-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LdyS4TlZ45pBGna1fXOf9JMh7tqquOohsp2IErAMvUFIkbk7NcFGvKpipTgc7mLx l4iqvBimn6VDspw1Lpnhzg== 0000024238-98-000010.txt : 19980218 0000024238-98-000010.hdr.sgml : 19980218 ACCESSION NUMBER: 0000024238-98-000010 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY CONTRAFUND CENTRAL INDEX KEY: 0000024238 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046056833 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01400 FILM NUMBER: 98542123 BUSINESS ADDRESS: STREET 1: FIDELITY INVESTMENTS COMPANY STREET 2: 82 DEVONSHIRE STREET MAIL ZONE ZZ2 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: (617)439-1220 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAIL ZONE ZH1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY CONTRAFUND INC DATE OF NAME CHANGE: 19850618 FORMER COMPANY: FORMER CONFORMED NAME: CONTRAFUND INC DATE OF NAME CHANGE: 19810203 N-30D 1 FIDELITY (REGISTERED TRADEMARK) CONTRAFUND ANNUAL REPORT DECEMBER 31, 1997 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 10 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S INVESTMENTS OVER THE PAST SIX MONTHS. INVESTMENTS 11 A COMPLETE LIST OF THE FUND'S INVESTMENTS WITH THEIR MARKET VALUES. FINANCIAL STATEMENTS 37 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS. NOTES 41 NOTES TO THE FINANCIAL STATEMENTS. REPORT OF INDEPENDENT 48 THE AUDITORS' OPINION. ACCOUNTANTS DISTRIBUTIONS 49 PROXY VOTING RESULTS 50 THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (photo_of_Edward_C_Johnson_3d) DEAR SHAREHOLDER: Although financial turmoil in Pacific Basin countries was a catalyst for significant volatility in U.S. markets throughout the fourth quarter, the Standard & Poor's 500 Index rose more than 33% in 1997, about three times its historical annual average. Meanwhile, bond markets - primarily influenced by a relatively steady flow of positive news on the inflation front - continued to post solid returns as the year drew to a close. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. First, investors are encouraged to take a long-term view of their portfolios. If you can afford to leave your money invested through the inevitable up and down cycles of the financial markets, you will greatly reduce your vulnerability to any single decline. We know from experience, for example, that stock prices have gone up over longer periods of time, have significantly outperformed other types of investments and have stayed ahead of inflation. Second, you can further manage your investing risk through diversification. A stock mutual fund, for instance, is already diversified, because it invests in many different companies. You can increase your diversification further by investing in a number of different stock funds, or in such other investment categories 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, it's important to remember that there is no assurance that a money market fund will achieve its goal of maintaining a stable net asset value of $1.00 per share, and that these types of funds are neither insured nor guaranteed by any agency of the U.S. government. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value). CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY CONTRAFUND 23.00% 145.40% 693.37% FIDELITY CONTRAFUND (INCL. 3% SALES CHARGE) 19.31% 138.04% 669.57% S&P 500 (REGISTERED TRADEMARK) 33.36% 151.62% 425.77% GROWTH FUNDS AVERAGE 25.30% 117.56% 356.18%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years or 10 years. For example, if you had invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Standard & Poor's 500 Index - a widely recognized, unmanaged index of common stocks. To measure how the fund's performance stacked up against its peers, you can compare it to the average growth fund, which reflects the performance of mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. The past one year average represents a peer group of 820 mutual funds. These benchmarks reflect reinvestment of dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY CONTRAFUND 23.00% 19.67% 23.01% FIDELITY CONTRAFUND (INCL. 3% SALES CHARGE) 19.31% 18.94% 22.64% S&P 500 33.36% 20.27% 18.05% GROWTH FUNDS AVERAGE 25.30% 16.47% 15.93% AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER 10 YEARS IMAHDR PRASUN SHR__CHT 19971231 19980108 180532 S00000000000001 Contrafund S&P 500 00022 SP001 1987/12/31 9700.00 10000.00 1988/01/31 10324.35 10421.00 1988/02/29 10794.87 10906.62 1988/03/31 10812.97 10569.60 1988/04/30 11030.13 10686.93 1988/05/31 10876.31 10779.90 1988/06/30 11401.12 11274.70 1988/07/31 11482.56 11231.86 1988/08/31 11229.20 10849.97 1988/09/30 11690.67 11312.18 1988/10/31 11998.32 11626.66 1988/11/30 11907.84 11460.40 1988/12/31 11739.15 11660.96 1989/01/31 12518.67 12514.54 1989/02/28 12444.43 12202.93 1989/03/31 13103.31 12487.26 1989/04/30 13947.79 13135.34 1989/05/31 14671.62 13667.32 1989/06/30 14578.82 13589.42 1989/07/31 15915.14 14816.55 1989/08/31 16369.86 15106.95 1989/09/30 16685.38 15045.01 1989/10/31 16184.26 14695.97 1989/11/30 16555.46 14995.77 1989/12/31 16804.82 15355.66 1990/01/31 15913.50 14325.30 1990/02/28 16243.99 14510.09 1990/03/31 16594.51 14894.61 1990/04/30 16424.26 14522.25 1990/05/31 17976.55 15938.17 1990/06/30 18206.89 15829.79 1990/07/31 17866.39 15779.13 1990/08/31 16474.33 14352.70 1990/09/30 15783.31 13653.72 1990/10/31 15863.43 13595.01 1990/11/30 16804.82 14473.25 1990/12/31 17466.26 14877.05 1991/01/31 19167.59 15525.69 1991/02/28 20617.24 16635.78 1991/03/31 21825.28 17038.36 1991/04/30 21946.08 17079.26 1991/05/31 23345.40 17817.08 1991/06/30 22036.69 17001.06 1991/07/31 23597.07 17793.31 1991/08/31 24784.98 18215.01 1991/09/30 24855.45 17910.82 1991/10/31 25570.21 18150.82 1991/11/30 24221.23 17419.34 1991/12/31 27058.48 19412.12 1992/01/31 27830.07 19051.05 1992/02/29 28733.18 19298.72 1992/03/31 27953.39 18922.39 1992/04/30 28256.64 19478.71 1992/05/31 28559.90 19574.15 1992/06/30 27866.75 19282.50 1992/07/31 28570.73 20071.15 1992/08/31 28040.04 19659.70 1992/09/30 28516.58 19891.68 1992/10/31 29155.57 19961.30 1992/11/30 30563.53 20641.98 1992/12/31 31359.13 20895.88 1993/01/31 32352.30 21071.40 1993/02/28 32565.73 21357.97 1993/03/31 34121.97 21808.63 1993/04/30 34352.52 21280.86 1993/05/31 35712.79 21851.19 1993/06/30 35724.32 21914.55 1993/07/31 36116.26 21826.90 1993/08/31 37868.47 22654.14 1993/09/30 37949.16 22479.70 1993/10/31 38283.46 22945.03 1993/11/30 36842.50 22727.05 1993/12/31 38078.19 23002.05 1994/01/31 39275.86 23784.12 1994/02/28 38994.06 23139.57 1994/03/31 37452.20 22130.68 1994/04/30 37912.27 22413.96 1994/05/31 37700.89 22781.54 1994/06/30 36246.07 22223.40 1994/07/31 36979.70 22952.32 1994/08/31 38521.55 23893.37 1994/09/30 38011.74 23307.98 1994/10/31 39093.53 23832.41 1994/11/30 37315.42 22964.43 1994/12/31 37651.15 23305.00 1995/01/31 37041.87 23909.30 1995/02/28 38533.99 24841.04 1995/03/31 39939.07 25574.10 1995/04/30 41742.04 26327.26 1995/05/31 42749.22 27379.56 1995/06/30 45459.91 28015.58 1995/07/31 48941.52 28944.58 1995/08/31 49588.11 29017.23 1995/09/30 50495.81 30241.76 1995/10/31 49575.67 30133.80 1995/11/30 50881.28 31456.67 1995/12/31 51311.02 32062.53 1996/01/31 52471.66 33153.93 1996/02/29 52791.55 33461.27 1996/03/31 54256.80 33783.50 1996/04/30 55935.43 34281.47 1996/05/31 56404.87 35165.59 1996/06/30 55978.10 35299.57 1996/07/31 53360.58 33740.04 1996/08/31 55394.85 34451.61 1996/09/30 57670.96 36390.55 1996/10/31 59520.30 37394.20 1996/11/30 62977.15 40220.83 1996/12/31 62567.07 39424.06 1997/01/31 65001.47 41887.27 1997/02/28 63294.40 42215.67 1997/03/31 61649.41 40481.03 1997/04/30 63037.85 42897.74 1997/05/31 66825.85 45509.36 1997/06/30 69587.62 47548.18 1997/07/31 75488.46 51331.58 1997/08/31 73013.43 48455.99 1997/09/30 77888.03 51109.92 1997/10/31 75518.64 49402.85 1997/11/30 75397.91 51689.71 1997/12/31 76956.57 52577.22 IMATRL PRASUN SHR__CHT 19971231 19980108 180534 R00000000000123 $10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested in Fidelity Contrafund on December 31, 1987, and the current 3% sales charge was paid. As the chart shows, by December 31, 1997, the value of the investment would have grown to $76,957 - a 669.57% increase on the initial investment. For comparison, look at how the S&P 500 did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $52,577 - a 425.77% 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 long-term growth and short-term volatility. In turn, the share price and return of a fund that invests in stocks will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP Despite a bout with global volatility in late October, the U.S. equity market still managed to register strong gains for the third consecutive calendar year. For the 12 months that ended December 31, 1997, the Standard & Poor's 500 Index - a measure of the U.S. stock market - returned 33.36%. The strength of the S&P 500 reflected the continued dominance of large-capitalization stocks during most of the period. For most of 1996 and part of 1997, stocks of the largest companies performed well as investors sought reliability and consistent earnings growth track records. Stock prices surged, investor enthusiasm was high and the Dow Jones Industrial Average reached the 8,000-point mark in August for the