(2_FIDELITY_LOGOS)FIDELITY
EQUITY-INCOME II
FUND
SEMIANNUAL REPORT
MAY 31, 1994
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on stock market
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 9 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 27 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 31 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK, AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED
BY THE
FDIC.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
The first few months of 1994 were an unsettling time for many investors.
After three years of a nearly perfect environment for stock market
investing, stock prices fell in March and April. Investors disagree about
whether this decline represents only a short-term correction or signals the
beginning of a longer bear market. One can collect statistics to support
either opinion, but of course, nobody knows for sure what will happen to
stock prices in the months ahead.
We do know, however, that market declines are a normal part of stock market
investing. We have historically seen corrections of 10% or more every two
years. That's why I thought this might be a good time to review three basic
investment principles that have proven helpful to successful stock market
investors in every market cycle.
First, take a long-term approach when investing in stocks and stock funds.
If you can afford to leave your money invested through the market's
inevitable ups and downs, you will greatly reduce your vulnerability to any
single decline. Over time, stock prices have gone up - and have
significantly outperformed other types of investments and stayed ahead of
inflation.
Second, you can further manage risk by diversifying your investments. A
stock mutual fund is already diversified, because it invests in many
different companies. You can increase your diversification by investing in
a number of different stock funds, or in different investment categories,
such as bonds. You should also keep money you'll need in the near future in
a more stable investment.
Finally, it makes good sense to follow a regular investment plan, investing
a set amount of money at the same time each month or quarter. That way, you
can avoid getting caught up in the excitement of a rapidly-rising market -
and won't end up buying all your shares at market highs. This strategy
won't assure a profit or protect you from a loss in a declining market, but
it should help you lower the average cost of your purchases. For this to be
effective, you must continue to buy shares in both up and down markets.
If you have questions, please call us at 1-800-544-8888. We would be happy
to send you a Fidelity FundMatch kit, which can help you determine the mix
of investments that is right for you. You might also find it convenient to
set up a regular investment plan using the Fidelity Automatic Account
Builder.
We look forward to hearing from you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. Each
performance figure includes changes in a fund's share price, plus
reinvestment of any dividends (or income) and capital gains (the pro-
fits the fund earns when it sells stocks that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 1994 PAST 6 PAST 1 LIFE OF
MONTHS YEAR FUND
Equity-Income II 4.77% 10.25% 122.16%
S&P 500(Registered trademark) 0.24% 4.26% 56.09%
Average Equity Income Fund -0.42% 4.66% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, or since the fund
began on August 21, 1990. For example, if you invested $1,000 in a fund
that had a 5% return over the past year, you would end up with $1,050. You
can compare the fund's returns to the performance of the Standard &
Poor's 500 Composite Stock Price Index - a common proxy for the U.S. stock
market. You can also compare them to the average equity income fund, which
reflects the performance of 99 equity income funds with similar objectives
tracked by Lipper Analytical Services. Both benchmarks include reinvested
dividends and capital gains, if any, and exclude the effects of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1994 PAST 1 LIFE OF
YEAR FUND
Equity-Income II 10.25% 23.51%
S&P 500(Registered trademark) 4.26% 12.50%
Average Equity Income Fund 4.66% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and it shows you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Equity Income II (319) S&P 500
08/21/90 10000.00 10000.00
08/31/90 10090.00 9833.94
09/30/90 9790.00 9355.02
10/31/90 9790.00 9314.80
11/30/90 10180.00 9916.53
12/31/90 10451.06 10193.20
01/31/91 10954.00 10637.63
02/28/91 11929.70 11398.22
03/31/91 12425.00 11674.06
04/30/91 12770.42 11702.07
05/31/91 13420.62 12207.60
06/30/91 13105.68 11648.49
07/31/91 13833.74 12191.31
08/31/91 14361.43 12480.25
09/30/91 14456.52 12271.83
10/31/91 14904.70 12436.27
11/30/91 14456.52 11935.09
12/31/91 15320.98 13300.46
01/31/92 15754.68 13053.08
02/29/92 16262.55 13222.77
03/31/92 16199.85 12964.92
04/30/92 16550.86 13346.09
05/31/92 16731.69 13411.49
06/30/92 16626.26 13211.65
07/31/92 17139.48 13752.01
08/31/92 16786.64 13470.10
09/30/92 17001.03 13629.04
10/31/92 17140.73 13676.74
11/30/92 17807.02 14143.12
12/31/92 18240.50 14317.08
01/31/93 18739.34 14437.34
02/28/93 19071.80 14633.69
03/31/93 19793.83 14942.46
04/30/93 19849.52 14580.86
05/31/93 20150.27 14971.62
06/30/93 20341.48 15015.04
07/31/93 20542.99 14954.98
08/31/93 21214.70 15521.77
09/30/93 21136.44 15402.26
10/31/93 21530.15 15721.08
11/30/93 21203.93 15571.73
12/31/93 21685.40 15760.15
01/31/94 22723.04 16296.00
02/28/94 22286.52 15854.37
03/31/94 21374.37 15163.12
04/30/94 21955.26 15357.21
05/31/94 22216.06 15609.07
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Equity-Income II Fund on August 21, 1990, when the fund started. As the
chart shows, by May 31, 1994, the value of your investment would have grown
to $22,216 - a 122.16% increase on your initial investment. For comparison,
look at how the S&P 500 did over the same period. With dividends
reinvested, the same $10,000 investment would have grown to $15,609 - a
56.09% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An Interview with Brian S. Posner, Portfolio Manager of Fidelity
Equity-Income II Fund
Q. BRIAN, HOW DID THE FUND DO?
A. The fund had a total return of 4.77% for the six months ended May 31,
1994. That beat the average equity income fund tracked by Lipper Analytical
Services, which returned -0.42% during the same period. The Standard &
Poor's 500 index was up 0.24%. For the 12 months ended April 30, the fund
returned 10.25%, compared to 4.66% for the average equity income fund and
4.26% for the S&P 500.
Q. IT LOOKS LIKE THE FUND WEATHERED THE RECENT STOCK MARKET CORRECTION
RELATIVELY WELL. WHY?
A. I would point to three major reasons. First, I took advantage of a
decline in financial stocks early in 1994 to increase the fund's stake in
that sector. Many of these stocks had very low valuations - prices compared
to measures such as earnings - and they performed well through the end of
the period. Second, I recently increased the fund's investment in energy
stocks, targeting those that I felt would benefit from higher oil prices.
