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on October 1, 1992. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare the fund's returns to
the performance of the Lehman Brothers 1-3 Year Government/Corporate
Bond Index - a market value weighted performance benchmark for
government and corporate fixed-rate debt issues, with maturities
between one and three years. To measure how the fund's performance
stacked up against its peers, you can compare it to the short
investment grade debt funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past one year average represents a peer group of
100 mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED PAST 1 PAST 5 LIFE OF
SEPTEMBER 30, YEAR YEARS FUND
1998
SPARTAN 7.33% 4.73% 5.22%
SHORT-TERM
BOND
LB 1-3 YEAR 7.87% 5.98% N/A
GOVT/CORP
SHORT 6.68% 5.43% N/A
INVESTMENT
GRADE DEBT
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 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 13125.91 13506.54
1998/04/30 13181.18 13573.49
1998/05/31 13265.46 13647.27
1998/06/30 13333.78 13717.74
1998/07/31 13389.09 13781.58
1998/08/31 13501.85 13940.14
1998/09/30 13657.74 14127.72
IMATRL PRASUN SHR__CHT 19980930 19981006 115635 R00000000000074
$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 September 30, 1998, the
value of the investment would have grown to $13,658 - a 36.58%
increase on the initial investment. 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 would have grown to $14,128 - a 41.28% increase.
(CHECKMARK)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.
TOTAL RETURN COMPONENTS
YEARS
ENDED
SEPTEM
BER 30,
1998 1997 1996 1995 1994
DIVIDEND 6.56% 6.67% 6.67% 6.49% 6.20%
RETURNS
CAPITAL 0.77% 0.33% -1.20% -2.14% -6.52%
RETURNS
TOTAL RETURNS 7.33% 7.00% 5.47% 4.35% -0.32%
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, if
any, paid by the fund are reinvested.
DIVIDENDS AND YIELD
PERIODS ENDED PAST 1 PAST 6 PAST 1
SEPTEMBER 30, MONTH MONTHS YEAR
1998
DIVIDENDS PER 4.46(CENTS) 28.05(CENTS) 57.21(CENTS)
SHARE
ANNUALIZED 5.97% 6.18% 6.32%
DIVIDEND
RATE
30-DAY 5.42% - -
ANNUALIZED
YIELD
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 $9.09
over the past one month, $9.05 over the past six months and $9.05 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 5.17%.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
As a safe haven from turbulent stock
markets worldwide, bond markets
reaped the benefits from the flight to
quality by anxious investors during
the 12-month period ending
September 30, 1998. The Lehman
Brothers Aggregate Bond Index - a
broad measure of the U.S. taxable
investment-grade bond market -
returned 11.51% over the past year,
two and one-half times higher than the
4.54% return generated for the
six-month period ending March 31,
1998. The buying surge sent
Treasury-bond yields - which move
in the opposite direction of bond
prices - to their lowest level in over
three decades, as the yield on the
benchmark 30-year bond fell to
4.96%. In spite of the global economic
crisis that dominated the period, the
U.S. enjoyed low interest rates, low
inflation and a stable economy, which
aided the performance of corporate
bonds. The Lehman Brothers
Corporate Bond Index returned
11.07% for the 12-month period.
Mortgage-backed bonds also
performed well, although lower
interest rates resulted in higher
refinancing activity. The Lehman
Brothers Mortgage Backed Securities
Index had a 12-month return of
8.62%. Interest rates fell even lower
late in the period, as the Federal
Reserve lowered the fed funds rate by
0.25%, the first rate cut in nearly three
years. The period's biggest losers were
shareholders of emerging-market
debt, as the JP Morgan Emerging
Markets Bond Index lost 20.89%
over the past 12 months.
(PHOTOGRAPH OF ANDREW DUDLEY)
An interview with Andrew Dudley, Portfolio Manager of Spartan
Short-Term Bond Fund
Q. HOW DID THE FUND PERFORM, ANDY ?
A. For the 12 months that ended September 30, 1998, the fund had a
total return of 7.33%. That outperformed the 6.68% 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 7.87%.
Q. WHAT FACTORS CONTRIBUTED TO FUND'S PERFORMANCE? WHY DID THE FUND
UNDERPERFORM THE LEHMAN BROTHERS INDEX?
A. While the performance of the Treasury market was solid due to a
flight to quality from stocks and riskier bond investments, the
broader bond market was stricken by growing concerns of economic
slowdown and a subsequent extremely negative supply/demand
environment. Essentially, rumors began that a number of highly
leveraged hedge funds were already, or were going to be, forced
sellers of certain bonds. This potential deluge of supply created a
huge dislocation in bond markets - creating a collapse in liquidity in
both corporate and mortgage-backed securities - pushing the yield
spreads relative to Treasuries to much wider levels. In the pursuit of
high current income, the fund has historically taken on a higher level
of exposure to the non-Treasury sectors than the Lehman Brothers 1-3
Year Government/Corporate Index. Since the fund was underweighted in
government securities relative to the index, the extreme flight to
quality into Treasuries caused the fund to underperform the Lehman
Brothers index. The recent performance of much of the short-term bond
fund universe - as represented by the Lipper peer group - suggests
that many managers faced similar issues.
Q. HOW WERE THE FUND'S ASSETS ALLOCATED?
A. Corporate bonds and asset-backed securities - which are bonds
backed by a pool of loans such as credit cards - accounted for
approximately 65% of the fund's assets during the period. Within these
holdings, asset-backed securities accounted for about 18% of the fund,
and performed better on average than their corporate counterparts.
