EXHIBIT 24(A)(1)
(2_FIDELITY_LOGOS)FIDELITY
CONVERTIBLE SECURITIES
FUND
ANNUAL REPORT
NOVEMBER 30, 1993
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on minimizing taxes.
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 last six
months.
INVESTMENTS 10 A complete list of the fund's
investments with their market value.
FINANCIAL STATEMENTS 23 Statements of assets and liabilities,
operations, and changes in net
assets, as well as financial
highlights.
NOTES 27 Footnotes to the financial
statements.
REPORT OF INDEPENDENT 31 The auditor's opinion.
ACCOUNTANTS
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:
Once the new year begins, many people start reviewing their finances and
calculating their tax bills. No one wants to pay more taxes than they have
to. But a recent survey of 500 U.S. households, conducted by Fidelity and
Yankelovich Partners, showed that few people have taken steps to reduce
their taxes under the new legislation. Many were not even aware that the
new tax laws were retroactive to January 1993.
Whether or not you're someone whose tax bill will increase as a result of
these changes, it may make sense to consider ways to keep more of what you
earn.
First, if your employer offers a 401(k) or 403(b) retirement savings plan,
consider enrolling. These plans are set up so you can make regular
contributions -
before taxes - to a retirement savings plan. They offer a disciplined
savings strategy, the ability to accumulate earnings tax-deferred, and
immediate tax savings. For example, if you earn $40,000 a year and
contribute 7% of your salary to your 401(k) plan, your annual contribution
is $2,800. That reduces your taxable income to $37,200 and, if you're in
the
28% tax bracket, saves you $784 in Federal taxes. In addition, you pay no
taxes on any earnings until withdrawal.
It may be a good idea to contact your benefits office as soon as possible
to find out when you can enroll or increase your contribution. Most
employers allow employees to make changes only a few times each year.
Second, consider an IRA. Many people are eligible to make an IRA
contribution (up to $2,000) that is fully tax deductible. That includes
people who are not covered by company pension plans, or those within
certain income brackets. Even if you don't qualify for a fully deductible
contribution, any IRA earnings will grow tax-deferred until withdrawal.
Third, consider tax-free investments like municipal bonds and municipal
bond funds. Often these can provide higher after-tax yields than comparable
taxable investments. For example, if you're in the new 36% Federal income
tax bracket and invest $10,000 in a taxable investment yielding 7%, you'll
pay $252 in Federal taxes and receive $448 in income. That same $10,000
invested in a tax-free bond fund yielding 5.5% would allow you to keep $550
in income.
These are three investment strategies that could help lower your tax bill
in 1994. If you're interested in learning more, please call us at
1-800-544-8888 or visit a Fidelity Investor Center.
Wishing you a prosperous new year,
Edward C. Johnson 3d, Chairman
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 (income) and capital gains (the profits the
fund earns when it sells securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1993 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Convertible Securities 19.94% 145.22% 167.04%
Merrill Lynch Convertible Securities Index 20.82% 101.24% n/a
Average Convertible Securities Fund 16.14% 86.32% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - one year, five years, or since the fund started on
January 5, 1987. For comparison, you can look at the performance of the
Merrill Lynch Convertible Securities Index - a broad measure of the
performance of convertible securities. You can also look at the average
convertible securities fund, which reflects the performance of 23
convertible securities funds tracked by Lipper Analytical Services. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, 1993 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Convertible Securities 19.94% 19.65% 15.27%
Merrill Lynch Convertible Securities Index 20.82% 15.01% n/a
Average Convertible Securities Fund 16.14% 13.05% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Convertible Securities (308) First Boston Convert. Sec (FB002)
01/31/87 10,000.00 10,000.00
02/28/87 10,350.20 10,414.00
03/31/87 10,437.75 10,521.26
04/30/87 10,282.10 10,523.37
05/31/87 10,252.92 10,554.94
06/30/87 10,429.22 10,775.54
07/31/87 10,949.70 11,215.18
08/31/87 11,195.21 11,439.48
09/30/87 11,119.15 11,271.32
10/31/87 9,020.63 9,151.19
11/30/87 9,000.74 8,857.43
12/31/87 9,253.19 9,308.28
01/31/88 9,598.15 9,567.05
02/29/88 9,993.85 10,007.13
03/31/88 10,126.04 9,973.11
04/30/88 10,321.56 10,179.55
05/31/88 10,249.53 10,078.77
06/30/88 10,675.20 10,466.80
07/31/88 10,602.15 10,357.95
08/31/88 10,445.63 10,174.61
09/30/88 10,582.76 10,356.74
10/31/88 10,752.08 10,488.27
11/30/88 10,593.34 10,317.31
12/31/88 10,723.60 10,556.67
01/31/89 11,181.78 11,030.67
02/28/89 11,301.78 11,028.46
03/31/89 11,630.81 11,171.83
04/30/89 12,061.99 11,547.21
05/31/89 12,338.38 11,781.61
06/30/89 12,437.47 11,695.61
07/31/89 12,997.21 12,031.27
08/31/89 13,422.61 12,295.96
09/30/89 13,433.81 12,188.99
10/31/89 13,161.96 11,803.81
11/30/89 13,377.18 11,996.22
12/31/89 13,542.00 12,009.41
01/31/90 13,040.01 11,531.44
02/28/90 13,191.78 11,683.65
03/31/90 13,450.80 11,862.41
04/30/90 13,344.42 11,597.88
05/31/90 13,876.30 12,160.38
06/30/90 14,031.24 12,145.78
07/31/90 13,935.54 12,037.69
08/31/90 13,014.48 11,344.32
09/30/90 12,372.24 10,848.57