And third, investments I made in Japan beginning in December - particularly
in some of the larger export-driven companies - paid off through the spring
as the Japanese market recovered. As I talk about groups of stocks, keep in
mind that I build the fund from the bottom up. That simply means I look
closely at the merits of individual companies, rather than targeting broad
sectors of the market.
Q. LET'S START WITH FINANCIALS. WHERE DID YOU FIND OPPORTUNITIES?
A. Broadly speaking, I looked for financial stocks with very attractive
valuations, and earnings that I felt wouldn't suffer from rising interest
rates. Many investors sold financial stocks early in 1994 on fears that
rising rates would hurt profits in the sector. But the truth is, there's no
simple rule of thumb in this area. I bought the stocks of banks whose
profit margins, in my view, would not contract materially as rates rose.
And sure enough, banks such as Bank of New York and Bank of Boston
surprised many with solid earnings, which drove up their stock prices. In
addition, I increased the fund's investment in home mortgage agencies such
as Fannie Mae and Freddie Mac, and in selected diversified financial
companies such as Travelers. Again, what these stocks had in common were
low valuations coupled with attractive earnings prospects. The fund's total
stake in the financial sector grew from 17.7% six months ago to 22.7% by
May 31.
Q. AND AMERICAN EXPRESS IS NEW TO THE LIST OF THE FUND'S TOP 10
INVESTMENTS. WHAT'S THE STORY THERE?
A. With the recent spin-off of Lehman Brothers, American Express
effectively completed a financial restructuring that spanned the past three
years. During that time, the company shed peripheral, less profitable
segments of its business, and kept the pieces of American Express that
investors always wanted - the card, the travel services group, and the
financial planning division. The company has effectively begun to control
costs and improve its products. The stock has already helped the fund, and
I like its future prospects.
Q. WHAT'S THE LATEST ON THE FUND'S
ENERGY STOCKS?
A. Beginning last fall and continuing through early 1994, the prices of
energy stocks fell with the drop in oil prices. As happened with the
financial group, when stock prices fell, valuations became more attractive.
In addition, by the time OPEC met in late March, I felt the supply/demand
characteristics of the world oil market were favorable, and could lead to
higher oil prices. Improving economies - particularly in the U.S. - had
boosted demand. At the same time, I didn't feel - as some did - that there
was an oversupply problem. I increased the fund's investment in stocks that
are particularly sensitive to changes in oil prices. When prices rose
through April and May, so did the prices of these stocks. Examples include
Schlumberger and Murphy Oil. Also, British Petroleum - the fund's largest
investment at the end of the period - was up nearly 10% year-to-date
through the end of May.
Q. AND JAPAN?
A. The opportunity in Japan reflected a combination of depressed stock
valuations - after four years of poor performance by the Japanese stock
market - and signs of stabilizing business prospects among Japanese
companies. After much analysis, I found that stocks of the nation's large
exporters were trading at their lowest valuations in 10 years. These are
household names in the United States: Hitachi, Honda, Nissan, Sony, Suzuki
and Toyota to name a few. A rising yen had hurt the profitability of these
companies, yet they managed to trim expenses during the tough times.
Investors have begun to see the same potential I did in these stocks, and
have driven up prices since the beginning of the year. A sustained recovery
of the Japanese economy and a decline in the value of the yen relative to
the U.S. dollar may benefit these stocks further in the coming months. On
May 31, the fund's total stake in Japan was 7.1%.
Q. THERE MUST HAVE BEEN SOME
DISAPPOINTMENTS . . .
A. Always. Perhaps the biggest over the past six months were the fund's
investments in electric utilities such as Entergy and Illinova, formerly
Illinois Power. A couple of factors hurt these stocks. First, new
regulations have weakened the rates of return for many utilities. And
second, excess generating capacity in some regions of the country has led
to increased competition. I am, however, keeping a stake in those utilities
that I feel are operating in relatively benign competitive environments,
are controlling costs, and have attractive stock valuations.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. I think we'll be facing a difficult investing environment through the
end of the year. Despite the recent market correction, stock valuations are
still high on a historical basis. In addition, the market has become more
volatile than it was over the past two years. But the biggest new variable
affecting stock performance is higher interest rates, which has the
potential to slow corporate earnings. I believe, more than ever, it may be
a stock picker's market. I'll stick with those companies whose business
prospects I believe can help drive up their stock prices, despite what rest
of the market does.
FUND FACTS
GOAL: to provide current
income and increase the
value
of the fund's shares
START DATE: August 21, 1990
SIZE: as of May 31, 1994,
more than $6.1 billion
MANAGER: Brian S. Posner,
since April 1992; manager,
Fidelity Value Fund, October
1990-June 1992; Select
Energy Portfolio, 1990;
Fidelity Select Insurance
Portfolio, 1987-1990;
joined Fidelity in 1987
(checkmark)
BRIAN S. POSNER ON
"DEFENSIVE" STOCKS:
"In a volatile market
environment, some investors
will buy so-called defensive
stocks. I guess they hope
these stocks won't fall as far
as others in a market
downturn. But the term
`defensive stock' means little
to me, and I think that line of
reasoning is a sure way to
lose money. I only buy stocks
whose prices I believe have
the potential to be higher
tomorrow than they are today.
If I can't find enough of these
stocks, I'll own cash instead. I
have to believe a stock will go
up, or I won't buy it."
(bullet) On May 31, roughly 75% of
the fund's Japanese
investment was hedged with
derivative investments known
as forward currency
contracts. Because the
Japanese stock investments
are tied to local currency, a
falling yen can reduce the
value of the position in U.S.
dollars. Hedging with
currency contracts can help
limit that "currency risk."
However, if the value of the
yen increases relative to the
dollar, the increased dollar
value of these investments
could be offset by an increase
in the cost of the hedge.
(bullet) The fund's stake in
chemical companies rose
from 4.3% six months ago to
7.1% by May 31. These
stocks have benefited from a
move toward "cyclical" stocks
- - - those that tend to rise and
fall with economic cycles.