Most of the fund's holdings in asset-backed securities were rated Aaa,
the highest quality, and thus suffered to a lesser extent. By
comparison, as I've already mentioned, corporate bonds suffered more
severely relative to Treasuries. However, there were some bright spots
within our corporate holdings that outperformed the general corporate
market: namely, our cable, telecommunications, and media exposure.
Mortgage-backed securities accounted for roughly 15% of the fund's
allocation. Similar to corporate bonds, mortgage-backed securities
were hurt relative to U.S. government bonds during the extreme flight
to quality along with the increasing fear of a new refinancing and
prepayment wave.
Q. WHAT OTHER SECTORS CONTRIBUTED TO PERFORMANCE?
A. The remaining assets in the fund - around 20% - were in U.S.
government and agency obligations during the period. U.S. Treasuries
and agency bonds performed the best of all the bond sectors.
Unfortunately, the fund suffered relative to the index due to its
underweighted position in this sector.
Q. THE GLOBAL FLIGHT TO QUALITY INTO U.S. TREASURIES HAS BEEN THE BIG
STORY OVER THE PAST FEW MONTHS. DO YOU SEE THIS TREND CONTINUING?
A. There is very little official data on how much leveraged debt
remains in the system. Consequently, it's impossible to tell how many
troubled hedge funds are still out there. On the global front, while
we can use our research resources to make an educated assessment about
which countries would be next to face credit concerns, political
uncertainties often make this assessment murky. As a result, over the
short-term, it is difficult to determine how long this trend will
continue. What we do know is that much of the liquidation activity has
taken place at severely distressed levels, on some occasions pushing
the yield spread for even strong credits back to very wide levels.
Over the long term, investors should begin to see a focus less on
liquidity and more on relative value. Until that time, though, the
non-Treasury markets may continue to have a tough time.
Q. WHAT'S YOUR OUTLOOK?
A. Within the corporate bond sector, I think the best issues may be
the less-cyclical, domestically focused businesses that have improving
credit profiles. I believe the market will continue to focus on
high-quality, non-cyclical corporate debt in the face of global market
turmoil. The commodity-related industries like energy, precious metals
and paper most likely will continue to suffer in this volatile
environment. Over the longer term, solid companies in the media,
telecommunications and domestic regional-banking sectors could be
rewarded for improving business and credit fundamentals. As a result,
corporate bonds in these sectors should remain defensive positions.
Within the mortgage-backed sector there are also opportunities. As a
result of the volatility, there are segments of the mortgage-backed
securities market that look attractive. I remain comfortable with our
current holdings and feel that there will be more opportunities over
time. In the short term, volatility may continue; but over the longer
term, the non-Treasury sectors should stabilize to the fund's benefit.
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.
(CHECKMARK)FUND FACTS
GOAL: HIGH CURRENT INCOME
WITH PRESERVATION OF CAPITAL
FUND NUMBER: 449
TRADING SYMBOL: FTBDX
START DATE: OCTOBER 1, 1992
SIZE: AS OF SEPTEMBER 30,
1998, MORE THAN $357 MILLION
MANAGER: ANDREW DUDLEY,
SINCE 1997; MANAGER, FIDELITY
ADVISOR SHORT-FIXED INCOME
FUND, SINCE 1997; JOINED
FIDELITY IN 1996
ANDREW DUDLEY ON THE FUND'S
BENCHMARK INDEX - THE
LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND
INDEX - AND ITS ROLE IN THE
MANAGEMENT OF THE FUND:
"THE LEHMAN BROTHERS 1-3 YEAR
GOVERNMENT/CORPORATE BOND INDEX
PLAYS AN IMPORTANT ROLE IN THE
MANAGEMENT OF THE FUND. IT'S THE
FUND'S BENCHMARK INDEX AND
INCLUDES MOST OF THE UNIVERSE OF
INVESTMENT-GRADE BONDS WITH
MATURITIES BETWEEN ONE AND THREE
YEARS. I USE THE INDEX AS A
GUIDELINE ABOUT THE STRUCTURE OF
THE OVERALL BOND MARKET, MANAGING
THE FUND TO BE GENERALLY AS
SENSITIVE TO CHANGES IN INTEREST
RATES AS THE INDEX. IN ADDITION, I
REFER TO THE INDEX WHEN DECIDING
HOW TO ALLOCATE ASSETS AMONG
DIFFERENT MATURITIES AND MARKET
SECTORS - SUCH AS CORPORATE OR
GOVERNMENT SECURITIES - BASED ON
MY VIEW OF THE RELATIVE VALUE OF
EACH MATURITY OR SECTOR."
(SOLID BULLET) EFFECTIVE THE CLOSE OF BUSINESS ON
JUNE 26, 1998, THE SPARTAN
SHORT-TERM BOND FUND'S SHARES
ARE NO LONGER AVAILABLE TO NEW
ACCOUNTS. SHAREHOLDERS OF THE FUND
ON THAT DATE MAY CONTINUE TO
PURCHASE SHARES IN ACCOUNTS EXISTING
ON THAT DATE.
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
QUALITY DIVERSIFICATION AS OF SEPTEMBER
30, 1998
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS 6 MONTHS AGO
AAA 41.4 43.3
AA 7.8 7.5
A 14.3 13.9
BAA 27.3 23.9
BA AND BELOW 3.8 7.1
NOT RATED 0.9 1.3
</TABLE>
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS BA OR BELOW
WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING
AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF
ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF
SEPTEMBER 30, 1998
6 MONTHS AGO
YEARS 2.4 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 SEPTEMBER 30, 1998
6 MONTHS AGO
YEARS 1.7 1.8
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES.
IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS
LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS CAN INFLUENCE A
BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S
ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF SEPTEMBER 30, 1998 *
ROW: 1, COL: 2, VALUE: 24.2
ROW: 1, COL: 3, VALUE: 8.699999999999999
ROW: 1, COL: 4, VALUE: 3.3
ROW: 1, COL: 5, VALUE: 4.5
CORPORATE BONDS 59.3%
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 24.2%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 8.7%
OTHER 3.3%
SHORT-TERM
INVESTMENTS 4.5%
* FOREIGN INVESTMENTS 6.7%
AS OF MARCH 31, 1998 **
CORPORATE BONDS 61.4%
ROW: 1, COL: 1, VALUE: 59.3
ROW: 1, COL: 1, VALUE: 61.4
ROW: 1, COL: 2, VALUE: 26.3
ROW: 1, COL: 3, VALUE: 5.7
ROW: 1, COL: 4, VALUE: 3.6
ROW: 1, COL: 5, VALUE: 3.0
U.S. GOVERNMENT
AND AGENCY
OBLIGATIONS 26.3%
CMOS AND OTHER
MORTGAGE-RELATED
SECURITIES 5.7%
OTHER 3.6%
SHORT-TERM
INVESTMENTS 3.0%
** FOREIGN INVESTMENTS 5.8%
INVESTMENTS SEPTEMBER 30, 1998
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NONCONVERTIBLE BONDS - 42.4%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
BASIC INDUSTRIES - 1.4%
CHEMICALS & PLASTICS - 1.0%
Methanex Corp. A2 $ 3,500 $ 3,618
yankee 8.875%
11/15/01
PACKAGING & CONTAINERS - 0.4%
Owens-Illinois, Inc. Ba1 1,390 1,390
7.15% 5/15/05
TOTAL BASIC INDUSTRIES 5,008
CONSTRUCTION & REAL ESTATE - 1.8%
REAL ESTATE INVESTMENT TRUSTS - 1.8%
Camden Property Baa2 2,825 2,844
Trust 6.625%
2/15/01
CenterPoint Baa2 430 427
Properties Corp.
6.75% 4/1/05
EOP Operating LP:
6.375% 2/15/03 Baa1 1,250 1,249
6.376% 2/15/02 Baa1 900 904
Weeks Realty LP Baa2 1,100 1,076
6.875% 3/15/05
6,500
ENERGY - 0.6%
OIL & GAS - 0.6%
Occidental Petroleum
Corp.:
6.09% 11/29/99 Baa3 580 586
8.5% 11/9/01 Baa2 800 865
Oryx Energy Co.:
8.125% Ba1 220 228
10/15/05
8.375% 7/15/04 Ba1 400 428
2,107
FINANCE - 18.3%
BANKS - 7.2%
Banc One Corp. Aa3 1,250 1,275
6.7% 3/24/00
Banco
Latinoamericano
Exportaciones SA
euro:
6.45% Baa2 930 947
9/13/99 (a)
6.9% 12/4/99 (a) Baa2 550 553
BanPonce Corp. A3 1,290 1,313
6.488% 3/3/00
BanPonce Financial
Corp.:
6.88% 6/16/00 A3 510 524
7.65% 5/3/00 A3 1,550 1,606
Barclays Bank PLC A1 2,500 2,523
yankee 5.875%
7/15/00
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
FINANCE - CONTINUED
BANKS - CONTINUED
Capital One Bank:
5.95% 2/15/01 Baa3 $ 2,000 $ 1,990
6.42% 11/12/99 Baa3 2,200 2,211
7.35% 6/20/00 Baa3 2,400 2,456
First USA Bank 6.5% Aa2 1,700 1,728
12/23/99
KeyCorp. 7.45% A1 1,100 1,137
4/5/00
NationsBank Corp. Aa2 3,000 3,036
5.75% 3/15/01
Popular, Inc. 6.4% A3 1,410 1,425
8/25/00
Providian National
Bank:
6.25% 5/7/01 Baa3 1,300 1,312
6.7% 3/15/03 Baa3 1,800 1,889
25,925
CREDIT & OTHER FINANCE - 9.8%
Abbey National PLC Aa3 2,400 2,536
6.69% 10/17/05
Aristar, Inc. 6% A3 3,200 3,237
8/1/01
AT&T Capital Corp.:
6.16% 12/3/99 Baa3 1,940 1,964
6.25% 5/15/01 Baa3 2,500 2,540
Chrysler Financial A2 1,720 1,745
Corp. 6.375%
1/28/00
Edison Mission Baa1 1,667 1,741
Energy Funding
Corp. 6.77%
9/15/03 (a)
ERP Operating LP A3 350 355
6.55% 11/15/01
Finova Capital Corp. Baa1 580 589
6.27% 9/29/00
General Electric Aaa 5,000 5,124
Capital Corp.
6.01% 4/30/01
General Motors
Acceptance Corp.:
5.85% 4/20/00 A2 4,480 4,535
9% 10/15/02 A2 3,000 3,387
GS Escrow Corp. Ba1 2,400 2,386
6.75% 8/1/01 (a)
Heller Financial, Inc. A3 1,500 1,530
6.25% 3/1/01
MCN Investment Baa3 1,450 1,451
Corp. 5.84%
2/1/99
Money Store, Inc. A2 650 694
7.3% 12/1/02
North American Baa2 750 750
Mortgage Co.