10/31/90 12,129.89 10,442.83
11/30/90 12,760.01 10,953.49
12/31/90 13,150.08 11,182.42
01/31/91 13,965.01 11,684.51
02/28/91 14,866.38 12,382.07
03/31/91 15,261.64 12,685.43
04/30/91 15,436.49 12,813.55
05/31/91 15,961.03 13,192.84
06/30/91 15,657.98 12,824.76
07/31/91 16,289.35 13,312.10
08/31/91 16,908.09 13,808.64
09/30/91 17,190.33 13,783.78
10/31/91 17,930.53 13,982.27
11/30/91 17,164.81 13,645.30
12/31/91 18,244.09 14,438.09
01/31/92 19,164.97 14,838.02
02/29/92 19,792.24 15,222.33
03/31/92 19,458.45 15,095.98
04/30/92 19,620.15 15,268.08
05/31/92 19,997.46 15,545.96
06/30/92 19,878.15 15,472.89
07/31/92 20,422.38 15,898.39
08/31/92 20,027.81 15,798.23
09/30/92 20,504.91 16,114.20
10/31/92 20,985.60 16,152.87
11/30/92 21,658.57 16,619.69
12/31/92 22,261.35 16,988.65
01/31/93 23,005.78 17,518.69
02/28/93 22,604.93 17,587.02
03/31/93 23,729.83 18,230.70
04/30/93 23,946.74 18,227.05
05/31/93 24,539.62 18,546.03
06/30/93 24,511.54 18,722.22
07/31/93 24,759.72 18,915.05
08/31/93 25,343.67 19,433.33
09/30/93 25,638.10 19,652.92
10/31/93 26,227.48 20,116.73
11/30/93 25,976.99 19,812.97
$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity
Convertible Securities Fund on January 31, 1987, shortly after the fund
started. As the chart shows, by November 30, 1993, the value of your
investment would have grown to $25,977 - a 159.77% increase on your initial
investment. For comparison, look at how the First Boston Convertible
Securities Index did over the same period. (The Merrill Lynch Convertible
Securities Index does not extend as far back as the fund's start date, and
therefore is not appropriate for this comparison.) With dividends
reinvested, the same $10,000 investment in the First Boston Convertible
Securities Index would have grown to $19,813 - a 98.13% 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 or bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Low inflation, falling interest rates
and a gradually improving
economy boosted U.S. stocks
during the 12 months ended
November 30, 1993. The Standard
& Poor's 500 Composite
Stock Price Index - a broad
measure of U.S. stock
performance - rose 10.10%, in
line with the market's long-term
average annual return. Continued
poor performance by tobacco, drug
and brand-name consumer
products stocks was offset by
impressive results in other sectors,
including technology, although
semiconductors gave back part of
their gains in October and
November. Other market leaders
were finance, notably securities
brokers; autos; entertainment; and
precious metals. Communications
stocks soared as traditional
telephone utilities, cellular
communications companies and
entertainment companies
scrambled to form strategic
alliances. Mergers and acquisitions
activity resumed at a pace
reminiscent of the 1980s. The
NASDAQ Composite Index, which
tracks over-the counter stocks,
rose 15.57% for the year,
compared to 14.73% for the Dow
Jones Industrial Average, an index
of 30 blue-chip stocks. Both trailed
the Morgan Stanley EAFE
(Europe, Australia, Far East) index,
which rose 24.27%. Two widely
watched benchmarks broke
records during the period: Slow
growth and the prospect of higher
taxes helped push the yield on the
30-year Treasury below 6% in
early September; meanwhile, the
Dow closed above 3700 for the
first time in mid-November, and
finished the month at 3684.
An interview with Andrew Offit,
Portfolio Manager of Fidelity
Convertible Securities Fund
Q. HOW HAS THE FUND DONE?
A. Pretty well. It had a total return of 19.94% during the year ended
November 30, 1993. According to Lipper Analytical Services, the average
convertible securities fund had a return of 16.14% during the period. By
comparison, the Merrill Lynch Convertible Securities Index, which largely
reflects the performance of larger convertibles such as Ford and Chrysler,
returned 20.82%.
Q. SO WHAT HELPED THE FUND BEAT THE AVERAGE DURING THE PAST 12 MONTHS?
A. Overall the fund was helped most by successful individual stock picking.
I don't spend much time identifying economic trends or making specific
asset-allocation decisions. Instead, I look for individual securities that
offer the prospect of good returns. Once I find them, I make fairly big
bets - and this year, many of them paid off. For example, during the past
12 months I invested as much as 14% of the fund in convertibles issued by
the corporate parents of domestic airlines such as United, American and
Delta, which have been extremely strong performers. The airlines have come
through a period of losses, but they're starting to cut costs and boost
prices. That has pushed up their share prices, and helped the underlying
convertibles.
Q. SINCE TAKING OVER THE FUND IN MARCH 1992 YOU'VE REDUCED COMMON STOCK
FROM AROUND 25% OF THE FUND'S INVESTMENTS TO AROUND 11%. WHY?
A. I try to manage the fund so that it's somewhat less exposed to stock
market risk than it was in the recent past. By buying more convertibles I
try to boost the fund's yield, which helps reduce the fund's overall risk.
That allows me to take on other risks within the convertibles sector. For
example, I can make big bets on convertible issues that I like, and I can
buy potentially volatile convertibles whose prices closely reflect the
performance of their underlying stocks.
Q. MANY OF THE FUND'S CONVERTIBLES WERE ISSUED BY COMPANIES WHOSE STOCKS
WERE TRADING AT DEPRESSED LEVELS. DID THEY HELP PERFORMANCE?
A. Yes, considerably. About 5%-10% of the fund's investments were "busted
convertibles," which means that their underlying stocks had plummeted so
far in price that the convertibles traded almost like ordinary bonds.