INVESTMENT CHANGES
TOP TEN STOCKS AS OF MAY 31, 1994
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
British Petroleum PLC ADR 3.3 3.2
American Express Co. 2.4 0.4
Schlumberger Ltd. 2.1 0.9
Philip Morris Companies, Inc. 1.8 1.2
Grace (W.R.) & Co. 1.4 1.8
ConAgra Inc. 1.4 0.8
Bank of New York, Inc. 1.3 1.3
Entergy Corp. 1.3 1.0
Alcan Aluminum Ltd. 1.2 0.8
Travelers Inc. 1.2 --
TOP FIVE INDUSTRIES AS OF MAY 31, 1994
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE INDUSTRIES
6 MONTHS AGO
Finance 22.7 17.7
Energy 13.6 12.2
Basic Industries 13.1 11.7
Nondurables 5.5 3.9
Retail & Wholesale 5.3 4.2
ASSET ALLOCATION
AS OF MAY 31, 1994* AS OF NOVEMBER 30, 1993**
Row: 1, Col: 1, Value: 13.8
Row: 1, Col: 2, Value: 4.4
Row: 1, Col: 3, Value: 4.0
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 37.8
Stocks 68.9%
Bonds 4.5%
Convertible
securities 6.7%
Short-term invest-
ments and other 19.9%
FOREIGN
INVESTMENTS 19%
Stocks 77.8%
Bonds 4.0%
Convertible
securities 4.4%
Short-term invest-
ments and other 13.8%
FOREIGN
INVESTMENTS 20%
Row: 1, Col: 1, Value: 19.9
Row: 1, Col: 2, Value: 6.7
Row: 1, Col: 3, Value: 4.5
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 28.9
*
**
INVESTMENTS MAY 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investments
COMMON STOCKS - 77.6%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.5%
Flightsafety International, Inc. 796,500 $ 30,566
BASIC INDUSTRIES - 10.7%
CHEMICALS & PLASTICS - 7.1%
Akzo NV:
sponsored ADR 35,400 1,996
Ord. 151,600 17,072
Cominco Fertilizer Ltd. 222,400 3,841
DSM NV 75,000 5,441
du Pont (E.I.) de Nemours & Co. 485,000 30,070
Eastman Chemical Co. 435,500 20,958
Grace (W.R.) & Co. 2,058,000 85,922
Great Lakes Chemical Corp. 850,200 46,867
IMC Fertilizer Group, Inc. (a) 416,700 14,324
Imperial Chemical Industries PLC:
ADR 116,100 5,689
Ord. 2,881,300 35,123
Lyondell Petrochemical Co. 761,500 19,799
Methanex Corp. (a) 644,300 7,400
Nalco Chemical Co. 1,085,200 35,676
Potash Corp. of Saskatchewan 1,028,900 26,890
Sekisui Chemical Co. Ltd. 1,642,000 17,077
Shin-etsu Chemical Co. Ltd. 869,000 18,324
Union Carbide Corp. 1,478,100 39,909
432,378
IRON & STEEL - 0.3%
Allegheny Ludlum Industries, Inc. 615,100 10,764
LTV Corp. (a) 429,500 6,872
17,636
METALS & MINING - 1.8%
Alcan Aluminium Ltd. 3,182,800 73,972
Alumax, Inc. (a) 405,600 10,292
English China Clay PLC (a) 1,000,000 6,405
Reynolds Metals Co. 367,900 16,877
107,546
PACKAGING & CONTAINERS - 0.0%
Ball Corp. 109,300 3,142
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 1.5%
Champion International Corp. 1,128,800 $ 36,827
Chesapeake Corp. 314,100 7,774
Jefferson Smurfit Corp. 479,000 6,706
Repola OY 406,000 6,703
Stone Container Corp. 592,900 8,671
Temple-Inland, Inc. 534,600 26,663
93,344
TOTAL BASIC INDUSTRIES 654,046
CONGLOMERATES - 1.4%
Allied-Signal, Inc. 250,000 8,781
Dial Corp. (The) 405,300 18,441
Standex International Corp. 233,300 6,037
Textron, Inc. 333,600 18,682
United Technologies Corp. 490,900 32,583
84,524
CONSTRUCTION & REAL ESTATE - 1.3%
BUILDING MATERIALS - 0.3%
Tecumseh Products Class A 319,000 14,993
ENGINEERING - 0.2%
EG&G, Inc. 859,200 12,566
REAL ESTATE INVESTMENT TRUSTS - 0.8%
Associated Estates Realty Corp. 65,600 1,476
Bradley Real Estate Trust (SBI) 450,000 4,331
Carr Realty Corp. 129,600 3,029
Crown American Realty Trust (SBI) 583,900 8,029
Developers Diversified Realty 100,000 3,025
Excel Realty Trust, Inc. 41,300 836
Federal Realty Investment Trust (SBI) 47,100 1,183
Haagen Alexander Properties, Inc. 112,000 2,086
Kimco Realty Corporation 52,500 1,923
LTC Properties, Inc. 103,400 1,448
Macerich Company 128,000 2,432
Simon Properties (a) 458,000 12,538
Urban Shopping Centers, Inc. 87,000 1,881
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - CONTINUED
REAL ESTATE INVESTMENT TRUSTS - CONTINUED
Vornado Realty Trust 84,400 $ 3,049
Weingarten Realty Investors (SBI) 36,700 1,390
Western Investment Real Estate Trust (SBI) 87,100 1,198
49,854
TOTAL CONSTRUCTION & REAL ESTATE 77,413
DURABLES - 4.0%
AUTOS, TIRES, & ACCESSORIES - 2.1%
Honda Motor Co. Ltd. 1,927,000 34,567
Johnson Controls, Inc. 440,400 21,580
Nissan Motor Co. Ltd. Ord. 2,640,000 22,091
Suzuki Motor Corp. 1,264,000 16,764
Toyota Motor Corp. 1,727,000 34,769
129,771
CONSUMER ELECTRONICS - 1.3%
Matsushita Elec Indl Co. Ltd. 2,648,000 46,237
Sony Corp. 499,000 29,615
75,852
TEXTILES & APPAREL - 0.6%
Liz Claiborne, Inc. 294,800 6,449
Nisshinbo Industries Inc. 1,101,000 12,396
Russell Corp. Mills 209,000 6,244
Unifi, Inc. 518,800 13,294
38,383
TOTAL DURABLES 244,006
ENERGY - 12.5%
ENERGY SERVICES - 4.0%
BJ Services Co. (a) 353,600 6,630
Baker Hughes, Inc. 950,700 18,895
Enterra Corp. 691,300 15,036
Halliburton Co. 1,070,400 32,513