5.8% 11/2/98
Salton Sea Funding Baa3 654 660
Corp. 7.02%
5/30/00
35,224
SAVINGS & LOANS - 1.0%
Great Western A3 1,025 1,041
Financial Corp.
6.375% 7/1/00
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
FINANCE - CONTINUED
SAVINGS & LOANS - CONTINUED
Long Island Savings
Bank FSB:
6.2% 4/2/01 Baa3 $ 1,650 $ 1,666
7% 6/13/02 Baa3 970 1,012
3,719
SECURITIES INDUSTRY - 0.3%
Amvescap PLC A3 1,100 1,130
6.375% 5/15/03
TOTAL FINANCE 65,998
INDUSTRIAL MACHINERY & EQUIPMENT - 0.9%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Tyco International Baa1 2,250 2,298
Group SA yankee
6.125% 6/15/01
POLLUTION CONTROL - 0.2%
WMX Technologies, Baa3 750 763
Inc. 6.25%
10/15/00
TOTAL INDUSTRIAL MACHINERY & 3,061
EQUIPMENT
MEDIA & LEISURE - 5.9%
BROADCASTING - 3.3%
Continental
Cablevision, Inc.:
8.3% 5/15/06 Baa3 320 362
8.5% 9/15/01 Baa3 2,104 2,273
TCI Communications,
Inc.:
6.375% 5/1/03 Baa3 630 659
6.375% 9/15/99 Baa3 3,075 3,100
8.25% 1/15/03 Baa3 220 245
9% 1/2/02 Ba1 730 808
Time Warner, Inc. Baa3 4,330 4,472
7.95% 2/1/00
11,919
ENTERTAINMENT - 2.1%
Paramount Ba2 992 1,039
Communications,
Inc. 7.5%
1/15/02
Viacom, Inc.:
6.75% 1/15/03 Ba2 4,455 4,574
7.75% 6/1/05 Ba2 1,950 2,106
7,719
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
MEDIA & LEISURE - CONTINUED
PUBLISHING - 0.5%
News America Baa3 $ 1,440 $ 1,623
Holdings, Inc.
8.5% 2/15/05
TOTAL MEDIA & LEISURE 21,261
NONDURABLES - 1.7%
FOODS - 0.6%
Dole Food, Inc. Baa2 2,290 2,308
6.75% 7/15/00
TOBACCO - 1.1%
Philip Morris
Companies, Inc.:
7.125% 12/1/99 A2 2,300 2,341
7.25% 9/15/01 A2 1,400 1,466
3,807
TOTAL NONDURABLES 6,115
RETAIL & WHOLESALE - 1.6%
GENERAL MERCHANDISE STORES - 1.6%
Dayton Hudson
Corp.:
6.8% 10/1/01 A3 1,600 1,670
9.75% 7/1/02 A3 930 1,070
10% 12/1/00 A3 1,133 1,244
Federated Baa2 1,595 1,742
Department Stores,
Inc. 8.125%
10/15/02
5,726
TECHNOLOGY - 3.3%
COMPUTER SERVICES & SOFTWARE - 0.2%
Computer Associates Baa1 700 705
International, Inc.
6.25% 4/15/03
COMPUTERS & OFFICE EQUIPMENT - 3.1%
Comdisco, Inc.:
5.86% 4/7/00 Baa1 3,900 3,939
6.1% 6/5/01 Baa1 2,580 2,631
6.55% 2/4/00 Baa1 4,500 4,581
11,151
TOTAL TECHNOLOGY 11,856
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
TRANSPORTATION - 2.0%
AIR TRANSPORTATION - 0.1%
Delta Air Lines, Inc. Baa3 $ 475 $ 506
9.875% 5/15/00
RAILROADS - 1.9%
CSX Corp.:
7.05% 5/1/02 Baa2 1,250 1,313
9.5% 8/1/00 Baa2 2,500 2,675
Norfolk Southern
Corp.:
6.7% 5/1/00 Baa1 2,000 2,042
6.95% 5/1/02 Baa1 800 843
6,873
TOTAL TRANSPORTATION 7,379
UTILITIES - 4.9%
ELECTRIC UTILITY - 2.0%
Avon Energy Baa2 1,000 1,043
Partners Holdings
6.73%
12/11/02 (a)
Indiana Michigan Baa1 2,000 2,034
Power Co. 6.4%
3/1/00
Niagara Mohawk Ba1 700 719
Power Corp.
6.875% 3/1/01
Ohio Edison Co. Baa2 900 950
7.375% 9/15/02
Philadelphia Electric
Co.:
5.625% 11/1/01 Baa1 840 846
6.5% 5/1/03 Baa1 700 731
Texas Utilities Electric Baa1 1,000 1,021
Co. 7.375%
11/1/99
7,344
GAS - 1.6%
Arkla, Inc. 8.875% Baa1 5,500 5,641
7/15/99
TELEPHONE SERVICES - 1.3%
WorldCom, Inc.:
6.125% 8/15/01 Baa2 2,865 2,931
8.875% 1/15/06 Baa2 627 688
9.375% 1/15/04 Baa2 1,176 1,228
4,847
TOTAL UTILITIES 17,832
TOTAL NONCONVERTIBLE BONDS 152,843
(Cost $151,216)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 17.3%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.4%
Federal Home Loan Aaa $ 5,000 $ 5,064
Bank 5.83%
12/24/99
Government Trust Aaa 312 331
Certificates (assets
of Trust guaranteed
by U.S.
