(registered trademark)
UBI-SANN-1096
19072
FIDELITY
U.S. BOND INDEX
PORTFOLIO
SEMIANNUAL REPORT
AUGUST 31, 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 7 The manager's review of fund performance,
strategy and outlook.
INVESTMENT CHANGES 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 16 Statements of assets and liabilities, operations, and
changes in net assets, as well as financial
highlights.
NOTES 20 Notes to the financial statements.
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To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED. NEITHER
THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND INCLUDING CHARGES AND EXPENSES,
CALL THE APPROPRIATE NUMBER LISTED BELOW. READ
THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
RETIREMENT PLAN LEVEL ACCOUNTS
CORPORATE CLIENTS (800) 962-1375
"NOT FOR PROFIT" CLIENTS (800) 343-0860
FINANCIAL AND OTHER INSTITUTIONS
NATIONWIDE (800) 843-3001
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first eight
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in the stock and bond markets so far this
year. In 1995, both stock and bond markets posted strong results, while the
year before, stocks posted below-average returns and bonds had one of the
worst years in history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
Keeping in mind that the effects of interest rate changes on your bond
investments will only be "paper" gains or losses unless you sell your
shares, staying in your bond fund may be appropriate if your investment
horizon is at least a year or more. The longer your investing time frame,
the more likely it is that you will retain your principal investment
through both up and down markets. For example, a 10-year time frame, such
as saving for a college education, enables you to weather these ups and
downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
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 $100,000 investment. A fund's total
return includes changes in share price, plus reinvestment of any dividends
(or income) and capital gains (the profits the fund earns when it sells
bonds that have grown in value). You can also look at the fund's income to
measure performance. If Fidelity had not reimbursed certain fund expenses
during the periods shown, the total returns and dividends would have been
lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Fidelity U.S. Bond Index -0.18% 3.98% 45.15% 72.84%
Lehman Brothers Aggregate Bond Index -0.02% 4.11% 43.72% n/a
Intermediate U.S. Government Funds -0.45% 3.02% 34.81% n/a
Average
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on March 8, 1990. For example, if you invested
$1,000 in a fund that had a 5% return over the past year, the value of your
investment would be $1,050. You can compare the fund's returns to the
performance of the Lehman Brothers Aggregate Bond Index, which is a market
value weighted performance benchmark for investment-grade fixed-rate debt
issues, including government, corporate, asset-backed, and mortgage-backed
securities, with maturities of at least one year. To measure how the fund's
performance stacked up against its peers, you can compare it to the
intermediate U.S. government funds average, which reflects the performance
of 127 mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. over the past six months. Both benchmarks include reinvested
dividends and capital gains, if any, but do not reflect any sales charges,
brokerage commissions, or other costs of investing.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Fidelity U.S. Bond Index 3.98% 7.74% 8.80%
Lehman Brothers Aggregate Bond Index 4.11% 7.52% n/a
Intermediate U.S. Government Funds Average 3.02% 6.14% 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.
$100,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960831 19960920 135040 S00000000000001
US Bond Index LB Aggregate Bond
00651 LB001
1990/03/31 100000.00 100000.00
1990/04/30 98902.15 99083.85
1990/05/31 101848.95 102017.56
1990/06/30 103292.33 103654.45
1990/07/31 104861.22 105088.32
1990/08/31 103552.16 103684.91
1990/09/30 104402.79 104542.69
1990/10/31 105789.54 105869.96
1990/11/30 107912.50 108148.92
1990/12/31 109639.21 109834.03
1991/01/31 110945.71 111191.76
1991/02/28 111681.88 112140.90
1991/03/31 112576.12 112912.39
1991/04/30 113908.49 114135.62
1991/05/31 114705.78 114803.07
1991/06/30 114615.95 114744.70
1991/07/31 116187.72 116335.90
1991/08/31 118683.01 118853.42
1991/09/30 121180.35 121261.80
1991/10/31 122572.41 122611.92
1991/11/30 123844.13 123736.17
1991/12/31 127589.08 127410.92
1992/01/31 126089.97 125677.60
1992/02/29 126777.95 126494.77
1992/03/31 126332.45 125781.65
1992/04/30 127155.26 126690.18
1992/05/31 129563.14 129080.80
1992/06/30 131479.59 130857.27
1992/07/31 134384.15 133527.05
1992/08/31 135838.15 134879.71
1992/09/30 137508.23 136478.53
1992/10/31 135863.12 134669.07
1992/11/30 135802.95 134699.52
1992/12/31 137757.58 136841.44
1993/01/31 140497.88 139465.54
1993/02/28 143334.37 141906.91
1993/03/31 143928.53 142498.22
1993/04/30 145002.76 143490.51
1993/05/31 145185.54 143673.23
1993/06/30 147708.62 146277.03
1993/07/31 148811.04 147104.35
1993/08/31 151228.58 149682.77
1993/09/30 151744.97 150093.90
1993/10/31 152254.90 150654.76
1993/11/30 151011.43 149373.16
1993/12/31 151827.73 150182.72
1994/01/31 153733.24 152210.44
1994/02/28 151041.86 149566.03
1994/03/31 147851.94 145878.59
1994/04/30 146592.88 144713.73
1994/05/31 146472.17 144693.43
1994/06/30 146357.40 144373.67
1994/07/31 148983.72 147241.40
1994/08/31 149184.14 147424.12
1994/09/30 147199.85 145254.29
1994/10/31 147124.76 145124.86
1994/11/30 146887.75 144802.56
1994/12/31 147861.23 145802.46
1995/01/31 150615.89 148687.95
1995/02/28 153906.27 152223.12
1995/03/31 154741.75 153157.04
1995/04/30 156921.63 155296.42
1995/05/31 162915.09 161305.96
1995/06/30 164175.49 162488.58
1995/07/31 163920.93 162125.67
1995/08/31 165680.40 164082.33
1995/09/30 167266.66 165678.61
1995/10/31 169659.14 167833.21
1995/11/30 172051.51 170348.19
1995/12/31 174475.09 172738.81
1996/01/31 175635.69 173885.90
1996/02/29 172573.36 170863.36
1996/03/31 171338.87 169675.67
1996/04/30 170217.63 168721.45
1996/05/31 169914.39 168378.84
1996/06/30 172042.14 170640.04
1996/07/31 172563.31 171106.99
1996/08/31 172267.20 170820.22
IMATRL PRASUN SHR__CHT 19960831 19960920 135045 R00000000000123
$100,000 OVER LIFE OF FUND: Let's say hypothetically that $100,000 was
invested in Fidelity U.S. Bond Index Portfolio on March 31, 1990, shortly
after the fund started. As the chart shows, by August 31, 1996, the value
of the investment would have grown to $172,267 - a 72.27% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Aggregate Bond Index did over the same period. With dividends and capital
gains, if any, reinvested, the same $100,000 would have grown to $170,820 -
a 70.82% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite
direction of interest rates. In turn, the share
price, return, and yield of a fund that invests in
bonds will vary. That means if you sell your
shares during a market downturn, you might
lose money. But if you can ride out the market's
ups and downs, you may have a gain.
(checkmark)
DIVIDENDS AND YIELD
PERIODS ENDED AUGUST 31, 1996 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 6.22(cents) 36.91(cents) 74.03(cents)
Annualized dividend rate 6.99% 7.01% 6.96%
30-day annualized yield 6.76% - -
DIVIDENDS per share show the income paid by the fund for a set period and
do not reflect any tax reclassifications. If you annualize this number,
based on an average net asset value of $10.47 over the past month, $10.45
over the past six months and $10.63 over the past year, you can compare the
fund's income over these three periods. The 30-day annualized YIELD is a
standard formula for all bond funds based on the yields of the bonds in the
fund, averaged over the past 30 days. This figure shows you the yield
characteristics of the fund's investments at the end of the period. It also
helps you compare funds from different companies on an equal basis. It does
not reflect the cost of hedging and other currency gains and losses. If
Fidelity had not reimbursed certain fund expenses during the period shown,
the yield would have been 6.50%.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with
Christine
Thompson,
Portfolio
Manager of
Fidelity U.S. Bond
Index Portfolio
Q. CHRISTINE, HOW HAS THE FUND PERFORMED?
A. The taxable fixed-income market had a tough go of it over the past six
months and the fund's performance reflects that. However, the fund's
performance closely tracked the index, as it is designed to do. For the
six- and 12-month periods ended August 31, 1996, the fund's total returns
were -0.18% and 3.98%, respectively. For the same six- and 12-month
periods, the intermediate U.S. government funds average returned -0.45% and
3.02%, respectively, according to Lipper Analytical Services. The fund's
benchmark - the Lehman Brothers Aggregate Bond Index - returned -0.02% for
the six-month period and 4.11% for the 12-month period.
Q. WHAT ACCOUNTED FOR THE BOND MARKET'S WEAK PERFORMANCE DURING THE PAST
SIX MONTHS?
A. Signs that the economy was growing at a faster-than-expected pace caused
investors to force bond yields higher and bond prices lower. Bond
investors, of course, dislike higher interest rates because they eat away
at the value of their holdings. The yield on a 10-year Treasury bond rose
to 6.94% at the end of the period, compared to 5.96% on March 1, 1996.
Q. HOW DID INDIVIDUAL SECTORS OF THE TAXABLE BOND MARKET FARE OVER THE PAST
SIX MONTHS?
A. Sector performance continued to be dictated mainly by duration, which
measures how sensitive a security's price is to changes in interest rates.
The shorter a security's duration, the less sensitive its price is to
changes in interest rates. During the past year, the longer-duration
securities - including Treasury, agency and corporate securities - lagged
behind shorter-duration asset-backed and mortgage securities. For the six
months ended August 31, 1996, here's how individual sectors within the
index performed: Treasury securities, which made up 44.9% of the index,
returned -0.38%; mortgage-backed securities, at 29.9% of the index,
returned 0.80%; corporates, at 17.6% of the index, returned -0.52%; agency
securities, which accounted for 6.6% of the index, returned -0.03%; and
asset-backed securities at 1.1% of the index, returned 1.05%.
Q. TELL US WHICH SECURITIES YOU CHOSE IN THE TREASURY SECTOR OVER THE PAST
SIX MONTHS.
A. I avoid making any interest-rate timing bets. Rather, I structure the
fund to replicate the distribution of the index's duration across the
various maturities available in the market. However, within those
parameters, I choose individual issues that offer value and the potential
to outperform. That said, I have generally favored older Treasury
securities while avoiding the more-recently issued securities. Newly issued
Treasuries have a higher amount of liquidity. They are more actively
traded, and because of that tend to trade at richer levels. In other words,
their prices tend to be higher and their yields lower than older Treasury
securities with comparable maturities. Because the fund's Treasury
positions are its core holdings, the additional liquidity that the newly
issued securities offer isn't necessary.
Q. LET'S MOVE ON TO AGENCIES.
A. In this sector, I reduced the fund's exposure to agency securities with
maturities of five years or shorter over the past six months. Market demand
for these shorter-term agency securities was strong during the period,
which afforded me the opportunity to sell the fund's shorter-term agency
holdings at attractive levels. I replaced those with agency securities
concentrated in the seven- to 10- year maturity range. In my view,
valuation levels in that maturity range offered the potential to
outperform. I continued to favor non-callable securities because I felt
that a lot of the recent issuance of callable securities had been priced at
levels that would benefit the issuers, but didn't offer value for
investors.
Q. WHAT CHOICES DID YOU MAKE WITHIN THE MORTGAGE SECTOR?
A. The fund held 30-year premium mortgages - those backed by mortgages with
high coupons - which performed relatively well as interest rates rose and
mortgage prepayment expectations adjusted downward. Once they reached the
point where I felt they offered limited additional upside, I sold some and
replaced them with 15-year mortgages and balloon mortgages. These
securities generally experience more stable prepayment patterns than do
30-year mortgages in various interest-rate environments.