Helmerich & Payne, Inc. 850,000 22,206
Offshore Logistics, Inc. 142,500 2,013
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - CONTINUED
ENERGY SERVICES - CONTINUED
Schlumberger Ltd. 2,246,000 $ 128,584
Tidewater, Inc. 690,200 14,667
240,544
OIL & GAS - 8.5%
Amerada Hess Corp. 1,388,700 68,741
Apache Corp. 224,000 6,076
British Borneo Petroleum 176,100 591
British Petroleum PLC:
ADR 2,833,200 199,032
Ord. 3,437,584 20,018
Burlington Resources, Inc. 696,900 29,008
Louisiana Land & Exploration Co. 115,000 4,715
Murphy Oil Corp. 1,254,900 52,706
Newfield Exploration Co. (a) 316,500 6,567
Norsk Hydro AS 534,600 17,707
Norsk Hydro AS ADR (a) 564,600 18,702
Norsk Hydro (rights) (a) 534,600 307
Norsk Hydro ADR (rights) (a) 564,600 317
Occidental Petroleum Corp. 815,000 15,791
Oryx Energy Co. 285,500 4,996
Petro-Canada 200,000 1,772
Petroleum Heat & Power, Co. Class A 389,900 2,778
Total Compagnie Francaise des Petroles Class B 889,228 49,089
Total SA sponsored ADR 304,267 8,596
Western Gas Resources, Inc. 435,700 11,655
519,164
TOTAL ENERGY 759,708
FINANCE - 20.9%
BANKS - 7.2%
BNP CI Ord. 137,700 6,092
Banc One Corp. 1,902,860 63,508
Bank of Boston Corp. 2,443,247 68,411
Bank of New York Co., Inc. 2,764,064 81,540
BanPonce Corp. 301,262 9,716
Chemical Banking Corp. 1,603,800 61,546
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
First Empire State Corp. 86,100 $ 12,872
First Fidelity Bancorporation 891,614 41,014
Istituto Mobiliare Italiano 134,000 1,028
Mercantile Bancorporation, Inc. 667,500 24,280
Republic New York Corp. 526,100 25,056
Shawmut National Corp. 1,754,400 42,325
437,388
CREDIT & OTHER FINANCE - 4.1%
American Express Co. 5,347,400 147,722
American Express Co. (g) 20,500 566
Argentaria Corp. Bancaria de Esp 167,400 7,091
Beneficial Corp. 1,065,500 39,290
Christies International PLC 540,000 1,264
Corporacion Bancaria de Espana SA sponsored ADR (a) 267,000 5,674
Dean Witter Discover & Co. 523,524 20,417
GFC Financial Corp. 819,900 25,724
Household International, Inc. 61 2
247,750
FEDERAL SPONSORED CREDIT - 1.7%
Federal Home Loan Mortgage Corporation 729,600 42,317
Federal National Mortgage Association 737,500 61,581
103,898
INSURANCE - 4.9%
ACE Ltd. 955,100 26,026
American Bankers Insurance Group, Inc. 326,400 7,222
Berkley Corp. 213,000 8,254
Exel Ltd. 446,200 18,796
Gryphon Holdings, Inc. (a) 547,900 7,671
Loews Corp. 520,600 46,333
MBIA, Inc. 456,700 26,203
Mid Ocean Ltd. Class A Ord. (a)(e) 300,000 6,806
NAC Re Corp. 846,100 24,643
SAFECO Corp. 560,600 30,903
St. Paul Companies, Inc. (The) 274,000 21,269
Travelers, Inc. 2,236,624 73,249
297,375
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
SAVINGS & LOANS - 1.6%
Ahmanson (H.F.) & Co. 1,571,500 $ 29,466
Baltimore Bancorp 219,600 4,337
Golden West Financial Corp. 679,700 26,848
Standard Federal Bank 1,380,000 37,088
97,739
SECURITIES INDUSTRY - 1.4%
Daiwa Securities Co. Ltd. 653,000 11,215
Lehman Brothers Holdings 1,069,480 19,652
Midland Walwyn Inc. (a) 125,000 870
Nikko Securities Co. Ltd. 787,000 10,363
Nomura Securities Co. Ltd. 1,902,000 43,918
86,018
TOTAL FINANCE 1,270,168
HEALTH - 1.6%
DRUGS & PHARMACEUTICALS - 1.4%
Allergan, Inc. 876,200 21,686
American Cyanamid Co. 1,064,400 55,482
Schering Plough Corp. 140,000 9,135
86,303
MEDICAL EQUIPMENT & SUPPLIES - 0.2%
Pall Corp. 975,600 13,902
TOTAL HEALTH 100,205
INDUSTRIAL MACHINERY & EQUIPMENT - 1.9%
ELECTRICAL EQUIPMENT - 0.9%
General Electric Co. 1,064,200 52,811
INDUSTRIAL MACHINERY & EQUIPMENT - 0.7%
Caterpillar, Inc. 339,400 36,273
Keystone International, Inc. 243,600 5,390
41,663
POLLUTION CONTROL - 0.3%
Safety-Kleen Corp. 800,000 12,800
WMX Technologies, Inc. 250,000 6,844
19,644
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 114,118
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - 0.3%
PUBLISHING - 0.3%
American Publishing Class A 250,000 $ 3,313
Times Mirror Co., Series A 430,400 13,934
17,247
NONDURABLES - 5.1%
FOODS - 2.2%
Archer Daniels Midland Co. 734,800 17,727
ConAgra, Inc. 2,935,700 84,768
Dole Food, Inc. 796,600 21,907
Doskocil Cos., Inc. Com (a) 1,453 16
Sara Lee Corp. 544,300 11,634
136,052
HOUSEHOLD PRODUCTS - 0.3%
Orkla AS:
Class A Free shares 283,500 9,926
Class B (non-vtg.) 178,450 6,123
16,049
TOBACCO - 2.6%
Philip Morris Companies, Inc. 2,164,700 106,611
RJR Nabisco Holdings Corp. (a) 5,298,100 30,464
UST, Inc. 773,800 19,538
156,613
TOTAL NONDURABLES 308,714
RETAIL & WHOLESALE - 5.2%
APPAREL STORES - 1.5%
Charming Shoppes, Inc. 2,304,600 21,894
Edison Brothers Stores, Inc. 710,600 18,564
Limited, Inc. (The) 2,255,000 39,744
TJX Companies, Inc. 525,400 12,741
92,943
GENERAL MERCHANDISE STORES - 1.7%
Dayton Hudson Corp. 616,400 48,464
Federated Department Stores, Inc. (a) 777,600 17,010