Government
through Defense
Security Assistance
Agency) Class T-3,
9.625% 5/15/02
Guaranteed Export
Trust Certificates
(assets of Trust
guaranteed by
U.S. Government
through
Export-Import
Bank):
Series 1995-A, Aaa 1,412 1,462
6.28% 6/15/04
Series 1994-C, Aaa 120 121
6.61% 9/15/99
Israel Export Trust Aaa 577 601
Certificates (assets
of Trust guaranteed
by U.S.
Government
through
Export-Import
Bank) Series
1994-1, 6.88%
1/26/03
Private Export Aaa 993 1,040
Funding Corp.
secured 6.86%
4/30/04
TOTAL U.S. GOVERNMENT AGENCY 8,619
OBLIGATIONS
U.S. TREASURY OBLIGATIONS - 14.9%
U.S. Treasury Notes:
5.375% 2/15/01 Aaa 2,475 2,531
5.625% Aaa 8,275 8,376
11/30/99
5.75% 10/31/00 Aaa 700 719
5.875% 2/15/00 Aaa 965 982
5.875% 7/31/99 Aaa 710 717
6.25% 2/28/02 Aaa 3,495 3,703
6.375% 7/15/99 Aaa 26,475 26,822
6.875% 3/31/00 Aaa 9,604 9,934
TOTAL U.S. TREASURY OBLIGATIONS 53,784
TOTAL U.S. GOVERNMENT AND 62,403
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $61,768)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 6.9%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
FANNIE MAE - 3.3%
6.5% 12/1/12 to Aaa $ 5,423 $ 5,537
1/1/13
7% 10/1/28 (b) Aaa 5,500 5,655
11.5% 11/1/15 Aaa 454 509
TOTAL FANNIE MAE 11,701
FREDDIE MAC - 0.3%
7% 8/1/99 to Aaa 1,064 1,072
7/1/01
12% 11/1/19 Aaa 112 129
TOTAL FREDDIE MAC 1,201
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
3.3%
7.5% 1/15/26 to Aaa 6,014 6,234
8/15/28
9.5% 5/15/16 to Aaa 1,587 1,714
11/15/20
11% 2/15/10 to Aaa 2,049 2,267
9/15/19
11.5% 5/15/13 to Aaa 711 797
7/15/15
12% 2/15/16 Aaa 611 696
TOTAL GOVERNMENT NATIONAL 11,708
MORTGAGE ASSOCIATION
TOTAL U.S. GOVERNMENT AGENCY 24,610
- -
MORTGAGE-BACKED SECURITIES
(Cost $24,542)
</TABLE>
ASSET-BACKED SECURITIES - 16.9%
Arcadia Automobile Aaa 1,500 1,515
Receivables Trust
5.67% 1/15/04
Boatmens Auto Trust A2 610 612
6.35% 10/15/01
Capita Equipment
Receivables Trust:
6.45% 8/15/02 Aa3 1,700 1,747
6.57% 3/15/01 Aa3 810 823
Case Equipment
Loan Trust:
5.85% 2/15/03 Aa2 690 690
6.15% 9/15/02 Aaa 1,844 1,854
6.45% 11/10/02 Aaa 1,330 1,361
Caterpillar Financial A3 336 337
Asset Trust 6.55%
5/25/02
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
Chase Manhattan Aaa $ 1,900 $ 1,932
Marine Owner
Trust 6.25%
4/16/07
Chevy Chase Auto
Receivables Trust:
5.97% 10/20/04 Aaa 1,729 1,753
6.2% 3/20/04 Aaa 803 813
Citibank Credit Card Aaa 1,300 1,322
Master Trust I
5.75% 1/15/03
Contimortgage
Home Equity Loan
Trust:
6.26% 7/15/12 Aaa 2,450 2,461
6.3% 7/15/12 Aaa 1,100 1,115
CPS Auto Grantor
Trust:
6.09% 11/15/03 Aaa 1,042 1,046
6.7% 2/15/02 Aaa 314 318
CPS Auto Aaa 2,719 2,749
Receivables Trust
6% 8/15/03
CS First Boston Aaa 1,700 1,739
Mortgage
Securities Corp.
7% 3/15/27
Discover Card A2 4,920 4,922
Master Trust I
6.0006%
7/18/05 (c)
Fidelity Funding Auto Aaa 350 356
Trust 6.99%
11/15/02 (a)
Ford Credit Auto A2 1,800 1,809
Owner Trust 6.15%
9/15/02
Ford Credit Grantor Aaa 989 991
Trust 5.9%
10/15/00
General Motors Aaa 417 418
Acceptance Corp.
