-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qCdcvW54zH2GRLjW2Or25OPpOz0vKQwKOeNay7HnoiineowgB+Au0VDQn6EvML2g 7U1mV226UEbV9YamMfOkMw== 0000354046-94-000062.txt : 19941116 0000354046-94-000062.hdr.sgml : 19941116 ACCESSION NUMBER: 0000354046-94-000062 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941115 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY CHARLES STREET TRUST CENTRAL INDEX KEY: 0000354046 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03221 FILM NUMBER: 94560251 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 2145064081 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAIL ZONE ZH-1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY U S GOVERNMENT RESERVES FUND DATE OF NAME CHANGE: 19880201 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY FEDERAL RESERVES DATE OF NAME CHANGE: 19820215 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY UNITED STATES TREASURY TRUST DATE OF NAME CHANGE: 19811020 N-30D 1 (2_FIDELITY_LOGOS)FIDELITY SHORT-INTERMEDIATE GOVERNMENT FUND ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 12 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 16 Notes to the financial statements. REPORT OF INDEPENDENT 19 The auditor's opinion. ACCOUNTANTS THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for bond investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to negative returns for many bond investments and below-average returns for many stocks. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. Keeping in mind that the negative effects of rising rates on your bond investments will only be "paper" losses unless you sell your shares, staying in your bond fund may be appropriate. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and money market funds are not insured by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each figure includes changes in a fund's share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value). You can also look at the fund's income. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Short-Intermediate Government -1.18% 12.90% Lehman Brothers 1-3 Year Government Bond Index 1.15% n/a Average Short U.S. Government Fund -1.23% n/a Consumer Price Index 2.96% 9.37% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, or since the fund started on September 13, 1991. For example, if you invested $1,000 in a fund that had a 5% return over the past year, you would end up with $1,050. You can compare these figures to the Lehman Brothers 1-3 Year Government Bond Index - - a broad measure of the performance of short-term government bonds. To measure how the fund stacked up against its peers, you can also look at the average short U.S. government fund, which reflects the performance of 100 funds tracked by Lipper Analytical Services. These benchmarks include reinvested dividends and capital gains, if any. Comparing the fund's performance to the consumer price index helps show how your fund did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date). AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Short-Intermediate Government -1.18% 4.06% Lehman Brothers 1-3 Year Government Bond Index 1.15% n/a Average Short U.S. Government Fund -1.23% n/a Consumer Price Index 2.96% 2.95% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Fidelity Short-Int.Gov.(464)1-3 Year Governmen 09/30/91 10000.00 10000.00 10/31/91 10124.47 10108.00 11/30/91 10206.40 10212.11 12/31/91 10363.11 10367.34 01/31/92 10270.74 10353.86 02/29/92 10301.42 10384.92 03/31/92 10286.47 10381.81 04/30/92 10374.48 10476.28 05/31/92 10511.20 10573.71 06/30/92 10602.20 10680.50 07/31/92 10620.67 10803.33 08/31/92 10766.62 10890.84 09/30/92 10813.26 10993.21 10/31/92 10714.26 10930.55 11/30/92 10721.94 10914.15 12/31/92 10851.34 11015.65 01/31/93 11000.35 11131.32 02/28/93 11099.60 11220.37 03/31/93 11141.24 11255.15 04/30/93 11190.06 11323.81 05/31/93 11193.01 11296.63 06/30/93 11276.44 11381.36 07/31/93 11314.33 11406.40 08/31/93 11364.69 11501.07 09/30/93 11382.59 11537.87 10/31/93 11391.71 11563.26 11/30/93 11374.06 11565.57 12/31/93 11424.52 11611.83 01/31/94 11516.84 11683.82 02/28/94 11419.43 11612.55 03/31/94 11219.03 11553.33 04/30/94 11165.15 11509.43 05/31/94 11169.93 11525.54 06/30/94 11175.55 11554.35 07/31/94 11292.39 11658.34 08/31/94 11315.71 11696.81 09/30/94 11259.83 11669.91 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity Short-Intermediate Government Fund on September 30, 1991, shortly after the fund started. As the chart shows, by September 30, 1994, the value of your investment, with dividends reinvested would have grown to $11,248 - a 12.48% increase on your initial investment. For comparison, look at how the Lehman Brothers 1-3 Year Government Bond Index did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $11,670 - a 16.70% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS YEARS ENDED SEPTEMBER 30, 1994 1993 1992 Dividend return 5.55% 6.34% 6.73% Capital appreciation return -6.73% -1.08% 1.40% Total return -1.18% 5.26% 8.13% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 6 PAST MONTH MONTHS YEAR Dividends per share 5.36(cents) 28.40(cents) 55.49(cents) Annualized dividend rate 6.98% 6.02% 5.77% 30-day annualized yield 5.94% - -
DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on an average share price of $9.34 over the past month, $9.41 over the past six months and $9.62 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP After more than a decade of generally favorable conditions for bond investing, U.S. bond markets took a downward turn during the first nine months of 1994. Rising interest rates and inflation concerns caused yields to rise, and prices to fall, on virtually all types of fixed-income investments. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate income payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - - a measure of bond market performance in developed nations that includes U.S. issues - - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. An interview with Curt Hollingsworth, Portfolio Manager of Fidelity Short-Intermediate Government Fund Q. HOW DID THE FUND PERFORM, CURT? A. Although the fund had a down year, it performed slightly better than comparable funds. The best way to measure the fund's performance is by its total return. This reflects interest payments, plus capital gains - which occur when the fund profits from selling bonds that have grown in value - and changes in share price. For the year ended September 30, 1994, the fund had a total return of -1.18%. According to Lipper Analytical Services, the average short-term government bond fund had a return of -1.23% over the same period. Q. MANAGING THE FUND DURING THIS YEAR'S DOWNWARD TURN IN U.S. BOND MARKETS MUST HAVE BEEN A CHALLENGE. HAVE YOU ALTERED YOUR STRATEGY? A. Yes, I have. During the past six months I've switched to what's known as a duration neutral approach to managing the fund. That is, I'm setting the fund's duration at a level consistent with the general index for bonds within the short-intermediate time-frame. Duration is a way to measure how sensitive a bond is to changes in interest rates. It looks at a bond's maturity, or how much time remains until the issuer is scheduled to pay off the principal, as well as the frequency and amount of interest payments. The longer the average duration of the fund, the more its share price will move up as rates fall, or down as rates rise. For example, if the fund had a duration of 2.5 years and interest rates rose 1%, its share price would fall roughly 2.5%. Conversely, if interest rates fell 1%, its share price would rise about 2.5%. Q. HOW DOES THIS DIFFER FROM WHAT YOU WERE DOING BEFORE? A. I had been using a strategy called duration averaging, but I've moved away from it because it was based on forecasting movements in interest rates, which can be quite difficult. Instead, I'm now trying to add value through good sector weighting and security selection. Looking back, my only regret is that I wish I had managed the fund using the duration neutral approach the entire year. Q. YOU CAN CHOOSE BETWEEN U.S. TREASURY BONDS AND MORTGAGE-BACKED SECURITIES. HOW HAS THE WEIGHTING CHANGED OVER THE PAST SIX MONTHS? A. I've gradually reduced the fund's exposures to mortgage securities - Ginnie Maes - and added to the fund's weight in Treasury notes. To decide how much to invest in each sector, I look at yield spreads - the difference in yield between mortgage-backed bonds and Treasury bonds with the same maturity. When the yield spread is wide, I invest more in Ginnie Maes, because they offer higher return for the same maturity. During the period, the yield spread has contracted, so I've focused the fund more in Treasuries, up to 67.7% of the fund as of September 30, from 44.9% on March 31, 1994. If the situation reverses, I'll increase Ginnie Mae investments again. Q. YOU'VE ALSO REDUCED THE FUND'S CASH POSITION . . . A. Yes. During the period, I employed a defensive barbell strategy - heavily weighting two ends of the maturity spectrum - with roughly 20% of the portfolio in cash and the rest mostly in longer securities with four- to seven-year maturities. This strategy generally works when interest rates are rising because short rates tend to rise more than long rates when the Federal Reserve Board is pushing up short-term rates, as it has five times since the beginning of 1994. However, I've now switched to a ladder strategy, spacing the maturities of the bonds evenly along the maturity spectrum, without changing the duration of the portfolio. This is a neutral structure. In addition to this change, I've reduced the fund's cash position because I'm feeling somewhat more optimistic. The general feeling is that the Fed has raised short-term interest rates significantly, making some securities more attractive than they were a year ago. The fund has gone from underweighting these bonds to a more balanced structure. Q. DOES THIS MEAN YOU THINK THE WORST IS BEHIND US? A. Not necessarily. It's very difficult to predict the direction of interest rates. Bond investors react sharply to any mention of inflation. They keep an eye on statistics such as commodity prices and the unemployment rate. A rise in commodity prices and a drop in unemployment can signal economic growth, often a precursor to inflation. I think the Fed will keep raising rates as long as the economy grows at a reasonable clip and the threat of inflation remains. On the other hand, short-term yields have risen significantly already. If the economy moderates at all, short-term Treasury notes - such as 3-year Treasuries, yielding slightly more than 7% at the end of September - may turn out to be relatively attractive. FUND FACTS GOAL: high current income with preservation of capital START DATE: September 13, 1991 SIZE: as of September 30, 1994, more than $132 million MANAGER: Curt Hollingsworth, since September 1991; also manages Fidelity Advisor Government Investment, Fidelity Government Securities, Spartan Limited Maturity Government, Spartan Long-Term Government Bond, and Spartan Short-Intermediate Government Funds; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON INVESTMENT STRATEGY: "It's extremely important for individual investors to try to come to an understanding about what their investment horizon is. If their investment horizon is only six months to one year, even being in a short-term fund could be risky. But if the investment horizon is as long as the fund's average duration - its sensitivity to interest rates - short-term fluctuations of interest rates aren't as onerous. The ideal strategy is to match the length of the investment horizon to the average duration of a fund. With a longer horizon, you'd choose a longer-term fund, because you would earn higher yields and would not be as concerned about short-term price fluctuations." (solid bullet) The fund's cash/short-term investments position reached 30.2% on May 31, 1994. As of September 30, 1994, it was down to 2.3% of the fund. (solid bullet) At the end of the period, the fund's duration was 2.7 years. That means if interest rates fell 1 percentage point, the fund's share price would rise roughly 2.7%. If rates rose 1 percentage point, however, the fund's share price would fall about 2.7%. (solid bullet) At the end of the period, the fund had no derivative investments. INVESTMENT CHANGES COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1994 % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6 MONTHS AGO 6 - 6.99% - 0.3 7 - 7.99% 13.8 14.1 8 - 8.99% 24.2 10.4 9 - 9.99% 51.8 57.4 10 - 10.99% 4.0 4.8 11 - 11.99% - 0.3 12 - 12.99% 3.8 4.5 13% and over 0.1 0.2 COUPON DISTRIBUTION SHOWS THE RANGE OF STATED INTEREST RATES ON THE FUND'S INVESTMENTS, EXCLUDING REPURCHASE AGREEMENTS. AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 4.1 3.5 AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 2.7 2.7 DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL LOSE ABOUT 5% OF ITS VALUE. ASSET ALLOCATION AS OF SEPTEMBER 30, 1994 AS OF MARCH 31, 1994 Row: 1, Col: 1, Value: 2.3 Row: 1, Col: 2, Value: 30.0 Row: 1, Col: 3, Value: 67.7 U.S. Treasury obligations 67.7% Government National Mortgage Association (GNMA) securities 30.0% Short-term investments 2.3% U.S. Treasury obligations 44.9% Government National Mortgage Association (GNMA) securities 47.1% Short-term investments 8.0% Row: 1, Col: 1, Value: 8.0 Row: 1, Col: 2, Value: 47.1 Row: 1, Col: 3, Value: 44.9 INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities U.S. TREASURY OBLIGATIONS - 67.7% PRINCIPAL VALUE (NOTE 1) AMOUNT 9 1/4%, 1/15/96 $ 43,300,000 $ 44,876,553 7 3/8%, 5/15/96 10,850,000 11,005,915 8 7/8%, 11/15/97 18,200,000 19,166,784 9 1/4%, 8/15/98 14,000,000 14,982,240 TOTAL U.S. TREASURY OBLIGATIONS (Cost $92,729,512) 90,031,492 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 30.0% GOVERNMENT NATIONAL MOTGAGE ASSOCIATION 7 1/2%, 3/15/22 to 10/15/23 7,758,651 7,288,244 8%, 6/15/16 to 2/15/23 8,362,189 8,172,754 8 1/2%, 1/15/17 to 3/15/22 4,895,709 4,889,637 9%, 10/15/17 to 9/15/22 8,812,474 9,037,237 10%, 11/15/09 to 7/15/21 4,093,035 4,391,636 10 1/2%, 2/15/16 to 12/15/20 905,995 989,468 12 1/2%, 4/15/10 to 10/15/15 4,358,361 5,008,637 13%, 9/15/14 169,710 195,268 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE- BACKED SECURITIES (Cost $41,932,227) 39,972,881 REPURCHASE AGREEMENTS - 2.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury Obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $3,044,245 3,043,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $137,704,739) $ 133,047,373 INCOME TAX INFORMATION At September 30, 1994, the aggregate cost of investment securities for income tax purposes was $138,053,489. Net unrealized depreciation aggregated $5,006,116, of which $3,700 related to appreciated investment securities and $5,009,816 related to depreciated investment securities. At September 30, 1994, the fund had a capital loss carryforward of approximately $1,724,000 of which $320,000 and $1,404,000 will expire on September 30, 2001 and September 30, 2002, respectively. The fund has elected to defer to its fiscal year ending September 30, 1995 $5,237,000 of losses recognized during the period November 1, 1993 to September 30, 1994. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 133,047,373 agreements of $3,043,000) (cost $137,704,739) - See accompanying schedule Receivable for investments sold 1,894,873 Interest receivable 2,184,870 TOTAL ASSETS 137,127,116 LIABILITIES Payable to custodian bank $ 1,538,346 Payable for investments purchased 2,604,146 Payable for fund shares redeemed 253,818 Dividends payable 117,249 Accrued management fee 51,818 Other payables and accrued expenses 95,642 TOTAL LIABILITIES 4,661,019 NET ASSETS $ 132,466,097 Net Assets consist of: Paid in capital $ 145,081,531 Distributions in excess of net investment income (649,434) Accumulated undistributed net realized gain (loss) (7,308,634) on investments Net unrealized appreciation (depreciation) on (4,657,366) investments NET ASSETS, for 14,251,663 shares outstanding $ 132,466,097 NET ASSET VALUE, offering price and redemption price per $9.29 share ($132,466,097 (divided by) shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 11,382,801 Interest EXPENSES Management fee $ 676,355 Transfer agent fees 445,354 Accounting fees and expenses 66,692 Non-interested trustees' compensation 908 Custodian fees and expenses 64,689 Registration fees 67,161 Audit 60,676 Legal 1,519 Interest 3,313 Reports to shareholders 11,085 Miscellaneous 2,127 TOTAL EXPENSES 1,399,879 NET INVESTMENT INCOME 9,982,922 REALIZED AND UNREALIZED GAIN (LOSS) (7,336,287) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on (4,337,336) Investment securities NET GAIN (LOSS) (11,673,623) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (1,690,701) FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1994 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 9,982,922 $ 12,052,081 Net investment income Net realized gain (loss) (7,336,287) (3,529,055) Change in net unrealized appreciation (depreciation) (4,337,336) (80,251) NET INCREASE (DECREASE) IN NET ASSETS RESULTING (1,690,701) 8,442,775 FROM OPERATIONS Distributions to shareholders (8,444,364) (10,384,430) From net investment income From net realized gain - (1,041,753) TOTAL DISTRIBUTIONS (8,444,364) (11,426,183) Share transactions 97,823,842 163,545,822 Net proceeds from sales of shares Reinvestment of distributions 7,179,256 9,944,785 Cost of shares redeemed (130,693,881) (175,078,369) Net increase (decrease) in net assets resulting (25,690,783) (1,587,762) from share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS (35,825,848) (4,571,170) NET ASSETS Beginning of period 168,291,945 172,863,115 End of period (including under (over) distribution of net $ 132,466,097 $ 168,291,945 investment income of $(649,434) and $2,415,218, respectively) OTHER INFORMATION Shares Sold 10,118,463 16,349,116 Issued in reinvestment of distributions 747,673 996,298 Redeemed (13,515,563) (17,496,431) Net increase (decrease) (2,649,427) (151,017)
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, SEPTEMBER 13, 1991 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1994 1993 1992 1991 SELECTED PER-SHARE DATA Net asset value, beginning $ 9.960 $ 10.140 $ 10.010 $ 10.000 of period Income from Investment .533 .722 .694 .027 Operations Net investment income Net realized and (.648) (.209) .096 .010 unrealized gain (loss) Total from investment (.115) .513 .790 .037 operations Less Distributions (.555) (.623) (.650) (.027) From net investment income From net realized gain - (.070) (.010) - on investments Total distributions (.555) (.693) (.660) (.027) Net asset value, end $ 9.290 $ 9.960 $ 10.140 $ 10.010 of period TOTAL RETURN B, C (1.18)% 5.26% 8.13% .37% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 132,466 $ 168,292 $ 172,863 $ 1,339 (000 omitted) Ratio of expenses to .95% .61% .28% .65%A average net assets Ratio of expenses to .95% .90% 1.29% 2.50%A average net assets before expense reductions Ratio of net investment 6.80% 7.19% 7.91% 5.67%A income to average net assets Portfolio turnover rate 184% 348% 419% -
A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Short-Intermediate Government Fund (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which quotations are not readily available through the pricing service are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Interest income, which includes accretion of original issue discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for paydown gains/losses on certain securities, andlosses deferred due to wash sales and excise tax regulations. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect net investment income per share. Distributions in excess of net investment income may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income 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. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October 1, 1993, the fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, amounts as of the beginning of the fiscal year have been reclassified to reflect an increase in paid in capital of $820, a decrease in undistributed net investment income of $2,812,365 and a decrease in accumulated net realized loss on investments of $2,811,545. 2. OPERATING POLICIES. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of long-term U.S. government and government agency obligations aggregated $ 245,291,694 and $271,878,380, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .14% to .37% for the period October 1, 1993 to October 31, 1993; .1325% to .3700% for the period November 1, 1993 to July 31, 1994; and .1200% to .3700% for the period August 1, 1994 to September 30, 1994. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .30%. For the period, the management fee was equivalent to an annual rate of .46% of average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or the fund's distributor, Fidelity Distributors Corporation (FDC), an affiliate of FMR, may use their resources to pay administrative and promotional expenses related to the sale of the fund's shares. Subject to the approval of the Board of Trustees, the Plan also authorizes payments to third parties that assist in the sale of the fund's shares or render shareholder support services. FMR or FDC has informed the fund that payments made to third parties under the Plan amounted to $38,157 for the period. TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is based on the level of average net assets for the month plus out-of-pocket expenses. 5. 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 periods for which loans were outstanding amounted to $2,554,000 and $2,067,875, respectively. The weighted average interest rate was 3.6%. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Fidelity Short-Intermediate Government Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Short-Intermediate Government Fund, (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Short-Intermediate Government Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 1, 1994 DISTRIBUTIONS A total of 53.0% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund will notify shareholders in January 1995 of the applicable percentage for use in preparing 1994 income tax returns. TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Thomas J. Steffanci, Vice President Curtis Hollingsworth, Vice President Gary L. French, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN The Bank of New York New York, NY * INDEPENDENT TRUSTEES FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Global Bond Government Securities Intermediate Bond Investment Grade Bond Mortgage Securities New Markets Income Short-Intermediate Government Short-Term Bond Short-Term World Income Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Long-Term Government Bond Spartan Short-Intermediate Government Spartan Short-Term Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)FIDELITY ASSET MANAGER: GROWTH ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 11 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 12 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 63 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 67 Notes to the financial statements. REPORT OF INDEPENDENT 73 The auditor's opinion. ACCOUNTANTS A MEETING OF FUND SHAREHOLDERS WAS HELD ON SEPTEMBER 21, 1994. SHAREHOLDERS VOTED TO APPROVE EACH OF THE PROPOSALS PRESENTED, INCLUDING TWO THAT WOULD ALLOW THE FUND TO INVEST ALL OF ITS ASSETS IN A SINGLE MUTUAL FUND WITH A SIMILAR INVESTMENT OBJECTIVE AND POLICIES IF THE BOARD OF TRUSTEES DETERMINED THAT SUCH ACTION WOULD BE IN THE BEST INTERESTS OF FUND SHAREHOLDERS (THE "MASTER/FEEDER PROPOSALS"). SEVERAL SHAREHOLDERS ATTENDING THE MEETING EXPRESSED CONCERN THAT APPROVAL OF THE MASTER/FEEDER PROPOSALS WOULD AUTHORIZE THE USE OF A NON-FIDELITY COMPANY TO MANAGE THE FUND. IN ORDER TO ADDRESS THIS CONCERN, THE BOARD OF TRUSTEES, AT ITS MEETING ON OCTOBER 20, 1994, ADOPTED A RESOLUTION MAKING IT CLEAR THAT ITS APPROVAL OF THE SUBMISSION TO SHAREHOLDERS OF THE MASTER/FEEDER PROPOSALS WAS BASED ON THE ASSUMPTION THAT FIDELITY MANAGEMENT & RESEARCH CO. WOULD BE THE INVESTMENT MANAGER. AS DISCUSSED IN THE PROXY STATEMENT, THE FUND HAS NO CURRENT INTENTION TO INVEST ALL OF ITS ASSETS IN ANOTHER MUTUAL FUND. 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, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to below-average returns for many stocks and negative returns for many bond investments. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. If you can leave your money invested over the long term, you can avoid much of the volatility that generally accompanies the stock market in the short term, as we have been witnessing this year. You also can help to manage risk through diversification of investments. Since they invest in stocks, bonds and cash equivalents both inside and outside the U.S., the Asset Manager funds are already diversified. You can diversify even further by placing some of your money in several different stock funds or in other investment categories, such as bonds. If you have a short investment time horizon, you might want to consider moving some of your investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured by any agency of the U.S. government. Finally, no matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells securities that have grown in value). If Fidelity had not reimbursed certain fund expenses, the fund's life of fund figure would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Asset Manager: Growth 5.39% 48.00% S&P 500 3.68% 23.23% Average Flexible Portfolio Fund 0.02% n/a Consumer Price Index 2.96% 8.34% CUMULATIVE TOTAL RETURNS reflect the fund's actual performance over a set period - in this case, one year or since the fund began on December 30, 1991. For example, if you invested $1,000 in a fund that had a 5% return you would end up with $1,050. You can compare the fund's total returns to those of the Standard & Poor's Composite Index of 500 Stocks - a common proxy for the U.S. stock market. You can also compare them to the average flexible portfolio fund, which currently reflects the performance of 141 funds tracked by Lipper Analytical Services. Both benchmarks include reinvested dividends and capital gains, if any. Comparing the fund's performance to the Consumer Price Index (CPI) helps show how your investment did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Asset Manager: Growth 5.39% 15.29% S&P 500 3.68% 7.87% Average Flexible Portfolio Fund 0.02% n/a Consumer Price Index 2.96% 2.95% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Fidelity Asset Manager: GrowStandard & Poor's 500 Stock InFidelity Aggressive 12/31/91 10000.00 10000.00 10000.00 01/31/92 10367.06 9814.00 9832.85 02/29/92 10585.31 9941.58 9928.97 03/31/92 10436.50 9747.72 9786.93 04/30/92 10466.26 10034.30 9994.02 05/31/92 10684.52 10083.47 10082.67 06/30/92 10565.47 9933.23 10030.39 07/31/92 11001.98 10339.50 10375.29 08/31/92 10823.41 10127.54 10268.06 09/30/92 11071.42 10247.04 10393.07 10/31/92 11279.76 10282.91 10372.18 11/30/92 11686.50 10633.55 10597.15 12/31/92 11907.90 10764.35 10737.36 01/31/93 12079.89 10854.77 10866.69 02/28/93 12231.65 11002.39 11029.52 03/31/93 12707.15 11234.54 11193.09 04/30/93 12747.62 10962.67 11044.56 05/31/93 13010.67 11256.47 11234.36 06/30/93 13202.89 11289.11 11332.44 07/31/93 13445.71 11243.95 11324.50 08/31/93 13992.03 11670.10 11680.72 09/30/93 13931.33 11580.24 11637.38 10/31/93 14366.37 11819.95 11808.39 11/30/93 14244.96 11707.66 11697.98 12/31/93 15041.52 11849.32 11805.19 01/31/94 15622.07 12252.20 12116.50 02/28/94 15157.63 11920.17 11826.37 03/31/94 14387.08 11400.45 11413.39 04/30/94 14365.97 11546.37 11483.36 05/31/94 14482.08 11735.73 11603.53 06/30/94 14049.30 11448.21 11413.06 07/31/94 14397.63 11823.71 11720.75 08/31/94 14904.30 12308.48 12035.98 09/30/94 14682.63 12006.92 11795.99 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity Asset Manager: Growth on December 31, 1991, just after the fund started. As the chart shows, by September 30, 1994, the value of your investment would have grown to $14,683 - a 46.83% increase on your initial investment. For comparison, look at how the S&P 500 did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $12,007 - a 20.07% increase. You can also look at how the Aggressive Asset Allocation Composite Index, a hypothetical combination of unmanaged indices, did over the same period. Reflecting the fund's neutral mix of 65% stocks, 30% bonds, and 5% short-term instruments, this index combines returns from the S&P 500 (20.07%), Lehman Brothers Treasury Bond Index (14.29%), and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (9.87%). With dividends and interest, if any, reinvested, the same $10,000 investment would have grown to $11,796 - a 17.96% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. In turn, the share price and return of a fund that invests in stocks will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) Rising interest rates and inflation concerns in the United States led to negative returns for most bond investments and below average returns for stocks during the 12 months ended September 30, 1994. STOCKS: The Standard & Poor's 500 stock index finished the 12-month period with a total return of 3.68% - below its historical average of more than 10%. After four months of steady gains, the stock market stumbled from February through June 1994. During that period, the Federal Reserve Board raised short-term interest rates four times in an effort to curb possible future inflation triggered by a strengthening economy. Higher rates hurt stocks because they raise the cost of borrowing for companies and consumers, often dampening corporate profits in the future. In addition, higher rates often make bonds and other fixed-income securities more attractive relative to stocks. Despite a fifth Fed rate hike in August, the market rallied from July through mid-September, fueled by strengthening corporate earnings and a flurry of merger and acquisition activity. During the 12 months, cyclical stocks - whose prices tend to move in tandem with the economy - were among the market leaders. These included such sectors as chemicals, metals and paper. Overseas, results were mixed. Japanese stocks surged in early 1994, only to stall over the summer. After suffering corrections early in the year, several emerging markets - most notably Brazil - bounced back strongly in July and August. The Morgan Stanley EAFE (Europe, Australia, Far East) index returned 9.83% for the 12 months ended September 30, while the Morgan Stanley Emerging Markets Free Index was up 43.55% during the same period. BONDS: After more than a decade of generally favorable conditions for bond investing, yields rose - and prices fell - on virtually all types of fixed-income investments during the first nine months of 1994. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of - -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate interest payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - a measure of bond market performance in developed nations that includes U.S. issues - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. FUND TALK: THE MANAGER'S OVERVIEW An interview with Bob Beckwitt, Portfolio Manager of Fidelity Asset Manager: Growth Q. BOB, HOW DID THE FUND PERFORM? A. Better than most of its competitors in a difficult investment climate. Fidelity Asset Manager: Growth's total return for the year ended September 30, 1994, was 5.39%. The average flexible portfolio fund produced a total return of 0.02% during the same period, according to Lipper Analytical Services. Q. BOTH STOCKS AND BONDS HAVE BEEN HURT TO VARYING DEGREES THIS YEAR BY RISING INTEREST RATES. WHY DID ASSET MANAGER: GROWTH OUTPERFORM OTHER FUNDS WITH SIMILAR GOALS? A. Asset Manager: Growth is the most aggressive of the three funds in Fidelity's Asset Manager family, and that has helped it all year long. The last three months of 1993 and the first month of 1994 were very strong months for the fund, due mainly to two factors: an above-average stake in foreign securities, especially emerging-market stocks and bonds; and a below-average stake in what I call traditional fixed-income securities, meaning high-quality U.S. corporate bonds and Treasuries. All that hurt the fund later, once the markets turned down - February and March were terrible months - and I took steps then to position the fund more defensively. But I kept a relatively high proportion of the fund's assets in stocks. And when stocks outperformed bonds in the second half of the period, the fund benefited. So although the investment climate made it impossible to attain the kind of return I would have liked, the fund's diversification strategy did allow us to post at least a modest gain. Q. HOW HAS THE INVESTMENT CLIMATE CHANGED IN THE PAST YEAR? A. A year ago we were still in the sweet part of the cycle for most financial assets. Interest rates were falling around the world, inflation was a non-issue, and most foreign securities looked like bargains. Then in February the Federal Reserve reversed three years of monetary policies designed to stimulate economic growth, and suddenly interest rates began to rise. Higher rates not only meant lower bond prices in the United States; they also drove up the cost of borrowing for certain highly leveraged investors overseas. When those investors began to sell, foreign bond prices plunged. Meanwhile, European economies recovered faster than most analysts had predicted. And in Japan, the collapse of trade talks with the United States boosted the yen and led Japanese investors to withdraw from world markets. The upshot was higher interest rates around the world, lower bond prices and increased pressure on stocks. Q. HOW HAVE YOU RESPONDED TO THOSE CHANGES? A. Two ways. First, by increasing the cash component of the fund. A year ago in September 1993, Asset Manager: Growth was 76% stocks, 27% bonds and a cash and short-term instruments position calculated at -3%. By September 1994, the mix was 57% stocks, 29% bonds and 14% cash and short-term instruments. When you consider that the fund's neutral mix is 65-30-5, you can see how aggressive it was a year ago and how it is more defensive now. I also reduced the fund's foreign investments - from 53% a year ago, to 36% at the end of September. Both shifts were meant to lower the fund's volatility in an uncertain climate. Q. DO YOU REGRET NOW HAVING HAD SO MUCH EXPOSURE TO FOREIGN MARKETS IN THE PAST? A. By no means. Foreign investments were what drove the fund's performance early in the period. I'm still a big believer in the long-term value of investing overseas. I think that's where you have to go to find the fastest growing companies and the most rapidly expanding economies. However, there are times when conditions warrant a reduction in the fund's exposure to more volatile foreign markets, and I think this happens to be one of them. Q. WHERE HAVE YOU INVESTED OVERSEAS? A. The fund's largest remaining foreign investments are in Mexico, 12.5%; Japan, 4.0%; and Canada, 2.7%. Mexican stocks - including cement maker Cemex and conglomerate Grupo Carso - were sharp disappointments early in 1994. They've since come back as investors have regained their confidence in the stability of Mexico's political and economic institutions. Japan is still among the largest foreign countries represented in the fund for two reasons: one, its market is among the largest in the world, and therefore hard to ignore; and two, the big Japanese exporters such as Hitachi, Matsushita, and Toyota have finally begun taking steps to streamline operations and cut costs, and that may pay off with better earnings over the next year or two. Finally, Canadian stocks got cheap in the face of all the political uncertainty tied to the Quebec independence movement. That presented the fund with a buying opportunity. Q. HOW DID U.S. COMMON STOCKS FARE DURING THE PERIOD? A. While it was a horrible year for bonds, stocks did a lot better. The biggest story in recent months has been utilities, which fell more sharply than any other sector of the market in response to rising interest rates and regulatory concerns. The common stocks of U.S. utilities made up 1.8% of the fund at the end of September. Technology stocks - led by IBM, up more than 50% since we started buying it a year ago - made up the largest sector in the fund at the end of September at 5.8%. Finance stocks - led by Fannie Mae, a cheap growth story - were second at 4.2%. Q. DOES THE FUND STILL INVEST IN DERIVATIVES? A. Yes. I use derivatives called indexed securities, or structured notes, which are like customized bonds. They let me tailor a portion of the fund's investments to match my outlook in specific segments of the market. With them, I'm able to take advantage of investment opportunities I might otherwise miss. Early in the year, I invested in derivatives that were designed to capitalize on falling short-term interest rates in Europe. When rates rose instead, the fund lost money. Fortunately, those losses were offset by corresponding gains in other structured notes that were tied to commodity prices. The net effect on the fund's performance was still negative, but the loss was small. Q. ARE THERE SPECIAL RISKS ASSOCIATED WITH STRUCTURED NOTES? A. There are risks associated with any investment vehicle. One key to avoiding problems with structured notes is making sure their potential volatility is in line with the normal expected volatility of the fund. The structured notes in Fidelity Asset Manager: Growth are designed to be no more risky than other investments the fund might own - any of which, after all, could decline in value tomorrow. It's also important not to make concentrated bets, and I haven't. These indexed securities have never amounted to more than 8% of the fund's total investments; as of September 30, 1994, they totaled 3.1%. The point is, at Fidelity we do lots of research on every investment we make. We don't buy anything without first understanding the risks, and we're not going to flinch from our use of derivatives just because others have had trouble with them. Q. DOES THE FUND USE ANY OTHER TYPES OF DERIVATIVES? A. I also made limited use of two other kinds of derivatives over the past several months. First, I've used forward foreign currency contracts to hedge some of the fund's overseas investments. These contracts are designed to tie the value of foreign investments to movements in the U.S. dollar, effectively reducing the fund's exposure to foreign currencies. However, if the dollar moves downward relative to local currency - as it did against many currencies over the past six months - the cost associated with these contracts can reduce the fund's total return. In addition, the fund had an investment in futures tied to the Standard & Poor's MidCap 400 Index at the end of September. These investments mirror the performance of the stock markets to which they're tied, and allow the fund to take part in broad market moves until specific investments are found to replace them. Are futures transactions risky? Yes. But not because they are derivatives - because they are based on stocks and bonds, and stocks and bonds are risky. I don't use futures to take more risk than I would be willing to take in stocks or bonds. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. That depends largely on the outlook for inflation, and the signs are a bit worrisome. Until recently, most of the world's economies were lagging behind the United States. Now it seems like the whole world is recovering at once. That has led to a surge in demand for commodities, aggravated by low global inventories. So far, the price increases have shown up mostly at the producer level, which is why lumber costs more but breakfast cereal doesn't. If recent trends continue, though, eventually we could see higher prices at the consumer level, leading in turn to demands for higher wages. That's what's spooking the markets right now - the possibility that inflationary pressures will build, and the Fed will have no choice but to keep raising rates. Q. WHAT ARE THE IMPLICATIONS FOR THE FUND? A. Now that rates have risen from their historic lows, bonds have a better cushion against the possibility of further rate increases down the road. That's why I've begun buying Treasuries again; they were more than 12% of the fund at the end of September, and could go higher in the months ahead. Stock prices, on the other hand, went mostly sideways during the past year, and could be especially vulnerable to a further upturn in rates. Before stocks begin to look attractive again, a lot has to happen: we need a slowdown in the economy, a reduction in inflation fears, a weaker yen, and perhaps even a market correction. Barring that, the fund will likely remain in a defensive mode for some time to come. FUND FACTS GOAL: high current income with preservation of capital START DATE: September 13, 1991 SIZE: as of September 30, 1994, more than $132 million MANAGER: Curt Hollingsworth, since September 1991; also manages Fidelity Advisor Government Investment, Fidelity Government Securities, Spartan Limited Maturity Government, Spartan Long-Term Government Bond, and Spartan Short-Intermediate Government Funds; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON INVESTMENT STRATEGY: "It's extremely important for individual investors to try to come to an understanding about what their investment horizon is. If their investment horizon is only six months to one year, even being in a short-term fund could be risky. But if the investment horizon is as long as the fund's average duration - its sensitivity to interest rates - short-term fluctuations of interest rates aren't as onerous. The ideal strategy is to match the length of the investment horizon to the average duration of a fund. With a longer horizon, you'd choose a longer-term fund, because you would earn higher yields and would not be as concerned about short-term price fluctuations." (solid bullet) The fund's cash/short-term investments position reached 30.2% on May 31, 1994. As of September 30, 1994, it was down to 2.3% of the fund. (solid bullet) At the end of the period, the fund's duration was 2.7 years. That means if interest rates fell 1 percentage point, the fund's share price would rise roughly 2.7%. If rates rose 1 percentage point, however, the fund's share price would fall about 2.7%. (solid bullet) At the end of the period, the fund had no derivative investments. INVESTMENT CHANGES TOP FIVE STOCKS AS OF SEPTEMBER 30, 1994
% OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 0.9 0.5 International Business Machines Corp. 0.8 0.7 Grupo Carso SA de CV Class A-1 0.8 0.5 Federal National Mortgage 0.7 0.7 Association Cemex SA Series B 0.6 0.5