Sears, Roebuck & Co. 728,900 36,901
102,375
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 1.6%
American Stores Co. 1,013,500 $ 25,338
Fleming Companies, Inc. 462,100 11,495
Great Atlantic & Pacific Tea Co., Inc. 1,054,300 25,171
Supervalu, Inc. 1,001,600 32,051
94,055
RETAIL & WHOLESALE, MISC - 0.4%
Circuit City Stores, Inc. 89,400 1,732
Duty Free International, Inc. 903,700 12,313
Handleman Co. 450,300 4,841
Uny Co., Ltd. 437,000 6,338
25,224
TOTAL RETAIL & WHOLESALE 314,597
SERVICES - 1.4%
PRINTING - 0.5%
Donnelley (R.R.) & Sons Co. 771,900 21,227
Komori Corp. 308,000 8,376
Standard Register Co. 90,400 1,938
31,541
SERVICES - 0.9%
ADT Ltd. 164,000 1,579
Jostens, Inc. 324,700 5,479
Western Atlas, Inc. 1,051,069 44,933
51,991
TOTAL SERVICES 83,532
TECHNOLOGY - 3.8%
COMPUTERS & OFFICE EQUIPMENT - 2.1%
Canon, Inc. 1,413,000 23,459
Casio Computer Co. Ltd. 1,508,000 18,993
Data General Corp. (a) 149,500 1,121
Fujitsu Ltd. 1,150,000 12,070
International Business Machines Corp. 1,110,000 70,208
125,851
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.8%
Hitachi Ltd. 4,675,000 $ 48,175
Hitachi Maxell Ltd. 140,000 2,792
50,967
PHOTOGRAPHIC EQUIPMENT - 0.9%
Fuji Photo Film Co. Ltd. 592,000 12,822
Polaroid Corp. 1,312,600 41,019
53,841
TOTAL TECHNOLOGY 230,659
TRANSPORTATION - 3.0%
RAILROADS - 2.9%
CSX Corp. 359,700 27,517
Canadian Pacific Ltd. 3,414,900 54,043
Chicago & North Western Holdings Corp. (a) 892,300 21,192
Illinois Central Corp., Series A 1,070,800 37,210
Union Pacific Corp. 643,200 37,949
177,911
TRUCKING & FREIGHT - 0.1%
Yellow Corp. 370,000 6,961
TOTAL TRANSPORTATION 184,872
UTILITIES - 4.0%
ELECTRIC UTILITY - 3.6%
Baltimore Gas & Electric Co. 736,700 16,760
Centerior Energy Corp. 1,303,300 14,010
Central & South West Corp. 478,800 10,534
DPL, Inc. 933,750 18,792
Entergy Corp. 2,804,184 80,971
Illinova Corporation Holding Co. 1,590,500 32,804
NIPSCO Industries, Inc. 844,400 25,965
Northeast Utilities 316,300 7,196
PacifiCorp. 707,500 12,470
219,502
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
GAS - 0.0%
Pacific Enterprises 153,000 $ 3,156
TELEPHONE SERVICES - 0.4%
Ameritech Corp. 562,400 22,004
TOTAL UTILITIES 244,662
TOTAL COMMON STOCKS
(Cost $4,476,822) 4,719,037
PREFERRED STOCKS - 2.8%
CONVERTIBLE PREFERRED STOCKS - 2.6%
BASIC INDUSTRIES - 1.0%
METALS & MINING - 1.0%
Alumax, Inc., Series A, $4.00 135,466 15,443
Reynolds Metals Co. $3.31 950,600 46,461
61,904
ENERGY - 0.7%
OIL & GAS - 0.7%
Occidental Petroleum Corp. $3.875 (f) 305,000 15,174
Unocal Corp. $3.50 (f) 504,600 27,248
42,422
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
Cooper Industries, Inc. $8.00 917,800 21,339
NONDURABLES - 0.3%
TOBACCO - 0.3%
RJR Nabisco Holdings Corp., Series A, depositary shares
representing 1/4 share 2,830,200 16,981
SERVICES - 0.2%
Pittston Co. $3.125 (f) 340,500 13,620
TOTAL CONVERTIBLE PREFERRED STOCKS 156,266
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd. sr. Series 1, adj. rate 410,232 $ 1,051
Gulf Canada Resources, Ltd. (e) 11,768 30
1,081
FINANCE - 0.2%
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. depositary shares representing
1/2 share pref. B 9.6% 359,961 9,359
TOTAL NONCONVERTIBLE PREFERRED STOCKS 10,440
TOTAL PREFERRED STOCKS
(Cost $172,030) 166,706
CORPORATE BONDS - 5.7%
MOODY'S RATINGS (C) PRINCIPAL
(UNAUDITED) AMOUNT (B) (000S)
CONVERTIBLE BONDS - 1.8%
BASIC INDUSTRIES - 0.3%
PAPER & FOREST PRODUCTS - 0.3%
Stone Container Corp. 8 7/8%, 7/15/00 (f) B2 $ 11,200 16,688
CONGLOMERATES - 0.1%
Hanson America, Inc. 2.39%, 3/1/01 (f) A3 6,904 5,126
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Centerpoint Properties 8.22%, 1/15/04 -- 1,030 1,169
Sizeler Property Investors, Inc. 8%, 7/15/03 -- 1,000 960
2,129
DURABLES - 0.3%
TEXTILES & APPAREL - 0.3%
Unifi, Inc. 6%, 3/15/02 Baa1 16,000 16,240
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
ENERGY - 0.0%
OIL & GAS - 0.0%
USX-Marathon Group 0%, 8/9/05 Baa3 $ 4,000 $ 1,700
FINANCE - 0.6%
BANKS - 0.5%
Bank of New York Co., Inc. 7 1/2%, 8/15/01 Baa1 18,000 27,810
CREDIT & OTHER FINANCE - 0.1%
Amer Group Ltd.:
6 1/4%, 6/15/03 -- 2,000 2,060
6 1/4%, 6/15/03 (f) -- 5,000 5,100
7,160
TOTAL FINANCE 34,970
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Federated Department Stores, Inc. 0%, 2/15/04 Ba3 10,000 9,300
SERVICES - 0.2%
Manpower, Inc. 6 1/4%, 10/1/02 (f) Ba3 11,540 13,213
TRANSPORTATION - 0.2%
AIR TRANSPORTATION - 0.2%
Alaska Air Group, Inc. liquid yield option
0%, 4/18/06 Ba3 27,500 10,863
TRUCKING & FREIGHT - 0.0%
Builders Transport, Inc. 8%, 8/15/05 B2 618 542
TOTAL TRANSPORTATION 11,405
TOTAL CONVERTIBLE BONDS 110,771
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (B) (000S) (000S)
NONCONVERTIBLE BONDS - 3.9%
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 0.3%