Grantor Trust
7.15% 3/15/00
Green Tree Financial
Corp.:
5.5% 1/31/00 Aaa 57 57
5.8% 2/15/27 Aaa 77 77
6.1% 4/15/27 Aaa 847 849
6.45% 5/15/27 Aaa 618 620
6.5% 6/15/27 Aaa 439 439
Key Auto Finance Baa3 281 284
Trust 6.65%
10/15/03
KeyCorp Auto A3 43 43
Grantor Trust 5.8%
7/15/00
Norwest Automobile A2 1,130 1,150
Trust 6.3%
5/15/03
Olympic Automobile
Receivables Trust:
6.125% Aaa 587 597
11/15/04
6.4% 9/15/01 Aaa 1,280 1,298
Onyx Acceptance
Grantor Trust:
5.95% 7/15/04 Aaa 2,155 2,179
6.2% 6/15/03 Aaa 1,307 1,321
Petroleum Enhanced Baa2 1,549 1,548
Trust Receivables
Offering Petroleum
Trust 6.125%
2/5/03 (a)(c)
Premier Auto Trust:
5.7% 10/6/02 Aaa 3,800 3,850
ASSET-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
Premier Auto Trust: -
continued
5.82% 12/6/02 Aaa $ 3,000 $ 3,071
6% 5/6/00 Aaa 428 428
6.35% 7/6/00 A3 1,690 1,701
Reliance Auto Aaa 398 399
Receivables Corp.,
Inc. 6.1%
7/15/02 (a)
Sears Credit Account Aaa 1,800 1,842
Master Trust II
6.2% 2/16/06
TMS Auto Grantor Aaa 211 212
Trust 5.9%
9/15/02
Tranex Auto Aaa 864 877
Receivables Owner
Trust 6.334%
8/15/03 (a)
UACSC 1995-B Baa2 166 167
Grantor Trust
7.075% 7/10/02
UFSB Grantor Trust: Baa2 92 92
7.275%
10/10/00
8.2% 1/10/01 Baa2 101 102
Western Financial Aaa 789 800
Grantor Trust
5.875% 3/1/02
WFS Financial
Owner Trust:
6.9% 12/20/03 Aaa 1,630 1,687
7.05% 11/20/03 Aaa 2,510 2,597
TOTAL ASSET-BACKED SECURITIES 60,970
(Cost $60,228)
COLLATERALIZED MORTGAGE OBLIGATIONS -
1.7%
PRIVATE SPONSOR - 1.0%
GE Capital Aaa 722 730
Mortgage
Services, Inc.
planned
amortization class
Series 1994-2
Class A-4, 6%
1/25/09
Residential Funding Aa1 2,900 2,936
Mortgage
Securities I, Inc.
planned
amortization class
Series 1994-S12
Class A-2, 6.5%
4/25/09
TOTAL PRIVATE SPONSOR 3,666
U.S. GOVERNMENT AGENCY - 0.7%
Fannie Mae ACES Aaa 2,474 2,532
REMIC sequential
pay Series
1995-M1 Class A,
6.65% 7/25/10
TOTAL COLLATERALIZED 6,198
MORTGAGE OBLIGATIONS
(Cost $6,118)
COMMERCIAL MORTGAGE SECURITIES - 7.0%
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
Allied Capital Aaa $ 1,417 $ 1,424
Commercial
Mortgage Trust
sequential pay
Series 1998-1
Class A, 6.31%
1/25/28 (a)
Bankers Trust Remic Baa2 2,270 2,258
Trust 1988-1
floater
Series 1998-S1A
Class D, 6.4984%
11/28/02 (a)(c)
BKB Commercial AA 506 504
Mortgage Trust
Series 1997-C1
Class B, 7.218%
2/25/43 (a)(c)
CBM Funding Corp.:
sequential pay AA 870 896
Series 1996-1
Class A-2,
6.88% 7/1/02
sequential pay AA 63 63
Series 1996-1
Class A1, 7.55%
7/1/99
CS First Boston
Mortgage
Securities Corp.:
Series 1998 FLI Baa2 2,800 2,768
Class E,
6.5063%
1/10/13 (a)(c)
sequential pay - 2,362 2,365
Series
1997-SPICE
Class A, 6.653%
8/20/36 (a)
DLJ Commercial A2 1,090 1,089
Mortgage Corp.
floater Series
1998-STFA Class
A-3, 6.32%
1/8/11 (a)(c)
Equitable Life
Assurance Society
of the United
States (The):
floater Series 174 Baa2 1,000 982
Class D-2,
6.7063%
5/15/03 (a)(c)
sequential pay Aaa 1,000 1,091
Series 174 Class
A1, 7.24%
5/15/06 (a)
Federal Deposit
Insurance Corp.
Remic Trust:
sequential pay Aaa 1,299 1,298
Series 1996-C1
Class 1A, 6.75%
7/25/26
sequential pay Aaa 585 584
Series 1994-C1
Class II-A2,
7.85% 9/25/25
FMAC Loan Aaa 550 558
Receivables Trust
1998-C sequential
pay Series 1998-C
Class A1 Notes,
5.99%
9/15/20 (a)
Franchise Loan Trust Aaa 1,682 1,709
1998-1 sequential
pay Series 1998-I
Class A1 Notes,
6.24%
7/15/20 (a)
Kidder Peabody Aa2 312 313
Acceptance Corp. I
sequential pay
Series 1993-M1
Class A-2, 7.15%
4/25/25
Nomura Asset - 892 892
Securities Corp.