TOP FIVE INDUSTRIES AS OF SEPTEMBER 30, 1994 (STOCKS ONLY) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE INDUSTRIES 6 MONTHS AGO Finance 7.2 9.1 Technology 7.1 8.7 Utilities 4.9 5.7 Basic Industries 3.5 2.9 Energy 3.3 2.8 TOP FIVE COUNTRIES AS OF SEPTEMBER 30, 1994 (BY LOCATION OF ISSUER) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO United States 64.3 68.9 Mexico 12.5 9.0 Japan 4.0 2.1 Canada 2.7 1.5 Argentina 2.5 3.4 ASSET ALLOCATION AS OF SEPTEMBER 30, 1994 * AS OF MARCH 31, 1994 ** Row: 1, Col: 1, Value: 15.0 Row: 1, Col: 2, Value: 29.0 Row: 1, Col: 3, Value: 20.0 Row: 1, Col: 4, Value: 36.0 Stock class 55% Bond class 25% Short-term class and other 20% FOREIGN INVESTMENTS 31% Stock class 57% Bond class 29% Short-term class and other 14% FOREIGN INVESTMENTS 36% Row: 1, Col: 1, Value: 20.0 Row: 1, Col: 2, Value: 25.0 Row: 1, Col: 3, Value: 30.0 Row: 1, Col: 4, Value: 25.0 * ** ASSET ALLOCATIONS IN THE PIE CHART REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 46.6% MATURITY VALUE (NOTE 1) AMOUNT AEROSPACE & DEFENSE - 0.3% AEROSPACE & DEFENSE - 0.2% Boeing Co. 13,700 $ 591 Flightsafety International, Inc. 21,400 829 Lockheed Corp. 14,000 975 Martin Marietta Corp. 55,500 2,471 McDonnell Douglas Corp. 5,100 589 Oerlikon-Buhrle Holding Ltd. (Reg.) (a) 20,000 2,050 Samsung Aerospace Industries (a) 6,800 232 Samsung Aerospace Industries (New) (a) 1,014 31 Thiokol Corp. 10,600 258 8,026 DEFENSE ELECTRONICS - 0.1% Loral Corp. 18,000 709 Raytheon Co. 15,100 968 1,677 TOTAL AEROSPACE & DEFENSE 9,703 BASIC INDUSTRIES - 3.4% CHEMICALS & PLASTICS - 1.5% ARCO Chemical Co. 15,600 772 Akzo NV Ord. 2,900 341 Albemarle Corp. 44,400 638 BASF AG 17,400 3,421 Bayer AG 6,456 1,454 Perez Companc Class B (a) 491,475 2,792 DSM NV 21,000 1,783 du Pont (E.I.) de Nemours & Co. 66,000 3,826 Eastman Chemical Co. 12,500 680 Ferro Corp. 15,800 389 Grace (W.R.) & Co. 65,000 2,698 Great Lakes Chemical Corp. 36,800 2,162 Han Wha (a) 4,400 88 Hanyang Chemical Corp. (a) 6,600 154 Hercules, Inc. 2,800 288 Hoechst AG Ord. 36,200 7,730 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED CHEMICALS & PLASTICS - CONTINUED Imperial Chemical Industries: Ord. 46,507 $ 609 PLC ADR 7,500 392 Indo Gulf Fertilizer and Chemicals GDR (a)(g) 293,500 998 Kureha Chemical Industries Co. Ltd. 133,000 731 Lucky Co. Ltd. 93,800 2,866 Lyondell Petrochemical Co. 12,900 402 Minnesota Mining & Manufacturing Co. 13,900 768 Nalco Chemical Co. 58,600 1,926 Oriental Chemical Industry Co. (a) 30,760 936 Oriental Chemical Industry Co. RFD (a) 1,538 44 Potash Corp. of Saskatchewan 16,400 673 Praxair, Inc. 6,500 158 Reliance Industries Ltd.: GDR (g) 37,200 916 GDS (New) 18,200 448 Shinetsu Chemical 86,000 1,761 Union Carbide Corp. 83,700 2,846 TPI Polene Public Co. Ltd. (For. Reg.) (a) 35,100 354 Wellman, Inc. 60,800 2,075 48,119 IRON & STEEL - 0.5% British Steel PLC Ord. 358,970 977 Compania Siderurgica Nacional 48,244,700 2,121 Dongkuk Steel Mill Co. (a) 2,200 89 Geneva Steel Co. (warrants) (a) 6,038 51 Hyundai Pipe Co. Ltd. (a) 31,000 559 Hoogovensen Staalfabrieken (a) 19,800 873 Inland Steel Industries, Inc. (a) 22,500 886 Kawasaki Steel Corp. 190,000 858 Nucor Corp. 36,900 2,569 Oregon Steel Mills, Inc. 22,900 406 Pohang Iron & Steel Co. Ltd. 5,400 819 Thyssen AG Ord. 20,600 3,746 USX-U.S. Steel Group 27,300 1,143 WHX Corp. (a) 22,800 390 15,487 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED METALS & MINING - 0.8% Alcan Aluminum Ltd. 472,128 $ 12,431 Alumax, Inc. 9,000 289 Aluminum Co. of America 3,600 305 Broken Hill Proprietary Co. Ltd. (The) 2,536 37 Castle A.M. & Co. 46,200 658 Dae Chang Industrial Co. 13,740 265 Daehan Jungsok 410 14 Iljin Corp. (a) 10,270 274 Kanamoto Co. Ltd. 33,000 995 Korea Tungsten Mining Co. (a) 13,690 478 Noranda, Inc. 204,300 4,125 Poong San Corp. (a) 20,900 461 Reynolds Metals Co. 60,600 3,431 Sam Sun Industry (a) 5,200 36 23,799 PACKAGING & CONTAINERS - 0.1% Carnaudmetalbox SA 39,950 1,282 Corning, Inc. 26,800 868 Owens-Illinois, Inc. (a) 193,000 2,244 4,394 PAPER & FOREST PRODUCTS - 0.5% Abitibi-Price, Inc. (a) 74,900 1,122 Bowater, Inc. 89,400 2,604 Champion International Corp. 43,200 1,674 Chesapeake Corp. 600 20 Eagon Industrial Co. Ltd. 5,500 106 Eagon Industrial Co. Ltd. (New) 469 7 International Paper Co. 12,200 958 Kimberly Clark de Mexico Class A 51,400 1,075 Kokuyo Co. Ltd. 39,000 1,027 Kumpulan Guthrie BHD 522,000 912 Scott Paper Co. 57,300 3,502 Sung Chang Enterprise Co. 5,800 439 Stone Consolidated Corp. 109,100 1,553 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Temple-Inland, Inc. (a) 16,700 $ 923 Weyerhaeuser Co. 3,800 170 16,092 TOTAL BASIC INDUSTRIES 107,891 CONGLOMERATES - 0.3% Alexander & Baldwin, Inc. 15,500 396 Allied-Signal, Inc. 18,600 635 Dial Corp. (The) (a) 25,000 522 Harris Corp. 49,000 2,383 Suncor, Inc. 47,300 1,171 Textron, Inc. 12,800 651 Tyco Laboratories, Inc. 14,700 698 United Technologies Corp. 25,300 1,584 TOTAL CONGLOMERATES 8,040 CONSTRUCTION & REAL ESTATE - 2.1% BUILDING MATERIALS - 1.2% Armstrong World Industries, Inc. 65,300 2,832 Cementos Apasco SA de CV Class A 314,200 3,072 Cemex SA: Series A (Reg.) (a) 73,912 664 Series B 2,068,387 19,097 Holderbank Finance Glarus AG (warrants) (a) 9,430 12 Lafarge Corp. 20,079 404 Lapeyre SA 11,600 675 Lilly Industrial Coatings, Inc. Class A 15,000 186 Ssangyong Cement Co. 10,155 414 Siam Cement (For. Reg.) 13,700 713 Siam City Cement Co. Ltd. (For. Reg.) 14,200 256 Tecumseh Products Co. Class A 18,400 907 Tolmex B2 SA 596,600 9,049 Tong Yang Cement Co. 4,350 164 38,445 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONSTRUCTION & REAL ESTATE - CONTINUED CONSTRUCTION - 0.5% Butler Manufacturing Co. (a) 15,000 $ 488 Centex Corp. 18,600 430 DR Horton, Inc. (a) 4,664 59 Daelim Industrial Co. (a) 49,060 1,388 Dong Ah Construction Industries Co. Ltd. (a) 15,750 667 Dongbu Construction Co. (a) 3,300 59 Empresas Ica Sociedad Controladora SA de CV sponsored ADR representing Ord. 108,000 3,483 Japan Foundation Engineering 43,600 1,038 Jean LeFebvre Entreprise 69,513 4,794 Jean LeFebvre Entreprise (warrants) (a) 2,771 73 Kaneshita Construction Co. Ltd. Ord. 49,000 771 Lucky Development Co. Ltd. (a) 5,050 114 Kun Young Construction Corp. 6,100 131 NCI Building Systems, Inc. (a) 66,200 1,283 Obayashi Corp. 85,000 602 Pulte Corp. 9,400 204 Samsung Construction Co. Ltd. 2,018 82 Samsung Engineering & Construction Co. 776 20 Standard Pacific Corp. 10,100 73 15,759 ENGINEERING - 0.1% Foster Wheeler Corp. 12,900 443 Hanil Development Co. (a) 41,406 819 Hyundai Engineering & Construction Co. Ltd. 26,900 1,445 Kyonghyang Construction Co. (a) 5,600 88 Sungwon Construction Co. (a) 7,740 243 3,038 REAL ESTATE - 0.2% Berjaya Sports Toto BHD (a) 336,000 585 Cheung Kong Ltd. 175,000 852 City Development 61,000 331 Fondo Opcion SA de CV (a) 145,100 385 Hwa Sung Industrial Co. 5,800 309 Immeubles de France, Ste Des 90 7 Mitsubishi Estate Ltd. 44,000 528 Nichimo Corp. (a) 101,000 428 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONSTRUCTION & REAL ESTATE - CONTINUED REAL ESTATE - CONTINUED Sun Hung Kai Properties Ltd. 139,000 $ 1,034 Tan & Tan Development BHD 935,000 1,320 5,779 REAL ESTATE INVESTMENT TRUSTS - 0.1% Developers Diversified Realty 4,800 148 Glimcher Realty Trust 5,100 106 Kimco Realty Corporation 10,300 373 Merry Land & Investment Co., Inc. 20,289 398 Simon Properties Group, Inc. 31,000 795 Vornado Realty Trust 6,100 209 2,029 TOTAL CONSTRUCTION & REAL ESTATE 65,050 DURABLES - 2.8% AUTOS, TIRES, & ACCESSORIES - 1.7% Aisin Seiki Co. Ltd. 42,000 593 Asia Motors Co., Inc. (a) 24,786 450 BMW 5,500 2,673 Breed Technologies, Inc. 45,000 1,463 Bridgestone Corp. 118,000 1,845 Capaco Automotive Products Corp. 47,900 605 Chrysler Corp. 161,900 7,265 Continental Gummi-Werke 11,300 1,726 Dae Won Kang Up Co. (a) 2,262 74 Discount Auto Parts, Inc. (a) 30,800 508 Eaton Corp. 30,600 1,454 Echlin, Inc. 53,900 1,637 Ford Motor Co. 39,600 1,099 General Motors Corp. 248,496 11,648 Goodyear Tire & Rubber Co. 100 3 Hyundai Motor Service Co. 1,750 95 Heung-ah Tire & Rubber Co. (a) 3,310 72 Johnson Controls, Inc. 24,300 1,209 Kia Precision Works Co. (a) 25,908 470 Kia Motors Corp. GDR (a)(g): Trust #2 29,400 691 Trust #3 17,500 389 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT DURABLES - CONTINUED AUTOS, TIRES, & ACCESSORIES - CONTINUED Lonrho Ltd. Ord. 379,565 $ 790 Mitsubishi Motors Corp. (a) 109,000 1,022 Pirelli Tyre Holdings NV Ord. 221,700 1,786 Raymond Corp. (The) 36,750 763 Smith (A.O.) Corp. (a) 11,500 288 Sumitomo Rubber Industries 58,000 573 Suzuki Motor Corp. 379,000 4,588 Tofas Turkey Otomobil Fabrikas ADR (g) 80,400 281 Toyota Motor Corporation 321,000 6,572 52,632 CONSUMER ELECTRONICS - 0.5% Aktiebolaget Electrolux 34,700 1,641 Harman International Industries, Inc. 39,500 1,378 Jeewon Industrial Co. 4,400 126 Jeewon Industrial Co. (New) (a) 1,257 31 Matsushita Electric Industrial Co. Ltd. 573,000 9,130 Odetics, Inc. Class A (a) 50,000 350 Sharp Corp. 34,000 604 Sony Corp. 69,400 4,032 17,292 HOME FURNISHINGS - 0.2% Dapta-Mallinjoud SA 15,100 528 HON Industries, Inc. 14,800 374 LADD Furniture, Inc. 9,600 58 Miller (Herman), Inc. 163,700 4,061 5,021 TEXTILES & APPAREL - 0.4% Arvind Mills Ltd. (a)(g) 28,600 175 Burlington Industries, Inc. (a) 31,300 329 Cygne Designs, Inc. (a) 20,600 464 Fruit of the Loom, Inc. Class A (a) 22,100 566 Indian Rayon & Industries, Inc. GDR (a)(g) 24,100 428 Indian Rayon & Industries, Inc. GDR 8,300 147 Jones Apparel Group, Inc. (a) 4,000 98 Kellwood Co. 1,300 31 Korea Moolsan Co. 20,760 416 Kurabo Industries Ltd. 172,000 803 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT DURABLES - CONTINUED TEXTILES & APPAREL - CONTINUED Liz Claiborne, Inc. 16,400 $ 373 Nam Yeung Corp. 1,700 232 Nisshinbo Industries 297,000 3,296 Shu Kwang Corp. 3,448 65 Tokyo Style Co. Ltd. 114,000 2,035 Unifi, Inc. 72,200 1,805 VF Corp. 13,000 642 Warnaco Group, Inc. Class A (a) 40,100 1,398 Westpoint Stevens, Inc. Class A (a) 12,900 187 Youngone Corp. 728 10 13,500 TOTAL DURABLES 88,445 ENERGY - 3.3% COAL - 0.0% MAPCO, Inc. 10,000 560 ENERGY SERVICES - 0.9% BJ Services Co. (a) 19,000 375 Baker Hughes, Inc. 78,200 1,456 Commercial Del Plata 236,200 825 Dreco Energy Services Ltd. Class A (a) 13,000 120 Energy Service Co., Inc. (a) 36,300 540 Enterra Corp. (a) 15,800 352 Global Industries Ltd. (a) 27,900 558 Global Marine, Inc. (a) 292,300 1,242 Halliburton Co. 81,400 2,564 Helmerich & Payne, Inc. 14,200 399 Input/Output, Inc. (a) 26,200 621 Marine Drilling Cos., Inc. (a) 134,100 637 McDermott International, Inc. 19,900 512 Nabors Industries, Inc. (a) 64,000 392 Noble Drilling Corp. (a) 50,000 375 Nowsco Well Service Ltd. 103,400 1,539 Schlumberger Ltd. 236,100 12,839 Smith International, Inc. 32,000 496 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED ENERGY SERVICES - CONTINUED Tidewater, Inc. 66,500 $ 1,430 Weatherford International, Inc. (a) 45,000 557 27,829 INDEPENDENT POWER - 0.0% Thermo Electron Corp. (a) 13,450 617 OIL & GAS - 2.4% Amerada Hess Corp. 142,800 6,640 Amoco Corp. 41,100 2,435 Ampolex Ltd. Ord. 60,200 176 Anderson Exploration Ltd. (a) 9,200 105 Apache Corp. 37,500 947 Ashland Oil, Inc. 57,500 2,034 Atlantic Richfield Co. 2,000 202 Blue Range Resource Corp. Class A (a) 70,000 501 British Petroleum Co. PLC 63,813 402 British Petroleum Co. PLC ADR 236,972 17,950 Burlington Resources, Inc. 79,400 2,978 Camco International, Inc. 36,000 689 Canadian Natural Resources Ltd. 21,700 297 Coastal Corp. (The) 45,000 1,254 Enron Oil & Gas Co. 6,000 122 Isu Chemical Co. (a) 45,309 828 Kerr-McGee Corp. 21,000 1,021 Louis Dreyfus Natural Gas Corp. (a) 12,700 198 Louisiana Land & Exploration Co. 22,600 989 Mark Resources, Inc. (a) 106,600 714 Mobil Corp. 15,000 1,187 Morrison Petroleums Ltd. 161,800 1,114 Murphy Oil Corp. 58,300 2,536 Newfield Exploration Co. (a) 26,200 645 Noble Affiliates, Inc. 8,600 230 Norsk Hydro A.S. 53,800 1,973 Norsk Hydro A.S. ADR 41,600 1,534 Oryx Energy Co. 23,400 325 Pancanadian Petroleum Ltd. 33,800 1,082 Parker & Parsley Petroleum Co. 23,600 587 Petro-Canada 50,500 446 Poco Petroleums Ltd. (a) 42,900 271 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED OIL & GAS - CONTINUED Renaissance Energy Ltd. (a) 116,700 $ 2,508 Renaissance Energy Ltd. (g) 70,000 1,504 Rio Alto Exploration Ltd. (a) 64,800 380 Tesoro Petroleum Corp. (a) 9,000 88 Texaco, Inc. 32,100 1,926 Tosco Corp. 51,700 1,467 Total Compagnie Francaise des Petroles 77,956 4,584 Total SA sponsored ADR 64,669 1,892 Triton Energy Corp. (a) 15,600 507 Unocal Corp. 172,163 4,864 Vastar Resources, Inc. 10,300 300 Vintage Petroleum, Inc. 34,300 699 Western Gas Resources, Inc. 33,800 735 Yukong Ltd. 14,700 742 Yukong Ltd. (New) 493 24 74,632 TOTAL ENERGY 103,638 FINANCE - 7.0% BANKS - 2.9% Aomori Bank Ltd. 85,000 526 BNP CI Ord. 20,460 947 Banacci SA: de CV Class C 1,126,400 7,962 Class L Ord. 275,475 1,898 Banc One Corp. 79,420 2,373 Banco Bilbao Vizcaya SA Ord. (Reg.) 70,800 1,742 Banco de Galicia Y Buenos Aires SA sponsored ADR representing Class B shares 32,055 1,014 Banco Frances Del Rio PL (Reg.) 112,078 1,118 Banco Weise sponsored ADR 77,000 1,867 Bangkok Bank 31,500 325 BankAmerica Corp. 20,900 922 Bank of Boston Corp. 182,099 4,847 Bank International Indonesia Ord. 166,500 604 Bank of New York Co., Inc. 106,600 3,158 BanPonce Corp. 10,062 333 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED BANKS - CONTINUED Barnett Banks, Inc. 11,300 $ 500 BayBanks, Inc. 11,900 655 Boatmen's Bancshares, Inc. 16,900 525 Boram Bank (a) 41,760 575 Boram Bank (New) 9,925 130 CPR (Comp Par Reescompte) 35,527 2,276 CS Holdings (Bearer) (a) 7,320 2,990 CS Holdings (Bearer) (warrants) (a) 3,090 22 Chemical Banking Corp. 74,700 2,615 Cho Hung Bank Co. Ltd. 81,700 1,501 Cho Hung Bank Co. Ltd. (New) (a) 17,955 288 Citicorp 82,285 3,497 Comerica, Inc. 53,700 1,490 Deutsche Bank AG 11,000 4,785 Development Bank of Singapore (For. Reg.) 53,000 558 First American Corp. 15,500 512 First Bank System, Inc. 28,500 1,040 First Chicago Corp. 8,500 390 First Fidelity Bancorporation 15,642 657 First Union Corp. 73,686 3,187 Fleet Financial Group, Inc. 25,987 978 Grupo Financiero Bancomer SA de CV sponsored ADR, Series C (g) 144,900 3,477 HSBC Holdings: Ord. 57,022 613 PLC 232,000 2,590 Hanil Bank (a) 20,500 303 Istituto Mobiliare Italiano 203,200 1,406 Keycorp. 59,371 1,811 Kores First Bank, Inc. Ltd. 5,500 92 Kyung Nam Bank (a) 17,800 192 Kyungki Bank Ltd. (a) 30,800 336 Mercantile Bancorporation, Inc. 12,900 476 Mercantile Bankshares Corp. 16,600 367 Michigan National Corp. 15,900 1,212 Midlantic Corp. 32,700 903 Mitsubishi Trust & Banking 72,000 1,082 Mitsui Trust and Banking 43,000 477 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED BANKS - CONTINUED NationsBank Corp. 124,876 $ 6,118 North Fork Bancorporation, Inc. 2,500 40 Overseas Union Bank Ltd. (For. Reg.) 109,000 625 Panin Bank (For. Reg.) 347,300 634 Republic New York Corp. 11,600 505 Shawmut National Corp. 250,175 5,191 Signet Banking Corp. 240 8 Swiss Bank Corp. (Bearer) (a) 6,580 1,881 Trustmark Corp. 26,700 521 United Overseas Bank (For. Reg.) 127,000 1,276 Unidanmark AS Class A (a) 13,700 527 Shinhan Bank 6,450 148 Zions Bancorporation 13,100 517 92,135 CLOSED END INVESTMENT COMPANY - 0.2% Growth Fund of Spain, Inc. (a) 141,000 1,481 Morgan Stanley India Investment Fund, Inc. (a) 305,000 4,270 5,751 CREDIT & OTHER FINANCE - 0.6% American Express Co. 234,095 7,111 Beneficial Corp. 35,300 1,438 Central Investment & Finance Corp. 8,800 171 Dean Witter Discover & Co. 69,300 2,607 First National Finance Corporation PLC 1,323,000 1,439 GFC Financial Corp. 44,800 1,596 General Financial & Securities Public Co. Ltd. (For. Reg.) 23,900 304 Green Tree Acceptance, Inc. 105,400 2,833 Idris Hydraulic Malaysia BHD (a) 200,000 417 LG Merchant Banking Corp. 3,300 147 London American Growth Trust 708,000 480 Promise Co. Ltd. (a) 15,000 938 Shin Han Securities Co. (a) 6,600 102 Tong Yang Securities Co. Ltd. (a) 715 12 19,595 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED FEDERAL SPONSORED CREDIT - 0.8% Federal Home Loan Mortgage Corporation 101,100 $ 5,396 Federal National Mortgage Association 260,400 20,507 25,903 INSURANCE - 1.3% ACE Ltd. 23,200 557 Alexander & Alexander Services, Inc. 25,000 488 Allstate Corp. 172,300 4,113 American Bankers Insurance Group, Inc. 6,100 133 American International Group, Inc. 14,300 1,271 Assicurazioni Generali Spa 71,390 1,829 Baloise Holding (Reg.) 1,000 1,988 Corporacion Mapfre International Reas (Reg.) 24,800 1,139 Dai-Tokyo Fire & Marine Insurance Ord. 195,000 1,440 Equitable Iowa Companies 13,100 472 GAN (Groupe Des Assur Natl.) 9,640 475 General Re Corp. 19,700 2,086 Gryphon Holdings, Inc. (a) 4,700 71 International Nederlanden Groep CV A 32,647 1,409 John Alden Financial Corp. 47,300 1,732 Loews Corp. 18,900 1,670 MBIA, Inc. 24,300 1,449 NAC Re Corp. 18,000 459 Providian Corp. 22,900 721 Prudential Corp. 139,558 651 Royale Insurance Co. Ltd. 189,000 858 SAFECO Corp. 45,100 2,323 St. Paul Companies, Inc. (The) 75,600 3,071 SunAmerica, Inc. 20,100 837 Tokio Marine & Fire Insurance Co. Ltd. (The) 153,000 1,821 Travelers, Inc. (The) 148,900 4,894 20th Century Industries 26,000 332 UNUM Corp. 45,600 2,098 Vital Forsikring free shares 10,000 91 40,478 SAVINGS & LOANS - 0.2% Ahmanson (H.F.) & Co. 110,700 2,311 FirstFed Michigan Corp. 5,700 137 GP Financial Corp. 10,200 242 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED SAVINGS & LOANS - CONTINUED Golden West Financial Corp. 69,700 $ 2,762 Standard Federal Bank 31,100 847 Washington Mutual Savings Bank 28,800 587 6,886 SECURITIES INDUSTRY - 1.0% Bear Stearns Companies, Inc. 47,500 760 Boram Securities Co. Ltd. 22,000 339 Coryo Securities 16,520 275 Daehan Korean Blue-Chip Investment Trust (a)(g) 625,000 14,062 Hanshin Securities Co. Ltd. 4,400 110 Hyundai Securities Co. Ltd. (a) 7,344 170 KLB Securities Co. 9,268 147 Korea First Securities Co. (a) 34,618 576 Korea First Securities Co. (New) (a) 3,566 51 Lehman Brothers Holdings, Inc. 70,820 1,045 Lucky Securities Co. (a) 14,930 314 Merrill Lynch & Co., Inc. 40,800 1,413 Midland Walwyn, Inc. 204,400 1,293 Morgan Stanley Group, Inc. 38,200 2,373 Nomura Securities Co. Ltd. 266,000 5,500 PaineWebber Group, Inc. 94,400 1,357 Schwab (Charles) Corp. 22,800 675 Seoul Securities Co. (a) 22,440 357 Ssangyong Investment & Securities Co. 4,350 99 Ssangyong Investment & Securities Co. (New) 435 8 Sunkyong Securities Co. (a) 35,710 630 31,554 TOTAL FINANCE 222,302 HEALTH - 2.1% DRUGS & PHARMACEUTICALS - 1.0% Allergan, Inc. 90,800 2,304 American Home Products Corp. 12,000 720 Amgen, Inc. (a) 21,700 1,156 Biogen, Inc. 22,700 1,237 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT HEALTH - CONTINUED DRUGS & PHARMACEUTICALS - CONTINUED Bristol-Myers Squibb Co. 19,700 $ 1,130 Carter-Wallace, Inc. 75,000 1,022 Cellpro, Inc. (a) 15,300 306 Centocor, Inc. 6,500 120 Cephalon, Inc. (a) 7,700 82 COR Therapeutics, Inc. 35,000 534 Elan Corp. PLC ADR (a) 18,300 718 Hauser Chemical Research, Inc. (a) 38,300 239 Korea Green Cross Corp. (a) 5,104 693 Noven Pharmaceuticals, Inc. (a) 6,300 81 Pfizer, Inc. 173,700 12,008 Sankyo 45,000 1,126 Schering AG 600 368 Schering-Plough Corp. 39,300 2,791 Takeda Chemical Industries Ltd. 80,000 936 Warner-Lambert Co. 33,000 2,648 Shin Poong Pharmaceutical Co. 5,670 133 30,352 MEDICAL EQUIPMENT & SUPPLIES - 0.4% Baxter International, Inc. 64,000 1,800 Beckman Instruments, Inc. 10,200 301 Becton, Dickinson & Co. 24,400 1,177 Boston Scientific Corp. (a) 41,900 660 Johnson & Johnson 31,300 1,616 Kendall International, Inc. (a) 6,900 416 McKesson Corp. 12,200 1,241 Medtronic, Inc. 63,700 3,369 Owens and Minor, Inc. 61,050 1,023 Pall Corp. 41,100 709 St. Jude Medical, Inc. 25,200 902 Thermedics, Inc. (a) 17,750 268 13,482 MEDICAL FACILITIES MANAGEMENT - 0.7% Columbia/HCA Healthcare Corp. 104,550 4,548 Humana, Inc. (a) 174,200 4,115 Lincare Holdings, Inc. (a) 20,100 467 Oxford Health Plans, Inc. (a) 50,500 3,889 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT HEALTH - CONTINUED MEDICAL FACILITIES MANAGEMENT - CONTINUED United HealthCare Corp. 60,300 $ 3,196 U.S. Healthcare, Inc. 115,200 5,364 21,579 TOTAL HEALTH 65,413 HOLDING COMPANIES - 1.4% America Group Ltd. Class A 22,661 494 Brierley Investments Ltd. 8,935,365 6,780 CEWE Color Holding AG 1,700 469 Grupo Carso SA de CV sponsored ADR (a) 25,000 553 Grupo Carso SA de CV Class A-1 (a) 2,140,300 24,142 Grupo Sidek SA de Class L sponsored ADR 148,000 2,960 Jardine Matheson & Co. Ltd. Ord. 406,000 3,442 Jardine Strategic Holdings Ord. 131,000 531 Man AG Ord. 10,500 2,666 Sanluis Corp. Ord., Series A-2 161,100 1,803 TOTAL HOLDING COMPANIES 43,840 INDUSTRIAL MACHINERY & EQUIPMENT - 2.0% ELECTRICAL EQUIPMENT - 0.7% Avid Technology, Inc. (a) 16,600 560 Cherry Corp. (a) 18,000 297 Cherry Corp. Class A (a) 12,200 207 General Electric Co. 145,700 7,012 General Signal Corp. 27,200 955 Hitachi Koki Co. Ord. 105,000 1,080 Hutchison Whampoa Ltd. Ord. 100,000 472 Il Jin Electric & Machinery 4,400 126 Mitsubishi Electric Co. Ord. 493,000 3,491 Mori Seiki Co. Ord. 41,000 1,092 Omron Corp. 102,000 1,759 Philips NV 47,600 1,446 Philips Electronics 70,130 2,143 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED ELECTRICAL EQUIPMENT - CONTINUED Scientific-Atlanta, Inc. 23,800 $ 973 Yaesu Musen Co. Ltd. 50,000 827 22,440 INDUSTRIAL MACHINERY & EQUIPMENT - 1.0% AIDA Engineering Ltd. Ord. 59,000 493 Amada Metrecs Co. Ltd. 30,000 514 Amadasonoike Co. Ltd. 120,000 1,020 Cascade Corp. 25,000 619 Caterpillar, Inc. 197,600 10,696 Cooper Industries, Inc. 28,800 1,159 Daewoo Heavy Industries Ltd. (a) 10,500 231 Deere & Co. 109,500 7,514 Finning Ltd. 93,600 1,498 Goldstar Industrials Systems Co. Ltd. RFD (a) 2,200 89 Hitachi Construction Machinery Co. Ltd. 100,000 1,331 Joy Technologies, Inc. Class A (a) 39,400 571 Kennametal, Inc. 25,200 658 Keystone International, Inc. 4,700 92 Korea Machinery Co. Ltd. (a) 22,000 386 Nokia Corp. sponsored ADR (a) 10,200 597 Parker-Hannifin Corp. 13,400 534 Regal-Beloit Corp. 33,000 503 SKF AB Ord. (a) 83,700 1,459 Soosan Heavy Industrial Co. 11,000 255 Ssangyong Heavy Industries Co. Ltd. (a) 23,100 335 TRINOVA Corp. 7,400 258 Tsugami Corp. 86,000 519 31,331 POLLUTION CONTROL - 0.3% Attwoods PLC: ADR 404,800 3,694 Ord. 209,100 376 Browning-Ferris Industries, Inc. 25,400 806 Laidlaw, Inc. Class B 177,500 1,371 OHM Corp. (a) 5,100 59 Sanifill, Inc. (a) 9,000 200 Sevenson Environmental Services, Inc. 10,200 181 United Waste Systems, Inc. (a) 5,500 136 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED POLLUTION CONTROL - CONTINUED WMX Technologies, Inc. 41,800 $ 1,207 Western Waste Industries, Inc. (a) 10,200 181 8,211 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 61,982 MEDIA & LEISURE - 1.7% BROADCASTING - 0.5% Associated Communications Corp. Class B (a) 14,400 364 CBS, Inc. 4,600 1,475 Capital Cities/ABC, Inc. 46,000 3,772 Capital Radio PLC 207,000 1,227 Grupo Televisa GDS (g) 22,500 1,302 Heritage Media Corp. Class A (a) 4,500 98 Home Shopping Network, Inc. (a) 11,314 122 Pakistan Telecommunications Voucher GDR (g) 18,650 3,561 Scandinavian Broadcasting Corp. (a) 10,800 284 Tele-Communications, Inc. Class A (a) 133,400 2,960 15,165 ENTERTAINMENT - 0.0% Royal Caribbean Cruises Ltd. 13,400 348 LEISURE DURABLES & TOYS - 0.2% Brunswick Corp. 89,800 1,807 Callaway Golf Co. 53,800 1,850 Champion Enterprises, Inc. (a) 10,100 396 Fleetwood Enterprises, Inc. 28,900 726 Outboard Marine Corp. 39,400 896 Samick Musical Instruments (a) 3,900 61 Sports and Recreation, Inc. (a) 15,600 406 West Marine, Inc. (a) 30,900 695 6,837 LODGING & GAMING - 0.7% Accor SA 11,000 1,264 Bally Gaming International, Inc. (warrants) (a) 37,500 263 Caesars World, Inc. (a) 2,800 121 Four Seasons Hotels, Inc. 69,900 826 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT MEDIA & LEISURE - CONTINUED LODGING & GAMING - CONTINUED Genting BHD 78,000 $ 700 Grupo Posadas SA de CV Class L (a) 134,200 154 Grupo Situr SA de CV Class B (a) 3,041,801 10,426 Host Marriott Corp. 18,203 180 La Quinta Motor Inns, Inc. 148,975 5,344 Marriott International, Inc. 23,803 687 Mirage Resorts, Inc. (a) 57,100 1,228 Resorts World BHD 287,000 1,814 Trump Plaza Holding Associates (warrants) (a) 35 14 23,021 PUBLISHING - 0.3% American Greetings Corp. Class A 20,000 578 Enquirer/Star Group, Inc. Class A 16,600 280 Gannett Co., Inc. 15,100 725 McGraw-Hill, Inc. 5,700 418 Meredith Corp. 11,100 516 News International PLC 400,000 1,532 Singapore Press Holdings Ltd. (For. Reg.) 15,000 263 Telegraaf 5,400 597 Thomson Corp. 66,400 778 Times Mirror Co. Series A 20,000 615 Torstar Corp. Class B 165,600 3,019 9,321 RESTAURANTS - 0.0% Bertucci's, Inc. (a) 13,900 156 Brinker International, Inc. (a) 6,300 151 McDonald's Corp. 36,000 946 1,253 TOTAL MEDIA & LEISURE 55,945 NONDURABLES - 2.7% AGRICULTURE - 0.1% Molinos Rio de La Plata (Reg.) (a) 187,339 1,780 BEVERAGES - 0.7% Buenos Aires Embotelladora sponsored ADR 31,100 1,162 Comp Cervecerias Unidas SA ADR 70,800 1,735 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - CONTINUED BEVERAGES - CONTINUED Dr. Pepper/Seven-Up Companies, Inc. 9,500 $ 221 Emvasa Del Valle de Enah Ord. 530,800 2,767 Fomento Economico Mexicano SA de CV Class B 559,900 3,001 Grupo Embotellador de Mexico CPO GDR (a) 78,100 2,265 Kirin Brewery Co. Ltd. 22,000 255 Panamerican Beverages, Inc. CLass A 61,200 2,196 PepsiCo, Inc. 35,100 1,163 Quilmes Industries SA 35,900 839 Seagram Co. Ltd. 208,300 6,317 Whitbread Class A 71,534 608 22,529 FOODS - 0.6% Archer-Daniels-Midland Co. 51,930 1,350 Borden, Inc. 121,200 1,667 ConAgra, Inc. 47,800 1,506 Dean Foods Co. 37,200 1,125 Dole Food, Inc. 21,700 602 Herdez SA de CV: Class A 1,005,100 1,021 Class B 10,000 10 IBP, Inc. 104,100 3,409 Miwon Co. Ltd. (a) 24,101 637 Nestle SA (Reg.) 1,500 1,362 Nippon Suisan Kaisha Ltd. (a) 273,000 1,322 Ottogi Foods RFD 7,200 221 Samyang Foods Co. (a) 4,400 196 Viscofan Envolturas Celulo SA 31,000 704 Weston George Ltd. 81,900 2,377 17,509 HOUSEHOLD PRODUCTS - 0.1% First Brands Corp. 12,800 429 Orkla AS Class A free shares 40,800 1,184 Premark International, Inc. 10,900 461 Pyung HWA Industrial Co. 6,560 259 Safeskin Corp. (a) 9,000 128 Uni Charm Corp. Ord. 78,000 2,108 4,569 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - CONTINUED TOBACCO - 1.2% Imasco Ltd. 48,800 $ 1,380 Philip Morris Companies, Inc. 477,000 29,157 RJR Nabisco Holdings Corp. (a) 782,300 5,378 UST, Inc. 99,200 2,840 38,755 TOTAL NONDURABLES 85,142 PRECIOUS METALS - 1.0% Agnico Eagle Mines Ltd. 116,800 1,684 American Barrick Resources Corp. 276,900 7,341 Battle Mountain Gold Co. 130,600 1,665 Echo Bay Mines Ltd. 80,700 1,111 Franco Nevada Mining Corp. 32,800 2,124 Free State Consolidated Gold Mines Ltd. ADR 196,900 3,409 Hecla Mining Co. 41,800 554 Homestake Mining Co. 211,200 4,488 Newmont Mining Corp. 86,100 3,875 Pegasus Gold, Inc. 61,900 1,025 Placer Dome, Inc. 159,300 4,002 Industrias Penoles (a) 20,000 58 TOTAL PRECIOUS METALS 31,336 RETAIL & WHOLESALE - 2.6% APPAREL STORES - 0.4% AnnTaylor Stores Corp. (a) 43,200 1,556 Burlington Coat Factory Warehouse Corp. (a) 18,600 251 Edison Brothers Stores, Inc. 11,400 262 Esprit Asia Holdings Ltd. 1,294,000 653 Gap, Inc. 120,200 3,952 Gymboree Corp. (a) 8,000 238 Lamonts Apparel, Inc. (a) 25,828 19 Limited, Inc. (The) 64,300 1,262 Ross Stores, Inc. 25,800 377 TJX Companies, Inc. 114,400 2,402 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT RETAIL & WHOLESALE - CONTINUED APPAREL STORES - CONTINUED United States Shoe Corp. 49,000 $ 1,078 Xebio Co. Ltd. 10,700 464 12,514 DRUG STORES - 0.0% Revco (D.S.), Inc. 10,500 219 Rite Aid Corporation 30,000 623 842 GENERAL MERCHANDISE STORES - 1.1% Caldor Corp. 6,500 201 Carson Pirie Scott & Co. (a) 300 6 Cifra SA 2,638,500 7,381 Consolidated Stores Corp. 6,500 106 Controladora Commercial Mexicana SA 257,300 549 Dayton Hudson Corp. 24,100 1,844 Dillard Department Stores, Inc. Class A 59,000 1,578 Federated Department Stores, Inc. (a) 247,600 5,695 Hornbach Baumarket AG (Bearer) 800 464 Ito Yokado Co. Ltd. 30,000 1,601 Keum Kang Development Industries Co. (a) 2,800 53 Meyer (Fred), Inc. (a) 6,500 214 Michaels Stores, Inc. (a) 10,100 419 Midopa Co. 31,761 501 Sears, Roebuck & Co. 152,800 7,334 Sears Roebuck de Mexico SA 272,600 3,532 Sears Roebuck de Mexico SA de CV ADR representing Series B-1 (a)(g) 24,700 639 Value City Department Stores, Inc. (a) 27,100 359 Wal-Mart Stores, Inc. 87,700 2,050 34,526 GROCERY STORES - 0.3% Argyll Group PLC Ord. 178,000 766 Fleming Companies, Inc. 17,300 404 Food Lion, Inc. Class A 173,000 973 Great Atlantic & Pacific Tea Co., Inc. 15,000 381 Izumi Co. Ord. 18,000 456 Kroger Co. (The) (a) 56,500 1,504 Loblaw Companies, Ltd. 65,200 1,074 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT RETAIL & WHOLESALE - CONTINUED GROCERY STORES - CONTINUED Marukyo Corp. 25,000 $ 855 Safeway, Inc. (a) 88,700 2,605 Stop & Shop Companies, Inc. (a) 27,700 696 Supervalu, Inc. 26,300 684 Tae Gu Department Store Co. (a) 2,160 77 Tae Gu Department Store Co. Bonus shares (a) 108 4 10,479 RETAIL & WHOLESALE, MISCELLANEOUS - 0.7% Best Buy Co., Inc. (a) 71,800 2,809 Circuit City Stores, Inc. 60,900 1,576 Great Universal Stores PLC Ord. Class A 49,191 441 Lillian Vernon Corp. 10,100 187 Little Switzerland, Inc. (a) 17,100 111 Lowe's Companies, Inc. 80,900 3,125 Micro Warehouse, Inc. (a) 63,900 2,029 Office Depot, Inc. (a) 22,050 573 Petsmart, Inc. (a) 27,500 1,045 Rex Stores Corp. (a) 71,100 1,431 Sotheby's Holdings, Inc. Class A 25,200 324 Spiegel, Inc. Class A 5,100 92 Staples, Inc. 6,500 214 Tiffany & Company, Inc. 20,500 759 Toys "R" Us, Inc. (a) 120,800 4,304 Uny Co. Ltd. 51,000 818 Viking Office Products, Inc. (a) 25,000 756 Wickes PLC 722,100 1,007 21,601 TRADING COMPANIES - 0.1% Hyundai Corp. (a) 17,600 542 Hyundai Corp. (New) (a) 5,399 152 Kanematsu-Gosho Ltd. 157,000 863 Nam Sung Corp. 6,864 132 1,689 TOTAL RETAIL & WHOLESALE 81,651 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT SERVICES - 0.7% LEASING & RENTAL - 0.1% Blockbuster Entertainment Corp. 14,700 $ 397 Hollywood Entertainment Corp. (a) 38,250 1,071 Orix Corp. 58,000 2,311 3,779 PRINTING - 0.2% Alco Standard Corp. 8,500 528 Donnelley (R.R.) & Sons Co. 58,300 1,749 Komori Corp. 33,000 849 New England Business Service, Inc. 36,500 648 Reynolds & Reynolds Co. Class A 35,900 902 4,676 SERVICES - 0.4% ADT Ltd. 125,500 1,443 Borg Warner Securities Corp. (a) 1,500 17 CDI Corp. (a) 10,200 134 Heidemij NV 50,700 520 Manpower, Inc. 53,900 1,476 Norrell Corp. GA 5,000 90 Omnium Gestion Financement SA 27,884 4,182 Pittston Co. Services Group 20,000 570 Plantsbrook Group PLC 553,000 1,525 Robert Half International, Inc. (a) 9,000 172 Rural/Metro Corp. (a) 2,000 37 Western Atlas, Inc. 43,300 1,894 Zebra Technologies Corp. Class A (a) 24,100 886 12,946 TOTAL SERVICES 21,401 TECHNOLOGY - 7.1% COMMUNICATIONS EQUIPMENT - 0.7% Ascom Holding Ltd. (Bearer) 400 472 Cabletron Systems, Inc. (a) 54,000 2,572 Cisco Systems, Inc. 51,400 1,407 DSC Communications Corp. (a) 13,300 379 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED COMMUNICATIONS EQUIPMENT - CONTINUED Ericsson (L.M.) Telephone Co.: Class B 9,700 $ 516 Class B ADR 29,700 1,596 General Instrument Corp. (a) 68,000 1,938 Harmon Industries, Inc. 2,200 46 Leader Universal Holdings BHD 47,000 270 Network General Corp. (a) 33,600 659 Newbridge Networks Corp. (a) 33,100 1,059 Tellabs, Inc. 54,900 2,333 3Com Corp. (a) 258,000 9,643 22,890 COMPUTER SERVICES & SOFTWARE - 1.0% America Online, Inc. 6,500 444 BancTec, Inc. (a) 14,700 364 Compuware Corp. (a) 66,400 3,124 Corel Systems Corp. (a) 26,500 555 Fourth Dimension Software (a) 33,000 248 Gupta Corp. (a) 1,900 19 Henry (Jack) & Associates, Inc. 40,000 340 Informix Corp. 44,300 1,229 Intuit (a) 25,900 1,133 Lotus Development Corp. (a) 65,800 2,418 MicroAge, Inc. (a) 88,000 1,100 Microsoft Corp. (a) 22,800 1,280 Novell, Inc. (a) 54,300 801 Oracle Systems Corp. (a) 109,600 4,712 Parametric Technology Corp. (a) 84,800 2,820 Peoplesoft, Inc. (a) 41,800 2,017 Platinum Technology, Inc. (a) 32,400 644 Powersoft Corp. (a) 16,000 862 SHL Systemhouse, Inc. (a) 114,400 644 Softdesk, Inc. (a) 6,300 112 Stratacom, Inc. 21,300 793 SunGard Data Systems, Inc. (a) 8,600 305 Sybase, Inc. (a) 53,200 2,441 Viewlogic Systems, Inc. 57,900 1,129 Wonderware Corp. (a) 42,800 910 30,444 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED COMPUTERS & OFFICE EQUIPMENT - 2.4% Canon, Inc. 295,000 $ 5,176 Compaq Computer Corp. (a) 428,100 13,966 Daewoo Telecommunication (a) 9,500 144 Daewoo Telecommunication (New) 1,850 26 Diebold, Inc. 51,800 2,130 EMC Corp. (a) 173,100 3,484 Exabyte (a) 31,400 644 Fore Systems, Inc. (a) 200 9 Fujitsu Ltd. 275,000 2,885 GBC Technologies, Inc. (a) 30,800 285 General Motors Corp. Class E 24,800 942 Hewlett-Packard Co. 51,000 4,456 International Business Machines Corp. 357,600 24,852 International Imaging Materials, Inc. (a) 35,700 884 Radius, Inc. (a) 26,200 226 Read Rite Corp. 87,400 1,639 RICOH Co. Ltd. Ord. 101,000 926 SCI Systems, Inc. (a) 87,800 1,855 Silicon Graphics, Inc. (a) 144,200 3,713 Stratus Computer, Inc. (a) 12,600 438 Sun Microsystems, Inc. (a) 81,900 2,406 Syquest Technology, Inc. (a) 54,100 548 Tandem Computers, Inc. (a) 51,500 837 Tech Data Corp. (a) 30,200 581 Tricord Systems, Inc. (a) 40,200 224 Trigem Computer, Inc. 10,990 313 Xerox Corp. 24,700 2,637 76,226 ELECTRONIC INSTRUMENTS - 0.5% Applied Materials, Inc. (a) 78,600 3,674 Electro Scientific Industries, Inc. (a) 35,000 516 KLA Instruments Corp. (a) 70,900 3,510 Lam Research Corp. (a) 44,200 1,779 Megatest Corp. (a) 26,100 470 Microfluidics International Corp. (a) 10,100 43 TSI, Inc. 3,750 33 Tektronix, Inc. 25,300 980 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED ELECTRONIC INSTRUMENTS - CONTINUED Teradyne, Inc. (a) 98,700 $ 2,899 Varian Associates, Inc. 21,000 767 14,671 ELECTRONICS - 2.4% Advanced Micro Devices, Inc. (a) 67,000 1,993 Aiwa Co. Ltd. 42,000 1,042 AMP, Inc. 5,800 449 Anthem Electronics, Inc. (a) 13,000 419 Atmel Corp. (a) 75,100 2,356 Cyrix Corp. (a) 9,100 412 Daewoo Electronics Components Co. (a) 6,947 109 Daewoo Electronics Components Co. (New) 1,529 22 GTI Corp. (a) 15,000 248 Hirose Electric Co. Ltd. 32,000 2,001 Hitachi Ltd. 1,173,000 11,310 Hitachi Ltd. ADR 3,900 379 Hitachi Maxell Ltd. 15,000 277 Intel Corp. 193,800 11,919 LSI Logic Corp. 58,900 2,201 Linear Technology Corp. 13,400 594 Micron Technology, Inc. 191,750 6,615 Molex, Inc. 7,600 298 Motorola, Inc. 202,900 10,703 National Semiconductor Corp. (a) 41,900 655 Nichicon Corp. 208,000 2,769 Ryoyo Electro Corp. Ord. 72,000 1,953 Rohm Co. Ltd. 30,000 1,307 Samsung Electronics Co. Ltd.: GDR part dividend (g) 1,396 50 GDR representing common (a)(g) 1,517 101 GDS (a)(g) 16,100 1,071 Solectron Corp. (a) 69,200 1,825 TDK Corp. 61,000 2,713 Texas Instruments, Inc. 110,300 7,542 Toshiba Corp. 381,000 2,863 76,196 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED PHOTOGRAPHIC EQUIPMENT - 0.1% Fuji Photo Film Co. Ltd. 21,000 $ 472 Polaroid Corp. 39,600 1,391 1,863 TOTAL TECHNOLOGY 222,290 TRANSPORTATION - 1.5% AIR TRANSPORTATION - 0.7% AMR Corp. (a) 32,600 1,679 Comair Holdings, Inc. 9,900 225 Delta Air Lines, Inc. 16,700 747 Japan Airlines Co. Ltd. 76,000 573 KLM Royal Dutch Airlines (a) 23,800 652 KLM Royal Dutch Airlines Ord. (a) 125,300 3,497 Korea Air Lines RFD 4,457 81 Korean Air (a) 35,190 1,273 Malaysian Helicopter Services BHD 850,800 2,639 SkyWest, Inc. 21,100 468 Technology Resources (a) 2,127,000 8,712 20,546 RAILROADS - 0.5% CSX Corp. 58,500 4,007 Canadian Pacific Ltd. Ord. 369,500 6,189 Chicago & North Western Holdings Corp. (a) 15,200 314 East Japan Railway Ord. (a) 247 1,208 Illinois Central Corp. 50,400 1,512 Johnstown America Industries, Inc. (a) 900 24 Santa Fe Pacific Corp. 186,700 4,224 Southern Pacific Rail Corp. (a) 92,600 1,736 Trinity Industries, Inc. 6,250 198 Wisconsin Central Transportation Corp. (a) 1,600 66 19,478 SHIPPING - 0.2% Han Jin Transportation Co. (a) 15,862 479 Kawasaki Kisen Kaisha Ltd. (a) 272,000 1,026 Mitsui OSK Lines 510,000 2,011 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TRANSPORTATION - CONTINUED SHIPPING - CONTINUED Shun Tak Holdings Ltd. 868,000 $ 730 Transportacion Maritima Mexicana SA de CV ADR representing L shares 69,700 566 4,812 TRUCKING & FREIGHT - 0.1% Carolina Freight Corp. 11,000 102 Hitachi Transport System Co. 113,000 1,208 Roadway Services, Inc. 17,500 1,006 Yellow Corp. 22,300 415 2,731 TOTAL TRANSPORTATION 47,567 UTILITIES - 4.6% CELLULAR - 0.4% Airtouch Communications (a) 115,700 3,312 Premier Page Co. (a) 18,000 158 Rogers Cantel Mobile Communications, Inc. (non-vtg.) (a) 63,500 1,843 Security Services Ord. 160,000 1,912 Vodafone Group PLC sponsored ADR 163,200 5,120 12,345 ELECTRIC UTILITY - 1.8% AES Corp. 30,700 606 American Electric Power Co., Inc. 29,100 913 Baltimore Gas & Electric Co. 40,700 936 Carolina Power & Light Co. 18,000 475 Centerior Energy Corp. 32,400 304 Central & South West Corp. 29,000 645 Central Costanera SA ADR (g) 22,400 806 Consolidated Electric Power Asia Ltd. 246,600 557 Consolidated Edison Co. of New York, Inc. 37,900 943 DPL, Inc. 24,200 472 Detroit Edison Company 41,100 1,048 Dominion Resources, Inc. 17,600 656 Duke Power Co. 11,000 429 EVN (Energie-Versor Nieder) 4,100 525 Empresa Nacional De Electricidad SA sponsored ADR 22,800 975 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED Entergy Corp. 50,665 $ 1,178 FPL Group, Inc. 18,700 608 Fuerzas Electricas Cataluna Class A 513,900 2,941 Fuji Electric Co. Ltd. 343,000 1,937 General Public Utilities Corp. 88,900 2,200 Hong Kong Electric Holdings Ord. 998,000 3,274 Houston Industries, Inc. 15,000 529 Iberdrola SA 177,340 1,123 Illinova Corp. 68,700 1,322 Korea Electric Power Corp. 152,000 7,041 NIPSCO Industries, Inc. 12,500 342 New England Electric Systems 10,700 326 Northern States Power Co. 9,800 414 Ohio Edison Co. 36,800 699 PSI Resources, Inc. 40,700 911 Peco Energy Co. 117,600 2,984 Pacific Gas & Electric Co. 28,700 653 PacifiCorp. 54,400 918 Pinnacle West Capital Corp. 17,100 306 Public Service Enterprise Group, Inc. (a) 37,600 987 SCEcorp 49,100 638 Scottish Power PLC 234,151 1,314 Sevillana de Electricidad 155,600 752 Southern Co. 54,800 1,021 Texas Utilities Co. 13,986 456 Union Electric Co. 12,700 445 Union Electrica Fenosa 360,300 1,563 Veba Vereinigte Elektrizitaets & Bergwerks AG Ord. 23,200 7,698 54,870 GAS - 0.2% Columbia Gas System, Inc. (The) (a) 30,900 830 Enron Corp. 43,400 1,314 ENSERCH Corp. 28,700 398 Gas Natural SDG SA Series E 5,000 422 MCN Corp. 23,900 863 Noram Energy Corp. 50,000 325 Pacific Enterprises 23,200 493 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED GAS - CONTINUED Questar Corp. 10,400 $ 295 Sonat, Inc. 27,700 869 Tejas Gas Corp. (a) 10,000 451 Westcoat Energy, Inc. 6,700 110 Williams Companies, Inc. 34,100 1,024 7,394 TELEPHONE SERVICES - 2.2% ALC Communications Corp. (a) 32,100 1,051 AT&T Corp. 12,300 664 Ameritech Corp. 122,900 4,947 Bell Atlantic Corp. 16,600 880 BellSouth Corp. 36,900 2,057 MFS Communications, Inc. (a) 10,000 343 Nippon Telegraph & Telephone Ord. 88 781 NYNEX Corp. 34,800 1,340 Pacific Telesis Group 26,200 806 Rochester Telephone Corp. 7,500 165 Koninklijke PPT Nederland 67,400 2,033 Southwestern Bell Corp. 119,500 5,079 Sprint Corporation 127,200 4,850 Telebras: ON 100,000,000 4,924 PN (Reg.) (a) 2,279,702 142 Telecom Argentina Stet France 346,500 2,315 Telecom Italia Ord. 1,675,700 4,741 Telefonica Argentina Class B 210,900 1,456 Telefonica de Espana SA: Ord. 225,200 3,042 sponsored ADR 18,700 757 sponsored ADR representing shares Ord. Class L 237,000 14,812 Telesp PN (Reg.) 23,700,000 13,475 70,660 TOTAL UTILITIES 145,269 TOTAL COMMON STOCKS (Cost $1,372,330) 1,466,905 PREFERRED STOCKS - 0.7% MATURITY VALUE (NOTE 1) AMOUNT CONVERTIBLE PREFERRED STOCKS - 0.2% BASIC INDUSTRIES - 0.1% METALS & MINING - 0.1% Alumax, Inc., Series A, $4.00 (a) 3,533 $ 484 Reynolds Metals Co. $3.31 26,000 1,401 TOTAL BASIC INDUSTRIES 1,885 DURABLES - 0.0% AUTOS, TIRES, & ACCESSORIES - 0.0% Ford Motor Co. Series A (Del.) $4.20 1,600 147 ENERGY - 0.0% OIL & GAS - 0.0% Unocal Corp. $3.50 (g) 21,200 1,128 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% ELECTRICAL EQUIPMENT - 0.0% Westinghouse Electric Corp. $1.30 (g) 32,600 444 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% Cooper Industries, Inc. $8.00 exchangable 16,000 380 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 824 NONDURABLES - 0.1% HOUSEHOLD PRODUCTS - 0.0% Revlon Group, Inc., Series B, pay-in-kind $14.875 4,600 449 TOBACCO - 0.1% RJR Nabisco Holdings Corp., Series A, depositary shares representing 1/4 share 250,900 1,787 TOTAL NONDURABLES 2,236 RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Supermarkets General Holdings Corp. exchangeable pay-in-kind $3.52 10,900 221 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONVERTIBLE PREFERRED STOCKS - CONTINUED TECHNOLOGY - 0.0% COMPUTER SERVICES & SOFTWARE - 0.0% Ceridian Corp. 6,800 $ 409 TOTAL CONVERTIBLE PREFERRED STOCKS 6,850 NONCONVERTIBLE PREFERRED STOCKS - 0.5% BASIC INDUSTRIES - 0.0% IRON & STEEL - 0.0% Dongbu Steel Co. Ltd. 15,400 282 Geneva Steel Co. 14% exchangable (a) 4,500 573 TOTAL BASIC INDUSTRIES 855 CONSTRUCTION & REAL ESTATE - 0.0% CONSTRUCTION - 0.0% Dongbu Construction Co. 1,100 11 DURABLES - 0.0% AUTOS, TIRES, & ACCESSORIES - 0.0% Hyundai Motor Service Co. (a) 2,821 97 ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd. 18,800 53 FINANCE - 0.2% CREDIT & OTHER FINANCE - 0.0% Tong Yang Securities 35,780 439 INSURANCE - 0.1% SAI (Sta Assicur Industriale) Risp 155,600 1,158 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONCONVERTIBLE PREFERRED STOCKS - CONTINUED FINANCE - CONTINUED SAVINGS & LOANS - 0.1% California Federal Bank 10 5/8% 16,500 $ 1,747 First Madison Bank FSB 11 1/2% 14,800 1,547 3,294 TOTAL FINANCE 4,891 HEALTH - 0.0% DRUGS & PHARMACEUTICALS - 0.0% Shin Poong Pharmaceutical Co. (a) 1,800 36 UTILITIES - 0.3% TELEPHONE SERVICES - 0.3% Stet (Societa Finanziaria Telefonica) Spa 3,820,000 9,722 TOTAL NONCONVERTIBLE PREFERRED STOCKS 15,665 TOTAL PREFERRED STOCKS (Cost $19,098) 22,515 CORPORATE BONDS - 7.4% MOODY'S RATINGS (D) PRINCIPAL (UNAUDITED) AMOUNT (C) (000S) CONVERTIBLE BONDS - 0.1% BASIC INDUSTRIES - 0.0% IRON & STEEL - 0.0% Essar Gujarat Ltd. euro 5 1/2%, 8/5/98 - $ 250 449 PAPER & FOREST PRODUCTS - 0.0% Stone Consolidated Corp. 8%, 12/31/03 B2 CAD 840 856 TOTAL BASIC INDUSTRIES 1,305 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) CONVERTIBLE BONDS - CONTINUED DURABLES - 0.0% TEXTILES & APPAREL - 0.0% Shinwon Corp. 1/2%, 12/31/08 - $ 180 $ 223 FINANCE - 0.1% CREDIT & OTHER FINANCE - 0.1% Industrial Credit & Investment Corp. 2 1/2%, 4/3/00 (g) - 685 603 SCICI Ltd. euro 3 1/2%, 4/1/04 - 330 363 966 SECURITIES INDUSTRY - 0.0% Peregrine Investment Financial Cayman Ltd. 4 1/2%, 12/1/00 (g) - 530 429 TOTAL FINANCE 1,395 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% ELECTRICAL EQUIPMENT - 0.0% Daewoo Electronics euro 3 1/2%, 12/31/07 - 500 765 NONDURABLES - 0.0% BEVERAGES - 0.0% Jinro Ltd. euro 1/4%, 9/30/09 - 180 160 RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Kroger Co. 6 3/8%, 12/1/99 B2 100 146 TRADING COMPANIES - 0.0% Daewoo Corp. euro 1/4%, 12/31/08 - 135 171 TOTAL RETAIL & WHOLESALE 317 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) CONVERTIBLE BONDS - CONTINUED TECHNOLOGY - 0.0% COMPUTERS & OFFICE EQUIPMENT - 0.0% Tae Il Media Co. Ltd. 1/2%, 12/31/98 - CHF 100 $ 63 Unisys Corp. 8 1/4%, 8/1/00 B2 150 173 TOTAL TECHNOLOGY 236 TOTAL CONVERTIBLE BONDS 4,401 NONCONVERTIBLE BONDS - 7.3% AEROSPACE & DEFENSE - 0.0% DEFENSE ELECTRONICS - 0.0% Tracor, Inc. 10 7/8%, 8/15/01 B2 350 347 BASIC INDUSTRIES - 0.7% CHEMICALS & PLASTICS - 0.3% G-I Holdings, Inc. 0%, 10/1/98 Ba3 6,520 4,042 Huntsman Corp.: 10 5/8%, 4/15/01 B1 210 215 11%, 3/31/04 B1 50 52 IMC Fertilizer Group, Inc. 10 1/8%, 6/15/01 B3 730 730 NL Industires, Inc. 11 3/4%, 10/15/03 B1 320 330 OSI Specialties, Inc. 9 1/4%, 10/1/02 B1 310 285 Rexene Corp. 9%, 11/15/99 - 1,570 1,562 UCC Corp. 9%, 9/1/00 B1 2,370 2,287 9,503 IRON & STEEL - 0.0% WCI Steel, Inc. Series B, 10 1/2%, 3/1/02 B1 450 446 METALS & MINING - 0.0% Sherritt, Inc. 11%, 3/31/04 B1 830 593 Sifto Canada, Inc. 8 1/2%, 7/15/00 B1 900 828 1,421 PAPER & FOREST PRODUCTS - 0.4% Container Corp. America: 14%, 12/1/01 B3 2,150 2,346 9 3/4%, 4/1/03 B3 800 772 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Rainy River Forest Products 10 3/4%, 10/15/01 Ba3 $ 350 $ 349 Repap Wisconsin, Inc.: 8 1/4%, 2/1/02 B1 4,940 4,335 9 7/8%, 5/1/06 B3 820 699 Stone Container Corp.: 9 7/8%, 2/1/01 B1 2,730 2,556 11 1/2%, 10/1/04 B1 560 563 Valcor, Inc. 9 5/8%, 11/1/03 B1 60 55 11,675 TOTAL BASIC INDUSTRIES 23,045 CONGLOMERATES - 0.0% Sequa Corp. 9 3/8%, 12/15/03 B3 310 280 CONSTRUCTION & REAL ESTATE - 0.9% BUILDING MATERIALS - 0.6% Adience, Inc. 11%, 6/15/0 - 700 543 Building Materials Corp. of America 0%, 7/1/04 (e) (g) B1 4,260 2,300 Cemex SA and Tolmex SA de CV euro 8 7/8%, 6/10/98 Ba2 1,440 1,422 Cemex SA 8 7/8%, 6/10/98 (g) Ba2 960 948 Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 4,260 3,768 Triangle Pacific Corp. 10 1/2%, 8/1/03 B2 1,020 1,000 USG Corp.: 10 1/4%, 12/15/02 B1 660 672 Series B, 10 1/4%, 12/15/02 B1 1,585 1,619 Series B, 9 1/4%, 9/15/01 B1 6,780 6,457 18,729 CONSTRUCTION - 0.3% Baldwin Co. Series B, 10 3/8%, 8/1/03 B2 60 47 Empresas ICA Sociedad Controladora SA de CV 9 3/4%, 2/11/98 (g) Ba3 1,700 1,713 ICA euro 9 3/4%, 2/11/98 - 960 967 Kaufman & Broad Home Corp. 9 3/8%, 5/1/03 Ba3 219 199 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED CONSTRUCTION & REAL ESTATE - CONTINUED CONSTRUCTION - CONTINUED MDC Holdings, Inc. 11 1/8%, 7/15/03 - $ 390 $ 351 Ryland Group, Inc. 9 5/8%, 6/1/04 Ba3 620 567 U.S. Home Corp. 9 3/4%, 6/15/03 Ba3 5,450 4,878 8,722 TOTAL CONSTRUCTION & REAL ESTATE 27,451 DURABLES - 0.0% TEXTILES & APPAREL - 0.0% Westpoint Stevens, Inc.: 8 3/4%, 12/15/01 B1 780 718 9 3/8%, 12/15/05 B3 540 486 TOTAL DURABLES 1,204 ENERGY - 0.6% ENERGY SERVICES - 0.4% Falcon Drilling, Inc. 9 3/4%, 1/15/01 B2 3,210 3,146 TransTexas Gas Corp. 10 1/2%, 9/1/00 B1 9,380 9,239 12,385 INDEPENDENT POWER - 0.0% Consolidated Hydro 0%, 7/15/03 (e) - 1,110 627 OIL & GAS - 0.2% Gulf Canada Resources Ltd. 9 1/4%, 1/15/04 B2 4,260 3,951 HS Resources, Inc. 9 7/8%, 12/1/03 B1 500 470 Mesa Capital Corp. 12 3/4%, 6/30/98 B3 2,219 1,953 Oryx Energy Co. 9 3/4%, 9/15/98 Ba3 380 376 6,750 TOTAL ENERGY 19,762 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - 0.9% BANKS - 0.2% Bancomer SA : euro 8%, 7/7/98 (g) Ba2 $ 3,000 $ 2,895 9%, 6/1/00 (g) - 2,500 2,491 Bancomer SNC euro 8%, 7/7/98 - 900 869 6,255 CREDIT & OTHER FINANCE - 0.2% Lomas Mortgage USA, Inc. 10 1/4%, 10/1/02 B1 2,080 1,862 Secured Finance, Inc. 11.18%, 12/15/04 - 4,983 5,232 7,094 INSURANCE - 0.5% American Annuity Group, Inc. 11 1/8%, 2/1/03 B2 840 853 American Financial Corp. sinking fund: 12%, 9/3/99 - 2,360 2,384 Series B, 12%, 9/3/99 - 970 983 Americo Life, Inc. 9 1/4%, 6/1/05 Ba2 900 788 Nacolah, Inc. 9 1/2%, 12/1/03 B1 550 488 Penncorp Financial Group, Inc. 9 1/4%, 12/15/03 B1 650 593 Reliance Financial Services: 9.273%, 11/1/00 - 1,370 1,343 10.36%, 12/1/00 - 2,870 2,892 Reliance Group: 9%, 11/15/00 Ba3 2,940 2,696 9 3/4%, 11/15/03 B1 2,120 1,924 14,944 SAVINGS & LOANS - 0.0% Western Financial Savings Bank Orange Calif. 8 1/2%, 7/1/03 Ba3 900 845 TOTAL FINANCE 29,138 HEALTH - 0.3% MEDICAL FACILITIES MANAGEMENT - 0.3% American Medical International, Inc. Series B, 9 1/2%, 4/15/06 B1 720 700 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED HEALTH - CONTINUED MEDICAL FACILITIES MANAGEMENT - CONTINUED HEALTHSOUTH Rehabilitation Co. 9 1/2%, 4/1/01 Ba3 $ 610 $ 595 Healthtrust, Inc. - The Hospital Co.: 10 3/4%, 5/1/02 B1 5,960 6,236 8 3/4%, 3/15/05 B1 1,580 1,469 Integrated Health Services, Inc. 10 3/4%, 7/15/04 B2 640 645 TOTAL HEALTH 9,645 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% IMO Inudstries, Inc. 12%, 11/1/00 Caa 220 226 Specialty Equipment Cos., Inc.: 11 3/8%, 12/1/03 B3 1,250 1,243 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,469 MEDIA & LEISURE - 2.2% BROADCASTING - 0.9% Act III Broadcasting, Inc. 9 5/8%, 12/15/03 B3 280 264 Citicasters 9 3/4%, 2/15/04 - 7,240 7,058 Continental Cablevision, Inc.: 8 5/8%, 8/15/03 Ba2 225 205 9%, 9/1/08 Ba2 374 335 Helicon Group LP/Helicon Capital Corp., Series B, 9%, 11/1/03 Caa 560 476 NWCG Holdings Corp. 0%, 6/15/99 (g) Caa 850 455 PTI Holdings, Inc. 7%, 12/17/02 - 120 74 Robin Media Group, Inc. 11 1/8%, 4/1/97 - 1,250 1,200 Rogers Cablesystems 9.65%, 1/15/14 Ba3 CAD 750 474 SCI Television, Inc. secured: 7 1/2%, 6/30/98 (j) - 8,310 8,113 11%, 6/30/05 B3 8,296 8,420 Spectravision, Inc. pay-in-kind 11.65%, 12/1/02 Caa 67 34 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED Univision Network Holding LP 7%, 12/17/02 - $ 870 $ 535 Viacom, Inc. 8%, 7/7/06 B2 660 574 28,217 ENTERTAINMENT - 0.0% Fair Lanes, Inc. pay-in-kind 9 1/2%, 7/15/01 (m) - 766 651 LODGING & GAMING - 1.1% Aztar Corp. 11%, 10/1/02 B2 1,200 1,053 Ballys Grand, Inc. 10 3/8%, 12/15/03 B2 2,220 1,948 Bally's Casino Holdings, Inc. 10 1/2%, 6/15/98 B3 10,260 6,182 Bally's Park Place, Inc. 9 1/4%, 3/15/04 B1 3,540 2,956 Boyd Gaming Corp. 10 3/4%, 9/3/03 B2 130 124 California Hotel Finance Corp. gtd. 11%, 12/1/02 B2 7,655 7,386 Embassy Suites, Inc.: gtd. 8 3/4%, 3/15/00 (g) Ba3 2,800 2,688 10 7/8%, 4/15/02 Ba3 3,410 3,568 Fitzgeralds Gaming Corp. (1,000 bonds and 1.54 warrants) 13 1/4%, 3/15/96 (g) - 410 267 GB Property Funding Corp. gtd. 10 7/8%, 1/15/04 B2 80 61 GNS Finance Corporation 9 1/4%, 3/15/03 B2 270 252 Grand Casino Resorts, Inc. gtd. 12 1/2%, 2/1/00 - 2,610 2,506 HWCC-Tunica, Inc. 13 1/2%, 9/30/98 (g) - 580 458 Host Marriott Corp.: 9 1/8%, 12/1/00 B1 101 100 10 1/2%, 5/1/06 B1 1,332 1,332 11%, 5/1/06 B1 288 289 Host Marriott Hospitality, Inc.: 10 5/8%, 2/1/00 B1 250 249 11 1/4%, 7/18/05 B1 236 241 Red Roof Inns 9 5/8%, 12/15/03 B3 2,760 2,560 Showboat, Inc. 13%, 8/1/09 B2 360 344 34,564 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED MEDIA & LEISURE - CONTINUED RESTAURANTS - 0.2% Family Restaurants, Inc. 9 3/4%, 2/1/02 B1 $ 3,480 $ 3,044 Flagstar Corp.: 10 3/4%, 9/15/01 B2 220 208 10 7/8%, 12/1/02 B2 640 604 11 1/4%, 11/1/04 Caa 1,330 1,144 5,000 TOTAL MEDIA & LEISURE 68,432 NONDURABLES - 0.6% BEVERAGES - 0.0% Dr. Pepper/Seven-Up Companies, Inc. 0%, 11/1/02 (e) B3 450 360 Fomento Economico Mexicano SA de CV euro 9 1/2%, 7/22/97 - 390 396 756 FOODS - 0.1% Chiquita Brands, Inc. 9 1/8%, 3/1/04 B1 400 368 Doskocil Cos., Inc. 9 3/4%, 7/15/00 B2 761 669 Specialty Foods Corp. 10 1/4%, 8/15/01 B2 450 412 1,449 HOUSEHOLD PRODUCTS - 0.5% Revlon Consumer Products Corp.: 9 1/2%, 6/1/99 B2 1,580 1,458 9 3/8%, 4/1/01 B2 4,030 3,526 10 1/2%, 2/15/03 B3 2,930 2,527 Revlon Worldwide Corp. secured 0%, 3/15/98 B3 18,520 8,612 16,123 TOTAL NONDURABLES 18,328 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED RETAIL & WHOLESALE - 0.4% APPAREL STORES - 0.1% Apparel Retailers, Inc. 12 3/4%, 8/15/05 Caa $ 2,050 $ 1,194 Lamonts Apparel Corp. 10 1/4%, 11/1/99 (b) - 1,488 1,105 2,299 DRUG STORES - 0.1% Eckerd Jack Corp (Del.) 9 1/4%, 2/15/04 B2 250 240 Thrifty Payless Holdings, Inc.: 11 3/4%, 4/15/03 B2 1,330 1,327 12 1/4%, 4/15/04 B3 2,320 2,244 3,811 GENERAL MERCHANDISE STORES - 0.1% Controladora Comercial Mexicana SA de CV euro 8 3/4%, 4/21/98 - 530 515 Hills Stores Co. 10 1/4%, 9/30/03 - 1,260 1,178 Parisian, Inc. 9 7/8%, 7/15/03 B3 2,045 1,729 3,422 GROCERY STORES - 0.1% Penn Traffic Co. 9 5/8%, 4/15/05 B2 1,150 1,035 Ralph's Grocery Co. 9%, 4/1/03 B2 520 486 1,521 RETAIL & WHOLESALE, MISCELLANEOUS - 0.0% Finlay Fine Jewelry Corp. 10 5/8%, 5/1/03 B1 730 690 Musicland Group, Inc. 9%, 6/15/03 B1 260 234 924 TOTAL RETAIL & WHOLESALE 11,977 SERVICES - 0.0% ADVERTISING - 0.0% Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 520 489 EDUCATIONAL SERVICES - 0.0% Kindercare Learning Centers, Inc. 10 3/8%, 6/1/01 Ba3 810 820 TOTAL SERVICES 1,309 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED TECHNOLOGY - 0.1% COMPUTERS & OFFICE EQUIPMENT - 0.1% Unisys Corp. 9 3/4%, 9/15/96 Ba3 $ 2,000 $ 2,030 ELECTRONICS - 0.0% Berg Electronics 11 3/8%, 5/1/03 B3 335 341 TOTAL TECHNOLOGY 2,371 TRANSPORTATION - 0.1% AIR TRANSPORTATION - 0.0% U.S. Air, Inc. 10%, 7/1/03 B2 340 219 RAILROADS - 0.1% Southern Pacific Rail Corp. 9 3/8%, 8/15/05 Ba3 2,235 2,146 Transtar Holding Corp. 0%, 12/15/03 (e) - 3,040 1,596 3,742 SHIPPING - 0.0% Sea Containers Ltd. 9 1/2%, 7/1/03 Ba3 810 743 TOTAL TRANSPORTATION 4,704 UTILITIES - 0.4% CELLULAR - 0.1% Cencall Communications Corp. 0%, 1/15/04 (e) Caa 3,270 1,603 Horizon Cellular Telephone 0%, 10/1/00 (e) . Caa 660 475 Mobilmedia Communications, Inc. 0%, 12/1/03 (e) B3 2,610 1,507 Nextel Communications, Inc. 0%, 8/15/04 (e) B3 1,750 853 4,438 ELECTRIC UTILITY - 0.1% AES Corp. 9 3/4%, 6/15/00 Ba2 1,250 1,213 Del Norte Funding Corp. 9.05%, 1/2/93 (b) Ca 170 92 El Paso Funding Corp. lease oblig. (b): 9 3/8%, 10/1/96 Ca 60 32 10 3/4%, 4/1/13 Ca 720 389 1,726 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED UTILITIES - CONTINUED TELEPHONE SERVICES - 0.2% MFS Communications 0%, 1/15/04 (e) B3 $ 9,775 $ 5,767 TOTAL UTILITIES 11,931 TOTAL NONCONVERTIBLE BONDS 231,393 TOTAL CORPORATE BONDS (Cost $251,092) 235,794 U.S. TREASURY OBLIGATIONS - 12.1% 6 1/4%, 2/15/03 (h) Aaa 329,855 303,108 11 7/8%, 11/15/03 Aaa 16,000 20,412 12 3/4%, 11/15/10 Aaa 42,400 57,816 TOTAL U.S.TREASURY OBLIGATIONS (Cost $389,467) 381,336 COMMERCIAL MORTGAGE SECURITIES - 0.2% CBA Mortgage Corp. commercial Series 1993-C1 Class E, 7.158%, 12/25/03 (g) Ba2 466 377 CS First Boston Mortgage Securities Corp. commercial Series 1994-CFB1 Class E, 6.4769%, 1/25/28 (g) Ba2 871 677 CS First Boston Mortgage Securities Corp. commercial Series 1994-CFB1 Class F, 6.48%, 1/25/28 (g) - 503 320 Nomura Asset Securities Corp. commercial Series 1994-MD1 Class B-2, 8.4263%, 3/15/98 (g) - 470 363 SML, Inc. commercial Series 1994-C1 Class B-3, 11.69%, 9/18/99 - 1,000 890 SML, Inc. commercial Series 1994-C1 Class C, 9.28% 9/18/99 (f) - 1,325 861 Resolution Trust Corp. commercial Series 1994-C1 Class E, 8%, 6/25/26 BB 900 688 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $4,222) 4,176 COMPLEX MORTGAGE SECURITIES - 0.0% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) INTEREST ONLY STRIPS - 0.0% SML, Inc. commercial Series 1994-C1 Class S, 0.81%, 9/18/99 (l) (Cost $936) - $ 31,799 $ 920 FOREIGN GOVERNMENT OBLIGATIONS - 5.4% Province of Chaco, Argentina 11 7/8%, 9/10/97 (f) - 1,100 1,111 Argentina Republic (j): euro 4 1/4%, 3/31/05 - 46,200 35,228 Brady euro 4 1/4%, 3/31/23 B1 59,350 29,452 Brazil Federative Republic IDU euro 8 3/4%, 1/1/01 B2 16,170 13,462 Siderurgica Brasileiras Inflation Indexed 6%, 8/15/99 - BRR 114,277 17,785 Mexican Government Brady 6 1/4%, 12/31/19: Par A Ba3 26,250 16,997 Par B Ba3 71,500 46,297 New Zealand Government 8%, 4/15/04 Aaa NZD 15,000 8,317 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $189,482) 168,649 INDEXED SECURITIES - 3.1% PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) INTEREST INDEXED - 0.6% Bankers Trust Company note: 5.974%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (k) 2,700 1,092 0%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (k) 4,100 2,850 Citibank Nassau: 4.815%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (k) 2,400 969 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rate and principal indexed to value of 4-year Canadian securities, both multiplied by 9) (k) 1,500 95 INDEXED SECURITIES - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) INTEREST INDEXED - CONTINUED Citibank Nassau - continued 0%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (k) $ 8,200 $ 5,738 Disney Corp. note 0%, 12/9/94 (inversely indexed to 6-month GBP swap rate, multiplied by 10) 3,100 1,292 E.I. Du Pont de Nemours 0%, 3/8/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (k) 4,200 2,940 Emerson Electric Company 6.115%, 10/24/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (k) 3,300 1,778 Morgan Guaranty Trust Co. cert. of dep. 