du Pont (E.I.) de Nemours & Co. euro
9%, 7/18/94 Aa2 $ 2,000 $ 2,010
IMC Fertilizer Group, Inc.:
9 1/4%, 10/1/00 B3 2,750 2,585
10 1/8%, 6/15/01 B3 10,000 9,900
9.45%, 12/15/11 B3 3,000 2,760
17,255
IRON & STEEL - 0.1%
Inland Steel Industries, Inc. 12 3/4%, 12/15/02 Ba3 4,000 4,470
PAPER & FOREST PRODUCTS - 0.7%
Container Corp. America 14%, 12/1/01 B3 18,000 19,800
Stone Container Corp.:
sr. sub. notes 10 3/4%, 4/1/02 B2 5,000 4,763
11 1/2%, 9/1/99 B2 2,000 1,990
9.875%, 2/1/01 B1 20,000 19,000
45,553
TOTAL BASIC INDUSTRIES 67,278
CONGLOMERATES - 0.3%
Coltec Industries, Inc. 10 1/4%, 4/1/02 Ba2 6,750 6,851
Sequa Corp. 9 3/8%, 12/15/03 B3 12,110 11,202
18,053
CONSTRUCTION & REAL ESTATE - 0.2%
BUILDING MATERIALS - 0.2%
USG Corp.:
10 1/4%, 12/15/02 B1 2,500 2,513
10 1/4%, 12/15/02 B2 8,000 8,000
10,513
DURABLES - 0.6%
AUTOS, TIRES, & ACCESSORIES - 0.0%
Auburn Hills Trust gtd. exchangeable
15 7/8%, 5/1/20 A3 1,100 1,502
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (B) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
DURABLES - CONTINUED
TEXTILES & APPAREL - 0.6%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 $ 9,300 $ 8,486
9 3/8%, 12/15/05 B3 27,750 25,114
33,600
TOTAL DURABLES 35,102
ENERGY - 0.4%
ENERGY SERVICES - 0.2%
Global Marine, Inc. 12 3/4%, 12/15/99 B1 9,000 9,653
TransTexas Gas Corp. 10 1/2%, 9/1/00 B1 3,360 3,368
13,021
OIL & GAS - 0.2%
Atlantic Richfield Co. notes 10 3/8%, 7/15/95 A2 500 523
BP America, Inc. gtd. 10.15%, 3/15/96 A1 1,500 1,583
Chevron Corp. Profit Sharing/Savings Plan
Trust Fund gtd. 6.92%, 1/1/96 Aa2 2,000 2,000
Mesa Capital Corp. (d)
12 3/4%, 6/30/96 -- 975 843
secured 12 3/4%, 6/30/98 B3 7,500 6,656
11,605
TOTAL ENERGY 24,626
FINANCE - 1.0%
BANKS - 0.1%
Morgan (J.P.) & Co., Inc. 5 3/8%, 1/21/95 Aa1 2,000 2,001
Republic National Bank New York 5.20%,
1/17/95 Aa1 2,000 2,019
4,020
CREDIT & OTHER FINANCE - 0.1%
Chrysler Financial Corp. 9 1/2%, 12/15/99 A3 5,000 5,422
Exxon Capital Corp. gtd. 7 3/4%, 2/14/96 Aaa 2,000 2,049
7,471
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (B) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
FINANCE - CONTINUED
INSURANCE - 0.7%
American Reinsurance 10 7/8%, 9/15/04 Baa2 $ 22,000 $ 24,495
ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 1,500 1,510
Phoenix Real Estate Corp. 9 3/4%, 8/15/03 Ba2 5,300 5,406
Reliance Group 9%, 11/15/00 Ba3 16,000 14,640
46,051
SAVINGS & LOANS - 0.1%
Coast Savings Financial, Inc. 10%, 4/1/00 B1 4,000 3,910
TOTAL FINANCE 61,452
MEDIA & LEISURE - 0.1%
LODGING & GAMING - 0.1%
Host Marriott Corp. 9 1/8%, 12/1/00 B1 1,000 981
Host Marriott Hospitality, Inc. 10 7/8%,
11/1/01 B1 4,000 3,955
4,936
PUBLISHING - 0.0%
News America Holdings, Inc. 12%, 12/15/01 Ba1 950 1,092
TOTAL MEDIA & LEISURE 6,028
NONDURABLES - 0.1%
BEVERAGES - 0.0%
Coca-Cola Company (The) 7 3/4%, 2/15/96 Aa3 1,000 1,024
FOODS - 0.1%
Chiquita Brands International, Inc. sub. notes
11 1/2%, 6/1/01 B3 3,997 4,157
TOTAL NONDURABLES 5,181
UTILITIES - 0.1%
ELECTRIC UTILITY - 0.1%
Carolina Power & Light Co. 5.20%, 1/1/95 A2 2,000 1,998
Long Island Lighting Co. 10 1/4%, 6/15/94 Baa3 2,000 2,002
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNT (B) (000S) (000S)
NONCONVERTIBLE BONDS - CONTINUED
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Ontario Hydro gtd. 9 1/4%, 5/1/95 Aa2 $ 1,000 $ 1,030
Southern California Edison Co. 5.55%, 2/1/95 Aa3 2,000 1,993
7,023
TOTAL NONCONVERTIBLE BONDS 235,256
TOTAL CORPORATE BONDS
(Cost $354,692) 346,027
U.S. TREASURY OBLIGATIONS - 8.3%
Bills, Yields at date of purchase,
3.79%, 7/21/94 500,000 497,335
9 1/2%, 10/15/94 Aaa 3,000 3,052
9 1/4%, 1/15/96 Aaa 2,000 2,104
7 7/8%, 7/31/96 Aaa 2,000 2,071
504,562
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $505,099) 504,562
FOREIGN GOVERNMENT OBLIGATIONS - 0.0%
Canadian Government 8 1/4%, 3/1/97
(Cost $993) Aaa CAD 1,200 872
REPURCHASE AGREEMENTS - 5.6%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements,
(U.S. Treasury obligations), in a joint
trading account at 4.26% dated
5/31/94 due 6/1/94 $ 340,985 340,945
TOTAL INVESTMENTS IN SECURITIES - 100%
(Cost $5,850,581) $ 6,078,149
FORWARD FOREIGN CURRENCY CONTRACTS
AMOUNTS IN THOUSANDS SETTLEMENT UNREALIZED
DATE(S) VALUE GAIN/(LOSS)
CONTRACTS TO SELL
33,544 JPY 6/9/94 to 8/18/94 $ 320,543 $ (1,543)
TOTAL CONTRACTS TO SELL
(Receivable amount $319,000)
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES -- 5.3%
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
JPY - Japanese yen
LEGEND
(a) Non-income producing
(b) Principal amount is stated in United States dollars unless otherwise
noted.
(c) Standard & Poor's Corporation credit ratings are used in the
absence of a rating by Moody's Investors Service, Inc.