Q. WHAT'S YOUR OUTLOOK?
A. This year has shown how unpredictable the bond market can be. In the
late winter and early spring, the market was in the midst of a sell-off. By
the end of August, it had all but recouped those losses. In my opinion, the
unpredictable nature of this market makes a compelling case for funds that
don't attempt to time the market. Historical experience has shown this
class of investment provides fairly consistent and attractive performance
over various market cycles.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide returns consistent with those
of the Lehman Brothers Aggregate Bond Index
START DATE: March 8, 1990
SIZE: as of August 31, 1996, more than
$508 million
MANAGER: Christine Thompson, since 1990;
manager, Fidelity Intermediate Bond Fund,
since October 1995; co-manager, Fidelity
Global Bond, since March 1996; and Fidelity
Target Timeline Funds, since February 1996;
joined Fidelity in 1985
(checkmark)
CHRISTINE THOMPSON ON CORPORATE BONDS:
"Within the corporate bond sector, I
emphasized bank securities and Yankee
bonds. In the bank sector, I previously had
overweighted longer duration bank paper,
which served the fund well as strengthening
credit fundamentals caused valuations to
improve. But over the past six months, I felt
that the longer-term securities had become
more fairly priced and offered little additional
upside potential. So I replaced the longer
holdings with shorter-term bank securities.
"During the period, I increased the fund's
exposure to Yankee bonds, which are
dollar-denominated bonds issued in the United
States by foreign banks, corporations and
governments. This is the sector of the corporate
market that has experienced the most overall
growth over the last few years. For
comparison's sake, at the end of the period
Yankee bonds made up 3.7% of the Lehman
Brothers Aggregate Bond Index, compared to
2.4% at the end of 1992. Projections call for
Yankee bonds increasingly to make up an even
greater share of the corporate market in the
years to come.
"At the end of the period, the fund's largest
Yankee bond exposures were to Canadian and
Korean issuers. In both cases, I chose
high-quality securities that offered yields as
high as much lower-rated corporate securities
issued by domestic entities."
INVESTMENT CHANGES
QUALITY DIVERSIFICATION AS OF AUGUST 31, 1996
(MOODY'S RATINGS) % OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO
Aaa 73.3 70.3
Aa 1.0 2.4
A 12.7 12.7
Baa 11.1 11.8
Ba 0.3 0.0
TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED "BA" OR BELOW WERE
RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES OR
ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY.
AVERAGE YEARS TO MATURITY AS OF AUGUST 31, 1996
6 MONTHS AGO
Years 8.1 7.6
AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF AUGUST 31, 1996
6 MONTHS AGO
Years 4.7 4.6
DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY,
A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. EFFECTIVE
JUNE, 1996, THE MODEL USED TO CALCULATE DURATIONS MAY HAVE BEEN SLIGHTLY
MODIFIED IN ORDER TO FURTHER REFINE THIS INFORMATION. THESE CHANGES IN
METHODOLOGY MAY PRODUCE ADJUSTMENTS IN HISTORICAL DURATION FIGURES.
ASSET ALLOCATION
AS OF AUGUST 31, 1996 * AS OF FEBRUARY 29, 1996 **
U.S. government
and government
agency obligations 46.1%
Mortgage-backed
securities 25.2%
Corporate bonds 22.9%
Asset-backed securities 3.3%
Foreign government
obligations 0.9%
Short-term investments 1.6%
FOREIGN INVESTMENTS 5.1%
U.S. government
and government
agency obligations 44.0%
Mortgage-backed
securities 24.4%
Corporate bonds 24.4%
Asset-backed securities 3.5%
Foreign government
obligations 0.9%
Short-term investments 2.8%
FOREIGN INVESTMENTS 5.4%
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 1.9
Row: 1, Col: 3, Value: 3.3
Row: 1, Col: 4, Value: 22.5
Row: 1, Col: 5, Value: 25.2
Row: 1, Col: 6, Value: 45.1
Row: 1, Col: 1, Value: 2.8
Row: 1, Col: 2, Value: 1.9
Row: 1, Col: 3, Value: 3.5
Row: 1, Col: 4, Value: 24.4
Row: 1, Col: 5, Value: 24.4
Row: 1, Col: 6, Value: 43.0
*
**
INVESTMENTS AUGUST 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 25.8%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
BASIC INDUSTRIES - 1.1%
CHEMICALS & PLASTICS - 0.6%
Methanex Corp. yankee
8 7/8%, 11/15/01 A3 $ 2,820,000 $ 3,012,747
PAPER & FOREST PRODUCTS - 0.5%
Chesapeake Corp.:
10 3/8%, 10/1/00 Baa 300,000 332,628
9 7/8%, 5/1/03 Baa 1,210,000 1,350,179
Great Northern Nekoosa Corp.
9 1/8%, 2/1/98 Baa 750,000 773,318
2,456,125
TOTAL BASIC INDUSTRIES 5,468,872
ENERGY - 2.0%
ENERGY SERVICES - 0.8%
Petroliam Nasional BHD yankee
6 7/8%, 7/1/03 (b) A1 4,190,000 4,074,356
OIL & GAS - 1.2%
Nationale Elf Aquitaine yankee
7 3/4%, 5/1/99 Aa3 150,000 152,829
Occidental Petroleum Corp.:
5.85%, 11/9/98 Baa 2,000,000 1,958,480
5.90%, 11/9/98 Baa 1,425,000 1,396,842
5.93%, 11/9/98 Baa 800,000 784,664
6 3/4%, 9/16/99 Baa 810,000 802,718
6.09%, 11/29/99 Baa 390,000 378,713
Union Oil Co. of California
9 1/8%, 2/15/06 Baa 625,000 684,163
6,158,409
TOTAL ENERGY 10,232,765
FINANCE - 17.4%
ASSET-BACKED SECURITIES - 3.3%
Case Equipment Loan Trust
6.45%, 9/15/02 A3 1,000,000 978,710
Caterpillar Financial Asset Trust
6.55%, 5/22/02 A3 500,000 496,953
Ford Credit Grantor Trust 5.90%,
10/15/00 Aaa 3,319,204 3,298,459
Green Tree Financial Corp.:
6.45%, 5/15/27 Aaa 1,460,000 1,449,955
6.65%, 7/15/27 Aaa 2,120,000 2,121,314
KeyCorp Auto Grantor Trust
5.80%, 7/15/00 A3 223,811 222,871
Premier Auto Trust:
6%, 5/6/00 Aaa 1,230,000 1,220,381
6.80%, 12/2/98 Aa3 590,564 592,223
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Standard Credit Card
Master Trust I:
6 1/4%, 9/7/98 A2 $ 3,190,000 $ 3,184,517
4.85%, 3/7/99 A2 1,000,000 994,370
7.65%, 2/15/00 A2 430,000 435,241
participation certificates
5 1/2%, 9/7/98 A2 960,000 952,275
Union Federal Savings Bank
Grantor Trust
6.975%, 7/10/00 Baa 926,260 924,234
16,871,503
BANKS - 9.4%
Bank of Boston Corp.
9 1/2%, 8/15/97 Baa 2,016,000 2,073,416
Banponce Financial Corp.
6.34%, 3/29/99 A3 610,000 600,990
Banponce Corp.:
5 3/4%, 3/1/99 A3 930,000 902,872
6.378%, 4/8/99 A3 1,000,000 982,700
Barnett Banks, Inc.:
8 1/2%, 3/1/99 A3 1,170,000 1,213,664
10 7/8%, 3/15/03 A3 1,020,000 1,188,086
Capital One Bank
8 1/8%, 2/27/98 Baa 440,000 447,999
Citicorp:
9%, 4/15/99 A2 656,000 687,337
8.80%, 2/1/00 A1 920,000 929,853
Comerica, Inc.
9 3/4%, 5/1/99 A3 1,000,000 1,057,750
Corporacion Andina De Fomento:
euro 7 1/4%, 4/30/98 Baa 250,000 250,520
yankee 7 1/4%, 4/30/98 (b) Baa 3,000,000 3,006,240
Export Import Bank of Korea
6 3/8%, 2/15/06 A1 2,220,000 2,043,821
First Fidelity Bancorporation
8 1/2%, 4/1/98 A2 1,000,000 1,027,050
First Hawaiian, Inc.
6 1/4%, 8/15/00 Baa 1,000,000 964,980
First Interstate Bancorp:
12 3/4%, 5/1/97 A2 190,000 197,857
8 5/8%, 4/1/99 A2 1,042,000 1,084,222
First Maryland Bancorp
10 3/8%, 8/1/99 Baa 750,000 813,923
First Security Corp.
7%, 7/15/05 Baa 1,000,000 957,030
First Tennessee National Corp.
6 3/4%, 11/15/05 Baa 620,000 580,624
First USA Bank
6 1/8%, 10/30/97 Baa 1,000,000 997,820
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FINANCE - CONTINUED
BANKS - CONTINUED
Firstar Corp.
7.15%, 9/1/00 A3 $ 1,300,000 $ 1,302,431
Fleet Financial Group, Inc.
7 5/8%, 12/1/99 A3 1,250,000 1,273,275
Fleet/Norstar Financial Group, Inc.
9.90%, 6/15/01 A3 1,390,000 1,535,867
Kansallis-Osake-Pankki
10%, 5/1/02 A3 760,000 849,832
Korea Development Bank yankee:
9 1/4%, 6/15/98 A1 1,000,000 1,039,540
7%, 7/15/99 A1 1,000,000 1,000,130
6 1/4%, 5/1/00 A1 2,000,000 1,934,460
Merchants National Corp.
9 7/8%, 10/1/99 A2 1,650,000 1,775,928
Merita Bank Ltd. yankee
6 1/2%, 1/15/06 A3 2,100,000 1,927,884
Midland American Capital Corp.
12 3/4%, 11/15/03 A1 330,000 368,617
Midlantic Corp.:
9 7/8%, 12/1/99 A3 1,000,000 1,079,380
9.20%, 8/1/01 A3 1,337,000 1,426,860
NCNB Corp.
10.20%, 7/15/15 A3 2,000,000 2,413,840
Nationsbank Corp.
5 1/8%, 9/15/98 A2 190,000 184,608
Provident Bank
7 1/8%, 3/15/03 Baa 1,675,000 1,611,752
Provident Bank (Cincinnati, Ohio)
6 1/8%, 12/15/00 A3 1,800,000 1,722,258
Shawmut National Corp.:
8 5/8%, 12/15/99 A3 880,000 917,506
7.20%, 4/15/03 A3 1,000,000 976,100
Signet Banking Corp.
9 5/8%, 6/1/99 Baa 1,139,000 1,208,263
Union Planters Corp.
6 3/4%, 11/1/05 Baa 1,500,000 1,403,175
47,960,460
CREDIT & OTHER FINANCE - 3.3%
Boatmens Auto Trust
6.35%, 10/15/01 A2 430,000 425,566
Finova Capital Corp.
6.14%, 11/2/98 Baa 2,200,000 2,172,170
Fleet Mortgage Group, Inc.
6 1/2%, 6/15/00 A2 800,000 780,536
Ford Capital BV
9%, 8/15/98 A1 2,000,000 2,082,820
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Ford Motor Credit
7.05%, 6/6/01 A1 $ 1,000,000 $ 992,580
General Motors Acceptance Corp.:
6.40%, 6/8/98 A3 2,000,000 1,992,620
6%, 12/30/98 A3 2,000,000 1,965,440
Greyhound Financial Corp.:
8 1/2%, 5/1/98 Baa 1,000,000 1,025,980
6.95%, 1/28/98 Baa 750,000 754,118
MCN Investment Corp.:
5.84%, 2/1/99 Baa 1,460,000 1,427,953
6.03%, 2/1/01 Baa 1,940,000 1,854,912
MNC Financial, Inc.
9 3/8%, 5/1/1997 A3 197,000 200,881
Tenneco Credit Corp.
10 1/8%, 12/1/97 Baa 550,000 572,968
Union Acceptance Corp.
7.075%, 7/10/02 Baa 371,821 370,308
16,618,852
INSURANCE - 1.0%
Metropolitan Life Insurance Co.
6.30%, 11/1/03 (b) A1 2,560,000 2,387,277
Nationwide Mutual Insurance Co.
6 1/2%, 2/15/04 (b) A1 2,690,000 2,504,417
4,891,694
SAVINGS & LOANS - 0.4%
Great Western Financial Corp.
6 3/8%, 7/1/00 Baa 1,000,000 975,740
Home Savings of America
6%, 11/1/00 A3 1,000,000 954,500
1,930,240
TOTAL FINANCE 88,272,749
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
Tenneco, Inc.
10%, 8/1/98 Baa 1,200,000 1,269,396
MEDIA & LEISURE - 0.1%
PUBLISHING - 0.1%
News America Holdings, Inc.
8 5/8%, 2/1/03 Baa 355,000 373,389
NONDURABLES - 0.2%
FOODS - 0.2%
Quaker Oats Co.:
6.91%, 5/15/03 A3 540,000 526,181
7.51%, 5/2/05 A3 540,000 538,369
1,064,550
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES - 0.1%
Dayton Hudson Corp.