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rates and principal indexed to value of 4-year Canadian securities, both multiplied by 9) (k) 1,500 320 TOTAL INTEREST INDEXED 17,074 COMMODITY INDEXED - 1.7% Finnish Export Credit note 4.45%, 4/15/96 (indexed to spot minus 12-month oil futures prices, based on 30 bbl. per $100 par) 2,000 1,531 Goldman Sachs Group, L.P. note: 5.03%, 3/13/95 (indexed to Goldman Sachs Commodity Index) 16,500 16,017 (indexed to corn price) 4.59% - 4.74%, 12/1/94 5,472 4,613 (indexed to gold price) 5.45% - 5.50%, 3/27/95 17,300 17,139 (indexed to silver price) 4.30% - 5.08%, 12/22/94 - 1/5/95 558 542 (indexed to soybean price) 4.76%, 11/2/94 2,397 2,018 (indexed to Goldman Sachs soybean index) 4.74%, 12/1/94 250 205 Morgan Guaranty Trust Co. cert. of dep. 5.40411%, 3/27/95 (indexed to gold price) 12,350 12,334 TOTAL COMMODITY INDEXED 54,399 INDEXED SECURITIES - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) OTHER - 0.8% Salomon Brothers Holding Company, Inc. note (f): 6.50%, 10/7/96 (indexed to common stock of EAO Edinaya Energeticheskaya Sistema Rosii, a Russian joint-stock company) $ 17,360 $ 14,756 6.50%, 10/17/96 (indexed to common stock of Komineft, a Russian joint-stock company) 6,440 5,474 6.50%, 10/7/96 (indexed to common stock of Yuganskneftegas, a Russian joint-stock company) 5,630 4,786 TOTAL OTHER 25,016 TOTAL INDEXED SECURITIES (Cost $117,257) 96,489 PURCHASED BANK DEBT - 1.4% Polish People's Republic: loans under 1988 restructuring agreement 5.3125% (i) 13,250 5,433 loans under 1988 restructuring agreement 5 5/8% (i) 6,000 2,460 past due interest (a) 5,107 2,094 past due interest (a) 433 178 Republic of Ecuador: discount 30 year bonds (g) (m) 5,250 3,117 loan participation 24,000 15,078 loan participation under 1985 multi-year refinancing agreement JPY 1,000,000 4,337 par 30 year bonds (g) (m) 9,000 2,993 past due interest bonds (g) (m) 16,000 7,040 Socialist Republic of Vietnam loans restructured under 1985 agreement (a) 2,500 1,080 TOTAL PURCHASED BANK DEBT (Cost $39,854) 43,810 COMMERCIAL PAPER - 5.9% PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) Bancomer SNC 0%, 10/3/94 - 10/13/94 MXN 185,146 $ 54,342 National Financiera (SNC) 0%, 10/6/94 - 11/17/94 MXN 450,966 131,299 TOTAL COMMERCIAL PAPER (Cost $185,046) 185,641 REPURCHASE AGREEMENTS - 17.2% MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $ 543,058 542,836 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $3,111,620) $ 3,149,071 FUTURES CONTRACTS AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED DATE AMOUNT AT VALUE GAIN/(LOSS) PURCHASED 2,590 Midcap 400 Stock Index Contracts Dec. 1994 $ 227,337 $ (2,411) THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 7.2% FORWARD FOREIGN CURRENCY CONTRACTS AMOUNTS IN THOUSANDS SETTLEMENT UNREALIZED DATE(S) VALUE GAIN/(LOSS) CONTRACTS TO BUY 27,463 NZD 10/6/94 to 10/11/94 $ 16,532 $ (68) (Payable amount $16,600) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.5% CONTRACTS TO SELL 13,032,717 JPY 10/5/94 to 1/30/95 $ 131,661 (2,980) (Receivable amount $128,681) THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 4.2% $ (3,048) CURRENCY ABBREVIATIONS BRR - Brazilian real CAD - Canadian dollar JPY - Japanese yen MXN - Mexican peso NZD - New Zealand dollar CHF - Swiss franc LEGEND 1. Non-income producing 2. Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. 3. Principal amount is stated in United States dollars unless otherwise noted. 4. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 5. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 6. 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 COST SECURITY DATE (000S) Salomon Brothers Holding Company, Inc. note 6.50%, 10/7/96 (indexed to common stock of EAO Edinaya Energeticheskaya Sistema Rosii, a Russian joint-stock company) 9/13/94 $ 17,360 Salomon Brothers Holding Company, Inc. note 6.50%, 10/17/96 (indexed to common stock of Komineft, a Russian joint-stock company) 9/16/94 $ 6,440 ACQUISITION ACQUISITION COST SECURITY DATE (000S) Salomon Brothers Holding Company, Inc. note 6.50%, 10/7/96 (indexed to common stock of Yuganskneftegas, a Russian joint-stock company) 9/9/94 $ 5,630 Province of Chaco, Argentina 11 7/8%, 9/10/97 3/9/94 $ 1,130 SML, Inc. commercial Series 1994-C1 Class C, 9.28%, 9/18/99 8/11/94 $ 862 7. 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 $62,157,000 or 2.0% of net assets. 8. A portion of the security was pledged to cover margin requirements for futures contracts and delayed delivery purchases. At the period end, the value of securities pledged amounted to $7,351,000. 9. Partial interest payment received on the last interest payment date. 10. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 11. Coupon is inversely indexed to a floating interest rate multiplied by a specified factor. If the floating rate is high enough, the coupon rate may be zero or be a negative amount that is carried forward to reduce future interest and/or principal payments. The price may be considerably more volatile than the price of a comparable fixed rate security. The rate shown is the rate at period end. 12. Security represents right to receive monthly interest payments on an underlying pool of mortgages. Principal shown is the par amount of the mortgage pool. 13. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 12.5% AAA, AA, A 12.5% Baa 0.0% BBB 0.2% Ba 3.3% BB 4.0% B 5.8% B 3.9% Caa 0.2% CCC 0.2% Ca, C 0.0% CC, C 0.0% D 0.0% For some foreign government obligations, FMR has assigned the ratings of the sovereign credit of the issuing government. The percentage not rated by either S&P or Moody's amounted to 3.2% including long-term debt categorized as other securities. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 64.3% Mexico 12.5 Japan 4.0 Canada 2.7 Argentina 2.5 Korea 1.8 Brazil 1.7 United Kingdom 1.5 Germany 1.2 Ecuador 1.0 Others (individually less than 1%) 6.8 TOTAL 100.0% INCOME TAX INFORMATION At September 30, 1994, the aggregate cost of investment securities for income tax purposes was $3,113,159,000. Net unrealized appreciation aggregated $35,912,000, of which $169,953,000 related to appreciated investment securities and $134,041,000 related to depreciated investment securities. The fund hereby designates $15,821,000 as a capital gain dividend for the purpose of the dividend paid deduction. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
(EXCEPT PER-SHARE AMOUNTS) SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 3,149,071 agreements of $542,836) (cost $3,111,620) - See accompanying schedule Cash 163 Receivable for investments sold 74,847 Regular delivery Delayed delivery 1,691 Unrealized appreciation on foreign currency contracts 137 Receivable for fund shares sold 8,880 Dividends receivable 3,739 Interest receivable 17,034 TOTAL ASSETS 3,255,562 LIABILITIES Payable for investments purchased $ 145,696 Regular delivery Delayed delivery 11,938 Unrealized depreciation on foreign currency contracts 3,185 Payable for fund shares redeemed 20,352 Accrued management fee 1,854 Other payables and accrued expenses 1,950 TOTAL LIABILITIES 184,975 NET ASSETS $ 3,070,587 Net Assets consist of: Paid in capital $ 2,987,019 Undistributed net investment income 27,680 Accumulated undistributed net realized gain (loss) on 23,771 investments and foreign currency transactions Net unrealized appreciation (depreciation) on 32,117 investments and assets and liabilities in foreign currencies NET ASSETS, for 220,753 shares outstanding $ 3,070,587 NET ASSET VALUE, offering price and redemption price per $13.91 share ($3,070,587 (divided by) shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 21,932 Dividends Interest 70,623 TOTAL INCOME 92,555 EXPENSES Management fee $ 17,631 Transfer agent fees 7,126 Accounting fees and expenses 719 Non-interested trustees' compensation 13 Custodian fees and expenses 1,396 Registration fees 698 Audit 186 Legal 36 Interest 1 Reports to shareholders 301 Miscellaneous 11 Total expenses before reductions 28,118 Expense reductions (62) 28,056 NET INVESTMENT INCOME 64,499 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 53,300 Foreign currency transactions (33,673) Futures contracts (8,284) 11,343 Change in net unrealized appreciation (depreciation) on: Investment securities (54,748) Futures contracts (4,394) Assets and liabilities in foreign currencies 16,770 (42,372) NET GAIN (LOSS) (31,029) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 33,470 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1994 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 64,499 $ 17,089 Net investment income Net realized gain (loss) 11,343 30,742 Change in net unrealized appreciation (depreciation) (42,372) 73,340 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 33,470 121,171 FROM OPERATIONS Distributions to shareholders: (19,851) (2,495) From net investment income From net realized gain (39,839) (1,331) In excess of net realized gain (5,132) - TOTAL DISTRIBUTIONS (64,822) (3,826) Share transactions 3,355,758 1,311,090 Net proceeds from sales of shares Reinvestment of distributions 63,888 3,771 Cost of shares redeemed (1,560,750) (283,579) Net increase (decrease) in net assets resulting from 1,858,896 1,031,282 share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS 1,827,544 1,148,627 NET ASSETS Beginning of period 1,243,043 94,416 End of period (including undistributed net investment $ 3,070,587 $ 1,243,043 income of $27,680 and $15,814, respectively) OTHER INFORMATION Shares Sold 237,619 103,809 Issued in reinvestment of distributions 4,613 325 Redeemed (111,723) (22,351) Net increase (decrease) 130,509 81,783
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, DECEMBER 30, 1991 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1994 1993 1992 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 13.77 $ 11.16 $ 10.00 Income from Investment Operations Net investment income .13 .18 .14 Net realized and unrealized gain (loss) .61E 2.66 1.02 Total from investment operations .74 2.84 1.16 Less Distributions From net investment income (.18) (.15) - From net realized gain (.37) (.08) - In excess of net realized gain (.05) - - Total distributions (.60) (.23) - Net asset value, end of period $ 13.91 $ 13.77 $ 11.16 TOTAL RETURN C, D 5.39% 25.83% 11.60% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 3,070,587 $ 1,243,043 $ 94,416 Ratio of expenses to average net assets 1.15% 1.19% 1.64%A B Ratio of expenses to average net assets 1.15% 1.29% 1.64%A before expense reductions B Ratio of net investment income to average 2.64% 3.02% 3.50%A net assets Portfolio turnover rate 104% 97% 693%A
A ANNUALIZED B EFFECTIVE NOVEMBER 1, 1992, FMR HAS VOLUNTARILY AGREED TO REIMBURSE THE FUND FOR TOTAL OPERATING EXPENSES (EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ABOVE AN ANNUAL RATE OF 1.20% OF AVERAGE NET ASSETS. C TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD THE ADVISER NOT REIMBURSED CERTAIN EXPENSES DURING THE PERIODS FOR WHICH THE FUND WAS UNDER REIMBURSEMENT. E THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND PURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Asset Manager: Growth (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days of their purchase date are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Effective October 1, 1993 the fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities' transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in 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 all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, are recorded as soon as the fund is informed of the ex-dividend date. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for paydown gains/losses on certain securities, futures and options transactions, foreign currency transactions, market discount, non-taxable dividends, and losses deferred due to wash sales and futures and options. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect net investment income per share disclosed. Undistributed net investment income 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. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October 1, 1993, the fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, amounts as of the beginning of the fiscal year have been reclassified to reflect an increase in paid in capital of $411,000, a decrease in undistributed net investment income of $169,000 and a decrease in accumulated net realized gain on investments of $242,000. 2. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars, as reflected in the schedule of investments under the caption "Forward Foreign Currency Contracts," reflects the total exposure the fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other registered investment companies having management contracts with FMR, may participate in an interfund lending program. This program provides an alternative credit facility allowing the fund to borrow from, or lend money to, other participating funds. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the purchase commitment. 2. OPERATING POLICIES - CONTINUED FUTURES CONTRACTS AND OPTIONS. The fund may invest in futures and options contracts, and may also write options. These investments involve, to varying degrees, elements of market risk and risks in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts reflect the extent of the involvement the fund has in the particular classes of instruments. Risks may be caused by an imperfect correlation between movements in the price of the instruments and the price of the underlying securities and interest rates. Risks also may arise if there is an illiquid secondary market for the instruments, or due to the inability of counterparties to perform. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options traded on an exchange are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. INDEXED SECURITIES. The fund may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. RESTRICTED SECURITIES. The fund is permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $26,988,000 or 0.9% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $3,169,942,000 and $1,945,700,000, respectively, of which U.S. government and U.S. government agency obligations aggregated $385,928,000 and $163,188,000, respectively. The market value of futures contracts opened and closed during the period amounted to $1,386,151,000 and $1,259,006,000, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .3000% to 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED .5200% for the period October 1, 1993 to October 31, 1993; .2850% to .5200% for the period November 1, 1993 to July 31, 1994; and .2700% to .5200% for the period August 1, 1994 to September 30, 1994. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .40%. For the period, the management fee was equivalent to an annual rate of .72% of average net assets . TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is based on the level of average net assets for the month plus out-of-pocket expenses. BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $602,000 for the period. 5. INTERFUND LENDING PROGRAM. The fund participated in the interfund lending program as a lender. The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $24,687,000. The weighted average interest rate was 3.6%. Interest earned from the interfund lending program amounted to $2,000 and is included in interest income on the Statement of Operations. 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 periods for which loans were outstanding amounted to $12,140,000.The weighted average interest rate was 3.7%. 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 $62,000 under this arrangement. 8. CREDIT RISK. The fund's relatively large investment in countries with limited or developing capital markets may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The yields of emerging market debt obligations reflect, among other things, perceived credit risk. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the fund's investments and the income they generate, as well as the fund's ability to repatriate such amounts. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Fidelity Asset Manager: Growth: In our opinion, the accompanying statements of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Asset Manager: Growth (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Asset Manager: Growth's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 7, 1994 DISTRIBUTIONS 1.2% of the dividends during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. 8.0% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders. The fund will notify shareholders in January 1995 of these percentages for use in preparing 1994 income tax returns. TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI TO WRITE FIDELITY 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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 Fidelity Investments P.O. Box 30281 Salt Lake City, UT 84130-0281 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions World Trade Center 164 Northern Avenue Boston, MA 02210 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) FMR Texas Inc. (FMR Texas) OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Robert Beckwitt, Vice President Thomas J. Steffanci, Vice President Gary L. French, Treasurer John H . Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary Robert H. Morrison, Manager, Security Transactions BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN Chase Manhattan Bank, N.A. New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager Asset Manager: Growth Asset Manager: Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) Tax Reporting 1-800-544-1877 TDD Service 1-800-544-0118 (for the deaf and hearing impaired) (9 a.m. - 9 p.m. Eastern time) (registered trademark) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)FIDELITY ASSET MANAGER(trademark) ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. MARKET RECAP 6 An overview of the market's performance and the factors driving it. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 11 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 12 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 65 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 69 Notes to the financial statements. REPORT OF INDEPENDENT 74 The auditor's opinion. ACCOUNTANTS A MEETING OF FUND SHAREHOLDERS WAS HELD ON SEPTEMBER 21, 1994. SHAREHOLDERS VOTED TO APPROVE EACH OF THE PROPOSALS PRESENTED, INCLUDING TWO THAT WOULD ALLOW THE FUND TO INVEST ALL OF ITS ASSETS IN A SINGLE MUTUAL FUND WITH A SIMILAR INVESTMENT OBJECTIVE AND POLICIES IF THE BOARD OF TRUSTEES DETERMINED THAT SUCH ACTION WOULD BE IN THE BEST INTERESTS OF FUND SHAREHOLDERS (THE "MASTER/FEEDER PROPOSALS"). SEVERAL SHAREHOLDERS ATTENDING THE MEETING EXPRESSED CONCERN THAT APPROVAL OF THE MASTER/FEEDER PROPOSALS WOULD AUTHORIZE THE USE OF A NON-FIDELITY COMPANY TO MANAGE THE FUND. IN ORDER TO ADDRESS THIS CONCERN, THE BOARD OF TRUSTEES, AT ITS MEETING ON OCTOBER 20, 1994, ADOPTED A RESOLUTION MAKING IT CLEAR THAT ITS APPROVAL OF THE SUBMISSION TO SHAREHOLDERS OF THE MASTER/FEEDER PROPOSALS WAS BASED ON THE ASSUMPTION THAT FIDELITY MANAGEMENT & RESEARCH CO. WOULD BE THE INVESTMENT MANAGER. AS DISCUSSED IN THE PROXY STATEMENT, THE FUND HAS NO CURRENT INTENTION TO INVEST ALL OF ITS ASSETS IN ANOTHER MUTUAL FUND. 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, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to below-average returns for many stocks and negative returns for many bond investments. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. If you can leave your money invested over the long term, you can avoid much of the volatility that generally accompanies the stock market in the short term, as we have been witnessing this year. You also can help to manage risk through diversification of investments. Since they invest in stocks, bonds and cash equivalents both inside and outside the U.S., the Asset Manager funds are already diversified. You can diversify even further by placing some of your money in several different stock funds or in other investment categories, such as bonds. If you have a short investment time horizon, you might want to consider moving some of your investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured by any agency of the U.S. government. Finally, no matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 5 LIFE OF YEAR YEARS FUND Asset Manager 3.60% 77.73% 102.43% S&P 500(registered trademark) 3.68% 54.92% 100.59% Average Flexible Portfolio Fund 0.02% 51.01% n/a Consumer Price Index 2.96% 19.52% 23.37% CUMULATIVE TOTAL RETURNS reflect the fund's actual performance over a set period - in this case, one year, five years or since the fund began on December 28, 1988. For example, if you invested $1,000 in a fund that had a 5% return over one year you would end up with $1,050. You can compare the fund's returns to those of the Standard & Poor's Composite Index of 500 Stocks - a common proxy for the U.S. stock market. You can also compare them to the average flexible portfolio fund, which currently reflects the performance of 141 funds tracked by Lipper Analytical Services. Both benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. Comparing the fund's performance to the Consumer Price Index (CPI) helps show how your investment did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 5 LIFE OF YEAR YEARS FUND Asset Manager 3.60% 12.19% 13.02% S&P 500 3.68% 9.15% 12.84% Average Flexible Portfolio Fund 0.02% 8.53% n/a Consumer Price Index 2.96% 3.63% 3.77% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Fidelity Asset Manager (314)Standard & Poor's 500 Stock Fidelity Composite 12/31/88 10000.00 10000.00 10000.00 01/31/89 10378.86 10732.00 10291.60 02/28/89 10219.34 10464.77 10200.52 03/31/89 10309.07 10708.60 10320.38 04/30/89 10578.27 11264.38 10593.04 05/31/89 10887.34 11720.59 10846.43 06/30/89 11006.98 11653.78 10999.47 07/31/89 11326.02 12706.12 11415.14 08/31/89 11355.93 12955.15 11426.55 09/30/89 11355.93 12902.04 11453.98 10/31/89 11405.78 12602.71 11519.49 11/30/89 11485.54 12859.81 11656.69 12/31/89 11527.70 13168.44 11771.16 01/31/90 11158.89 12284.84 11487.36 02/28/90 11243.19 12443.31 11560.76 03/31/90 11359.10 12773.06 11674.52 04/30/90 11169.43 12453.74 11566.76 05/31/90 11759.52 13667.97 12058.70 06/30/90 11854.35 13575.03 12133.82 07/31/90 11843.81 13531.59 12207.84 08/31/90 11443.40 12308.34 11830.25 09/30/90 11211.58 11708.92 11724.49 10/31/90 11243.19 11658.57 11808.55 11/30/90 11780.59 12411.72 12162.69 12/31/90 12147.79 12758.00 12361.92 01/31/91 12795.97 13314.25 12597.66 02/28/91 13354.75 14266.22 12913.10 03/31/91 13578.26 14611.46 13053.34 04/30/91 13790.59 14646.53 13138.97 05/31/91 14137.03 15279.26 13347.62 06/30/91 13835.29 14579.47 13174.63 07/31/91 14204.09 15258.87 13439.44 08/31/91 14528.18 15620.51 13678.66 09/30/91 14550.53 15359.65 13743.64 10/31/91 14662.28 15565.47 13865.96 11/30/91 14405.25 14938.18 13770.42 12/31/91 15019.77 16647.11 14448.89 01/31/92 15236.75 16337.47 14290.96 02/29/92 15526.05 16549.86 14382.28 03/31/92 15526.05 16227.13 14278.30 04/30/92 15743.03 16704.21 14453.92 05/31/92 15899.74 16786.06 14595.86 06/30/92 15899.74 16535.95 14602.28 07/31/92 16225.21 17212.27 14998.88 08/31/92 16152.88 16859.42 14941.28 09/30/92 16273.43 17058.36 15106.53 10/31/92 16249.32 17118.06 15046.41 11/30/92 16610.95 17701.79 15247.13 12/31/92 16934.15 17919.52 15434.06 01/31/93 17225.46 18070.05 15626.98 02/28/93 17402.78 18315.80 15844.82 03/31/93 17975.72 18702.26 16007.39 04/30/93 18052.43 18249.67 15910.07 05/31/93 18435.98 18738.76 16080.94 06/30/93 18668.09 18793.10 16251.72 07/31/93 18951.92 18717.93 16272.52 08/31/93 19493.77 19427.34 16672.83 09/30/93 19481.55 19277.75 16655.82 10/31/93 20054.16 19676.80 16827.04 11/30/93 20015.12 19489.87 16697.47 12/31/93 20877.86 19725.69 16813.02 01/31/94 21555.71 20396.37 17143.23 02/28/94 20877.86 19843.63 16818.19 03/31/94 19867.87 18978.44 16383.61 04/30/94 19854.20 19221.37 16426.21 05/31/94 20018.28 19536.60 16536.92 06/30/94 19577.78 19057.95 16371.55 07/31/94 19963.00 19683.05 16717.32 08/31/94 20430.78 20490.06 17005.19 09/30/94 20182.54 19988.05 16755.89 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity Asset Manager on December 31, 1988, shortly after the fund started. As the chart shows, by September 30, 1994, the value of your investment would have grown to $20,183 - a 101.83% increase on your initial investment. For comparison, look at how the S&P 500 did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $19,988 - a 99.88% increase. You can also look at how the Asset Allocation Composite Index, a hypothetical combination of unmanaged indices, did over the same period. Reflecting the fund's neutral mix of 40% stocks, 40% bonds, and 20% short-term instruments, this index combines returns from the S&P 500 (99.88%), Lehman Brothers Treasury Bond Index (63.64%), and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (36.21%). With dividends and interest, if any, reinvested, a $10,000 investment in the index would have grown to $16,756 - a 67.56% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. In turn, the share price and return of a fund that invests in stocks will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) Rising interest rates and inflation concerns in the United States led to negative returns for most bond investments and below average returns for stocks during the 12 months ended September 30, 1994. STOCKS: The Standard & Poor's 500 stock index finished the 12-month period with a total return of 3.68% - below its historical average of more than 10%. After four months of steady gains, the stock market stumbled from February through June 1994. During that period, the Federal Reserve Board raised short-term interest rates four times in an effort to curb possible future inflation triggered by a strengthening economy. Higher rates hurt stocks because they raise the cost of borrowing for companies and consumers, often dampening corporate profits in the future. In addition, higher rates often make bonds and other fixed-income securities more attractive relative to stocks. Despite a fifth Fed rate hike in August, the market rallied from July through mid-September, fueled by strengthening corporate earnings and a flurry of merger and acquisition activity. During the 12 months, cyclical stocks - whose prices tend to move in tandem with the economy - were among the market leaders. These included such sectors as chemicals, metals and paper. Overseas, results were mixed. Japanese stocks surged in early 1994, only to stall over the summer. After suffering corrections early in the year, several emerging markets - most notably Brazil - bounced back strongly in July and August. The Morgan Stanley EAFE (Europe, Australia, Far East) index returned 9.83% for the 12 months ended September 30, while the Morgan Stanley Emerging Markets Free Index was up 43.55% during the same period. BONDS: After more than a decade of generally favorable conditions for bond investing, yields rose - and prices fell - on virtually all types of fixed-income investments during the first nine months of 1994. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of - -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate interest payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - a measure of bond market performance in developed nations that includes U.S. issues - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. FUND TALK: THE MANAGER'S OVERVIEW An interview with Bob Beckwitt, Portfolio Manager of Fidelity Asset Manager Q. BOB, HOW DID THE FUND PERFORM? A. Better than most of its competitors in a difficult investment climate. Fidelity Asset Manager's total return for the year ended September 30, 1994, was 3.60%. The average flexible portfolio fund produced a total return of 0.02% during the same period, according to Lipper Analytical Services. Q. WHY DID ASSET MANAGER OUTPERFORM OTHER FUNDS WITH SIMILAR GOALS? A. The fact is, Asset Manager has been playing catch-up since February, when rising interest rates in the United States touched off sharp declines in stock and bond markets around the world. Earlier in the period, though, the fund had surged ahead, due mainly to two factors: an above-average stake in foreign securities, especially emerging-market stocks and bonds; and a below-average stake in what I call traditional fixed-income securities, meaning high-quality U.S. corporate bonds and Treasuries. But all that hurt the fund later, once the markets turned down; February and March were terrible months. Performance has leveled off since then - both in absolute terms and compared to other flexible portfolio funds - and although I'm disappointed that we weren't able to do better, I remain a firm believer in our diversification strategy. Q. HOW HAS THE INVESTMENT CLIMATE CHANGED IN THE PAST YEAR? A. A year ago we were still in the sweet part of the cycle for most financial assets. Interest rates were falling around the world, inflation was a non-issue, and most foreign securities looked like bargains. Then in February the Federal Reserve reversed three years of monetary policies designed to stimulate economic growth, and suddenly interest rates began to rise. Higher rates not only meant lower bond prices in the United States; they also drove up the cost of borrowing for certain highly leveraged investors overseas. When those investors began to sell, foreign bond prices plunged. Meanwhile, European economies recovered faster than most analysts had predicted. And in Japan, the collapse of trade talks with the United States boosted the yen and led Japanese investors to withdraw from world markets. The upshot was higher interest rates around the world, lower bond prices and increased pressure on stocks. Q. HOW HAVE YOU RESPONDED TO THOSE CHANGES? A. Two ways. First, by increasing the cash component of the fund. A year ago in September 1993, Asset Manager was 51% stocks, 33% bonds and 16% cash and short-term instruments. By September 1994, the mix was 37% stocks, 35% bonds and 28% cash and short-term instruments. When you consider that the fund's neutral mix is 40-40-20, you can see how aggressive it was a year ago and how defensive it is now. I also reduced the fund's foreign investments - from 47% a year ago, to 36% halfway through the period, to 29% at the end of September. Both shifts were meant to lower the fund's volatility in an uncertain climate. Q. DO YOU REGRET NOW HAVING HAD SO MUCH EXPOSURE TO FOREIGN MARKETS IN THE PAST? A. By no means. Foreign investments were what drove the fund's performance early in the period. I'm still a big believer in the long-term value of investing overseas. I think that's where you have to go to find the fastest growing companies and the most rapidly expanding economies. However, there are times when conditions warrant a reduction in the fund's exposure to more volatile foreign markets, and I think this happens to be one of them. Q. WHERE HAVE YOU INVESTED OVERSEAS? A. The fund's largest remaining foreign investments are in Mexico, 14.7%; Argentina, 2.2%; Japan, 2.0%; and Canada, 1.9%. Mexican stocks --including cement maker Cemex and conglomerate Grupo Carso -- were sharp disappointments early in 1994. They've since come back as investors have regained their confidence in the stability of Mexico's political and economic institutions. In Argentina, government bonds became very attractively valued after their yields rose - and prices fell - earlier this year. Japan is still among the largest countries represented in the fund for two reasons: one, its stock market is among the largest in the world, and therefore hard to ignore; and two, the big Japanese exporters such as Hitachi, Matsushita and Toyota have finally begun taking steps to streamline operations and cut costs, and that may pay off with better earnings over the next year or two. Finally, the Canadian stocks got cheap in the face of all the political uncertainty tied to the Quebec independence movement. That presented the fund with a buying opportunity. Q. HOW DID U.S. COMMON STOCKS FARE DURING THE PERIOD? A. While it was a horrible year for bonds, stocks did a lot better. The biggest story in recent months has been utilities. After falling more sharply than any other sector of the market in response to rising interest rates and regulatory concerns, U.S. utility common stocks suddenly look attractive again; as a group, they're 3.8% of the fund. Finance stocks - led by Fannie Mae, a cheap growth story - made up the largest sector in the fund at the end of September at 4.4% of total investments. Technology stocks - led by IBM, up more than 50% since we started buying it a year ago - - were third at 3.5%. Q. DOES THE FUND STILL INVEST IN DERIVATIVES? A. Yes. I use derivatives called indexed securities, or structured notes, which are like customized bonds. They let me tailor a portion of the fund's investments to match my outlook in specific segments of the market. With them, I'm able to take advantage of investment opportunities I might otherwise miss. Early in the year, I invested in derivatives that were designed to capitalize on falling short-term interest rates in Europe. When rates rose instead, the fund lost money. Fortunately, those losses were offset by corresponding gains in other structured notes that were tied to commodity prices. The net effect on the fund's performance was still negative, but the loss was small. Q. ARE THERE SPECIAL RISKS ASSOCIATED WITH STRUCTURED NOTES? A. There are risks associated with any investment vehicle. One key to avoiding problems with structured notes is making sure their potential volatility is in line with the normal expected volatility of the fund. The structured notes in Fidelity Asset Manager are designed to be no more risky than other investments the fund might own - any of which, after all, could decline in value tomorrow. It's also important not to make concentrated bets, and I haven't. These indexed securities have never amounted to more than 9% of the fund's total investments; as of September 30, 1994, they totaled 2.3%. The point is, at Fidelity we do lots of research on every investment we make. We don't buy anything without first understanding the risks. We're not going to flinch from our use of derivatives just because others have had trouble with them. Q. DOES THE FUND USE ANY OTHER TYPES OF DERIVATIVES? A. I also made limited use of two other kinds of derivatives over the past several months. First, I've used forward foreign currency contracts to hedge some of the fund's overseas investments. These contracts are designed to tie the value of foreign investments to movements in the U.S. dollar, effectively reducing the fund's exposure to foreign currencies. However, if the dollar moves downward relative to the local currency - as it did against many currencies over the past six months - the cost associated with these contracts can reduce the fund's total return. In addition, the fund had a small investment in futures tied to both the Standard & Poor's MidCap 400 Index and S&P 500 index at the end of September. These investments mirror the performance of the stock markets to which they're tied, and allow the fund to change its stock allocation without trading individual stocks. Are futures transactions risky? Yes. But not because they're derivatives - because they are based on stocks and bonds, and stocks and bonds are risky. I don't use futures to take more risk than I would be willing to take in stocks or bonds. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. That depends largely on the outlook for inflation, and the signs are a bit worrisome. Until recently, most of the world's economies were lagging behind the United States. Now it seems like the whole world is recovering at once. That has led to a surge in demand for commodities, aggravated by low global inventories. So far the price increases have shown up mostly at the producer level, which is why lumber costs more but breakfast cereal doesn't. If recent trends continue, though, eventually we could see higher prices at the consumer level, leading in turn to demands for higher wages. That's what's spooking the markets right now - the possibility that inflationary pressures will build, and the Fed will have no choice but to keep raising rates. Q. WHAT ARE THE IMPLICATIONS FOR THE FUND? A. Now that rates have risen from their historic lows, bonds have a better cushion against the possibility of further rate increases down the road. That's why I've begun buying Treasuries again; they were 15% of the fund at the end of September, and could go higher in the months ahead. Stock prices, on the other hand, went mostly sideways during the past year, and could be especially vulnerable to a further upturn in rates. Before stocks begin to look attractive again, a lot has to happen: we need a slowdown in the economy, a reduction in inflation fears, a weaker yen, and perhaps even a market correction. Barring that, the fund will likely remain in a defensive mode for some time to come. FUND FACTS GOAL: high current income with preservation of capital START DATE: September 13, 1991 SIZE: as of September 30, 1994, more than $132 million MANAGER: Curt Hollingsworth, since September 1991; also manages Fidelity Advisor Government Investment, Fidelity Government Securities, Spartan Limited Maturity Government, Spartan Long-Term Government Bond, and Spartan Short-Intermediate Government Funds; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON INVESTMENT STRATEGY: "It's extremely important for individual investors to try to come to an understanding about what their investment horizon is. If their investment horizon is only six months to one year, even being in a short-term fund could be risky. But if the investment horizon is as long as the fund's average duration - its sensitivity to interest rates - short-term fluctuations of interest rates aren't as onerous. The ideal strategy is to match the length of the investment horizon to the average duration of a fund. With a longer horizon, you'd choose a longer-term fund, because you would earn higher yields and would not be as concerned about short-term price fluctuations." (solid bullet) The fund's cash/short-term investments position reached 30.2% on May 31, 1994. As of September 30, 1994, it was down to 2.3% of the fund. (solid bullet) At the end of the period, the fund's duration was 2.7 years. That means if interest rates fell 1 percentage point, the fund's share price would rise roughly 2.7%. If rates rose 1 percentage point, however, the fund's share price would fall about 2.7%. (solid bullet) At the end of the period, the fund had no derivative investments. INVESTMENT CHANGES TOP FIVE STOCKS AS OF SEPTEMBER 30, 1994
% OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 0.9 0.6 Federal National Mortgage 0.9 0.9 Association British Petroleum PLC ADR 0.6 0.8 International Business Machines Corp. 0.6 0.4 Schlumberger Ltd. 0.4 0.3