Busted convertibles typically pay high yields, so they can boost the fund's
average yield. And if the underlying stock recovers strongly, the bonds can
deliver significant price gains. For example, I bought busted convertibles
of Centocor, the biotech firm, after its shares had declined from around
$19 to $6 per share. The bond was paying a very attractive current yield of
12.9%. The stock has since recovered, and the convertibles have climbed
from around $50 to $85.
Q. WHAT ABOUT THE DANGER THAT A FIRM'S DEPRESSED STOCK WILL CONTINUE TO
DECLINE, BRINGING THE PRICE OF THE CONVERTIBLE DOWN?
A. It happens. But usually I'll stick with the issue if I'm confident that
there have been no serious changes in the firm's prospects. Advanced
Medical is a good example and is one of several issues that make up the
fund's 14% stake in health care. I bought the convertibles at $70. They've
since declined sharply. But the firm is restructuring its debt, and its
core business continues to generate plenty of cash. Meanwhile, we're
currently earning a 15% or so yield on that investment.
Q. NONE OF THE FUND'S TOP 10 HOLDINGS FROM LAST YEAR MADE THE LIST THIS
YEAR. WHY NOT?
A. I sold most of them - for example, Maxicare and Greyhound - because
their prices rose to levels that met my expectations. I sold CBS
convertible preferreds because I underestimated the underlying stock's
potential. Since I sold the preferreds, the stock has gone from $200 to
$317. That was my biggest mistake during the period.
Q. WHAT'S YOUR OUTLOOK FOR THE FUND DURING THE COMING 12 MONTHS?
A. Convertibles have outperformed common stocks during the past five years.
As a result, it's getting more difficult to find bargains. But there are
still good opportunities among busted and other convertibles issued by
out-of-favor companies. I like the convertibles of firms like IBM, Kodak
and Bank of Boston that have had heavily publicized problems and are
working to correct them. As they address those problems, the stocks could
stage solid advances and boost the convertibles' prices. The major risk for
shareholders in the fund is the possibility of a sharp rise in interest
rates. I don't expect that to occur, but if it does, convertibles and other
high-yield investments will probably suffer greater losses than stocks.
FUND FACTS
GOAL: a high total return
(income plus changes in
share price) by investing at
least 65% of assets in
convertible
securities
START DATE: January 5, 1987
SIZE: as of November 30,
1993, over $1 billion
MANAGER: Andrew Offit, since
March 1992; manager, Select
Health Care, May 1990 -
March 1992, Select
Biotechnology, May 1989 -
May 1990; analyst, 1987 -
1989
(checkmark)
ANDREW OFFIT ON CHOOSING
CONVERTIBLE SECURITIES:
"Most of the convertibles in
the fund's portfolio carry no
credit ratings, or are rated
below investment grade by
agencies such as Standard &
Poor's. There are risks
associated with investing in
these securities, but also
opportunities. Many money
managers are forced to buy
only investment-grade
convertibles. As a result, I find
a lot of neglected issues
among the lower-rated bonds
that they can't touch. I also
believe that credit rating
agencies often
misunderstand a company's
financial position. For
example, I invested over 3%
of the fund's assets in Stone
Container convertibles earlier
this year at $85, when many
observers were convinced the
firm was headed for
bankruptcy. The bonds
recently traded at $120."
(bullet) Roughly 14% of the fund's
investments were in
health-related securities as of
November 30, 1993.
(bullet) The fund has about 25% of
its investments in small and
medium-size companies.
DISTRIBUTIONS
The Board of Trustees of
Convertible Securities Fund
voted to pay on December 13,
1993, to shareholders of
record at the opening of
business on December 10,
1993, a distribution of $1.09
derived from capital gains
realized from sales of portfolio
securities and a dividend of
$.25 from net investment
income.
INVESTMENT CHANGES
TOP TEN INVESTMENTS AS OF NOVEMBER 30, 1993
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Time Warner, Inc. 8 3/4%,
1/10/15 5.1 0.0
UAL, Inc. (cumulative) 6 1/4% 3.6 4.2
Stone Container Corp. 8 7/8%,
7/15/00 3.4 0.0
AMR Corp. $3.00 2.3 2.9
Mentor Corp. euro 6 3/4%,
7/22/02 1.9 1.3
Centocor, Inc. 7 1/4%, 2/1/01 1.5 1.4
Bank of Boston Corp. 7 3/4%,
6/15/11 1.4 0.6
Price Co. 6 3/4%, 3/1/01 1.4 0.7
Dell Computer Corp. $7.00 1.4 0.0
Texas Instruments, Inc. euro