10%, 12/1/00 Baa $ 500,000 $ 545,975
TECHNOLOGY - 0.9%
COMPUTERS & OFFICE EQUIPMENT - 0.9%
Comdisco, Inc.:
7 1/4%, 4/15/98 Baa 1,565,000 1,579,711
9.30%, 6/27/00 Baa 1,250,000 1,342,313
9 1/4%, 7/6/00 Baa 375,000 401,543
5 3/4%, 2/15/01 Baa 1,500,000 1,422,540
TOTAL TECHNOLOGY 4,746,107
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
AMR Corp.:
7 3/4%, 12/1/97 Baa 1,000,000 1,010,900
9 1/2%, 7/15/98 Baa 430,000 448,911
1,459,811
UTILITIES - 3.5%
CELLULAR - 0.3%
360 Degrees Communications Co.
7 1/8%, 3/1/03 Ba2 1,530,000 1,459,773
ELECTRIC UTILITY - 1.0%
British Columbia Hydro & Power
Authority yankee
12 1/2%, 1/15/14 Aa2 930,000 1,074,643
Gulf States Utilities Co. 1st mtg.
6.67%, 11/1/96 Baa 2,430,000 2,431,725
United Illuminating Co.:
7 3/8%, 1/15/98 Baa 1,500,000 1,505,775
9.76%, 1/2/06 Baa 311,000 323,819
5,335,962
GAS - 2.2%
Columbia Gas System, Inc.:
6.39%, 11/28/00 Baa 1,000,000 971,990
6.61%, 11/28/02 Baa 1,000,000 962,980
Enron Corp.:
10%, 6/01/98 Baa 1,000,000 1,052,990
8 1/2%, 2/01/00 Baa 470,000 474,366
InterNorth, Inc.
9 5/8%, 3/15/06 Baa 1,500,000 1,695,060
Sonat, Inc. 9 1/2%, 8/15/99 Baa 1,034,000 1,096,888
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Southwest Gas Corp.
9 3/4%, 6/15/02 Baa $ 2,930,000 $ 3,245,473
Transco Energy Co.
9 1/8%, 5/1/98 Baa 1,490,000 1,539,200
11,038,947
TOTAL UTILITIES 17,834,682
TOTAL NONCONVERTIBLE BONDS
(Cost $134,038,665) 131,268,296
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - 46.1%
U.S. TREASURY OBLIGATIONS - 38.5%
6 1/8%, 3/31/98 Aaa 21,090,000 21,053,725
9 1/4%, 8/15/98 Aaa 4,445,000 4,679,074
8 7/8%, 11/15/98 Aaa 4,171,000 4,380,843
9 1/8%, 5/15/99 Aaa 1,486,000 1,580,970
7 3/4%, 12/31/99 Aaa 21,913,000 22,659,357
6 7/8%, 3/31/00 Aaa 10,643,000 10,724,525
7 7/8%, 8/15/01 Aaa 14,000,000 14,662,760
10 3/4%, 5/15/03 Aaa 6,280,000 7,572,298
11 5/8%, 11/15/04 Aaa 3,475,000 4,484,383
7%, 7/15/06 Aaa 420,000 421,642
11 3/4%, 2/15/10 Aaa 4,762,000 6,177,933
12 3/4%, 11/15/10 Aaa 9,774,000 13,497,308
9 7/8%, 11/15/15 Aaa 12,500,000 15,880,875
9%, 11/15/18 Aaa 20,450,000 24,297,054
8 7/8%, 2/15/19 Aaa 14,710,000 17,284,250
8 1/8%, 8/15/19 Aaa 12,180,000 13,310,426
12%, 8/15/23 Aaa 9,315,000 12,895,407
TOTAL U.S. TREASURY OBLIGATIONS 195,562,830
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.6%
Farm Credit System Financial
Assistance Corp.
9 3/8%, 7/21/03 Aaa 2,730,000 3,063,988
Federal Agricultural Mortgage
Corporation:
7.44%, 5/25/00 Aaa 500,000 510,625
6.92%, 8/10/02 Aaa 1,040,000 1,035,611
Federal Farm Credit Bank:
6.32%, 9/9/02 Aaa 730,000 705,776
6.40%, 10/3/02 Aaa 360,000 348,919
U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED
Federal Home Loan Bank:
6.37%, 6/30/03 Aaa $ 510,000 $ 489,840
7.31%, 6/16/04 Aaa 2,040,000 2,060,074
7.38%, 8/05/04 Aaa 370,000 374,854
Federal Home Loan Mortgage
Corporation:
7.90%, 9/19/01 Aaa 1,000,000 1,040,620
8%, 1/26/05 Aaa 580,000 608,455
Government Trust Certificates
(assets of Trust guaranteed by
U.S. Government through
Defense Security Assistance
Agency):
Class 1-C 9 1/4%, 11/15/01 Aaa 730,000 773,384
Class 2-E 9.40%, 5/15/02 Aaa 1,310,000 1,393,002
Class T-2 9 5/8%, 5/15/02 Aaa 1,212,000 1,287,895
Government Trust Certificates,
Series 1992-A (assets of Trust
guaranteed by U.S. Government
through Export-Import Bank)
7.02%, 9/1/04 Aaa 569,500 573,187
Guaranteed Export Trust
Certificates Series 1994-C
(assets of Trust guaranteed by
U.S. Government through
Export-Import Bank):
6.61%, 9/15/99 Aaa 219,930 220,597
5.20%, 10/15/04 Aaa 1,036,933 972,449
5.23%, 5/15/05 Aaa 700,000 653,187
Overseas Private Investment Corp.
(U.S. Government guaranteed
participation certificate)
Series 1994-195,
6.08%, 8/15/04 Aaa 1,590,000 1,495,538
Private Export Funding Corp.:
8.40%, 7/31/01 Aaa 1,000,000 1,055,830
6.90%, 1/31/03 Aaa 150,000 148,716
5.65%, 3/15/03 Aaa 1,001,000 971,040
8 3/4%, 6/30/03 Aaa 1,730,000 1,882,344
5.48%, 9/15/03 Aaa 2,437,500 2,334,954
5.80%, 2/1/04 Aaa 220,000 208,791
6.86%, 4/30/04 Aaa 452,000 450,667
State of Israel (guaranteed by
U.S. Government through
Agency for International
Development):
7 3/4%, 4/1/98 Aaa 1,517,317 1,542,823
8%, 11/15/01 Aaa 1,330,000 1,391,247
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
6 1/4%, 8/15/02 Aaa $ 3,092,000 $ 2,981,359
6 5/8%, 2/15/04 Aaa 900,000 867,762
7 5/8%, 8/15/04 Aaa 800,000 818,764
5.89%, 8/15/05 Aaa 1,970,000 1,801,392
8 1/2%, 4/1/06 Aaa 2,705,000 2,886,154
Student Loan Marketing Association
8.14%, 10/15/03 Aaa 420,000 443,755
U.S. Housing & Urban
Development 8.27%, 8/1/03 Aaa 1,000,000 1,064,870
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS 38,458,469
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $239,090,555) 234,021,299
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - 25.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 4.5%
6 1/2%,10/1/07 Aaa 887,993 858,573
7%, 6/1/99 to 7/1/26 Aaa 2,702,094 2,700,392
7 1/2%, 4/1/26 to 8/1/26 Aaa 4,950,003 4,839,270
8%, 7/1/16 to 8/1/26 Aaa 5,018,460 5,020,230
8 1/2%, 9/1/19 Aaa 38,740 39,877
9%, 11/1/01 to 10/1/16 Aaa 1,007,765 1,042,424
9 1/2%, 10/1/08 to 2/1/10 Aaa 1,301,188 1,389,173
10%, 6/1/20 Aaa 331,169 359,623
10 1/2%, 1/1/01 to 2/1/19 Aaa 883,494 958,271
11%, 1/1/06 to 9/1/20 Aaa 4,054,604 4,486,463
11 1/2%, 8/1/13 to 10/1/15 Aaa 204,255 227,796
11 3/4%, 9/1/13 Aaa 116,029 129,674
12%, 2/1/13 to 7/1/15 Aaa 86,107 97,626
12 3/4%, 8/1/12 to 3/1/14 Aaa 178,028 204,407
13 1/2%, 1/1/23 Aaa 500,891 589,584
22,943,383
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 13.2%
5 1/2%, 9/1/00 to 4/1/11 Aaa 17,434,971 16,116,822
6%, 1/1/01 to 4/1/11 Aaa 6,508,356 6,195,390
6 1/2%, 11/1/08 to 3/1/26 Aaa 14,577,370 13,594,925
7%, 6/1/23 to 6/1/26 Aaa 20,278,160 19,314,338
7 1/2%, 11/1/07 to 6/1/26 Aaa 6,616,497 6,514,618
8 1/2%, 6/1/17 to 7/1/24 Aaa 3,768,257 3,854,893
10 3/4%, 8/1/10 to 5/1/14 Aaa 310,803 339,067
11 1/4%, 5/1/14 Aaa 74,881 83,172
11 1/2%, 8/1/14 Aaa 229,457 257,811
12 1/4%, 6/1/13 Aaa 44,575 50,802
12 1/2%, 1/1/15 Aaa 67,612 77,447
U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
FEDERAL NATIONAL MORTGAGE ASSOCIATION - CONTINUED
13%, 12/1/14 to 1/1/15 Aaa $ 106,433 $ 124,759
13 1/4%, 2/1/13 Aaa 8,928 9,841
13 1/2%, 8/1/14 to 11/1/14 Aaa 71,445 84,647
14%, 3/1/12 to 10/1/14 Aaa 395,972 470,916
67,089,448
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 7.5%
6%, 12/15/08 to 3/15/11 Aaa 3,389,694 3,208,353
6 1/2%, 6/15/23 to 6/15/24 Aaa 8,076,708 7,481,738
7%, 12/15/22 to 9/15/23 Aaa 2,934,144 2,800,389
7 1/2%, 2/15/17 to 4/15/24 Aaa 3,814,982 3,748,659
8%, 11/15/16 to 9/15/25 Aaa 7,011,941 7,046,015
9%, 7/15/18 to 6/15/26 Aaa 6,694,083 6,993,005
9 1/2%, 1/15/19 to 11/15/24 Aaa 562,495 605,377
10%, 6/15/13 to 9/15/25 Aaa 5,330,004 5,835,892
11 1/2%, 7/15/10 to 8/15/13 Aaa 3,684 4,168
37,723,596
TOTAL U.S. GOVERNMENT AGENCY -
MORTGAGE-BACKED SECURITIES
(Cost $129,649,490) 127,756,427
COMMERCIAL MORTGAGE SECURITIES - 0.4%
Oregon Commercial Mortgage
pass-through certificates
commercial Series 1995
Class 1-A, 7.15%, 6/25/26 (b) Aaa 876,380 870,333
Resolution Trust Corp. commercial
Series 1995-C2 Class A-1B,
6 1/4%, 5/25/27 Aaa 1,310,000 1,279,346
TOTAL COMMERCIAL MORTGAGE
SECURITIES (Cost $2,182,014) 2,149,679
FOREIGN GOVERNMENT OBLIGATIONS (C) - 0.6%
Manitoba Province yankee
7.93%, 2/15/00 A1 850,000 873,289
Ontario Province yankee
7 3/4%, 6/4/02 Aa3 2,000,000 2,062,040
TOTAL FOREIGN GOVERNMENT
OBLIGATIONS (Cost $2,943,380) 2,935,329
SUPRANATIONAL OBLIGATIONS - 0.3%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
African Development Bank
7 3/4%, 12/15/01
(Cost $1,304,163) Aa1 $ 1,250,000 $1,284,338
REPURCHASE AGREEMENTS - 1.6%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.25%, dated
8/30/96 due 9/3/96 $ 8,308,844 8,304,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $517,512,267) $ 507,719,368
LEGEND
1. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
2. 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 $12,842,623 or 2.5% of net
assets.
3. Some foreign government obligations have not been individually rated by
S&P or Moody's. The ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.
INCOME TAX INFORMATION
At August 31, 1996, the aggregate cost of investment securities for income
tax purposes was $517,680,701. Net unrealized depreciation aggregated
$9,961,333, of which $2,423,513 related to appreciated investment
securities and $12,384,846 related to depreciated investment securities.
At February 29, 1996, the fund had a capital loss carryforward of
approximately $9,255,000 of which $5,486,000 and $3,769,000 will expire on
February 28, 2003 and February 29, 2004, respectively.