first time ever. But the adage "what goes up, must come down" may have crept into investors' minds as many felt the market had risen too rapidly. In mid-August, several multinational companies announced earnings shortfalls and stocks of smaller companies came into favor. From August through December, the S&P 500 returned 2.43%, while the S&P MidCap 400 Index - a measure of medium-sized stocks - returned 6.50%. In October, currency turmoil in several Asian countries bubbled over, causing concern in many world markets. As we entered 1998, sentiment indicated that the effects of this crisis could linger, placing pressure on U.S. economic growth as well as corporate profits. An interview with Will Danoff, Portfolio Manager of Fidelity Contrafund Q. HOW DID THE FUND PERFORM, WILL? A. It was a disappointing period. For the 12 months that ended December 31, 1997, the fund returned 23.00%. The growth funds average returned 25.30% during the period, according to Lipper Analytical Services. The Standard & Poor's 500 Index returned 33.36% during this time. As a fellow shareholder of the fund, I consider this performance unsatisfactory and am working harder than ever with Fidelity's research team to find the best stocks to strengthen the fund's future returns. Q. WHY DID THE FUND LAG THE S&P 500? A. The primary factor was the "narrowness" of the stock market: The market's gains were concentrated among a relatively small number of large-capitalization stocks. To illustrate this narrowness, shares of the largest 100 companies in the S&P 500 appreciated by 35% in 1997, while the shares of the smallest 100 rose only 21%. This narrowness hurt funds like Contrafund, which tend to emphasize smaller- and medium-sized companies. Stock valuations for larger companies continued to stretch the bounds of reason. Many of these large-cap stocks appreciated due to increases in their price-to-earnings (P/E) ratios, which measure how much an investor must pay for a dollar of a company's earnings. The S&P 500's largest companies were trading at their highest P/E ratios ever and thus were quite expensive at the close of the period. Q. WHAT OTHER FACTORS DAMPENED THE FUND'S PERFORMANCE? A. A larger exposure to finance-related stocks would have helped. Due to declining interest rates and strong business prospects, finance stocks produced some of the market's best gains during the period. The banking, savings and loan, and brokerage sectors each rose more than 40% in 1997. While the fund was equally weighted in finance stocks relative to the index, I could have easily doubled its weighting. My mistake was in arguing that the sector had performed splendidly in 1996 and that most stocks were trading at expensive prices relative to their projected growth rates. Nevertheless, at the end of the period, the fund still had around 13% of its assets in finance stocks, including high-quality names such as U.S. Bancorp and Fannie Mae, both of which generated good returns and were among the fund's top holdings. Q. WHAT OTHER MARKET SEGMENTS APPEALED TO YOU? A. The Internet was a fertile area. By some estimates, traffic over the Internet grew almost tenfold in 1997. I tried to capitalize on this growth by buying companies that provide access to the Internet - such as WorldCom and AT&T - as well as companies that supply equipment to facilitate access to the Internet, including Alcatel and Lucent Technologies. I felt these companies were well-positioned to meet surging demand for Internet service, and to benefit from the deregulation in the telecommunications industry in both the U.S. and Europe. Cable television service providers also appealed to me, as they had an opportunity to reaccelerate their growth rates by offering faster Internet access over their existing cable infrastructure. Examples in the portfolio included Tele-Communications, Inc. and Comcast, both of which were solid contributors during the second half of the period. Q. A QUICK SCAN OF THE FUND'S INDUSTRY EXPOSURES SHOWS THAT YOU DECREASED ITS ENERGY-RELATED POSITIONS. WHY? A. As I mentioned six months ago, I reduced many energy positions, most notably in the exploration and production area. These stocks had enjoyed two consecutive years of very strong growth and many investors appeared poised to lock in profits. Also, oil prices fell during the period as production increased while demand slowed due to the Asian crisis. I did retain a number of energy service stocks, though, such as Schlumberger and Halliburton. These stocks benefited from increased exploration and production activity, improved pricing power and new products and technologies. Q. THE FUND'S BOND EXPOSURE INCREASED DURING THE PERIOD. WHAT WAS BEHIND YOUR STRATEGY? A. There were a number of factors. First, inflation was extremely low in the U.S., and bonds benefit from low or falling inflation. The buoyant stock market also enabled many companies to finance capacity expansions which should prevent inflationary pressure from bubbling up. Secondly, the strong dollar made foreign imports cheaper and hindered the ability of U.S. companies to raise prices. Along the same lines, the crisis in Asia during the fourth quarter should slow world economic growth, which in turn would dampen inflationary pressure and be a positive for bonds. The government's fiscal condition also played a role, as the country's shrinking budget deficit contributed to the attractiveness of bonds. Because of the solid economy and well-contained government spending, the federal deficit could be eliminated in the near future. For the same reasons, many state and local governments operated with budget surpluses as well. Budget surpluses reduce the supply of new government bonds and thus put upward pressure on the prices of existing bonds. Q. THE FUND WILL BE ASKING SHAREHOLDERS TO APPROVE CERTAIN CHANGES TO THE FUND IN JANUARY 1998. WHAT ARE SHAREHOLDERS BEING ASKED TO APPROVE, AND HOW WILL THESE CHANGES AFFECT THE WAY YOU MANAGE THE FUND? A. The description of the fund's investment policies and objectives have not changed significantly since 1967, when the fund commenced operations. As the fund's assets have grown - and as I've mentioned in previous reports - the fund's contrarian discipline has evolved from focusing on companies that are performing poorly or are out of favor to emphasizing companies whose potential has not been fully recognized by the public. Also, as corporate earnings growth has accelerated in recent years, the number of out-of-favor companies in the market has decreased. The proposed investment objectives and policies would reflect this change in emphasis. The proposed changes will not affect the way I manage Contrafund. Rather, the changes more clearly describe how the fund's investment mix has evolved over time. Q. WHAT'S YOUR OUTLOOK? A. All indications are that economic growth will slow and inflation will remain low. Earnings growth should also slow for the large-cap stocks I mentioned earlier, and this could swing the pendulum toward the smaller- and medium-sized stocks featured within the fund. The strong dollar, weak Asian demand and intensified global competition should also constrain revenue growth and further profit margin expansion. Thus, corporate profits may grow modestly - if at all - in the coming year. Going forward, I may reduce the fund's exposure to the industrial machinery and basic industries sectors, both of which are particularly sensitive to recessionary conditions. As opportunities present themselves, the fund should be well-positioned to increase its holdings in companies that have the ability to grow profits rapidly in a slow- to no-growth environment. 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. WILL DANOFF ON THE ASIAN CRISIS: "Many portfolio managers are dismissing the turmoil in Southeast Asia as a relatively minor influence on the U.S. market since many companies do very little business in that region. I tend to differ. I believe the crisis will severely hurt demand for U.S. goods and services. "The Southeast Asian countries built a significant amount of excess capacity in the past decade and will need years to grow into their current infrastructure. The sustained recession in Southeast Asia could considerably dampen the growth prospects of both China and Japan, each of which have exported many goods and services to Southeast Asia over the past decade. Thus, the crisis could stall economies representing almost one-third of the world's productive output. "The slowdown will undoubtedly strengthen the deflationary forces already at work in the U.S. and global economies, which would be beneficial to bonds. The slowdown will certainly make it more difficult for U.S. companies to grow as quickly as they have in the past three years. Slower profit growth is bad for stocks, particularly stocks of companies dependent upon economic growth to increase earnings." FUND FACTS GOAL: to increase the value of the fund's shares over the long term by investing in companies where value is not fully recognized by the public FUND NUMBER: 022 TRADING SYMBOL: FCNTX START DATE: May 17, 1967 SIZE: as of December 31, 1997, more than $30.7 billion MANAGER: Will Danoff, since 1990; manager, VIP II: Contrafund, since 1995; Fidelity Select Retailing