(d) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(e) Restricted securities - investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Gulf Canada
Resources, Ltd. 11/3/93 $ 29,000
Mid Ocean Ltd.
Class A Ord. 6/24/93 $ 5,000,000
(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 $96,170,000 or 1.6% of net
assets.
(g) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
OTHER INFORMATION
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 80.0%
Japan 7.1
United Kingdom 4.4
Canada 2.8
Netherlands 2.5
France 1.0
Others (individually less than 1%) 2.2
TOTAL 100.0%
INCOME TAX INFORMATION
At May 31, 1994 the aggregate cost of investment securities for income tax
purposes was $5,850,687,000. Net unrealized appreciation aggregated
$227,462,000 of which $420,781,000 related to appreciated investment
securities and $193,319,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) MAY 31, 1994 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase $ 6,078,149
agreements of $340,945) (cost $5,850,581) (Notes 1
and 2) - See accompanying schedule
Short foreign currency contracts (Note 2) $ (320,543)
Contracts held, at value
Receivable for contracts held 319,000 (1,543)
Cash 1
Receivable for investments sold 42,161
Receivable for fund shares sold 46,637
Dividends receivable 17,102
Interest receivable 10,067
TOTAL ASSETS 6,192,574
LIABILITIES
Payable for investments purchased 60,986
Regular delivery
Delayed delivery (Note 2) 523
Payable for fund shares redeemed 7,161
Accrued management fee 2,562
Other payables and accrued expenses 1,618
TOTAL LIABILITIES 72,850
NET ASSETS $ 6,119,724
Net Assets consist of (Note 1):
Paid in capital $ 5,590,158
Undistributed net investment income 30,641
Accumulated undistributed net realized gain (loss) on 272,900
investments
Net unrealized appreciation (depreciation) on:
Investment securities 227,568
Foreign currency contracts (1,543)
NET ASSETS, for 326,494 shares outstanding $ 6,119,724
NET ASSET VALUE, offering price and redemption price per $18.74
share ($6,119,724 (divided by) 326,494 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MAY 31, 1994 (UNAUDITED)
INVESTMENT INCOME $ 57,326
Dividends
Interest 31,142
TOTAL INCOME 88,468
EXPENSES
Management fee (Note 4) $ 14,102
Transfer agent fees (Note 4) 7,491
Accounting fees and expenses (Note 4) 383
Non-interested trustees' compensation 22
Custodian fees and expenses 161
Registration fees 187
Audit 21
Legal 27
Reports to shareholders 119
Miscellaneous 19
Total expenses before reductions 22,532
Expense reductions (Note 5) (277) 22,255
NET INVESTMENT INCOME 66,213
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 275,665
(NOTES 1, 2 AND 3)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities (105,471)
Foreign currency contracts (1,543) (107,014)
NET GAIN (LOSS) 168,651
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 234,864
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1994 1993
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 66,213 $ 95,491
Net investment income
Net realized gain (loss) on investments 275,665 207,418
Change in net unrealized appreciation (depreciation) (107,014) 234,493
on
investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 234,864 537,402
FROM OPERATIONS
Distributions to shareholders (72,756) (71,676)
From net investment income
From net realized gain (183,132) (45,921)
TOTAL DISTRIBUTIONS (255,888) (117,597)
Share transactions 2,342,527 3,502,848
Net proceeds from sales of shares
Reinvestment of distributions 248,677 114,466
Cost of shares redeemed (1,265,350) (1,164,550)
Net increase (decrease) in net assets resulting from 1,325,854 2,452,764
share
transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,304,830 2,872,569
NET ASSETS
Beginning of period 4,814,894 1,942,325
End of period (including undistributed net investment $ 6,119,724 $ 4,814,894
income of $30,641 and $37,905, respectively)
OTHER INFORMATION
Shares
Sold 125,654 196,097
Issued in reinvestment of distributions 13,590 6,682
Redeemed (68,138) (64,583)
Net increase (decrease) 71,106 138,196
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SIX MONTHS YEARS ENDED NOVEMBER 30, AUGUST 21, 1990
ENDED (COMMENCEMENT
MAY 31, 1994 OF
OPERATIONS) TO
NOVEMBER 30,
(UNAUDITED) 1993 1992 1991 1990
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning $ 18.85 $ 16.57 $ 13.87 $ 10.18 $ 10.00
of period
Income from Investment
Operations
Net investment income .22 .44 .40 .45(dagger)(dagger) .03
Net realized and .65 2.62 2.75 3.76 .15
unrealized gain (loss)
on investments
Total from investment .87 3.06 3.15 4.21 .18
operations
Less Distributions
From net investment (.27) (.41) (.32) (.44) -
income
From net realized gain (.71) (.37) (.13) (.08) -
Total distributions (.98) (.78) (.45) (.52) -
Net asset value, end of $ 18.74 $ 18.85 $ 16.57 $ 13.87 $ 10.18
period
TOTAL RETURN (dagger) 4.77% 19.08% 23.18% 42.01% 1.80%(double dagger)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 6,120 $ 4,815 $ 1,942 $ 292 $ 3
(in millions)
Ratio of expenses to .84%* .88% 1.01% 1.52% 2.50%*(double dagger)
average net assets
(diamond)
Ratio of expenses to .85%* .89% 1.01% 1.52% 2.50%*
average net assets
before expense
reductions (diamond)
Ratio of net investment 2.48%* 2.69% 3.09% 3.83% 3.89%*
income to average net
assets
Portfolio turnover rate 81%* 55% 89% 206% 167%*
</TABLE>
* ANNUALIZED
(dagger) TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED.
(double dagger) DURING THE PERIOD AUGUST 21, 1990 (COMMENCEMENT OF
OPERATIONS) TO NOVEMBER 30, 1990, EXPENSES WERE LIMITED IN ACCORDANCE WITH
A STATE EXPENSE LIMITATION.
(diamond) SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS.
(dagger)(dagger) NET INVESTMENT INCOME PER SHARE REFLECTS $.12 PER SHARE
RELATING TO A NONRECURRING INITIATIVE TO INVEST IN DIVIDEND INCOME
PRODUCING SECURITIES WHICH WAS IN EFFECT FOR A PORTION OF 1991.
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1994 (Unaudited)
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Equity -Income II Fund (the fund) is a fund of Fidelity Financial
Trust(the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange), are valued primarily using
dealer-supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees. Short-term se-
curities maturing within sixty days 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 current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practicable to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
ex-
change rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information re-
garding 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. Interest income is accrued, which includes accretion of
original issue discount, as earned. Dividend and interest income is
recorded net of foreign taxes where recovery of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency transactions, market discount, non-taxable dividends, and
losses deferred due to wash sales. The fund also utilized earnings and
profits distributed to shareholders on redemption of shares as a part of
the dividends paid deduction for income tax purposes.