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 86.8% AAA, AA, A 82.6%
Baa 11.1% BBB 14.1%
Ba 0.3% BB 0.5%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings of
the sovereign credit of the issuing government.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AUGUST 31, 1996 (UNAUDITED)
ASSETS 4. 5.
6.Investment in securities, at value (including repurchase agreements of $8,304,000) 7. $ 507,719,368
(cost $517,512,267) - See accompanying schedule
8.Cash 9. 1,946,773
10.Receivable for investments sold 11. 4,324,742
12.Interest receivable 13. 6,772,111
14. 15.TOTAL ASSETS 16. 520,762,994
LIABILITIES 17. 18.
19.Payable for investments purchased $ 12,145,127 20.
21.Distributions payable 177,411 22.
23.Accrued management fee 8,887 24.
25.Other payables and accrued expenses 240,576 26.
27. 28.TOTAL LIABILITIES 29. 12,572,001
30.NET ASSETS 31. $ 508,190,993
32.Net Assets consist of: 33. 34.
35.Paid in capital 36. $ 530,947,466
37.Distributions in excess of net investment income 38. (192,064)
39.Accumulated undistributed net realized gain (loss) on investments 40. (12,771,510)
41.Net unrealized appreciation (depreciation) on investments 42. (9,792,899)
43.NET ASSETS, for 49,234,695 shares outstanding 44. $ 508,190,993
45.NET ASSET VALUE, offering price and redemption price per share ($508,190,993 (divided by)
49,234,695 46. $10.32
shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
INVESTMENT INCOME 48. $ 18,078,243
47.Interest
EXPENSES 49. 50.
51.Management fee $ 777,467 52.
53.Transfer agent fees 503,371 54.
55.Accounting fees and expenses 81,753 56.
57.Non-interested trustees' compensation 1,011 58.
59.Custodian fees and expenses 19,635 60.
61.Registration fees 36,308 62.
63.Audit 18,648 64.
65.Legal 1,992 66.
67.Miscellaneous 2,853 68.
69. Total expenses before reductions 1,443,038 70.
71. Expense reductions (703,655) 739,383
72.73.NET INVESTMENT INCOME 74. 17,338,860
REALIZED AND UNREALIZED GAIN (LOSS) 76. (3,120,384)
75.Net realized gain (loss) on investment securities
77.Change in net unrealized appreciation (depreciation) on investment securities 78. (14,854,199)
79.80.NET GAIN (LOSS) 81. (17,974,583)
82.83.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 84. $ (635,723)
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29,
AUGUST 31, 1996 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
85.Operations $ 17,338,860 $ 29,973,416
Net investment income
86. Net realized gain (loss) (3,120,384) 62,718
87. Change in net unrealized appreciation (depreciation) (14,854,199) 15,922,876
88. 89.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (635,723) 45,959,010
90.Distributions to shareholders from net investment income (17,160,959) (29,821,179)
91.Share transactions 88,767,070 210,548,939
Net proceeds from sales of shares
92. Reinvestment of distributions 15,523,997 26,920,819
93. Cost of shares redeemed (53,949,049) (132,643,614)
94.95. 50,342,018 104,826,144
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
96. 97.TOTAL INCREASE (DECREASE) IN NET ASSETS 32,545,336 120,963,975
NET ASSETS 98. 99.
100. Beginning of period 475,645,657 354,681,682
101. $ 508,190,993 $ 475,645,657
End of period (including distributions in excess of net investment income of $192,064 and
$369,965, respectively)
OTHER INFORMATION 103. 104.
102.Shares
105. Sold 8,493,382 19,606,989
106. Issued in reinvestment of distributions 1,490,199 2,521,506
107. Redeemed (5,165,305) (12,324,143)
108. Net increase (decrease) 4,818,276 9,804,352
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
109. SIX MONTHS YEAR ENDED YEARS ENDED FEBRUARY FOUR MONTHS YEARS ENDED OCTOBER 31,
ENDED AUGUST FEBRUARY 29, 28, ENDED
31, 1996 FEBRUARY 28,
110. (UNAUDITED) 1996 1995 1994 D 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
111.SELECTED PER-SHARE DATA
112.Net asset value, beginning of $ 10.710 $ 10.250 $ 10.830 $ 11.070 $ 10.910 $ 10.710 $ 10.040
period
113.Income from Investment .374 .755 .718 .697 .260 .839 .863
Operations
Net investment income
114. Net realized and unrealized (.395) .460 (.542) (.110) .324 .277 .668
gain (loss)
115. Total from investment (.021) 1.215 .176 .587 .584 1.116 1.531
operations
116.Less Distributions
117. From net investment income (.369) (.755) (.756) (.727) (.254) (.836) (.861)
118. From net realized gain - - - (.070) (.170) (.080) -
119. In excess of net realized gain - - - (.030) - - -
120. Total distributions (.369) (.755) (.756) (.827) (.424) (.916) (.861)
121.Net asset value, end of period $ 10.320 $ 10.710 $ 10.250 $ 10.830 $ 11.070 $ 10.910 $ 10.710
122.TOTAL RETURN B, C (.18)% 12.13% 1.90% 5.38% 5.50% 10.84% 15.86%
123.RATIOS AND SUPPLEMENTAL DATA
124.Net assets, end of period (000 $ 508,191 $ 475,646 $ 354,682 $ 288,504 $ 123,351 $ 86,149 $ 39,144
omitted)
125.Ratio of expenses to average .32% A, .32% .32% .32% E .32% A, .32% .32%
net assets E E E E E E
126.Ratio of expenses to average .30% A, .31% .32% .32% .32% A .32% .32%
net assets after expense reductions F F
127.Ratio of net investment income 7.08% A 7.11% 7.58% 6.93% 7.34% A 7.70% 8.33%
to average net assets
128.Portfolio turnover rate 63% A 128% 73% 160% 89% A 113% 50%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D EFFECTIVE MARCH 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended August 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity U.S. Bond Index Portfolio (the fund) is a fund of Fidelity
Institutional Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. The financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted securities) for
which market quotations are not readily available are valued at their fair
value as determined in good faith under consistently applied procedures
under the general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net investment income. Distributions to shareholders from
realized capital gains on investments, if any, are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities, market discount, capital loss
carryforwards and losses deferred due to wash sales and excise tax
regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Distributions in excess of net investment
income and accumulated undistributed net realized gain (loss) on
investments may include temporary book and tax basis differences that will
reverse in a subsequent period. Any taxable income or gain remaining at
fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase for U.S. Treasury or Federal
Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
2. OPERATING POLICIES - CONTINUED
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
may receive interest foregone in the purchase of a delayed delivery
security. Losses may arise due to changes in the market value of the
underlying securities or if the counterparty does not perform under the
contract.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $200,044,382 and $151,611,493, respectively, of which U.S.
government and government agency obligations aggregated $177,624,761 and
$132,853,160, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a fee that
is computed daily at an annual rate of .32% of the fund's average net
assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the fund's transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives account fees and
asset-based fees that vary according to account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .21% of average net assets.
ACCOUNTING FEES. Fidelity Service Co., an affiliate of FMR, maintains the
fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .32% of average net assets. For the
period, the reimbursement reduced the expenses by $659,352.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $5,918 and $38,385,
respectively, under these arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Fred L. Henning, Jr., VICE PRESIDENT
Christine Thompson, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
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 *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
(registered trademark)
UBI-SANN-1096
19072
FIDELITY
U.S. EQUITY INDEX
PORTFOLIO
SEMIANNUAL REPORT
AUGUST 31, 1996
UBI-SANN-1096
19072
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing 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 8 A summary of major shifts in the fund's
investments
over the past six months.
INVESTMENTS 9 A complete list of the fund's investments
with their market values.
FINANCIAL STATEMENTS 17 Statements of assets and liabilities, operations,
and
changes in net assets, as well as financial
highlights.
NOTES 21 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE
FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY, AND
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL
AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND INCLUDING CHARGES AND EXPENSES,
CALL THE APPROPRIATE NUMBER LISTED BELOW. READ
THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
RETIREMENT PLAN LEVEL ACCOUNTS
CORPORATE CLIENTS (800) 962-1375
"NOT FOR PROFIT" CLIENTS (800) 343-0860
FINANCIAL AND OTHER INSTITUTIONS
NATIONWIDE (800) 843-3001
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although stocks have managed to post solid returns through the first eight
months of 1996, signs of strength in the economy have led to inflation
fears, causing some uncertainty in both the stock and bond markets so far
this year. In 1995, both stock and bond markets posted strong results,
while the year before, stocks posted below-average returns and bonds had
one of the worst years in history.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term, as we witnessed last year. You also can help to manage some
of the risks of investing through diversification. A stock fund is already
diversified because it invests in many issues. You can diversify even
further by placing some of your money in several different types of stock
funds or in other investment categories, such as bonds.
If you have a short investment time horizon, you might want to consider
moving some of your investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. Of course, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
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 $100,000 investment. Each
performance figure includes changes in share price, plus reinvestment of
any dividends (or income) and capital gains (the profits the fund earns
when it sells securities that have grown in value). If Fidelity had not
reimbursed certain expenses during the periods shown, the total returns
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1996 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND
Fidelity U.S. Equity Index 2.85% 18.51% 86.85% 218.58%
S&P 500(registered trademark) 2.96% 18.73% 89.14% 226.26%
S&P 500 Index Objective Funds Average 2.77% 18.18% 84.85% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, five years, or
since the fund started on February 17, 1988. For example, if you had
invested $1,000 in a fund that had a 5% return over the past year, you
would have $1,050. For comparison, you can look at the performance of the
Standard & Poor's 500 Index, a widely recognized, unmanaged index of common
stock prices. To measure how the fund's performance stacked up against its
peers, you can compare it to the S&P 500 index objective funds average,
which reflects the performance of 47 mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. over the past six months. Both
benchmarks reflect reinvestment of dividends and capital gains, if any, but
do not reflect any sales charges, brokerage commissions, or other costs of
investing.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED AUGUST 31, 1996 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Fidelity U.S. Equity Index 18.51% 13.32% 14.52%
S&P 500 18.73% 13.59% 14.84%
S&P 500 Index Objective Funds Average 18.18% 13.07% 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.