Portfolio, 1986-1989; joined Fidelity in 1986 (checkmark) INVESTMENT CHANGES TOP TEN STOCKS AS OF DECEMBER 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO TYCO INTERNATIONAL LTD. 1.9 1.0 SCHLUMBERGER LTD. 1.6 1.6 TIME WARNER, INC. 1.5 0.7 CBS CORP. 1.4 0.0 ALCATEL ALSTHOM COMPAGNIE GENERALE 1.3 1.0 D'ELECTRICITE SA WORLDCOM, INC. 1.2 0.9 LUCENT TECHNOLOGIES, INC. 1.2 1.1 U. S. BANCORP 1.2 0.3 CVS CORP. 1.2 1.0 AT&T CORP. 1.0 0.0 TOP FIVE MARKET SECTORS AS OF DECEMBER 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE MARKET SECTORS 6 MONTHS AGO ENERGY 13.1 12.7 FINANCE 12.7 13.7 TECHNOLOGY 10.9 14.1 MEDIA & LEISURE 8.5 5.6 RETAIL & WHOLESALE 7.5 7.7 ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF DECEMBER 31, 1997 * AS OF JUNE 30, 1997 ** ROW: 1, COL: 1, VALUE: 85.8 ROW: 1, COL: 2, VALUE: 4.7 ROW: 1, COL: 3, VALUE: 9.5 STOCKS 92.3% BONDS 1.3% SHORT-TERM INVESTMENTS 6.4% FOREIGN INVESTMENTS 16.4% STOCKS 85.8% BONDS 4.7% SHORT-TERM INVESTMENTS 9.5% FOREIGN INVESTMENTS 14.1% ROW: 1, COL: 1, VALUE: 92.3 ROW: 1, COL: 2, VALUE: 1.3 ROW: 1, COL: 3, VALUE: 6.4 * ** INVESTMENTS DECEMBER 31, 1997 SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES COMMON STOCKS - 84.9% SHARES VALUE (NOTE 1) (000S) AEROSPACE & DEFENSE - 0.3% AEROSPACE & DEFENSE - 0.1% Lockheed Martin Corp. 129,200 $ 12,725 Orbital Sciences Corp. (a) 519,300 15,449 28,174 DEFENSE ELECTRONICS - 0.2% Anaren Microwave Inc. (a)(d) 350,900 5,571 Raytheon Company Class A 895,565 44,163 Remec, Inc. (a) 735,300 16,544 66,278 SHIP BUILDING & REPAIR - 0.0% Fred Olsen Energy ASA (a) 365,900 7,593 TOTAL AEROSPACE & DEFENSE 102,045 BASIC INDUSTRIES - 2.9% CHEMICALS & PLASTICS - 1.9% AKZO Nobel NV 24,800 4,278 Avery Dennison Corp. 56,900 2,546 Cambrex Corp. 415,050 19,092 Crompton & Knowles Corp. 2,678,917 70,991 Cytec Industries, Inc. (a) 1,628,900 76,456 ICI (Imperial Chemical Industries) PLC Class L 3,950,800 61,900 Ivex Packaging Corp. 591,700 14,201 Millennium Chemicals, Inc. 254,700 6,001 Monsanto Co. 1,602,600 67,309 Morton International, Inc. 126,300 4,342 Nalco Chemical Co. 308,900 12,221 Potash Corp. of Saskatchewan 485,300 40,415 Sealed Air Corp. (a) 1,523,300 94,064 Solutia, Inc. 44,100 1,177 Tredegar Industries, Inc. 4,100 270 Witco Corp. 640,000 26,120 W.R. Grace & Co. 944,700 75,989 577,372 IRON & STEEL - 0.0% Steel Dynamics, Inc. (a) 1,053,200 16,851 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) BASIC INDUSTRIES - CONTINUED METALS & MINING - 0.0% Commscope, Inc. 525,698 $ 7,064 Tongkah Holdings BHD (a) 6,642,000 2,103 9,167 PACKAGING & CONTAINERS - 0.4% Ball Corp. 67,400 2,380 Owens-Illinois, Inc. (a) 2,560,300 97,131 Silgan Holdings, Inc. 340,300 11,060 110,571 PAPER & FOREST PRODUCTS - 0.6% Champion International Corp. 148,800 6,743 Fort James Corp. 4,425,712 169,283 Mail-Well, Inc. (a) 82,800 3,353 Malakoff BHD 5,956,000 12,420 191,799 TOTAL BASIC INDUSTRIES 905,760 CONSTRUCTION & REAL ESTATE - 3.9% BUILDING MATERIALS - 0.6% Coflexip sponsored ADR 212,200 11,777 Coltec Industries, Inc. (a) 868,500 20,138 Elcor Corp. 6,100 146 Hume Industries BHD 4,329,000 4,547 Lilly Industrial Coatings, Inc. Class A 152,100 3,137 Masco Corp. 1,636,600 83,262 Sherwin-Williams Co. 211,000 5,855 Southdown, Inc. 304,600 17,971 USG Corp. (a) 1,016,900 49,828 196,661 CONSTRUCTION - 0.2% Centex Corp. 440,300 27,711 Fleetwood Enterprises, Inc. 144,400 6,128 Lennar Corp. 572,500 12,345 Oakwood Homes Corp. 195,000 6,472 Willbros Group, Inc. (a) 348,800 5,232 YTL Corp. BHD 10,614,375 14,346 72,234 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) CONSTRUCTION & REAL ESTATE - CONTINUED ENGINEERING - 0.1% Stolt Comex Seaway SA (a) 405,400 $ 20,270 REAL ESTATE - 0.2% Grand Palais Management Co. LP (a)(e) 398,400 - LNR Property Corp. 366,900 8,668 Rouse Co. (The) 665,276 21,788 Trizec Hahn Corp. (sub-vtg.) 734,600 17,163 47,619 REAL ESTATE INVESTMENT TRUSTS - 2.8% Avalon Properties, Inc. 41,300 1,278 Bay Apartment Communities, Inc. 354,100 13,810 Bedford Property Investors, Inc. (d) 1,133,500 24,795 Boston Properties, Inc. 514,700 17,017 CCA Prison Realty Trust 295,000 13,164 Crescent Real Estate Equities, Inc. 4,189,500 164,962 Duke Realty Investors, Inc. 313,286 7,597 Equity Office Properties Trust 4,767,500 150,474 Equity Residential Properties Trust (SBI) 1,190,300 60,185 Felcor Suite Hotels, Inc. 861,400 30,580 Glenborough Realty Trust, Inc. 1,237,100 36,649 Golf Trust of America, Inc. 141,000 4,089 Irvine Apartment Communities, Inc. 72,800 2,316 Kimco Realty Corp. 285,200 10,053 LTC Properties, Inc. 329,300 6,833 Macerich Co. 232,700 6,632 Patriot American Hospitality, Inc. 753,541 21,711 Public Storage, Inc. 595,600 17,496 Reckson Associates Realty Corp. 1,023,800 25,979 Spieker Properties, Inc. 1,058,800 45,396 Starwood Lodging Trust combined certificate (SBI) 2,142,900 124,020 Vornado Realty Trust 2,046,800 96,072 881,108 TOTAL CONSTRUCTION & REAL ESTATE 1,217,892 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) DURABLES - 3.2% AUTOS, TIRES, & ACCESSORIES - 1.8% BBA Group PLC 4,210,100 $ 28,161 Breed Technologies, Inc. (d) 1,907,300 34,808 Circuit City Stores, Inc. - CarMax Group 652,800 5,875 Danaher Corp. 2,007,700 126,736 Federal-Mogul Corp. 204,900 8,298 Ford Motor Co. 2,994,600 145,800 Lear Corp. (a) 1,201,400 57,067 Navistar International Corp. (a) 2,225,600 55,223 SPX Corp. (d) 1,020,800 70,435 Tower Automotive, Inc. (a) 376,600 15,841 548,244 CONSUMER DURABLES - 0.0% Minnesota Mining & Manufacturing Co. 45,500 3,734 CONSUMER ELECTRONICS - 0.7% Electrolux AB 227,250 15,782 Gemstar International Group Ltd. (a) 286,000 6,971 General Motors Corp. Class H 1,636,600 60,452 Maytag Co. 225,300 8,407 Philips Electronics NV 1,304,300 78,910 Philips Electronics NV (Bearer) 672,400 40,347 210,869 HOME FURNISHINGS - 0.1% Leggett & Platt, Inc. 324,400 13,584 Linens'n Things, Inc. (a) 315,800 13,777 Miller (Herman), Inc. 128,000 6,984 34,345 TEXTILES & APPAREL - 0.6% Adidas AG 242,600 31,295 Courtaulds Textiles PLC 150,100 883 Dexter Corp. 582,000 25,135 House of Fraser PLC Class L 10,339,500 34,239 Intimate Brands, Inc. Class A 366,600 8,821 Jones Apparel Group, Inc. (a) 483,100 20,773 Kellwood Co. 146,700 4,401 Liz Claiborne, Inc. 304,200 12,719 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) DURABLES - CONTINUED TEXTILES & APPAREL - CONTINUED Polo Ralph Lauren Corp. Class A 606,400 $ 14,743 Unifi, Inc. 318,500 12,959 Warnaco Group, Inc. Class A 570,600 17,903 183,871 TOTAL DURABLES 981,063 ENERGY - 13.1% ENERGY SERVICES - 7.0% Atwood Oceanics, Inc. (a) 196,200 9,295 BJ Services Co. (a) 1,541,047 110,859 Cliffs Drilling Co. (a) 250,300 12,484 Daniel Industries, Inc. 552,100 10,628 Diamond Offshore Drilling, Inc. 3,848,596 185,214 Dresser Industries, Inc. 401,500 16,838 ENSCO International, Inc. (d) 8,175,400 273,876 Falcon Drilling, Inc. (a) 3,217,100 112,800 Global Marine, Inc. (a) 2,548,300 62,433 Halliburton Co. 4,183,200 217,265 Marine Drilling Companies, Inc. (a) 454,800 9,437 McDermott International, Inc. 2,016,400 73,851 Nabors Industries, Inc. (a) 1,134,900 35,678 Noble Drilling Corp. (a) 2,996,400 91,765 Pride International, Inc. (a) 313,500 7,916 Reading & Bates Corp (a) 1,785,100 74,751 Santa Fe International Corp. 576,000 23,436 Schlumberger Ltd. 6,266,100 504,421 Smith International, Inc. (a)(d) 2,979,000 182,836 Transocean Offshore, Inc. 642,400 30,956 Varco International, Inc. (a) 1,182,100 25,341 Weatherford Enterra, Inc. (a) 2,045,000 89,469 Western Atlas, Inc. 332,200 24,583 2,186,132 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) ENERGY - CONTINUED OIL & GAS - 6.1% Amerada Hess Corp. 77,200 $ 4,236 Anadarko Petroleum Corp. 574,800 34,883 British Petroleum PLC ADR 3,006,357 239,569 Burlington Resources, Inc. 3,304,508 148,083 Camco International, Inc. 1,518,700 96,722 Canadian Natural Resources Ltd. (a) 900,900 19,284 Coastal Corp. (The) 1,150,000 71,228 Cooper Cameron Corp. (a) 1,577,700 96,240 EVI, Inc. (a) 175,600 9,087 Murphy Oil Corp. 1,415,300 76,692 National-Oilwell, Inc. (a) 424,600 14,516 Newfield Exploration Co. (a) 1,577,400 36,773 Occidental Petroleum Corp. 1,886,100 55,286 Ocean Energy, Inc. (a) 346,400 17,082 Oryx Energy Co. (a) 293,300 7,479 Penn West Petroleum Ltd.