2 3/4%, 9/29/02 1.4 0.0
TOP FIVE INDUSTRIES AS OF NOVEMBER 30, 1993
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Health 13.8 8.3
Media & Leisure 11.9 5.8
Technology 11.0 9.4
Transportation 9.0 16.5
Finance 8.9 11.9
ASSET ALLOCATION
AS OF NOVEMBER 30, 1993* AS OF MAY 31, 1993*
Row: 1, Col: 1, Value: 11.6
Row: 1, Col: 2, Value: 76.40000000000001
Row: 1, Col: 3, Value: 1.5
Row: 1, Col: 4, Value: 11.1
Row: 1, Col: 1, Value: 10.1
Row: 1, Col: 2, Value: 84.5
Row: 1, Col: 3, Value: 1.5
Row: 1, Col: 4, Value: 4.7
Common Stocks 11.1%
Nonconvertible
Bonds 0.9%
Convertible
Securities 76.4%
Short-term
investments 11.6%
FOREIGN
INVESTMENTS 5.3%
Common Stocks 4.7%
Nonconvertible
Bonds 0.7%
Convertible
Securities 84.5%
Short-term
investments 10.1%
FOREIGN
INVESTMENTS 2.2%
*
*
INVESTMENTS NOVEMBER 30, 1993
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 11.1%
SHARES VALUE (NOTE 1)
(000S)
CONGLOMERATES - 1.0%
Canadian Pacific Ltd. Ord. 300,000 $ 4,913 13644030
Litton Industries, Inc. (a) 80,000 5,220 53802110
10,133
CONSTRUCTION & REAL ESTATE - 0.0%
BUILDING MATERIALS - 0.0%
Bird Corp. 45,000 405 09076310
ENERGY - 0.6%
OIL & GAS - 0.6%
British Petroleum PLC ADR 100,000 5,925 11088940
FINANCE - 0.7%
INSURANCE - 0.3%
Life USA Holding, Inc. 160,000 2,680 53191820
SAVINGS & LOANS - 0.4%
Baltimore Bancorp (a) 329,600 4,614 05902910
TOTAL FINANCE 7,294
HEALTH - 2.4%
DRUGS & PHARMACEUTICALS - 1.7%
Barr Laboratories, Inc. (a) 245,100 5,086 06830610
Pfizer, Inc. 56,200 3,737 71708110
Schering-Plough Corp. 130,000 8,694 80660510
17,517
MEDICAL EQUIPMENT & SUPPLIES - 0.3%
Laserscope, Inc. (a) 220,000 1,320 51808110
Moore Medical Corp. (a) 116,100 1,568 61579910
Scherer Healthcare, Inc. (a) 10,700 219 80653010
3,107
MEDICAL FACILITIES MANAGEMENT - 0.4%
Charter Medical Corp. (a) 190,000 4,560 16124170
TOTAL HEALTH 25,184
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
Indresco, Inc. (a) 212,300 $ 2,946 45590510
MEDIA & LEISURE - 1.7%
BROADCASTING - 0.9%
Home Shopping Network, Inc. (a) 584,000 8,760 43735110
PUBLISHING - 0.8%
Dow Jones & Co Inc. 150,000 5,381 26056110
Tribune Co. 60,000 3,345 89604710
8,726
TOTAL MEDIA & LEISURE 17,486
PRECIOUS METALS - 1.0%
Agnico Eagle Mines Ltd. 227,000 3,038 00847410
Homestake Mining Co. 230,000 4,312 43761410
Placer Dome Inc. 140,000 3,223 72590610
10,573
RETAIL & WHOLESALE - 1.1%
GENERAL MERCHANDISE STORES - 0.9%
Sears, Roebuck & Co. 170,000 9,244 81238710
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Intertan, Inc. (warrants) (a) (d) 3,000 2,044 46112092
TOTAL RETAIL & WHOLESALE 11,288
TECHNOLOGY - 1.2%
COMPUTERS & OFFICE EQUIPMENT - 1.2%
Apple Computer, Inc. 140,000 4,410 03783310
Sun Microsystems, Inc. (a) 270,000 7,189 86681010
Electro Brain International Corp. (a) 280,000 560 28506220
12,159
TRANSPORTATION - 0.6%
RAILROADS - 0.6%
Santa Fe Pacific Corp. 300,000 6,150 80218310
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - 0.5%
CELLULAR - 0.5%
Paging Network, Inc. (a) 180,000 $ 5,175 69554210
TOTAL COMMON STOCKS
(Cost $111,545) 114,718
PREFERRED STOCKS - 17.4%
CONVERTIBLE PREFERRED STOCKS - 17.4%
CONSTRUCTION & REAL ESTATE - 0.5%
BUILDING MATERIALS - 0.5%
Bird Corp. $1.85 105,800 1,852 09076330
Southdown, Inc. $.70 (a) 295,000 3,134 84129794
4,986
DURABLES - 1.3%
AUTOS, TIRES, & ACCESSORIES - 0.5%
Navistar International Corp., Series G, $6.00 (a) 100,000 5,500 63890140
TEXTILES & APPAREL - 0.8%
Fieldcrest Cannon, Inc., Series A, $3.00 (e) 150,000 8,100 31654920
TOTAL DURABLES 13,600
ENERGY - 3.2%
ENERGY SERVICES - 1.3%
Energy Service, Inc. $1.50 176,400 4,741 29271930
Noble Drilling Corp. $2.25 exchangeable 39,300 1,778 65504220
Offshore Pipeline 178,500 7,006 67626920
13,525
OIL & GAS - 1.9%
Diamond Shamrock, Inc. 5% (e) 220,000 12,210 25274730
Tosco Corp., Series F, $4.375 100,600 6,891 89149040
19,101
TOTAL ENERGY 32,626
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
FINANCE - 1.9%
BANKS - 1.2%
Citicorp $5.375 (e) 120,000 $ 12,780 17303451
CREDIT & OTHER FINANCE - 0.7%
American Express Co. 0% (a) 180,000 7,065 02581613
TOTAL FINANCE 19,845
HEALTH - 0.3%
MEDICAL FACILITIES MANAGEMENT - 0.3%
Beverly Enterprises, Inc. $2.75 31,300 1,772 08785120
IVF America, Inc., Series A, $.80 260,500 945 45070620
2,717
INDUSTRIAL MACHINERY & EQUIPMENT - 0.4%
POLLUTION CONTROL - 0.4%
Environmental Systems Co., Series A, $1.75 206,370 4,076 29408720
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.6%