TOP FIVE FIXED-INCOME SECURITIES AS OF SEPTEMBER 30, 1994 (BY ISSUER, EXCLUDING REPURCHASE % OF FUND'S % OF FUND'S INVESTMENTS AGREEMENTS) INVESTMENTS IN THESE SECURITIES 6 MONTHS AGO U.S. Treasury Obligations 15.0 0.3 National Financiera (SNC) 4.2 0.2 Mexican Government 3.8 5.9 Bancomer (SNC) 2.1 0.4 Argentina Republic 1.8 2.6 TOP FIVE COUNTRIES AS OF SEPTEMBER 30, 1994 (BY LOCATION OF ISSUER) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO United States 71.4 63.6 Mexico 14.7 13.9 Argentina 2.2 3.6 Japan 2.0 1.5 Canada 1.9 1.3 ASSET ALLOCATION AS OF SEPTEMBER 30, 1994 * AS OF MARCH 31, 1994 ** Row: 1, Col: 1, Value: 28.0 Row: 1, Col: 2, Value: 35.0 Row: 1, Col: 3, Value: 30.0 Row: 1, Col: 4, Value: 7.0 Row: 1, Col: 1, Value: 20.0 Row: 1, Col: 2, Value: 37.0 Row: 1, Col: 3, Value: 20.0 Row: 1, Col: 4, Value: 23.0 Stock class 37% Bond class 35% Short-term class and other 28% FOREIGN INVESTMENTS 29% Stock class 43% Bond class 37% Short-term class and other 20% FOREIGN INVESTMENTS 36% * ** ASSET ALLOCATIONS IN THE PIE CHART REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 38.4% MATURITY VALUE (NOTE 1) AMOUNT AEROSPACE & DEFENSE - 0.3% AEROSPACE & DEFENSE - 0.2% Aviall, Inc. 3,850 $ 39 Boeing Co. 60,000 2,588 Flightsafety International, Inc. 164,900 6,390 Lockheed Corp. 49,300 3,433 Martin Marietta Corp. 157,000 6,986 McDonnell Douglas Corp. 4,500 520 Oerlikon-Buhrle Holding Ltd. (Reg.) (a) 39,200 4,018 Samsung Aerospace Industries (a) 19,100 653 Samsung Aerospace Industries (New) (a) 2,848 88 Thiokol Corp. 6,200 151 24,866 DEFENSE ELECTRONICS - 0.1% Loral Corp. 98,200 3,867 Raytheon Co. 135,900 8,714 Watkins-Johnson Co. 19,000 651 13,232 TOTAL AEROSPACE & DEFENSE 38,098 BASIC INDUSTRIES - 2.7% CHEMICALS & PLASTICS - 1.2% ARCO Chemical Co. 85,000 4,208 Airgas, Inc. (a) 46,000 1,259 Akzo NV Ord. 8,300 975 Albemarle Corp. 242,800 3,490 BASF AG 45,200 8,886 Bayer AG 16,900 3,807 Betz Laboratories, Inc. 9,900 469 DSM NV 41,300 3,506 du Pont (E.I.) de Nemours & Co. 106,100 6,154 Eastman Chemical Co. 50,800 2,762 Ferro Corp. 120,400 2,965 GEON Co. 30,200 906 Grace (W.R.) & Co. 235,300 9,765 Great Lakes Chemical Corp. 167,400 9,835 Han Wha (a) 12,600 251 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED CHEMICALS & PLASTICS - CONTINUED Hanyang Chemical Corp. (a) 18,900 $ 440 Hercules, Inc. 10,800 1,111 Hoechst AG Ord. 71,000 15,161 Imperial Chemical Industries PLC: ADR 19,600 1,024 Ord. 121,224 1,588 Indo Gulf Fertilizer and Chemicals GDR (a)(g) 780,600 2,654 Kureha Chemical Industry Co. Ltd. 255,000 1,402 Lucky Co. Ltd. (a) 267,880 8,184 Lyondell Petrochemical Co. 38,700 1,205 Minnesota Mining & Manufacturing Co. 50,000 2,763 Nalco Chemical Co. 307,300 10,102 OM Group, Inc. 50,000 1,009 Oriental Chemical Industry Co. (a) 88,820 2,702 Oriental Chemical Industry Co. RFD (a) 4,441 127 Perez Company Class B (a) 1,275,450 7,246 Potash Corp. of Saskatchewan 5,800 238 Praxair, Inc. 12,500 305 Reliance Industries Ltd.: GDR (g) 98,800 2,433 GDS E/C 35,400 872 Shinetsu Chemical 165,000 3,378 TPI Polene Public Co. Ltd. (a) 69,300 699 Union Carbide Corp. 236,300 8,034 Wellman, Inc. 137,500 4,692 136,607 IRON & STEEL - 0.3% British Steel PLC Ord. 934,654 2,545 Compania Siderurgica Nacional 93,920,800 4,129 Dongkuk Steel Mill Co. (a) 6,300 255 Geneva Steel Co. (warrants) (a) 39,468 335 Hoogovens en Staalfabrieken (a) 38,900 1,715 Hyundai Pipe Co. Ltd. 88,150 1,589 Inland Steel Industries, Inc. (a) 79,700 3,138 Kawasaki Steel Corp. 363,000 1,640 Nucor Corp. 70,300 4,895 Oregon Steel Mills, Inc. 36,600 650 Pohang Iron & Steel Co. Ltd. 18,300 2,774 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED IRON & STEEL - CONTINUED Thyssen AG Ord. 53,600 $ 9,742 USX-U.S. Steel Group 116,400 4,874 38,281 METALS & MINING - 0.6% Alcan Aluminum Ltd. 919,007 24,197 Alumax, Inc. (a) 66,950 2,151 Aluminum Co. of America 64,400 5,458 Castle A.M. & Co. 21,300 304 Dae Chang Industrial Co. 45,310 874 English China Clay PLC 254,600 1,417 Iljin Corp. (a) 29,560 788 Kanamoto Co. Ltd. 64,000 1,930 Korea Tungsten Mining Co. (a) 38,690 1,352 Korea Tungsten Mining Co. (New) (a) 1,160 38 Noranda, Inc. 688,900 13,907 Poong San Corp. (a) 59,250 1,306 Reynolds Metals Co. 343,400 19,445 Sam Sun Industry (a) 15,100 106 73,273 PACKAGING & CONTAINERS - 0.2% Ball Corp. 45 1 Carnaudmetalbox SA 78,400 2,517 Corning, Inc. 68,200 2,208 Owens-Illinois, Inc. (a) 1,029,400 11,967 Sonoco Products Co. 79,300 1,849 18,542 PAPER & FOREST PRODUCTS - 0.4% Abitibi-Price, Inc. (a) 126,000 1,887 Bowater, Inc. 211,000 6,145 Champion International Corp. 205,000 7,943 Chesapeake Corp. 35,200 1,197 Consolidated Papers, Inc. 25,000 1,294 Eagon Industrial Co. 1,473 23 Eagon Industrial Co. Ltd. 17,250 333 Georgia-Pacific Corp. 1,400 107 International Paper Co. 33,400 2,622 Jefferson Smurfit Corp. (a) 24,500 492 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Kimberly Clark de Mexico Class A 199,400 $ 4,169 Kokuyo Co. Ltd. 75,000 1,974 Kumpulan Guthrie BHD 1,088,000 1,901 Mead Corp. 35,000 1,820 Scott Paper Co. 137,100 8,380 Stone Container Corp. (a) 40,700 794 Stone Consolidated Corp. (a) 386,600 5,503 Sung Chang Enterprise Co. 16,150 1,223 Temple-Inland, Inc. 84,600 4,674 Weyerhaeuser Co. 11,500 513 52,994 TOTAL BASIC INDUSTRIES 319,697 CONGLOMERATES - 0.2% Alexander & Baldwin, Inc. 91,200 2,331 Allied-Signal, Inc. 35,800 1,222 Dial Corp. (The) (a) 80,200 1,674 Harris Corp. 71,000 3,452 Suncor, Inc. 96,000 2,376 Textron, Inc. 33,100 1,684 Tyco Laboratories, Inc. 32,100 1,525 United Technologies Corp. 142,500 8,924 TOTAL CONGLOMERATES 23,188 CONSTRUCTION & REAL ESTATE - 1.1% BUILDING MATERIALS - 0.6% Adience, Inc. (a) 251,838 126 Armstrong World Industries, Inc. 90,900 3,943 Cementos Apasco SA de CV Class A 721,300 7,053 Cemex SA: Series A (Reg.) (a) 308,137 2,768 Series B 3,958,837 36,551 Holderbank Finance Glarus AG (warrants) (a) 25,420 31 Lafarge Corp. 54,615 1,099 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONSTRUCTION & REAL ESTATE - CONTINUED BUILDING MATERIALS - CONTINUED Lilly Industrial Coatings, Inc. Class A 37,500 $ 464 Medusa Corp. 49,650 1,322 Siam Cement 27,100 1,411 Siam City Cement Co. Ltd. 28,100 506 Ssangyong Cement Co. 29,270 1,193 Tecumseh Products Co. Class A 104,300 5,143 Tolmex SA 1,284,500 19,482 Tong Yang Cement Co. 12,500 473 81,565 CONSTRUCTION - 0.2% Centex Corp. 110,390 2,553 DR Horton, Inc. (a) 118,519 1,496 Daelim Industrial Co. (a) 140,040 3,963 Dong Ah Construction Industries Co. Ltd. (a) 45,300 1,917 Dongbu Construction Co. (a) 9,400 168 Empresas Ica Sociedad Controladora SA De CV sponsored ADR representing Ord. Participation Certificate 213,900 6,898 Japan Foundation Engineering 82,100 1,954 Kaneshita Construction Co. Ltd. Ord. 92,000 1,448 Lennar Corp. 34,500 526 Lucky Development Co. Ltd. (a) 14,990 338 Kun Young Construction Corp. 17,100 368 NCI Building Systems, Inc. (a) 75,000 1,453 Pulte Corp. 186,000 4,046 Samsung Construction Co. Ltd. 6,953 284 Samsung Engineering & Construction Co. 2,674 70 Standard Pacific Corp. 164,300 1,191 28,673 ENGINEERING - 0.1% EA Engineering Science & Technology, Inc. (a) 22,500 214 Fluor Corp. 4,982 248 Hanil Development Co. (a) 116,122 2,297 Hyundai Engineering & Construction Co. Ltd. 81,000 4,351 Kyonghyang Construction Co. (a) 18,900 296 Sungwon Construction Co. (a) 22,010 691 8,097 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONSTRUCTION & REAL ESTATE - CONTINUED REAL ESTATE - 0.1% Berjaya Sports Toto BHD (a) 667,000 $ 1,160 City Development 121,000 657 Fondo Opcion SA De CV Class 2, Series B (a) 377,400 1,000 Hwa Sung Industrial Co. 16,500 878 Mitsubishi Estate, Ltd. 85,000 1,020 Nichimo Corp. (a) 193,000 818 Tan & Tan Development BHD 1,948,000 2,751 8,284 REAL ESTATE INVESTMENT TRUSTS - 0.1% Developers Diversified Realty 22,700 701 Glimcher Realty Trust 9,900 205 Health Care Property Investors, Inc. 8,500 254 Irvine Apartment Communities 3,200 57 Kimco Realty Corporation 50,000 1,813 Merry Land & Investment Co., Inc. 81,156 1,593 Simon Properties Group, Inc. 100,000 2,562 Storage Equities, Inc. 40,000 600 Vornado Realty Trust 37,200 1,274 9,059 TOTAL CONSTRUCTION & REAL ESTATE 135,678 DURABLES - 2.2% AUTOS, TIRES, & ACCESSORIES - 1.3% Aisin Seiki Co. Ltd. 81,000 1,144 Asia Motors Co., Inc. (a) 70,584 1,281 Bandag, Inc. 50,000 2,706 BMW AG 19,100 9,282 Breed Technologies, Inc. 40,000 1,300 Bridgestone Corp. 226,000 3,533 Capaco Automotive Products Corp. 94,100 1,188 Chrysler Corp. 846,704 37,996 Continental Gummi-Werke AG 29,400 4,491 Dae Won Kang Up Co. (a) 6,479 213 Discount Auto Parts, Inc. (a) 205,500 3,391 Eaton Corp. 50,000 2,375 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT DURABLES - CONTINUED AUTOS, TIRES, & ACCESSORIES - CONTINUED Echlin, Inc. 112,900 $ 3,429 Ford Motor Co. 203,800 5,655 General Motors Corp. 602,238 28,230 Goodyear Tire & Rubber Co. 200 7 Heung-ah Tire & Rubber Co. (a) 8,060 175 Hyundai Motor Service Co. (a) 5,020 272 Johnson Controls, Inc. 89,400 4,448 Kia Motors Corp. GDR (a): Trust #2 (g) 57,900 1,361 Trust #3 (g) 74,400 1,655 Kia Precision Works Co. (a) 59,374 1,078 Lonrho Ltd. Ord. 1,013,144 2,108 Mitsubishi Motors Corp. (a) 221,000 2,073 Pirelli Tyre Holdings NV Ord. 435,300 3,507 Raymond Corp. (The) 71,190 1,477 Smith (A.O.) Corp. Class B (a) 63,200 1,580 Snap-on Tools Corp. 52,500 1,851 Sumitomo Rubber Industries 111,000 1,097 Suzuki Motor Corp. 725,000 8,775 Tofas Turkey Otomobil ADR (g) 315,500 1,104 Toyota Motor Corporation 615,000 12,592 151,374 CONSUMER ELECTRONICS - 0.3% Aktiebolaget Electrolux 71,700 3,390 Harman International Industries, Inc. 99,200 3,460 Jeewon Industrial Co. (a) 12,600 361 Jeewon Industrial Co. (New) 3,599 89 Matsushita Electric Industrial Co. Ltd. 1,232,000 19,632 Sharp Corp. 66,000 1,172 Sony Corp. 132,800 7,715 35,819 HOME FURNISHINGS - 0.1% Dapta-Mallinjoud SA 29,700 1,038 HON Industries, Inc. 8,100 205 LADD Furniture, Inc. 345,400 2,072 Miller (Herman), Inc. 470,700 11,679 14,994 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT DURABLES - CONTINUED TEXTILES & APPAREL - 0.5% Arvind Mills Ltd. Unit GDR (a)(g) 117,700 $ 722 Burlington Industries, Inc. (a) 216,000 2,268 Cygne Designs, Inc. (a) 4,300 97 Fruit of the Loom, Inc. Class A (a) 137,200 3,516 Hat Brands, Inc. (warrants) (a)(f) 90,346 1,039 Indian Rayon & Industries, Inc. GDR (a)(g) 40,800 724 Indian Rayon & Industries, Inc. GDR (a) 21,300 378 Interface, Inc. Class A 10,000 130 Jones Apparel Group, Inc. (a) 8,900 218 Kellwood Co. 59,000 1,423 Korea Moolsan Co. 53,420 1,070 Kurabo Industries Ltd. 329,000 1,536 Liz Claiborne, Inc. 140,000 3,185 Nam Yeung Corp. 4,840 661 Nautica Enterprises, Inc. (a) 29,308 907 Nisshinbo Industries 568,000 6,301 Russell Corp. 100,000 3,050 Shu Kwang Corp. 9,875 187 Tokyo Style Co. Ltd. 219,000 3,910 Unifi, Inc. 519,700 12,992 VF Corp. 82,400 4,069 Warnaco Group, Inc. Class A (a) 81,900 2,856 Westpoint Stevens, Inc. Class A (a) 289,700 4,201 Youngone Corp. 1,872 26 55,466 TOTAL DURABLES 257,653 ENERGY - 3.6% COAL - 0.0% MAPCO, Inc. 30,900 1,731 ENERGY SERVICES - 0.9% Baker Hughes, Inc. 575,800 10,724 BJ Services Co. (a) 107,800 2,129 Commercial Del Plata 613,000 2,140 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED ENERGY SERVICES - CONTINUED Dreco Energy Services Ltd. Class A (a) 34,500 $ 319 Dual Drilling Co. (a) 130,000 1,511 Energy Service Co., Inc. 83,000 1,235 Enterra Corp. (a) 116,900 2,601 Global Marine, Inc. (a) 631,200 2,683 Halliburton Co. 460,200 14,496 Helmerich & Payne, Inc. 23,200 652 Marine Drilling Companies, Inc. (a) 395,000 1,876 McDermott International, Inc. 75,000 1,931 Nabors Industries, Inc. (a) 118,500 726 Noble Drilling Corp. (a) 100,000 750 Nowsco Well Service Ltd. 197,800 2,944 Precision Drilling Class A 50,000 605 Schlumberger Ltd. 919,550 50,001 Smith International, Inc. 59,400 921 Tidewater, Inc. 222,000 4,773 Tuboscope Vetco Corp. (a) 75,000 469 Weatherford International, Inc. (a) 203,200 2,515 106,001 INDEPENDENT POWER - 0.1% California Energy Co., Inc. 50,000 856 Magma Power Co. (a) 34,100 1,183 Thermo Electron Corp. (a) 89,600 4,110 6,149 OIL & GAS - 2.6% Amerada Hess Corp. 688,800 32,029 Amoco Corp. 202,500 11,998 Ampolex Ltd. Ord. 161,800 472 Anderson Exploration Ltd. (a) 39,600 453 Apache Corp. 167,800 4,237 Ashland Oil, Inc. 46,300 1,638 Atlantic Richfield Co. 29,900 3,016 Blue Range Resource Corp. Class A (a) 50,000 358 British Borneo Petroleum 11,800 39 British Petroleum PLC: ADR 981,576 74,354 Ord. 190,780 1,203 Burlington Resources, Inc. 465,900 17,471 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED OIL & GAS - CONTINUED Cabot Oil & Gas Corp. Class A 26,348 $ 484 Camco International, Inc. 150,000 2,869 Canadian Natural Resources Ltd. 100,000 1,368 Coastal Corp. (The) 99,200 2,765 Diamond Shamrock R&M, Inc. 11,700 301 Enron Oil & Gas Co. 55,000 1,121 Isu Chemical Co. (a) 139,513 2,550 Kerr-McGee Corp. 106,200 5,164 Louis Dreyfus Natural Gas Corp. (a) 130,000 2,031 Louisiana Land & Exploration Co. 186,900 8,177 Mark Resources, Inc. (a) 164,100 1,099 Mesa, Inc. (a) 30,100 166 Mobil Corp. 16,700 1,321 Morrison Petroleums Ltd. 563,900 3,882 Murphy Oil Corp. 272,800 11,867 Newfield Exploration Co. (a) 145,100 3,573 Noble Affiliates, Inc. 57,100 1,528 Norsk Hydro A.S. 134,423 4,931 Norsk Hydro A.S. ADR 140,000 5,163 Oryx Energy Co. 94,200 1,307 Pancanadian Petroleum Ltd. 71,900 2,301 Parker & Parsley Petroleum Co. 70,100 1,744 Petro-Canada 114,700 1,014 Poco Petroleums Ltd. (a) 247,800 1,568 Renaissance Energy Ltd. (a) 452,500 9,725 Renaissance Energy Ltd. (a)(g) 250,000 5,373 Rio Alto Exploration Ltd. (a) 272,500 1,597 Texaco, Inc. 176,200 10,572 Tosco Corp. 357,000 10,130 Total Compagnie Francaise des Petroles Class B 153,511 9,027 Total SA sponsored ADR 544,912 15,939 Triton Energy Corp. (a) 50,000 1,625 Unocal Corp. 835,486 23,602 Vastar Resources, Inc. 50,000 1,456 Vintage Petroleum, Inc. 151,900 3,095 Western Gas Resources, Inc. 191,700 4,169 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED OIL & GAS - CONTINUED Yukong Ltd. 41,350 $ 2,086 Yukong Ltd. (New) 1,360 65 314,023 TOTAL ENERGY 427,904 FINANCE - 6.0% BANKS - 2.2% Banacci SA de CV: Class C 2,154,900 15,231 Ord. Class L 323,445 2,229 Banc One Corp. 329,260 9,837 Banco Bilbao Vizcaya SA Ord. (Reg.) 135,500 3,334 Banco de Galicia Y Buenos Aires SA sponsored ADR representing Class B shares 73,770 2,333 Banco Frances Del Rio PL (Reg.) 214,452 2,139 BankAmerica Corp. 79,300 3,499 Bangkok Bank 62,300 644 Bank International Indonesia Ord. 464,600 1,687 Bank of Boston Corp. 823,200 21,918 Bank of New York Co., Inc. 213,984 6,339 BanPonce Corp. 64,070 2,122 Barnett Banks, Inc. 78,800 3,487 BNP CI Ord. 42,750 1,979 Boatmen's Bancshares, Inc. 107,500 3,339 Boram Bank (a) 101,010 1,391 Boram Bank (New) 24,008 316 Chase Manhattan Corp. 174 6 Chemical Banking Corp. 267,400 9,359 Cho Hing Bank Co. Ltd. 238,550 4,382 Cho Hung Bank Co. Ltd. (New) (a) 52,426 840 Citicorp 284,978 12,112 CS Holdings (Bearer) (warrants ) (a) 8,090 57 CS Holdings 14,360 5,866 Comerica, Inc. 338,200 9,385 Deutsche Bank AG 21,500 9,354 Development Bank of Singapore 103,000 1,083 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED BANKS - CONTINUED First American Corp. (Tenneesee) 30,200 $ 997 First Chicago Corp. 6,400 294 First Fidelity Bancorporation 41,955 1,762 First Union Corp. 376,877 16,300 Fleet Financial Group, Inc. 207,241 7,797 Grupo Financiero Bancomer SA de CV sponsored ADR, Series C (g) 340,100 8,162 HSBC Holdings: Ord. 230,200 2,475 PLC 428,000 4,777 Hanil Bank (a) 58,800 869 Istituto Mobiliare Italiano 533,100 3,687 Keycorp. 323,137 9,856 Korea First Bank, Inc. Ltd. 15,750 262 Mercantile Bankshares Corp. 47,300 1,047 Michigan National Corp. 14,100 1,075 Midlantic Corp. 97,600 2,696 Mitsubishi Trust & Banking 137,000 2,059 Mitsui Trust and Banking 83,000 921 Kyung Nam Bank (a) 56,700 611 Kyungki Bank Ltd. (a) 88,200 962 NationsBank Corp. 362,028 17,738 North Fork Bancorporation, Inc. 4,900 78 Norwest Corp. 56,000 1,386 Overseas Union Bank Ltd. 216,000 1,238 Panin Bank 942,200 1,721 Regions Financial Corp. 40,700 1,422 Republic New York Corp. 32,200 1,401 Shawmut National Corp. 1,227,223 25,464 Shinhan Bank 18,400 422 Signet Banking Corp. 326 11 Southern National Corp. 33,000 681 State Street Boston Corp. 27,400 1,000 Swiss Bank Corp. (Bearer) (a) 12,590 3,598 Trustmark Corp. 51,900 1,012 Union Planters Corp. 17,003 417 United Overseas Bank 250,000 2,512 Unidanmark AS Class A (a) 26,600 1,023 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED BANKS - CONTINUED Zions Bancorporation 25,500 $ 1,007 263,008 CLOSED END INVESTMENT COMPANY - 0.1% Growth Fund of Spain, Inc. (a) 139,600 1,466 Morgan Stanley India Investment Fund (a) 1,071,000 14,994 16,460 CREDIT & OTHER FINANCE - 0.4% American Express Co. 838,224 25,461 Beneficial Corp. 79,000 3,219 Central Investment & Finance Corp. 22,000 427 Dean Witter Discover & Co. 99,766 3,754 GFC Financial Corp. 33,500 1,193 General Financial & Securities Public Co. Ltd. 47,200 601 Green Tree Acceptance, Inc. 121,300 3,260 LG Merchant Banking Corp. 6,400 284 Promise Co., Ltd. (a) 30,000 1,876 Shin Han Securities Co. (a) 18,900 293 Tong Yang Securities Co., Ltd. 2,102 36 40,404 FEDERAL SPONSORED CREDIT - 1.0% Federal Home Loan Mortgage Corporation 359,500 19,188 Federal National Mortgage Association 1,313,700 103,454 122,642 INSURANCE - 1.2% ACE Ltd. 44,400 1,066 Alexander & Alexander Services, Inc. 188,900 3,684 Allstate Corp. 637,900 15,230 American Annuity Group, Inc. 316,578 3,007 American International Group, Inc. 7,900 702 Assicurazioni Generali Spa 187,110 4,794 Baloise Holding (Reg.) 2,000 3,976 Berkley (W.R.) Corp. 50,000 1,800 Corporacion Mapfre International Reas (Reg.) 80,100 3,680 Dai-Tokyo Fire & Marine Insurance Ord. 386,000 2,850 GAN (Groupe Des Assur Natl.) 27,830 1,372 General Re Corp. 85,100 9,010 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED INSURANCE - CONTINUED Gryphon Holdings, Inc. (a) 12,500 $ 188 International Nederlanden Groep CVA 62,449 2,695 John Alden Financial Corp. 284,000 10,402 Loews Corp. 62,900 5,559 MBIA, Inc. 83,400 4,973 NAC Re Corp. 79,500 2,027 Providian Corp. 165,500 5,213 Prudential Corp. 370,936 1,731 Royale Insurance Co. Ltd. 384,017 1,743 SAFECO Corp. 185,100 9,533 St. Paul Companies, Inc. (The) 303,200 12,318 Tokio Marine & Fire Insurance Co. Ltd. (The) 299,000 3,558 Travelers, Inc. (The) 517,367 17,008 UNUM Corp. 295,300 13,584 141,703 SAVINGS & LOANS - 0.3% Ahmanson (H.F.) & Co. 662,200 13,823 American Savings of Florida FSB (a) 40,700 748 Brooklyn Bancorp, Inc. (a) 45,000 1,553 Charter One Financial Corp. 30,800 631 FirstFed Michigan Corp. 22,500 540 Golden West Financial Corp. 390,800 15,485 Standard Federal Bank 140,000 3,815 Washington Mutual Savings Bank 181,700 3,702 40,297 SECURITIES INDUSTRY - 0.8% Bear Stearns Companies, Inc. 117,745 1,884 Boram Securities Co. Ltd. 62,370 961 Coryo Securities 47,080 784 Daehan Korean Blue-Chip Investment Trust (a)(g) 1,900,000 42,750 Hanshin Securities Co., Ltd. 12,600 314 Hyundai Securities Co. Ltd. (a) 20,400 473 KLB Securities Co. 23,511 374 Korea First Securities Co. (a) 103,142 1,718 Korea First Securities Co. (New) (a) 10,626 152 Lehman Brothers Holdings, Inc. 504,180 7,436 Lucky Securities Co. 42,600 896 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED SECURITIES INDUSTRY - CONTINUED Merrill Lynch & Co., Inc. 166,800 $ 5,775 Midland Walwyn, Inc. 401,200 2,538 Morgan Stanley Group, Inc. 148,300 9,213 Nomura Securities Ltd. 510,000 10,544 Paine Webber Group, Inc. 216,050 3,106 Schwab (Charles) Corp. 56,600 1,677 Seoul Securities Co. 64,199 1,021 Ssangyong Investment & Securities Co. 12,600 286 Ssangyong Investment & Securities Co. (New) 1,261 23 Sunkyong Securities Co. (a) 93,290 1,647 United Asset Management Corp. 54,800 2,062 95,634 TOTAL FINANCE 720,148 HEALTH - 2.5% DRUGS & PHARMACEUTICALS - 1.4% Allergan, Inc. 461,800 11,718 ALZA Corp. Class A 50,000 1,031 American Home Products Corp. 208,900 12,534 Amgen, Inc. (a) 138,900 7,397 Biogen, Inc. 51,700 2,818 Bristol-Myers Squibb Co. 246,100 14,120 Carter-Wallace, Inc. 191,600 2,611 Cellpro, Inc. (a) 35,000 700 Centocor, Inc. 12,500 231 Cephalon, Inc. (a) 25,000 267 Elan PLC ADR (a) 203,200 7,976 Elan PLC therapeutic systems unit (Common & 1 ADR warrant) (a) 16,050 464 Forest Laboratories, Inc. (a) 43,400 2,137 Korea Green Cross Corp. (a) 14,667 1,992 Noven Pharmaceuticals, Inc. (a) 12,500 161 Pfizer, Inc. 651,200 45,014 Pharmacia AB A Free Shares 100,000 1,783 Sankyo 84,000 2,101 Schering AG 1,500 921 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT HEALTH - CONTINUED DRUGS & PHARMACEUTICALS - CONTINUED Schering-Plough Corp. 314,000 $ 22,295 Shin Poong Pharmaceutical Co. (a) 16,230 382 Takeda Chemical Industries Ltd. 125,000 1,462 Warner-Lambert Co. 288,800 23,176 163,291 MEDICAL EQUIPMENT & SUPPLIES - 0.7% Baxter International, Inc. 462,400 13,005 Beckman Instruments, Inc. 20,000 590 Becton, Dickinson & Co. 175,000 8,444 Bergen Brunswig Corp. Class A 212,400 3,478 Boston Scientific Corp. (a) 147,200 2,318 Cardinal Health, Inc. 23,400 980 Johnson & Johnson 274,200 14,156 Kendall International, Inc. (a) 71,800 4,326 McKesson Corp. 83,500 8,496 Medtronic, Inc. 170,700 9,026 Mentor Corp. (a) 30,600 524 Owens and Minor, Inc. 190,100 3,184 Pall Corp. 240,000 4,140 St. Jude Medical, Inc. 210,000 7,521 Spacelabs Medical, Inc. (a) 47,300 1,135 Thermedics, Inc. (a) 170,000 2,571 83,894 MEDICAL FACILITIES MANAGEMENT - 0.4% Columbia/HCA Healthcare Corp. 449,415 19,549 Humana, Inc. (a) 350,000 8,269 Lincare Holdings, Inc. (a) 83,440 1,940 Oxford Health Plans, Inc. (a) 39,700 3,057 U.S. Healthcare, Inc. 162,150 7,550 United HealthCare Corp. 142,400 7,547 47,912 TOTAL HEALTH 295,097 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT HOLDING COMPANIES - 0.8% America Group Ltd. Class A 55,350 $ 1,206 Brierley Investments Ltd. 28,518,081 21,641 Grupo Carso SA de CV Class A-1 (a) 4,096,600 46,208 Grupo Sidek SA de CV Class L sponsored ADR 586,000 11,720 Jardine Matheson & Co. Ltd. Ord. 804,400 6,819 Jardine Strategic Holdings Ord. 344,600 1,396 Man AG ord. 20,600 5,231 Sanluis Corp. Ord., Series A-2 318,900 3,569 TOTAL HOLDING COMPANIES 97,790 INDUSTRIAL MACHINERY & EQUIPMENT - 1.5% ELECTRICAL EQUIPMENT - 0.4% Cherry Corp. Class A (a) 52,100 886 Cherry Corp. (a) 62,100 1,025 General Electric Co. 439,000 21,127 General Signal Corp. 54,500 1,914 Hitachi Koki Co., Ord. 206,000 2,119 Il Jin Electric & Machinery 12,600 360 Mitsubishi Electric Co. Ord. 954,000 6,754 Mori Seiki Co. Ord. Y50 79,000 2,103 Omron Corp. 196,000 3,380 Philips Electronics 184,300 5,632 Philips NV 118,900 3,612 Scientific-Atlanta, Inc. 61,400 2,510 51,422 INDUSTRIAL MACHINERY & EQUIPMENT - 0.8% AIDA Engineering Ltd. Ord. 113,000 944 Amada Metrecs Co. Ltd. 57,000 977 Amadasonoike Co. Ltd. 229,000 1,947 Caterpillar, Inc. 609,400 32,984 Cooper Industries, Inc. 137,500 5,534 Daewoo Heavy Industries Ltd. (a) 31,500 694 Deere & Co. 319,400 21,919 Duriron Company, Inc. 9,300 146 Finning Ltd. 326,300 5,222 Harnischfeger Industries, Inc. 72,200 1,904 Hitachi Construction Machinery Co. Ltd. 192,000 2,556 Indresco, Inc. (a) 105,000 1,378 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED Joy Technologies, Inc. Class A (a) 98,500 $ 1,428 Keystone International, Inc. 62,500 1,219 Korea Machinery Co. Ltd. (a) 63,000 1,104 Goldstar Industrials Systems Co. Ltd. (a) 6,300 254 Nokia Corp. Sponsored ADR (a) 25,400 1,486 Parker-Hannifin Corp. 50,000 1,994 Regal-Beloit Corp. 198,400 3,026 SKF AB Ord. (a) 200,500 3,495 Soosan Heavy Industrial Co. (a) 24,600 570 Ssangyong Heavy Industries Co. Ltd. (a) 76,550 1,112 TRINOVA Corp. 27,800 970 Tsugami Corp. 168,000 1,013 93,876 POLLUTION CONTROL - 0.3% Attwoods PLC: ADR 803,000 7,327 Ord. 1,250,000 2,246 Browning-Ferris Industries, Inc. 76,000 2,413 Laidlaw, Inc. Class B 1,000,000 7,722 OHM Corp. (a) 45,000 518 Sanifill, Inc. (a) 56,600 1,259 Sevenson Environmental Services, Inc. 20,000 355 TETRA Technologies, Inc. (a) 100,000 900 United Waste Systems, Inc. (a) 15,000 371 WMX Technologies, Inc. 120,000 3,465 Western Waste Industries, Inc. (a) 20,000 355 26,931 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 172,229 MEDIA & LEISURE - 1.2% BROADCASTING - 0.3% CBS, Inc. 5,900 1,892 Capital Cities/ABC, Inc. 56,500 4,633 Citicasters, Inc. 90,515 1,991 Groupo Televisa GDS (g) 58,800 3,403 Heritage Media Corp. Class A (a) 17,900 389 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED Home Shopping Network, Inc. (a) 256,354 $ 2,756 Peoples Choice TV Corp. (a) 22,100 519 Tele-Communications, Inc. Class A (a) 871,500 19,336 Time Warner, Inc. 19 1 Viacom, Inc. 4,000 164 Viacom, Inc.: (rights) 50,000 66 (non-vtg.) 30,307 1,205 36,355 ENTERTAINMENT - 0.0% Live Entertainment, Inc. (a): $2.00 (warrants) (f) 256,000 256 $2.72 (warrants) (f) 244,706 245 Royal Carribean Cruises Ltd. 115,100 2,993 Sun International Hotels Ltd. (a) 7,684 180 3,674 LEISURE DURABLES & TOYS - 0.1% Brunswick Corp. 159,900 3,218 Callaway Golf Co. 43,400 1,492 Champion Enterprises, Inc. (a) 20,000 785 Fleetwood Enterprises, Inc. 100,400 2,522 Outboard Marine Corp. 254,900 5,799 Samick Musical Instruments (a) 12,535 196 Sports and Recreation, Inc. (a) 37,500 975 West Marine, Inc. (a) 11,000 248 15,235 LODGING & GAMING - 0.4% Accor SA 21,500 2,470 Bally's Grand, Inc. (a) 81,947 973 Bally's Grand, Inc. (warrants) (a) 28,618 129 Bally Gaming International, Inc. (warrants) (a) 149,100 1,044 Caesars World, Inc. (a) 47,800 2,073 Four Seasons Hotels, Inc. 250,100 2,955 Genting BHD 154,500 1,386 Grupo Posadas SA de CV Class L (a) 593,400 681 Grupo Situr SA de CV Class B (a) 5,967,770 20,458 Host Marriott Corp. 182,856 1,806 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT MEDIA & LEISURE - CONTINUED LODGING & GAMING - CONTINUED La Quinta Motor Inns, Inc. 296,450 $ 10,635 Marriott International, Inc. 82,656 2,387 Mirage Resorts, Inc. (a) 97,600 2,098 Resorts International, Inc. (a) 65,589 66 Resorts World BHD 566,000 3,577 Trump Plaza Holding Associates (warrants) (a) 285 114 52,852 PUBLISHING - 0.3% American Greetings Corp. Class A 56,300 1,626 Dow Jones & Co Inc. 55,800 1,674 Enquirer/Star Group, Inc. Class A 115,500 1,949 Gannett Co., Inc. 128,400 6,164 McGraw-Hill, Inc. 23,800 1,743 Meredith Corp. 41,500 1,930 Scripps (E.W.) Co. Class A 75,000 2,203 Singapore Press Holdings Ltd. (For. Reg.) 30,000 526 Telegraaf 10,800 1,193 Thomson Corp. 172,300 2,020 Times Mirror Co., Series A 48,600 1,495 Torstar Corp. Class B 325,000 5,926 28,449 RESTAURANTS - 0.1% Bertucci's, Inc. (a) 69,700 784 Brinker International, Inc. (a) 72,900 1,749 McDonald's Corp. 203,800 5,350 7,883 TOTAL MEDIA & LEISURE 144,448 NONDURABLES - 2.3% AGRICULTURE - 0.0% Molinos Rio de La Plata (Reg) (a) 383,438 3,644 BEVERAGES - 0.4% Buenos Aires Embotelladora Sponsored ADR 61,500 2,298 Comp Cervecerias Unidas SA ADR 140,500 3,442 Dr. Pepper/Seven-Up Companies,Inc. (a) 67,600 1,572 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - CONTINUED BEVERAGES - CONTINUED Emvasa Del Valle de Enah Ord. (a) 1,044,700 $ 5,446 Fomento Economico Mexicano SA de CV Class B 1,369,400 7,340 Grupo Embotellador de Mexico CPO GDR (a) 208,700 6,052 Kirin Brewery Co. Ltd. 58,000 673 Panamerican Beverages, Inc. Class A 158,800 5,697 PepsiCo, Inc. 110,800 3,670 Quilmes Industries, SA 69,900 1,634 Seagram Co. Ltd. 405,400 12,296 Whitbread Class A 190,132 1,617 51,737 FOODS - 0.5% Archer-Daniels-Midland Co. 63,295 1,646 Borden, Inc. 861,200 11,841 ConAgra, Inc. 101,400 3,194 Dean Foods Co. 74,100 2,241 Dole Food, Inc. 72,000 1,998 Goodman Fielder Ltd. Ord. 1,553,956 1,461 Herdez SA de CV, Class A 1,926,600 1,957 IBP, Inc. 477,700 15,645 Miwon Co. Ltd. (a) 65,396 1,728 Nestle SA (Reg.) 2,900 2,633 Nippon Suisan Kaisha Ltd. (a) 523,000 2,532 Ottogi Foods 21,700 667 Samyang Foods Co. (a) 12,600 562 Tyson Foods, Inc. 28,800 691 Viscofan Envolturas Celulo SA 90,300 2,050 Weston George Ltd. 211,100 6,128 56,974 HOUSEHOLD PRODUCTS - 0.1% Orkla AS Class A Free shares 79,900 2,319 Premark International, Inc. 16,900 714 Pyung HWA Industrial Co. 18,800 741 Safeskin Corp. (a) 20,000 285 Stanhome, Inc. 7,100 242 Uni Charm Corp. Ord. 149,000 4,028 8,329 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - CONTINUED TOBACCO - 1.3% Imasco Ltd. 94,900 $ 2,684 Philip Morris Companies, Inc. 1,817,000 111,064 RJR Nabisco Holdings Corp. (a) 3,577,500 24,595 UST, Inc. 417,000 11,937 150,280 TOTAL NONDURABLES 270,964 PRECIOUS METALS - 0.5% Agnico Eagle Mines Ltd. 223,500 3,223 American Barrick Resources Corp. 530,000 14,053 Battle Mountain Gold Co. 250,000 3,188 Echo Bay Mines Ltd. 154,400 2,126 Franco Nevada Mining Corp. 62,700 4,060 Free State Consolidated Gold Mines Ltd. ADR 376,800 6,523 Hecla Mining Co. 80,000 1,060 Homestake Mining Co. 404,100 8,587 Newmont Mining Corp. 164,800 7,416 Pegasus Gold, Inc. 118,500 1,962 Placer Dome, Inc. 304,800 7,657 TOTAL PRECIOUS METALS 59,855 RETAIL & WHOLESALE - 2.2% APPAREL STORES - 0.3% Ann Taylor Stores Corp. (a) 113,300 4,079 Burlington Coat Factory Warehouse Corp. (a) 800 11 Edison Brothers Stores, Inc. 8,400 193 Esprit Asia Holdings Ltd. 2,564,000 1,294 Gap, Inc. 112,700 3,705 Lamonts Apparel, Inc. (a) 213,794 160 Limited, Inc. (The) 299,400 5,876 Ross Stores, Inc. 51,900 759 TJX Companies, Inc. 614,900 12,913 United States Shoe Corp. 64,100 1,410 Xebio Co. Ltd. 20,700 898 31,298 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT RETAIL & WHOLESALE - CONTINUED DRUG STORES - 0.1% Revco (D.S.), Inc. 20,000 $ 418 Rite Aid Corporation 189,500 3,931 Walgreen Co. 43,500 1,637 5,986 GENERAL MERCHANDISE STORES - 1.0% Caldor Corp. 12,500 386 Carson Pirie Scott & Co. (a) 1,000 21 Cifra SA Class C 5,823,600 16,293 Consolidated Stores Corp. 12,500 204 Controladora Commercial Mexicana SA B-1 (a) 484,100 1,032 Dayton Hudson Corp. 46,900 3,588 Dillard Department Stores, Inc. Class A 358,900 9,601 Federated Department Stores, Inc. (a) 1,194,000 27,462 Hornbach Baumarket AG BR 1,600 928 Ito Yokado Co. Ltd. 58,000 3,095 Keum Kang Development Industries Co. (a) 9,450 177 Michaels Stores, Inc. (a) 25,000 1,036 Midopa Co. 88,407 1,395 Price/Costco, Inc. 50,000 803 Sears, Roebuck and Co. (a) 646,900 31,051 Sears Roebuck de Mexico SA (a) 559,200 7,246 Sears Roebuck de Mexico SA de CV ADR representing Series B-1 shares (a)(g) 47,300 1,224 Value City Department Stores, Inc. (a) 191,300 2,535 Wal-Mart Stores, Inc. 411,900 9,628 117,705 GROCERY STORES - 0.2% Argyll Group PLC Ord. 340,700 1,466 Fleming Companies, Inc. 50,055 1,170 Food Lion, Inc. Class A 918,100 5,164 Giant Food, Inc. Class A 70,000 1,505 Great Atlantic & Pacific Tea Co., Inc. 76,100 1,931 Izumi Co. Ord. 35,000 886 Kroger Co. (The) (a) 35,000 932 Loblaw Companies, Ltd. 128,000 2,108 Safeway, Inc. (a) 212,500 6,242 Stop & Shop Companies, Inc. (a) 189,700 4,766 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT RETAIL & WHOLESALE - CONTINUED GROCERY STORES - CONTINUED Supervalu, Inc. 39,400 $ 1,024 Tae Gu Department Store Co. (a) 6,180 221 Tae Gu Department Stores Co. Bonus shares (a) 309 11 27,426 RETAIL & WHOLESALE, MISCELLANEOUS - 0.6% Best Buy Co., Inc. (a) 311,300 12,180 Body Shop International PLC (a) 455,700 1,602 Circuit City Stores, Inc. 325,600 8,425 Duty Free International, Inc. 50,000 600 Good Guys, Inc. (a) 103,100 1,276 Home Depot, Inc. (The) 44,600 1,873 Lillian Vernon Corp. 20,000 370 Little Switzerland, Inc. (a) 114,000 741 Lowe's Companies, Inc. 194,500 7,512 Micro Warehouse, Inc. (a) 130,200 4,134 Office Depot, Inc. (a) 31,250 813 Petsmart, Inc. (a) 58,000 2,204 Rex Stores Corp. (a) 124,000 2,496 Sotheby's Holdings, Inc. Class A 63,700 820 Spiegel, Inc. Class A 15,000 272 Staples, Inc. (a) 39,700 1,305 Tiffany & Company, Inc. 30,000 1,110 Town & Country Jewelry Manufacturing Corp. Class A (a) 743,292 1,394 Toys "R" Us, Inc. (a) 633,200 22,557 Uny Co., Ltd. 97,000 1,556 Viking Office Products, Inc. (a) 62,200 1,882 Wickes PLC 1,445,100 2,016 77,138 TRADING COMPANIES - 0.0% Hyundai Corp. (a) 45,500 1,401 Hyundai Corp. (New) (a) 13,958 393 Kanematsu-Gosho Ltd. 301,000 1,655 Nam Sung Corp. 19,624 378 3,827 TOTAL RETAIL & WHOLESALE 263,380 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT SERVICES - 0.4% ADVERTISING - 0.0% WPP Group PLC 1,332,800 $ 2,290 LEASING & RENTAL - 0.1% Hollywood Entertainment Corp. (a) 84,550 2,367 Orix Corp. 111,000 4,422 6,789 PRINTING - 0.1% Alco Standard Corp. 25,000 1,553 Donnelley (R.R.) & Sons Co. 211,500 6,345 Komori Corp. 73,000 1,877 New England Business Service, Inc. 237,500 4,216 Reynolds & Reynolds Co. Class A 33,700 847 Standard Register Co. 9,800 194 15,032 SERVICES - 0.2% ADT Ltd. 245,200 2,820 Borg Warner Securities Corp. (a) 101,600 1,118 CDI Corp. (a) 20,000 263 CPI Corp. 124,000 2,294 Heidemij NV 109,400 1,121 Jostens, Inc. 80,000 1,430 Manpower, Inc. 85,000 2,327 Norrell Corp. (GA) 9,500 170 Pinkertons, Inc. (a) 85,900 1,353 Robert Half International, Inc. (a) 30,000 574 Supercuts, Inc. (a) 49,800 573 Western Atlas, Inc. 240,100 10,503 Zebra Technologies Corp. Class A (a) 113,800 4,182 28,728 TOTAL SERVICES 52,839 TECHNOLOGY - 4.2% COMMUNICATIONS EQUIPMENT - 0.3% Ascom Holding Ltd. (Bearer) 800 944 Cabletron Systems, Inc. (a) 221,000 10,525 DSC Communications Corp. (a) 106,000 3,021 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED COMMUNICATIONS EQUIPMENT - CONTINUED Ericsson (L.M.) Telephone Co. Class B ADR 42,300 $ 2,274 General Instrument Corp. (a) 163,700 4,666 Leader Universal Holdings BHD 94,000 539 Newbridge Networks Corp. (a) 86,000 2,752 Tellabs, Inc. 50,000 2,125 3Com Corp. (a) 182,140 6,807 33,653 COMPUTER SERVICES & SOFTWARE - 0.5% America Online, Inc. 12,500 855 Compuware Corp. (a) 165,000 7,765 Informix Corp. 75,000 2,081 Intuit 40,000 1,750 Lotus Development Corp. (a) 247,600 9,099 MicroAge, Inc. (a) 83,800 1,047 Microsoft Corp. (a) 108,400 6,084 Oracle Systems Corp. (a) 132,900 5,715 Parametric Technology Corp. (a) 128,500 4,273 Peoplesoft, Inc. (a) 118,100 5,698 Platinum Technology, Inc. (a) 94,100 1,870 Powersoft Corp. (a) 40,000 2,155 SHL Systemhouse, Inc. 303,700 1,708 Softdesk, Inc. (a) 12,500 222 Stratacom, Inc. 50,000 1,863 SunGard Data Systems, Inc. 9,600 348 Sybase, Inc. 68,700 3,152 Viewlogic Systems, Inc. (a) 307,700 6,000 Wonderware Corp. (a) 50,000 1,063 62,748 COMPUTERS & OFFICE EQUIPMENT - 1.6% Canon, Inc. 565,000 9,915 Compaq Computer Corp. (a) 1,402,800 45,766 Daewoo Telecommunication (a) 27,100 411 Daewoo Telecommunication (New) 5,279 74 Diebold, Inc. 80,150 3,296 Digital Equipment Corp. 31,300 829 EMC Corp. (a) 227,900 4,586 Fujitsu Ltd. 526,000 5,517 General Motors Corp. Class E 38,300 1,455 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED COMPUTERS & OFFICE EQUIPMENT - CONTINUED Hewlett-Packard Co. 185,500 $ 16,208 International Business Machines Corp. 962,400 66,887 Read Rite Corp. 105,300 1,974 SCI Systems, Inc. (a) 474,900 10,032 Silicon Graphics, Inc. (a) 357,500 9,206 Sun Microsystems, Inc. (a) 208,700 6,131 Tandem Computers, Inc. (a) 211,200 3,432 Tech Data Corp. (a) 200,100 3,852 Trigem Computer, Inc. 31,450 896 Xerox Corp. 40,400 4,313 194,780 ELECTRONIC INSTRUMENTS - 0.2% Applied Materials, Inc. (a) 74,100 3,464 KLA Instruments Corp. (a) 53,500 2,648 Kulicke & Soffa Industries, Inc. (a) 113,300 1,841 Lam Research Corp. (a) 43,200 1,739 Measurex Corp. 11,200 238 Megatest Corp. (a) 46,100 830 Microfluidics International Corp. (a) 20,000 85 TSI, Inc. 10,000 87 Tektronix, Inc. 50,000 1,938 Teradyne, Inc. (a) 136,100 3,998 Varian Associates, Inc. 46,300 1,690 18,558 ELECTRONICS - 1.5% Advanced Micro Devices, Inc. (a) 3,600 107 Aiwa Co. Ltd. 79,000 1,960 AMP, Inc. 53,300 4,124 Anthem Electronics, Inc. (a) 96,100 3,099 Atmel Corp. (a) 72,500 2,275 Daewoo Electronics Components Co. (a) 19,455 305 Daewoo Electronics Components Co. (New) 4,515 65 Hirose Electric Co. Ltd. 63,000 3,940 Hitachi Ltd. 2,245,000 21,646 Hitachi Maxell Ltd. 42,000 775 Integrated Device Technology, Inc. (a) 89,000 1,869 Intel Corp. 746,100 45,885 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED ELECTRONICS - CONTINUED LSI Logic Corp. (a) 61,700 $ 2,306 Linear Technology Corp. 7,700 341 Methode Electronics, Inc. Class A 79,200 1,564 Micron Technology, Inc. 152,000 5,244 Molex, Inc. 105,000 4,121 Motorola, Inc. 734,300 38,734 National Semiconductor Corp. (a) 8,100 127 Nichicon Corp. 413,000 5,498 Ryoyo Electro Corp. Ord. 140,000 3,798 Rohm Co. Ltd. 58,000 2,527 Samsung Electronics Co. Ltd.: GDS (g) 53,150 3,535 GDR (New) (a)(g) 5,057 336 GDR Part Dividend (g) 4,613 166 Solectron Corp. 424,200 11,188 TDK Corp. 117,000 5,204 Texas Instruments, Inc. 97,600 6,674 Toshiba Corp. 729,000 5,478 182,891 PHOTOGRAPHIC EQUIPMENT - 0.1% Fuji Photo Film Co. Ltd. 55,000 1,237 Polaroid Corp. 174,508 6,130 7,367 TOTAL TECHNOLOGY 499,997 TRANSPORTATION - 1.3% AIR TRANSPORTATION - 0.4% AMR Corp. (a) 183,100 9,430 Comair Holdings, Inc. 82,000 1,866 Delta Air Lines, Inc. 93,600 4,189 Japan Airlines Co. Ltd. 145,000 1,092 KLM Royal Dutch Airlines (a) 51,600 1,413 KLM Royal Dutch Airlines Ord. (a) 218,300 6,092 Korea Air Lines (RFD) 12,711 231 Korea Air Lines (a) 100,342 3,631 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TRANSPORTATION - CONTINUED AIR TRANSPORTATION - CONTINUED Malaysian Helicopter Services (BHD) 1,661,600 $ 5,153 Pittston Company Services Group 20,500 584 Technology Resources (a) 4,154,000 17,015 50,696 RAILROADS - 0.7% Burlington Northern, Inc. 30,800 1,548 CSX Corp. 208,200 14,262 Canadian Pacific Ltd. Ord. 2,122,100 35,537 Chicago & North Western Holdings Corp. (a) 63,300 1,306 Conrail, Inc. 20,200 1,000 East Japan Railway Ord. (a) 488 2,387 Illinois Central Corp., Series A 135,800 4,074 Johnstown America Industries, Inc. (a) 2,600 68 Santa Fe Pacific Corp. 886,900 20,066 Southern Pacific Rail Corp. (a) 385,600 7,230 Trinity Industries, Inc. 43,800 1,391 Wisconsin Central Transportation Corp. (a) 33,700 1,382 90,251 SHIPPING - 0.1% Han Jin Transportation Co. (a) 45,423 1,371 Kawasaki Kisen Kaisha Ltd. (a) 520,000 1,961 Mitsui OSK Lines 993,000 3,915 Transportacion Maritima Mexicana SA de CV ADR representing L shares (a) 234,400 1,905 9,152 TRUCKING & FREIGHT - 0.1% Carolina Freight Corp. 26,000 241 Hitachi Transport System Co. 224,000 2,395 Roadway Services, Inc. 82,900 4,766 Yellow Corp. 41,200 767 8,169 TOTAL TRANSPORTATION 158,268 UTILITIES - 5.4% CELLULAR - 0.5% Airtouch Communications (a) 741,900 21,237 Premier Page Co. (a) 93,000 814 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED CELLULAR - CONTINUED Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) (a) 124,600 $ 3,617 Vanguard Cellular Systems, Inc. Class A (a) 28,200 740 Vodafone Group PLC 381,373 1,187 Vodafone Group PLC sponsored ADR 1,023,200 32,103 59,698 ELECTRIC UTILITY - 1.8% AES Corp. 500,000 9,875 American Electric Power Co., Inc. 148,700 4,665 Baltimore Gas & Electric Co. 241,400 5,552 Boston Edison Co. 100,000 2,350 Carolina Power & Light Co. 163,400 4,310 Central & South West Corp. 134,500 2,993 Central Costanera SA ADR (g) 42,900 1,544 Central Louisiana Electric Co., Inc. 133,200 2,980 Cincinnati Gas & Electric Co. 33,200 739 Consolidated Edison Co. of New York, Inc. 157,800 3,925 Consolidated Electric Power Asia Ltd. 488,200 1,103 DPL, Inc. 98,200 1,915 DQE, Inc. 129,600 3,758 Detroit Edison Company 122,700 3,129 Dominion Resources, Inc. (Va.) 78,000 2,906 Duke Power Co. 116,700 4,551 Eastern Utilities Associates 116,991 2,662 Empresa Nacional De Electricidad SA sponsored ADR 69,200 2,958 Entergy Corp. 232,400 5,403 EVN (Energie-Versor Nieder) 8,200 1,049 FECSA Class A 1,008,900 5,774 FPL Group, Inc. 115,200 3,744 Fuji Electric Co., Ltd. 668,000 3,773 General Public Utilities Corp. 144,700 3,581 Hong Kong Electric Holdings Ord. 1,879,500 6,166 Houston Industries, Inc. 82,000 2,891 Iberdrola SA 348,090 2,204 Illinova Corp. 283,900 5,465 Korea Electric Power Corp. 373,800 17,316 Montana Power Co. 115,100 2,676 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED New England Electric Systems 11,000 $ 336 NIPSCO Industries, Inc. 240,700 6,589 Northern States Power Co. (MN) 56,600 2,391 Ohio Edison Co. 173,000 3,287 PSI Resources, Inc. 257,900 5,771 Pacific Gas & Electric Co. 166,000 3,777 PacifiCorp. 253,300 4,274 Peco Energy Co. 409,000 10,378 Portland General Corp. 39,100 660 Public Service Co. of Colorado 35,576 961 Public Service Enterprise Group, Inc. 189,900 4,985 SCEcorp 262,100 3,407 Scottish Power PLC 459,634 2,579 Sevillana de Electricidad 305,500 1,477 Southern Co. 365,700 6,811 Texas Utilities Co. 86,500 2,822 Unicom Corp. 224,100 4,986 Union Electric Co. 72,300 2,531 Union Electrica Fenosa 703,600 3,052 United Illuminating Co. 48,200 1,452 Veba Vereinigte Elektrizitaets & Bergwerks AG Ord. 45,200 14,998 209,481 GAS - 0.7% Columbia Gas System, Inc. (The) (a) 292,800 7,869 El Paso Natural Gas Co. 40,500 1,341 Energen Corp. 40,000 900 Enron Corp. 195,000 5,899 ENSERCH Corp. 185,400 2,572 Equitable Resources, Inc. 20,200 606 MCN Corp. 345,700 12,488 NICOR, Inc. 50,000 1,213 Noram Energy Corp. 254,900 1,657 ONEOK, Inc. 50,000 844 Pacific Enterprises 612,400 13,014 Questar Corp. 193,000 5,476 Sonat, Inc. 311,600 9,776 Tejas Gas Corp. (Del.) (a) 27,900 1,259 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED GAS - CONTINUED WICOR, Inc. 25,000 $ 722 Westcoat Energy, Inc. 100,000 1,647 Williams Companies, Inc. 512,000 15,360 82,643 TELEPHONE SERVICES - 2.4% ALC Communications Corp. (a) 50,000 1,638 AT & T Corporation 30,700 1,658 Ameritech Corp. 1,077,500 43,369 Bell Atlantic Corp. 318,100 16,859 BellSouth Corp. 519,500 28,962 GTE Corp. 325,800 9,896 Nippon Telegraph & Telephone Ord. 171 1,518 NYNEX Corp. 656,700 25,283 Pacific Telesis Group 402,400 12,374 Pakistan Telecommunications Voucher GDR (g) 71,260 13,611 Rochester Telephone Corp. 36,200 796 Koninklijke PPT Nederland 133,500 4,026 Southwestern Bell Corp. 981,400 41,710 Sprint Corporation 126,900 4,838 Telecom Argentina Stet France 899,200 6,008 Telecom Italia Ord. 4,417,700 12,499 Telefonica Argentina Class B 547,300 3,777 Telefonica de Espana SA: Ord. 430,900 5,821 sponsored ADR 36,300 1,470 Telefonos de Mexico SA sponsored ADR representing shares Ord. Class L 637,900 39,869 Telephone & Data Systems, Inc. 35,200 1,619 U.S. West, Inc. 302,400 11,718 289,319 TOTAL UTILITIES 641,141 TOTAL COMMON STOCKS (Cost $4,124,496) 4,578,374 PREFERRED STOCKS - 0.7% MATURITY VALUE (NOTE 1) AMOUNT CONVERTIBLE PREFERRED STOCKS - 0.3% BASIC INDUSTRIES - 0.1% METALS & MINING - 0.1% Alumax, Inc., Series A, $4.00 867 $ 119 Reynolds Metals Co. $3.31 78,600 4,234 TOTAL BASIC INDUSTRIES 4,353 DURABLES - 0.0% AUTOS, TIRES, & ACCESSORIES - 0.0% Ford Motor Co. (Del.), Series A, $4.20 3,000 275 ENERGY - 0.1% ENERGY SERVICES - 0.0% Noble Drilling Corp. $1.50 79,500 1,829 OIL & GAS - 0.1% Unocal Corp. $3.50 (g) 63,600 3,387 Western Gas Resources, Inc. $2.625 38,100 1,443 4,830 TOTAL ENERGY 6,659 HEALTH - 0.0% MEDICAL EQUIPMENT & SUPPLIES - 0.0% U.S. Surgical Corp. $2.20 (g) 107,700 3,150 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% Cooper Industries, Inc. $8.00 exchangeable 137,600 3,268 NONDURABLES - 0.1% HOUSEHOLD PRODUCTS - 0.0% Revlon Group, Inc., Series B, pay-in-kind $14.875 18,400 1,794 TOBACCO - 0.1% RJR Nabisco Holdings Corp., Series A, depositary shares representing 1/4 share 1,270,100 9,049 TOTAL NONDURABLES 10,843 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONVERTIBLE PREFERRED STOCKS - CONTINUED RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Supermarkets General Holdings Corp. exchangeable pay-in-kind $3.52 41,600 $ 842 TECHNOLOGY - 0.0% COMPUTER SERVICES & SOFTWARE - 0.0% Ceridian Corp. 30,000 1,804 TOTAL CONVERTIBLE PREFERRED STOCKS 31,194 NONCONVERTIBLE PREFERRED STOCKS - 0.4% BASIC INDUSTRIES - 0.1% IRON & STEEL - 0.1% Dongbu Steel Co. Ltd. 44,100 806 Geneva Steel Co. Series B,14% exchangeable (a) 37,500 4,781 TOTAL BASIC INDUSTRIES 5,587 CONSTRUCTION & REAL ESTATE - 0.0% CONSTRUCTION - 0.0% Dongbu Construction (a) 3,100 31 DURABLES - 0.0% AUTOS, TIRES, & ACCESSORIES - 0.0% Hyundai Motor Service Co. (a) 8,000 276 ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd., Series 1, adj. rate 77,500 218 FINANCE - 0.1% CREDIT & OTHER FINANCE - 0.0% Tong Yang Securities (a) 105,120 1,290 INSURANCE - 0.0% SAI N/C Risp 411,500 3,065 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONCONVERTIBLE PREFERRED STOCKS - CONTINUED FINANCE - CONTINUED SAVINGS & LOANS - 0.1% California Federal Savings Bank Class B,10 5/8% 65,300 $ 6,913 First Madison Bank FSB (dividend) 11 1/2% 58,600 6,124 13,037 TOTAL FINANCE 17,392 HEALTH - 0.0% DRUGS & PHARMACEUTICALS - 0.0% Shin Poong Pharmaceutical Co. 5,100 102 UTILITIES - 0.2% TELEPHONE SERVICES - 0.2% Stet (Societa Finanziaria Telefonica) Spa 9,325,600 23,732 TOTAL NONCONVERTIBLE PREFERRED STOCKS 47,338 TOTAL PREFERRED STOCKS (Cost $64,684) 78,532 CORPORATE BONDS - 11.9% MOODY'S RATINGS (D) PRINCIPAL (UNAUDITED) AMOUNT (C) (000S) CONVERTIBLE BONDS - 0.1% BASIC INDUSTRIES - 0.0% IRON & STEEL - 0.0% Essar Gujarat, Ltd. euro 5 1/2%, 8/5/98 - $ 500 898 PAPER & FOREST PRODUCTS - 0.0% Stone Consolidated Corp. 8%, 12/31/03 B2 CAD 2,100 2,141 TOTAL BASIC INDUSTRIES 3,039 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) CONVERTIBLE BONDS - CONTINUED DURABLES - 0.0% TEXTILES & APPAREL - 0.0% Shinwon Corp. euro 0.50%, 12/31/08 - $ 500 $ 620 FINANCE - 0.1% CREDIT & OTHER FINANCE - 0.1% Industrial Credit & Investment Corp. 2 1/2%, 4/3/00 (g) - 1,910 1,680 SCICI Ltd. euro 3 1/2%, 4/1/04 - 880 968 2,648 SECURITIES INDUSTRY - 0.0% Peregrine Investment Financial Cayman Ltd. 4 1/2%, 12/1/00 (g) - 1,150 932 TOTAL FINANCE 3,580 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% ELECTRICAL EQUIPMENT - 0.0% Daewoo Electronics euro 3 1/2%, 12/31/07 Caa 1,700 2,601 MEDIA & LEISURE - 0.0% LODGING & GAMING - 0.0% Bally Entertainment 10%, 12/15/06 - 1,200 1,044 NONDURABLES - 0.0% BEVERAGES - 0.0% Jinro Ltd. euro 0.25%, 9/30/09 - 500 445 RETAIL & WHOLESALE - 0.0% TRADING COMPANIES - 0.0% Daewoo Corp. euro 0.25%, 12/31/08 - 385 489 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) CONVERTIBLE BONDS - CONTINUED TECHNOLOGY - 0.0% COMPUTERS & OFFICE EQUIPMENT - 0.0% Tae Il Media Co. Ltd. 0.50%, 12/31/98 - CHF 250 $ 158 Unisys Corp. 8 1/4%, 8/1/00 B2 2,000 2,300 TOTAL TECHNOLOGY 2,458 TOTAL CONVERTIBLE BONDS 14,276 NONCONVERTIBLE BONDS - 11.8% AEROSPACE & DEFENSE - 0.0% DEFENSE ELECTRONICS - 0.0% Trancor, Inc. 10 7/8%, 8/15/01 B2 1,930 1,911 BASIC INDUSTRIES - 1.0% CHEMICALS & PLASTICS - 0.4% G-I Holdings, Inc. Series B 0%, 10/1/98 Ba3 34,630 21,470 Huntsman Corp.: 10 5/8%, 4/15/01 Ba3 820 841 1st mtg. 11%, 3/31/04 B1 200 207 IMC Fertilizer Group, Inc. 10 1/8%, 6/15/01 B1 6,070 6,070 NL Industries, Inc. 11 3/4%, 10/15/03 B1 2,550 2,627 OSI Specialties, Inc. 9 1/4%, 10/1/02 B1 1,740 1,601 Rexene Corp. 9%, 11/15/99 (e) - 6,220 6,189 Trans Resources, Inc. 14 1/2%, 9/1/96 B2 980 1,018 UCC Corp. 9%, 9/1/00 B1 13,040 12,584 52,607 IRON & STEEL - 0.0% WCI Steel, Inc., Series B 10 1/2%, 3/1/02 B1 2,470 2,445 METALS & MINING - 0.1% Sherritt Incorporated 11%, 3/31/04 B1 3,260 2,327 Sifto Canada, Inc. 8 1/2%, 7/15/00 B1 7,365 6,776 9,103 PAPER & FOREST PRODUCTS - 0.5% Alto Parana 12%, 3/4/95 (g) - 9,750 4,388 Alto Parana (May) 12%, 3/4/95 (g) - 5,000 2,250 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Container Corp. America: 14%, 12/1/01 B3 $ 11,730 $ 12,800 9 3/4%, 4/1/03 B2 4,420 4,265 Rainy River Forest Products 10 3/4%, 10/15/01 Ba3 1,330 1,327 Repap Wisconsin, Inc.: 9 1/4%, 2/1/02 B1 19,820 17,392 9 7/8%, 5/1/06 B3 3,280 2,796 Stone Container Corp.: 9 7/8%, 2/1/01 11,260 10,542 11 1/2%,10/1/04 B1 2,130 2,141 Valcor, Inc. 9 5/8%, 11/1/03 B1 340 315 58,216 TOTAL BASIC INDUSTRIES 122,371 CONGLOMERATES - 0.0% Sequa Corp. 9 3/8%, 12/15/03 B3 1,670 1,507 CONSTRUCTION & REAL ESTATE - 2.2% BUILDING MATERIALS - 1.8% Adience, Inc. 11%, 6/15/02 - 3,975 3,080 Building Materials Corp. of America 0%, 7/1/04 (e) (g) B1 15,370 8,300 Cemex SA 8 7/8%, 6/10/98 (g) Ba2 62,180 61,403 Cemex SA and Tolmex SA de CV: euro 8 7/8%, 6/10/98 Ba2 37,130 36,666 10%, 11/05/99 Ba2 16,170 16,392 Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 45,485 40,239 Triangle Pacific Corp. 10 1/2%, 8/1/03 B2 6,510 6,380 USG Corp.: 9 1/4%, 9/15/01 B2 32,625 31,075 10 1/4%, 9/15/02 B1 8,460 8,640 10 1/4%, 12/15/02 B1 4,254 4,328 216,503 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED CONSTRUCTION & REAL ESTATE - CONTINUED CONSTRUCTION - 0.4% Empresas ICA Sociedad Controladora SA de CV 9 3/4%, 2/11/98 (g) Ba3 $ 4,510 $ 4,544 ICA euro 9 3/4%, 2/11/98 - 7,421 7,476 Kaufman & Broad Home Corp. 9 3/8%, 5/1/03 Ba3 1,200 1,089 MDC Holdings, Inc. 11 1/8%, 12/15/03 - 2,060 1,854 Ryland Group, Inc. 9 5/8%, 6/1/04 Ba3 3,415 3,125 US Home Corp. 9 3/4%, 6/15/03 Ba3 23,515 21,046 39,134 REAL ESTATE INVESTMENT TRUSTS (REITS) - 0.0% Baldwin Co. 10 3/8%, 8/1/03 B2 310 242 TOTAL CONSTRUCTION & REAL ESTATE 255,879 DURABLES - 0.1% TEXTILES & APPAREL - 0.1% Hat Brands, Inc. 12 5/8%, 9/15/02 - 4,910 5,229 Westpoint Stevens, Inc.: 8 3/4%, 12/15/01 B1 4,270 3,928 9 3/8%, 12/15/05 B3 2,935 2,642 TOTAL DURABLES 11,799 ENERGY - 0.7% ENERGY SERVICES - 0.5% Falcon Drilling, Inc. 9 3/4%, 1/15/01 B2 12,735 12,480 TransTexas Gas Corp. 10 1/2%, 9/1/00 B1 41,355 40,735 53,215 INDEPENDENT POWER - 0.0% Consolidated Hydro 0%, 7/15/03 (e) - 6,265 3,540 OIL & GAS - 0.2% Gulf Canada Resources Ltd. 9 1/4%, 1/15/04 B2 16,710 15,498 HS Resources, Inc. 9 7/8%, 12/1/03 B1 2,740 2,576 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED ENERGY - CONTINUED OIL & GAS - CONTINUED Mesa Capital Corp. secured 0%, 6/30/98 (e) B3 $ 9,640 $ 8,483 Oryx Energy Co. 9 3/4%, 9/15/98 Ba3 2,050 2,030 28,587 TOTAL ENERGY 85,342 FINANCE - 1.9% BANKS - 0.9% Bancomer SA: euro 8%, 7/7/98 (g) Ba2 25,815 24,911 9%, 6/1/00 (g) - 22,500 22,417 Bancomer SNC euro 8%, 7/7/98 - 39,010 37,645 MC-Cuernavaca Trust 9 1/4%, 7/25/01 (g) - 18,500 18,084 103,057 CREDIT & OTHER FINANCE - 0.2% Lomas Mortgage USA, Inc. 10 1/4%, 10/1/02 B1 12,085 10,816 Secured Finance, Inc. 11.18%, 12/15/04 - 16,944 17,791 28,607 INSURANCE - 0.7% American Annuity Group, Inc. 11 1/8%, 2/1/03 B2 8,728 8,858 American Financial Corp.: Series A 12%, 9/3/99 - 223 226 Series B 12%, 9/3/99 - 12,995 13,174 12%, 9/3/99 B2 11,763 11,881 Americo Life, Inc. 9 1/4%, 6/1/05 Ba2 7,365 6,444 Nacolah, Inc. 9 1/2%, 12/1/03 B1 2,840 2,521 Penncorp Financial Group, Inc. 9 1/4%, 12/15/03 B1 3,800 3,468 Reliance Financial Services: 9.273%, 11/1/00 - 7,560 7,409 10.36%, 12/1/00 - 16,090 16,211 Reliance Group: 9%, 11/15/00 Ba3 14,195 13,023 9 3/4%, 11/15/03 B1 8,540 7,750 90,965 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED SAVINGS & LOANS - 0.1% Western Financial Savings Bank 8 1/2%, 7/1/03 Ba3 $ 7,500 $ 7,050 TOTAL FINANCE 229,679 HEALTH - 0.4% MEDICAL FACILITIES MANAGEMENT - 0.4% American Medical International, Inc. 9 1/2%, 4/15/06 B1 5,890 5,727 Health South Rehabilitation Co. 9 1/2%, 4/1/01 Ba3 2,420 2,360 Healthtrust, Inc. - The Hospital Co.: 10 3/4%, 5/1/02 B1 23,756 24,855 8 3/4%, 3/15/05 B1 8,890 8,268 Integrated Health Services, Inc. 10 3/4%, 7/15/04 B2 2,480 2,499 TOTAL HEALTH 43,709 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% IMO Inudstries, Inc. 12%, 11/1/00 Caa 870 892 Specialty Equipment Cos., Inc. 11 3/8%, 12/1/03 B3 6,845 6,811 Thermadyne Holdings Corp.: 10 1/4%, 5/1/02 - 22 21 10 3/4%, 11/1/03 - 31 30 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 7,754 MEDIA & LEISURE - 2.9% BROADCASTING - 1.1% Act III Broadcasting, Inc. 9 5/8%, 12/15/03 B3 1,510 1,423 Citicasters 9 3/4%, 2/15/04 - 34,240 33,384 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED Continental Cablevision, Inc.: 8 5/8%, 8/15/03 Ba2 $ 1,840 $ 1,674 9%, 9/1/08 Ba2 2,650 2,372 Helicon Group LP/Helicon Capital Corp., 9%,11/1/03 (e) Caa 4,600 3,910 NWCG Holdings Corp. 0%, 6/15/99 (g) Caa 3,230 1,728 PTI Holdings, Inc. 7%, 12/17/02 - 490 301 Robin Media Group, Inc. 11 1/8%, 4/1/97 - 4,910 4,714 Rogers Cablesystems 9.65%, 1/15/14 Ba3 CAD 3,340 2,113 SCI Television, Inc. secured: 7 1/2%, 6/30/98 - 40,383 39,424 11%, 6/30/05 B3 42,010 42,640 Spectravision, Inc. pay-in-kind, 11.65%, 12/1/02 Caa 353 176 Univision Network Holdings LP 7%, 12/17/02 - 3,460 2,128 Viacom, Inc. 8%, 7/7/06 B2 2,480 2,158 138,145 ENTERTAINMENT - 0.1% Fair Lanes, Inc. pay-in-kind 9 1/2%, 7/15/01 (h) - 2,920 2,482 Live Entertainment, Inc. 12%, 10/17/94 (f) - 8,000 7,920 10,402 LODGING & GAMING - 1.5% Aztar Corp. 11%, 10/1/02 B2 4,650 4,080 Bally's Casino Holdings, Inc. 10 1/2%, 6/15/98 B2 45,625 27,489 Bally's Grand, Inc., 10 3/8%, 12/15/03 B3 8,850 7,766 Bally's Park Place Funding, Inc. 9 1/4%, 3/15/04 B1 14,120 11,790 Boyd Gaming Corp. 10 3/4%, 9/3/03 B2 510 488 California Hotel Finance Corp. gtd. 11%, 12/1/02 B2 40,660 39,237 Embassy Suites, Inc.: gtd. 8 3/4%, 3/15/00 (g) B2 22,145 21,259 10 7/8%, 4/15/02 Ba3 17,280 18,079 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED LODGING & GAMING - CONTINUED First Mexican Acceptance Corp. euro 10 3/4%, 9/15/96 - $ 1,900 $ 1,893 Fitzgeralds Gaming Corporation unit bond (1000 bonds and 1.54 stock warrants) 13 1/4%, 3/15/96 (g) (k) - 1,640 1,066 GB Property Funding Corp. gtd. 1st mtg. 10 7/8%, 1/15/04 B2 320 243 GNS Finance Corporation 9 1/4%, 3/15/03 B2 2,210 2,066 Grand Casino Resorts, Inc. gtd. 1st mtg. 12 1/2%, 2/1/00 - 14,860 14,266 HWCC-Tunica, Inc. 1st mtg. 13 1/2%, 9/30/98 (g) - 2,260 1,785 Host Marriott Corp.: 9 1/8%, 12/1/00 B1 582 576 10 1/2%, 5/1/06 B1 11,533 11,533 11%, 5/1/07 B1 1,635 1,639 Host Marriott Hospitality, Inc.: 10 5/8%, 2/1/00 B1 1,440 1,435 11 1/4%, 7/18/05 B1 1,901 1,939 Red Roofs Inn 9 5/8%, 12/15/03 B3 11,740 10,889 Resorts International Hotel Financing, Inc.: mtg. 11%, 9/15/03 - 480 319 11 3/8%, 12/15/04 ($1000 Jr. mtg. notes & 1 Class B New) - 134 68 Showboat, Inc. 13%, 8/01/09 B2 1,400 1,337 181,242 RESTAURANTS - 0.2% Family Restaurants, Inc. 9 3/4%, 2/1/02 B1 14,210 12,434 Flagstar Corp.: 10 3/4%, 9/15/01 B2 870 821 10 7/8%, 12/1/02 B2 2,480 2,341 11 1/4%, 11/1/04 Caa 5,225 4,494 20,090 TOTAL MEDIA & LEISURE 349,879 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED NONDURABLES - 1.1% BEVERAGES - 0.2% Dr. Pepper/Seven-Up Companies,Inc. 0%, 11/1/02 (e) B3 $ 3,680 $ 2,944 Fomento Economico Mexicano SA de CV euro 9 1/2%, 7/22/97 - 7,140 7,247 Grupo Embotellador de Mexico SA de CV: euro 10 3/4%, 11/19/97 Ba2 9,870 10,339 10 3/4%, 11/19/97 (g) Ba2 800 838 21,368 FOODS - 0.1% Chiquita Brands International, Inc. 9 1/8%, 3/1/04 B1 1,650 1,518 Doskocil Cos., Inc. 9 3/4%, 7/15/00 B2 4,195 3,692 Specialty Foods Corp. 10 1/4%, 8/15/01 B2 3,680 3,367 8,577 HOUSEHOLD PRODUCTS - 0.7% Revlon Consumer Products Corp.: 9 1/2%, 6/1/99 B2 8,810 8,127 9 3/8%, 4/1/01 B2 21,085 18,449 10 1/2%, 2/15/03 B3 15,770 13,602 Revlon Worldwide Corp. secured 0%, 3/15/98 B3 88,180 41,004 81,182 TOBACCO - 0.1% Empresas La Moderna SA de CV: euro 10 1/4%, 11/12/97 - 2,400 2,460 10 1/4%, 11/12/97 (g) - 15,720 16,113 18,573 TOTAL NONDURABLES 129,700 RETAIL & WHOLESALE - 0.6% APPAREL STORES - 0.1% Apparel Retailers, Inc. 0%, 8/15/05 (e) Caa 10,300 6,000 Lamonts Apparel Corp. 10 1/4%, 11/1/99 (b) - 12,317 9,145 15,145 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED RETAIL & WHOLESALE - CONTINUED DRUG STORES - 0.1% Eckerd Jack Corp. (Del) 9 1/4%, 2/15/04 B2 $ 1,375 $ 1,320 Thrifty Payless Holdings, Inc., 11 3/4%, 4/15/03 B2 5,270 5,256 Thrifty Payless, Inc. 12 1/4%, 4/15/04 B2 9,120 8,824 15,400 GENERAL MERCHANDISE STORES - 0.2% Controladora Comercial Mexicana SA de CV euro 8 3/4%, 4/21/98 - 6,030 5,864 Hills Stores Co. 10 1/4%, 9/30/03 - 6,190 5,788 Parisian, Inc. 9 7/8%, 7/15/03 B3 10,505 8,877 20,529 GROCERY STORES - 0.1% Penn Traffic Co. 9 5/8%, 4/15/05 B2 6,410 5,769 Ralph's Grocery Co. 9%, 4/1/03 B2 2,415 2,258 8,027 RETAIL & WHOLESALE, MISCELLANEOUS - 0.1% Finlay Fine Jewelry Corp. 10 5/8%, 5/1/03 B1 4,045 3,823 Town & Country Corp 13%, 5/31/98 - 3,738 3,663 7,486 TOTAL RETAIL & WHOLESALE 66,587 SERVICES - 0.1% ADVERTISING - 0.0% Outdoor Systems, Inc. 10 3/4%, 8/15/03 B2 4,195 3,943 EDUCATIONAL SERVICES - 0.0% Kinder-Care Learning Centers, Inc. 10 3/8%, 6/1/01 Ba3 3,170 3,210 PRINTING - 0.1% Continental Graphic Corp. 11.64%, 10/31/98 - 6,857 5,486 TOTAL SERVICES 12,639 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED TECHNOLOGY - 0.1% COMPUTERS & OFFICE EQUIPMENT - 0.1% Unisys Corp. 9 3/4%, 9/15/96 Ba3 $ 10,860 $ 11,023 ELECTRONICS - 0.0% Berg Electronics 11 3/8%, 5/1/03 B3 2,115 2,152 Grupo Condumex SA de CV 7 3/8%, 7/27/98 (g) - 4,000 3,765 5,917 TOTAL TECHNOLOGY 16,940 TRANSPORTATION - 0.2% AIR TRANSPORTATION - 0.0% U.S. Air, Inc. 10%, 7/1/03 B2 1,330 858 RAILROADS - 0.2% Southern Pacific Rail Corp. 9 3/8%, 8/15/05 Ba3 12,020 11,539 Transtar Holdings Corp. 0%, 12/15/03 (e) - 12,070 6,337 17,876 SHIPPING - 0.0% Sea Containers Ltd. 9 1/2%, 7/1/03 Ba3 3,680 3,376 TOTAL TRANSPORTATION 22,110 UTILITIES - 0.4% CELLULAR - 0.1% Cencall Communications Corp. 0%, 1/15/04 (e) Caa 14,770 7,237 Horizon Cellular Telephone 0%, 10/1/00 (e) Caa 2,570 1,850 Mobilmedia Communications, Inc. 0%, 12/1/03 (e) B3 10,070 5,816 Nextel Communications, Inc. 0%, 8/15/04 (e) B3 7,150 3,486 18,389 ELECTRIC UTILITY - 0.1% AES Corp. 9 3/4%, 6/15/00 Ba2 4,420 4,287 Del Norte Funding Corp. 9.05%, 1/2/93 (b) Ca 662 357 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED El Paso Funding Corp. lease oblig.: 9 3/8%, 10/1/96 (b) Ca $ 220 $ 119 10 3/4%, 4/1/13 (b) Ca 2,790 1,507 6,270 TELEPHONE SERVICES - 0.2% MFS Communications 0%, 1/15/04 (e) B3 40,330 23,795 TOTAL UTILITIES 48,454 TOTAL NONCONVERTIBLE BONDS 1,406,260 TOTAL CORPORATE BONDS (Cost $1,515,328) 1,420,536 U.S. TREASURY OBLIGATIONS - 15.0% 6 1/4%, 2/15/03 (i) Aaa 1,356,260 1,246,281 5 3/4%, 8/15/03 Aaa 212,400 187,277 11 7/8%, 11/15/03 Aaa 62,000 79,098 12 3/4%, 11/15/10 Aaa 134,400 183,267 14%, 11/15/11 Aaa 65,000 96,220 TOTAL U.S. TREASURY OBLIGATIONS (Cost $1,833,321) 1,792,143 COMMERCIAL MORTGAGE SECURITIES - 0.4% Bardell Associates Note Trust 12 1/2%, 11/1/08 (f) 19,171 19,481 CBA Mortgage Corp. commercial Series 1993-C1 Class E, 7.158%, 12/25/03 (g) Ba2 3,183 2,573 CS First Boston Mortgage Securities Corp.: commercial Series 1994-CFB1 Class E, 6.4769%, 1/25/28 (g) - 5,446 4,234 commercial Series 1994-CFB1 Class F, 6.48%, 1/25/28 (g) - 3,160 2,012 Nomura Asset Securities Corp. commercial Series 1994-MD-I Class B-2, 8.4263%, 3/25/18 (g) - 2,920 2,256 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) Resolution Trust Corp. commercial Series 1994-C1 Class E, 8%, 6/25/26 - $ 2,880 $ 2,201 SML Inc.: commercial Series 1994-C1 Class C, 9.28%, 9/18/99 (f) - 5,225 3,396 commercial Series 1994-C1 Class B-3, 11.69%, 9/18/99 - 3,825 3,404 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $39,838) 39,557 COMPLEX MORTGAGE SECURITIES - 0.0% INTEREST ONLY STRIPS - 0.0% SML, Inc. commercial Series 1994-C1 Class S, 0.81%, 9/18/99 (n) (Cost $3,695) - 125,474 3,627 FOREIGN GOVERNMENT OBLIGATIONS - 6.5% Province of Chaco, Argentina 11 7/8%, 9/10/97 (f) - 9,700 9,797 Province of Cordoba, Argentina 10%, 1/28/95 (f) - 8,783 8,630 Argentina Republic: Brady: euro 6 1/2%, 3/31/05 (k) - 208,950 159,324 euro 4 1/4%, 3/31/23 (k) - 45,299 22,480 6 1/2%, 3/31/05 (g)(k) - 181 138 4 1/4%, 3/31/23 (e)(g) - 39,500 19,602 Brazil Republic IDU euro 8 3/4%, 1/1/01 B2 63,406 52,785 Siderurgica Brasileiras SA inflation indexed 6%, 8/15/99 (m) - BRR 40,164 6,251 Mexican Government: Brady: 4.3125%, 12/31/19 (k) Ba3 40,500 34,982 5.1875%, 12/31/19 (k) Ba3 55,800 48,197 5.812%, 12/31/19 (k) Ba3 24,450 21,119 6 1/4%, 12/31/19 Ba3 252,500 163,494 6 1/4%, 12/31/19 Ba3 106,250 68,797 Tesabonos: 0%, 10/27/94 Baa1 9,760 9,709 0%, 12/15/94 Baa 106,096 104,451 Mexico Value Recovery (rights) (a) - 544,499 5 New Zealand Government 8%, 4/15/04 Aaa NZD 80,400 44,582 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $827,049) 774,343 INDEXED SECURITIES - 2.3% PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) INTEREST INDEXED - 0.5% Bankers Trust Company: 4%,11/15/94 (indexed to 7-year U.S. swap spread divided by .36%) $ 5,000 $ 3,701 5.9737%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (l) 15,200 6,147 6.75%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (l) 12,100 8,410 Citibank Nassau: 4.815%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (l) 13,400 5,410 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rate and principal indexed to value of 4-year Canadian securities, both multiplied by 9) (l) 6,500 410 8.68%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (l) 24,200 16,935 Disney Corp. 6.9386%, 12/9/94 (inversely indexed to 6-month GBP swap rate, multiplied by 10) (l) 16,700 6,962 E.I. Du Pont de Nemours 7.2192%, 3/8/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (l) 12,000 8,400 Emerson Electric Company 6.115%, 10/24/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (l) 18,900 10,185 Morgan Guaranty Trust Co. cert. of dep. 