(a)(f) 183,700 1,985 Petrobras PN (Pfd. Reg.) 328,399,000 76,800 Phillips Petroleum Co. 733,000 35,642 Pioneer Natural Resources Co. 1,630,199 47,174 Pogo Producing Co. 1,184,900 34,955 Renaissance Energy Ltd. (a) 1,468,388 30,301 Royal Dutch Petroleum Co. 5,049,100 273,598 Santa Fe Energy Resources, Inc. 1,890,000 21,263 Tosco Corp. 4,660,800 176,237 Total SA Class B 1,163,072 126,473 USX-Marathon Group 573,400 19,352 United Meridian Corp. (a) 288,600 8,117 Unocal Corp. 1,035,057 40,173 Valero Energy Corp. 354,800 11,154 Vastar Resources, Inc. 145,500 5,202 YPF Sociedad Anonima Class D 1,666,200 56,162 1,891,748 TOTAL ENERGY 4,077,880 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - 12.7% BANKS - 4.4% BB&T Corp. 166,100 $ 10,641 BHI Corp. (non-vtg.) 146,000 4,490 Banc One Corp. 1,382,400 75,082 Bank of New York Co., Inc. 1,729,900 100,010 BankBoston Corp. 93,800 8,811 BankAmerica Corp. 2,814,300 205,444 Comerica, Inc. 907,600 81,911 Credit Suisse Group (Reg.) 168,700 26,078 Credito Italiano Ord. 12,611,100 39,008 Cullen Frost Bankers, Inc. 8,900 540 Fifth Third Bancorp 227,450 18,594 First Empire State Corp. 8,200 3,813 First Tennessee National Corp. 48,900 3,264 Firstar Corp. 34,700 1,473 Hong Leong Bank BHD 2,075,000 1,367 Mellon Bank Corp. 753,000 45,651 Mercantile Bancorp., Inc. 147,650 9,080 National City Corp. 1,127,578 74,138 North Fork Bancorp., Inc. 1,484,800 49,834 Norwest Corp. 914,900 35,338 Peoples Heritage Financial Group, Inc. 8,900 409 PT Bank International Indonesia 5,006,524 293 Royal Bank of Canada 151,900 8,033 Southwest Bancorporation Texas, Inc. 66,700 2,076 Standard Chartered Bank PLC 1,465,300 15,692 Sterling Bancshares, Inc. 26,500 537 Summit Bancorp 139,450 7,426 U.S. Bancorp 3,289,716 368,243 Wells Fargo & Co. 453,200 153,833 Zions Bancorp 702,300 31,867 1,382,976 CREDIT & OTHER FINANCE - 1.3% American Express Co. 2,350,600 209,791 Associates First Capital Corp. 446,000 31,722 Beneficial Corp. 223,200 18,554 Capital Trust Class A (a) 735,900 8,279 Finova Group, Inc. 24,000 1,193 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Fleet Financial Group, Inc. 279,400 $ 20,938 Greenpoint Financial Corp. 1,215,700 88,214 Household International, Inc. 188,288 24,018 Hong Leong Credit BHD 3,241,200 2,920 405,629 FEDERAL SPONSORED CREDIT - 1.5% Freddie Mac 4,263,300 178,792 Fannie Mae 4,830,700 275,652 454,444 INSURANCE - 3.5% AFLAC, Inc. 247,100 12,633 ACE Ltd. 301,700 29,114 Allmerica Financial Corp. 751,089 37,508 Allstate Corp. 2,424,200 220,299 AMBAC, Inc. 57,100 2,627 American General Corp. 489,300 26,453 American International Group, Inc. 2,440,250 265,377 Aon Corp. 326,550 19,144 Hartford Financial Services Group, Inc. 380,300 35,582 Hartford Life, Inc. Class A 26,500 1,201 MGIC Investment Corp. 201,700 13,413 Nationwide Financial Services, Inc. Class A 26,500 957 Progressive Corp. 137,100 16,435 Provident Companies, Inc. 126,800 4,898 Reliastar Financial Corp. 1,093,291 45,030 St. Paul Companies, Inc. (The) 178,000 14,607 SunAmerica, Inc. 1,450,850 62,024 Torchmark Corp. 885,700 37,255 Travelers Group, Inc. (The) 2,646,699 142,591 20th Century Industries 211,400 5,496 UNUM Corp. 1,528,200 83,096 1,075,740 SAVINGS & LOANS - 2.0% Ahmanson (H.F.) & Co. 1,241,400 83,096 Astoria Financial Corp. 63,200 3,523 Bank United Corp. Class A 166,200 8,133 CenFed Financial Corp. 40,700 1,831 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - CONTINUED SAVINGS & LOANS - CONTINUED Charter One Financial Corp. 206,489 $ 13,035 Coast Savings Financial, Inc. (a) 131,500 9,016 Dime Bancorp., Inc. 1,562,000 47,251 Downey Financial Corp. 17,300 492 FirstFed Financial Corp. (a) 13,200 512 Golden State Bancorp (a) 2,446,600 91,442 Golden West Financial Corp. 512,800 50,158 ML Bancorp, Inc. 180,000 5,400 New York Bancorp., Inc. 98,200 3,897 Ocwen Financial Corp. (a) 48,100 1,224 Sovereign Bancorp., Inc. 925,600 19,206 TCF Financial Corp. 943,800 32,030 Washington Mutual, Inc. 4,010,360 255,911 626,157 SECURITIES INDUSTRY - 0.0% Guoco Group Ltd. 3,970,000 9,710 TOTAL FINANCE 3,954,656 HEALTH - 3.0% DRUGS & PHARMACEUTICALS - 1.4% American Home Products Corp. 88,200 6,747 Barr Laboratories, Inc. (a) 153,650 5,243 Bristol-Myers Squibb Co. 268,100 25,369 Elf Sanofi SA 44,500 4,950 Glaxo Wellcome PLC 115,400 2,738 Lilly (Eli) & Co. 1,480,000 103,045 Medimmune, Inc. (a) 266,400 11,422 Merck & Co., Inc. 44,100 4,686 NBTY, Inc. (a) 8,800 294 Novartis AG (Reg.) 70,360 114,058 Parexel International Corp. (a) 207,500 7,677 Pfizer, Inc. 44,100 3,288 Rhone Poulenc SA Class A 21,200 949 Sangstat Medical Corp. (a) 39,100 1,584 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) HEALTH - CONTINUED DRUGS & PHARMACEUTICALS - CONTINUED Schering-Plough Corp. 1,478,200 $ 91,833 Warner-Lambert Co. 407,100 50,480 Watson Pharmaceuticals, Inc. (a) 167,000 5,417 439,780 MEDICAL EQUIPMENT & SUPPLIES - 0.5% Arterial Vascular Engineering, Inc. (a) 44,100 2,866 Cardinal Health, Inc. 820,750 61,659 Guidant Corp. 71,600 4,457 McKesson Corp. 36,500 3,949 Medtronic, Inc. 696,900 36,457 Omnicare, Inc. 30,900 958 Sofamor/Danek Group, Inc. (a) 22,100 1,438 Stryker Corp. 26,500 987 Sybron International Corp. (a) 482,000 22,624 135,395 MEDICAL FACILITIES MANAGEMENT - 1.1% Beverly Enterprises, Inc. 142,200 1,849 Carematrix Corp. (a) 355,900 10,232 HEALTHSOUTH Corp. (a) 4,981,500 138,237 Health Management Associates, Inc. Class A (a) 3,793,425 95,784 Sunrise Assisted Living, Inc. (a) 763,300 32,917 Syncor International Corp.(a) 2,200 35 Tenet Healthcare Corp. (a) 1,659,200 54,961 Trigon Healthcare, Inc. 373,200 9,750 343,765 TOTAL HEALTH 918,940 HOLDING COMPANIES - 0.5% Consolidation Capital Corp. 1,222,600 24,834 Malaysian Plantations BHD 3,578,000 765 Norfolk Southern Corp. 3,851,600 118,677 PartnerRe Ltd. 150,200 6,966 151,242 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) INDUSTRIAL MACHINERY & EQUIPMENT - 6.5% ELECTRICAL EQUIPMENT - 2.3% Alcatel Alsthom Compagnie Generale d'Electricite SA 3,237,390 $ 411,157 AMETEK, Inc. 612,500 16,538 Antec Corp. (a) 11,400 178 COM DEV International Ltd. (a) 39,700 847 Common Development International Ltd. (a)(f) 274,100 5,848 General Electric Co. 123,900 9,091 Gilat Satellite Networks Ltd. (a) 312,400 8,942 Globecomm Systems, Inc. 373,100 4,244 Leitch Technology Corp. (a) 4,400 132 Loral Space & Communications Ltd. (a) 9,869,600 211,580 Omnipoint Corp. (a) 84,200 1,958 Roper Industries, Inc. 416,300 11,760 Scientific-Atlanta, Inc. 1,388,000 23,249 Siemens AG 388,620 23,013 Titan Corp. (a) 153,500 959 729,496 INDUSTRIAL MACHINERY & EQUIPMENT - 3.2% Case Corp. 940,400 56,835 Illinois Tool Works, Inc. 1,217,600 73,208 Ingersoll-Rand Co. 1,631,100 66,060 Kaydon Corp. (d) 1,905,100 62,154 Kennametal, Inc. 118,727 6,152 MSC Industrial Direct, Inc. (a) 450,500 19,090 Mettler-Toledo International, Inc. 43,900 757 New Holland NV 2,727,000 72,095 Stanley Works 540,200 25,491 Tyco International Ltd. 13,319,314 600,202 982,044 POLLUTION CONTROL - 1.0% Allied Waste Industries, Inc. 97,600 2,275 Ogden Corp. 528,800 14,906 Thermo Instrument Systems, Inc. (a) 1,058,975 36,468 USA Waste Services, Inc. (a) 6,466,392 253,806 307,455 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 2,018,995 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) MEDIA & LEISURE - 8.5% BROADCASTING - 4.9% APT Satellite Holdings Ltd. sponsored ADR 1,545,100 $ 18,155 American Radio Systems Corp. Class A (a) 685,600 36,551 CBS Corp. 14,826,818 436,464 CD Radio, Inc. (a) 212,000 3,591 Cablevision Systems Corp. Class A (a) 45,800 4,385 Chancellor Media Corp. (a) 128,100 9,559 Clear Channel Communications, Inc. (a) 581,800 46,217 Comcast Corp.: Class A (d) 2,165,700 69,032 Class A special 2,541,200 80,207 Cox Communications, Inc. Class A (a) 1,323,600 53,027 Cox Radio, Inc. Class A (a) 7,100 286 Jacor Communications, Inc. Class A (a) 1,789,300 95,057 Orion Network Systems, Inc. (a)(d) 868,100 14,866 PanAmSat Corp. (a) 72,000 3,105 RCN Corp. 385,900 13,217 Scandinavian Broadcasting Corp. (a) 258,100 6,323 Smartalk Teleservices, Inc. (a) 313,200 7,125 TCA Cable TV, Inc. 97,200 4,471 Tele-Communications, Inc.: (TCI Group), Series A 3,428,930 95,796 (TCI Ventures Group), Series A 2,275,470 64,424 Time Warner, Inc. 7,372,179 457,075 Univision Communications, Inc. Class A (a) 160,800 11,226 1,530,159 ENTERTAINMENT - 1.1% AMF Bowling, Inc. 260,800 6,520 Bally Total Fitness Holding Corp. (a)(d) 1,272,100 27,827 Cedar Fair LP (depositary unit) 18,800 486 Disney (Walt) Co. 2,365,000 234,283 King World Productions, Inc. 137,700 7,952 News Corp. Ltd. ADR 88,300 1,970 Premier Parks, Inc. (a) 733,500 29,707 Viacom, Inc. (a): Class A 296,300 12,111 Class B (non-vtg.) 171,300 7,098 327,954 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) MEDIA & LEISURE - CONTINUED LEISURE DURABLES & TOYS - 0.5% Authentic Fitness Corp. 86,600 $ 1,597 Callaway Golf Co. 426,900 12,193 Champion Enterprises, Inc. (a) 288,100 5,924 Harley-Davidson, Inc. 418,500 11,456 Hasbro, Inc. 2,144,250 67,544 Mattel, Inc. 1,511,825 56,315 155,029 LODGING & GAMING - 0.4% Anchor Gaming (a) 431,000 24,028 Four Seasons Hotels, Inc. 1,248,000 39,285 ITT Corp. (a) 438,000 36,299 International Game Technology Corp. 195,900 4,946 La Quinta Motor Inns, Inc. 134,200 2,592 Mirage Resorts, Inc. (a) 307,200 6,989 WMS Industries, Inc. 102,000 2,155 116,294 PUBLISHING - 1.3% ACNielsen Corp. (a) 160,900 3,922 Applied Graphics Technologies, Inc. (a) 276,500 14,724 Belo (A.H.) Corp. Class A 120,700 6,774 Central Newspapers, Inc. Class A 26,500 1,959 Cognizant Corp. 547,700 24,407 Dow Jones & Co., Inc. 884,300 47,476 Dun & Bradstreet Corp. 1,066,400 32,992 Gannett Co., Inc. 71,200 4,401 Harcourt General, Inc. 81,900 4,484 Harte Hanks Communicatons, Inc. 66,900 2,484 Hollinger International, Inc. Class A 241,500 3,381 Meredith Corp. 407,200 14,532 New York Times Co. (The) Class A 183,500 12,134 Pearson, PLC 5,559,600 72,451 Scholastic Corp. (a) 32,200 1,207 Times Mirror Co. Class A 960,800 59,089 Tribune Co. 871,500 54,251 US WEST Media Group (a) 1,353,100 39,071 Wolters Kluwer NV 93,400 12,071 411,810 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) MEDIA & LEISURE - CONTINUED RESTAURANTS - 0.3% CKE Restaurants, Inc. 429,800 $ 18,105 Chart House Enterprises, Inc. (a) 437,800 2,764 Famous Daves America, Inc. (a) 131,800 1,178 Fine Host Corp. (a) 120,500 