floater Series
1994-MD-II Class
A-6, 9.9213%
7/7/03 (c)
COMMERCIAL MORTGAGE SECURITIES -
CONTINUED
MOODY'S PRINCIPAL VALUE (NOTE 1)
RATINGS AMOUNT (000S) (000S)
(UNAUDITED)
(D)
Nomura Depositor Baa2 $ 2,210 $ 2,200
Trust floater Series
1998-ST1A Class
A-4, 6.5406%
2/15/34 (a)(c)
Resolution Trust
Corp.:
floater Series AAA 268 268
1994-C1 Class
A-3, 6.2375%
6/25/26 (c)
sequential pay Aaa 1,432 1,430
Series 1995 C-1
Class A2C, 6.9%
2/25/27
Structured Asset
Securities Corp.:
floater Series A3 2,227 2,226
1998-C2A Class
C, 6.0238%
1/25/13 (a)(c)
Series 1996-C3 AAA 361 359
Class A, 6.75%
6/25/30 (a)(c)
TOTAL COMMERCIAL MORTGAGE 25,277
SECURITIES
(Cost $25,286)
FOREIGN GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (E) - 0.8%
Ontario Province:
5.75% 11/7/00 Aa3 1,010 1,025
euro:
global 6.125% Aa3 1,000 1,021
6/28/00
8.5% 2/28/01 Aa3 800 861
TOTAL FOREIGN GOVERNMENT 2,907
AND
GOVERNMENT AGENCY
OBLIGATIONS
(Cost $2,869)
SUPRANATIONAL OBLIGATIONS - 1.6%
African Development
Bank:
7.75% 12/15/01 Aa1 1,670 1,789
9.3% 7/1/00 Aa1 3,540 3,774
TOTAL SUPRANATIONAL OBLIGATIONS 5,563
(Cost $5,563)
CERTIFICATES OF DEPOSIT - 0.9%
Canadian Imperial Bank of Commerce, Aa3 3,100 3,166
New York yankee 6.2% 8/1/00
(Cost $3,107)
CASH EQUIVALENTS - 4.5%
MATURITY VALUE (NOTE 1)
AMOUNT (000'S) (000S)
Investments in $ 16,340 $ 16,337
repurchase
agreements
(U.S. Treasury
obligations), in a
joint
trading account at
5.77%, dated
9/30/98 due
10/1/98
(Cost $16,337)
TOTAL INVESTMENT IN $ 360,274
SECURITIES - 100%
(Cost $357,034)
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Securities
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 $29,383,000 or 8.2% of net assets.
(b) Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
(c) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end. The due dates on these types of
securities reflects the next interest rate reset date or, when
applicable, the final maturity date.
(d) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(e) Foreign government obligations not individually rated by S&P or
Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 62.9% AAA, AA, A 58.2%
Baa 27.3% BBB 28.4%
Ba 3.8% BB 3.4%
For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 0.9%.
INCOME TAX INFORMATION
At September 30, 1998, the aggregate cost of investment securities for
income tax purposes was $357,035,000. Net unrealized appreciation
aggregated $3,239,000, of which $3,979,000 related to appreciated
investment securities and $740,000 related to depreciated investment
securities.
At September 30, 1998, the fund had a capital loss carryforward of
approximately $81,724,000 of which $39,973,000, $35,409,000,
$4,138,000, and $2,204,000 will expire on September 30, 2003, 2004,
2005, and 2006, respectively.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN (EXCEPT PER-SHARE
THOUSANDS AMOUNT)
SEPTEMBER 30,
1998
ASSETS
INVESTMENT IN $ 360,274
SECURITIES, AT
VALUE
(INCLUDING
REPURCHASE
AGREEMENTS OF
$16,337) (COST
$357,034) -
SEE
ACCOMPANYING
SCHEDULE
RECEIVABLE FOR 735
INVESTMENTS
SOLD
RECEIVABLE FOR 294
FUND SHARES
SOLD
INTEREST 3,841
RECEIVABLE
TOTAL ASSETS 365,144
LIABILITIES
PAYABLE FOR $ 736
INVESTMENTS
PURCHASED
REGULAR
DELIVERY
DELAYED 5,615
DELIVERY
PAYABLE FOR FUND 500
SHARES
REDEEMED
DISTRIBUTIONS 294
PAYABLE
ACCRUED 112
MANAGEMENT
FEE
OTHER PAYABLES 4
AND ACCRUED
EXPENSES
TOTAL LIABILITIES 7,261
NET ASSETS $ 357,883
NET ASSETS
CONSIST OF:
PAID IN CAPITAL $ 437,742
DISTRIBUTIONS IN (1,312)
EXCESS OF NET
INVESTMENT
INCOME
ACCUMULATED (81,787)
UNDISTRIBUTED
NET REALIZED
GAIN (LOSS) ON
INVESTMENTS
AND FOREIGN
CURRENCY
TRANSACTIONS
NET UNREALIZED 3,240
APPRECIATION
(DEPRECIATION)
ON INVESTMENTS
NET ASSETS, FOR $ 357,883
39,220 SHARES
OUTSTANDING
NET ASSET VALUE, $9.12
OFFERING PRICE
AND
REDEMPTION
PRICE PER SHARE
($357,882.57
1 (DIVIDED BY)
39,220.016
SHARES)
STATEMENT OF OPERATIONS
AMOUNTS IN
THOUSANDS YEAR ENDED
SEPTEMBER 30,
1998
INVESTMENT $ 21,442
INCOME
INTEREST
EXPENSES
MANAGEMENT FEE $ 2,055
NON-INTERESTED 1
TRUSTEES'
COMPENSATION
TOTAL EXPENSES 2,056
BEFORE
REDUCTIONS
EXPENSE (862) 1,194
REDUCTIONS
NET INVESTMENT 20,248
INCOME
REALIZED AND (167)
UNREALIZED GAIN
(LOSS)
NET REALIZED
GAIN (LOSS) ON
INVESTMENT
SECURITIES
CHANGE IN NET 2,855
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON INVESTMENT
SECURITIES
NET GAIN (LOSS) 2,688
NET INCREASE $ 22,936
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN YEAR ENDED
THOUSANDS SEPTEMBER 30,
1997
INCREASE
(DECREASE) IN
NET ASSETS
OPERATIONS $ 20,248 $ 19,923
NET INVESTMENT
INCOME
NET REALIZED (167) (2,472)
GAIN (LOSS)
CHANGE IN NET 2,855 3,201
UNREALIZED
APPRECIATION
(DEPRECIATION)
NET INCREASE 22,936 20,652
(DECREASE) IN
NET ASSETS
RESULTING
FROM
OPERATIONS
DISTRIBUTIONS TO (19,966) (19,752)
SHAREHOLDERS
FROM NET
INVESTMENT
INCOME
SHARE 203,528 115,689
TRANSACTIONS
NET PROCEEDS
FROM SALES OF
SHARES
REINVESTMENT 16,900 16,035
OF DISTRIBUTIONS