$100,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960831 19960909 145547 S00000000000001
US Equity Index SP Standard & Poor 500
00650 SP001
1988/02/17 100000.00 100000.00
1988/02/29 103400.00 103287.20
1988/03/31 100200.00 100095.63
1988/04/30 100900.00 101206.69
1988/05/31 101700.00 102087.19
1988/06/30 106307.66 106772.99
1988/07/31 106106.12 106367.25
1988/08/31 102478.56 102750.77
1988/09/30 106727.95 107127.95
1988/10/31 109774.42 110106.11
1988/11/30 108149.64 108531.59
1988/12/31 110097.82 110430.89
1989/01/31 118116.15 118514.43
1989/02/28 115237.77 115563.42
1989/03/31 117909.83 118256.05
1989/04/30 124121.06 124393.54
1989/05/31 129090.04 129431.48
1989/06/30 128241.53 128693.72
1989/07/31 139909.33 140314.76
1989/08/31 142513.74 143064.93
1989/09/30 141893.01 142478.36
1989/10/31 138644.36 139172.87
1989/11/30 141473.83 142011.99
1989/12/31 144725.54 145420.28
1990/01/31 134955.49 135662.58
1990/02/28 136673.30 137412.63
1990/03/31 140223.80 141054.06
1990/04/30 136761.48 137527.71
1990/05/31 150069.76 150936.66
1990/06/30 148986.99 149910.29
1990/07/31 148442.05 149430.58
1990/08/31 134818.51 135922.05
1990/09/30 128134.08 129302.65
1990/10/31 127584.62 128746.65
1990/11/30 135826.52 137063.68
1990/12/31 139466.56 140887.76
1991/01/31 145578.64 147030.47
1991/02/28 155913.61 157543.14
1991/03/31 159698.26 161355.69
1991/04/30 160033.99 161742.94
1991/05/31 166860.62 168730.24
1991/06/30 159228.10 161002.39
1991/07/31 166552.82 168505.10
1991/08/31 170496.90 172498.67
1991/09/30 167580.91 169617.95
1991/10/31 169850.12 171890.83
1991/11/30 162929.04 164963.63
1991/12/31 181531.43 183835.47
1992/01/31 178058.25 180416.13
1992/02/29 180373.71 182761.54
1992/03/31 176779.44 179197.69
1992/04/30 181906.86 184466.10
1992/05/31 182839.12 185369.98
1992/06/30 180038.56 182607.97
1992/07/31 187427.76 190076.64
1992/08/31 183557.23 186180.06
1992/09/30 185665.45 188376.99
1992/10/31 186137.58 189036.31
1992/11/30 192511.35 195482.45
1992/12/31 194881.43 197886.88
1993/01/31 196428.11 199549.13
1993/02/28 199045.56 202263.00
1993/03/31 203226.03 206530.75
1993/04/30 198196.34 201532.70
1993/05/31 203494.42 206933.78
1993/06/30 203983.98 207533.89
1993/07/31 203136.06 206703.75
1993/08/31 210888.42 214537.82
1993/09/30 209194.01 212885.88
1993/10/31 213458.30 217292.62
1993/11/30 211387.07 215228.34
1993/12/31 213970.37 217832.60
1994/01/31 221156.41 225238.91
1994/02/28 215085.45 219134.94
1994/03/31 205615.39 209580.65
1994/04/30 208239.11 212263.29
1994/05/31 211615.97 215744.41
1994/06/30 206450.46 210458.67
1994/07/31 213244.07 217361.71
1994/08/31 221799.00 226273.54
1994/09/30 216368.29 220729.84
1994/10/31 221176.47 225696.26
1994/11/30 213078.48 217476.40
1994/12/31 216308.29 220701.58
1995/01/31 221808.74 226424.37
1995/02/28 230507.12 235248.13
1995/03/31 237188.64 242190.30
1995/04/30 244138.93 249322.80
1995/05/31 253796.32 259288.24
1995/06/30 259633.20 265311.50
1995/07/31 268175.46 274109.23
1995/08/31 268822.61 274797.25
1995/09/30 280085.88 286393.69
1995/10/31 279045.64 285371.27
1995/11/30 291268.51 297899.06
1995/12/31 296728.36 303636.60
1996/01/31 306851.56 313972.39
1996/02/29 309743.91 316882.91
1996/03/31 312794.92 319934.50
1996/04/30 317149.92 324650.33
1996/05/31 325231.02 333023.06
1996/06/30 326565.57 334291.88
1996/07/31 312054.50 319522.87
1996/08/30 318577.83 326261.60
IMATRL PRASUN SHR__CHT 19960831 19960909 145551 R00000000000106
$100,000 OVER LIFE OF FUND: Let's say hypothetically that $100,000 was
invested in Fidelity U.S. Equity Index Portfolio on February 17, 1988, when
the fund started. As the chart shows, by August 31, 1996, the value of the
investment would have grown to $318,578 - a 218.58% increase on the initial
investment. For comparison, look at how the S&P 500 did over the same
period. With dividends reinvested and capital gains, if any, the same
$100,000 investment in the S&P 500 would have grown to $326,262 - a 226.26%
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
An interview with
Jennifer Farrelly,
Portfolio Manager
of Fidelity U.S.
Equity Index
Portfolio
Q. HOW DID THE FUND PERFORM, JENNIFER?
A. For the six- month period ended August 31, 1996, the fund had a total
return of 2.85%. For the past 12 months, the fund returned 18.51%. That
compares with the 2.96% return of the Standard & Poor's 500 Index for the
past six months and 18.73% for the past year. Of course, the fund's total
return is slightly lower than the index due to expenses. Additionally, the
S&P 500 index objective funds average, as tracked by Lipper Analytical
Services, was up 2.77% for six months and 18.18% for the year.
Q. IN GENERAL, WHAT'S HAPPENED IN THE STOCK MARKET OVER THE PAST SIX
MONTHS?
A. The stock market continued to support extremely high valuations. The
current price-to-earnings ratio of the S&P 500 stands at 19, well ahead of
the historical range of 10 to 12, and has an average dividend yield of
about 2.25%, down from 2.40% a year ago. During the period, market
sentiment was driven by investors' outlook on interest rates, where we are
in the economic cycle and how these two factors relate to the future
earnings growth of the companies that have led the market. In fact, it was
these factors that contributed to the market's sharp sell-off in July.
Q. DID A TIGHT LABOR MARKET CONTRIBUTE TO INVESTORS' CONCERNS ABOUT THE
FUTURE GROWTH OF CORPORATE EARNINGS?
A. Throughout the period, one factor the market traded on was whether
evidence of falling unemployment would trigger rising wage costs, a key
concern since wages make up the bulk of corporate costs. At the end of the
period, the August employment report confirmed this trend as average hourly
earnings rose six cents to $11.87 - the highest since 1990 - and the
unemployment rate fell to 5.1%. The question now is whether companies will
pass on their higher wage costs to consumers in the form of higher product
prices - an inflationary signal that could prompt the Federal Reserve Board
to raise short-term interest rates - or if they will absorb the costs,
which could hurt earnings.
Q. WHAT'S THE STORY BEHIND THE STRONG PERFORMANCE OF OIL PRODUCTION AND OIL
SERVICE STOCKS?
A. Over the past few years, most oil producers have gone to great lengths
to cut costs, streamline operations and rid themselves of inefficient
divisions. As for oil service, most of the larger firms - such as
Schlumberger and Halliburton - have offered the industry the convenience of
one-stop shopping by providing services such as drilling, drilling
equipment and conducting seismic data work. In general, though, stable oil
prices and the market's anticipation of strong demand for crude oil
provided a favorable backdrop for these stocks.
Q. MERGERS AND ACQUISITIONS PLAYED A BIG PART IN THE TELECOMMUNICATIONS
INDUSTRY . . .
A. M&A activity in the industry was due in large part to the regulatory
freedom for the long-distance phone service, local phone service, broadcast
and cable industries created by the passage of the telecommunications law
in February. In just six months, we've seen a variety of regional
combinations, but also involving a variety of businesses. Most recently,
WorldCom's proposed merger with MFS would create a company offering local
and long-distance phone service as well as an Internet access service; MFS
had previously announced its intention to acquire Internet access company
UUNET. Some other important merger announcements during the period included
Westinghouse Electric and Infinity Broadcasting, SBC Communications and
Pacific Telesis, U.S. West and Continental Cablevision, and Bell Atlantic
and NYNEX.
Q. WERE BANKS THE LEADING GROUP WITHIN THE FINANCIAL SECTOR?
A. Aside from securities brokers, banks have led the financial sector so
far this year. In the past five or six years, the banking industry was
undercapitalized, had inadequate loan-loss reserves and was unable to offer
competitive financial products. Today, many banks are either adequately
capitalized or overcapitalized, have sufficient reserves and are offering
better financial services. Many banks were particularly effective with
cost-cutting and consolidation programs - including NationsBank and
BankAmerica - and became more efficient through acquisition - such as Wells
Fargo's acquisition of First Interstate earlier this year. What's become a
concern in the banking industry is the astronomical levels of consumer
debt. Many banks have seen a steady increase in write-offs of credit-card
receivables.
Q. WAS THERE A PARTICULAR MARKET SECTOR THAT'S FALTERED SO FAR THIS YEAR?
A. Utilities have underperformed almost every other major market sector.
The group was hurt by rising interest rates and the fear that new
competitive pressures may hurt companies used to monopoly status.
Q. WHAT DO YOU SEE GOING FORWARD?
A. There's a lot of uncertainty in the market right now. It's not clear
what's in store for monetary policy or where we are in the economic cycle.
Additionally, the outcome of the presidential election will play some role
in where stock prices are in the second half of 1996.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: to provide returns consistent with those
of the Lehman Brothers Aggregate Bond Index
START DATE: March 8, 1990
SIZE: as of August 31, 1996, more than
$508 million
MANAGER: Christine Thompson, since 1990;
manager, Fidelity Intermediate Bond Fund,
since October 1995; co-manager, Fidelity
Global Bond, since March 1996; and Fidelity
Target Timeline Funds, since February 1996;
joined Fidelity in 1985
(checkmark)
CHRISTINE THOMPSON ON CORPORATE BONDS:
"Within the corporate bond sector, I
emphasized bank securities and Yankee
bonds. In the bank sector, I previously had
overweighted longer duration bank paper,
which served the fund well as strengthening
credit fundamentals caused valuations to
improve. But over the past six months, I felt
that the longer-term securities had become
more fairly priced and offered little additional
upside potential. So I replaced the longer
holdings with shorter-term bank securities.
"During the period, I increased the fund's
exposure to Yankee bonds, which are
dollar-denominated bonds issued in the United
States by foreign banks, corporations and
governments. This is the sector of the corporate
market that has experienced the most overall
growth over the last few years. For
comparison's sake, at the end of the period
Yankee bonds made up 3.7% of the Lehman
Brothers Aggregate Bond Index, compared to
2.4% at the end of 1992. Projections call for
Yankee bonds increasingly to make up an even
greater share of the corporate market in the
years to come.
"At the end of the period, the fund's largest
Yankee bond exposures were to Canadian and
Korean issuers. In both cases, I chose
high-quality securities that offered yields as
high as much lower-rated corporate securities
issued by domestic entities."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF AUGUST 31, 1996
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STOCKS
6 MONTHS AGO
General Electric Co. 2.6 2.5
Coca-Cola Co. (The) 2.4 2.0
Exxon Corp. 1.9 2.0
AT&T Corp. 1.6 2.0
Merck & Co., Inc. 1.5 1.6
Royal Dutch Petroleum Co. ADR 1.5 1.5
Philip Morris Companies, Inc. 1.4 1.7
Microsoft Corp. 1.4 1.2
Johnson & Johnson 1.2 1.2
Intel Corp. 1.2 1.0
TOP TEN MARKET SECTORS AS OF AUGUST 31, 1996
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE MARKET SECTORS
6 MONTHS AGO
Finance 13.2 13.1
Technology 11.1 11.1
Nondurables 10.8 11.1
Utilities 10.3 11.8
Health 9.7 10.4
Energy 8.3 8.3
Basic Industries 5.8 6.4
Industrial Machinery & Equipment 5.2 5.2
Retail & Wholesale 4.7 4.3
Durables 4.0 3.4
INVESTMENTS AUGUST 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 92.8%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 1.7%
AEROSPACE & DEFENSE - 1.4%
Boeing Co. 306,106 $ 27,703
Lockheed Martin Corp. 177,566 14,938
McDonnell Douglas Corp. 199,910 10,020
Northrop Grumman Corp. 50,369 3,614
Rockwell International Corp. 193,848 10,080
66,355
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 216,252 11,137
SHIP BUILDING & REPAIR - 0.1%
General Dynamics Corp. 56,079 3,596
TOTAL AEROSPACE & DEFENSE 81,088
BASIC INDUSTRIES - 5.8%
CHEMICALS & PLASTICS - 3.0%
Air Products & Chemicals, Inc. 99,743 5,461
Avery Dennison Corp. 47,501 2,428
Dow Chemical Co. 233,580 18,628
du Pont (E.I.) de Nemours & Co. 495,390 40,684
Eastman Chemical Co. 71,571 3,999
Engelhard Corp. 128,549 2,619
FMC Corp. (a) 32,670 2,091
Goodrich (B.F.) Co. 47,090 1,766
Grace (W.R.) & Co. 86,880 5,702
Great Lakes Chemical Corp. 57,804 3,324
Hercules, Inc. 98,137 4,882
Monsanto Co. 518,610 16,660
Morton International, Inc. 131,070 4,866
Nalco Chemical Co. 60,057 1,929
PPG Industries, Inc. 172,007 8,493
Praxair, Inc. 134,481 5,531
Raychem Corp. 39,668 2,722
Rohm & Haas Co. 59,931 3,746
Union Carbide Corp. 122,329 5,291
140,822
IRON & STEEL - 0.3%
Allegheny Teledyne, Inc. 156,269 3,164
Armco, Inc. (a) 94,705 414
Bethlehem Steel Corp. (a) 100,509 1,030
Inland Steel Industries, Inc. 43,587 752
Nucor Corp. 77,927 3,643
USX-U.S. Steel Group 73,871 2,031
Worthington Industries, Inc. 80,903 1,638
12,672
SHARES VALUE (NOTE 1)
(000S)
METALS & MINING - 0.8%
Alcan Aluminium Ltd. 201,274 $ 6,355
Aluminum Co. of America 157,966 9,814
ASARCO, Inc. 37,843 979
Cyprus Amax Minerals Co. 82,811 1,760
Freeport-McMoRan Copper & Gold, Inc.