738 O Charleys, Inc. (a) 259,100 4,534 Papa John's International, Inc. (a) 148,800 5,189 Star Buffet, Inc. 47,100 542 Starbucks Corp. (a) 669,800 25,704 Wendy's International, Inc. 1,228,500 29,561 88,315 TOTAL MEDIA & LEISURE 2,629,561 NONDURABLES - 3.2% AGRICULTURE - 0.1% Delta & Pine Land Co. 13,300 406 Pioneer Hi-Bred International, Inc. 354,000 37,967 38,373 BEVERAGES - 0.4% Cadbury-Schweppes PLC Ord. 9,030,304 91,273 Canadaigua Wine Co. Class A (a) 21,800 1,207 Celestial Seasonings, Inc. (a) 8,800 277 PepsiCo, Inc. 789,800 28,778 121,535 FOODS - 1.4% CPC International, Inc. 367,500 39,598 Campbell Soup Co. 397,100 23,081 Dole Food, Inc. 396,300 18,131 Flowers Industries, Inc. 350,900 7,215 General Mills, Inc. 26,500 1,898 Hershey Foods Corp. 458,200 28,380 Interstate Bakeries Corp. 428,400 16,011 Nabisco Holdings Corp. Class A 207,200 10,036 Nestle SA (Reg.) 50,365 75,410 Quaker Oats Co. 781,300 41,214 Ralston Purina Co. 159,700 14,842 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) NONDURABLES - CONTINUED FOODS - CONTINUED Sara Lee Corp. 1,706,900 $ 96,120 Suiza Foods Corp. (a) 585,200 34,856 Tomkins PLC Ord. 5,865,674 27,831 Tootsie Roll Industries, Inc. 134,124 8,383 Universal Foods Corp. 26,700 1,128 444,134 HOUSEHOLD PRODUCTS - 1.1% Dial Corp. 1,320,700 27,487 Estee Lauder Companies, Inc. 57,400 2,953 Gillette Co. 1,427,600 143,385 Metro Pacific, Inc. Class B 45,552,595 1,260 Procter & Gamble Co. 8,800 702 Unilever NV: Ord. 2,374,980 146,495 ADR 314,600 19,643 341,925 TOBACCO - 0.2% Consolidated Cigar Holdings, Inc. Class A (a) 474,400 13,076 Grupo Carso SA de CV Class A-1 5,154,000 34,488 Swisher International Group, Inc. Class A (d) 370,200 6,293 53,857 TOTAL NONDURABLES 999,824 PRECIOUS METALS - 0.4% Barrick Gold Corp. 434,000 8,091 Euro-Nevada Mining Ltd. 2,867,800 38,818 Euro-Nevada Mining Ltd. (f) 143,000 1,936 Franco-Nevada Mining Corp. (d) 3,716,600 73,055 Franco-Nevada Mining Corp. (f) 324,600 6,381 Indochina Goldfields Ltd. (a) 1,099,400 2,238 Indochina Goldfields Ltd. (a)(f) 948,400 1,931 132,450 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) RETAIL & WHOLESALE - 7.4% APPAREL STORES - 0.9% Abercrombie & Fitch Co. (a) 85,300 $ 2,666 Charming Shoppes, Inc. (a)(d) 10,593,300 49,656 Gap, Inc. 2,531,700 89,717 Goody's Family Clothing (a) 702,200 19,091 Limited, Inc. (The) 1,143,000 29,147 Payless ShoeSource, Inc. (a) 31,732 2,130 Ross Stores, Inc. 42,600 1,550 TJX Companies, Inc. 2,183,200 75,048 269,005 DRUG STORES - 1.2% CVS Corp. 5,723,904 366,688 General Nutrition Companies, Inc. (a) 160,500 5,457 372,145 GENERAL MERCHANDISE STORES - 1.6% Costco Companies, Inc. (a) 1,464,500 65,353 Dayton Hudson Corp. 813,800 54,931 Federated Department Stores, Inc. (a) 836,800 36,035 Meyer (Fred), Inc. (a) 1,268,700 46,149 Nordstrom, Inc. 214,200 12,932 Proffitts, Inc. (a) 514,000 14,617 Stein Mart, Inc. (a)(d) 1,395,700 37,335 Wal-Mart Stores, Inc. 6,053,100 238,719 Woolworth Corp. (a) 65,800 1,341 507,412 GROCERY STORES - 1.4% Albertson's, Inc. 26,500 1,255 Asda Group PLC 6,851,300 20,035 Dominick's Supermarkets, Inc. (a)(d) 1,309,500 47,797 Loblaw Companies Ltd. 327,900 5,941 Quality Food Centers, Inc. (a)(d) 1,253,500 83,985 Richfood Holdings, Inc. Class A (d) 2,534,750 71,607 Safeway, Inc. (a) 2,669,900 168,871 Whole Foods Market, Inc. (a) 407,200 20,818 420,309 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) RETAIL & WHOLESALE - CONTINUED RETAIL & WHOLESALE, MISCELLANEOUS - 2.3% Boots Co. PLC Class L (The) 1,746,240 $ 25,216 Brylane, Inc. 719,200 35,421 Circuit City Stores, Inc. - Circuit City Group 1,746,300 62,103 Hancock Fabrics, Inc. 375,900 5,451 Home Depot, Inc. 4,835,150 284,669 Lowe's Companies, Inc. 1,092,200 52,084 Staples, Inc. (a) 3,257,500 90,396 Tandy Corp. 274,400 10,582 Tele-Communications Liberty Media Group, Series A (a) 88,300 3,201 Toys "R" Us, Inc. (a) 597,454 18,782 U.S.A. Floral Products, Inc. (d) 650,500 10,245 U.S. Office Products Co. (a) 5,178,450 101,627 Williams-Sonoma, Inc. (a) 369,700 15,481 715,258 TOTAL RETAIL & WHOLESALE 2,284,129 SERVICES - 2.6% ADVERTISING - 0.3% CMG Information Services, Inc. (a) 37,400 1,131 Interpublic Group of Companies, Inc. 490,650 24,441 Lamar Advertising Co. Class A (a) 123,500 4,909 Omnicom Group, Inc. 507,200 21,493 Outdoor Systems, Inc. (a) 1,455,150 55,841 107,815 EDUCATIONAL SERVICES - 0.1% Apollo Group, Inc. Class A (a) 420,200 19,854 LEASING & RENTAL - 0.3% Budget Group, Inc. Class A (a) 640,400 22,134 Central Parking Corp. 69,000 3,127 Hertz Corp. Class A 1,442,900 58,077 Rental Service Corp. (a) 37,400 919 Ryder Systems, Inc. 540,100 17,688 U.S. Rentals, Inc. 8,800 207 United Rentals, Inc. 377,000 7,281 109,433 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) SERVICES - CONTINUED PRINTING - 0.2% Big Flower Holdings, Inc. (a)(d) 1,537,900 $ 37,102 United Stationers, Inc. (a) 30,900 1,487 Valassis Communications, Inc. (a) 331,200 12,254 Wallace Computer Services, Inc. 38,600 1,501 52,344 SERVICES - 1.7% APAC Teleservices, Inc. (a)(d) 3,044,600 41,102 AccuStaff, Inc. (a) 636,500 14,639 Block (H & R), Inc. 749,400 33,582 Borg Warner Security Corp. (a) 274,400 4,836 Cendant Corp. (a) 7,150,501 245,798 Coach USA, Inc. (a) 37,900 1,270 Devry, Inc. (a) 29,800 950 Ecolab, Inc. 913,100 50,620 Hays PLC 2,221,500 29,719 NCO Group, Inc. (a) 541,750 13,950 Rentokil Initial PLC 4,340,456 18,950 Robert Half International, Inc. (a) 506,750 20,270 Securitas AB Class B 507,075 15,339 ServiceMaster Co. 259,300 7,585 Snyder Communications, Inc. (a) 707,800 25,835 524,445 TOTAL SERVICES 813,891 TECHNOLOGY - 10.7% COMMUNICATIONS EQUIPMENT - 3.4% ADC Telecommunications, Inc (a). 325,100 13,573 Advanced Fibre Communication, Inc. (a)(d) 3,736,300 108,820 Applied Signal Technology, Inc. (a) 20,100 276 Aspect Telecommunications Corp. (a) 107,400 2,242 Ciena Corp. 2,929,300 179,053 Cisco Systems, Inc. (a) 734,050 40,923 Davox Corp. (a) 543,950 17,746 Ericsson (L.M.) Telephone Co. Class B ADR 66,100 2,466 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED COMMUNICATIONS EQUIPMENT - CONTINUED Inter-Tel, Inc. 894,200 $ 17,325 Intermedia Communications, Inc. (a)(d) 962,607 58,478 Lucent Technologies, Inc. 4,676,300 373,519 Newbridge Networks Corp. (a) 1,149,600 40,092 Northern Telecom Ltd. 1,488,100 132,358 Tellabs, Inc. (a) 1,104,600 58,406 Teledata Communications Ltd. (a) 478,300 8,729 1,054,006 COMPUTER SERVICES & SOFTWARE - 3.7% America Online, Inc. (a) 247,200 22,047 At Home Corp., Series A 57,600 1,447 Automatic Data Processing, Inc. 2,114,600 129,784 BMC Software, Inc. (a) 43,500 2,855 Broderbund Software, Inc. (a) 844,600 21,643 CBT Group PLC sponsored ADR (a) 99,300 8,155 CSG Systems International, Inc. (a) 20,000 800 Cambridge Technology Partners Massachusetts, Inc. (a) 47,700 1,986 Cap Gemini Sogeti SA 548,234 44,916 Ceridian Corp. (a) 1,828,600 83,773 Checkfree Corp. (a) 119,700 3,232 Ciber, Inc. (a) 112,300 6,513 Citrix Systems, Inc. (a) 530,200 40,295 CompuServe Corp. (a) 375,900 4,558 Computer Sciences Corp. (a) 79,500 6,638 Cybermedia, Inc. (a) 186,700 2,812 DST Systems, Inc. (a) 293,700 12,537 DR Solomons Group PLC sponsored ADR (a) 53,100 1,712 Electronic Arts, Inc. (a) 1,120,407 42,365 Electronic Data Systems Corp. 744,600 32,716 Engineering Animation, Inc. (a)(d) 359,600 16,542 Equifax, Inc. 1,098,600 38,932 HBO & Co. 789,300 37,886 ICG Communications, Inc. (a) 364,000 9,919 Industrial-Matematik International Corp. (a) 648,000 19,116 International Telecommunications Data Systems, Inc. (a) 4,200 134 Keane, Inc. (a) 434,800 17,664 Lycos, Inc. (a)(d) 1,123,900 46,501 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED COMPUTER SERVICES & SOFTWARE - CONTINUED Micro Focus Group (a) 49,800 $ 1,957 Micro Focus Group, PLC, ADR (a) 48,700 1,966 Microsoft Corp. (a) 2,437,900 315,099 Misys PLC Ord. 277,446 8,410 Networks Associates, Inc. (a) 216,900 11,469 New Era of Networks, Inc. 218,800 2,462 Open Market, Inc. (a) 388,200 3,736 PRT Group, Inc. 119,600 1,360 Pegasus Systems, Inc. 34,600 515 PeopleSoft, Inc. (a) 709,100 27,655 Quadramed Corp. (a) 30,900 850 Saville Systems Ireland PLC sponsored ADR (a) 461,200 19,140 Shared Medical Systems Corp. 76,700 5,062 SportsLine USA, Inc. 181,200 1,948 Veritas Software Corp. (a) 33,650 1,716 Visio Corp. (a) 274,300 10,526 Yahoo, Inc. (a) 979,850 67,855 1,139,204 COMPUTERS & OFFICE EQUIPMENT - 1.4% Compaq Computer Corp. 260,100 14,679 Dell Computer Corp. (a) 229,500 19,278 Diebold, Inc. 202,500 10,252 EMC Corp. (a) 7,781,300 213,499 International Business Machines Corp. 12,800 1,338 Kronos, Inc. (a) 398,500 12,279 Pitney Bowes, Inc. 484,300 43,557 SCI Systems, Inc. (a) 90,800 3,955 Sequent Computer Systems, Inc. (a) 500,600 10,012 Symbol Technologies, Inc. 1,142,700 43,137 Unisys Corp. (a) 4,790,700 66,471 438,457 ELECTRONIC INSTRUMENTS - 0.7% JDS Fitel, Inc. (a) 285,300 16,974 JDS Fitel, Inc. (a)(f) 177,000 10,530 KLA-Tencor Corp. 10,600 409 Lam Research Corp. (a) 201,100 5,882 Perkin-Elmer Corp. 277,100 19,691 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED ELECTRONIC INSTRUMENTS - CONTINUED Tektronix, Inc. 241,800 $ 9,596 Teradyne, Inc. (a) 4,200 134 Thermo Electron Corp. (a) 2,586,400 115,095 Thermo Optek Corp. 63,500 976 Thermo Vision Corp. 8,890 72 Thermoquest Corp. (a) 192,500 3,489 