Evergreen Media Corp. $3.00 exchangeable 123,000 6,181 30024820
PRECIOUS METALS - 0.8%
Newmont Mining Corp. $1.375 depositary shares
representing 1/2 pfd. (e) 130,000 8,385 65163930
TECHNOLOGY - 1.8%
COMPUTERS & OFFICE EQUIPMENT - 1.4%
Dell Computer Corp. $7.00 (e) 120,000 14,520 24702550
ELECTRONICS - 0.4%
Advanced Micro Devices, Inc. $3.00 80,000 3,880 00790330
TOTAL TECHNOLOGY 18,400
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
TRANSPORTATION - 6.2%
AIR TRANSPORTATION - 5.8%
AMR Corp. $3.00 (a) (e) 450,000 $ 23,288 00176588
UAL, Inc. (cumulative) 6 1/4% (e) 316,000 37,091 90254930
60,379
TRUCKING & FREIGHT - 0.4%
TNT Ltd. 8% 3,025,000 3,788 93599293
TOTAL TRANSPORTATION 64,167
UTILITIES - 0.4%
GAS - 0.4%
Tejas Gas Corp. Delaware $2.625 91,000 4,527 87907550
TOTAL CONVERTIBLE PREFERRED STOCKS 179,510
NONCONVERTIBLE PREFERRED STOCKS - 0.0%
ENERGY - 0.0%
OIL & GAS - 0.0%
Gulf Canada Resources Ltd. (a) (d) 2,566 7 40218L92
Gulf Canada Resources Ltd. Series 1, adj. rate 89,434 235 40218L40
TOTAL NONCONVERTIBLE PREFERRED STOCKS 242
TOTAL PREFERRED STOCKS
(Cost $176,010) 179,752
CORPORATE BONDS - 59.9%
MOODY'S RATINGS (C) PRINCIPAL
(UNAUDITED) AMOUNTS (B) (000S)
CONVERTIBLE BONDS - 59.0%
BASIC INDUSTRIES - 7.1%
CHEMICALS & PLASTICS - 1.0%
Hercules, Inc. 8%, 8/15/10 A3 $ 1,500 $ 3,423 427056AK
Park Electrochemical Corp. sinking fund
7 1/4%, 6/15/06 B2 6,883 7,038 700416AA
10,461
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 1.5%
Allegheny Ludlum Corp. 5 7/8%, 3/15/02 Baa2 $ 8,000 $ 10,000 016900AA
Trimas Corp. 5%, 8/1/03 Ba3 5,000 5,750 896215AA
15,750
PAPER & FOREST PRODUCTS - 4.6%
International Paper Co. euro
5 3/4% 9/23/02 Baa1 5,000 5,400 460146AH
Mead Corp. 6 3/4%, 9/15/12 Baa1 5,500 5,706 582834AJ
Noranda Forest, Inc. 7 1/4%, 10/30/02 BBB- CAD 538 574 65542LAD
Stone Container Corp. 8 7/8%,
7/15/00 (e) B2 30,000 35,250 861589AL
46,930
TOTAL BASIC INDUSTRIES 73,141
CONSTRUCTION & REAL ESTATE - 1.8%
BUILDING MATERIALS - 0.4%
Lafarge Corp. 7%, 7/1/13 Baa2 2,850 3,000 505862AA
Nortek, Inc. sinking fund 7 1/2%, 5/1/06 Caa 2,000 1,440 656559AM
4,440
CONSTRUCTION - 1.4%
Continental Homes Holding Corp.
6 7/8%, 3/15/02 B3 6,150 6,626 21148CAB
Schuler Homes, Inc. 6 1/2%, 1/15/03 B2 4,000 5,240 808188AA
U.S. Home Corp. 4 7/8%, 11/1/05 B2 2,000 1,940 911920AC
13,806
TOTAL CONSTRUCTION & REAL ESTATE 18,246
DURABLES - 0.4%
CONSUMER ELECTRONICS - 0.4%
Whirlpool Corp. liquid yield option notes
0%, 5/14/11 Baa1 10,000 4,300 963320AJ
ENERGY - 1.9%
INDEPENDENT POWER - 0.4%
California Energy, Inc. 5%, 7/31/00 (e) Ba3 4,000 4,200 130190AB
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
ENERGY - CONTINUED
OIL & GAS - 1.5%
Alaska Intermediate 8 1/4%, 12/1/95 - $ 1,217 $ 1,214 9047889B
Box Energy Corp. 8 1/4%, 12/1/02 B3 5,100 6,553 103168AA
Presidio Oil Co. 9%, 3/15/15 Ca 9,735 7,885 741016AB
15,652
TOTAL ENERGY 19,852
FINANCE - 6.3%
BANKS - 3.6%
Bank of Boston Corp. 7 3/4%, 6/15/11 Baa2 13,500 14,749 060716AF
Bank of New York Co., Inc.
7 1/2%, 8/15/01 Baa1 7,000 10,867 064057AK
C.S. Holdings euro 4 7/8%, 11/19/02 A2 2,000 2,970 175997AC
Midlantic Banks, Inc. 8 1/4%, 7/1/01 B1 6,550 6,616 597806AK
Societe Generale 3 1/2%, 1/1/00 Aa1 FRF 9,900 2,036 833991SG
37,238
CREDIT & OTHER FINANCE - 0.9%
Elan International Finance, Ltd.
liquid yield option notes 0%, 10/16/12 Ba2 18,000 8,685 283903AA
INSURANCE - 1.5%
Axa SA 6%, 1/1/01 - FRF 7 2,042 052997AA
Pioneer Financial Services 8%, 7/15/00 - 4,000 4,460 723672AB
Travelers Co. 8.32%, 3/10/15 Baa2 9,100 9,236 894180AD
15,738
SECURITIES INDUSTRY - 0.3%
American Capital Bond Fund 8 1/2%, 1/1/95 AAA 3,000 3,165 024902AA
TOTAL FINANCE 64,826
HEALTH - 11.1%
DRUGS & PHARMACEUTICALS - 3.0%
Centocor, Inc. 7 1/4%, 2/1/01 Caa 18,000 15,570 152342AA
IVAX Corp. 6 1/2%, 11/15/01 (e) - 10,000 10,200 465823AA
Roche Holdings, Inc. 0%, 9/23/08 (e) - 10,000 5,213 771196AA
30,983
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 4.7%
Advanced Medical, Inc. 7 1/4%, 1/15/02 CCC- $ 19,977 $ 9,789 00754CAA
Cabot Medical Corp. 7 1/2%, 3/1/99 - 4,490 3,973 127095AA
MEDIQ Inc. 7 1/4%, 6/1/06 B3 4,145 3,710 584906AD
Medco Containment Services, Inc. 6%, 9/1/01 AAA 8,000 11,160 583905AC
Mentor Corp. euro 6 3/4%, 7/22/02 - 18,500 19,980 587188AA
48,612
MEDICAL FACILITIES MANAGEMENT - 3.4%
Abbey Healthcare Group, Inc.:
euro 6 1/2%, 12/1/02 - 2,000 2,650 0027869A
6 1/2%, 12/1/02 (e) B2 5,570 7,380 002786AA
Greenery Rehabilitation Group, Inc.