SECURITY TRANSACTIONS. Security trans-
actions are accounted for as of trade date. Gains and losses on securities
sold are determined on the basis of identified cost.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective December
1, 1993, the fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of November 30, 1993 have been reclassified to
reflect an increase in paid in capital of $11,134,960, a decrease in
undistributed net investment income of $721,108 and a decrease in
accumulated net realized gain on investments of $10,413,852.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign
currency contracts. These contracts involve market risk in excess of the
amount reflected in the fund's Statement of Assets and Liabilities. The
face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign cur-
rency contracts is determined using forward currency exchange rates sup-
plied by a quotation service. Losses may arise due to changes in the value
of the foreign currency or if the counterparty does not perform under the
contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
determining that the value of these underlying securities remains at least
equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with other
registered investment companies having management contracts with FMR, may
transfer uninvested cash balances into a joint trading account. These
balances are invested in one or more repurchase agreements that are
collateralized by U.S. Treasury or Federal Agency obligations.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment 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 fund
identifies securities as segregated in its custodial records with a value
at least equal to the amount of the purchase commitment.
RESTRICTED SECURITIES. The fund is permitted to invest in privately placed
restricted securities. These securities may be resold in transactions
exempt from registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations and
expense, and prompt sale at an acceptable price may be difficult. At the
end of the period, restricted securities (excluding 144A issues) amounted
to $6,836,000 or .1% of net assets.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,007,350,000 and $1,913,227,000, respectively, of which U.S.
government and government agency obligations aggregated $50,000.
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 ranging from
.31% to .52% and is based on the monthly average net assets of all the
mutual funds advised by FMR. The annual individual fund fee rate is .20%.
For the period, the management fee was equivalent to an annualized rate of
. 53% of average net assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .2850% to .52%. Effective November 1, 1993, FMR has
voluntarily agreed to implement this new group fee rate schedule as it
results in the same or a lower management fee.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder sup-
port services. FMR or FDC has informed the fund that payments made to third
parties under the Plan amounted to $21,000 for the period.
TRANSFER AGENT FEE. Fidelity Service Co. (FSC), an affiliate of FMR, is the
fund's transfer, dividend disbursing and shareholder servicing agent. FSC
re-
ceives fees based on the type, size, number of accounts and the number of
transactions made by shareholders. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements.
ACCOUNTING FEE. 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 $1,702,000 for the period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$277,000 under this arrangement.
TO CALL FIDELITY
FOR FUND INFORMATION AND QUOTES
The Fidelity Telephone Connection offers you special automated telephone
services for quotes and balances. The services are easy to use,
confidential and quick. All you need is a Touch Tone telephone.
YOUR PERSONAL IDENTIFICATION NUMBER
(PIN)
The first time you call one of our automated telephone services, we'll ask
you
to set up your Personal Identification
Number (PIN). The PIN assures that
only you have automated telephone
access to your account information.
Please have your Customer Number
(T-account #) handy when you call --
you'll need it to establish your PIN. If
you would ever like to change your PIN, just choose the "Change your
Personal
Identification Number" option when
you call. If you forget your PIN, please
call a Fidelity representative at 1-800-
544-6666 for assistance.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES*
1-800-544-8544
Just make a selection from this record-ed menu:
PRESS
For quotes on funds you own.
1.
For an individual fund quote.
2.
For the ten most frequently
requested Fidelity fund quotes.
3.
For quotes on Fidelity Select
Portfolios(registered trademark).
4.
To change your Personal
Identification Number (PIN).
5.
To speak with a Fidelity
representative.
6.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT
BALANCES 1-800-544-7544
Just make a selection from this record-
ed menu:
PRESS
For balances on funds you own.
1.
For your most recent fund activity
(purchases, redemptions, and
dividends).
2.
To change your Personal
Identification Number (PIN).
3.
To speak with a Fidelity
representative.
4.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT IN
A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. FOR MORE
INFORMATION ON ANY
FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888
FOR A FREE
PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
1400 Civic Drive
Walnut Creek, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
185 Asylum Street
Hartford, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
2249 Galiano Street
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
2000 66th Street, North
St. Petersburg, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
540 Lake Cook Road
Deerfield, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
1 West Pennsylvania Ave.
Towson, MD
7401 Wisconsin Avenue
Bethesda, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
101 Cambridge Street
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
26955 Northwestern Hwy.
Southfield, MI
MINNESOTA
38 South Sixth Street
Minneapolis, MN
MISSOURI
700 West 47th Street
Kansas City, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
60B South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
505 Millburn Avenue
Short Hills, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
1903 East Ninth Street
Cleveland, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
1010 Lamar Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
175 East 400 South Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
1001 Fourth Avenue
Seattle, WA
WASHINGTON, DC
1775 K Street, N.W.
Washington, DC
WISCONSIN
222 East Wisconsin Avenue
Milwaukee, WI
TO WRITE FIDELITY
Please locate the address that is closest to you. We'll give your
correspondence immediate attention and send you written confirmation upon
completion of your request. Please send ALL correspondence about retirement
accounts to Dallas.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 2269
Boston, MA 02107-2269
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30280
Salt Lake City, UT 84130-0280
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
Additional Payments
P.O. Box 2656
Boston, MA 02293-0656
Fidelity Investments
Additional Payments
P.O. Box 620024
Dallas, TX 75262-0024
Fidelity Investments
Additional Payments
P.O. Box 31455
Salt Lake City, UT 84131-0455
OVERNIGHT EXPRESS
Fidelity Investments
Additional Payments
World Trade Center
164 Northern Avenue
Boston, MA 02210
SELLING SHARES
Fidelity Investments
P.O. Box 193
Boston, MA 02103-0878
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30281
Salt Lake City, UT 84130-0281
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions
World Trade Center
164 Northern Avenue
Boston, MA 02210
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02101-0193
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 620024
Dallas, TX 75262-0024
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Brian S. Posner, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Arthur S. Loring, Secretary
Robert H. Morrison, Manager,
Security Transactions
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
GROWTH AND INCOME FUNDS
Balanced Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Fidelity Fund
Global Balanced Fund
Growth & Income Portfolio
Market Index Fund
Puritan(Registered trademark) Fund
Real Estate Portfolio
Utilities Income Fund
THE FIDELITY
TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