Waters Corp. (a) 1,233,500 46,410 229,258 ELECTRONICS - 1.5% Celeritek, Inc. (a) 222,000 3,108 DII Group, Inc. (a) 333,100 9,077 Etec Systems, Inc. (a) 12,900 600 Intel Corp. 1,283,800 90,187 International Rectifier Corp. (a) 31,200 369 Maxim Integrated Products, Inc. (a) 865,900 29,874 Maxwell Technologies, Inc. (a) 90,800 2,111 National Semiconductor Corp. (a) 706,500 18,325 Power Intergrations, Inc. 310,600 2,873 Semtech Corp. (a) 198,450 7,764 Solectron Corp. (a) 13,600 565 Storage Technology Corp. (a) 96,800 5,996 Texas Instruments, Inc. 4,433,400 199,503 Uniphase Corp. (a) 983,800 40,705 Vitesse Semiconductor Corp. (a) 752,100 28,392 Zero Corp. 560,100 16,593 456,042 PHOTOGRAPHIC EQUIPMENT - 0.0% Polaroid Corp. 44,200 2,152 TOTAL TECHNOLOGY 3,319,119 TRANSPORTATION - 1.2% AIR TRANSPORTATION - 0.7% AMR Corp. (a) 59,200 7,607 ASA Holdings, Inc. 61,900 1,760 Comair Holdings, Inc. 73,050 1,762 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TRANSPORTATION - CONTINUED AIR TRANSPORTATION - CONTINUED Continental Airlines, Inc. Class B (a) 1,267,000 $ 60,974 Delta Air Lines, Inc. 411,100 48,921 Southwest Airlines Co. 1,345,550 33,134 US Airways Group, Inc. (a) 383,800 23,988 Viad Corp. 1,150,500 22,219 Virgin Express Holdings PLC sponsored ADR (d) 263,900 5,476 205,841 RAILROADS - 0.1% Bombardier, Inc. Class B 311,200 6,400 Canadian National Railway Co. 150,400 7,080 Wisconsin Central Transportation Corp. (a) 457,700 10,699 24,179 SHIPPING - 0.0% OMI Corp. (a) 125,300 1,151 TRUCKING & FREIGHT - 0.4% C.H. Robinson Worldwide, Inc. 618,000 13,828 CNF Transportation, Inc. 787,500 30,220 Swift Transportation Co., Inc. (a) 956,800 30,976 USFreightways Corp. 1,085,500 35,279 Yellow Corp. (a) 618,900 15,550 125,853 TOTAL TRANSPORTATION 357,024 UTILITIES - 4.8% CELLULAR - 0.9% AirTouch Communications, Inc. (a) 2,241,500 93,162 Mobile Telecommunications Technologies, Inc. (a) 2,456,500 54,043 Orange PLC (a) 7,692,001 33,456 Vodafone Group PLC sponsored ADR 1,404,400 101,819 282,480 ELECTRIC UTILITY - 0.3% American Electric Power Co., Inc. 49,800 2,571 Edison International 764,700 20,790 GPU, Inc. 49,800 2,098 National Grid Co. PLC 14,349,400 68,321 93,780 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) UTILITIES - CONTINUED GAS - 0.0% El Paso Natural Gas Co. 83,900 $ 5,579 TELEPHONE SERVICES - 3.6% ACC Corp. (a) 87,800 4,434 AT&T Corp. 5,180,200 317,287 American Communication Services, Inc. 44,000 564 Brooks Fiber Properties, Inc. (a) 1,276,300 70,197 Energis PLC (a) 5,928,800 24,908 EXCEL Communications, Inc. (a) 348,614 5,055 GST Telecommunications, Inc. (a) 88,300 1,091 GTE Corp. 132,400 6,918 LCI International, Inc. (a) 235,300 7,235 MCI Communications Corp. 851,000 36,433 McLeodUSA, Inc. Class A (a) 1,603,600 51,315 Metromedia Fiber Network, Inc. Class A (a) 930,900 15,476 NEXTLINK Communications, Inc. Class A (d) 1,507,100 32,120 Qwest Communications International, Inc. 361,400 21,503 Startec Global Communications Corp. 65,900 1,475 Tel-Save Holdings, Inc. (a) 596,700 11,859 Teleport Communications Group, Inc. Class A (a) 2,051,500 112,576 WorldCom, Inc. (a) 12,563,100 380,034 1,100,480 TOTAL UTILITIES 1,482,319 TOTAL COMMON STOCKS (Cost $19,560,278) 26,346,790 PREFERRED STOCKS - 0.9% CONVERTIBLE PREFERRED STOCKS - 0.2% CONSTRUCTION & REAL ESTATE - 0.1% REAL ESTATE INVESTMENT TRUSTS - 0.1% Vornado Realty Trust Series A, $3.25 569,000 37,554 PREFERRED STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) CONVERTIBLE PREFERRED STOCKS - CONTINUED RETAIL & WHOLESALE - 0.1% APPAREL STORES - 0.1% TJX Companies, Inc., Series E, $7.00 73,500 $ 27,930 TOTAL CONVERTIBLE PREFERRED STOCKS 65,484 NONCONVERTIBLE PREFERRED STOCKS - 0.7% TECHNOLOGY - 0.2% COMPUTER SERVICES & SOFTWARE - 0.2% SAP AG (Systeme Anwendungen Produkte) 207,300 65,930 UTILITIES - 0.5% TELEPHONE SERVICES - 0.5% Telecom Italia: Spa 11,503,600 50,545 Mobile Spa de Risp 34,919,700 98,795 149,340 TOTAL NONCONVERTIBLE PREFERRED STOCKS 215,270 TOTAL PREFERRED STOCKS (Cost $184,258) 280,754 CONVERTIBLE BONDS - 0.0% MOODY'S RATINGS (C) PRINCIPAL (UNAUDITED) AMOUNT (000S) TECHNOLOGY - 0.0% ELECTRONICS - 0.0% Kent Electronics Corp. 4 1/2%, 9/1/04 B $ 8,010 6,528 National Semiconductor Corp. 6 1/2%, 10/1/02 (f) Ba2 6,690 6,623 TOTAL CONVERTIBLE BONDS (Cost $13,790) 13,151 U.S. TREASURY OBLIGATIONS - 4.7% MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) 7 5/8%, 2/15/25 Aaa $ 260,110 $ 315,667 6 7/8%, 8/15/25 Aaa 249,500 278,193 6% 2/15/26 Aaa 282,950 282,596 6.75% 8/15/26 Aaa 241,600 265,987 6.5% 11/15/26 Aaa 235,000 250,863 6.625% 2/15/27 Aaa 44,000 47,767 TOTAL U.S. TREASURY OBLIGATIONS (Cost $1,399,146) 1,441,073 CASH EQUIVALENTS - 9.5% SHARES Taxable Central Cash Fund (b) 2,576,652,129 2,576,652 MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 6.40%, dated 12/31/97 due 1/2/98 $ 374,763 374,630 TOTAL CASH EQUIVALENTS (Cost $2,951,282) 2,951,282 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $24,108,754) $ 31,033,050 LEGEND 1. Non-income producing 2. At period end, the seven-day yield of the Taxable Central Cash Fund was 5.69%. The yield refers to the income earned by investing in the fund over the seven-day period, expressed as an annual percentage. 3. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 4. Affiliated company (see Note 8 of Notes to Financial Statements). 5. Restricted securities - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on each holding is as follows: ACQUISITION ACQUISITION SECURITY DATE COST (000S) Grand Palais Management Co., LP 7/24/96 $ - 6. 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 $35,234,000 or 0.1% of net assets. OTHER INFORMATION Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 85.9% United Kingdom 3.0 Netherlands 2.1 France 2.0 Netherlands Antilles 1.6 Canada 1.7 Others (individually less than 1%) 3.7 TOTAL 100.0% INCOME TAX INFORMATION At December 31, 1997, the aggregate cost of investment securities for income tax purposes was $24,197,225,000. Net unrealized appreciation aggregated $6,835,825,000, of which $7,337,238,000 related to appreciated investment securities and $501,413,000 related to depreciated investment securities. The fund hereby designates approximately $304,960,000 as a capital gain dividend for the purpose of the dividend paid deduction. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) DECEMBER 31, 1997 7.ASSETS 8. 9. 10.INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE 11. $ 31,033,050 AGREEMENTS OF $374,630) (COST $24,108,754) - SEE ACCOMPANYING SCHEDULE 12.CASH 13. 263 14.RECEIVABLE FOR INVESTMENTS SOLD 15. 259,879 16.RECEIVABLE FOR FUND SHARES SOLD 17. 46,022 18.DIVIDENDS RECEIVABLE 19. 22,183 20.INTEREST RECEIVABLE 21. 41,964 22.OTHER RECEIVABLES 23. 1,296 24. 25.TOTAL ASSETS 26. 31,404,657 27.LIABILITIES 28. 29. 30.PAYABLE FOR INVESTMENTS PURCHASED $ 169,760 31. 32.PAYABLE FOR FUND SHARES REDEEMED 139,852 33. 34.DISTRIBUTIONS PAYABLE 12,238 35. 36.ACCRUED MANAGEMENT FEE 11,709 37. 38.OTHER PAYABLES AND ACCRUED EXPENSES 7,335 39. 40.COLLATERAL ON SECURITIES LOANED, AT VALUE 324,667 41. 42. 43.TOTAL LIABILITIES 44. 665,561 45.46.NET ASSETS 47. $ 30,739,096 48.NET ASSETS CONSIST OF: 49. 50. 51.PAID IN CAPITAL 52. $ 23,595,503 53.UNDISTRIBUTED NET INVESTMENT INCOME 54. 38,086 55.ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 56. 181,324 INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 57.NET UNREALIZED APPRECIATION (DEPRECIATION) ON 58. 6,924,183 INVESTMENTS AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 59.60.NET ASSETS, FOR 659,238 SHARES OUTSTANDING 61. $ 30,739,096 62.63.NET ASSET VALUE AND REDEMPTION PRICE PER SHARE 64. $46.63 ($30,739,096 (DIVIDED BY) 659,238 SHARES) 65.MAXIMUM OFFERING PRICE PER SHARE (100/97.00 OF 66. $48.07 $46.63)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED DECEMBER 31, 1997 67.INVESTMENT INCOME 69. $ 273,329 68.DIVIDENDS (INCLUDING $6,302 RECEIVED FROM AFFILIATED ISSUERS) 70.INTEREST (INCLUDING INCOME ON SECURITIES LOANED OF 71. 167,347 $5,911) 72. 73.TOTAL INCOME 74. 440,676 75.EXPENSES 76. 77. 78.MANAGEMENT FEE $ 166,046 79. BASIC FEE 80. PERFORMANCE ADJUSTMENT (32,639) 81. 82.TRANSFER AGENT FEES 55,563 83. 84.ACCOUNTING AND SECURITY LENDING FEES 1,059 85. 86.NON-INTERESTED TRUSTEES' COMPENSATION 137 87. 88.CUSTODIAN FEES AND EXPENSES 1,907 89. 90.REGISTRATION FEES 2,078 91. 92.AUDIT 192 93. 94.LEGAL 124 95. 96.INTEREST 3 97. 98.REPORTS TO SHAREHOLDERS 1,199 99. 100.MISCELLANEOUS 315 101. 102. TOTAL EXPENSES BEFORE REDUCTIONS 195,984 103. 104. EXPENSE REDUCTIONS (9,368) 186,616 105.106.NET INVESTMENT INCOME 107. 254,060 108.REALIZED AND UNREALIZED GAIN (LOSS) 110. 111. 109.NET REALIZED GAIN (LOSS) ON: 112. INVESTMENT SECURITIES (INCLUDING REALIZED GAIN (LOSS) OF 2,589,554 113. $112,629 ON SALES OF INVESTMENTS IN AFFILIATED ISSUERS) 114. FOREIGN CURRENCY TRANSACTIONS (443) 2,589,111 115.CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 116. 117. ON: 118. INVESTMENT SECURITIES 2,841,606 119. 120. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (117) 2,841,489 121.122.NET GAIN (LOSS) 123. 5,430,600 124.125.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 126. $ 5,684,660 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 127.INCREASE (DECREASE) IN NET ASSETS 128.OPERATIONS $ 254,060 $ 247,680 NET INVESTMENT INCOME 129. NET REALIZED GAIN (LOSS) 2,589,111 1,301,229 130. CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 2,841,489 2,377,237 131. 5,684,660 3,926,146 132.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 133.DISTRIBUTIONS TO SHAREHOLDERS (211,835) (205,408) FROM NET INVESTMENT INCOME 134. FROM NET REALIZED GAIN (2,742,867) (1,597,799) 135. 136.TOTAL DISTRIBUTIONS (2,954,702) (1,803,207) 137.SHARE TRANSACTIONS 8,043,743 9,573,613 NET PROCEEDS FROM SALES OF SHARES 138. REINVESTMENT OF DISTRIBUTIONS 2,914,929 1,776,511 139. COST OF SHARES REDEEMED (6,778,358) (4,502,101) 140.141. 4,180,314 6,848,023 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 142. 6,910,272 8,970,962 143.TOTAL INCREASE (DECREASE) IN NET ASSETS 144.NET ASSETS 145. 146. 147. BEGINNING OF PERIOD 23,828,824 14,857,862 148. $ 30,739,096 $ 23,828,824 END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $38,086 AND $40,761, RESPECTIVELY) 149.OTHER INFORMATION 151. 152. 150.SHARES 153. SOLD 175,809 242,915 154. ISSUED IN REINVESTMENT OF DISTRIBUTIONS 65,437 44,832 155. REDEEMED (147,380) (113,133) 156. NET INCREASE (DECREASE) 93,866 174,614