Class B 180,086 5,290
Inco Ltd. 150,217 4,842
Phelps Dodge Corp. 61,910 3,746
Reynolds Metals Co. 56,639 3,030
35,816
PACKAGING & CONTAINERS - 0.3%
Ball Corp. 27,035 639
Bemis Co., Inc. 47,220 1,411
Corning, Inc. 204,376 7,613
Crown Cork & Seal Co., Inc. 111,390 5,207
Tupperware Corp. 54,657 2,391
17,261
PAPER & FOREST PRODUCTS - 1.4%
Boise Cascade Corp. 42,877 1,447
Champion International Corp. 86,153 3,705
Georgia-Pacific Corp. 81,977 6,097
International Paper Co. 263,827 10,553
James River Corp. of Virginia 75,719 1,969
Kimberly-Clark Corp. 249,020 19,517
Louisiana-Pacific Corp. 96,312 2,095
Mead Corp. 47,918 2,743
Potlatch Corp. 26,027 979
Stone Container Corp. 88,380 1,226
Temple-Inland, Inc. 50,103 2,474
Union Camp Corp. 62,689 3,040
Westvaco Corp. 89,647 2,566
Weyerhaeuser Co. 179,979 8,032
Willamette Industries, Inc. 49,202 3,038
69,481
TOTAL BASIC INDUSTRIES 276,052
CONGLOMERATES - 1.0%
AlliedSignal, Inc. 252,258 15,577
Crane Co. 26,970 1,079
Harris Corp. 34,754 2,137
ITT Industries, Inc. 106,189 2,429
Textron, Inc. 75,733 6,466
Tyco International Ltd. 136,086 5,750
United Technologies Corp. 108,903 12,279
Whitman Corp. 93,702 2,097
47,814
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE - 0.4%
BUILDING MATERIALS - 0.2%
Armstrong World Industries, Inc. 32,758 $ 2,027
Masco Corp. 143,329 4,174
Owens-Corning 45,756 1,664
Sherwin-Williams Co. 75,722 3,313
11,178
CONSTRUCTION - 0.0%
Centex Corp. 25,338 814
Kaufman & Broad Home Corp. 34,554 423
Pulte Corp. 24,128 600
1,837
ENGINEERING - 0.2%
EG & G, Inc. 42,842 803
Fluor Corp. 74,498 4,768
Foster Wheeler Corp. 35,639 1,537
7,108
TOTAL CONSTRUCTION & REAL ESTATE 20,123
DURABLES - 4.0%
AUTOS, TIRES, & ACCESSORIES - 2.6%
Chrysler Corp. 674,840 19,655
Cooper Tire & Rubber Co. 74,543 1,454
Cummins Engine Co., Inc. 35,710 1,344
Dana Corp. 90,518 2,716
Eaton Corp. 69,122 3,828
Echlin, Inc. 54,511 1,663
Ford Motor Co. 1,042,541 34,925
General Motors Corp. 668,461 33,256
Genuine Parts Co. 109,656 4,702
Goodyear Tire & Rubber Co. 135,891 6,200
Johnson Controls, Inc. 36,770 2,592
NACCO Industries, Inc. Class A 7,904 383
Navistar International Corp. (a) 65,873 642
PACCAR, Inc. 34,749 1,572
Pep Boys-Manny, Moe & Jack 55,248 1,851
Snap-on Tools Corp. 36,011 1,643
TRW, Inc. 58,576 5,418
123,844
CONSUMER DURABLES - 0.5%
Minnesota Mining & Manufacturing Co. 374,377 25,738
CONSUMER ELECTRONICS - 0.3%
Black & Decker Corp. 76,780 3,033
Maytag Co. 96,229 1,937
Newell Co. 141,330 4,399
Whirlpool Corp. 65,933 3,231
12,600
SHARES VALUE (NOTE 1)
(000S)
TEXTILES & APPAREL - 0.6%
Fruit of the Loom, Inc. Class A (a) 64,360 $ 1,786
Liz Claiborne, Inc. 65,982 2,293
NIKE, Inc. Class B 127,824 13,805
Reebok International Ltd. 67,470 2,429
Russell Corp. 34,642 1,109
Springs Industries, Inc. Class A 17,959 810
Stride Rite Corp. 43,948 374
VF Corp. 56,931 3,345
25,951
TOTAL DURABLES 188,133
ENERGY - 8.3%
ENERGY SERVICES - 2.3%
Baker Hughes, Inc. 127,223 3,848
Dresser Industries, Inc. 162,060 4,700
Halliburton Co. 102,022 5,369
Helmerich & Payne, Inc. 22,024 870
McDermott International, Inc. 48,527 1,007
Rowan Companies, Inc. (a) 75,553 1,162
Royal Dutch Petroleum Co. ADR 478,212 71,433
Schlumberger Ltd. 215,815 18,209
Western Atlas, Inc. (a) 45,115 2,741
109,339
OIL & GAS - 6.0%
Amerada Hess Corp. 83,031 4,224
Amoco Corp. 442,999 30,567
Ashland, Inc. 56,818 2,109
Atlantic Richfield Co. 143,521 16,756
Burlington Resources, Inc. 112,892 4,812
Chevron Corp. 581,794 34,253
Coastal Corp. (The) 93,586 3,708
Exxon Corp. 1,107,523 90,125
Kerr-McGee Corp. 45,967 2,637
Louisiana Land & Exploration Co. 29,861 1,698
Mobil Corp. 351,778 39,663
Occidental Petroleum Corp. 284,078 6,605
Oryx Energy Co. (a) 93,209 1,631
Pennzoil Co. 41,403 2,210
Phillips Petroleum Co. 233,811 9,469
Santa Fe Energy Resources, Inc. (a) 80,632 947
Sun Co., Inc. 66,873 1,580
Texaco, Inc. 235,491 20,900
USX-Marathon Group 256,405 5,352
Unocal Corp. 221,747 7,595
286,841
TOTAL ENERGY 396,180
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - 13.2%
BANKS - 6.8%
Banc One Corp. 404,953 $ 15,540
Bank of Boston Corp. 140,004 7,385
Bank of New York Co., Inc. 339,566 9,465
BankAmerica Corp. 329,928 25,569
Bankers Trust New York Corp. 70,096 5,450
Barnett Banks, Inc. 84,535 5,548
Boatmen's Bancshares, Inc. 140,212 7,466
Chase Manhattan Corp. 389,073 28,937
Citicorp 433,733 36,108
Comerica, Inc. 106,200 5,177
CoreStates Financial Corp. 198,155 8,199
Fifth Third Bancorp 89,600 4,749
First Bank System, Inc. 130,300 8,372
First Union Corp. 256,193 16,364
Fleet Financial Group, Inc. 237,070 9,898
KeyCorp. 211,231 8,476
Mellon Bank Corp. 118,827 6,580
Morgan (J.P.) & Co., Inc. 167,179 14,649
National City Corp. 197,709 7,439
NationsBank Corp. 264,000 22,473
Norwest Corp. 314,977 11,851
PNC Financial Corp. 304,278 9,509
Republic New York Corp. 50,225 3,321
SunTrust Banks, Inc. 201,950 7,750
U.S. Bancorp 143,781 5,500
Wachovia Corp. 151,986 6,953
Wells Fargo & Co. 87,031 21,649
320,377
CREDIT & OTHER FINANCE - 1.3%
American Express Co. 411,403 17,999
Beneficial Corp. 47,350 2,669
Dean Witter, Discover & Co. 151,961 7,598
First Chicago NBD Corp. 286,180 12,198
Green Tree Financial Corp. 122,400 4,253
Household International, Inc. 87,440 6,930
MBNA Corp. 198,620 6,033
Transamerica Corp. 60,917 4,150
61,830
FEDERAL SPONSORED CREDIT - 0.9%
Federal Home Loan
Mortgage Corporation 161,128 14,240
Federal National
Mortgage Association 973,340 30,174
44,414
SHARES VALUE (NOTE 1)
(000S)
INSURANCE - 3.6%
Aetna, Inc. 102,513 $ 6,779
Alexander & Alexander Services, Inc. 39,723 626
Allstate Corp. 399,160 17,813
American General Corp. 182,588 6,664
American International Group, Inc. 422,778 40,164
Aon Corp. 96,300 4,863
CIGNA Corp. 67,664 7,857
Chubb Corp. (The) 155,652 6,907
General Re Corp. 73,254 10,613
ITT Hartford Group, Inc. 106,089 5,596
Jefferson Pilot Corp. 63,419 3,258
Lincoln National Corp. 92,639 4,099
Loews Corp. 105,160 7,861
MGIC Investment Corp. 51,700 3,276
Marsh & McLennan Companies, Inc. 65,173 6,061
Providian Corp. 85,007 3,517
SAFECO Corp. 112,306 3,720
St. Paul Companies, Inc. (The) 75,452 3,905
Torchmark Corp. 64,006 2,720
Travelers, Inc. (The) 423,295 18,360
UNUM Corp. 64,976 4,126
USF&G Corp. 100,121 1,614
USLIFE Corp. 30,627 896
171,295
SAVINGS & LOANS - 0.2%
Ahmanson (H.F.) & Co. 104,737 2,645
Golden West Financial Corp. 52,214 2,898
Great Western Financial Corp. 121,831 3,015
8,558
SECURITIES INDUSTRY - 0.4%
Merrill Lynch & Co., Inc. 156,810 9,605
Morgan Stanley Group, Inc. 138,600 6,618
Salomon, Inc. 94,793 4,266
20,489
TOTAL FINANCE 626,963
HEALTH - 9.7%
DRUGS & PHARMACEUTICALS - 6.0%
Allergan, Inc. 57,403 2,232
ALZA Corp. Class A (a) 73,506 2,012
American Home Products Corp. 557,730 33,046
Amgen, Inc. (a) 237,174 13,815
Bristol-Myers Squibb Co. 449,958 39,484
Lilly (Eli) & Co. 491,832 28,157
Merck & Co., Inc. 1,098,123 72,064
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
DRUGS & PHARMACEUTICALS - CONTINUED
Pharmacia & Upjohn, Inc. 449,335 $ 18,872
Pfizer, Inc. 567,316 40,279
Schering-Plough Corp. 324,966 18,157
Sigma Aldrich Corp. 44,532 2,349
Warner-Lambert Co. 241,430 14,365
284,832
MEDICAL EQUIPMENT & SUPPLIES - 2.9%
Abbott Laboratories 705,052 31,815
Bard (C.R.), Inc. 50,701 1,572
Bausch & Lomb, Inc. 50,922 1,687
Baxter International, Inc. 242,146 10,806
Becton, Dickinson & Co. 114,010 4,660
Biomet, Inc. (a) 103,032 1,610
Boston Scientific Corp. (a) 154,949 7,108
Johnson & Johnson 1,188,592 58,538
Mallinckrodt Group, Inc. 66,222 2,682
Medtronic, Inc. 207,124 10,770
Millipore Corp. 39,657 1,517
Pall Corp. 102,299 2,404
St. Jude Medical, Inc. (a) 71,272 2,557
U.S. Surgical Corp. 54,919 2,005
139,731
MEDICAL FACILITIES MANAGEMENT - 0.8%
Beverly Enterprises, Inc. (a) 87,739 899
Columbia/HCA Healthcare Corp. 396,948 22,378
Community Psychiatric Centers (a) 38,593 309
Humana, Inc. (a) 144,300 2,706
Manor Care, Inc. 55,839 1,919
Tenet Healthcare Corp. (a) 186,568 3,918
United HealthCare Corp. 155,894 6,021
38,150
TOTAL HEALTH 462,713
HOLDING COMPANIES - 0.3%
CINergy Corp. 140,127 4,204
Norfolk Southern Corp. 115,681 9,645
13,849
INDUSTRIAL MACHINERY & EQUIPMENT - 5.2%
ELECTRICAL EQUIPMENT - 3.4%
Emerson Electric Co. 199,745 16,729
General Electric Co. 1,489,669 123,829
General Instrument Corp. (a) 109,600 3,000
General Signal Corp. 42,396 1,701
Grainger (W.W.), Inc. 45,305 3,058
Honeywell, Inc. 113,170 6,578
Scientific-Atlanta, Inc. 68,078 919
Westinghouse Electric Corp. 370,455 6,066
161,880
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - 1.3%
Briggs & Stratton Corp. 25,705 $ 1,118
Case Corp. 63,800 2,903
Caterpillar, Inc. 176,242 12,139
Cincinnati Milacron, Inc. 35,533 702
Cooper Industries, Inc. 96,122 3,893
Deere & Co. 234,037 9,303
Dover Corp. 101,204 4,440
Giddings & Lewis, Inc. 30,612 398
Harnischfeger Industries, Inc. 41,702 1,574
Illinois Tool Works, Inc. 104,799 7,244
Ingersoll-Rand Co. 97,212 4,156
Parker-Hannifin Corp. 66,078 2,577
Stanley Works 78,986 2,172
Tenneco, Inc. 155,087 7,716
Timken Co. 28,020 1,065
TRINOVA Corp. 25,954 814
Varity Corp. (a) 35,759 1,797
64,011
POLLUTION CONTROL - 0.5%
Browning-Ferris Industries, Inc. 189,622 4,835
Laidlaw, Inc. Class B 262,266 2,530
Safety Kleen Corp. 51,555 889
WMX Technologies, Inc. 434,052 13,727
21,981
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 247,872
MEDIA & LEISURE - 3.9%
BROADCASTING - 0.7%
Comcast Corp. Class A special 213,919 3,449
TCI Group Class A 582,325 8,662
Time Warner, Inc. 346,289 11,557
Viacom, Inc. Class B (non-vtg.) (a) 328,579 10,350
34,018
ENTERTAINMENT - 0.8%
Disney (Walt) Co. 604,097 34,434
King World Productions, Inc. (a) 32,888 1,159
35,593
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 85,478 1,806
Fleetwood Enterprises, Inc. 41,168 1,142
Hasbro, Inc. 78,142 2,872
Mattel, Inc. 246,316 6,497
Outboard Marine Corp. 17,959 301
12,618
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - 0.5%
Bally Entertainment Corp. 42,187 $ 1,150
HFS, Inc. 108,000 6,467