6 1/2%, 6/15/11 - 10,630 7,016 394797AA
Hillhaven Corp. 7 3/4%, 11/1/02 B3 5,000 6,775 431576AA
Horizon Healthcare Corp. 6 3/7%, 2/1/02 B3 3,475 4,830 44042HAA
Physicians Clinical Lab, Inc.
7 1/2%, 8/15/00 (e) - 6,000 6,780 71940RAA
35,431
TOTAL HEALTH 115,026
INDUSTRIAL MACHINERY & EQUIPMENT - 2.0%
ELECTRICAL EQUIPMENT - 1.0%
Willcox & Gibbs, Inc. 7%, 8/1/14 B2 6,500 6,370 969207AC
Zenith Electronics Corp. 8 1/2%, 11/19/00 (e) - 4,000 4,000
10,370
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
SKF AB euro 0%, 7/26/02 Baa3 XEU 6,000 3,496 7843759B
POLLUTION CONTROL - 0.7%
OHM Corp. 8%, 10/1/06 B2 4,993 4,843 670839AA
Sanifill, Inc. 7 1/2%, 6/1/06 B2 2,300 2,266 801018AA
7,109
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 20,975
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - 9.6%
BROADCASTING - 5.1%
Time Warner, Inc. 8 3/4%, 1/10/15 Ba3 $ 50,000 $ 53,000 887315AQ
ENTERTAINMENT - 1.6%
All American Communications, Inc.
6 1/2%, 10/1/03 (e) - 6,200 6,014 016480AA
Carnival Cruise Lines, Inc. 4 1/2%, 7/1/97 Baa2 3,000 4,500 143658AB
Savoy Pictures Entertainment 7%, 7/1/03 B2 5,000 6,125 805375AA
16,639
LODGING & GAMING - 1.3%
WMS Industries, Inc. 5 3/4%, 12/1/02 B1 10,000 13,000 929297AB
PUBLISHING - 1.6%
Nelson Thomas, Inc. 5 3/4%,
11/30/99 (e) - 3,000 3,660 640376AA
Score Board, Inc.:
9%, 9/1/02 (e) - 3,500 7,551
9%, 2/1/03 - 3,000 5,438 8091739B
16,649
TOTAL MEDIA & LEISURE 99,288
NONDURABLES - 0.8%
FOODS - 0.8%
Chock Full-O-Nuts Corporation
7%, 4/1/12 B2 8,020 8,501 170268AC
PRECIOUS METALS - 0.4%
Canyon Resources Corp. 6%, 6/1/98 (e) - 1,300 1,495 138869AA
Coeur D'Alene Mines Corp. Idaho
7%, 11/30/02 B2 2,000 2,660 192108AC
4,155
RETAIL & WHOLESALE - 5.4%
APPAREL STORES - 1.3%
Baker (J.), Inc. 7%, 6/1/02 B2 7,075 9,622 057232AA
Petrie Stores Corp. sinking fund
8%, 12/15/10 Ba2 3,250 4,290 716434AC
13,912
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
RETAIL & WHOLESALE - CONTINUED
GROCERY STORES - 1.0%
American Stores Co. 7 1/4%, 9/15/01 Ba1 $ 1,500 $ 1,658 030096AC
Kroger Co. 8 1/4%, 4/15/11 B3 6,000 5,880 501044AV
Promodes 5 1/2%, 1/1/00 - FRF 15,800 3,106 74699693
10,644
RETAIL & WHOLESALE, MISCELLANEOUS - 3.1%
Ben Franklin Retail Stores, Inc.
7 1/2%, 6/1/03 B- 3,750 3,675 081499AA
Lowe's Companies, Inc. 3%, 7/22/03 Baa1 12,000 13,230 548661AC
Price Co. 6 3/4%, 3/1/01 Baa1 14,000 14,630 741440AC
31,535
TOTAL RETAIL & WHOLESALE 56,091
SERVICES - 1.3%
ADVERTISING - 0.6%
Regal Communications Corp.
10%, 6/15/08 - 5,475 5,694 758756AA
SERVICES - 0.7%
ADT Ltd. euro 6%, 10/3/02 - 5,500 7,370 001999AD
TOTAL SERVICES 13,064
TECHNOLOGY - 8.0%
COMMUNICATIONS EQUIPMENT - 1.0%
M/A-Com, Inc. 9 1/4%, 5/15/06 B2 7,150 7,257 552618AA
Porta Systems Corp. euro 6%, 7/1/02 - 3,910 2,913 7356479A
10,170
COMPUTERS & OFFICE EQUIPMENT - 1.3%
IBM France 5 3/4%, 1/1/98 - FRF 193,000 13,875 45499D22
COMPUTER SERVICES & SOFTWARE - 0.7%
Ceridian Corp. 8 1/2%, 6/15/11 - 6,774 6,909 15677TAA
ELECTRONIC INSTRUMENTS - 0.7%
Fisher Scientific International, Inc.