FINANCIAL HIGHLIGHTS
157. YEARS ENDED DECEMBER 31, 158. 1997 1996 1995 1994 1993 159.SELECTED PER-SHARE DATA 160.NET ASSET VALUE, BEGINNING $ 42.15 $ 38.02 $ 30.28 $ 30.84 $ 27.47 OF PERIOD 161.INCOME FROM INVESTMENT OPERATIONS 162. NET INVESTMENT INCOME .42 C .46 .03 .06 .14 163. NET REALIZED AND 8.97 7.50 10.93 (.40) 5.66 UNREALIZED GAIN (LOSS) 164. TOTAL FROM INVESTMENT 9.39 7.96 10.96 (.34) 5.80 OPERATIONS 165. 166.LESS DISTRIBUTIONS 167. FROM NET INVESTMENT (.35) (.38) (.09) - (.11) INCOME 168. IN EXCESS OF NET - - - - (.07) INVESTMENT INCOME 169. FROM NET REALIZED GAIN (4.56) (3.45) (3.13) (.22) (2.25) 170. TOTAL DISTRIBUTIONS (4.91) (3.83) (3.22) (.22) (2.43) 171.NET ASSET VALUE, END OF $ 46.63 $ 42.15 $ 38.02 $ 30.28 $ 30.84 PERIOD 172.TOTAL RETURN A, B 23.00% 21.94% 36.28% (1.12)% 21.43% 173.RATIOS AND SUPPLEMENTAL DATA 174.NET ASSETS, END OF PERIOD $ 30,739 $ 23,829 $ 14,858 $ 8,694 $ 6,208 (IN MILLIONS) 175.RATIO OF EXPENSES TO .70% .83% .98% 1.03% 1.08% AVERAGE NET ASSETS 176.RATIO OF EXPENSES TO .67% D .79% D .96% D 1.00% D 1.06% D AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS 177.RATIO OF NET INVESTMENT .91% 1.28% .44% .59% .46% INCOME TO AVERAGE NET ASSETS 178.PORTFOLIO TURNOVER RATE 144% 159% 223% 235% 255% 179.AVERAGE COMMISSION RATE E $ .0310 $ .0358
A THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIOD SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER. NOTES TO FINANCIAL STATEMENTS For the period ended December 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Contrafund (the fund) 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 and is authorized to issue an unlimited number of shares. 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 (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange) are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, 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. Non-cash dividends included in dividend income, if any, are recorded at 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENT INCOME - CONTINUED the fair market value of the securities received. Interest income is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. 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 litigation proceeds, foreign currency transactions, passive foreign investment companies (PFIC), market discount, partnerships, non-taxable dividends, and losses deferred due to wash sales and excise tax regulations. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the 2. OPERATING POLICIES - CONTINUED REPURCHASE AGREEMENTS - CONTINUED fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund) managed by Fidelity Investments Money Management, Inc. (formerly FMR Texas, Inc.), a wholly owned subsidiary of FMR. The Cash Fund is an open-end money market fund available only to investment companies and other accounts managed by FMR and its affiliates. The Cash Fund seeks preservation of capital, liquidity, and current income by investing in U.S. Treasury securities and repurchase agreements for these securities. Income distributions from the Cash Fund are declared daily and paid monthly from net interest income. Income distributions earned by the fund are recorded as interest income in the accompanying financial statements. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $0 or 0% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $37,119,236,000 and $36,800,892,000, respectively, of which U.S. government and government agency obligations aggregated $1,212,226,000 and $913,892,000, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly basic fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .2500% to .5200% for the period. The annual individual fund fee rate is .30%. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The basic fee is subject to a performance adjustment (up to a maximum of (plus/minus).20% of the fund's average net assets over the performance period) based on the fund's investment performance as compared to the appropriate index over a specified period of time. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED For the period, the management fee was equivalent to an annual rate of .48% of average net assets after the performance adjustment. SALES LOAD. For the period, Fidelity Distributors Corporation (FDC), an affiliate of FMR and the general distributor of the fund, received sales charges of $9,065,000 on sales of shares of the fund of which $54,000 was paid to securities dealers, banks and other financial institutions. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .20% of average net assets. ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's accounting records and administers the security lending program. The security lending fee is based on the number and duration of lending transactions. The accounting fee is based on the level of average net assets for the month plus out-of-pocket expenses. BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $11,278,000 for the period. 5. SECURITY LENDING. The fund loaned securities to certain brokers who paid the fund negotiated lenders' fees. These fees are included in interest income. The fund receives U.S. Treasury obligations and/or cash as collateral against the loaned securities, in an amount at least equal to 102% of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the loan. At period end, the value of the securities loaned and the value of collateral amounted to $ 311,790,000 and $324,667,000, 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 balances during the 6. BANK BORROWINGS - CONTINUED period for which loans were outstanding amounted to $9,981,000 and $8,390,000, respectively. The weighted average interest rate was 5.56%. 7. EXPENSE REDUCTIONS. FMR has directed certain portfolio trades to brokers who paid a portion of the fund's expenses. For the period, the fund's expenses were reduced by $8,127,000 under this arrangement. In addition, the fund has entered into an arrangements with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $20,000 and $1,221,000 respectively, under these arrangements. 8. TRANSACTIONS WITH AFFILIATED COMPANIES. An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Transactions during the period with companies which are or were affiliates are as follows: SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND AFFILIATE COST COST INCOME VALUE American Exploration Co. $ - $ 641 $ - $ - APAC Teleservices, Inc. 53,113 62,272 - 41,102 Advanced Fibre Communication, Inc. 2,814 - - 108,820 Anaren Microwave, Inc. 3,980 2,534 - 5,571 Applied Magnetics Corp. - 2,916 - - BJ Services Co. - 1,732 - - Bally Total Fitness Holding Corp. 4,087 191 - 27,827 Bedford Property Investors, Inc. 4,461 2,298 737 24,795 Big Flower Holdings, Inc. - 466 - 37,102 Breed Technologies, Inc. 5,491 - - 34,808 Budget Group Inc., Class A 3,259 1,255 - - Cambrex Corp. 6,056 7,201 67 - Camco International, Inc. - 11,971 200 - Cato Corp. Class A - 299 36 - Charming Shoppes, Inc. 3,540 - - 49,656 Comcast Corp. Class A. 15,341 - 46 69,032 Consolidated Cigar Holdings, Inc. Class A 5,786 14,964 - - Cooper Cameron Corp. - 30,589 - - Cross-Continent Auto Retailers, Inc. - 744 - - Dominicks Supermarket, Inc. 13,927 3,813 - 47,797 ENSCO International, Inc. 41,871 82,370 402 273,876 Engineering Animation, Inc. 3,005 1,583 - 16,542 Franco-Nevada Mining Corp. 5,457 14,654 935 73,055 8. TRANSACTIONS WITH AFFILIATED COMPANIES - CONTINUED SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES - CONTINUED AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND AFFILIATE COST COST INCOME VALUE Golf Trust of America, Inc. $ 5,872 $ 5,779 $ 308 $ - Goody's Family Clothing 6,877 12,779 - - Integrated Health Services, Inc. 4,114 10,515 - - Intermedia Communications, Inc. 2,786 - - 58,478 Kaydon Corp. 7,267 12,941 440 62,154 Kronos, Inc. - 8,657 - - Lycos, Inc. 14,092 - - 46,501 Nabors Industries, Inc. - 17,944 - - New Holland NV 10,049 3,938 1,303 - Newfield Exploration Co. 1,062 14,932 - - NEXTLINK Comm Inc., Class A - - - 32,120 O'Gara Co. - - - - Orion Network Systems, Inc. 4,853 - - 14,866 Pogo Producing Co. - 10,281 86 - ProCom Technology, Inc. - - - - Quality