COST OF SHARES (152,987) (188,730)
REDEEMED
NET INCREASE 67,441 (57,006)
(DECREASE) IN
NET ASSETS
RESULTING
FROM SHARE
TRANSACTIONS
TOTAL 70,411 (56,106)
INCREASE
(DECREASE) IN
NET ASSETS
NET ASSETS
BEGINNING OF 287,472 343,578
PERIOD
END OF PERIOD $ 357,883 $ 287,472
(INCLUDING
DISTRIBUTIONS
IN EXCESS
OF NET
INVESTMENT
INCOME OF
$1,312 AND
$1,512,
RESPECTIVELY)
OTHER
INFORMATION
SHARES
SOLD 22,486 12,804
ISSUED IN 1,867 1,775
REINVESTMENT OF
DISTRIBUTIONS
REDEEMED (16,902) (20,894)
NET INCREASE 7,451 (6,315)
(DECREASE)
FINANCIAL HIGHLIGHTS
YEARS ENDED
SEPTEMBER
30,
1998 1997 1996 1995 1994
SELECTED
PER-SHARE
DATA
NET ASSET VALUE, $ 9.050 $ 9.020 $ 9.130 $ 9.330 $ 9.990
BEGINNING
OF PERIOD
INCOME FROM .579 B .588 B .598 .584 .574
INVESTMENT
OPERATIONS
NET INVESTMENT
INCOME
NET REALIZED .063 .025 (.112) (.199) (.604)
AND UNREALIZED
GAIN (LOSS)
TOTAL FROM .642 .613 .486 .385 (.030)
INVESTMENT
OPERATIONS
LESS DISTRIBUTIONS
FROM NET (.572) (.583) (.596) (.443) (.477)
INVESTMENT
INCOME
IN EXCESS OF NET - - - - (.033)
INVESTMENT
INCOME
IN EXCESS OF NET - - - - (.010)
REALIZED GAIN
RETURN OF - - - (.142) (.110)
CAPITAL
TOTAL (.572) (.583) (.596) (.585) (.630)
DISTRIBUTIONS
NET ASSET VALUE, $ 9.12 $ 9.050 $ 9.020 $ 9.130 $ 9.330
END OF PERIOD
TOTAL RETURN A 7.33% 7.00% 5.47% 4.35% (.32)%
RATIOS AND
SUPPLEMENTAL
DATA
NET ASSETS, END $ 358 $ 287 $ 344 $ 522 $ 798
OF PERIOD
(IN MILLIONS)
RATIO OF EXPENSES .38% C .50% C .65% .65% .54% C
TO AVERAGE
NET ASSETS
RATIO OF EXPENSES .38% .50% .64% D .65% .54%
TO AVERAGE
NET ASSETS AFTER
EXPENSE
REDUCTIONS
RATIO OF NET 6.40% 6.50% 6.52% 6.45% 6.42%
INVESTMENT
INCOME TO
AVERAGE NET
ASSETS
PORTFOLIO TURNOVER 117% 105% 134% 159% 97%
RATE
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C 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).
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended September 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES.
Spartan Short-Term Bond Fund (the fund) is a fund of Fidelity Charles
Street Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended (the 1940 Act), as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which 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.
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.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, market
discount, capital loss carryforwards and losses deferred due to wash
sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments may include
temporary book and tax basis differences that will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year
end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
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. The fund may receive compensation for interest forgone
in the purchase of a delayed delivery security. With respect to
purchase commitments, the fund identifies securities as segregated in
its custodial records with a value at least equal to the amount of the
commitment. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under
the contract.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, 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 $416,192,000 and $354,639,000, respectively, of which U.S.
government and government agency obligations aggregated $225,247,000
and $209,735,000, 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 $5,000 for the period. Effective June 27, 1998 these
transaction fees were eliminated.
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 through
December 31, 1998. For the period, the reimbursement reduced the
expenses by $854,000.
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 $8,000 under these arrangements.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Charles Street Trust and the Shareholders
of Spartan Short-Term Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Spartan Short-Term Bond Fund (a fund of Fidelity Charles Street
Trust) at September 30, 1998, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Spartan Short-Term Bond Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation
of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 6, 1998
DISTRIBUTIONS
A total of 17.42% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1999 of the applicable
percentage for use in preparing 1998 income tax returns.
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
Andrew J. Dudley, Vice President
Stanley N. Griffith, Assistant Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, 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 Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline SM 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)
TouchTone Xpress(registered trademark)(AUTOMATED GRAPHIC)
1-800-544-5555
(AUTOMATED GRAPHIC) AUTOMATED LINE FOR QUICKEST SERVICE
SST-ANN-1198 64442
1.537457.101
(FIDELITY LOGO GRAPHIC)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com
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