4 3/4%, 3/1/03 Ba2 6,500 7,573 338032AA
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
CONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
ELECTRONICS - 2.9%
Computer Products, Inc. 9 1/2%, 5/15/07 B3 $ 7,594 $ 7,784 205300AA
Storage Technology Corp. 8%, 5/31/15 B2 8,000 8,600 862111AG
Texas Instruments, Inc. euro
2 3/4%, 9/29/02 Baa1 14,000 14,070 8825089A
30,454
PHOTOGRAPHIC EQUIPMENT - 1.4%
Eastman Kodak Co. liquid yield option notes
0%, 10/15/11 Baa1 40,000 14,050 277461BA
TOTAL TECHNOLOGY 83,031
TRANSPORTATION - 2.2%
AIR TRANSPORTATION - 1.7%
Air Wisconsin Services, Inc.
7 3/4%, 6/15/10 B3 4,530 4,100 009236AA
Delta Air Lines, Inc. 3.23%, 6/15/03 Ba3 16,000 13,720 247361YA
17,820
SHIPPING - 0.5%
Seacor Holdings, Inc. 6%, 7/15/03 (e) B3 4,000 4,400 811904AA
TOTAL TRANSPORTATION 22,220
UTILITIES - 0.7%
CELLULAR - 0.5%
Cellular Puerto Rico 8 1/4%, 8/1/00 Caa 3,500 5,250 150919AA
TELEPHONE SERVICES - 0.2%
CAM-NET Communications Network
10%, 8/15/97 - 1,750 1,751 13173M9A
TOTAL UTILITIES 7,001
TOTAL CONVERTIBLE BONDS 609,717
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1)
(UNAUDITED) AMOUNTS (B) (000S) (000S)
NONCONVERTIBLE BONDS - 0.9%
BASIC INDUSTRIES - 0.7%
PAPER & FOREST PRODUCTS - 0.7%
Stone Container Corp.:
10 3/4%, 6/15/97 B2 $ 4,000 $ 3,600 861589AG
11 1/2%, 9/1/99 B2 4,000 3,600 861589AC
7,200
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
NWA Inc., 8 5/8%, 8/1/96 Caa 375 311 62945JAB
UTILITIES - 0.2%
GAS - 0.2%
SFP Pipeline Holdings, Inc. exchangeable
0%, 8/15/10 (f) Baa3 1,000 1,290 784163AA
TOTAL NONCONVERTIBLE BONDS 8,801
TOTAL CORPORATE BONDS
(Cost $578,327) 618,518
REPURCHASE AGREEMENTS - 11.6%
MATURITY
AMOUNT
(000S)
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 3.24%
dated 11/30/93 due 12/1/93 $ 119,854 119,843
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $985,725) $ 1,032,831
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
XEU - European currency unit
FRF - French franc
LEGEND
1. Non-income producing
2. Principal amount is stated in United States dollars unless otherwise
noted.
3. Standard & Poor's Corporation credit ratings are used in the absence
of a rating by Moody's Investors Service, Inc.
4. 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. 10/15/93 $ 6,000
Intertan, Inc.
(warrants) 9/17/93 $ 2,272,000
5. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $212,517,000 or 20.1% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A .8% AAA, AA, A 6.4%
Baa 12.4% BBB 9.0%
Ba 9.5% BB 6.5%
B 18.5% B 17.3%
Caa 2.2% CCC 4.7%
Ca, C 0.8% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 11.3%
INCOME TAX INFORMATION
At November 30, 1993, the aggregate cost of investment securities for
income tax purposes was $989,415,000. Net unrealized appreciation
aggregated $43,416,000, of which $58,145,000 related to appreciated
investment securities and $14,729,000 related to depreciated investment
securities.
The fund hereby designates $11,423,000 as a capital gain dividend for the
purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) NOVEMBER 30, 1993
ASSETS
Investment in securities, at value (including repurchase $ 1,032,831
agreements of $119,843) (cost $985,725)
(Notes 1 and 2) - See accompanying schedule
Cash 2,588
Receivable for investments sold 106,951
Receivable for fund shares sold 4,037
Dividends receivable 1,205
Interest receivable 11,483
Other receivables 36
TOTAL ASSETS 1,159,131
LIABILITIES
Payable for investments purchased $ 99,122
Payable for fund shares redeemed 2,417
Accrued management fee 461
Other payables and accrued expenses 506
Collateral on securities loaned, at value (Note 5) 343
TOTAL LIABILITIES 102,849
NET ASSETS $ 1,056,282
Net Assets consist of:
Paid in capital $ 916,138
Undistributed net investment income 9,921
Accumulated undistributed net realized gain (loss) on 83,117
investments
Net unrealized appreciation (depreciation) on investment 47,106
securities
NET ASSETS, for 59,906 shares outstanding $ 1,056,282
NET ASSET VALUE, offering price and redemption price per $17.63
share ($1,056,282 (divided by) 59,906 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED NOVEMBER 30, 1993
INVESTMENT INCOME $ 13,608
Dividends
Interest (including security lending fees of $33) (Note 5) 29,744
TOTAL INCOME 43,352
EXPENSES
Management fee (Note 4) $ 4,131
Transfer agent fees (Note 4) 2,183
Accounting and security lending fees (Note 4) 388
Non-interested trustees' compensation 5
Custodian fees and expenses 77
Registration fees 257
Audit 53
Legal 7
Reports to shareholders 96
Miscellaneous 7
Total expenses before reductions 7,204
Expense reductions (Note 6) (12) 7,192
NET INVESTMENT INCOME 36,160
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(NOTES 1, 2 AND 3)
Net realized gain (loss) on:
Investment securities 80,620
Short sales (3,865) 76,755
Change in net unrealized appreciation (depreciation) on 16,159
investment securities
NET GAIN (LOSS) 92,914
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ 129,074
OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEARS ENDED NOVEMBER 30,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 36,160 $ 12,242
Net investment income
Net realized gain (loss) on investments 76,755 14,298
Change in net unrealized appreciation (depreciation) 16,159 25,215
on investments
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 129,074 51,755
FROM OPERATIONS
Distributions to shareholders from: (30,010) (9,558)
Net investment income
Net realized gain (10,919) (3,348)
Share transactions 999,266 457,959
Net proceeds from sales of shares
Reinvestment of distributions from: 27,360 8,938
Net investment income
Net realized gain 10,468 3,195
Cost of shares redeemed (481,320) (222,808)
Net increase (decrease) in net assets resulting from 555,774 247,284
share transactions
TOTAL INCREASE (DECREASE) IN NET ASSETS 643,919 286,133
NET ASSETS
Beginning of period 412,363 126,230
End of period (including undistributed net investment $ 1,056,282 $ 412,363
income of $9,921 and $3,771, respectively)
OTHER INFORMATION
Shares
Sold 60,275 31,078
Issued in reinvestment of distributions from: 1,677 629
Net investment income
Net realized gain 682 248
Redeemed (28,876) (15,192)
Net increase (decrease) 33,758 16,763
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED NOVEMBER 30,
1993 1992 1991 1990 1989
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 15.77 $ 13.45 $ 10.53 $ 11.81 $ 10.01