Food Centers, Inc. 7,793 - - 83,985 Richfood Holdings, Inc. Class A 1,471 16,501 403 71,607 SPX Corp. 12,353 8,155 111 70,435 Smedvig As. 4,935 9,110 - - Security-Connecticut Corp. 3,758 9,676 445 - Semtech Corp. 4,588 3,542 - - Silgan Holdings, Inc. 2,345 411 - - Smartalk Teleservices, Inc. - 2,341 - - Smith International, Inc.. 50,173 49,362 - 182,836 Starwood Lodging Trust combined Certficate (SBI) 1,716 - 702 - Stein Mart, Inc. 3,320 - - 37,335 Sunrise Assissted, Living, Inc. 2,239 4,015 - - Swisher International Group, Inc. Class A 2,697 5,905 - 6,293 Telespectrum Worldwide, Inc. 554 3,608 - - Tongkah Holdings BHD - 3,032 - - U.S.A. Floral Products, Inc. - - - 10,245 United Auto Group, Inc. - 553 - - 8. TRANSACTIONS WITH AFFILIATED COMPANIES - CONTINUED SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES - CONTINUED AMOUNTS IN THOUSANDS PURCHASE SALES DIVIDEND AFFILIATE COST COST INCOME VALUE United Meridian Corp. $ - $ 26,593 $ - $ - Varco. International, Inc. - 5,264 - - Vintage Petroleum, Inc. - - 24 - Virgin Express Holdings PLC sponsored ADR - - - 5,476 Zero Corp. 1,610 2,339 57 - TOTALS $ 328,712 $ 490,666 $ 6,302 $ 1,492,314 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Fidelity Contrafund: We have audited the accompanying statement of assets and liabilities of Fidelity Contrafund, including the schedule of portfolio investments, as of December 31, 1997, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included con- firmation of securities owned as of December 31, 1997 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fidelity Contrafund as of December 31,1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 3, 1998 DISTRIBUTIONS The Board of Trustees of Fidelity Contrafund voted to pay to shareholders of record at the opening of business on record date the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income: PAY DATE 2/10/97 1/02/98 2/09/98 RECORD DATE 2/07/97 12/26/97 2/06/98 DIVIDENDS $- $0.35 - SHORT-TERM CAPITAL GAINS $0.49 $1.95 $.04 LONG-TERM CAPITAL GAINS $0.22 $1.90 $.03 LONG-TERM CAPITAL GAIN BREAKDOWN: 28% rate 100.00% 45.18% 45.23% 20% rate 0.00% 54.82% 54.77% PROXY VOTING RESULTS A special meeting of the fund's shareholders was held on January 14, 1998. The results of votes taken among shareholders on proposals are listed below. PROPOSAL 1 To elect as Trustees the following twelve nominees. # OF % OF SHARES VOTED SHARES VOTED RALPH F. COX AFFIRMATIVE 294,493,656.953 96.586 WITHHELD 10,408,128.276 3.414 TOTAL 304,901,785.229 100.000 PHYLLIS BURKE DAVIS AFFIRMATIVE 294,395,114.131 96.554 WITHHELD 10,506,671.098 3.446 TOTAL 304,901,785.229 100.000 ROBERT M. GATES AFFIRMATIVE 294,241,855.563 96.504 WITHHELD 10,659,929.666 3.496 TOTAL 304,901,785.229 100.000 EDWARD C. JOHNSON 3D AFFIRMATIVE 294,377,990.496 96.548 WITHHELD 10,523,794.733 3.452 TOTAL 304,901,785.229 100.000 E. BRADLEY JONES AFFIRMATIVE 294,186,725.625 96.486 WITHHELD 10,715,059.604 3.514 TOTAL 304,901,785.229 100.000 DONALD J. KIRK AFFIRMATIVE 294,569,986.113 96.611 WITHHELD 10,331,799.116 3.389 TOTAL 304,901,785.229 100.000 # OF % OF SHARES VOTED SHARES VOTED PETER S. LYNCH AFFIRMATIVE 294,603,158.452 96.622 WITHHELD 10,298,626.777 3.378 TOTAL 304,901,785.229 100.000 WILLIAM O. MCCOY AFFIRMATIVE 294,580,915.870 96.615 WITHHELD 10,320,869.359 3.385 TOTAL 304,901,785.229 100.000 GERALD C. MCDONOUGH AFFIRMATIVE 294,380,227.260 96.549 WITHHELD 10,521,557.969 3.451 TOTAL 304,901,785.229 100.000 MARVIN L. MANN AFFIRMATIVE 294,552,009.716 96.606 WITHHELD 10,349,775.513 3.394 TOTAL 304,901,785.229 100.000 ROBERT C. POZEN AFFIRMATIVE 294,490,162.345 96.585 WITHHELD 10,411,622.884 3.415 TOTAL 304,901,785.229 100.000 THOMAS R. WILLIAMS AFFIRMATIVE 294,370,758.972 96.546 WITHHELD 10,531,026.257 3.454 TOTAL 304,901,785.229 100.000 PROPOSAL 2 To ratify the selection of Coopers & Lybrand L.L.P. as independent accountants of the trust. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 274,716,702.107 90.100 AGAINST 3,737,492.162 1.226 ABSTAIN 26,447,590.960 8.674 TOTAL 304,901,785.229 100.000 PROPOSAL 3 To amend the Declaration of Trust to provide voting rights based on a shareholder's total dollar investment in a fund, rather than on the number of shares owned. # OF % OF SHARES VOTED SHARES VOTED OF THE TRUST OF THE TRUST AFFIRMATIVE 252,853,932.249 83.553 AGAINST 15,299,089.735 5.055 ABSTAIN 34,474,170.256 11.392 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 4 To amend the Declaration of Trust to eliminate the requirement that shareholders be notified in the event of an appointment of a trustee within three months of the appointment. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 254,660,872.045 84.150 AGAINST 11,227,667.093 3.710 ABSTAIN 36,738,653.102 12.140 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 5 To amend the Declaration of Trust to clarify that the Trustees may authorize the investment of all of a fund's assets in another open-end investment company. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 226,779,540.757 74.937 AGAINST 39,117,088.364 12.926 ABSTAIN 36,730,563.119 12.137 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 6 To adopt a new fundamental investment policy for the fund that would permit it to invest all of its assets in another open-end investment company managed by FMR or an affiliate with substantially the same investment objective and policies. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 225,595,872.570 74.546 AGAINST 39,098,725.847 12.920 ABSTAIN 37,932,593.823 12.534 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 7 To approve an amended management contract for the fund. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 251,704,618.648 82.574 AGAINST 13,851,461.525 4.544 ABSTAIN 39,266,225.056 12.882 TOTAL 304,822,305.229 100.000 NOT VOTED 79,480.000 PROPOSAL 8 To approve a new sub-advisory agreement with FMR U.K. to provide investment advice and research services or investment management services. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 256,794,047.576 84.222 AGAINST 13,367,624.882 4.384 ABSTAIN 34,740,112.771 11.394 TOTAL 304,901,785.229 100.000 PROPOSAL 9 To approve a new sub-advisory agreement with FMR Far East to provide investment advice and research services or investment management services. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 255,223,054.589 83.707 AGAINST 14,933,523.489 4.897 ABSTAIN 34,745,207.151 11.396 TOTAL 304,901,785.229 100.000 PROPOSAL 10 To amend the fundamental investment objective and replace certain fundamental investment policies with non-fundamental policies. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 230,031,707.190 76.012 AGAINST 28,517,590.141 9.423 ABSTAIN 44,077,894.909 14.565 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 11 Diversification - To amend the fundamental investment limitation to exclude investments in other investment companies from the limitation. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 229,682,726.197 75.896 AGAINST 33,900,860.168 11.202 ABSTAIN 39,043,605.875 12.902 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 12 Concentration - To standardize language, ratify the limitation and modify it to exclude "securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities" rather than " obligations issued or guaranteed by the U.S. government or any of its agencies or instrumentalities" from the limitation. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 249,687,217.095 82.507 AGAINST 15,307,107.514 5.058 ABSTAIN 37,632,867.631 12.435 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 PROPOSAL 13 Commodities - To ratify the ability to invest in securities or other instruments backed by physical commodities and the ability to own physical commodities as the result of ownership of other securities or instruments. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 245,074,386.206 80.982 AGAINST 19,254,363.321 6.363 ABSTAIN 38,298,442.713 12.655 TOTAL 302,627,192.240 100.000 NOT VOTED 2,274,592.989 MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. For quotes.* For account balances and holdings. To review orders and mutual fund activity. To change your PIN. To speak to a Fidelity representative. 0 * BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO WRITE FIDELITY If more than one address is listed, please locate the address that is closest to you. We'll give your correspondence immediate attention and send you written confirmation upon completion of your request. (LETTER_GRAPHIC)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 2300 Litton Lane - KH1A Hebron, KY 41048 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc., London, England Fidelity Management & Research (Far East) Inc., Tokyo, Japan OFFICERS Edward C. Johnson 3d, President Robert C. Pozen, Senior Vice President Abigail Johnson, Vice President Will Danoff, Vice President Eric D. Roiter, Secretary Richard A. Silver, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Robert C. Pozen Thomas R. Williams * ADVISORY BOARD J. Gary Burkhead GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA * INDEPENDENT TRUSTEES TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN Brown Brothers Harriman & Co. 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