Harrah's Entertainment, Inc. (a) 91,610 1,741
Hilton Hotels Corp. 43,158 4,613
ITT Corp. (a) 100,989 5,378
Marriott International, Inc. 111,565 6,122
25,471
PUBLISHING - 0.9%
American Greetings Corp. Class A 66,621 1,715
Dow Jones & Co., Inc. 86,657 3,390
Dun & Bradstreet Corp. 151,101 8,707
Gannett Co., Inc. 125,111 8,382
Harcourt General, Inc. 64,930 3,109
Knight-Ridder, Inc. 86,666 2,925
McGraw-Hill, Inc. 89,330 3,663
Meredith Corp. 24,664 1,061
New York Times Co. (The) Class A 86,100 2,691
Times Mirror Co. Class A 96,820 4,200
Tribune Co. 56,692 4,075
43,918
RESTAURANTS - 0.7%
Darden Restaurants, Inc. 141,334 1,131
Luby's Cafeterias, Inc. 20,715 489
McDonald's Corp. 621,112 28,805
Ryan's Family Steak Houses, Inc. (a) 47,642 399
Shoney's, Inc. (a) 37,039 338
Wendy's International, Inc. 113,207 2,292
33,454
TOTAL MEDIA & LEISURE 185,072
NONDURABLES - 10.8%
AGRICULTURE - 0.1%
Pioneer Hi-Bred International, Inc. 74,561 4,110
BEVERAGES - 3.9%
Anheuser-Busch Companies, Inc. 226,774 17,178
Brown-Forman Corp. Class B 61,622 2,234
Coca-Cola Co. (The) 2,237,600 111,880
Coors (Adolph) Co. Class B 33,881 678
PepsiCo, Inc. 1,405,432 40,406
Seagram Co. Ltd. 333,428 11,015
183,391
FOODS - 2.4%
Archer-Daniels-Midland Co. 487,617 8,655
CPC International, Inc. 129,915 8,948
Campbell Soup Co. 222,138 14,467
SHARES VALUE (NOTE 1)
(000S)
FOODS - CONTINUED
ConAgra, Inc. 220,009 $ 9,268
General Mills, Inc. 141,834 7,801
Heinz (H.J.) Co. 329,608 10,383
Hershey Foods Corp. 68,973 6,009
Kellogg Co. 193,843 13,084
Quaker Oats Co. 119,720 3,936
Ralston Purina Group 94,574 5,911
Sara Lee Corp. 431,673 13,598
Sysco Corp. 163,498 5,252
Wrigley (Wm.) Jr. Company 103,654 5,610
112,922
HOUSEHOLD PRODUCTS - 2.7%
Alberto Culver Co. Class B 24,678 1,021
Avon Products, Inc. 120,972 5,792
Clorox Co. 46,349 4,339
Colgate-Palmolive Co. 129,760 10,543
Gillette Co. 395,882 25,237
International Flavors & Fragrances, Inc. 99,067 4,260
Procter & Gamble Co. 612,151 54,405
Rubbermaid, Inc. 140,419 3,721
Unilever NV ADR 142,647 20,470
129,788
TOBACCO - 1.7%
American Brands, Inc. 161,781 6,572
Philip Morris Companies, Inc. 744,601 66,828
UST, Inc. 172,467 5,174
78,574
TOTAL NONDURABLES 508,785
PRECIOUS METALS - 0.5%
Barrick Gold Corp. 315,228 8,513
Battle Mountain Gold Co. 200,000 1,700
Echo Bay Mines Ltd. 112,688 1,120
Homestake Mining Co. 130,564 2,154
Newmont Mining Corp. 88,514 4,680
Placer Dome, Inc. 213,146 5,141
Santa Fe Pacific Gold Corp. 117,146 1,523
24,831
RETAIL & WHOLESALE - 4.7%
APPAREL STORES - 0.4%
Charming Shoppes, Inc. (a) 91,909 615
Gap, Inc. 256,524 8,978
Limited, Inc. (The) 243,679 4,508
Melville Corp. 93,681 3,958
TJX Companies, Inc. 64,683 2,070
20,129
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
RETAIL & WHOLESALE - CONTINUED
DRUG STORES - 0.2%
Long Drug Stores, Inc. 17,726 $ 709
Rite Aid Corp. 74,792 2,384
Walgreen Co. 219,448 7,242
10,335
GENERAL MERCHANDISE STORES - 2.6%
Dayton Hudson Corp. 192,165 6,630
Dillard Department Stores, Inc. Class A 100,894 3,430
Federated Department Stores, Inc. (a) 180,600 6,253
K mart Corp. 409,794 4,098
May Department Stores Co. (The) 222,146 10,108
Mercantile Stores Co., Inc. 32,808 1,731
Nordstrom, Inc. 72,490 2,827
Penney (J.C.) Co., Inc. 199,556 10,552
Price/Costco, Inc. (a) 174,253 3,463
Sears, Roebuck & Co. 347,788 15,303
Wal-Mart Stores, Inc. 2,046,601 54,235
Woolworth Corp. (a) 118,565 2,520
121,150
GROCERY STORES - 0.6%
Albertson's, Inc. 225,613 9,560
American Stores Co. 130,615 5,372
Fleming Companies, Inc. 33,549 537
Giant Food, Inc. Class A 53,053 1,784
Great Atlantic & Pacific Tea Co., Inc. 34,030 910
Kroger Co. (The) (a) 110,333 4,675
Supervalu, Inc. 60,411 1,699
Winn-Dixie Stores, Inc. 136,252 4,684
29,221
RETAIL & WHOLESALE, MISCELLANEOUS - 0.9%
Circuit City Stores, Inc. 86,900 2,737
Home Depot, Inc. (The) 425,342 22,596
Lowe's Companies, Inc. 143,368 5,179
Tandy Corp. 56,744 2,504
Toys "R" Us, Inc. 243,628 7,187
40,203
TOTAL RETAIL & WHOLESALE 221,038
SERVICES - 0.7%
ADVERTISING - 0.1%
Interpublic Group of Companies, Inc. 69,708 3,154
LEASING & RENTAL - 0.0%
Ryder Systems, Inc. 70,550 2,002
PRINTING - 0.3%
Alco Standard Corp. 113,922 4,970
Deluxe Corp. 73,615 2,816
SHARES VALUE (NOTE 1)
(000S)
PRINTING - CONTINUED
Donnelley (R.R.) & Sons Co. 136,954 $ 4,468
Harland (John H.) Co. 27,228 684
Moore Corporation Ltd. 88,962 1,570
14,508
SERVICES - 0.3%
Block (H&R), Inc. 92,581 2,315
Ecolab, Inc. 57,727 1,753
Jostens, Inc. 34,497 643
National Service Industries, Inc. 43,213 1,642
Service Corp. International 209,052 5,893
12,246
TOTAL SERVICES 31,910
TECHNOLOGY - 11.1%
COMMUNICATIONS EQUIPMENT - 1.3%
Andrew Corp. (a) 52,178 2,322
Cabletron Systems, Inc. (a) 64,431 3,930
Cisco Systems, Inc. (a) 557,882 29,428
DSC Communications Corp. (a) 102,807 3,059
Northern Telecom Ltd. 226,391 11,334
Tellabs, Inc. (a) 78,901 5,000
3Com Corp. (a) 146,600 6,854
61,927
COMPUTER SERVICES & SOFTWARE - 3.1%
Autodesk, Inc. 41,255 949
Automatic Data Processing, Inc. 258,994 10,781
CUC International, Inc. (a) 212,827 7,316
Ceridian Corp. (a) 59,032 2,516
Computer Associates International, Inc. 323,541 16,986
Computer Sciences Corp. (a) 49,949 3,496
First Data Corp. 198,929 15,516
Microsoft Corp. (a) 529,887 64,911
Novell, Inc. (a) 328,173 3,425
Oracle Systems Corp. (a) 582,277 20,525
Shared Medical Systems Corp. 20,652 1,128
147,549
COMPUTERS & OFFICE EQUIPMENT - 3.6%
Amdahl Corp. (a) 106,323 1,057
Apple Computer, Inc. 110,353 2,676
Bay Networks, Inc. (a) 164,400 4,521
Compaq Computer Corp. (a) 237,022 13,421
Data General Corp. (a) 34,143 384
Digital Equipment Corp. (a) 136,502 5,272
EMC Corp. (a) 202,300 3,894
Hewlett-Packard Co. 909,766 39,802
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - CONTINUED
Intergraph Corp. (a) 41,351 $ 377
International Business Machines Corp. 507,162 58,007
Pitney Bowes, Inc. 135,277 6,527
Seagate Technology 93,600 4,493
Silicon Graphics, Inc. (a) 144,970 3,371
Sun Microsystems, Inc. (a) 163,430 8,887
Tandem Computers, Inc. (a) 104,690 1,099
Unisys Corp. (a) 152,853 898
Xerox Corp. 288,644 15,839
170,525
ELECTRONIC INSTRUMENTS - 0.2%
Applied Materials, Inc. (a) 159,826 3,876
Perkin-Elmer Corp. 38,458 1,995
Tektronix, Inc. 29,995 1,162
7,033
ELECTRONICS - 2.4%
Advanced Micro Devices, Inc. (a) 116,802 1,489
AMP, Inc. 193,987 7,420
Intel Corp. 732,349 58,451
LSI Logic Corp. (a) 115,000 2,516
Micron Technology, Inc. 184,725 4,202
Motorola, Inc. 527,006 28,129
National Semiconductor Corp. (a) 121,020 2,224
Texas Instruments, Inc. 168,472 7,876
Thomas & Betts Corp. 35,758 1,314
113,621
PHOTOGRAPHIC EQUIPMENT - 0.5%
Eastman Kodak Co. 305,062 22,117
Imation Corp. (a) 37,437 884
Polaroid Corp. 40,439 1,714
24,715
TOTAL TECHNOLOGY 525,370
TRANSPORTATION - 1.2%
AIR TRANSPORTATION - 0.3%
AMR Corp. 80,604 6,610
Delta Air Lines, Inc. 45,730 3,241
Southwest Airlines Co. 128,281 2,934
USAir Group, Inc. (a) 55,626 994
13,779
RAILROADS - 0.8%
Burlington Northern Santa Fe Corp. 133,342 10,667
CSX Corp. 187,790 9,507
Conrail, Inc. 69,926 4,764
Union Pacific Corp. 183,422 13,367
38,305
SHARES VALUE (NOTE 1)
(000S)
TRUCKING & FREIGHT - 0.1%
Caliber System, Inc. 34,932 $ 607
Consolidated Freightways, Inc. 38,752 891
Federal Express Corp. (a) 50,622 3,790
Yellow Corp. (a) 25,001 334
5,622
TOTAL TRANSPORTATION 57,706
UTILITIES - 10.3%
CELLULAR - 0.3%
AirTouch Communications, Inc. (a) 441,772 12,149
ELECTRIC UTILITY - 2.8%
American Electric Power Co., Inc. 166,246 6,899
Baltimore Gas & Electric Co. 131,499 3,419
Carolina Power & Light Co. 137,189 4,784
Central & South West Corp. 184,234 4,859
Consolidated Edison Co. of New York, Inc. 209,469 5,472
DTE Energy Co. 129,356 3,687
Dominion Resources, Inc. 156,731 5,858
Duke Power Co. 182,648 8,539
Edison International 397,082 6,899
Entergy Corp. 203,090 5,153
FPL Group, Inc. 164,977 7,300
GPU, Inc. 107,043 3,372
Houston Industries, Inc. 234,374 5,098
Niagara Mohawk Power Corp. 128,654 1,061
Northern States Power Co. 60,663 2,768
Ohio Edison Co. 136,173 2,860
PECO Energy Co. 198,058 4,654
P P & L Resources, Inc. 141,800 3,191
Pacific Gas & Electric Co. 373,638 8,454
PacifiCorp. 261,201 5,257
Public Service Enterprise Group, Inc. 218,196 5,919
Southern Co. 594,242 13,445
Texas Utilities Co. 201,344 8,255
Unicom Corp. 191,600 4,407
Union Electric Co. 91,148 3,407
135,017
GAS - 0.8%
Columbia Gas System, Inc. (The) 48,255 2,714
Consolidated Natural Gas Co. 83,218 4,525
Eastern Enterprises Co. 18,060 661
Enron Corp. 224,505 9,008
ENSERCH Corp. 61,025 1,228
NICOR, Inc. 44,953 1,410
Noram Energy Corp. 111,148 1,626
ONEOK, Inc. 24,055 659
Pacific Enterprises 75,476 2,255
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
GAS - CONTINUED
PanEnergy Corp. 133,809 $ 4,432
Peoples Energy Corp. 31,109 1,058
Sonat, Inc. 76,820 3,390
Williams Companies, Inc. 90,640 4,521
37,487
TELEPHONE SERVICES - 6.4%
AT&T Corp. 1,425,966 74,863
ALLTEL Corp. 168,788 4,768
Ameritech Corp. 494,099 25,508
Bell Atlantic Corp. 390,107 21,944
BellSouth Corp. 886,542 32,137
GTE Corp. 863,865 34,015
MCI Communications Corp. 607,724 15,269
NYNEX Corp. 383,589 16,542
Pacific Telesis Group 382,050 12,369
SBC Communications, Inc. 544,026 25,365
Sprint Corp. 387,876 15,757
U.S. West, Inc. (a) 419,979 12,389
U.S. West, Inc. (Media Group) (a) 420,379 7,619
WorldCom, Inc. (a) 344,400 7,232
305,777
TOTAL UTILITIES 490,430
TOTAL COMMON STOCKS
(Cost $3,257,236) 4,405,929
U.S. TREASURY OBLIGATIONS (B) - 0.3%
PRINCIPAL
AMOUNT
(000S)
U.S. Treasury Bills, yield at date
of purchase 5.17% to 5.37%,
10/31/96 (Cost $12,808) $ 12,920 12,814
REPURCHASE AGREEMENTS - 6.9%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.25%, dated
8/30/96 due 9/3/96 $ 328,748 328,556
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $3,598,600) $ 4,747,299
FUTURES CONTRACTS
DOLLAR AMOUNTS IN EXPIRATION UNDERLYING FACE UNREALIZED
THOUSANDS DATE AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
659 S&P 500 Stock
Index Contracts Sept. 96 $ 214,620 $ (3,886)