period
Income from Investment
Operations
Net investment income .75 .67 .60 .64 .80
Net realized and unrealized 2.24 2.66 2.94 (1.15) 1.72
gain (loss) on
investments
Total from investment 2.99 3.33 3.54 (.51) 2.52
operations
Less Distributions
From net investment (.73) (.64) (.62) (.77) (.72)
income
From net realized gain (.40) (.37) - - -
Total distributions (1.13) (1.01) (.62) (.77) (.72)
Net asset value, end of $ 17.63 $ 15.77 $ 13.45 $ 10.53 $ 11.81
period
TOTAL RETURN 19.94 26.18% 34.52% (4.61)% 26.28%
%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 1,056 $ 412 $ 126 $ 57 $ 60
(in millions)
Ratio of expenses to average .92 .96% 1.17% 1.31% 1.38%
net assets* %
Ratio of net investment 4.62 4.82% 4.99% 5.63% 7.48%
income to average net %
assets
Portfolio turnover rate 312 258% 152% 223% 207%
%
</TABLE>
* SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS.
NOTES TO FINANCIAL STATEMENTS
For the period ended November 30, 1993
1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Convertible Securities 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 securities 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, other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. 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, which includes accretion of original issue
discount, is accrued as earned. Dividend and interest income is recorded
net of foreign taxes where recovery of such taxes is not assured.
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.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign
currency contracts. These contracts involve market risk in excess of the
amount reflected in the fund's Statement of Assets and Liabilities. The
face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the 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.
SHORT SALES AGAINST THE BOX. The fund may hedge its investments against
changes in value by engaging in short sales against the box. In a short
sale against the box, the fund sells a borrowed security, while at the same
time either owning an identical security or having the right to obtain such
a security. By selling short against the box the equity underlying one of
its convertible holdings, the fund would seek to offset the effect that a
decline in the underlying equity might have on the value of the convertible
security. While the short sale is outstanding, the fund will not dispose of
the security hedged by the short sale.
2. OPERATING POLICIES -
CONTINUED.
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 $2,051,000 or .2% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities, other than short-term securities,
aggregated $2,606,858,000 and $2,148,735,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic 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 .30% 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%. Effective November 1, 1994, the basic
fee will be subject to a performance adjustment (up to a maximum of + or -
.15%) based on the fund's investment performance as compared to the
appropriate index over a specified period of time. For the period, the
management fee was equivalent to an annual rate of .53% of average net
assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .2850% to .5200%. 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.
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 support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $40,000 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
receives 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
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 $374,000 for the period.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund negotiated
lenders' fees. These fees are included in interest income. The fund
receives U.S. Treasury obligations and/or cash as collateral against the
loaned securities, in an amount at least equal to 102% of the market value
of the loaned securities at the inception of each loan. This
collateral must be maintained at not less than 100% of the market value of
the loaned securities during the period of the loan. At period end, the
value of the securities loaned and the value of collateral amounted to
$332,000 and $343,000, respectively.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$12,000 under this arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Financial Trust and the Shareholders of
Fidelity Convertible Securities Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments except for Moody's and Standard &
Poor's ratings, and the related statements of operations and of changes in
net assets and the financial highlights present fairly, in all material
respects, the financial position of Fidelity Convertible Securities Fund (a
fund of Fidelity Financial Trust) at November 30, 1993, the results of its
operations for the year then ended, 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 Convertible Securities 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 owned at November 30,
1993 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Boston, Massachusetts
January 6, 1994
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior 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
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S 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 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
FIDELITY CONVERTIBLE SECURITIES FUND
82 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
TO THE SHAREHOLDERS:
The Board of Trustees of Fidelity Convertible Securities Fund voted to pay
on January 10, 1994, to shareholders of record at the opening of business
on January 7, 1994, a distribution of $____ derived from capital gains
realized from sales of portfolio securities and $____ derived from net
investment income.
In the opinion of management, regardless of whether you took payments in
cash or in additional shares, the distribution will be reportable for tax
purposes for the year 1994. You will be notified at a later date as to the
tax treatment of this distribution.
If your account is a Fidelity prototype retirement plan such as an
Individual Retirement Account (IRA), a Keogh Plan, a 403(b), or a qualified
pension or profit sharing plan, the above information is provided for
informational purposes only and is not reportable for tax purposes in 1994.
FIDELITY CONVERTIBLE SECURITIES FUND
January 7, 1994