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT
IN SECURITIES - 4.5%
LEGEND
1. Non-income producing
2. Security was pledged to cover margin requirements for futures contracts.
At the period end, the value of securities pledged amounted to $12,814,000.
INCOME TAX INFORMATION
At August 31, 1996, the aggregate cost of investment securities for income
tax purposes was $3,602,711,000. Net unrealized appreciation aggregated
$1,144,588,000, of which $1,250,799,000 related to appreciated investment
securities and $106,211,000 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
(EXCEPT PER-SHARE AMOUNT) AUGUST 31, 1996 (UNAUDITED)
ASSETS 3. 4.
5.Investment in securities, at value (including repurchase agreements of $328,556) 6. $ 4,747,299
(cost $3,598,600) - See accompanying schedule
7.Receivable for fund shares sold 8. 11,416
9.Dividends receivable 10. 10,702
11.Other receivables 12. 37
13. 14.TOTAL ASSETS 15. 4,769,454
LIABILITIES 16. 17.
18.Payable for fund shares redeemed $ 70,648 19.
20.Accrued management fee 125 21.
22.Payable for daily variation on futures contracts 2,444 23.
24.Other payables and accrued expenses 2,254 25.
26.Collateral on securities loaned, at value 71,145 27.
28. 29.TOTAL LIABILITIES 30. 146,616
31.NET ASSETS 32. $ 4,622,838
33.Net Assets consist of: 34. 35.
36.Paid in capital 37. $ 3,446,958
38.Undistributed net investment income 39. 20,992
40.Accumulated undistributed net realized gain (loss) on investments and foreign currency 41. 10,075
transactions
42.Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign 43. 1,144,813
currencies
44.NET ASSETS, for 193,202 shares outstanding 45. $ 4,622,838
46.NET ASSET VALUE, offering price and redemption price per share ($4,622,838 (divided by) 193,202 shares) 47. $23.93
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
INVESTMENT INCOME 49. $ 48,035
48.Dividends
50.Interest (including income on securities loaned of $55) 51. 4,505
52. 53.TOTAL INCOME 54. 52,540
EXPENSES 55. 56.
57.Management fee $ 6,223 58.
59.Transfer agent fees 5,361 60.
61.Accounting and security lending fees 407 62.
63.Non-interested trustees' compensation 8 64.
65.Custodian fees and expenses 45 66.
67.Registration fees 211 68.
69.Audit 31 70.
71.Legal 17 72.
73.Interest 1 74.
75.Miscellaneous 16 76.
77. Total expenses before reductions 12,320 78.
79. Expense reductions (6,474) 5,846
80.81.NET INVESTMENT INCOME 82. 46,694
REALIZED AND UNREALIZED GAIN (LOSS) 84. 85.
83.Net realized gain (loss) on:
86. Investment securities 14,254 87.
88. Futures contracts (476) 13,778
89.Change in net unrealized appreciation (depreciation) on: 90. 91.
92. Investment securities 56,070 93.
94. Futures contracts (2,036) 54,034
95.96.NET GAIN (LOSS) 97. 67,812
98.99.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 100. $ 114,506
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 29,
AUGUST 31,1996 1996
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
101.Operations $ 46,694 $ 72,193
Net investment income
102. Net realized gain (loss) 13,778 38,947
103. Change in net unrealized appreciation (depreciation) 54,034 775,317
104. 114,506 886,457
105.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
106.Distributions to shareholders (40,083) (65,604)
From net investment income
107. From net realized gain (14,385) (16,889)
108. 109.TOTAL DISTRIBUTIONS (54,468) (82,493)
110.Share transactions 1,162,814 1,958,707
Net proceeds from sales of shares
111. Reinvestment of distributions 52,781 79,457
112. Cost of shares redeemed (765,960) (963,855)
113.114. 449,635 1,074,309
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
115. 509,673 1,878,273
116.TOTAL INCREASE (DECREASE) IN NET ASSETS
NET ASSETS 117. 118.
119. Beginning of period 4,113,165 2,234,892
120. $ 4,622,838 $ 4,113,165
End of period (including undistributed net investment income of $20,992 and $14,381,
respectively)
OTHER INFORMATION 122. 123.
121.Shares
124. Sold 48,412 92,972
125. Issued in reinvestment of distributions 2,210 3,799
126. Redeemed (32,016) (46,224)
127. Net increase (decrease) 18,606 50,547
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
128. SIX MONTHS YEAR ENDED YEARS ENDED FEBRUARY 28, FOUR MONTHS YEARS ENDED OCTOBER 31,
ENDED AUGUST 31, FEBRUARY 29, ENDED
1996 FEBRUARY 28,
129. (UNAUDITED) 1996 1995 1994 D 1993 1992 1991
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
130.SELECTED PER-SHARE DATA
131.Net asset value, beginning of $ 23.56 $ 18.02 $ 17.36 $ 16.73 $ 15.77 $ 14.97 $ 11.61
period
132.Income from Investment
Operations
133. Net investment income .25 .48 .43 .44 .15 .42 .42
134. Net realized and unrealized .42 5.63 .77 .88 .94 .97 3.38
gain (loss)
135. Total from investment .67 6.11 1.20 1.32 1.09 1.39 3.80
operations
136.
137.Less Distributions
138. From net investment income (.22) (.46) (.43) (.44) (.13) (.43) (.44)
139. From net realized gain (.08) (.11) (.07) (.25) - (.16) -
140. In excess of net realized gain - - (.04) - - - -
141. Total distributions (.30) (.57) (.54) (.69) (.13) (.59) (.44)
142.Net asset value, end of period $ 23.93 $ 23.56 $ 18.02 $ 17.36 $ 16.73 $ 15.77 $ 14.97
143.TOTAL RETURN B, C 2.85% 34.37% 7.17% 8.06% 6.93% 9.59% 33.13%
144.RATIOS AND SUPPLEMENTAL
DATA
145.Net assets, end of $ 4,623 $ 4,113 $ 2,235 $ 1,892 $ 1,472 $ 1,455 $ 960
period (in millions)
146.Ratio of expenses to average .28% A, .28% .28% E .28% E .28% A, .28% .28%
net assets E E E E E
147.Ratio of expenses to average .26% A, .25% .28% .28% .28% A .28% .28%
net F F
assets after expense reductions
148.Ratio of net investment income 2.08% A 2.34% 2.65% 2.59% 2.95% A 2.78% 3.14%
to
average net assets
149.Portfolio turnover rate 2% A 1% 11% 4% 28% A 6% 4%
150.Average commission rate G $ .0279
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL
STATEMENTS).
D EFFECTIVE MARCH 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE
BEEN HIGHER (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS).
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF
NOTES TO FINANCIAL STATEMENTS).
G FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS
WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended August 31, 1996 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity U.S. Equity Index Portfolio (the fund) is a fund of Fidelity
Institutional Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company Act
of 1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. The financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities 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 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 of their purchase date are valued at
amortized cost or original cost plus accrued interest, both of which
approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign 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. Investment income is recorded net of
foreign taxes withheld where recovery of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for futures
and options transactions and losses deferred due to wash sales. The fund
also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income
tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments and
foreign currency transactions may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable income
or gain remaining at fiscal year end is distributed in the following year.
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase for U.S. Treasury or Federal
Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at
a value at least equal to the principal amount of the repurchase agreement
(including accrued interest). FMR, the fund's investment adviser, is
responsible for determining that the value of the underlying securities
remains in accordance with the market value requirements stated above.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the stock market. Buying futures,
writing puts, and buying calls tend to increase the fund's exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. Futures contracts involve, to varying degrees, risk
of loss in excess of the futures variation margin reflected in the
Statement of Assets and Liabilities. The underlying face amount at value of
any open futures contracts at period end, is shown in the schedule of
investments under the caption "Futures Contracts." This amount reflects
each contract's exposure to the underlying instrument at period end. Losses
may arise from changes in the value of the underlying instruments, if there
is an illiquid secondary market for the contracts, or if the counterparties
do not perform under the contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases of securities, other than short-term securities, aggregated
$406,546,000. Sales of securities, other than short-term securities,
aggregated $43,177,000.
The market value of futures contracts opened and closed during the period
amounted to $724,783,000 and $645,513,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a fee that
is computed daily at an annual rate of .28% of the fund's average net
assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the fund's transfer, dividend disbursing
and shareholder servicing agent. FIIOC receives account fees and
asset-based fees that vary according to account size and type of account.
FIIOC pays for typesetting, printing and mailing of all shareholder
reports, except proxy statements. For the period, the transfer agent fees
were equivalent to an annualized rate of .24% of average net assets.
ACCOUNTING AND SECURITY LENDING FEES. Fidelity Service Co., an affiliate of
FMR, 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.
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 $69,459,000 and
$71,145,000, respectively.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balance during the period for which
the loan was outstanding amounted to $7,192,000. The weighted average
interest rate was 5.69%.
7. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of .28%. For the period, the reimbursement
reduced the expenses by $6,015,000.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $8,000 and $451,000,
respectively, under these arrangements.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
William J. Hayes, VICE PRESIDENT
Jennifer Farrelly, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
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 *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company
Boston, MA
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
* INDEPENDENT TRUSTEES