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rates and principal indexed to value of 4-year Canadian securities, both multiplied by 9) (l) 6,500 1,387 TOTAL INTEREST INDEXED 67,947 COMMODITY INDEXED - 1.8% Finnish Export Credit note 4.45%, 4/15/96 (indexed to spot minus 12-month oil futures prices, based on 30 bbl. per $100 par) 12,500 9,570 Goldman Sachs Group, L.P. note: (indexed to corn price) 4.59%-4.74%, 12/1/94 21,557 18,173 INDEXED SECURITIES - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) COMMODITY INDEXED - CONTINUED (indexed to gold price) 5 1/2%-5.45%, 3/27/95 $ 113,500 $ 112,821 (indexed to silver price) 4.3%-5.08%, 12/22/94-1/5/95 2,165 2,104 (indexed to soybean price) 4.76%, 11/2/94 9,504 8,001 (indexed to Goldman Sachs soybean index) 4.74%, 12/1/94 1,000 821 (indexed to Goldman Sachs commodity index) 5.03%, 3/13/95 63,130 61,283 TOTAL COMMODITY INDEXED 212,773 TOTAL INDEX SECURITIES (Cost $353,496) 280,720 PURCHASED BANK DEBT - 0.4% Polish People's Republic: loans under 1988 restructuring agreement (j)(k) 15,500 6,355 past due interest (j) 4,965 2,036 Republic of Ecuador: discount 30 year bonds (g)(h) 6,500 3,859 loan participation (a) 12,250 7,697 loan participation (a) 12,500 7,535 loan participation under 1985 multi-year refinancing agreement JPY 2,200,000 9,541 par 30 year bonds (g)(h) 11,250 3,741 past due interest (g)(h) 20,250 8,910 TOTAL PURCHASED BANK DEBT (Cost $46,198) 49,674 COMMERCIAL PAPER - 6.0% Bancomer SNC: 0%, 10/3/94-10/13/94 MXN 708,409 207,927 COMMERCIAL PAPER - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) National Financiera (SNC): 0%, 10/6/94-11/17/94 MXN 1,723,859 $ 501,903 TOTAL COMMERCIAL PAPER (Cost $708,913) 709,830 REPURCHASE AGREEMENTS - 18.4% MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $ 2,195,904 2,195,006 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $11,712,024) $ 11,922,342 FUTURES CONTRACTS AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED DATE AMOUNT AT VALUE GAIN/(LOSS) PURCHASED 450 Midcap 400 Stock Index Contracts Dec 1994 $ 39,499 $ (378) THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.3% SOLD 1,457 S & P 500 Index Contracts Dec 1994 337,478 6,905 THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 2.8% $ 6,527 FORWARD FOREIGN CURRENCY CONTRACTS AMOUNTS IN THOUSANDS SETTLEMENT UNREALIZED DATE(S) VALUE GAIN/(LOSS) CONTRACTS TO BUY 105,883 NZD 10/6/94 to 10/11/94 $ 63,737 $ (263) (Payable amount $64,000) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.5% CONTRACTS TO SELL 24,711,930 JPY 10/5/94 to 1/30/95 $ 249,813 $ (2,257) (Receivable amount $247,556) THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 2.1% $ (2,520) CURRENCY ABBREVIATIONS BRR - Brazilian real GBP - British Pound CAD - Canadian dollar JPY - Japanese yen MXN - Mexican peso NZD - New Zealand dollar CHF - Swiss franc LEGEND 9. Non-income producing 10. Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. 11. Principal amount is stated in United States dollars unless otherwise noted. 12. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 13. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 14. 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) Bardell Associates Notes Trust 12 1/2%, 11/1/08 4/19/94 $ 19,481 Hat Brands, Inc. 9/2/92 - (warrants) 2/23/94 - Live Entertainment, Inc.: $2.00 (warrants) 3/23/93 241 $2.72 (warrants) 3/23/93 230 12%, 10/17/94 3/23/93 7,529 Province of Chaco, Argentina 11 7/8%, 9/10/97 3/9/94 9,965 Province of Cordoba, Argentina 1/27/94 8,217 10%, 1/28/95 5/31/94 566 SML, Inc. commercial Series 1994-C1 Class C 9.28%, 9/18/99 8/11/94 3,398 15. 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 $340,082,000 or 2.9% of net assets. 16. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). 17. A portion of the Security was pledged to cover margin requirements for futures contracts and delayed delivery purchases. At the period end, the value of securities pledged amounted to $14,703,000. 18. Partial interest payment received on the last interest payment date. 19. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 20. Coupon is inversely indexed to a floating interest rate multiplied by a specified factor. If the floating rate is high enough, the coupon rate may be zero or be a negative amount that is carried forward to reduce future interest and/or principal payments. The price may be considerably more volatile than the price of a comparable fixed rate security. The rate shown is the rate at period end. 21. Principal amount shown is original face amount and does not reflect the inflation adjustments. 22. Security represent right to receive monthly interest payments on an underlying pool of mortgages. Principal shown is the par amount of the mortgage pool. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 15.4% AAA, AA, A 15.6% Baa 0.0% BBB 0.2% Ba 5.8% BB 5.0% B 6.3% B 5.0% Caa 0.2% CCC 0.2% Ca, C 0.0% CC, C 0.0% D 0.0% For some foreign government obligations, FMR has assigned the ratings of the sovereign credit of the issuing government.The percentage not rated by either S&P or Moody's amounted to 3.4% including long-term debt categorized as other securities. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 71.4% Mexico 14.7 Argentina 2.2 Japan 2.0 Canada 1.9 Korea 1.4 United Kingdom 1.2 Others (individually less than 1%) 5.2 TOTAL 100.0% INCOME TAX INFORMATION At September 30 ,1994, the aggregate cost of investment securities for income tax purposes was $11,719,266,000. Net unrealized appreciation aggregated $203,076,000, of which $653,615,000 related to appreciated investment securities and $450,539,000 related to depreciated investment securities. The fund hereby designates $118,492,000 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) SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 11,922,342 agreements of $2,195,006) (cost $11,712,024) - See accompanying schedule Cash 641 Receivable for investments sold 220,961 Regular delivery Delayed delivery 3,503 Unrealized appreciation on foreign currency contracts 1,464 Receivable for fund shares sold 24,454 Dividends receivable 13,073 Interest receivable 83,196 Receivable for daily variation on futures contracts 580 Other receivables 597 TOTAL ASSETS 12,270,811 LIABILITIES Payable for investments purchased $ 369,596 Regular delivery Delayed delivery 16,652 Unrealized depreciation on foreign currency contracts 3,984 Payable for fund shares redeemed 40,230 Accrued management fee 7,090 Other payables and accrued expenses 7,540 Collateral on securities loaned, at value 33,327 TOTAL LIABILITIES 478,419 NET ASSETS $ 11,792,392 Net Assets consist of: Paid in capital $ 11,506,425 Undistributed net investment income (21,393) Accumulated undistributed net realized gain (loss) on 93,664 investments and foreign currency transactions Net unrealized appreciation (depreciation) on 213,696 investments and assets and liabilities in foreign currencies NET ASSETS, for 808,964 shares outstanding $ 11,792,392 NET ASSET VALUE, offering price and redemption price per $14.58 share ($11,792,392 (divided by) shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 85,092 Dividends Interest (including security lending fees of $412) 394,436 TOTAL INCOME 479,528 EXPENSES Management fee $ 74,497 Transfer agent fees 24,810 Accounting and security lending fees 848 Non-interested trustees' compensation 59 Custodian fees and expenses 3,979 Registration fees 1,453 Audit 315 Legal 77 Reports to shareholders 872 Miscellaneous 75 Total expenses before reductions 106,985 Expense reductions (478) 106,507 NET INVESTMENT INCOME 373,021 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 210,671 Foreign currency transactions (106,167) Futures contracts (8,590) 95,914 Change in net unrealized appreciation (depreciation) on: Investment securities (341,118) Futures contracts 6,076 Assets and liabilities in foreign currencies 33,965 (301,077) NET GAIN (LOSS) (205,163) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 167,858 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1994 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 373,021 $ 201,274 Net investment income Net realized gain (loss) 95,914 187,839 Change in net unrealized appreciation (depreciation) (301,077) 463,784 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 167,858 852,897 FROM OPERATIONS Distributions to shareholders: (300,081) (262,058) From net investment income From net realized gain (247,164) (44,263) In excess of net realized gain (29,665) - TOTAL DISTRIBUTIONS (576,910) (306,321) Share transactions 8,579,610 4,913,591 Net proceeds from sales of shares Reinvestment of distributions 562,713 298,916 Cost of shares redeemed (4,206,977) (1,255,413) Net increase (decrease) in net assets resulting from 4,935,346 3,957,094 share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS 4,526,294 4,503,670 NET ASSETS Beginning of period 7,266,098 2,762,428 End of period (including under (over) distribution of net $ 11,792,392 $ 7,266,098 investment income of $(21,393) and $17,685, respectively) OTHER INFORMATION Shares Sold 569,016 347,641 Issued in reinvestment of distributions 37,578 21,714 Redeemed (282,864) (88,748) Net increase (decrease) 323,730 280,607
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, 1994 1993 1992 1991 1990 SELECTED PER-SHARE DATA Net asset value, beginning $ 14.97 $ 13.50 $ 13.02 $ 10.64 $ 11.39 of period Income from Investment Operations Net investment income .34 .52 .46 .55 .58 Net realized and unrealized .21 2.01 .97 2.48 (.71) gain (loss) Total from investment .55 2.53 1.43 3.03 (.13) operations Less Distributions From net investment (.44) (.87) (.45) (.65) (.38) income From net realized gain (.45) (.19) (.50) - (.24) In excess of net realized (.05) - - - - gain Total distributions (.94) (1.06) (.95) (.65) (.62) Net asset value, end of period $ 14.58 $ 14.97 $ 13.50 $ 13.02 $ 10.64 TOTAL RETURN A 3.60% 19.71% 11.84% 29.78% (1.27)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 11,792 $ 7,266 $ 2,762 $ 743 $ 346 (in millions) Ratio of expenses to average 1.04% 1.09% 1.17% 1.17% 1.17% net assets Ratio of net investment 3.63% 4.28% 5.58% 5.74% 5.89% income to average net assets Portfolio turnover rate 109% 98% 134% 134% 105%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIOD SHOWN. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 23. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Asset Manager (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days of their purchase date are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Effective October 1, 1993, the fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in 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 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 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENT INCOME - CONTINUED have passed, are recorded as soon as the fund is informed of the ex-dividend date. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for paydown gains/losses on certain securities, futures and options transactions, foreign currency transactions, market discount, partnerships, non-taxable dividends and losses deferred due to wash sales. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect net investment income per share. Undistributed net investment income may include temporary book and tax basis differences which will reverse in a subsequent period. Distributions in excess of net investment income 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. CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October 1, 1993, the fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the fund changed the classification of distributions to shareholders to better disclose the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, amounts as of October 1, 1993 have been reclassified to reflect an increase in paid in capital of $14,586,000, an increase in undistributed net investment income of $16,795,000 and a decrease in accumulated net realized gain on investments of $31,381,000. 24. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign currency contracts. 2. OPERATING POLICIES - CONTINUED FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars, as reflected in the schedule of investments under the caption "Forward Foreign Currency Contracts," reflects the total exposure the fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a when-issued or forward commitment basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The fund may receive compensation for interest forgone in a delayed delivery transaction. The fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the purchase commitment. FUTURES CONTRACTS AND OPTIONS. The fund may invest in futures and options contracts, and may also write options. These investments involve, to varying degrees, elements of market risk and risks in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts, as reflected in the schedule of investments under the caption "Futures Contracts," reflect the extent of the involvement the fund has in the particular classes of instruments. Risks may be caused by an imperfect correlation between movements in the price of the instruments 2. OPERATING POLICIES - CONTINUED FUTURES CONTRACTS AND OPTIONS - CONTINUED and the price of the underlying securities and interest rates. Risks also may arise if there is an illiquid secondary market for the instruments, or due to the inability of counterparties to perform. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options traded on an exchange are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. INDEXED SECURITIES. The fund may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. RESTRICTED SECURITIES. The fund is permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $50,764,000 or 0.4% of net assets. 25. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $11,249,134,000 and $8,839,194,000, respectively, of which U.S. government and government agency obligations aggregated $2,394,973,000 and $565,469,000, respectively. The market value of futures contracts opened and closed during the period amounted to $1,974,098,000 and $1,605,740,000, respectively. 26. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management & Research Company (FMR) receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .3000% to .5200% for the period October 1, 1993 to October 31, 1993; .2850% to .5200% for the period November 1, 1993 to July 31, 1994; and .2700% to .5200% for the period August 1, 1994 to September 30, 1994. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .40%. For the period, the management fee was equivalent to an annual rate of .72% of average net assets. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. 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 $2,266,000 for the period. 27. 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 $32,070,000 and $33,327,000, respectively. 28. 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 $478,000 under this arrangement. 29. CREDIT RISK. The fund's relatively large investment in countries with limited or developing capital markets may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The yields of emerging market debt obligations reflect, among other things, perceived credit risk. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the fund's investments and the income they generate, as well as the fund's ability to repatriate such amounts. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Fidelity Asset Manager: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Asset Manager (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Asset Manager management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 7, 1994 DISTRIBUTIONS 2.35% of the dividends during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. 6% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders. The fund will notify shareholders in January 1995 of these percentages for use in preparing 1994 income tax returns. TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. 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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 Fidelity Investments P.O. Box 30281 Salt Lake City, UT 84130-0281 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions World Trade Center 164 Northern Avenue Boston, MA 02210 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Robert Beckwitt, Vice President Thomas J. Steffanci, Vice President Gary L. French, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary Robert H. Morrison, Manager, Security Transactions BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN The Chase Manhattan Bank, N.A. New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager Asset Manager: Growth Asset Manager: Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)FIDELITY ASSET MANAGER: INCOME ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. MARKET RECAP 6 An overview of the market's performance and the factors driving it. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 11 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 12 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 53 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 57 Notes to the financial statements. REPORT OF INDEPENDENT 62 The auditor's opinion. ACCOUNTANTS A MEETING OF FUND SHAREHOLDERS WAS HELD ON SEPTEMBER 21, 1994. SHAREHOLDERS VOTED TO APPROVE EACH OF THE PROPOSALS PRESENTED, INCLUDING TWO THAT WOULD ALLOW THE FUND TO INVEST ALL OF ITS ASSETS IN A SINGLE MUTUAL FUND WITH A SIMILAR INVESTMENT OBJECTIVE AND POLICIES IF THE BOARD OF TRUSTEES DETERMINED THAT SUCH ACTION WOULD BE IN THE BEST INTERESTS OF FUND SHAREHOLDERS (THE "MASTER/FEEDER PROPOSALS"). SEVERAL SHAREHOLDERS ATTENDING THE MEETING EXPRESSED CONCERN THAT APPROVAL OF THE MASTER/FEEDER PROPOSALS WOULD AUTHORIZE THE USE OF A NON-FIDELITY COMPANY TO MANAGE THE FUND. IN ORDER TO ADDRESS THIS CONCERN, THE BOARD OF TRUSTEES, AT ITS MEETING ON OCTOBER 20, 1994, ADOPTED A RESOLUTION MAKING IT CLEAR THAT ITS APPROVAL OF THE SUBMISSION TO SHAREHOLDERS OF THE MASTER/FEEDER PROPOSALS WAS BASED ON THE ASSUMPTION THAT FIDELITY MANAGEMENT & RESEARCH CO. WOULD BE THE INVESTMENT MANAGER. AS DISCUSSED IN THE PROXY STATEMENT, THE FUND HAS NO CURRENT INTENTION TO INVEST ALL OF ITS ASSETS IN ANOTHER MUTUAL FUND. 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, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to below-average returns for many stocks and negative returns for many bond investments. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. If you can leave your money invested over the long term, you can avoid much of the volatility that generally accompanies the stock market in the short term, as we have been witnessing this year. You also can help to manage risk through diversification of investments. Since they invest in stocks, bonds and cash equivalents both inside and outside the U.S., the Asset Manager funds are already diversified. You can diversify even further by placing some of your money in several different stock funds or in other investment categories, such as bonds. If you have a short investment time horizon, you might want to consider moving some of your investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and it is important to remember that money market funds are not insured by any agency of the U.S. government. Finally, no matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells securities that have grown in value). If Fidelity had not reimbursed fund expenses, the fund's one year and life of fund figures would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Asset Manager: Income 1.46% 17.00% Lehman Brothers Intermediate Government- Corporate Bond Index -1.66% 6.42% Average Income Fund -0.27% 12.46% Consumer Price Index 2.96% 5.73% CUMULATIVE TOTAL RETURNS reflect the fund's actual performance over a set period - in this case, one year or since the fund began on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return you would end up with $1,050. You can also compare the fund's total returns to those of the Lehman Brothers Intermediate Government-Corporate Bond Index - a broad measure of the intermediate bond market's performance. You can also compare them to the average income fund, which currently reflects the performance of 22 funds tracked by Lipper Analytical Services. Both benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. Comparing the fund's performance to the consumer price index helps show how your investment did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Asset Manager: Income 1.46% 8.17% Lehman Brothers Intermediate Government- Corporate Bond Index -1.66% 3.16% Average Income Fund -0.27% 6.03% Consumer Price Index 2.96% 2.83% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Fid. Asset Manager:Income (328)Gov't/Corp. Bond Index, Int. (SH07Fidelity Conservative 10/01/92 10000.00 10000.00 10000.00 10/31/92 9890.00 9870.00 9975.40 11/30/92 10020.30 9832.49 10049.92 12/31/92 10222.01 9964.25 10139.46 01/31/93 10485.15 10157.56 10235.58 02/28/93 10657.37 10318.05 10336.92 03/31/93 10891.47 10359.32 10403.69 04/30/93 10973.52 10442.19 10390.17 05/31/93 11035.04 10419.22 10455.11 06/30/93 11158.50 10582.80 10544.50 07/31/93 11251.62 10608.20 10568.43 08/31/93 11500.54 10776.87 10732.98 09/30/93 11531.80 10821.06 10742.43 10/31/93 11688.42 10850.27 10812.79 11/30/93 11615.37 10789.51 10770.08 12/31/93 11794.95 10839.14 10822.75 01/31/94 11997.57 10959.46 10955.22 02/28/94 11783.97 10797.26 10838.32 03/31/94 11558.83 10619.10 10686.15 04/30/94 11569.50 10546.89 10704.53 05/31/94 11602.07 10554.27 10753.45 06/30/94 11536.91 10555.33 10711.95 07/31/94 11689.10 10707.33 10859.99 08/31/94 11809.11 10740.52 10969.78 09/30/94 11688.76 10641.71 10890.25 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Fidelity Asset Manager: Income on October 1, 1992, when the fund started. As the chart shows, by September 30, 1994, the value of your investment, would have grown to $11,700 - a 17.00% increase on your initial investment. For comparison, look at how the Lehman Brothers Intermediate Government-Corporate Bond Index did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $10,642 - a 6.42% increase. You can also look at how the Conservative Asset Allocation Composite Index, a hypothetical combination of unmanaged indices, did over the same period. Reflecting the fund's neutral mix of 20% stocks, 30% bonds, and 50% short-term instruments, this index combines returns from the S&P 500 (17.17%), Lehman Brothers Treasury Bond Index (6.59%), and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (6.87%). With dividends and interest, if any, reinvested, the same $10,000 investment would have grown to $10,890 - a 8.90% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) Rising interest rates and inflation concerns in the United States led to negative returns for most bond investments and below average returns for stocks during the 12 months ended September 30, 1994. BONDS: After more than a decade of generally favorable conditions for bond investing, yields rose - and prices fell - on virtually all types of fixed-income investments during the first nine months of 1994. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of - -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate interest payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - a measure of bond market performance in developed nations that includes U.S. issues - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. STOCKS: The Standard & Poor's 500 stock index finished the 12-month period with a total return of 3.68% - below its historical average of more than 10%. After four months of steady gains, the stock market stumbled from February through June 1994. During that period, the Federal Reserve Board raised short-term interest rates four times in an effort to curb possible future inflation triggered by a strengthening economy. Higher rates hurt stocks because they raise the cost of borrowing for companies and consumers, often dampening corporate profits in the future. In addition, higher rates often make bonds and other fixed-income securities more attractive relative to stocks. Despite a fifth Fed rate hike in August, the market rallied from July through mid-September, fueled by strengthening corporate earnings and a flurry of merger and acquisition activity. During the 12 months, cyclical stocks - whose prices tend to move in tandem with the economy - were among the market leaders. These included such sectors as chemicals, metals and paper. Overseas, results were mixed. Japanese stocks surged in early 1994, only to stall over the summer. After suffering corrections early in the year, several emerging markets - most notably Brazil - bounced back strongly in July and August. The Morgan Stanley EAFE (Europe, Australia, Far East) index returned 9.83% for the 12 months ended September 30, while the Morgan Stanley Emerging Markets Free Index was up 43.55% during the same period. FUND TALK: THE MANAGER'S OVERVIEW An interview with Bob Beckwitt, Portfolio Manager of Fidelity Asset Manager: Income Q. BOB, HOW DID THE FUND PERFORM? A. Better than most of its competitors in a difficult investment climate. Fidelity Asset Manager: Income's total return for the year ended September 30, 1994 was 1.46%. The average income fund lost money with a -0.27% total return during the same period, according to Lipper Analytical Services. Q. BOTH STOCKS AND BONDS HAVE BEEN HURT TO VARYING DEGREES THIS YEAR BY RISING INTEREST RATES. WHY DID ASSET MANAGER: INCOME OUTPERFORM OTHER INCOME-ORIENTED FUNDS? A. Because I positioned it more conservatively than most, with fewer traditional bonds - U.S. Treasuries and high-quality corporates - and more cash. As a result, the fund lagged its universe early in the period, when interest rates were still falling. But after interest rates shot up in February, and bond prices fell, Asset Manager: Income's share price remained relatively stable. That's made for a flat return so far in 1994, which is disappointing, but because of the fund's diversification strategy - - which I believe strongly has significant long-term benefit - at least the fund hasn't lost money. Q. HOW HAS THE INVESTMENT CLIMATE CHANGED IN THE PAST YEAR? A. A year ago we were still in the sweet part of the cycle for most financial assets. Interest rates were falling around the world, inflation was a non-issue, and most foreign securities looked like bargains. Then in February the Federal Reserve reversed three years of monetary policies designed to stimulate economic growth, and suddenly interest rates began to rise. Higher rates not only meant lower bond prices in the United States; they also drove up the cost of borrowing for certain highly leveraged investors overseas. When those investors began to sell, foreign bond prices plunged. Meanwhile, European economies recovered faster than most analysts had predicted. And in Japan, the collapse of trade talks with the United States boosted the yen and led Japanese investors to withdraw from world markets. The upshot was higher interest rates around the world, lower bond prices and increased pressure on stocks. Q. HOW HAVE YOU RESPONDED TO THOSE CHANGES? A. Two ways. First, by increasing the fund's cash position. A year ago in September 1993, Asset Manager: Income was 27% stocks, 33% bonds and 40% cash and short-term instruments. By September 1994, the mix was 16% stocks, 36% bonds and 48% cash and short-term instruments. When you consider that the fund's neutral mix is 20-30-50, you can see that the fund is in a more defensive position today than it was a year ago. I also reduced the fund's foreign investments - from 32% a year ago, to 18% at the end of September. Both shifts were meant to lower the fund's volatility in an uncertain climate. Q. YET THE BOND PORTION OF THE FUND IS HIGHER NOW THAN IT WAS BEFORE RATES STARTED RISING . . . A. That's right. Bonds performed very poorly over the past 12 months. Prices fell sharply when long-term Treasury rates rose more than two percentage points from September 1993 to September 1994. But with the interest rate increases, the real rate of return - that is, the interest rate minus the effect of inflation - is now approaching 5%. That's a fairly reasonable number. It means bonds today may have a better cushion to help soften the blow of any further rate increases down the road. I've responded by adding more Treasury bonds. By the end of September, Treasury bonds totaled 18% of the fund. Q. DO YOU REGRET NOW HAVING HAD SO MUCH EXPOSURE TO FOREIGN MARKETS IN THE PAST? A. By no means. Foreign investments were what drove the fund's performance early in the period. I'm still a big believer in the long-term value of investing overseas. However, there are times when conditions warrant a reduction in the fund's exposure to more volatile foreign markets, and I think this happens to be one of them. Q. WHERE HAVE YOU INVESTED OVERSEAS? A. The fund's largest remaining foreign investments are in Mexico, 11%; Argentina, 2%; and Canada, 1%. Mexican stocks - including cement maker Cemex and conglomerate Grupo Carso - were sharp disappointments early in 1994. They've since come back as investors have regained their confidence in the stability of Mexico's political and economic institutions. In Argentina, government bonds became very attractively valued after their yields rose - and prices fell - earlier this year. As for Canada, its stock market got cheap in the face of all the political uncertainty tied to the Quebec independence movement. That presented the fund with a good buying opportunity. In addition, Japan is still among the larger foreign countries represented in the fund for two reasons; one, its stock market is among the largest in the world, and therefore hard to ignore; and two, the big Japanese exporters have finally begun taking steps lately to streamline operations and cut costs, and that's likely to pay off with better earnings over the next year or two. Q. HOW DID U.S. COMMON STOCKS FARE DURING THE PERIOD? A. While it was a horrible year for bonds, stocks did a lot better. U.S. finance stocks - led by American Express, a cheap growth story - made up the largest sector in the fund at the end of September at 2.3% of total investments. Technology stocks - led by IBM, up more than 50% since we started buying it a year ago - were second at 1.3%. Philip Morris, the fund's largest stock investment, is another cheap growth story. The company is generating lots of cash, buying back its own shares, and growing faster than its low price-to-earnings ratio would suggest. Q. DOES THE FUND STILL INVEST IN DERIVATIVES? A. Yes. I've used derivatives called indexed securities, or structured notes, which are like customized bonds. They let me tailor a portion of the fund's investments to match my outlook in specific segments of the market. With them, I'm able to take advantage of investment opportunities I might otherwise miss. Early in the year, I invested in derivatives that were designed to capitalize on falling short-term interest rates in Europe. When rates rose instead, the fund lost money. Fortunately, those losses were offset by corresponding gains in other structured notes that were tied to commodity prices. The net effect on the fund's performance was still negative, but the loss was small. Q. ARE THERE SPECIAL RISKS ASSOCIATED WITH STRUCTURED NOTES? A. There are risks associated with any investment vehicle. One key to avoiding problems with structured notes is making sure their potential volatility is in line with the normal expected volatility of the fund. The structured notes in Fidelity Asset Manager: Income are designed to be no more risky than other investments the fund might own - any of which, after all, could decline in value tomorrow. It's also important not to make concentrated bets, and I haven't. These indexed securities have never amounted to more than 8% of the fund's total investments; as of September 30, 1994, they totaled 2.6%. The point is, at Fidelity we do lots of research on every investment we make. We don't buy anything without first understanding the risks, and we're not going to flinch from our use of derivatives just because others have had trouble with them. Q. DOES THE FUND USE OTHER TYPES OF DERIVATIVES? A. The fund had a small investment in forward foreign currency contracts on September 30, which I've used to hedge some of the fund's overseas investments. These contracts are designed to tie the value of foreign investments to movements in the U.S. dollar, effectively reducing the fund's exposure to foreign currencies. However, if the dollar moves downward relative to the local currency - as it did against many currencies over the past six months - the cost associated with these contracts can reduce the fund's total return. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. That depends largely on the outlook for inflation, and the signs are a bit worrisome. Until recently, most of the world's economies were lagging behind the United States. Now it seems like the whole world is recovering at once. That has led to a surge in demand for commodities, aggravated by low global inventories. So far the price increases have shown up mostly at the producer level, which is why lumber costs more but breakfast cereal doesn't. If recent trends continue, though, eventually we could see higher prices at the consumer level, leading in turn to demands for higher wages. That's what's spooking the markets right now: the possibility that inflationary pressures will build, and the Fed will have no choice but to keep raising rates. Q. WHAT ARE THE IMPLICATIONS FOR THE FUND? A. A cautious approach seems best for the time being. Stock prices went mostly sideways during the past year, and could be more vulnerable than bonds to a further upturn in rates. Before stocks begin to look attractive again, I believe that a lot has to happen: we need a slowdown in the economy, a reduction in inflation fears, a weaker yen, and perhaps even a market correction. Barring that, I'll likely continue to favor bonds, as well as keep the fund's cash levels high. FUND FACTS GOAL: high current income with potential for capital appreciation through investments in stocks, bonds, and short-term investments anywhere in the world START DATE: October 1, 1992 SIZE: as of September 30, 1994, more than $501 million MANAGER: Robert Beckwitt, since 1992; manager, Fidelity Asset Manager, since 1988; Fidelity Asset Manager: Growth, since 1991; joined Fidelity in 1986 (checkmark) BOB BECKWITT ON HOW THE INVESTMENT CLIMATE HAS CHANGED: "The years 1991, 1992 and 1993 were very special years for investors. Most markets around the world were cheap by historical standards, interest rates were falling and inflation was under control. Opportunities were everywhere. But beginning in February 1994 - when the Federal Reserve raised interest rates - conditions changed dramatically. Last year it was hard for me to make a mistake; this year it's been hard to find anything that would have made a difference. Had I not taken the steps I did this past spring to add cash and reduce the fund's exposure to stocks, bonds and other more volatile securities, it's likely the fund's performance would have been far more disappointing than it was. The fund's 12-month return illustrates a key point that shareholders should understand: diversification among asset classes - which is the strategy behind the fund - cannot eliminate risk, it can only try to reduce it." (solid bullet) Foreign investments totaled 18% of the fund, roughly the same total as six months ago. For a country-by-country breakdown, see page 52. INVESTMENT CHANGES TOP FIVE FIXED-INCOME SECURITIES AS OF SEPTEMBER 30, 1994
(BY ISSUER EXCLUDING REPURCHASE AGREEMENTS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE SECURITIES 6 MONTHS AGO U.S. Government Agencies (various issues) 30.8 5.0 Mexican Government (various issues) 6.7 2.0 Argentinian Government (various issues) 2.0 2.7 Marine Midland Bank (various issues) 1.5 1.6 Bufete Industrial SA 0%, 12/1/94 1.4 --
QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1994 (MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Aaa, Aa, A 38.7 17.3 Baa 10.0 16.8 Ba and below 4.2 4.7 TOP FIVE STOCKS AS OF SEPTEMBER 30, 1994 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 0.5 0.2 International Business Machines Corp. 0.4 -- American Express Co. 0.3 -- British Petroleum PLC ADR 0.3 0.4 Alcan Aluminum Ltd. 0.3 -- ASSET ALLOCATION AS OF SEPTEMBER 30, 1994* AS OF MARCH 31, 1994** Row: 1, Col: 1, Value: 48.0 Row: 1, Col: 2, Value: 36.0 Row: 1, Col: 3, Value: 6.0 Row: 1, Col: 4, Value: 10.0 Row: 1, Col: 1, Value: 51.0 Row: 1, Col: 2, Value: 34.0 Row: 1, Col: 3, Value: 10.0 Row: 1, Col: 4, Value: 5.0 Stock class 16% Bond class 36% Short-term class and other 48% Foreign investments - 18% Stock class 15% Bond class 34% Short-term class and other 51% Foreign investments - 18% * ** ASSET ALLOCATIONS IN THE PIE CHART REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 15.2% MATURITY VALUE (NOTE 1) AMOUNT AEROSPACE & DEFENSE - 0.2% AEROSPACE & DEFENSE - 0.2% Flightsafety International, Inc. 8,800 $ 341,000 Lockheed Corp. 2,400 167,100 Martin Marietta Corp. 7,600 338,200 McDonnell Douglas Corp. 300 34,650 Oerlikon-Buhrle Holding Ltd. (Reg.) (a) 900 92,261 Thiokol Corp. 1,600 39,000 1,012,211 DEFENSE ELECTRONICS - 0.0% Loral Corp. 900 35,438 Raytheon Co. 1,300 83,363 118,801 TOTAL AEROSPACE & DEFENSE 1,131,012 BASIC INDUSTRIES - 1.7% CHEMICALS & PLASTICS - 0.8% Airgas, Inc. (a) 2,500 68,438 Akzo NV Ord. 900 105,715 BASF AG 1,000 196,584 Bayer AG 400 90,106 CGIP 100 20,350 DSM NV 1,100 93,376 Du Pont (E.I.) de Nemours & Co. 7,000 406,000 Eastman Chemical Co. 3,100 168,563 Ferro Corp. 7,400 182,225 Grace (W.R.) & Co. 9,500 394,250 Great Lakes Chemical Corp. 10,600 622,750 Hoechst AG Ord. 1,600 341,656 Imperial Chemical Industries PLC : ADR 400 20,900 Ord 2,736 35,838 Indo Gulf Fertilizer and Chemicals GDR (a)(f) 5,400 18,360 Kureha Chemical Industries Co. Ltd. 5,000 27,484 Lyondell Petrochemical Co. 600 18,675 Minnesota Mining & Manufacturing Co. 700 38,675 Nalco Chemical Co. 12,000 394,500 Park Electrochemical Corp. 4,300 146,200 Potash Corp. of Saskatchewan 4,200 172,323 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED CHEMICALS & PLASTICS - CONTINUED Praxair, Inc. 300 $ 7,313 Reliance Industries GDS 800 19,704 Sekisui Chemical 9,000 94,402 Shinetsu Chemical 4,000 81,896 Union Carbide Corp. 12,100 411,400 TPI Polene Public Co. Ltd. (a) 1,500 15,135 Wellman, Inc. 1,800 61,425 4,254,243 IRON & STEEL - 0.1% Armco, Inc. (a) 20,200 121,200 British Steel PLC Ord. 20,688 56,333 Hoogovens en Staalfabrieken (a) 900 39,675 Inland Steel Industries, Inc. (a) 1,300 51,188 Kawasaki Steel Corp. 8,000 36,147 Thyssen AG Ord. 1,200 218,112 USX-U.S. Steel Group 1,200 50,250 572,905 METALS & MINING - 0.5% Alcan Aluminum Ltd. 50,927 1,340,882 Alumax, Inc. (a) 3,600 115,650 Aluminum Co. of America 2,400 203,400 English China Clay PLC 18,900 105,163 Kanamoto Co. Ltd. 1,000 30,156 Noranda, Inc. 10,100 203,909 Reynolds Metals Co. 4,800 271,800 2,270,960 PACKAGING & CONTAINERS - 0.1% Carnaudmetalbox SA 1,800 57,784 Owens-Illinois, Inc. (a) 22,000 255,750 Sonoco Products Co. 2,400 55,950 369,484 PAPER & FOREST PRODUCTS - 0.2% Champion International Corp. 9,400 364,250 Chesapeake Corp. 1,600 54,400 Consolidated Papers, Inc. 1,200 62,100 International Paper Co. 400 31,400 Jefferson Smurfit Corp. 900 18,056 Kokuyo Co. Ltd. 2,000 52,648 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT BASIC INDUSTRIES - CONTINUED PAPER & FOREST PRODUCTS - CONTINUED Mead Corp. 1,700 $ 88,400 Stone Consolidated Corp. (a) 3,200 45,551 Stone Container Corp. 4,000 78,000 Temple-Inland, Inc. 4,900 270,725 1,065,530 TOTAL BASIC INDUSTRIES 8,533,122 CONGLOMERATES - 0.2% Alexander & Baldwin, Inc. 1,600 40,900 Allied-Signal, Inc. 1,200 40,950 Dial Corp. (The) 4,600 96,025 Harris Corp. 800 38,900 Suncor, Inc. 2,100 51,971 Textron, Inc. 2,000 101,750 Tyco Laboratories, Inc. 900 42,750 United Technologies Corp. 7,400 463,425 876,671 CONSTRUCTION & REAL ESTATE - 0.1% BUILDING MATERIALS - 0.1% Armstrong World Industries, Inc. 3,000 130,125 Holderbank Finance Glarus AG (warrants) (a) 500 621 Lafarge Corp. 900 18,113 Siam Cement (For. Reg.) 600 31,231 Siam City Cement Co. Ltd. (For. Reg.) 600 10,811 Tecumseh Products Co. Class A 1,700 83,831 274,732 CONSTRUCTION - 0.0% Centex Corp. 900 20,813 Japan Foundation Engineering 1,900 45,224 Kaneshita Construction Co. Ltd Ord. 2,000 31,467 Pulte Corp. 1,100 23,925 Standard Pacific Corp. 400 2,900 124,329 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONSTRUCTION - CONTINUED REAL ESTATE - 0.0% Berjaya Sports Toto BHD (a) 15,000 $ 26,097 Cheung Kong Ltd. 11,000 53,527 City Development 3,000 16,285 Mitsubishi Estate, Ltd. 2,000 24,004 Nichimo Corp. (a) 4,000 16,944 Sun Hung Kai Properties Ltd. 9,000 66,973 203,830 REAL ESTATE INVESTMENT TRUSTS - 0.0% Developers Diversified Realty 800 24,700 Glimcher Realty Trust 200 4,149 Simon Properties Group, Inc. 3,800 97,375 Storage Equities, Inc. 3,800 57,000 Vornado Realty Trust 600 20,550 203,774 TOTAL CONSTRUCTION & REAL ESTATE 806,665 DURABLES - 0.9% AUTOS, TIRES, & ACCESSORIES - 0.5% Aisin Seiki Co. Ltd. 2,000 28,240 Bandag, Inc. 2,000 108,250 BMW AG 400 194,393 Breed Technologies, Inc. 2,900 94,250 Bridgestone Corp. 5,000 78,164 Capaco Automotive Products Corp. 2,100 26,513 Chrysler Corp. 5,400 242,325 Continental Gummi-Werke AG 700 106,929 Eaton Corp. 1,000 47,500 Ford Motor Co. 1,600 44,400 General Motors Corp. 14,745 691,172 Johnson Controls, Inc. 3,600 179,100 Kia Motors Corp. GDR (a)(f) 2,600 61,100 Lonrho Ltd. Ord. 21,595 44,932 Mitsubishi Motors Corp. (a) 5,000 46,899 Pirelli Tyre Holdings NV Ord. 9,800 78,959 Sumitomo Rubber Industries 2,000 19,768 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT DURABLES - CONTINUED AUTOS, TIRES, & ACCESSORIES - CONTINUED Suzuki Motor Corp. 15,000 $ 181,543 Toyota Motor Corporation 13,000 266,162 2,540,599 CONSUMER ELECTRONICS - 0.1% Aktiebolaget Electrolux 1,500 70,925 Harman International Industries, Inc. 600 20,925 Matsushita Electric Industrial Co. Ltd. 26,000 414,322 Sharp Corp. 1,000 17,751 Sony Corp. 2,900 168,472 692,395 HOME FURNISHINGS - 0.0% Dapta-Mallinjoud SA 700 24,469 LADD Furniture, Inc. 500 3,000 Miller (Herman), Inc. 3,800 94,288 121,757 TEXTILES & APPAREL - 0.3% Arvind Mills Ltd. Unit (a)(f) 4,000 24,520 Burlington Industries, Inc. (a) 7,800 81,900 Cygne Designs, Inc. (a) 100 2,250 Fruit of the Loom, Inc. Class A (a) 1,000 25,625 Indian Rayon & Industries, Inc. GDR (a)(f) 500 8,875 Interface, Inc. Class A 100 1,300 Jones Apparel Group, Inc. (a) 100 2,450 Kellwood Co. 2,500 60,313 Kurabo Industries Ltd. 7,000 32,688 Liz Claiborne, Inc. 9,800 222,950 Nisshinbo Industries 12,000 133,132 Russell Corp. 6,000 183,000 Tokyo Style Co. Ltd. 5,000 89,259 Unifi, Inc. 15,400 385,000 Westpoint Stevens, Inc. Class A (a) 13,800 200,100 1,453,362 TOTAL DURABLES 4,808,113 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - 1.6% ENERGY SERVICES - 0.5% BJ Services Co. (a) 5,500 $ 108,625 Baker Hughes, Inc. 12,000 223,500 Dreco Energy Services Ltd. Class A (a) 600 5,550 Enterra Corp. 7,500 166,875 Halliburton Co. 9,700 305,550 Helmerich & Payne, Inc. 4,100 115,313 McDermott International, Inc. 5,500 141,625 Nowsco Well Service Ltd. 4,200 62,521 Schlumberger Ltd. 22,500 1,223,438 Tidewater, Inc. 9,800 210,700 2,563,697 INDEPENDENT POWER - 0.0% California Energy Co., Inc. 3,400 58,225 Thermo Electron Corp. (a) 500 22,938 81,163 OIL & GAS - 1.1% Amerada Hess Corp. 14,000 651,000 Ampolex Ltd. Ord. 2,800 8,167 Ashland Oil, Inc. 3,600 127,350 British Petroleum PLC: ADR 20,896 1,582,872 Ord 15,904 100,275 Burlington Resources, Inc. 1,700 63,750 Coastal Corp. (The) 1,700 47,388 Kerr-McGee Corp. 800 38,900 Louisiana Land & Exploration Co. 1,300 56,875 Mark Resources, Inc. 3,800 25,455 Morrison Petroleums Ltd. 6,300 43,374 Murphy Oil Corp. 12,800 556,800 Newfield Exploration Co. (a) 1,200 29,550 Noble Affiliates, Inc. 200 5,350 Norsk Hydro AS 8,172 299,755 Norsk Hydro AS ADR 4,644 171,248 Oryx Energy Co. 2,800 38,850 Pancanadian Petroleum Ltd. 1,200 38,406 Parker & Parsley Petroleum Co. 100 2,488 Petro-Canada 2,400 21,212 Poco Petroleums Ltd. (a) 5,400 34,163 Renaissance Energy Ltd. (a) 5,500 118,204 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT ENERGY - CONTINUED OIL & GAS - CONTINUED Renaissance Energy Ltd. (f) 22,000 $ 472,815 Texaco, Inc. 900 54,000 Tosco Corp. 4,200 119,175 Total Compagnie Francaise des Petroles Class B 3,400 199,921 Total SA sponsored ADR 5,617 164,297 Unocal Corp. 3,264 92,208 Western Gas Resources, Inc. 5,100 110,925 5,274,773 TOTAL ENERGY 7,919,633 FINANCE - 2.8% BANKS - 1.0% Banc One Corp. 10,320 308,310 Banco Bilbao Vizcaya SA Ord. (Reg.) 2,900 71,357 Bangkok Bank 1,400 14,462 Bank of Boston Corp. 15,178 404,114 Bank International Indonesia Ord. 8,200 29,770 Bank of New York Co., Inc. 14,520 430,155 BankAmerica Corp. 900 39,713 BanPonce Corp. 5,031 166,652 BayBanks, Inc. 1,200 66,000 BNP CI Ord. 870 40,274 Chase Manhattan Corp. 50 1,731 Chemical Banking Corp. 8,800 308,000 Citicorp 3,948 167,790 CS Holdings (Bearer) (a) 320 130,719 CS Holdings (Bearer) (warrants) (a) 140 979 Comerica, Inc. 2,500 69,375 Deutsche Bank AG 500 217,531 Development Bank of Singapore (For. Reg.) 2,000 21,038 First American Corp. (Tenneesee) 700 23,100 First Bank System, Inc. 1,700 62,050 First Chicago Corp. 400 18,350 First Fidelity Bancorporation 4,108 172,536 First Union Corp. 2,557 110,590 Fleet Financial Group, Inc. 1,600 60,200 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED BANKS - CONTINUED Grupo Financiero Bancomer SA de CV sponsored ADR, Series C (f) 100 $ 2,400 HSBC Holdings PLC: Ord. 3,687 39,635 (Reg.) 10,000 111,622 Istituto Mobiliare Italiano 11,700 80,927 Keycorp. 1,700 51,850 Mercantile Bancorporation, Inc. 3,450 127,219 Mercantile Bankshares Corp. 1,000 22,125 Midlantic Corp. 1,600 44,200 Mitsubishi Trust & Banking 3,000 45,083 Mitsui Trust and Banking 2,000 22,189 NationsBank Corp. 14,880 729,120 North Fork Bancorporation, Inc. 100 1,588 Overseas Union Bank Ltd. (For.) 5,000 28,658 Panin Bank (FOR) 16,100 29,410 Republic New York Corp. 2,400 104,400 Shawmut National Corp. 17,769 368,707 Signet Banking Corp. 15 518 Swiss Bank Corp. (Bearer) (a) 237 67,733 Trustmark Corp. 1,100 21,450 Unidanmark AS Class A (a) 600 23,067 United Overseas Bank (For. Reg.) 6,000 60,283 Zions Bancorporation 600 23,700 4,940,680 CLOSED END INVESTMENT COMPANIES - 0.1% Growth Fund of Spain, Inc. (a) 8,700 91,350 Morgan Stanley India Investment Fund (a) 42,100 589,400 680,750 CREDIT & OTHER FINANCE - 0.5% American Express Co. 54,445 1,653,767 Beneficial Corp. 6,000 244,500 Dean Witter Discover & Co. 1,051 39,544 GFC Financial Corp. 1,720 61,275 General Finance & Securities Public Co. Ltd. (For.) 1,000 12,733 Green Tree Acceptance, Inc. 6,000 161,250 Promise Co., Ltd. (a) 1,000 62,532 Schroders PLC (non-vtg.) 22 454 2,236,055 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED FEDERAL SPONSORED CREDIT - 0.2% Federal Home Loan Mortgage Corporation 4,600 $ 245,525 Federal National Mortgage Association 12,600 992,250 1,237,775 INSURANCE - 0.7% ACE Ltd. 900 21,600 Alexander & Alexander Services, Inc. 10,400 202,800 Allstate Corp. 8,200 195,775 American Bankers Insurance Group, Inc. 1,600 34,800 Assicurazioni Generali Spa 3,300 84,545 Baloise Holding (Reg.) 50 99,406 Berkley (W.R.) Corp. 1,400 50,400 Corporacion Mapfre International Reas (Reg.) 1,100 50,535 Dai-Tokyo Fire & Marine Insurance Ord. 9,000 66,445 Equitable Iowa Companies 900 32,400 GAN (Groupe Des Assur Natl.) 440 21,699 General Re Corp. 600 63,525 Gryphon Holdings, Inc. 200 3,000 International Nederlanden Groep CVA 1,363 58,831 John Alden Financial Corp. 2,200 80,575 Loews Corp. 5,100 450,713 MBIA, Inc. 2,900 172,913 NAC Re Corp. 6,200 158,100 Prudential Corp. 8,215 38,329 Providian Corp. 2,900 91,350 Royale Insurance Co. Ltd. 8,219 37,311 SAFECO Corp. 4,500 231,750 St. Paul Companies, Inc. (The) 2,900 117,813 SunAmerica, Inc. 1,200 49,950 Tokio Marine & Fire Insurance Co. Ltd. (The) 7,000 83,308 Travelers, Inc. (The) 30,000 986,250 20th Century Industries 2,700 34,425 UNUM Corp. 1,900 87,400 3,605,948 SAVINGS & LOANS - 0.2% Ahmanson (H.F.) & Co. 14,600 304,775 Charter One Financial Corp. 2,800 57,400 FirstFed Michigan Corp. 150 3,600 GP Financial Corp. 400 9,500 Golden West Financial Corp. 8,500 336,813 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT FINANCE - CONTINUED SAVINGS & LOANS - CONTINUED Standard Federal Bank 10,700 $ 291,575 Washington Mutual Savings Bank 2,600 52,975 1,056,638 SECURITIES INDUSTRY - 0.1% Lehman Brothers Holdings, Inc. 8,080 119,180 Midland Walwyn Inc. 9,000 56,939 Morgan Stanley Group, Inc. 1,000 62,125 Nikko Securities 4,000 45,184 Nomura Securities Ltd. 11,000 227,433 PaineWebber Group, Inc. 4,050 58,219 569,080 TOTAL FINANCE 14,326,926 HEALTH - 0.8% DRUGS & PHARMACEUTICALS - 0.4% Allergan, Inc. 10,900 276,588 American Home Products Corp. 2,900 174,000 Barr Laboratories, Inc. (a) 8,700 204,450 Bristol-Myers Squibb Co. 1,900 109,013 Carter-Wallace, Inc. 4,100 55,863 Centocor, Inc. 300 5,550 Cephalon, Inc. (a) 300 3,206 IVAX Corp. 6,800 133,450 Noven Pharmaceuticals, Inc. (a) 300 3,863 Pfizer, Inc. 8,700 601,388 Sankyo 2,000 50,025 Schering-Plough Corp. 1,200 85,200 Takeda Chemical Industries Ltd. 7,000 81,896 Warner-Lambert Co. 2,700 216,675 Zeneca Group PLC Ord. (a) 6 76 2,001,243 MEDICAL EQUIPMENT & SUPPLIES - 0.2% Baxter International, Inc. 3,900 109,688 Beckman Instruments, Inc. 400 11,800 Boston Scientific Corp. (a) 8,200 129,150 Datascope Corp. (a) 3,500 54,250 Johnson & Johnson 800 41,300 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT HEALTH - CONTINUED MEDICAL EQUIPMENT & SUPPLIES - CONTINUED Kendall International, Inc. (a) 3,600 $ 216,900 Medtronic, Inc. 1,200 63,450 Mentor Corp. 500 8,563 Pall Corp. 17,100 294,975 Thermedics, Inc. 500 7,563 937,639 MEDICAL FACILITIES MANAGEMENT - 0.2% Columbia/HCA Healthcare Corp. 3,035 132,023 GranCare, Inc. (a) 4,200 76,650 Humana, Inc. (a) 11,400 269,325 Lincare Holdings, Inc. (a) 300 6,975 Ornda Healthcorp (a) 2,600 41,925 Unilab Corp. (a) 9,400 50,525 United HealthCare Corp. 2,000 106,000 U.S. Healthcare, Inc. 7,200 335,250 1,018,673 TOTAL HEALTH 3,957,555 HOLDING COMPANIES - 0.1% America Group Ltd. Class A 1,100 23,976 Brierley Investments Ltd. 416,721 316,225 Jardine Matheson & Co. Ltd. Ord. 18,000 152,582 Man AG Ord. 500 126,974 619,757 INDUSTRIAL MACHINERY & EQUIPMENT - 0.5% ELECTRICAL EQUIPMENT - 0.1% General Electric Co. 900 43,313 Hitachi Koki Co., Ord. 5,000 51,437 Hutchison Whampoa Ltd. Ord. 12,000 56,684 Mitsubishi Electric Co. Ord. 20,000 141,604 Mori Seiki Co. Ord. 2,000 53,253 Omron Corp. 4,000 68,986 Philips NV 1,700 51,638 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED ELECTRICAL EQUIPMENT - CONTINUED Philips Electronics 4,000 $ 122,238 Scientific-Atlanta, Inc. 200 8,175 597,328 INDUSTRIAL MACHINERY & EQUIPMENT - 0.3% AIDA Engineering Ltd. Ord. 2,000 16,702 Amada Metrecs Co. Ltd. 1,000 17,146 Amadasonoike Co. Ltd. 5,000 42,511 Caterpillar, Inc. 9,800 530,425 Cooper Industries, Inc. 7,200 289,800 Deere & Co. 4,900 336,263 Finning Ltd. 4,800 76,811 Harnischfeger Industries, Inc. 2,600 68,575 Hitachi Construction Machinery Co. Ltd. 4,000 53,253 Keystone International, Inc. 4,000 78,000 Parker-Hannifin Corp. 500 19,938 SKF AB Ord. (a) 3,400 59,264 TRINOVA Corp. 700 24,413 Tsugami Corp. 4,000 24,125 1,637,226 POLLUTION CONTROL - 0.1% Attwoods PLC ADR 18,000 164,250 Browning-Ferris Industries, Inc. 1,900 60,325 Laidlaw, Inc. Class B 7,500 57,916 OHM Corp. (a) 200 2,300 Sanifill, Inc. (a) 300 6,675 Sevenson Environmental Services, Inc. 400 7,100 United Waste Systems, Inc. (a) 200 4,950 WMX Technologies, Inc. 4,500 129,938 Western Waste Industries, Inc. (a) 400 7,100 440,554 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 2,675,108 MEDIA & LEISURE - 0.4% BROADCASTING - 0.1% CBS, Inc. 200 64,150 Capital Cities/ABC, Inc. 2,200 180,400 Heritage Media Corp. Class A (a) 1,000 21,750 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED Home Shopping Network, Inc. (a) 3,300 $ 35,475 Tele-Communications, Inc. Class A 6,400 142,000 443,775 ENTERTAINMENT - 0.0% Royal Caribbean Cruises Ltd. 3,100 80,600 LEISURE DURABLES & TOYS - 0.1% Callaway Golf Co. 4,600 158,125 Champion Enterprises, Inc. (a) 400 15,700 Outboard Marine Corp. 3,300 75,075 West Marine, Inc. (a) 300 6,750 255,650 LODGING & GAMING - 0.1% Accor SA 600 68,928 Caesars World, Inc. (a) 1,700 73,738 Four Seasons Hotels, Inc. 3,600 42,537 Genting BHD 3,000 26,916 La Quinta Motor Inns, Inc. 400 14,350 Marriott International, Inc. 1,400 40,425 Resorts World BHD 13,000 82,153 349,047 PUBLISHING - 0.1% Dow Jones & Co. Inc. 2,400 72,000 Gannett Co., Inc. 700 33,600 Meredith Corp. 1,200 55,800 Scripps (E.W.) Co. Class A 1,900 55,813 Singapore Press Holdings Ltd. (For. Reg.) 1,000 17,532 Telegraaf 200 22,099 Thomson Corp. 3,800 44,546 Torstar Corp. Class B 7,300 133,117 434,507 RESTAURANTS - 0.0% Brinker International, Inc. (a) 300 7,200 McDonald's Corp. 900 23,625 30,825 TOTAL MEDIA & LEISURE 1,594,404 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - 1.1% AGRICULTURE - 0.0% Delta & Pine Land Co. 1,000 $ 18,000 BEVERAGES - 0.2% Comp Cervecerias Unidas SA ADR 3,200 78,400 Dr. Pepper/Seven-Up Companies, Inc. (a) 1,100 25,575 Emvasa Del Valle de Enah Ord. (a) 300 1,564 Kirin Brewery Co. Ltd. 1,000 11,599 Panamerican Beverages, Inc. Class A 3,500 125,563 Quilmes Industries, SA 1,500 35,063 Seagram Co. Ltd. 18,100 548,975 Whitbread Class A 4,259 36,218 862,957 FOODS - 0.2% Archer-Daniels-Midland Co. 4,485 116,610 Borden, Inc. 6,200 85,250 ConAgra, Inc. 3,500 110,250 Dole Food, Inc. 5,100 141,525 Hormel (George A) & Co. 1,800 40,500 IBP, Inc. 5,000 163,750 Nestle SA (Reg.) 100 90,786 Nippon Suisan Kaisha Ltd. (a) 11,000 53,253 Tyson Foods, Inc. 3,500 84,000 Viscofan Envolturas Celulo SA 1,700 38,587 Weston George Ltd. 3,800 110,305 1,034,816 HOUSEHOLD PRODUCTS - 0.1% Church & Dwight Co., Inc. 1,900 43,700 NCH Corp. 800 49,400 Orkla AS: Class A Free shares 1,700 49,335 Class B (non-vtg) 1,200 33,057 Safeskin Corp. (a) 300 4,275 Stanhome, Inc. 1,400 47,775 Uni Charm Corp. Ord. 3,000 81,089 308,631 TOBACCO - 0.6% Imasco Ltd. 2,100 59,395 Philip Morris Companies, Inc. 37,700 2,304,413 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT NONDURABLES - CONTINUED TOBACCO - CONTINUED RJR Nabisco Holdings Corp. (a) 92,300 $ 634,563 UST, Inc. 6,000 171,750 3,170,121 TOTAL NONDURABLES 5,394,525 PRECIOUS METALS - 0.3% Agnico Eagle Mines Ltd. 4,800 69,220 American Barrick Resources Corp. 11,300 299,626 Battle Mountain Gold Co. 5,300 67,575 Echo Bay Mines Ltd. 3,300 45,439 Franco Nevada Mining Corp. 1,300 84,180 Free State Consolidated Gold Mines Ltd. ADR 8,100 140,231 Hecla Mining Co. 1,700 22,525 Homestake Mining Co. 8,600 182,750 Newmont Mining Corp. 3,500 157,500 Pegasus Gold, Inc. 2,500 41,402 Placer Dome, Inc. 6,500 163,280 1,273,728 RETAIL & WHOLESALE - 1.1% APPAREL STORES - 0.2% Edison Brothers Stores, Inc. 3,500 80,500 Esprit Asia Holdings Ltd. 58,000 29,274 Gap, Inc. 6,200 203,825 Limited, Inc. (The) 17,100 335,588 Ross Stores, Inc. 1,000 14,625 TJX Companies, Inc. 13,900 291,900 Xebio Co. Ltd. 400 17,347 973,059 DRUG STORES - 0.1% Revco (D.S.), Inc. 400 8,350 Rite Aid Corporation 7,900 163,925 Walgreen Co. 2,700 101,588 273,863 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT RETAIL & WHOLESALE - CONTINUED GENERAL MERCHANDISE STORES - 0.4% Caldor Corp. 300 $ 9,263 Consolidated Stores Corp. 300 4,905 Dayton Hudson Corp. 1,300 99,450 Dillard Department Stores, Inc. Class A 15,900 425,325 Federated Department Stores, Inc. (a) 17,700 407,100 Ito Yokado Co. Ltd. 1,000 53,354 Price/Costco, Inc. 3,600 57,825 Sears, Roebuck & Co. 14,100 676,800 Wal-Mart Stores, Inc. 3,400 79,475 1,813,497 GROCERY STORES - 0.2% Argyll Group PLC Ord. 7,300 31,413 Fleming Companies, Inc. 3,000 70,125 Food Lion, Inc. Class A 11,000 61,875 Giant Food, Inc. Class A 3,200 68,800 Great Atlantic & Pacific Tea Co., Inc. 6,300 159,863 Izumi Co. Ord. 1,000 25,315 Kroger Co. (The) 3,400 90,525 Loblaw Companies, Ltd. 2,900 47,756 Safeway, Inc. (a) 5,100 149,813 Stop & Shop Companies, Inc. (a) 1,500 37,688 Supervalu, Inc. 6,600 171,600 914,773 RETAIL & WHOLESALE, MISCELLANEOUS - 0.2% Best Buy Co., Inc. (a) 400 15,650 Circuit City Stores, Inc. 2,800 72,450 Duty Free International, Inc. 7,900 94,800 Handleman Co. (Del.) 4,900 52,675 Lillian Vernon Corp. 400 7,400 Micro Warehouse, Inc. 400 12,700 Rex Stores Corp. (a) 12,200 245,525 Staples, Inc. 300 9,863 Toys "R" Us, Inc. (a) 7,100 252,938 Uny Co. Ltd. 2,000 32,073 Wickes PLC 24,900 34,735 830,809 TRADING COMPANIES - 0.0% Kanematsu-Gosho Ltd. 6,000 32,980 TOTAL RETAIL & WHOLESALE 4,838,981 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT SERVICES - 0.3% ADVERTISING - 0.0% WPP Group PLC 82,700 $ 142,088 LEASING & RENTAL - 0.0% Hollywood Entertainment Corp. 600 16,800 Orix Corp. 2,000 79,677 96,477 PRINTING - 0.1% Donnelley (R.R.) & Sons Co. 7,000 210,000 Komori Corp. 2,000 51,437 New England Business Service, Inc. 8,100 143,775 Reynolds & Reynolds Co. Class A 2,000 50,250 455,462 SERVICES - 0.2% ADT Ltd. 12,500 143,750 Borg Warner Securities Corp. (a) 500 5,500 CDI Corp. (a) 400 5,250 CPI Corp. 3,000 55,500 Heidemij NV 2,300 23,575 Jostens, Inc. 6,500 116,188 Manpower, Inc. 400 10,950 Norrell Corp. 200 3,588 Robert Half International, Inc. (a) 5,000 95,625 Rural/Metro Corp. (a) 1,000 18,625 Western Atlas, Inc. 10,400 455,000 933,551 TOTAL SERVICES 1,627,578 TECHNOLOGY - 1.6% COMMUNICATIONS EQUIPMENT - 0.1% Cabletron Systems, Inc. (a) 1,500 71,438 Leader Universal Holdings BHD 2,000 11,469 Newbridge Networks Corp. (a) 1,200 38,400 Tellabs, Inc. 3,200 136,000 3Com Corp. (a) 10,000 373,750 631,057 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED COMPUTER SERVICES & SOFTWARE - 0.1% America Online, Inc. 300 $ 20,513 Lotus Development Corp. (a) 3,900 143,325 Microsoft Corp. (a) 1,500 84,188 Oracle Systems Corp. (a) 1,000 43,000 SHL Systemhouse, Inc. (a) 5,400 30,375 Sapiens International Corp. NV (a) 11,600 47,850 Softdesk, Inc. (a) 300 5,325 SunGard Data Systems, Inc. 200 7,250 Viewlogic Systems, Inc. (a) 2,500 48,750 430,576 COMPUTERS & OFFICE EQUIPMENT - 0.6% Canon, Inc. 12,000 210,590 Compaq Computer Corp. (a) 18,200 593,775 Fujitsu Ltd. 11,000 115,381 Hewlett-Packard Co. 1,300 113,588 International Business Machines Corp. 25,200 1,751,400 RICOH Co. Ltd. Ord. 6,000 55,008 SCI Systems, Inc. (a) 4,700 99,288 Sun Microsystems, Inc. (a) 2,200 64,625 Tandem Computers, Inc. (a) 1,700 27,625 Tech Data Corp. (a) 400 7,700 3,038,980 ELECTRONIC INSTRUMENTS - 0.2% Applied Materials, Inc. (a) 5,200 243,100 KLA Instruments Corp. (a) 2,100 103,950 Lam Research Corp. (a) 2,700 108,675 Microfluidics International Corp. (a) 400 1,700 TSI, Inc. 200 1,750 Tektronix, Inc. (a) 3,200 124,000 Teradyne, Inc. (a) 5,300 155,688 Varian Associates, Inc. 300 10,950 749,813 ELECTRONICS - 0.5% Aiwa Co. Ltd. 2,000 49,622 AMP, Inc. 1,300 100,588 Anthem Electronics, Inc. (a) 800 25,800 Atmel Corp. (a) 5,600 175,700 Hirose Electric Co. Ltd. 1,000 62,532 Hitachi Ltd. 48,000 462,814 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TECHNOLOGY - CONTINUED ELECTRONICS - CONTINUED Hitachi Maxell Ltd. 1,000 $ 18,457 Intel Corp. 5,100 313,650 Micron Technology, Inc. 8,800 303,600 Molex, Inc. 300 11,775 Motorola, Inc. 5,000 263,750 Nichicon Corp. 9,000 119,818 Ryoyo Electro Corp. Ord. 3,000 81,392 Rohm Co. Ltd. 1,000 43,570 Solectron Corp. (a) 1,900 50,113 TDK Corp. 2,000 88,956 Texas Instruments, Inc. 4,000 273,500 Toshiba Corp. 16,000 120,222 2,565,859 PHOTOGRAPHIC EQUIPMENT - 0.1% Fuji Photo Film Co. Ltd. 1,000 22,491 Polaroid Corp. 11,300 396,913 419,404 TOTAL TECHNOLOGY 7,835,689 TRANSPORTATION - 0.5% AIR TRANSPORTATION - 0.1% AMR Corp. (a) 10,000 515,000 Japan Airlines Co. Ltd. 3,000 22,602 KLM Royal Dutch Airlines (a) 1,100 30,113 KLM Royal Dutch Airlines Ord. (a) 4,800 133,978 Pittston Company Services Group 1,900 54,150 SkyWest, Inc. 1,100 24,406 780,249 RAILROADS - 0.3% Burlington Northern, Inc. 500 25,125 CSX Corp. 3,700 253,450 Canadian Pacific Ltd. Ord. 45,700 765,323 Chicago & North Western Holdings Corp. (a) 100 2,063 East Japan Railway Ord. (a) 11 53,807 Illinois Central Corp., Series A 7,000 210,000 Santa Fe Pacific Corp. 6,900 156,113 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT TRANSPORTATION - CONTINUED RAILROADS - CONTINUED Southern Pacific Rail Corp. (a) 2,800 $ 52,500 Union Pacific Corp. 1,200 64,350 1,582,731 SHIPPING - 0.0% Bonheur A/S (a) 2,700 43,752 Kawasaki Kisen Kaisha Ltd. (a) 11,000 41,493 Mitsui OSK Lines 22,000 86,757 Peninsular & Oriental Steam Navigation Co. 94 922 Shun Tak Holdings Ltd. 56,000 47,108 220,032 TRUCKING & FREIGHT - 0.1% Carolina Freight Corp. 500 4,625 Hitachi Transport System Co. 5,000 53,454 Roadway Services, Inc. 3,800 218,500 Yellow Corp. 4,100 76,363 352,942 TOTAL TRANSPORTATION 2,935,954 UTILITIES - 1.0% CELLULAR - 0.1% Airtouch Communications (a) 4,100 117,363 Premier Page Co. (a) 3,000 26,250 Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) 2,800 81,277 Vodafone Group PLC sponsored ADR 9,000 282,375 507,265 ELECTRIC UTILITY - 0.5% American Electric Power Co., Inc. 1,300 40,788 Baltimore Gas & Electric Co. 5,900 135,700 Centerior Energy Corp. 6,600 61,875 Central & South West Corp. 3,500 77,875 Consolidated Electric Power Asia Ltd. 11,400 25,745 Consolidated Edison Co. of New York, Inc. 1,900 47,263 DPL, Inc. 2,100 40,950 Empresa Nacional De Electricidad SA sponsored ADR 1,000 42,750 Entergy Corp. 11,711 272,281 EVN (Energie-Versor Nieder) 200 25,596 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED FECSA (Fuerzas Elec Cat) Class A 22,700 $ 129,916 Fuji Electric Co., Ltd. 41,000 231,568 General Public Utilities Corp. 5,200 128,700 Hong Kong Electric Holdings Ord. 40,500 132,868 Houston Industries, Inc. 600 21,150 Illinova Corp. 6,100 117,425 Iberdrola SA 7,780 49,252 NIPSCO Industries, Inc. 4,700 128,663 Peco Energy Co. 5,300 134,488 PSI Resources, Inc. 1,200 26,850 Pacific Gas & Electric Co. 1,200 27,300 PacifiCorp. 6,000 101,250 Pinnacle West Capital Corp. 2,900 51,838 Public Service Enterprise Group, Inc. 900 23,625 SCEcorp 1,900 24,700 Scottish Power PLC 10,340 58,022 Sevillana de Electricidad 6,900 33,365 Southern Co. 2,000 37,250 Texas Utilities Co. 700 22,838 Union Electric Co. 900 31,500 Union Electrica Fenosa 15,600 67,660 Veba Vereinigte Elektrizitaets & Bergwerks AG Ord. 1,000 331,808 2,682,859 GAS - 0.0% Columbia Gas System, Inc. (The) (a) 800 21,500 TELEPHONE SERVICES - 0.4% ALC Communications Corp. (a) 1,700 55,675 Ameritech Corp. 10,500 422,625 BellSouth Corp. 3,100 172,825 Koninklijke PPT Nederland 4,900 147,767 Nippon Telegraph & Telephone Ord. 4 35,502 NYNEX Corp. 1,100 42,350 Rochester Telephone Corp. 400 8,800 Southwestern Bell Corp. 6,200 263,500 Sprint Corporation 8,600 327,875 Telefonica de Espana SA: sponsored ADR 800 32,400 COMMON STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT UTILITIES - CONTINUED TELEPHONE SERVICES - CONTINUED Ord. 9,200 $ 124,290 Telecom Italia Ord. 96,300 272,459 1,906,068 TOTAL UTILITIES 5,117,692 TOTAL COMMON STOCKS (Cost $72,425,638) 76,273,113 PREFERRED STOCKS - 1.1% CONVERTIBLE PREFERRED STOCKS - 1.0% BASIC INDUSTRIES - 0.1% IRON & STEEL - 0.0% Armco, Inc. Class A $3.625 1,600 83,200 METALS & MINING - 0.1% Alumax, Inc., Series A, $4.00 733 100,421 Freeport McMoran, Inc. $4.375 (f) 5,000 250,625 Reynolds Metals Co. $3.31 5,300 285,538 636,584 TOTAL BASIC INDUSTRIES 719,784 CONSTRUCTION & REAL ESTATE - 0.0% BUILDING MATERIALS - 0.0% Bird Corp. $1.85 3,700 62,900 DURABLES - 0.1% TEXTILES & APPAREL - 0.1% Fieldcrest Cannon, Inc. $3.00 A 6,200 344,875 ENERGY - 0.2% COAL - 0.0% Pittston Co. $3.125 (f) 2,400 105,600 ENERGY SERVICES - 0.0% Noble Drilling Corp. exchangeable $2.25 2,700 111,375 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT CONVERTIBLE PREFERRED STOCKS - CONTINUED ENERGY - CONTINUED OIL & GAS - 0.2% Diamond Shamrock, Inc. 5% (f) 6,100 $ 323,300 Occidental Petroleum Corp.: $3.00 2,600 123,825 $3.875 (f) 1,800 94,500 Unocal Corp. $3.50 (f) 2,800 149,100 690,725 TOTAL ENERGY 907,700 FINANCE - 0.1% BANKS - 0.1% ABN-AMRO Holdings NV 6% 62 2,037 Citicorp $5.375 (f) 4,400 521,400 523,437 CREDIT & OTHER FINANCE - 0.0% Attwoods Finance NV 8 1/2% 14,500 20,570 SAVINGS & LOANS - 0.0% Glendale Federal Bank $2.1875 Series E 3,300 107,663 TOTAL FINANCE 651,670 HEALTH - 0.2% DRUGS & PHARMACEUTICALS - 0.0% Neorx Corp., Series 1, $2.44 3,700 72,150 MEDICAL EQUIPMENT & SUPPLIES - 0.2% U.S. Surgical Corp. $2.20 (f) 21,700 634,725 MEDICAL FACILITIES MANAGEMENT - 0.0% Maxicare Health Plans, Inc., Series A, $2.25 (f) 5,100 179,138 TOTAL HEALTH 886,013 INDUSTRIAL MACHINERY & EQUIPMENT - 0.2% ELECTRICAL EQUIPMENT - 0.1% Westinghouse Electric Corp. $1.30 (f) 21,400 291,575 PREFERRED STOCKS - CONTINUED MATURITY VALUE (NOTE 1) AMOUNT INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% Cooper Industries, Inc. $8.00 exchangeable 23,100 $ 548,625 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 840,200 NONDURABLES - 0.1% FOODS - 0.0% Conagra, Inc., Class E 4,900 161,088 TOBACCO - 0.1% RJR Nabisco Holdings Corp., Series A, depositary shares representing 1/4 share 96,200 685,425 TOTAL NONDURABLES 846,513 TOTAL CONVERTIBLE PREFERRED STOCKS 5,259,655 NONCONVERTIBLE PREFERRED STOCKS - 0.1% ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd. sr. pfd., Series 1, adj. rate 3,000 8,438 FINANCE - 0.0% INSURANCE - 0.0% SAI (Sta Assicur Industriale) N/C Risp 9,500 70,750 UTILITIES - 0.1% TELEPHONE SERVICES - 0.1% Stet (Societa Finanziaria Telefonica) Spa 160,800 409,205 TOTAL NONCONVERTIBLE PREFERRED STOCKS 488,393 TOTAL PREFERRED STOCKS (Cost $5,280,461) 5,748,048 CORPORATE BONDS - 20.5% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) CONVERTIBLE BONDS - 0.5% BASIC INDUSTRIES - 0.1% IRON & STEEL - 0.0% Essar Gujarat, Ltd. euro 5 1/2%, 8/5/98 - $ 10,000 $ 17,950 PAPER & FOREST PRODUCTS - 0.1% Champion International Corp. 6 1/2%, 4/15/11 Baa2 100,000 115,000 Stone Consolidated Corp. 8%, 12/31/03 B2 140,000 142,756 257,756 TOTAL BASIC INDUSTRIES 275,706 ENERGY - 0.1% ENERGY SERVICES - 0.1% Halliburton Co. liquid yield option 0%, 3/31/06 A3 500,000 250,000 INDEPENDENT POWER - 0.0% California Energy, Inc. 5%, 7/31/00 (f) B1 120,000 108,000 TOTAL ENERGY 358,000 FINANCE - 0.0% BANKS - 0.0% Bank of New York Co., Inc. 7 1/2%, 8/15/01 A3 50,000 76,188 CREDIT & OTHER FINANCE - 0.0% Industrial Credit & Investment Corp. 2 1/2%, 4/03/00 (f) - 20,000 17,600 SECURITIES INDUSTRY - 0.0% Peregrine Investment Financial Cayman Ltd. 4 1/2%, 12/1/00 (f) - 20,000 16,200 TOTAL FINANCE 109,988 HEALTH - 0.1% DRUGS & PHARMACEUTICALS - 0.1% Centoco, Inc. 7 1/4%, 2/1/01 Caa 300,000 258,750 MEDICAL EQUIPMENT & SUPPLIES - 0.0% Mentor Corp. euro 6 3/4%, 7/22/02 - 20,000 23,000 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) HEALTH - CONTINUED MEDICAL FACILITIES MANAGEMENT - 0.0% Abbey Healthcare Group, Inc. 6 1/2%, 12/1/02. (f) B2 $ 50,000 $ 50,500 TOTAL HEALTH 332,250 MEDIA & LEISURE - 0.0% RESTAURANTS - 0.0% Wendy's International, Inc. 7%, 4/1/06 Baa3 20,000 25,900 RETAIL & WHOLESALE - 0.1% APPAREL STORES - 0.0% Baker (J.), Inc. 7%, 6/1/02 B2 50,000 65,500 DRUG STORES - 0.1% Rite Aid Corp. liquid yield option 0%, 7/24/06 Baa1 1,000,000 455,000 TOTAL RETAIL & WHOLESALE 520,500 SERVICES - 0.0% LEASING & RENTAL - 0.0% Interpool, Inc. 5 1/4%, 12/15/18 B1 90,000 67,500 TECHNOLOGY - 0.1% COMPUTERS & OFFICE EQUIPMENT - 0.1% EMC Corp. 6 1/4%, 4/1/02 B2 50,000 327,313 UTILITIES - 0.0% CELLULAR - 0.0% Mobile Telecommunication Technologies Corp. 6 3/4%, 5/15/02 - 45,000 93,319 TOTAL CONVERTIBLE BONDS 2,110,476 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - 20.0% AEROSPACE & DEFENSE - 0.1% AEROSPACE & DEFENSE - 0.0% Grumman Corp. 10 3/8%, 1/1/99 Baa3 $ 150,000 $ 156,143 SHIP BUILDING & REPAIR - 0.1% Tennessee Gas Pipeline Co. 9 1/4%, 5/15/96 Baa2 400,000 413,036 TOTAL AEROSPACE & DEFENSE 569,179 BASIC INDUSTRIES - 0.2% PAPER & FOREST PRODUCTS - 0.2% Chesapeake Corp.: 11 3/4%, 8/1/95 Baa3 150,000 155,438 9 7/8%, 5/1/03 Baa3 680,000 729,443 Kimberly-Clark Corp. euro 9 3/4%, 6/15/95 Aa2 120,000 122,850 TOTAL BASIC INDUSTRIES 1,007,731 CONSTRUCTION & REAL ESTATE - 0.5% BUILDING MATERIALS - 0.5% Westinghouse Credit Corp.: 8.73%, 10/19/94 Ba1 300,000 300,306 8.65%, 11/15/94 Ba1 100,000 100,327 8.65%, 12/1/94 Ba1 135,000 135,517 9.13%, 7/31/95 Ba1 100,000 101,535 8.79%, 5/22/96 Ba1 400,000 407,268 8 3/4%, 6/3/96 Ba1 265,000 269,918 8 3/4%, 6/5/96 Ba1 400,000 407,424 9.44%, 6/5/96 Ba1 200,000 206,750 9.01%, 7/10/96 Ba1 150,000 153,329 8.93%, 6/22/99 Ba1 150,000 152,203 TOTAL CONSTRUCTION & REAL ESTATE 2,234,577 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) DURABLES - 0.1% AUTOS, TIRES, & ACCESSORIES - 0.1% Ford Motor Co. 4.67%, 1/1/96 A2 CAD 400,000 $ 390,400 ENERGY - 0.2% ENERGY SERVICES - 0.2% McDermott International, Inc. 10 1/4%, 6/1/95 Baa3 750,000 766,178 FINANCE - 14.2% ASSET BACKED SECURITIES - 1.1% Capital Auto Receivables Asset Trust, 5.85%, 1/15/98 Aaa 272,608 267,326 Caterpillar Financial Asset Trust 6.65%, 6/25/00 A2 622,000 614,772 Concord Leasing, Inc. 5.04%, 7/15/98 (f) - 308,015 300,684 Discover Card Master Trust, 6.9%, 2/16/00 A2 580,000 572,750 Discover Card Trust: 6 1/8%, 5/15/98 - 500,000 491,715 5 1/2%, 5/16/98 Aaa 200,000 197,686 Midlantic Grantor Trust 5.15%, 9/15/97 A1 25,375 25,209 Premier Auto Trust: 5.89%, 8/17/98 Aa1 275,144 273,268 4.95%, 2/2/99 A3 919,393 892,961 Railcar Trust, 7 3/4%, 6/1/04 Aaa 45,517 45,460 Standard Credit Card Trust: 9%, 3/10/1995 Aaa 1,000,000 1,011,250 5 7/8%,7/7/96 Aaa 100,000 99,719 United Federal Savings Bank Grantor Trust: 6.975, 7/10/00 Baa2 293,742 288,326 7.275%, 11/10/00 Baa2 285,262 281,607 5,362,733 BANKS - 9.5% Bancomer SA: euro 8%, 7/7/98 (f) Ba2 200,000 193,000 9% 6/1/00 (f) - 500,000 498,150 Bank of Boston Corp.: 9 1/2%, 8/15/97 Baa2 101,000 106,167 5.05%, 8/26/98 (g) Baa2 1,000,000 994,063 10.30%, 9/1/00 Baa2 1,288,000 1,330,182 5%, 2/28/01 (g) Baa2 2,650,000 2,590,375 6 5/8%, 12/1/05 Baa2 800,000 699,000 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) FINANCE - CONTINUED BANKS - CONTINUED Bank of New York Co., Inc. 7 7/8%, 11/15/02 A3 $ 200,000 $ 195,512 Baybanks, Inc. 0%, 9/30/97 (g) Baa2 800,000 793,040 Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 150,000 148,811 Chase Manhattan Corp. euro 5.0625%, 5/31/00 (g) Baa1 1,700,000 1,702,550 Citicorp euro: 9 1/8%, 8/15/95 A2 250,000 255,670 5 1/4%, 7/10/97 (g) A3 1,770,000 1,758,938 5.075%, 1/30/98 (g) A3 500,000 496,250 8%, 2/01/03 A3 300,000 294,117 5.10%, 10/25/05 (g) A3 2,000,000 1,927,500 Continental Bank Mortgage Corp. 9 7/8%, 6/15/96 Baa3 250,000 261,708 Continental Bank Corp.: 9 3/4%, 3/15/95 Baa3 350,000 355,205 7 7/8%, 2/1/03 Baa3 400,000 389,392 Corporacion Andina De Fomento yankee 7 1/4%, 4/30/98 (f) - 1,000,000 945,000 Czech National Bank Prague euro 7%, 4/6/96 Baa2 500,000 497,740 First Bank Systems, Inc. euro: 5 1/4%, 11/29/96 (g) A3 2,000,000 1,998,750 5 1/4%, 11/30/10 (g) A3 4,110,000 4,053,488 First Fidelity Bancorporation 9 3/4%, 5/25/95 A3 250,000 255,265 First Hawaiian Bank secured 6.930%, 12/1/03 (f) A1 1,200,000 1,081,560 First National Bank of Boston 8 3/8%, 12/15/02 Baa1 100,000 100,256 First Union Corp. 9.45%, 6/15/99 A3 150,000 157,415 First USA Bank Wilmington 5 3/4%, 1/15/99 Baa3 950,000 875,368 Fleet/Norstar Financial Group, Inc. 11 3/4%, 11/15/94 A2 167,000 168,015 Fleet Financial Group, Inc: 5 5/8%, 7/1/95 A2 50,000 49,788 7 5/8%, 12/1/99 A3 150,000 148,017 Huntington Bancshares, Inc. 7 7/8%, 11/15/02 Baa1 150,000 146,841 Integra Financial Corp. 6 1/2%, 4/15/00 Baa2 1,000,000 929,850 KeyCorp. 8.55%, 5/30/95 A2 100,000 101,497 MBNA American Bank, N.A. 7 1/4%, 9/15/02 A3 150,000 141,095 Manufacturers & Traders Trust Co. 8 1/8%, 12/1/02 Baa1 250,000 246,590 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) FINANCE - CONTINUED BANKS - CONTINUED Manufacturers Hanover Trust, NY euro 5 1/4%, 7/15/97 (g) A3 $ 1,600,000 $ 1,596,000 Marine Midland Bank: euro 0%, 9/27/96 (g) Baa1 1,800,000 1,793,250 5%, 3/29/99 (g) Baa1 900,000 893,700 0%, 12/20/00 (g) Baa1 5,100,000 5,017,125 MC-Cuernavaca Trust 9 1/4%, 7/25/01 (f) - 800,000 782,000 Mellon Financial Co.: 6 1/8%, 11/15/95 A2 25,000 24,912 6 1/2%, 12/1/97 A2 200,000 195,194 Mercantile Bancorporation, Inc. 7 5/8%, 10/15/02 Baa1 162,000 156,361 Midland American Capital Corp. gtd. 12 3/4%, 11/15/03 A1 100,000 116,250 Midland International Financial Services BV euro 0%, 3/6/99 - 1,550,000 1,522,875 Midlantic Corp. 9 1/4% 9/1/99 Baa2 783,000 811,658 NCNB Corp. 10 1/2%, 3/15/99 A3 1,000,000 1,050,040 Provident Bank 7 1/8%, 3/15/03 Baa2 500,000 462,190 Security PAC Corporation 9.87%, 3/15/96 A2 400,000 418,072 Signet Banking Corp. 5 1/4%, 5/15/97 (g) Baa1 3,900,000 3,861,000 5 1/4%, 4/15/98 (g) Baa1 700,000 692,125 Sovran Financial Corp. 9 3/4%, 6/15/99 A3 100,000 106,092 UJB Financial Corp. 8 5/8%, 12/10/02 Baa3 200,000 201,654 Wells Fargo & Co: euro 5 1/4%, 4/28/00 (g) A3 500,000 492,500 7 5/8%, 10/1/94 445,000 445,000 Zions Bancorporation 8 5/8%, 10/15/02 - 100,000 100,710 47,624,873 CREDIT & OTHER FINANCE - 1.2% American Residential Mortgage Corp. 6.09%, 12/15/98 Baa3 300,000 282,000 Associates Corp. of North America 6% 12/1/95 A1 200,000 198,948 Beneficial Corporation: 9.30%, 2/15/95 A2 140,000 141,599 9.32%, 8/4/97 A2 100,000 104,884 Chrysler Financial Corp. 6.40%, 6/17/97 Baa3 1,400,000 1,366,694 Dominion Bancshares 9 5/8%, 6/15/99 A3 175,000 185,869 First American Corp. 6 7/8%, 4/15/03 Baa2 500,000 447,140 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Fleet Mortgage Group 6 1/2%, 9/15/99 A3 $ 500,000 $ 472,910 Ford Motor Credit Corp. 6 1/2%, 1/17/95 A2 400,000 400,792 General Motors Acceptance Corp.: 5.55%, 2/16/95 Baa1 1,200,000 1,197,516 6.10%, 7/3/95 Baa1 250,000 249,560 Greyhound Financial Corp. 6.94%, 1/28/98 Baa2 500,000 488,225 Household Finance Corp.: 9 3/4%, 5/15/95 A3 500,000 510,295 7 5/8%, 12/15/96 A2 70,000 70,713 6,117,145 INSURANCE - 1.8% ITT Hartford Group, Inc. 7 1/4%, 12/1/96 A1 50,000 49,860 Metropolitan Life Insurance Co. 6.30%, 11/1/03 (f) Aa3 1,000,000 868,400 New York Life Insurance Co. 6.40%, 12/15/03 (f) Aa2 1,500,000 1,318,950 Ohio National Life Insurance Co. 8.875% 7/15/04 (f) A3 2,100,000 2,076,060 Protective Life Corp. 7.95%, 7/01/04 A3 2,000,000 1,936,600 Western National Corp. 7 1/8%, 2/15/04 Ba1 2,800,000 2,472,120 8,721,990 SAVINGS & LOANS - 0.6% Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa3 50,000 53,476 Golden West Financial Corp.: 10 1/4%, 5/15/97 A3 900,000 957,753 8 5/8%, 8/30/98 A3 25,000 25,735 Great Western Financial Corp. 6.375%, 7/1/00 Baa2 655,000 603,877 Home Savings of America 10 1/2%, 6/12/97 Baa1 645,000 676,708 Household Bank 8.45%, 12/10/02 A3 200,000 202,086 World Savings & Loan 5 1/4%, 2/15/96 A1 500,000 492,820 3,012,455 TOTAL FINANCE 70,839,196 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) HEALTH - 0.0% MEDICAL EQUIPMENT & SUPPLIES - 0.0% Cardinal Distribution Inc. 8%, 3/01/97 Baa1 $ 200,000 $ 201,842 INDUSTRIAL MACHINERY & EQUIPMENT - 0.3% ELECTRICAL EQUIPMENT - 0.3% Westinghouse Electric Corp.: 7 3/4%, 4/15/96 Ba1 135,000 135,755 8 1/2%, 6/10/96 Ba1 450,000 456,570 9.14%, 1/15/98 Ba1 300,000 306,876 8.71%, 2/13/98 Ba1 100,000 101,027 8.96%, 6/17/98 Ba1 300,000 304,551 6 7/8%, 9/1/03 Ba1 200,000 175,642 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,480,421 MEDIA & LEISURE - 0.5% BROADCASTING - 0.4% Telecommunications, Inc.: 7.13%, 2/02/98 Baa3 500,000 488,045 6.58%, 2/15/05 Baa3 300,000 278,415 Time Warner, Inc.: 9 1/2%, 11/1/94 Baa1 350,000 350,749 6.05%, 7/1/95 (f) Baa1 1,000,000 993,810 2,111,019 LEISURE DURABLES & TOYS - 0.0% Brunswick Corp. 8 1/8%, 4/1/97 Baa1 100,000 100,264 PUBLISHING - 0.1% News America Holdings, Inc. 12%, 12/15/01 Ba1 500,000 567,240 TOTAL MEDIA & LEISURE 2,778,523 NONDURABLES - 1.0% BEVERAGES - 0.6% Fomento Economico Mexicano SA de CV euro 9 1/2%, 7/22/97 - 2,380,000 2,415,700 Grupo Embotellador de Mexico euro 10 3/4%, 11/19/97 Ba2 540,000 565,650 2,981,350 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONDURABLES - CONTINUED FOODS - 0.1% Ralcorp Holdings, Inc. 8 3/4%, 9/15/04 Ba1 $ 650,000 $ 645,125 TOBACCO - 0.3% Empresas La Moderna SA de CV: euro 10 1/4%, 11/12/97 - 500,000 512,500 10 1/4%, 11/12/97 (f) - MXN 150,000 153,750 Philip Morris Companies, Inc.: 9.40%, 10/1/95 A2 50,000 51,331 8 7/8%, 7/1/96 A2 500,000 514,815 RJR Nabisco, Inc. 9 1/4%, 5/1/95 Baa3 300,000 303,855 1,536,251 TOTAL NONDURABLES 5,162,726 RETAIL & WHOLESALE - 0.2% GENERAL MERCHANDISE STORES - 0.2% Controladora Comercial Mexicana SA de CV euro 8 3/4%, 4/21/98 - 120,000 116,700 El Puerto de Liverpool SA de CV 7 1/4%, 10/19/96 (f) - 200,000 194,500 K Mart Corp. 12 1/8%, 3/1/95 A3 100,000 102,288 Sears Roebuck & Co.: 8.55%, 8/1/96 Baa1 225,000 230,535 9%, 9/15/96 Baa1 500,000 517,040 1,161,063 GROCERY STORES - 0.0% Supervalu, Inc. 5 7/8%, 11/15/95 A3 50,000 49,708 TOTAL RETAIL & WHOLESALE 1,210,771 SERVICES - 0.1% ADVERTISING - 0.1% Valassis Inserts: 8 7/8%, 3/15/99 Baa3 200,000 203,360 9 3/8%, 3/15/99 Ba2 250,000 253,203 TOTAL SERVICES 456,563 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) TECHNOLOGY - 0.3% COMPUTERS & OFFICE EQUIPMENT - 0.1% Comdisco, Inc. 8.95%, 5/15/95 Baa2 $ 600,000 $ 608,940 ELECTRONICS - 0.2% Grupo Condumex SA de CV (f): 6 1/4%, 7/27/96 - 650,000 627,250 7 3/8%, 7/27/98 - 400,000 376,500 1,003,750 TOTAL TECHNOLOGY 1,612,690 TRANSPORTATION - 0.3% AIR TRANSPORTATION - 0.2% AMR Corp.: 7 3/4%, 12/1/97 Baa3 300,000 294,006 9 1/2%, 7/15/98 Baa3 525,000 540,167 834,173 TRUCKING & FREIGHT - 0.1% Consolidated Freightways, Inc. 9 1/8%, 8/15/99 Baa3 250,000 254,728 Federal Express Corp. 9 3/4%, 5/15/96 Baa2 200,000 208,102 462,830 TOTAL TRANSPORTATION 1,297,003 UTILITIES - 2.0% ELECTRIC UTILITY - 1.8% Castle Peak Power, Ltd. 6.87%, 8/1/3 A3 1,000,000 888,600 Commonwealth Edison Co.: 1st. mtg., 6 1/8%, 5/15/95 Baa2 630,000 627,530 5 1/2%, 7/15/95 Baa3 1,000,000 990,770 Gulf States Utilities Co. 9.72%, 7/1/98 Baa3 400,000 415,920 Long Island Lighting Co.: 11 3/4%, 11/15/94 Ba1 1,026,000 1,032,289 8 3/4%, 5/1/96 Baa3 850,000 873,596 7.30%, 7/15/99 Ba1 2,000,000 1,832,940 Public Service Co. of New Hampshire 1st mtg. 9.17%, 5/15/98 Baa3 400,000 408,512 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED U.I.L. 6.82%, 12/2/94 Baa3 $ 1,900,000 $ 1,902,470 Virginia Electric & Power Co. 1st & ref. mtg. 9 3/8%, 11/1/94 A2 140,000 140,356 9,112,983 GAS - 0.2% Panhandle Eastern Pipe Line Co. 9 7/8%, 10/15/96 Baa2 650,000 658,203 Southwest Gas Co. 9 3/4%, 6/15 /02 Ba1 300,000 316,596 974,799 TOTAL UTILITIES 10,087,782 TOTAL NONCONVERTIBLE BONDS 100,095,582 TOTAL CORPORATE BONDS (Cost $105,649,109) 102,206,058 U.S. TREASURY OBLIGATIONS - 28.3% 3 7/8%, 4/30/95 Aaa 11,700,000 11,586,627 7 3/8%, 5/15/96 Aaa 41,400,000 41,994,918 9 1/4%, 8/15/98 Aaa 620,000 663,499 6 3/8%, 8/15/02 Aaa 1,560,000 1,453,717 6 1/4%, 2/15/03 Aaa 61,815,000 56,802,422 11 7/8%, 11/15/03 Aaa 3,000,000 3,827,340 12 3/4%, 11/15/10 Aaa 8,500,000 11,590,515 8 1/8%, 8/15/19 Aaa 12,100,000 12,232,374 6 1/4%, 8/15/23 Aaa 1,500,000 1,217,340 TOTAL U.S. TREASURY OBLIGATIONS (Cost $145,367,619) 141,368,752 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 1.5% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.5% 7 1/2%, 8/15/22 - 3/15/23 Aaa $ 1,757,483 $ 1,650,928 10%, 11/15/09 - 8/15/20 Aaa 5,361,801 5,744,851 9 1/2%, 8/15/16 Aaa 4,527 4,787 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $7,720,472) 7,400,566 COLLATERALIZED MORTGAGE OBLIGATIONS - 1.0% U.S. GOVERNMENT AGENCY - 1.0% Federal Home Loan Mortgage Corp. Z Bond Series 1 Class 1-Z, 9.30%, 4/15/19 Aaa 3,834,760 3,882,695 Federal National Mortgage Association planned amortization class Series 1990 Class 77-C, 9%, 7/25/19 Aaa 1,000,000 1,026,560 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $5,197,655) 4,909,255 COMMERCIAL MORTGAGE SECURITIES - 1.8% CS First Boston Mortgage Securities Corp. commercial Series 1994 - CFB1 Class A1, 4.9875%, 1/25/28 (g) Aaa 717,893 716,098 FDIC commercial Series 1994-C1: Class II-A1, 6.30%, 9/25/25 Aaa 281,224 280,082 Class II-A2, 7.85%, 9/25/25 Aaa 1,400,000 1,382,500 Lennar Central Partners Ltd. commercial floater Series 1994-1 Class B, 5.8125%, 9/15/01 (f) 1,300,000 1,299,188 Nomura Asset Securities Corp. commercial floater Series 1994-MD-II Class A6, 5.765%, 7/04/03 - 490,000 490,459 Resolution Trust Corp.: commercial floater Series 1992-C3 Class A2, 5.225%, 8/25/23 Aa2 391,542 393,194 commercial floater Series 1993-C2 Class A2, 5.6825%, 3/25/25 - 1,392,497 1,402,071 commercial floater Series 1994-C1 Class A3, 5.6125%, 6/25/26 AAA 1,050,000 1,050,000 commercial Series 1994-C1 Class A4 7 1/4%, 6/25/26 AAA 800,000 800,750 Ryland Mortgage Securities Corp. sequential pay Series 1993-4 Class A1, 7 1/2%, 8/1/23 Aaa 113,861 113,434 SC Finance Corp. commercial floater 6.05%, 8/01/04 (f) - 600,000 597,750 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) Structured Asset Securities Corp. commercial Series Series 1993-C1 Class A1, 6.6%, 10/25/24 AA+ $ 536,970 $ 514,820 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $9,072,074) 9,040,346 FOREIGN GOVERNMENT OBLIGATIONS (I) - 8.9% Province of Chaco, Argentina 11 7/8%, 9/10/97 (e) - 300,000 303,000 Argentina Republic BOTE: 3.2375%, 9/1/97 (g) - 3,700,000 2,474,331 1.85%, 5/31/96 (g) - 8,450,000 3,299,936 2.3975%, 4/1/96 (g) - 7,610,000 3,796,378 Mexican Government Brady: 5.4375%, 12/31/19 (g) Ba3 500,000 431,875 5.8125% 12/31/19 (g) Ba3 1,700,000 1,468,375 6 1/4%, 12/31/19 Ba3 2,500,000 1,618,750 Tesabonos: 0%, 10/27/94 Baa1 24,420,000 24,292,503 0%, 11/10/94 Baa 690,000 684,728 0%, 12/15/94 Baa 2,048,000 2,016,244 6 1/4%, 12/31/19 Ba3 4,500,000 2,913,750 Government of New Zealand 8%, 4/15/04 Aaa NZD 2,500,000 1,386,244 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $44,686,114) 44,686,114 INDEXED SECURITIES - 2.6% INTEREST INDEXED - 0.5% Bankers Trust Company notes (h): 5.9737%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) 500,000 202,200 0%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) 500,000 347,500 INDEXED SECURITIES - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) INTEREST INDEXED - CONTINUED Citibank Nassau (h): 4.8150%, 12/8/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) $ 400,000 $ 161,480 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rate and principal indexed to value of 4-year Canadian securities, both multiplied by 9) 250,000 15,750 0%, 3/3/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) 1,000,000 699,800 Disney Corp. note 0%, 12/9/94 (inversely indexed to 6-month GBP swap rate, multiplied by 10) 500,000 208,450 E.I. DuPont de Nemours 0%, 3/8/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 1-year United Kingdom securities, both multiplied by 10) (h) 500,000 350,000 Emerson Electric Company 6.1150%, 10/24/94 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 10) (h) 500,000 269,450 Morgan Guaranty Trust Co. cert. of dep. 0%, 2/3/95 (coupon inversely indexed to 1-month CAD Banker's Acceptance rates and principal indexed to value of 4-year Canadian securities, both multiplied by 9) (h) 250,000 53,350 TOTAL INTEREST INDEXED 2,307,980 COMMODITY INDEXED - 1.8% Finnish Export Credit note 4.45%, 4/15/96 (indexed to spot minus 12-month oil futures prices, based on 30 bbl. per $100 par) 500,000 382,800 Goldman Sachs Group, L.P: (indexed to corn price) 4.59% - 4.74%, 12/1/94 976,000 822,802 (indexed to gold price) 5 1/2% - 5 .45%, 3/27/95 2,850,000 2,823,425 (indexed to silver price) 4.30% - 5.08%, 12/22/94 - 1/5/95 88,000 85,715 (indexed to soybean price) 4.76%,11/2/94 427,086 359,564 (indexed to Goldman Sachs soybean index) 4.74%, 12/1/94 45,000 36,954 INDEXED SECURITIES - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (C) (000S) (000S) COMMODITY INDEXED - CONTINUED Goldman Sachs Group, L.P. - continued (indexed to Goldman Sachs Commodity Index) 5.03%, 3/13/95 2,690,000 2,611,318 Morgan Guaranty Trust Co. (indexed to gold price): cert. of dep. 5.40411%, 3/27/95 2,050,000 2,047,335 TOTAL COMMODITY INDEXED 9,169,913 OTHER - 0.3% Bankers Trust New York Corp. note 13.84%, 8/7/95 (inversely indexed to 1-month gold lease rate) 1,500,000 1,559,550 First Interstate Bancorp floating rate note 5.5125%, 2/26/96 (inversely indexed to JPY) 100,000 34,250 TOTAL OTHER 1,593,800 TOTAL INDEXED SECURITIES (Cost $15,721,336) 13,071,693 MUNICIPAL SECURITIES - 0.1% MOODY'S RATINGS (D) Louisiana Pub. Facs. Auth. Rev 9.95%, 6/1/96 (Cost $505,807) Baa1 465,000 485,367 CERTIFICATES OF DEPOSIT - 1.0% First USA Bank, Wilmington 4 1/4%, 1/6/95 (Cost $5,003,500) 5,000,000 4,978,500 COMMERCIAL PAPER - 2.8% Bufete Industrial SA 0%, 12/1/94 7,000,000 6,871,165 Bancomer SNC 0%, 10/06/94 MXN 3,000,000 881,093 Indonesia SBI'S 0%, 1/13/95 (c) IDR 3,000,000 1,324,463 National Financiera (SNC): 0%, 9/30/94 MXN 8,000,000 2,349,580 0%, 11/10/94 MXN 8,000,000 2,312,590 TOTAL COMMERCIAL PAPER (Cost $14,204,048) 13,738,891 REPURCHASE AGREEMENTS - 15.2% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $ 75,858,026 $ 75,827,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $506,660,833) $ 499,733,703 FORWARD FOREIGN CURRENCY CONTRACTS SETTLEMENT UNREALIZED DATE(S) VALUE GAIN/(LOSS) CONTRACTS TO BUY 463,161,200 JPY 10/28/94 $ 4,681,763 $ (18,237) (Payable amount $4,700,000) THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 0.9% CONTRACTS TO SELL 1,005,000,000 JPY 10/28/94 10,158,821 155,218 (Receivable amount $10,314,039) THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 2.0% $ 136,981 CURRENCY ABBREVIATIONS CAD - Canadian dollar IDR - Indonesian rupiah JPY - Japanese yen MXN - Mexican peso NZD - New Zealand dollar LEGEND 1. Non-income producing 2. Principal amount is stated in United States dollars unless otherwise noted. 3. Principal amount in thousands. 4. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 5. Restricted security - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on the holding is as follows: SECURITY ACQUISITION ACQUISITION DATE COST Chaco Province, Argentina 11 7/8%, 9/10/97 3/9/94 $ 308,208 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 $15,636,885 or 3.1% of net assets. 7. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 8. Coupon is inversely indexed to a floating interest rate multiplied by a specified factor. If the floating rate is high enough, the coupon rate may be zero or be a negative amount that is carried forward to reduce future interest and/or principal payments. The price may be considerably more volatile than the price of a comparable fixed rate security. The rate shown is the rate at period end. 9. Most foreign government obligations have not been individually rated by S&P or Moody's. The ratings listed are assigned to securities by FMR, the fund's investment adviser, based principally on S&P and Moody's ratings of the sovereign credit of the issuing government. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 38.7% AAA, AA, A 37.4% Baa 10.0% BBB 11.2% Ba 3.9% BB 2.7% B 0.2% B 0.1% Caa 0.1% CCC 0.1% Ca, C 0.0% CC, C 0.0% D 0.0% For some foreign government obligations, FMR has assigned the ratings of the sovereign credit of the issuing government. The percentage not rated by either S&P or Moody's amounted to 3.8%. FMR has determined that unrated debt securities that are lower quality account for 2.5% of the total value of investment in securities. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 81.8% Mexico 10.5 Argentina 2.0 Canada 1.1 Japan 1.1 Others (individually less than 1%) 3.5 TOTAL 100.0% INCOME TAX INFORMATION At September 30, 1994, the aggregate cost of investment securities for income tax purposes was $506,741,440. Net unrealized depreciation aggregated $7,007,737, of which $7,967,731 related to appreciated investment securities and $14,975,468 related to depreciated investment securities. The fund hereby designates $27,000 as a capital gain dividend for the purpose of the dividend paid deduction. For the year ended September 30, 1994, the net realized gain (loss) on asset-backed and mortgage-backed security paydowns, foreign currency transactions and market discount treated as ordinary income for income tax purposes was $(3,099,700). FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 499,733,703 agreements of $75,827,000) (cost $506,660,833) - See accompanying schedule Receivable for investments sold 1,659,342 Unrealized appreciation on foreign currency contracts 155,218 Receivable for fund shares sold 1,585,187 Dividends receivable 232,437 Interest receivable 4,345,332 Other receivables 2,576 TOTAL ASSETS 507,713,795 LIABILITIES Payable to custodian bank $ 738,468 Payable for investments purchased 2,352,754 Unrealized depreciation on foreign currency contracts 18,237 Payable for fund shares redeemed 2,682,028 Accrued management fee 213,369 Other payables and accrued expenses 359,855 TOTAL LIABILITIES 6,364,711 NET ASSETS $ 501,349,084 Net Assets consist of: Paid in capital $ 510,449,823 Undistributed net investment income 1,161,267 Accumulated undistributed net realized gain (loss) on (3,457,632) investments and foreign currency transactions Net unrealized appreciation (depreciation) on (6,804,374) investments and assets and liabilities in foreign currencies NET ASSETS, for 46,911,769 shares outstanding $ 501,349,084 NET ASSET VALUE, offering price and redemption price per $10.69 share ($501,349,084 (divided by) shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 1,825,263 Dividends Interest 20,643,966 TOTAL INCOME 22,469,229 EXPENSES Management fee $ 2,035,344 Transfer agent fees 1,216,648 Accounting fees and expenses 160,419 Non-interested trustees' compensation 2,191 Custodian fees and expenses 201,243 Registration fees 188,748 Audit 129,972 Legal 1,785 Reports to shareholders 52,043 Miscellaneous 1,765 Total expenses before reductions 3,990,158 Expense reductions (1,169,366) 2,820,792 NET INVESTMENT INCOME 19,648,437 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (3,859,557) Foreign currency transactions (1,488,930) Futures contracts (574,892) (5,923,379) Change in net unrealized appreciation (depreciation) on: Investment securities (12,715,269) Assets and liabilities in foreign currencies 310,028 (12,405,241) NET GAIN (LOSS) (18,328,620) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 1,319,817 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMENT 1994 OF OPERATIONS) TO SEPTEMBER 30, 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 19,648,437 $ 4,102,816 Net investment income Net realized gain (loss) (5,923,379) 1,190,000 Change in net unrealized appreciation (depreciation) (12,405,241) 5,600,867 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,319,817 10,893,683 FROM OPERATIONS Distributions to shareholders (16,160,243) (3,236,595) From net investment income From net realized gain (979,342) - In excess of net realized gain (599,324) - TOTAL DISTRIBUTIONS (17,738,909) (3,236,595) Share transactions 592,325,759 239,988,032 Net proceeds from sales of shares Reinvestment of distributions 15,427,608 2,675,783 Cost of shares redeemed (289,222,137) (51,083,957) Net increase (decrease) in net assets resulting 318,531,230 191,579,858 from share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS 302,112,138 199,236,946 NET ASSETS Beginning of period 199,236,946 - End of period (including undistributed net investment $ 501,349,084 $ 199,236,946 income of $1,161,267 and $752,900, respectively) OTHER INFORMATION Shares Sold 54,138,502 22,516,161 Issued in reinvestment of distributions 1,423,182 249,046 Redeemed (26,651,808) (4,763,314) Net increase (decrease) 28,909,876 18,001,893
FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1994 1993 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 11.07 $ 10.00 Income from Investment Operations Net investment income .45 .46 Net realized and unrealized gain (loss) (.29) 1.04 Total from investment operations .16 1.50 Less Distributions From net investment income (.47) (.43) From net realized gain (.04) - In excess of net realized gain (.03) - Total distributions (.54) (.43) Net asset value, end of period $ 10.69 $ 11.07 TOTAL RETURNA 1.46% 15.32% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 501,349 $ 199,237 Ratio of expenses to average net assets .71% .65% Ratio of expenses to average net assets before 1.00% 1.12% expense reductions Ratio of net investment income to average net assets 4.92% 5.19% Portfolio turnover rate 83% 47%
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Asset Manager: Income (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days of their purchase date are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Effective October 1, 1993, the fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts , disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in 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 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 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENT INCOME - CONTINUED date. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for futures and options transactions, foreign currency transactions, market discount and losses deferred due to wash sales. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect net investment income per share. Undistributed net investment income 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. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars, as reflected in the schedule of investments under the caption "Forward Foreign Currency Contracts," reflects the total exposure the fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and 2. OPERATING POLICIES - CONTINUED FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED any realized gain (loss) is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other registered investment companies having management contracts with FMR, may participate in an interfund lending program. This program provides an alternative credit facility allowing the fund to borrow from, or lend money to, other participating funds. FUTURES CONTRACTS AND OPTIONS. The fund may invest in futures and options contracts, and may also write options. These investments involve, to varying degrees, elements of market risk and risks in excess of the amount recognized in the Statement of Assets and Liabilities. Risks may be caused by an imperfect correlation between movements in the price of the instruments and the price of the underlying securities and interest rates. Risks also may arise if there is an illiquid secondary market for the instruments, or due to the inability of counterparties to perform. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options traded on an exchange are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. INDEXED SECURITIES. The fund may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. RESTRICTED SECURITIES. The fund is permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt 2. OPERATING POLICIES - CONTINUED RESTRICTED SECURITIES - CONTINUED 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 $303,000 or 0.1% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $426,651,496 and $228,468,913, respectively, of which U.S. government and government agency obligations aggregated $185,278,668 and $41,450,720, respectively. The market value of futures contracts opened and closed during the period amounted to $45,567,084 and $44,992,192, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .1400% to .3700% for the period October 1, 1993 to October 31, 1993; .1325% to .3700% for the period November 1, 1993 to July 31, 1994; and .1200% to .3700% for the period August 1, 1994 to September 30, 1994. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .35%. For the period, the management fee was equivalent to an annual rate of .51% of average net assets. TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is based on the level of average net assets for the month plus out-of-pocket expenses. BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $48,385 for the period. 5. INTERFUND LENDING PROGRAM. The fund participated in the interfund lending program as a lender. The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to 5. INTERFUND LENDING PROGRAM - CONTINUED $24,187,000 and $20,297,426, respectively. The weighted average interest rate was 3.97%. Interest earned from the interfund lending program amounted to $15,681 and is included in interest income on the Statement of Operations. 6. EXPENSE REDUCTIONS. FMR voluntarily agreed to reimburse the fund's operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses). For the period, the reimbursement reduced the expenses by $1,169,366. 7. CREDIT RISK The fund's relatively large investment in countries with limited or developing capital markets may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The yields of emerging market debt obligations reflect, among other things, perceived credit risk. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the fund's investments and the income they generate, as well as the fund's ability to repatriate such amounts. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Fidelity Asset Manager: Income In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Asset Manager: Income, (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity Asset Manager: Income's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 7, 1994 DISTRIBUTIONS 1.2% of the dividends during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. 8.0% of the dividends distributed during the fiscal year qualifies for the dividends-received deductions for corporate shareholders. The fund will notify shareholders in January 1995 of these percentages for use in preparing 1994 income tax returns. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc. (FMR U.K.) Fidelity Management & Research (Far East) Inc. (FMR Far East) FMR Texas Inc. (FMR Texas) OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Robert Beckwitt, Vice President Thomas J. Steffanci, Vice President Gary L. French, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary Robert H. Morrison, Manager, Security Transactions BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN Chase Manhattan Bank, N.A. New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager Asset Manager: Growth Asset Manager: Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) * INDEPENDENT TRUSTEES AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)SPARTAN(registered trademark) INVESTMENT GRADE BOND FUND ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 20 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 24 Notes to the financial statements. REPORT OF INDEPENDENT 27 The auditor's opinion. ACCOUNTANTS THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for bond investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to negative returns for many bond investments and below-average returns for many stocks. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. Keeping in mind that the negative effects of rising rates on your bond investments will only be "paper" losses unless you sell your shares, staying in your bond fund may be appropriate. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and money market funds are not insured by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each figure includes changes in a fund's share price, reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value), and the effect of the $5 account closeout fee. You can also look at the fund's income to measure performance. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST 1 LIFE OF YEAR FUND Spartan Investment Grade Bond -6.77% 10.17% Lehman Brothers Corporate Bond Index -4.49% 7.51% Average Corporate BBB-Rated Bond -4.31% n/a Fund Consumer Price Index 2.96% 5.73% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year or since the fund began on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return you would end up with $1,050. You can compare the fund's returns to those of the Lehman Brothers Corporate Bond Index - a broad measure of corporate bond performance. You can also compare these figures to the average corporate BBB-rated bond fund, which reflects the performance of over 63 funds tracked by Lipper Analytical Services. These benchmarks include reinvested dividends and capital gains, if any. Comparing the fund's performance to the consumer price index helps show how your fund did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST 1 LIFE OF YEAR FUND Spartan Investment Grade Bond -6.77% 4.96% Lehman Brothers Corporate Bond Index -4.49% 3.68% Average Corporate BBB-Rated Bond Fund -4.31% n/a Consumer Price Index 2.96% 2.82% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Spart.Invest.-Grade Bond (448)Corporate Bond Ind 10/01/92 10000.00 10000.00 10/31/92 9812.22 9822.00 11/30/92 9910.57 9837.72 12/31/92 10141.51 10019.71 01/31/93 10397.72 10253.17 02/28/93 10729.65 10489.00 03/31/93 10789.99 10525.71 04/30/93 10830.04 10606.75 05/31/93 10871.84 10619.48 06/30/93 11226.71 10877.54 07/31/93 11392.80 10955.85 08/31/93 11782.45 11228.66 09/30/93 11816.74 11255.60 10/31/93 11913.99 11311.88 11/30/93 11705.43 11172.75 12/31/93 11740.03 11238.67 01/31/94 11984.81 11456.70 02/28/94 11571.42 11186.32 03/31/94 11183.64 10842.90 04/30/94 11070.37 10738.81 05/31/94 11000.04 10699.07 06/30/94 10994.07 10672.32 07/31/94 11184.71 10942.33 08/31/94 11183.63 10954.37 09/30/94 11019.15 10750.62 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Investment Grade Bond Fund on October 1, 1992, when the fund started. As the chart shows, by September 30, 1994, the value of your investment would have grown to $11,019 - a 10.19% increase on your initial investment. This assumes you still owned the fund on September 30, 1994 and therefore does not include the effect of the $5 account closeout fee. For comparison, look at how the Lehman Brothers Corporate Bond Index did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $10,751 - a 7.51% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS OCTOBER 1, 1992 (COMMENCEMENT OF YEAR ENDED OPERATIONS) TO SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 Dividend return 6.24% 8.77% Capital appreciation return -13.01% 9.37% Total return -6.77% 18.14% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee. DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 5.72(cents) 34.47(cents) 70.43(cents) Annualized dividend rate 7.26% 7.07% 6.90% 30-day annualized yield 7.62% - -
DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on an average share price of $9.58 over the past month, $9.72 over the past six months and $10.20 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP After more than a decade of generally favorable conditions for bond investing, U.S. bond markets took a downward turn during the first nine months of 1994. Rising interest rates and inflation concerns caused yields to rise, and prices to fall, on virtually all types of fixed-income investments. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate income payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - - a measure of bond market performance in developed nations that includes U.S. issues - - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. An interview with Michael Gray, Portfolio Manager of Spartan Investment Grade Bond Fund Q. HOW DID THE FUND PERFORM, MICHAEL? A. The fund had a total return of -6.77% for the year ended September 30, 1994. According to Lipper Analytical Services, the average BBB-rated corporate bond fund returned -4.31% for the same period. Q. WHY DID THE FUND UNDERPERFORM ITS PEERS? A. Even though I've taken steps to make the fund more defensive in the current bear market, the fund had a longer duration than its competitors during much of the period, which hurt. Duration measures the fund's sensitivity to changes in interest rates. For example, the duration was 5.5 years at the end of the period. That meant if interest rates would have risen 1%, the fund's share price would have fallen about 5.5%, and if rates had fallen 1% the share price would have risen by about 5.5%. Interest rates have risen steadily over the past year, causing yields to rise and bond prices to fall. Unlike the group of funds with which it is compared, this fund's investment objective is to focus on longer maturity bonds, usually 20- or 30-year issues. Longer bonds have longer durations, so when interest rates rose, the fund's performance trailed many of its peers. Q. YOU MENTIONED YOU'VE MADE THE FUND MORE DEFENSIVE. WHAT DOES THAT MEAN? A. In a rising interest rate environment, it's hard to generate a positive return. Nevertheless, I've tried to mitigate losses by reducing the duration dramatically, from 8.1 years on September 30, 1993, to 5.5 years at the end of the period. I've achieved this by investing in a combination of cash instruments and corporate and government bonds. Any cash that has come into the fund has stayed in short-term instruments, and I've made some sales to raise cash. In addition, yield spreads -the differences in yields of bonds with the same maturities but different credit qualities - between corporate and Treasury bonds have narrowed, making the corporate issues attractive sell candidates. I've also increased the government positions because they are easy to trade, and especially easy to sell if new opportunities arise. Q. WHERE DO YOU THINK YOU'LL FIND SUCH OPPORTUNITIES? A. To be honest, with interest rates still on the rise, not many areas are attractive domestically or abroad right now, and that's why I've become defensive. However, interest rates will not rise forever, and if they fall, then there will be some opportunities. I've been building cash to take advantage of those opportunities when the time is right. I'll have money to buy new securities that will be relatively cheap. At the moment, though, there's no area that's particularly compelling to me for fixed-income investments. Q. THERE HAS BEEN A LOT OF TALK IN THE NEWS ABOUT DERIVATIVES LATELY. DOES THE FUND USE THESE INVESTMENTS? A. Yes, the fund invests in Treasury bond futures contracts and options on these futures. I have used them mainly to shorten the duration of the fund; they act as a balance against the fund's long-term corporate bond holdings. These derivatives actually help reduce the volatility of the fund, and I am using them as part of a defensive strategy, not a speculative one. And while they track the performance of actual bonds because they are tied to the movement of Treasuries, they are easier and often cheaper to buy and sell. Q. LOOKING BACK, WHAT ARE YOUR REGRETS? A. On a relative basis, I think I did a good job managing the fund over the past six months. The fund was longer in duration than it should have been when the surprise interest rate increases occurred in February and March. Since then, my defensive strategy has fared relatively well in a tough environment of continuing increases in interest rates. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I'm still bearish on the market. Although I believe the bulk of interest rate increases is behind us, it looks as if the Federal Reserve Board could continue to raise interest rates because it is concerned that inflation could increase as a result of sustained, strong economic growth. I'm going to remain defensive until I see signs that the economy is slowing, that inflation is going to remain under control and that the Fed is done raising interest rates. FUND FACTS GOAL: high current income with preservation of capital START DATE: September 13, 1991 SIZE: as of September 30, 1994, more than $132 million MANAGER: Curt Hollingsworth, since September 1991; also manages Fidelity Advisor Government Investment, Fidelity Government Securities, Spartan Limited Maturity Government, Spartan Long-Term Government Bond, and Spartan Short-Intermediate Government Funds; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON INVESTMENT STRATEGY: "It's extremely important for individual investors to try to come to an understanding about what their investment horizon is. If their investment horizon is only six months to one year, even being in a short-term fund could be risky. But if the investment horizon is as long as the fund's average duration - its sensitivity to interest rates - short-term fluctuations of interest rates aren't as onerous. The ideal strategy is to match the length of the investment horizon to the average duration of a fund. With a longer horizon, you'd choose a longer-term fund, because you would earn higher yields and would not be as concerned about short-term price fluctuations." (solid bullet) The fund's cash/short-term investments position reached 30.2% on May 31, 1994. As of September 30, 1994, it was down to 2.3% of the fund. (solid bullet) At the end of the period, the fund's duration was 2.7 years. That means if interest rates fell 1 percentage point, the fund's share price would rise roughly 2.7%. If rates rose 1 percentage point, however, the fund's share price would fall about 2.7%. (solid bullet) At the end of the period, the fund had no derivative investments. INVESTMENT CHANGES QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1994 (MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6 MONTHS AGO Aaa 13.1 9.8 Aa 5.3 5.8 A 29.7 32.1 Baa 34.1 34.8 Ba 5.4 5.2 Non-rated - - AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 17.9 19.9 AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 5.5 6.3 DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL LOSE ABOUT 5% OF ITS VALUE. ASSET ALLOCATION AS OF SEPTEMBER 30, 1994* AS OF MARCH 31, 1994** Row: 1, Col: 1, Value: 12.4 Row: 1, Col: 2, Value: 1.0 Row: 1, Col: 3, Value: 13.1 Row: 1, Col: 4, Value: 73.5 Corporate bonds 76.9% U.S. government and agency obligations 9.8% Foreign government obligations 6.0% Short-term and other investments 7.3% Corporate bonds 73.5% U.S. government and agency obligations 13.1% Foreign government obligations 1.0% Short-term and other investments 12.4% Row: 1, Col: 1, Value: 7.3 Row: 1, Col: 2, Value: 6.0 Row: 1, Col: 3, Value: 9.800000000000001 Row: 1, Col: 4, Value: 36.9 Row: 1, Col: 5, Value: 40.0 * TOTAL FOREIGN INVESTMENTS - 4.1% ** TOTAL FOREIGN INVESTMENTS - 9.4% INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities NONCONVERTIBLE BONDS - 73.5% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) AEROSPACE & DEFENSE - 0.4% DEFENSE ELECTRONICS - 0.4% Loral Corp. 8 3/8%, 1/15/23 Baa2 $ 400,000 $ 371,372 BASIC INDUSTRIES - 8.5% CHEMICALS & PLASTICS - 1.3% du Pont (E.I.) de Nemours & Co. 7.95%, 1/15/23 Aa2 500,000 461,650 Witco Corp. 7 3/4%, 4/1/23 Aa3 1,000,000 887,200 1,348,850 PACKAGING & CONTAINERS - 0.9% Crown Cork & Seal, Inc. 8%, 4/15/23 Baa1 1,000,000 901,440 PAPER & FOREST PRODUCTS - 6.3% Georgia Pacific Corp.: 9 1/2%, 12/1/11 Baa3 1,000,000 1,054,994 9 7/8%, 11/1/21 Baa3 1,200,000 1,238,376 International Paper Co. 7 5/8%, 3/1/23 A3 1,000,000 889,560 Kimberly-Clark Corp. 7 7/8%, 2/1/23 Aa2 500,000 459,330 Mead Corp. 8 1/8%, 2/1/23 A3 500,000 461,650 Scott Paper Company 7%, 8/15/23 Baa1 1,000,000 801,640 Westvaco Corporation 7.07%, 7/1/23 A1 2,000,000 1,667,600 6,573,150 TOTAL BASIC INDUSTRIES 8,823,440 CONGLOMERATES - 0.8% BHP Finance USA Ltd. 6 3/4%, 11/1/13 A2 1,000,000 821,830 DURABLES - 0.5% AUTOS, TIRES, & ACCESSORIES - 0.5% Ford Motor Co. (Del.) 8 7/8%, 1/15/22 A2 500,000 509,465 ENERGY - 1.8% OIL & GAS - 1.8% Atlantic Richfield Co. 9%, 4/01/21 A2 1,000,000 1,021,220 Mobil Corp. 8 5/8%, 8/15/21 Aa2 250,000 253,988 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) ENERGY - CONTINUED OIL & GAS - CONTINUED Phillips Petroleum Co.: 9.18%, 9/15/21 Baa2 $ 200,000 $ 200,702 8.86%, 5/15/22 Baa2 100,000 95,908 8.49%, 1/1/23 Baa2 300,000 281,634 TOTAL ENERGY 1,853,452 FINANCE - 21.0% BANKS - 7.8% Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 1,000,000 992,070 Continental Bank N.A. 7 7/8%, 2/1/03 Baa3 500,000 486,740 First Interstate Bancorp 9 1/8%, 2/1/04 Baa1 500,000 526,250 First National Bank of Boston 8 3/8%, 12/15/02 Baa1 1,000,000 1,002,560 Fleet/Norstar Financial Group, Inc. 9%, 12/1/01 A3 250,000 259,263 Huntington Bancshares, Inc. 7 7/8%, 11/15/02 Baa1 1,000,000 978,940 MBNA American Bank, N.A. 7 1/4%, 9/15/02 A3 500,000 470,315 NCNB Corp.: 9 3/8%, 9/15/09 A3 1,000,000 1,069,040 10.20%, 7/15/15 A3 1,000,000 1,139,540 Republic New York Corp. 9.30%, 6/1/21 A1 225,000 241,133 UJB Financial Corp. 8 5/8%, 12/10/02 Baa3 1,000,000 1,008,270 8,174,121 CREDIT & OTHER FINANCE - 9.8% Associates Corp. (North America) 7 1/2%, 10/15/96 A1 3,000,000 3,025,500 Chrysler Financial Corp. 6%, 4/15/96 A3 2,000,000 1,978,360 Commercial Credit Group, Inc. 10%, 5/15/09 A1 350,000 381,234 Fleet Mortgage Group 6 1/2%, 9/15/99 A3 250,000 236,455 Ford Motor Credit Co. 8 3/8%, 1/15/23 A2 500,000 476,655 General Motors Acceptance Corporation : 8.80%, 3/20/96 Baa1 1,000,000 1,026,430 8 3/4%, 8/1/96 Baa1 1,000,000 1,026,520 4.95%, 2/3/97 Baa1 1,000,000 949,050 Grand Metropolitan Investment Corp. gtd. 9%, 8/15/11 A2 250,000 259,405 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED IBM Credit Corp. 5 1/2%, 3/29/96 A3 $ 500,000 $ 491,360 Texaco Capital, Inc. gtd. 9 3/4%, 3/15/20 A1 350,000 390,474 10,241,443 INSURANCE - 1.2% CIGNA Corp. 7.65%, 3/1/23 Baa1 1,000,000 861,250 Protective Life Corp. 7.95%, 7/1/04 A3 400,000 387,320 1,248,570 SAVINGS & LOANS - 2.2% Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa3 1,000,000 1,069,520 Household Bank FSB Newport Beach, CA: 8.45%, 12/10/02 A3 250,000 252,608 6 1/2%, 7/15/03 A3 1,000,000 885,910 World Savings & Loan Association Oakland, CA 9.90%, 7/1/00 A2 150,000 161,013 2,369,051 TOTAL FINANCE 22,033,185 INDUSTRIAL MACHINERY & EQUIPMENT - 4.3% ELECTRICAL EQUIPMENT - 1.6% Philips Electronics NV 7 1/4%, 8/15/13 Baa1 1,000,000 847,100 Westinghouse Electric Corp. 7 7/8%, 9/1/23 Ba1 1,000,000 830,310 1,677,410 INDUSTRIAL MACHINERY & EQUIPMENT - 1.9% Caterpillar, Inc.: 9 3/4%, 6/1/19 A3 500,000 530,405 8%, 2/15/23 A3 500,000 465,070 Tenneco, Inc. 9%, 11/15/12 Baa2 1,000,000 1,009,940 2,005,415 POLLUTION CONTROL - 0.8% Laidlaw, Inc. 8 1/4%, 5/15/23 Baa2 1,000,000 869,690 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 4,552,515 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) MEDIA & LEISURE - 9.0% BROADCASTING - 1.7% Telecommunications, Inc.: 7 7/8%, 8/1/13 Baa3 $ 1,000,000 $ 860,610 9 1/4%, 1/15/23 Baa3 1,000,000 941,310 1,801,920 ENTERTAINMENT - 0.8% Paramount Communications, Inc. 8 1/4%, 8/1/22 Ba3 1,000,000 842,670 LEISURE DURABLES & TOYS - 0.8% Brunswick Corp. 7 3/8%, 9/1/23 Baa1 1,000,000 835,980 LODGING & GAMING - 0.8% Circus Circus Enterprises, Inc. 7 5/8%, 7/15/13 Baa3 1,000,000 864,460 PUBLISHING - 4.9% Harcourt General, Inc. 8 7/8%, 6/1/22 Baa1 1,150,000 1,134,015 News America Holdings, Inc. 9 1/4%, 2/1/13 Ba1 1,500,000 1,465,215 Time Warner Entertainment Co.: 10.15%, 5/1/12 Ba2 250,000 258,860 8 7/8%, 10/1/12 Ba2 750,000 707,873 8 3/8%, 3/15/23 Baa3 1,750,000 1,519,963 5,085,926 TOTAL MEDIA & LEISURE 9,430,956 NONDURABLES - 6.3% BEVERAGES - 1.8% Anheuser Busch Companies, Inc. 7 3/8%, 7/1/23 A1 1,000,000 867,520 Seagram Joseph E. & Sons, Inc. gtd. 9%, 8/15/21 A2 500,000 504,885 Seagram Ltd. 8.35%, 1/15/22 A2 500,000 473,305 1,845,710 FOODS - 2.4% Archer Daniels Midland Co. 7 1/8%, 5/1/21 Aa2 1,000,000 888,000 Campbell Soup Co. 8 7/8%, 5/1/21 Aa2 500,000 521,660 Conagra, Inc. 9 3/4%, 3/1/21 Baa2 1,000,000 1,075,880 2,485,540 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONDURABLES - CONTINUED HOUSEHOLD PRODUCTS - 0.8% Proctor & Gamble Co. 7 3/8%, 3/1/23 Aa2 $ 1,000,000 $ 874,220 TOBACCO - 1.3% American Brands, Inc. 7 7/8%, 1/15/23 A3 500,000 450,045 RJR Nabisco, Inc. gtd. 8 3/4%, 4/15/04 Baa3 1,000,000 898,740 1,348,785 TOTAL NONDURABLES 6,554,255 RETAIL & WHOLESALE - 5.5% APPAREL STORES - 0.8% The Limited, Inc. 7 1/2%, 3/15/23 A1 1,000,000 856,700 GENERAL MERCHANDISE STORES - 3.0% Dayton Hudson Corp. 8 1/2%, 12/1/22 A3 1,000,000 951,180 Dillard Department Stores, Inc. 7.85%, 10/1/12 A2 100,000 92,731 K Mart Corp. 7.95%, 2/1/23 A3 1,000,000 888,160 Penney (J.C.), Inc. 9 3/4%, 6/15/21 A2 100,000 106,660 Wal-Mart Stores, Inc.: 7 1/4%, 6/1/13 Aa1 1,000,000 891,590 pass thru trust 8.07%, 12/21/12 Aa1 250,000 235,503 3,165,824 GROCERY STORES - 0.9% Supervalu, Inc. 8 7/8%, 11/15/22 A3 1,000,000 978,610 RETAIL & WHOLESALE, MISCELLANEOUS - 0.8% Toys "R" Us, Inc. 8 3/4%, 9/1/21 Aa3 770,000 788,318 TOTAL RETAIL & WHOLESALE 5,789,452 TECHNOLOGY - 1.0% PHOTOGRAPHIC EQUIPMENT - 1.0% Eastman Kodak Co. 9.20%, 6/1/21 A3 1,000,000 1,049,860 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) TRANSPORTATION - 4.7% AIR TRANSPORTATION - 1.8% Federal Express Corp. 1993 pass thru ctfs. 8.76%, 5/22/15 Baa1 $ 1,000,000 $ 943,960 United Air Lines, Inc. 10 1/4%, 7/15/21 Baa3 1,000,000 951,250 1,895,210 RAILROADS - 0.9% Consolidated Rail Corp. 9 3/4% , 3/1/21 A2 750,000 835,740 Norfolk Southern Corp. 9%, 3/1/21 Aa3 150,000 157,955 993,695 TRUCKING & FREIGHT - 2.0% Airborne Freight Corp. 8 7/8%, 12/15/02 Baa3 1,000,000 1,015,220 Federal Express Corp. 9.65%, 6/15/12 Baa2 1,000,000 1,059,500 2,074,720 TOTAL TRANSPORTATION 4,963,625 UTILITIES - 9.7% ELECTRIC UTILITY - 6.1% Cleveland Electric Illum. Co. 1st mtg., 7 3/8%, 6/1/03 Ba2 1,000,000 817,330 Commonwealth Edison Co. 1st mtg.: 8 5/8%, 2/1/22 Baa2 1,000,000 924,950 8 3/8%, 9/15/22 Baa2 100,000 90,004 8 3/8%, 2/15/23 Baa2 250,000 224,908 Georgia Power Co. 1st mtg. 8.94%, 6/1/22 A2 100,000 97,418 Gulf States Utilities Co. 1st mtg. 8.94%, 1/1/22 Baa2 135,000 133,144 Houston Lighting & Power 1st mtg. 9.15%, 3/15/21 A2 175,000 182,158 Hydro-Quebec yankee: 8%, 2/1/13 A1 250,000 231,278 8.40%, 1/15/22 A1 300,000 282,750 Long Island Lighting Co.: 9 3/4%, 5/1/21 Baa3 400,000 368,580 8.20%, 3/15/23 Ba1 1,000,000 748,720 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) UTILITIES - CONTINUED ELECTRIC UTILITY - CONTINUED Philadelphia Electric Co. 1st & ref. mtg.: 8 5/8%, 6/1/22 Baa1 $ 300,000 $ 282,153 8 1/4%, 9/1/22 Baa1 100,000 93,028 7 3/4%, 5/1/23 Baa1 1,000,000 900,000 Texas Utilities Electric Co. 1st mtg.: 9 3/4%, 5/1/21 Baa2 100,000 103,613 collateral trust, 7 7/8%, 4/1/24 Baa2 1,000,000 885,130 6,365,164 TELEPHONE SERVICES - 3.6% GTE Corp.: 8 3/4%, 11/1/21 Baa1 200,000 198,508 7.83%, 5/1/23 Baa1 2,000,000 1,764,500 MCI Communications Corp.: 8 1/4%, 1/20/23 A2 1,500,000 1,405,290 7 3/4%, 3/15/24 A2 500,000 447,870 3,816,168 TOTAL UTILITIES 10,181,332 TOTAL NONCONVERTIBLE BONDS (Cost $85,039,498) 76,934,739 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 13.1% U.S. TREASURY OBLIGATIONS - 13.0% 12 3/4%, 11/15/10 Aaa 3,200,000 4,363,488 8 1/8%, 8/15/19 Aaa 2,000,000 2,021,880 7 1/4%, 8/15/22 (b) Aaa 2,850,000 2,629,125 7 5/8%, 11/15/22 Aaa 4,750,000 4,578,573 13,593,066 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.1% Financing Corp. principal strip 0%, 3/7/19 Aaa $ 475,000 $ 63,109 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $14,655,357) 13,656,175 FOREIGN GOVERNMENT OBLIGATIONS - 1.0% Manitoba Province yankee 8.80%, 1/15/20 A1 300,000 302,004 New Brunswick Province of Canada yankee 7 5/8%, 2/15/13 A1 500,000 451,915 Saskatchewan Province of Canada yankee 8 1/2%, 7/15/22 A3 300,000 288,390 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $1,116,570) 1,042,309 REPURCHASE AGREEMENTS - 12.4% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $ 13,048,332 13,043,000 PURCHASED OPTIONS - 0.0% EXPIRATION DATE/ UNDERLYING FACE STRIKE PRICE AMOUNT AT VALUE Put Option on U.S. Treasury Bond Futures (Cost $13,444) Oct. 94/97 $ 3,000,000 9,375 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $113,867,869) $104,685,598 FUTURES CONTRACTS EXPIRATION UNDERLYING FACE UNREALIZED DATE AMOUNT AT VALUE GAIN/(LOSS) SOLD 152 U.S. Treasury Bond Contracts Dec. 94 $ 15,038,500 $ 486,776 THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 14.4% LEGEND 8. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 9. A portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $2,629,125. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 48.1% AAA, AA, A 43.8% Baa 34.1% BBB 40.6% Ba 5.4% BB 3.2% B 0.0% B 0.0% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% The percentage not rated by either S&P or Moody's amounted to 0.0%. INCOME TAX INFORMATION At September 30, 1994, the aggregate cost of investment securities for income tax purposes was $113,949,955. Net unrealized depreciation aggregated $9,264,357, of which $14,220 related to appreciated investment securities and $9,278,577 related to depreciated investment securities. The fund hereby designates $46,000 as a capital gain dividend for the purpose of the dividend paid deduction. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 104,685,598 agreements of $13,043,000) (cost $113,867,869) - See accompanying schedule Receivable for investments sold 972,651 Interest receivable 2,131,198 TOTAL ASSETS 107,789,447 LIABILITIES Payable to custodian bank $ 6,535 Payable for investments purchased 1,074,560 Payable for fund shares redeemed 183,207 Dividends payable 221,089 Accrued management fee 58,928 Payable for daily variation on futures contracts 38,000 TOTAL LIABILITIES 1,582,319 NET ASSETS $ 106,207,128 Net Assets consist of: Paid in capital $ 115,523,611 Distributions in excess of net investment income (403,111) Accumulated undistributed net realized gain (loss) on (217,877) investments and foreign currency transactions Net unrealized appreciation (depreciation) on (8,695,495) investments NET ASSETS, for 11,169,340 shares outstanding $ 106,207,128 NET ASSET VALUE, offering price and redemption price per $9.51 share ($106,207,128 (divided by) shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 8,684,247 Interest EXPENSES Management fee $ 746,805 Non-interested trustees' compensation 705 TOTAL EXPENSES 747,510 NET INVESTMENT INCOME 7,936,737 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (1,799,343) Foreign currency transactions (104,804) Futures contracts 1,354,940 (549,207) Change in net unrealized appreciation (depreciation) on: Investment securities (15,786,710) Futures contracts 486,776 (15,299,934) NET GAIN (LOSS) (15,849,141) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (7,912,404) FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMENT 1994 OF OPERATIONS) TO SEPTEMBER 30, 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 7,936,737 $ 4,481,350 Net investment income Net realized gain (loss) (549,207) 35,145 Change in net unrealized appreciation (depreciation) (15,299,934) 6,604,439 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (7,912,404) 11,120,934 FROM OPERATIONS Distributions to shareholders (7,926,431) (4,470,567) From net investment income In excess of net investment income - (3,140) In excess of net realized gain (115,335) - TOTAL DISTRIBUTIONS (8,041,766) (4,473,707) Share transactions 118,983,535 191,964,450 Net proceeds from sales of shares Reinvestment of distributions 5,044,936 3,157,648 Cost of shares redeemed (130,726,831) (72,909,667) Net increase (decrease) in net assets resulting from (6,698,360) 122,212,431 share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS (22,652,530) 128,859,658 NET ASSETS Beginning of period 128,859,658 - End of period (including distributions in excess of net $ 106,207,128 $ 128,859,658 investment income of $403,111 and $3,140, respectively) OTHER INFORMATION Shares Sold 11,589,057 18,439,723 Issued in reinvestment of distributions 497,135 299,281 Redeemed (12,700,880) (6,954,976) Net increase (decrease) (614,688) 11,784,028
FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMENT OF 1994 OPERATIONS) TO SEPTEMBER 30, 1993 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 10.940 $ 10.000 Income from Investment Operations .668 .799 Net investment income Net realized and unrealized gain (loss) (1.384) .940 Total from investment operations (.716) 1.739 Less Distributions (.704) (.798) From net investment income In excess of net investment income - (.001) In excess of net realized gain on investments (.010) - Total distributions (.714) (.799) Net asset value, end of period $ 9.510 $ 10.940 TOTAL RETURNA (6.75)% 18.17% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 106,207 $ 128,860 Ratio of expenses to average net assets .65% .65% Ratio of net investment income to average net 6.90% 7.58% assets Portfolio turnover rate 44% 55%
TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 10. SIGNIFICANT ACCOUNTING POLICIES. Spartan Investment Grade Bond Fund (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Effective October 1, 1993, the fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in 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 all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Interest income, which includes accretion of original issue discount, is accrued as earned. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for foreign currency transactions and losses deferred due to wash sales 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 and may affect net investment income per share. Undistributed net investment income 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. 11. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign currency contracts. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. FUTURES CONTRACTS AND OPTIONS. The fund may invest in futures and options contracts, and may also write options. These investments involve, to varying degrees, elements of market risk and risks in excess of the amount recognized in the Statement of Assets and 2. OPERATING POLICIES - CONTINUED FUTURES CONTRACTS AND OPTIONS - CONTINUED Liabilities. The face or contract amounts, as reflected in the schedule of investments under the captions "Purchased Options/Futures Contracts," reflect the extent of the involvement the fund has in the particular classes of instruments. Risks may be caused by an imperfect correlation between movements in the price of the instruments and the price of the underlying securities and interest rates. Risks also may arise if there is an illiquid secondary market for the instruments, or due to the inability of counterparties to perform. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options traded on an exchange are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 12. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $47,542,195 and $42,851,961, respectively, of which U.S. government and government agency obligations aggregated $33,327,326 and $30,700,413, respectively. The market value of futures contracts opened and closed during the period amounted to $79,822,353 and $62,641,045, respectively. 13. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .65% of the fund's average net assets. FMR also bears the cost of providing shareholder services to the fund. For the period, FMR or its affiliates collected certain transaction fees from shareholders which aggregated $9,984. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Spartan Investment Grade Bond Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Spartan Investment Grade Bond Fund (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Spartan Investment Grade Bond Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 2, 1994 DISTRIBUTIONS A total of 10.5% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax. The fund will notify shareholders in January 1995 of the applicable percentage for use in preparing 1994 income tax returns. TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI 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 J. Gary Burkhead, Senior Vice President Michael Gray, Vice President Thomas J. Steffanci, Vice President Gary L. French, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA * INDEPENDENT TRUSTEES CUSTODIAN The Bank of New York New York, NY FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Global Bond Government Securities Intermediate Bond Investment Grade Bond Mortgage Securities New Markets Income Short-Intermediate Government Short-Term Bond Short-Term World Income Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Long-Term Government Bond Spartan Short-Intermediate Government Spartan Short-Term Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) AUTOMATED LINES FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)SPARTAN(registered trademark) SHORT-TERM INCOME FUND ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 7 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 10 A summary of major shifts in the fund's investments over the past six months. INVESTMENTS 11 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 27 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 31 Notes to the financial statements. REPORT OF INDEPENDENT 34 The auditor's opinion. ACCOUNTANTS THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The unsettling period that began for bond investors when the Federal Reserve Board raised short-term interest rates in February has continued through the third quarter of 1994. The Board raised the federal funds rate - - the rate banks charge each other for overnight loans - five times from February through August, taking it from 3.00% to 4.75%. The Fed rate hikes were intended to forestall inflation that could result from an improving U.S. economy, and they led to negative returns for many bond investments and below-average returns for many stocks. The volatility we have witnessed this year follows a period in which there was a nearly perfect investing environment. Although there was a late-summer rally in stocks and, to a lesser extent in bond markets, it is impossible to predict where interest rates might go or what might happen in the markets in the months ahead. That's why it probably is a good time to again review your investment portfolio and how well it matches your goals. Keeping in mind that the negative effects of rising rates on your bond investments will only be "paper" losses unless you sell your shares, staying in your bond fund may be appropriate. The longer your investing time frame, the more likely it is that you will retain your principal investment through both up and down markets. For example, a 10-year time frame, such as saving for a college education, enables you to weather these ups and downs in a long-term fund, which has higher potential returns. An intermediate-length fund could be appropriate if your investment horizon is two to four years, and a short-term bond fund could be the right choice if you need your money in one or two years. If your time horizon is less than a year, you might want to consider moving some of your bond investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. As with any mutual fund, of course, there is no assurance that a money market fund will achieve its goal, and money market funds are not insured by any agency of the U.S. government. No matter what your investment horizon or portfolio diversity, it makes good sense to follow a regular investment plan - investing a certain amount of money at the same time each month or quarter - and to review your portfolio periodically, as we have discussed here. A periodic investment plan will not, of course, assure a profit or protect against a loss. If you have any questions, please call us at 1-800-544-8888. We stand ready to provide 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. Each figure includes changes in a fund's share price, reinvestment of any dividends (or income) and capital gains (the profits the fund earns when it sells bonds that have grown in value), and the effect of the $5 account closeout fee. You can also look at the fund's income to measure performance. If Fidelity had not reimbursed certain fund expenses during the periods shown, the total returns and dividends would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Spartan Short-Term Income Fund -0.34% 7.32% Lehman Brothers 1-3 Year Government-Corporate Bond 1.22% 8.75% Index Average Short Investment Grade Bond Fund 0.29% n/a Consumer Price Index 2.96% 5.73% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year or since the fund began on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return, you would end up with $1,050. You can compare these figures to the Lehman Brothers 1-3 Year Government-Corporate Bond Index - a broad measure of the performance of the short-term bond market. To measure how the fund stacked up against its peers, you can also look at the average short investment grade bond fund, which reflects the performance of 103 funds tracked by Lipper Analytical Services. These benchmarks include reinvested dividends and capital gains, if any. Comparing the fund's performance to the Consumer Price Index (CPI) helps show how your fund did compared to inflation. (The CPI returns begin on the month end closest to the fund's start date.) AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED SEPTEMBER 30, 1994 PAST LIFE OF YEAR FUND Spartan Short-Term Income Fund -0.34% 3.60% Lehman Brothers 1-3 Year Government-Corporate Bond 1.22% 4.28% Index Average Short Investment Grade Bond Fund 0.29% n/a Consumer Price Index 2.96% 2.82%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. $10,000 OVER LIFE OF FUND Spart. S-Term Bond Fund (449)1-3 Year Governmen 10/01/92 10000.00 10000.00 10/31/92 9933.83 9940.00 11/30/92 9941.15 9926.08 12/31/92 10033.22 10019.39 01/31/93 10177.57 10126.60 02/28/93 10293.45 10209.63 03/31/93 10359.81 10242.31 04/30/93 10422.37 10306.83 05/31/93 10447.69 10283.13 06/30/93 10563.39 10361.28 07/31/93 10625.81 10385.11 08/31/93 10730.26 10472.34 09/30/93 10769.15 10505.86 10/31/93 10828.20 10530.02 11/30/93 10852.94 10533.18 12/31/93 10937.02 10576.36 01/31/94 11008.69 10644.05 02/28/94 10928.78 10579.12 03/31/94 10722.16 10524.11 04/30/94 10602.29 10484.12 05/31/94 10704.78 10603.64 06/30/94 10566.92 10631.21 07/31/94 10645.17 10727.95 08/31/94 10701.16 10764.43 09/30/94 10734.72 10875.30 $10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Short-Term Income Fund on October 1, 1992, when the fund started. As the chart shows, by September 30, 1994, the value of your investment would have grown to $10,735 - a 7.35% increase on your initial investment. This assumes you still owned the fund on September 30, 1994, and therefore does not include the effect of the $5 account closeout fee. For comparison, look at how the Lehman Brothers 1-3 Year Government- Corporate Bond Index did over the same period. With dividends reinvested, the same $10,000 investment would have grown to $10,875 - a 8.75% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS OCTOBER 1, 1992 (COMMENCEMENT OF YEAR ENDED OPERATIONS) TO SEPTEMBER 30, 1994 SEPTEMBER 30, 1993 Dividend return 1 6.19% 7.79% Capital appreciation return -6.53% -0.11% Total return -0.34% 7.68% DIVIDEND returns and capital appreciation returns are both part of a bond fund's total return. A dividend return reflects the actual dividends paid by the fund. A capital appreciation return reflects both the amount paid by the fund to shareholders as capital gain distributions and changes in the fund's share price. Both returns assume the dividends or gains are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee. DIVIDENDS AND YIELD
PERIODS ENDED SEPTEMBER 30, 1994 PAST PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 1 4.93(cents) 29.91(cents) 62.03(cents) Annualized dividend rate 6.42% 6.35% 6.42% 30-day annualized yield 7.31% - -
DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on an average share price of $9.35 over the past month, $9.40 over the past six months and $9.66 over the past year, you can compare the fund's income over these three periods. The 30-day annualized YIELD is a standard formula for all funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. 1 NON-TAXABLE DIVIDENDS: DIVIDENDS PAID ARE BASED ON THE FUND'S INTEREST INCOME AND DO NOT REFLECT CURRENCY RELATED GAINS AND LOSSES. AS A RESULT OF CURRENCY LOSSES, DIVIDENDS OF APPROXIMATELY 11(CENTS) PER SHARE PAID DURING 1994 ARE EXPECTED TO BE A NON-TAXABLE RETURN OF CAPITAL. THE EXACT NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR INCOME TAX RETURN WILL BE REPORTED TO YOU IN JANUARY 1995. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP After more than a decade of generally favorable conditions for bond investing, U.S. bond markets took a downward turn during the first nine months of 1994. Rising interest rates and inflation concerns caused yields to rise, and prices to fall, on virtually all types of fixed-income investments. For the 12 months ended September 30, 1994, the Lehman Brothers Aggregate Bond Index - a broad measure of taxable bonds in the U.S. market - had a total return of -3.22%. From February through September 1994, the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - from 3.00% to 4.75%. The Fed was hoping to head off future inflation that might be triggered by an improving U.S. economy. However, investors heavily sold bonds at the very threat of inflation because inflation deteriorates the value of their fixed-rate income payments. Higher interest rates in many foreign bond markets followed the rate hikes in the United States. The Salomon Brothers World Government Bond Index - - a measure of bond market performance in developed nations that includes U.S. issues - - rose 1.81% for the 12 months. Although they were especially hard hit during the first half of 1994, emerging market bonds rebounded somewhat in August. The J.P. Morgan Emerging Markets Bond Index returned 1.09% during the 12 months ended September 30. An interview with Donald Taylor, Portfolio Manager of Spartan Short-Term Income Q. HOW HAS THE FUND PERFORMED, DON? A. The fund had a total return of -0.34% for the year ended September 30, 1994. That trailed the total return of 0.29% for the average short-term investment grade bond fund tracked by Lipper Analytical Services. Q. WHY DID THE FUND UNDERPERFORM ITS PEERS? A. The fund was hurt mostly by its exposure to foreign markets. You could divide my foreign investments into two categories - developed markets and emerging markets. I felt developed economies, especially those in Europe, were further behind in their economic cycle than the U.S., but growth in Europe picked up more quickly than I thought, as the economic cycle converged with that of the U.S. Growth can lead to inflation, which erodes the value of fixed-income payments, hurting bond markets. As far as the emerging markets were concerned, I felt strong growth in the U.S. would be beneficial to their fixed-income markets. Unfortunately, bond investors didn't give credit to changes in the economic policies of emerging market countries. Some of these emerging markets should have behaved differently because of improvements to their economic structures. But instead, when push came to shove, bond markets in countries like Argentina were penalized for past economic policies, and were hurt by the influence of the fall in the U.S. market. Q. SO WHAT HAVE YOU DONE IN RESPONSE? A. I've reduced the fund's exposure to foreign markets. In addition, I've shortened the average duration of the fund, to 1.4 years as of September 30. Duration is a way to measure how sensitive a bond is to changes in interest rates. It looks at a bond's maturity, or how much time remains until the issuer is scheduled to pay off the principal, as well as the frequency and amount of interest payments. The longer the duration of the fund, the more its share price will move up as rates fall, or down as rates rise. For example, if the fund had a duration of two years and interest rates rose 1%, its share price would fall roughly 2%. Conversely, if interest rates fell 1%, its share price would rise about 2%. By shortening the duration, I've made the fund more defensive in an uncertain environment. Q. SO WHAT CHANGES WILL INVESTORS SEE IN THE PORTFOLIO? A. I've increased the fund's weighting in Treasury bonds, for two reasons. First, yield spreads - the difference in yield between bonds with the same maturity but different credit quality - between corporate and Treasury bonds have narrowed, making the corporate issues less attractive. Second, the Treasuries are easy to sell, so when new opportunities arise, I can trade in the Treasuries and use the cash to buy new securities. I've increased the fund's investments in short-term cash instruments for the same reason. Q. DERIVATIVES HAVE BEEN IN THE NEWS A LOT LATELY. DOES THE FUND USE THEM? A. As of September 30, the fund had a small position in indexed securities, which I used to gain exposure to interest rates in foreign bond markets. These markets can be attractive, but because their currencies could fluctuate relative to the dollar, I want to be in on a hedged basis. The indexed securities didn't work out as I planned during the period, but shareholders should note that the negative performance was not a derivatives problem, but rather a foreign market problem. With the fund paring down its foreign investments, these structured notes will more than likely not be part of the fund in the near future. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I'll stay defensive until I see signs that the Federal Reserve Board has finished or is close to finishing raising interest rates. Another increase is a good possibility because the economy is still strong and the Fed wants to control inflation. When the market does turn around, I'll be able to invest in new opportunities with the cash and easy-to-sell Treasury bonds I have in the portfolio. FUND FACTS GOAL: high current income with preservation of capital START DATE: September 13, 1991 SIZE: as of September 30, 1994, more than $132 million MANAGER: Curt Hollingsworth, since September 1991; also manages Fidelity Advisor Government Investment, Fidelity Government Securities, Spartan Limited Maturity Government, Spartan Long-Term Government Bond, and Spartan Short-Intermediate Government Funds; joined Fidelity in 1983 (checkmark) CURT HOLLINGSWORTH ON INVESTMENT STRATEGY: "It's extremely important for individual investors to try to come to an understanding about what their investment horizon is. If their investment horizon is only six months to one year, even being in a short-term fund could be risky. But if the investment horizon is as long as the fund's average duration - its sensitivity to interest rates - short-term fluctuations of interest rates aren't as onerous. The ideal strategy is to match the length of the investment horizon to the average duration of a fund. With a longer horizon, you'd choose a longer-term fund, because you would earn higher yields and would not be as concerned about short-term price fluctuations." (solid bullet) The fund's cash/short-term investments position reached 30.2% on May 31, 1994. As of September 30, 1994, it was down to 2.3% of the fund. (solid bullet) At the end of the period, the fund's duration was 2.7 years. That means if interest rates fell 1 percentage point, the fund's share price would rise roughly 2.7%. If rates rose 1 percentage point, however, the fund's share price would fall about 2.7%. (solid bullet) At the end of the period, the fund had no derivative investments. INVESTMENT CHANGES QUALITY DIVERSIFICATION AS OF SEPTEMBER 30, 1994 (MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6 MONTHS AGO Aaa 17.7 6.3 Aa 1.7 5.8 A 13.6 12.4 Baa 22.4 31.8 Ba 8.6 9.0 B - - Not rated 10.0 11.9 TABLE EXCLUDES SHORT-TERM INVESTMENTS. SECURITIES RATED AS "BA" BY MOODY'S WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY. AVERAGE YEARS TO MATURITY AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 2.6 3.1 AVERAGE YEARS TO MATURITY SHOWS THE AVERAGE TIME UNTIL THE PRINCIPAL ON THE FUND'S BONDS IS EXPECTED TO BE REPAID, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF SEPTEMBER 30, 1994 6 MONTHS AGO Years 1.4 1.8 DURATION SHOWS HOW MUCH A BOND'S PRICE FLUCTUATES WITH CHANGES IN INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A BOND WITH A FIVE-YEAR DURATION WILL LOSE ABOUT 5% OF ITS VALUE. ASSET ALLOCATION AS OF SEPTEMBER 30, 1994* AS OF MARCH 31, 1994** Row: 1, Col: 1, Value: 31.2 Row: 1, Col: 2, Value: 10.5 Row: 1, Col: 3, Value: 11.2 Row: 1, Col: 4, Value: 47.1 Corporate bonds 58.3% U.S. government and agency obligations 1.2% Foreign government obligations 23.3% Short-term and other investments 17.2% Corporate bonds 47.1% U.S. government and agency obligations 11.2% Foreign government obligations 10.5% Short-term and other investments 31.2% Row: 1, Col: 1, Value: 17.2 Row: 1, Col: 2, Value: 23.3 Row: 1, Col: 3, Value: 1.8 Row: 1, Col: 4, Value: 57.7 * TOTAL FOREIGN ISSUES 19.7% ** TOTAL FOREIGN ISSUES 45.3% INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investment in Securities CORPORATE BONDS - 47.1% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) CONVERTIBLE BONDS - 0.8% ENERGY - 0.2% ENERGY SERVICES - 0.2% Halliburton Co. liquid yield option note 0%, 3/31/06 A3 $ 2,500 $ 1,250 RETAIL & WHOLESALE - 0.6% DRUG STORES - 0.6% Rite Aid Corp. liquid yield option note 0%, 7/24/06 Baa1 10,000 4,550 TOTAL CONVERTIBLE BONDS 5,800 NONCONVERTIBLE BONDS - 46.3% AEROSPACE & DEFENSE - 0.2% AEROSPACE & DEFENSE - 0.0% Grumman Corp. 10 3/8%, 1/1/99 Baa3 280 291 SHIP BUILDING & REPAIR - 0.2% Tennessee Gas Pipeline Co. 9 1/4%, 5/15/96 Baa2 1,000 1,033 TOTAL AEROSPACE & DEFENSE 1,324 BASIC INDUSTRIES - 0.9% CHEMICALS & PLASTICS - 0.3% Desc (Soc De Fomento Indust) euro 11%, 12/15/97 -- 2,270 2,331 IRON & STEEL - 0.4% Grupo Simec 8 7/8%, 12/15/98 (c) -- 2,950 2,714 PAPER & FOREST PRODUCTS - 0.2% Chesapeake Corp. 11 3/4%, 8/1/95 Baa3 1,150 1,191 Kimberly-Clark Corp. euro 9 3/4%, 6/15/95 Aa2 700 717 1,908 TOTAL BASIC INDUSTRIES 6,953 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED CONSTRUCTION & REAL ESTATE - 0.8% BUILDING MATERIALS - 0.8% Cemex SA and Tolmex SA de CV: euro 8 7/8%, 6/10/98 Ba2 $ 1,219 $ 1,204 8 7/8%, 6/10/98 (c) Ba2 3,120 3,081 10%, 11/5/99 Ba2 1,500 1,520 TOTAL CONSTRUCTION & REAL ESTATE 5,805 DURABLES - 0.6% AUTOS, TIRES, & ACCESSORIES - 0.6% Chrysler Corp. 13%, 3/1/97 A3 1,000 1,026 Grupo Dina (Consorcio) euro 10 1/2%, 11/18/97 -- 1,000 998 Grupo Imsa SA de CV euro 8 3/4%, 7/7/98 (c) -- 2,500 2,394 TOTAL DURABLES 4,418 ENERGY - 1.1% ENERGY SERVICES - 0.3% McDermott International, Inc. 10 1/4%, 6/1/95 Baa3 1,987 2,029 OIL & GAS - 0.8% BP Capital euro 0%, 6/20/95 A1 2,000 1,916 McDermott, Inc. 7.95%, 7/02/97 Baa3 4,500 4,480 6,396 TOTAL ENERGY 8,425 FINANCE - 28.8% ASSET-BACKED SECURITIES - 3.5% Caterpillar Financial Asset Trust 6.65%, 6/25/00 A2 2,220 2,194 Concord Leasing, Inc. 5.04%, 7/15/98 (c) -- 4,441 4,335 Discover Card Master Trust I 6.90%, 2/16/00 A2 1,900 1,876 Discover Card Trust, 6 1/8%, 5/15/98 A2 3,300 3,245 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED ASSET-BACKED SECURITIES - CONTINUED Ford Credit Auto Loan Master Trust 5 5/8%, 10/15/95 Aaa $ 700 $ 690 Ford Credit Grantor Trust 6 1/2%, 11/15/96 Aaa 650 651 Midlantic Grantor Trust 5.15%, 9/15/97 A1 38 38 Premier Auto Trust 4.90%, 12/15/95 Aa3 2,001 1,963 Standard Credit Card Master Trust: 5 7/8%, 7/7/96 Aaa 300 299 9%, 8/7/97 A2 5,000 5,153 4.85%, 3/7/99 A2 5,000 4,715 United Federal Savings Bank Grantor Trust: 6.975, 7/10/00 Baa2 1,022 1,003 7.275%, 11/10/00 Baa2 970 957 27,119 BANKS - 15.7% Bancomer SA: euro 8%, 7/7/98 -- 1,800 1,737 8%, 7/7/98 (c) Ba2 500 482 9%, 6/1/00 (c) -- 2,500 2,490 Bank of Boston Corp.: 9 1/2%, 8/15/97 Baa2 825 867 5.05%, 8/26/98 (e) Baa2 8,900 8,847 10.30%, 9/1/00 Baa2 1,040 1,074 Baybanks, Inc. 5 1/4%, 9/30/97 (e) Baa2 4,670 4,629 Chase Manhattan Corp. euro 5.0625%, 5/31/00 (e) Baa1 5,950 5,957 Citicorp: euro: 5 1/4%, 7/10/97 (e) A3 10,100 10,036 5.075%, 1/30/98 (e) A3 7,050 6,997 5.10%, 10/25/05 (e) A3 3,000 2,891 9 1/8%, 8/15/95 A2 1,250 1,278 5.70%, 2/12/96 A2 2,000 1,979 9.47%, 5/22/96 A2 250 260 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED BANKS - CONTINUED Citicorp Person to Person, Inc. 5 1/4%, 1/30/97(e) A3 $ 4,300 $ 4,279 Corestates Capital Corp. 6.24%, 2/13/95 A1 450 451 First Bank Systems, Inc. euro 5 1/4%, 11/29/96 (e) A3 10,350 10,346 First Fidelity Bancorporation 9 3/4%, 5/25/95 A3 300 306 First Tennessee National Corp. 7 3/8%, 12/1/97 -- 567 567 First Union Corp.: 6 3/4%, 1/15/98 A2 500 487 9.45%, 6/15/99 A3 100 105 First USA Bank (Wilmington, DE) 5 3/4%, 1/15/99 Baa3 4,000 3,686 Fleet Financial Group, Inc.: 5 5/8%, 7/1/95 A2 200 199 7 5/8%, 12/1/99 A3 1,000 987 Integra Financial Corp. 6 1/2%, 4/15/00 Baa2 3,000 2,790 KeyCorp. 8.55%, 5/30/95 A2 300 304 Manufacturers Hanover Trust, NY euro 5.8125%, 7/15/97 (e) A3 8,950 8,928 Marine Midland Banks, Inc.: euro: 5 1/4%, 9/27/96 (e) Baa1 7,720 7,691 5%, 3/29/99 (e) Baa1 1,000 993 8 5/8%, 3/1/97 Baa1 1,285 1,315 Mellon Financial Co.: 6 1/8%, 11/15/95 A2 1,000 996 6 1/2%, 12/1/97 A2 600 586 Mercantile Bancorporation, Inc. 7 5/8%, 10/15/02 Baa1 100 97 Meridian Bancorp, Inc. 5 1/4%, 12/1/96 (e) Baa1 1,575 1,578 Midland International Financial Services BV euro 5 1/2%, 3/6/99 (e) -- 4,000 3,930 Shawmut Bank of Boston, NA euro 5 3/8%, 2/24/97 (e) Baa2 5,250 5,211 Signet Banking Corp.: 5 1/4%, 5/15/97 (e) Baa1 3,870 3,831 5.8125%, 4/15/98 (e) Baa1 5,800 5,735 Society Corporation 8 7/8%, 5/15/96 A1 200 205 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED BANKS - CONTINUED Sovran Financial Corp. 9 3/4%, 6/15/99 A3 $ 200 $ 212 UJB Financial Corp. 8 5/8%, 12/10/02 Baa3 500 504 United Virginia Bankshares, Inc. 8 5/8%, 4/15/98 Baa1 362 371 Valley National Corp. 11 3/4%, 4/15/95 Aa3 220 226 Wells Fargo & Co. euro 5 1/4%, 4/28/00 (e) A3 3,500 3,448 119,888 CREDIT & OTHER FINANCE - 7.1% Associates Corp. of North America: 6%, 12/1/95 A1 1,000 995 6 7/8%, 1/15/97 A1 380 377 Beneficial Corp. 9.40%, 2/7/96 A2 200 207 Caterpillar Financial Services Corp. 7.14%, 4/10/95 A3 500 503 Chrysler Financial Corp.: euro 9 1/2%, 4/12/96 -- 520 534 9%, 10/15/94 A3 2,000 2,002 6.40%, 6/17/97 Baa3 3,000 2,929 10.34%, 5/15/08 A3 6,550 6,880 Fleet Mortgage Group 6 1/2%, 9/15/99 A3 3,000 2,837 Ford Motor Credit Corp. 9.30%, 3/15/95 A2 900 913 Ford Motor Credit Co. Canada 10.70%, 6/28/96 Aa3 CAD 1,000 778 General Motors Acceptance Corp.: 9.15%, 12/1/94 Baa1 400 402 8.90%, 2/7/95 Baa1 250 252 9.45%, 5/15/95 Baa1 1,675 1,707 9.40%, 5/18/95 Baa1 100 102 9.45%, 5/18/95 Baa1 300 306 6.10%, 7/3/95 Baa1 3,000 2,995 7.90%, 9/15/95 Baa1 2,300 2,327 8.95%, 2/5/96 Baa1 1,200 1,233 Greyhound Financial Corp.: 5 3/4%, 7/28/95 Baa2 1,500 1,491 6.94%, 1/28/98 Baa2 2,500 2,441 Household Financial Corp. 7 5/8%, 12/15/96 A2 300 303 Tenneco Credit Corp. 9%, 7/15/95 Baa2 1,361 1,385 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Third Mexican Acceptance Corp.: coll. gtd. by NAFIN 7.37%, 3/15/98 (c) -- $ 1,000 $ 933 coll. gtd. by Grupo Sidek SA and Grupo Situr SA 10 1/2%, 3/15/98 (c) -- 3,000 2,858 U S West Financial Services, Inc. 4.89%, 12/11/97 (e) A2 1,200 1,166 Westinghouse Credit Corp.: 8.73%, 10/19/94 Ba1 1,900 1,902 8.65%, 12/19/94 Ba1 1,000 1,002 8 3/4%, 1/25/95 Ba1 300 302 9.15%, 7/12/95 Ba1 1,135 1,152 9.15%, 7/13/95 Ba1 100 101 8 7/8%, 8/1/95 Ba1 5,400 5,480 9.13%, 8/1/95 Ba1 1,500 1,523 5.92%, 9/11/95 Ba1 250 247 8.79%, 5/22/96 Ba1 1,000 1,018 8 3/4%, 6/5/96 Ba1 600 611 8.84%, 10/21/96 Ba1 500 509 8.93%, 6/22/99 Ba1 1,265 1,284 53,987 INSURANCE - 0.7% ITT Hartford Group, Inc.: 7 1/4%, 12/1/96 A1 1,175 1,172 8 1/5%, 10/15/98 A1 755 766 Metropolitan Life Insurance Co. 6.30%, 11/1/03 (c) Aa3 4,000 3,474 5,412 SAVINGS & LOANS - 1.8% Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa3 500 535 Golden West Financial Corp.: 10 1/4%, 5/15/97 A3 100 106 8 5/8%, 8/30/98 A3 100 103 Great Western Financial Corp. 6 3/8%, 7/1/00 Baa2 2,960 2,729 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED FINANCE - CONTINUED SAVINGS & LOANS - CONTINUED Home Savings of America 10 1/2%, 6/12/97 Baa1 $ 6,870 $ 7,208 World Savings & Loan 5 1/4%, 2/15/96 A1 3,000 2,957 13,638 TOTAL FINANCE 220,044 HEALTH - 0.3% MEDICAL EQUIPMENT & SUPPLIES - 0.3% Cardinal Health, Inc. 8%, 3/1/97 Baa1 2,000 2,018 INDUSTRIAL MACHINERY & EQUIPMENT - 0.5% ELECTRICAL EQUIPMENT - 0.4% Westinghouse Electric Corp.: 7 3/4%, 4/15/96 Ba1 1,000 1,006 9.14%, 1/15/98 Ba1 700 716 6 7/8%, 9/1/03 Ba1 1,400 1,229 2,951 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% Tenneco Corp. gtd. 11%, 11/15/95 Baa2 1,000 1,043 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,994 MEDIA & LEISURE - 4.0% BROADCASTING - 3.0% Telecommunications, Inc. 7.13%, 2/2/98 Baa3 2,500 2,440 Time Warner, Inc.: 9 1/2%, 11/1/94 Ba1 3,750 3,758 6.05%, 7/1/95 (c) Ba1 17,500 17,392 23,590 LEISURE DURABLES & TOYS - 0.3% Brunswick Corp. 8 1/8%, 4/1/97 Baa1 200 200 Mattel, Inc. 6 7/8%, 8/1/97 Baa2 2,000 1,957 2,157 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED MEDIA & LEISURE - CONTINUED PUBLISHING - 0.7% News America Holdings, Inc. 12%, 12/15/01 Ba1 $ 4,430 $ 5,026 TOTAL MEDIA & LEISURE 30,773 NONDURABLES - 1.0% FOODS - 0.2% Ralcorp Holdings, Inc. 8 3/4%, 9/15/04 Ba1 1,100 1,092 TOBACCO - 0.8% RJR Nabisco, Inc.: 8 7/8%, 1/15/95 Baa3 2,000 2,010 9 1/4%, 5/1/95 Baa3 4,150 4,203 6,213 TOTAL NONDURABLES 7,305 RETAIL & WHOLESALE - 0.6% GENERAL MERCHANDISE STORES - 0.6% K mart Corp. 12 1/8%, 3/1/95 A3 250 256 Sears Canada, Inc. 11%, 5/18/99 -- CAD 1,500 1,170 Sears Roebuck & Co.: 9.41%, 4/3/96 Baa1 1,400 1,453 8.55%, 8/1/96 Baa1 1,500 1,537 4,416 GROCERY STORES - 0.0% Supervalu, Inc. 5 7/8%, 11/15/95 A3 150 149 TOTAL RETAIL & WHOLESALE 4,565 SERVICES - 0.3% ADVERTISING - 0.1% Valassis Inserts 9 3/8%, 3/15/99 Ba2 1,100 1,114 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED SERVICES - CONTINUED LEASING & RENTAL - 0.2% Hertz Corp. 8%, 4/1/95 A3 $ 200 $ 202 Ryder System, Inc. 9 3/8%, 1/15/98 A3 1,000 1,009 1,211 TOTAL SERVICES 2,325 TECHNOLOGY - 1.3% COMPUTERS & OFFICE EQUIPMENT - 1.3% Comdisco, Inc.: 8.95%, 5/15/95 Baa2 5,510 5,592 9 3/4%, 1/15/97 Baa2 2,300 2,411 7 3/4%, 1/29/97 Baa2 2,000 2,005 10,008 PHOTOGRAPHIC EQUIPMENT - 0.0% Eastman Kodak Co. 9 1/8%, 3/1/98 A3 150 152 TOTAL TECHNOLOGY 10,160 TRANSPORTATION - 1.2% AIR TRANSPORTATION - 0.8% AMR Corp.: 7 3/4%, 12/1/97 Baa3 2,000 1,960 9 1/2%, 7/15/98 Baa3 3,100 3,190 American Airlines, Inc. equipment trust certificate, 9.21% 12/15/94 Baa1 722 726 United Air Lines pass thru trust 5.33%, 1/21/95 Baa2 500 495 6,371 TRUCKING & FREIGHT - 0.4% Federal Express Corp.: 9 3/4%, 10/3/94 Baa3 475 475 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) NONCONVERTIBLE BONDS - CONTINUED TRANSPORTATION - CONTINUED TRUCKING & FREIGHT - CONTINUED Federal Express Corp.: - continued 9.20%, 11/15/94 Baa2 $ 570 $ 572 9 3/4%, 5/15/96 Baa2 1,475 1,535 2,582 TOTAL TRANSPORTATION 8,953 UTILITIES - 4.7% ELECTRIC UTILITY - 2.3% Commonwealth Edison Co. 1st. mtg., 6 1/8%, 5/15/92 Baa2 1,300 1,295 Gulf States Utilities Co. 9.72%, 7/1/98 Baa3 5,600 5,823 Long Island Lighting Co. 7.30%, 7/15/99 Ba1 2,865 2,626 Public Service Co. of New Hampshire 1st mtg., 9.17%, 5/15/98 Baa3 6,175 6,306 Systems Energy Resources, Inc. 1st mtg. 14%, 11/15/94 Baa3 1,693 1,707 Virginia Electric & Power Co. 1st & ref. mtg. 9 3/8%, 11/1/94 A2 150 150 17,907 GAS - 2.4% ARKLA, Inc.: 9.45%, 10/15/95 Ba2 7,120 7,262 9 7/8%, 4/15/97 Ba2 2,920 3,028 Houston Natural Gas Corp. 12 1/8%, 4/15/95 Baa2 1,000 1,028 Panhandle Eastern Pipe Line Co. 9 7/8%, 10/15/96 Baa2 7,000 7,088 Southwest Gas Co. 9 3/4%, 6/15/02 Ba1 200 211 18,617 TOTAL UTILITIES 36,524 TOTAL NONCONVERTIBLE BONDS 353,586 TOTAL CORPORATE BONDS (Cost $372,453) 359,386 U.S. GOVERNMENT OBLIGATIONS - 10.9% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) U.S. TREASURY OBLIGATIONS - 10.9% 3 7/8%, 4/30/95 Aaa $ 52,000 $ 51,496 9 1/4%, 8/15/98 Aaa 16,835 18,016 6 1/4%, 2/15/03 Aaa 14,950 13,738 TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $83,485) 83,250 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 0.3% GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.3% 7 1/2%, 4/15/22 to 6/15/23 Aaa 2,720 2,555 8 1/2%, 1/15/22 to 8/15/24 Aaa 50 47 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $2,885) 2,602 COMMERCIAL MORTGAGE SECURITIES - 5.6% CS First Boston Mortgage Securities Corp. commercial floater Series 1994-CFB1 Class A-1 4.987%, 1/25/28 (e) Aaa 2,558 2,552 FDIC: commercial Series 1994-C1 Class II-A1, 6.30%, 9/25/25 Aaa 1,594 1,587 commercial Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa 9,900 9,777 Lennar Central Partners LP commercial floater Series 1994-1 Class B, 5.8125%, 9/15/01 (c)(e) -- 4,400 4,397 Nomura Asset Securities Corp. commercial floater Series 1994-MD-II Class A-6, 5.765%, 7/4/03 (e) -- 1,600 1,602 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) Resolution Trust Corp: commercial floater Series 1992-C3 Class A-2, 5.225%, 8/25/23 (e) Aa2 $ 1,367 $ 1,373 commercial floater Series 1993-C2 Class A-2, 5.6825%, 3/25/25 (e) -- 9,832 9,899 commercial floater Series 1994-C1 Class A-3, 5.6125%, 6/25/26 (e) AAA 3,200 3,200 commercial Series 1994-C1 Class A-4, 7 1/4%, 6/25/26 AAA 2,600 2,602 SC Finance Corp. commercial floater 6.05%, 8/1/04 (c)(e) -- 4,300 4,284 Structured Asset Securities Corp. commercial Series 1993-C1 Class A-1, 6.60%, 10/25/24 AA+ 1,879 1,802 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $43,251) 43,075 FOREIGN GOVERNMENT OBLIGATIONS (F) - 10.5% Argentina Republic BOCON: 3.24%, 4/1/01 (e) -- ARP 16,479 9,552 3.24%, 9/1/02 (e) -- ARP 39,473 19,203 Danish Government Bullet 8%, 5/15/03 Aa1 DKK 15,485 2,389 French Government OAT 8 1/2%, 4/25/03 Aaa FRF 40,640 7,871 Italian Government 8 1/2%, 12/21/94 -- ITL 8,130,000 4,619 Mexican Government Cetes 0%, 2/29/96 Baa1 MXN 54,190 13,388 New Zealand Government 8%, 4/15/04 Aaa NZD 34,150 18,936 United Kingdom Treasury 12%, 11/20/98 Aaa GBP 2,224 3,885 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $95,001) 79,843 SUPRANATIONAL OBLIGATIONS - 0.1% African Development Bank: 9 1/2%, 12/15/95 Aa1 500 517 6 3/4%, 7/30/99 Aa1 200 192 TOTAL SUPRANATIONAL OBLIGATIONS (Cost $755) 709 MUNICIPAL SECURITIES - 1.1% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (C) (000S) (000S) Louisiana Pub. Facs. Auth. Rev 9.95%, 6/1/96 A3 $ 3,955 $ 4,128 Shreveport Louisiana Water & Sewer Rev., taxable refunding 0%, 12/1/96 Aaa 3,500 3,001 Virginia State Public School Authority, 4 1/4%, 1/1/98 Aa 1,250 1,209 TOTAL MUNICIPAL SECURITIES (Cost $8,721) 8,338 INDEXED SECURITIES - 0.6% INTEREST INDEXED - 0.6% Bankers Trust Company note 5.6832%, 2/23/95 (coupon inversely indexed to CAD Banker's Acceptance rate and principal indexed to value of 2-year United Kingdom securities, both multiplied by 4) (d) 2,450 1,831 Bayerische Landesbank cert. of dep. 6.705%, 2/16/95 (coupon inversely indexed to HELIBOR and principal indexed to value of 2-year Finnish securities, both multiplied by 3) (d) 1,000 636 Citibank Nassau 5.86%, 2/24/95 (coupon inversely indexed to GBP LIBOR and principal indexed to value of 2-year United Kingdom securities, both multiplied by 4) (d) 800 597 Citibank Nassau 1.66%, 3/3/95 (coupon inversely indexed to ITL LIBOR and principal indexed to value of 2-year Italian securities, both multiplied by 4) (d) 2,200 1,648 TOTAL INTEREST INDEXED 4,712 OTHER - 0.0% First Interstate Bancorp floating rate note 5.5125%, 2/26/96 (inversely indexed to JPY) (e) 600 206 TOTAL INDEXED SECURITIES (Cost $6,821) 4,918 OTHER SECURITIES - 2.7% PRINCIPAL VALUE (NOTE 1) AMOUNT (A) (000S) (000S) COLLATERALIZED NOTES - 2.7% Ridgefield Investments Ltd. sr. notes 0%, 2/2/95 (collateralized by Mexican govt. securities) (c) (Cost $21,975) $ 22,436 $ 20,996 CERTIFICATES OF DEPOSIT - 2.2% Bangkok Bank, Ltd. 8 1/2%, 10/3/94 THB 170,000 6,806 First USA Bank 4.30%, 2/3/95 10,000 9,942 TOTAL CERTIFICATES OF DEPOSIT (Cost $16,780) 16,748 COMMERCIAL PAPER - 2.0% Bancomer 0%, 12/28/95 MXN 19,877 4,982 Nacional Financiera SNC 0%, 7/23/96 MXN 43,952 10,357 TOTAL COMMERCIAL PAPER (Cost $17,269) 15,339 REPURCHASE AGREEMENTS - 16.9% MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 4.91% dated 9/30/94 due 10/3/94 $ 128,918 128,865 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $798,261) $ 764,069 FORWARD FOREIGN CURRENCY CONTRACTS AMOUNTS IN THOUSANDS SETTLEMENT UNREALIZED DATES VALUE GAIN/(LOSS) CONTRACTS TO BUY 84,904 FRF 10/27/94 $ 16,036 $ 271 33,096 JPY 11/1/94 335 (2) TOTAL CONTRACTS TO BUY (Payable amount $16,102) $ 16,371 269 THE VALUE OF CONTRACTS TO BUY AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 2.1% CONTRACTS TO SELL 307,923 BEF 11/25/94 $ 9,653 88 2,677 DKK 11/14/94 439 (12) 127,138 FRF 10/27/94 24,014 (602) 2,156,581 ITL 11/25/94 1,375 (8) 443,776 JPY 11/1/94 4,487 41 TOTAL CONTRACTS TO SELL (Receivable amount $39,475) $ 39,968 (493) (224) THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN SECURITIES - 5.2% CURRENCY ABBREVIATIONS ARP - Argentinean peso BEF - Belgian franc GBP - British pound CAD - Canadian dollar DKK - Danish krone FRF - French franc ITL - Italian lira JPY - Japanese yen MXN - Mexican peso NZD - New Zealand dollar THB - Thai Baht LEGEND 14. Principal amount is stated in United States dollars unless otherwise noted. 15. Standard & Poor's Corporation credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 16. 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 $69,830,000 or 8.7% of net assets. 17. Coupon is inversely indexed to a floating interest rate multiplied by a specified factor. If the floating rate is high enough, the coupon rate may be zero or be a negative amount that is carried forward to reduce future interest and/or principal payments. The price may be considerably more volatile than the price of a comparable fixed rate security. The rate shown is the rate at period end. 18. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 19. Most foreign government obligations have not been individually rated by S&P or Moody's. The ratings listed are assigned to securities by FMR, the fund's investment adviser, based principally on S&P and Moody's ratings of the sovereign credit of the issuing government. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 33.0% AAA, AA, A 28.8% Baa 22.4% BBB 27.0% Ba 8.6% BB 4.9% B 0.0% B 0.0% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% For some foreign government obligations, FMR has assigned the ratings of the sovereign credit of the issuing government. The percentage not rated by either S&P or Moody's amounted to 8.1% including long-term debt categorized as other securities. FMR has determined that unrated debt securities that are lower quality account for 1.2% of the total value of investment in securities. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 80.3% Mexico 9.5 Argentina 3.8 New Zealand 2.5 France 1.0 Others (individually less than 1%) 2.9 TOTAL 100.0% INCOME TAX INFORMATION At September 30, 1994, the aggregate cost of investment securities for income tax purposes was $798,819,000. Net unrealized (depreciation) aggregated $34,750,000 of which $618,000 related to appreciated investment securities and $35,368,000 related to depreciated investment securities. The fund has elected to defer to its fiscal year ending September 30, 1995 $32,238,000 of losses recognized during the period November 1, 1993 to September 30, 1994. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
(EXCEPT PER-SHARE AMOUNTS) SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 764,069 agreements of $128,865) (cost $798,261) - See accompanying schedule Cash 57 Receivable for investments sold 26,480 Unrealized appreciation on foreign currency contracts 400 Interest receivable 10,233 TOTAL ASSETS 801,239 LIABILITIES Unrealized depreciation on foreign currency contracts $ 624 Payable for closed foreign currency contracts 138 Payable for fund shares redeemed 953 Dividends payable 631 Accrued management fee 440 TOTAL LIABILITIES 2,786 NET ASSETS $ 798,453 Net Assets consist of: Paid in capital $ 869,308 Distributions in excess of net investment income (4,029) Accumulated undistributed net realized gain (loss) on (32,795) investments and foreign currency transactions Net unrealized appreciation (depreciation) on (34,031) investments and assets and liabilities in foreign currencies NET ASSETS, for 85,599 shares outstanding $ 798,453 NET ASSET VALUE, offering price and redemption price per $9.33 share ($798,453 (divided by) shares)
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT INCOME $ 85,530 Interest EXPENSES Management fee $ 7,978 Non-interested trustees' compensation 8 Total expenses before reductions 7,986 Expense reductions (1,366) 6,620 NET INVESTMENT INCOME 78,910 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (41,558) Foreign currency transactions (8,325) (49,883) Change in net unrealized appreciation (depreciation) on: Investment securities (39,242) Assets and liabilities in foreign currencies 726 (38,516) NET GAIN (LOSS) (88,399) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ (9,489) OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMENT 1994 OF OPERATIONS) TO SEPTEMBER 30, 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 78,910 $ 40,064 Net investment income Net realized gain (loss) (49,883) 421 Change in net unrealized appreciation (depreciation) (38,516) 4,485 NET INCREASE (DECREASE) IN NET ASSETS RESULTING (9,489) 44,970 FROM OPERATIONS Distributions to shareholders: (60,742) (39,709) From net investment income In excess of net investment income (4,289) (71) In excess of net realized gain (1,628) - Return of capital (13,958) - TOTAL DISTRIBUTIONS (80,617) (39,780) Share transactions 1,136,168 1,842,665 Net proceeds from sales of shares Reinvestment of distributions 69,186 35,496 Cost of shares redeemed (1,787,990) (412,156) Net increase (decrease) in net assets resulting from (582,636) 1,466,005 share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS (672,742) 1,471,195 NET ASSETS Beginning of period 1,471,195 - End of period (including distributions in excess of net $ 798,453 $ 1,471,195 investment income of $4,029 and $117, respectively) OTHER INFORMATION Shares Sold 115,378 185,157 Issued in reinvestment of distributions 7,117 3,560 Redeemed (184,224) (41,389) Net increase (decrease) (61,729) 147,328
FINANCIAL HIGHLIGHTS
YEAR ENDED OCTOBER 1, 1992 SEPTEMBER 30, (COMMENCEMEN T OF OPERATIONS) TO SEPTEMBER 30, 1994 1993 SELECTED PER-SHARE DATA Net asset value, beginning of period $ 9.990 $ 10.000 Income from Investment Operations .574 .747 Net investment income Net realized and unrealized gain (loss) (.604) (.009) Total from investment operations (.030) .738 Less Distributions (.477) (.747) From net investment income In excess of net investment income (.033) (.001) In excess of net realized gain on investments (.010) - Return of capital (.110) - Total distributions (.630) (.748) Net asset value, end of period $ 9.330 $ 9.990 TOTAL RETURN A, B (0.32)% 7.69% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 798 $ 1,471 Ratio of expenses to average net assets C .54% .20% Ratio of expenses to average net assets before expense .65% .65% reductions C Ratio of net investment income to average net assets 6.42% 7.32% Portfolio turnover rate 97% 112%
THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE. SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS. NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 1. SIGNIFICANT ACCOUNTING POLICIES. Spartan Short-Term Income Fund (formerly Spartan Short-Term Bond Fund)(the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. Short-term securities maturing within sixty days of their purchase date are valued either at amortized cost or original cost plus accrued interest, both of which approximate current value. Securities (including restricted securities) for which market quotations are not readily available are valued at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Effective October 1, 1993, the fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in 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 all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Interest income, which includes accretion of original issue discount, is accrued as earned. 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid monthly from net investment income. Distributions from realized gains, if any, are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for mortgage backed securities, foreign currency transactions and market discount. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect net investment income per share. Undistributed net investment income 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. For the period ended September 30, 1994, the fund's distributions exceeded the aggregate amount of taxable income and net realized gains resulting in a return of capital. This was due to certain foreign currency losses which decreased taxable income available for distribution after certain distributions had already been made. (The tax treatment of distributions for the 1994 calendar year will be reported to shareholders prior to February 1, 1995.) SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FORWARD FOREIGN CURRENCY CONTRACTS. The fund may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in the fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars, as reflected in the schedule of investments under the caption "Forward Foreign Currency Contracts," reflects the total exposure the fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and any realized gain (loss) is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. 2. OPERATING POLICIES - CONTINUED REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. INDEXED SECURITIES. The fund may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $853,047,000 and $1,212,036,000, respectively, of which U.S. government and government agency obligations aggregated $315,545,000 and $335,280,000, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, (FMR) pays all expenses except the compensation of the non-interested Trustees and certain exceptions such as interest, taxes, brokerage commissions and extraordinary expenses. FMR receives a fee that is computed daily at an annual rate of .65% of the fund's average net assets. FMR also bears the cost of providing shareholder services to the fund. For the period, FMR or its affiliates collected certain transaction fees from shareholders which aggregated $97,000. 5. EXPENSE REDUCTIONS. FMR voluntarily agreed to reimburse the fund's operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) above a specified percentage of average net assets. During the period, this expense limitation ranged from .40% to .65% of average net assets and the reimbursement reduced expenses by $1,366,000. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Charles Street Trust and the Shareholders of Spartan Short-Term Income Fund (formerly Spartan Short-Term Bond Fund): In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Spartan Short-Term Income Fund (a fund of Fidelity Charles Street Trust) at September 30, 1994, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Spartan Short-Term Income Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Boston, Massachusetts November 4, 1994 TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI TO WRITE FIDELITY 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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 Fidelity Investments P.O. Box 30281 Salt Lake City, UT 84130-0281 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions World Trade Center 164 Northern Avenue Boston, MA 02210 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 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 J. Gary Burkhead, Senior Vice President Thomas J. Steffanci, Vice President Donald Taylor, Vice President Gary L. French, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA * INDEPENDENT TRUSTEES CUSTODIAN The Bank of New York New York, NY FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Global Bond Government Securities Intermediate Bond Investment Grade Bond Mortgage Securities New Markets Income Short-Intermediate Government Short-Term Bond Short-Term World Income Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Long-Term Government Bond Spartan Short-Intermediate Government Spartan Short-Term Income THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) (registered trademark) AUTOMATED LINES FOR QUICKEST SERVICE FIDELITY (registered trademark) U.S. GOVERNMENT RESERVES ANNUAL REPORT SEPTEMBER 30, 1994 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 6 The manager's review of fund performance, strategy and outlook. INVESTMENT CHANGES 8 A summary of major shifts in the fund's investments over the past six months and one year. INVESTMENTS 9 A complete list of the fund's investments with their market values. FINANCIAL STATEMENTS 12 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 16 Notes to the financial statements. REPORT OF INDEPENDENT ACCOUNTANTS 19 The auditor's opinion. 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, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE DEAR SHAREHOLDER: The year so far has been an unsettling time for many investors. For example, after three years of a nearly perfect environment for stock market investing, stock prices generally fell from February through June, and bond prices fell, as well. Although there was a late-summer stock rally, no one can know for sure what will happen in the months ahead. We do know, however, that market ups and downs are a normal part of investing. We have historically seen corrections of 10% or more every two years. That's why I thought this might be a good time to review three basic investment principles that have proven helpful to successful investors in every market cycle. First, take a long-term approach when investing. If you can afford to leave your money invested through the inevitable ups and downs of financial markets, you will greatly reduce your vulnerability to any single decline. Over time, for example, stock prices have gone up - and have significantly outperformed other types of investments and stayed ahead of inflation. Second, you can further manage risk by diversifying your investments. A stock mutual fund is already diversified, because it invests in many different companies. You can increase your diversification by investing in a number of different stock funds, or in different investment categories, such as bonds. You should also keep money you'll need in the near future in a more stable investment. Finally, it makes good sense to follow a regular investment plan, investing a set amount of money at the same time each month or quarter. That way, you can avoid getting caught up in the excitement of a rapidly-rising market - and won't end up buying all your shares at market highs. This strategy won't assure a profit or protect you from a loss in a declining market, but it should help you lower the average cost of your purchases. For this to be effective, you must continue to buy shares in both up and down markets. If you have questions, please call us at 1-800-544-8888. We would be happy to send you a Fidelity FundMatch kit, which can help you determine the mix of investments that is right for you. You might also find it convenient to set up a regular investment plan using the Fidelity Automatic Account Builder.SM We look forward to hearing from you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE To measure a money market fund's performance, you can look at either total return or yield. Total return reflects both the change in a fund's share price over a given period, and reinvestment of its dividends (or income). Yield measures the income paid by a fund. Since a money market fund tries to maintain a $1 share price, yield is an important measure of performance. CUMULATIVE TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS Fidelity U.S. Government Reserves 3.32% 26.31% 79.25% Consumer Price Index 2.96% 19.52% 42.29% Average Government Money Market Fund 3.08% 25.73% 76.60% CUMULATIVE TOTAL RETURNS reflect actual performance over a specific period - - in this case, one year, five years, or ten years. For example, if you invested $1,000 in a fund that had a 5% return over the past year, you would end up with $1,050. Comparing the fund's performance to the consumer price index (CPI) helps show how your investment did compared to inflation. To measure how the fund stacked up against its peers, you can compare its return to the average government money market fund's total returns. This average currently reflects the performance of 211 government money market funds tracked by IBC/Donoghue. (The periods covered by the IBC/Donoghue numbers are the closest available match to those covered by the fund.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SEPTEMBER 30, 1994 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS Fidelity U.S. Government Reserves 3.32% 4.78% 6.01% Consumer Price Index 2.96% 3.63% 3.59% Average Government Money Market Fund 3.08% 4.69% 5.85% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had achieved that return by performing at a constant rate each year. YIELDS
9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 Fidelity U.S. Government 2.89% 2.95% 3.00% 3.67% 4.40% Reserves Average Government 2.54% 2.57% 2.79% 3.47% 4.03% Money Market Fund 2.38% 2.34% 2.29% 2.38% 2.42% MMDA
Row: 1, Col: 1, Value: 2.89 Row: 1, Col: 2, Value: 2.54 Row: 1, Col: 3, Value: 2.38 Row: 2, Col: 1, Value: 2.95 Row: 2, Col: 2, Value: 2.57 Row: 2, Col: 3, Value: 2.34 Row: 3, Col: 1, Value: 3.0 Row: 3, Col: 2, Value: 2.79 Row: 3, Col: 3, Value: 2.29 Row: 4, Col: 1, Value: 3.67 Row: 4, Col: 2, Value: 3.47 Row: 4, Col: 3, Value: 2.38 Row: 5, Col: 1, Value: 4.4 Row: 5, Col: 2, Value: 4.03 Row: 5, Col: 3, Value: 2.42 5% - 4% - 3% - 2% - 1% - 0% Fidelity U.S. Government Reserves Average Government Money Market Fund MMDA YIELD refers to the income paid by the fund over a given period. Yields for money market funds are usually for seven-day periods, expressed as annual percentage rates. A yield that assumes income earned is reinvested or compounded is called an effective yield. The chart above shows the fund's current seven-day yield at quarterly intervals over the past year. You can compare these yields to those of the average U.S. Government money market fund and the average bank money market deposit account (MMDA). Figures for the average U.S. Government money market are supplied by IBC/Donoghue. The MMDA average is supplied by BANK RATE MONITOR(Trademark) at month end. A MONEY MARKET FUND'S TOTAL RETURNS AND YIELDS WILL VARY, AND REFLECT PAST RESULTS RATHER THAN PREDICT FUTURE PERFORMANCE. COMPARING PERFORMANCE There are some important differences between a bank money market deposit account (MMDA) and a money market fund. First, the U.S. government neither insures nor guarantees a money market fund. In fact, there is no assurance that a money market fund will maintain a $1 share price. Second, a money market fund returns to its shareholders income earned by the fund's investments after expenses. This is in contrast to banks, which set their MMDA rates periodically based on current interest rates, competitors' rates, and internal criteria. (checkmark) FUND TALK: THE MANAGER'S OVERVIEW An interview with Leland Barron, Portfolio Manager of Fidelity U.S. Government Reserves Q. LELAND, WHAT WAS THE TREND IN INTEREST RATES OVER THE PAST YEAR? A. From October to December of 1993, interest rates were pretty flat. They started edging up in late December and early January. However, in February interest rates increased dramatically when the Federal Reserve Board raised the federal funds rate - the rate banks charge each other for overnight loans - for the first time in five years. Over the rest of the period, the Fed boosted the federal funds rate another four times. In all, the rate was increased from 3.00% at the beginning of February to 4.75% at the end of this period. I should point out that high interest rates mean high yields, which boost the performance of money market funds. Q. HOW DID YOU POSITION THE FUND TO TAKE ADVANTAGE OF RISING RATES? A. I lowered its average maturity from about 60 days in early February to around 48 days at the end of the period. That's because, in a rising rate environment, the fund wants to hold securities that have relatively short maturities. This way, it has the flexibility to reinvest fairly quickly in other securities that may offer higher interest rates. In June and July, when the Fed didn't raise rates, I invested some of the fund in securities with maturities of 180 days to take advantage of the higher yields available in the marketplace. This increased the fund's average maturity to 50 or 60 days for those few months. Q. DID YOU MAKE ANY OTHER CHANGES? A. Yes. The fund increased its holdings of simple floating rate securities, which have interest rates that are reset daily, weekly, or, in a few cases, monthly. These securities are often good investments in a rising rate environment because the rates they pay adjust with prevailing rates. At the end of the period, floating rate securities made up nearly 20% of the fund, as opposed to 10% six months ago. Q. OVER THE PAST YEAR, THE FUND'S HOLDING IN FEDERAL AGENCY ISSUES INCREASED FROM 30% TO 61%. WHY? A. At the end of 1993, the spread between Treasuries and government agency instruments was extremely narrow - meaning agency issues were yielding only a little more than Treasuries. However, since February the spread between Treasuries and agency issues has widened considerably - meaning that agency issues started yielding much more than Treasuries. At that point, I chose to sell Treasuries and invest in agencies to take advantage of their significantly higher yields. Q. HOW DID THE FUND PERFORM? A. Quite well. Its seven-day yield as of September 30, 1994, was 4.40%, compared to 2.89% at the end of September 1993, reflecting the Fed's rate hikes. Its total return for the year ended September 30, 1994, was 3.32%.During the same period, the average government money market fund had a total return of 3.08%, according to IBC/Donoghue. Q. WHERE DO YOU THINK INTEREST RATES ARE HEADED OVER THE NEXT YEAR? A. I think we'll continue to see the Fed raise rates, and that there most likely will be at least one more boost before the end of the year. In this environment, I expect to keep the fund's average maturity fairly short to allow it to respond to rate hikes - probably in the 40- to 50-day range. FUND FACTS GOAL: income and stability by investing in high quality, short-term securities START DATE: November 3, 1981 SIZE: as of September 30, 1994, more than $1.0 billion MANAGER: Leland Barron, since July 1991; manager, Spartan U.S. Government Money Market Fund, since July 1991, and Spartan U.S. Treasury Money Market Fund, since January 1991; joined Fidelity in 1981 (checkmark) MONEY MARKETS AND DERIVATIVES: The word "derivatives" covers a wide range of financial agreements, of varying degrees of complexity, that have market values based on security or market indices. All "derivative" securities in Fidelity's money market funds are designed to have the price characteristics of typical money market securities. During the recent Federal Reserve Board interest rate increases, all Fidelity money market holdings performed as designed and the funds maintained a stable share price of $1.00. The more complex of these instruments, such as floating rate notes with unusual and complex floating rate formulas, frequently have too much price volatility to be appropriate investments for money market funds. Many of them do not offer the degree of price stability Fidelity believes is required in order for its funds to maintain a stable $1.00 share price. Therefore, despite their frequent higher yields at the time they are sold, Fidelity money market funds have not purchased these volatile securities. While this may sometimes have caused Fidelity money market funds to have lower gross yields than certain other funds, Fidelity believes its investors value prudence as well as performance. INVESTMENT CHANGES MATURITY DIVERSIFICATION DAYS % OF FUND ASSETS % OF FUND ASSETS % OF FUND ASSETS 9/30/94 3/31/94 9/30/93 0 - 30 66 68 60 31 - 90 16 12 8 91 - 180 11 11 16 181 - 397 7 9 16 WEIGHTED AVERAGE MATURITY 9/30/94 3/31/94 9/30/93 Fidelity U.S. Government Reserves 48 days 47 days 64 days Average Government Money Market Fund* 41 days 45 days 59 days ASSET ALLOCATION AS OF SEPTEMBER 30, 1994 AS OF MARCH 31, 1994 Row: 1, Col: 1, Value: 62.0 Row: 1, Col: 2, Value: 4.0 Row: 1, Col: 3, Value: 34.0 Row: 1, Col: 4, Value: 2.0 Row: 1, Col: 1, Value: 40.0 Row: 1, Col: 2, Value: 7.0 Row: 1, Col: 3, Value: 53.0 Row: 1, Col: 4, Value: 0.0 Federal agency issues 61% U.S. Treasury obligations 4% Repurchase agreements 34% Other 1% Federal agency issues 40% U.S. Treasury obligations 7% Repurchase agreements 53% Other - * SOURCE: IBC/DONOGHUE'S MONEY FUND REPORT(registered trademark) INVESTMENTS SEPTEMBER 30, 1994 Showing Percentage of Total Value of Investments FEDERAL AGENCIES - 61.2% DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) FEDERAL FARM CREDIT BANK - AGENCY COUPONS - 3.5% 10/3/94 3.36% $ 13,000 $ 13,000 10/3/94 3.38 12,000 12,000 11/1/94 4.70 12,000 12,000 37,000 FEDERAL FARM CREDIT BANK - DISCOUNT NOTES - 0.6% 10/3/94 4.62 6,000 6,000 FEDERAL HOME LOAN BANK - DISCOUNT NOTES - 3.5% 10/3/94 5.33 (a) 15,000 14,977 12/8/94 4.76 (a) 13,000 12,966 2/16/95 5.11 9,000 8,828 36,771 FEDERAL HOME LOAN MORTGAGE CORP. - DISCOUNT NOTES - 1.5% 11/28/94 4.18 16,000 15,896 FEDERAL NATIONAL MORTGAGE ASSOC. - AGENCY COUPONS (A) - 9.6% 10/3/94 4.66 61,000 61,000 10/3/94 5.35 40,000 40,000 101,000 FEDERAL NATIONAL MORTGAGE ASSOC. - DISCOUNT NOTES - 35.9% 10/4/94 4.27 32,000 31,989 10/6/94 4.19 21,000 20,988 10/19/94 4.05 20,000 19,961 10/25/94 3.40 24,000 23,947 10/26/94 4.46 25,000 24,924 11/29/94 4.87 32,000 31,751 12/1/94 4.85 59,000 58,527 12/29/94 4.99 43,000 42,481 1/3/95 5.04 16,000 15,794 1/6/95 5.05 16,000 15,788 1/17/95 5.03 14,000 13,794 1/18/95 5.03 12,000 11,822 3/1/95 5.12 19,000 18,602 3/6/95 5.10 15,000 14,677 3/20/95 5.36 16,000 15,606 3/31/95 5.60 16,000 15,562 376,213 FEDERAL AGENCIES - CONTINUED DUE ANNUALIZED YIELD AT PRINCIPAL AMOUNT VALUE (NOTE 1) DATE TIME OF PURCHASE (000S) (000S) STUDENT LOAN MARKETING ASSOC. - AGENCY COUPONS (A) - 6.6% 10/4/94 5.24% $ 30,000 $ 30,000 4/17/95 5.33 15,000 15,033 6/30/95 5.48 23,600 23,600 68,633 TOTAL FEDERAL AGENCIES 641,513 U.S. TREASURY OBLIGATIONS - 4.3% U.S. TREASURY BILLS 10/20/94 3.36 15,000 14,974 8/24/95 5.47 32,000 30,491 TOTAL U.S. TREASURY OBLIGATIONS 45,465 MEDIUM-TERM NOTES (A) (B) - 1.0% EXPORT-IMPORT BANK, U.S. (AS GUARANTOR FOR K.A. LEASING, LTD.) 10/15/94 5.00 10,000 10,000 REPURCHASE AGREEMENTS - 33.5% MATURITY AMOUNT (000S) With First Boston Corporation: At 4.80%, dated 9/1/94 due 10/3/94: U.S. Government Obligations (principal amount $52,644) 0%, 4/1/34 $ 51,218 51,000 With Goldman, Sachs & Co.: At 4.875%, dated 9/23/94 due 10/7/94: U.S. Government Obligations (principal amount $49,250) 0% to 4.90%, 9/1/24 to 8/1/34 48,091 48,000 In a joint trading account (U.S. Treasury Obligations) dated 9/30/94, due 10/3/94 At 5% 262,265 252,160 TOTAL REPURCHASE AGREEMENTS 351,160 TOTAL INVESTMENTS - 100% $ 1,048,138 Total Cost for Income Tax Purposes $ 1,048,138 LEGEND (a) The coupon rate shown on floating or adjustable rate securities represents the rate at period end. The due date on these types of securities reflects the next interest rate reset date or when applicable, the final maturity date. (b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $10,000,000 or 0.9% of net assets. INCOME TAX INFORMATION At September 30, 1994 the fund had a capital loss carryforward of approximately $467,000 of which $7,000, $429,000 and $31,000 will expire on September 30, 1995,1996 and 2002, respectively. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) SEPTEMBER 30, 1994 ASSETS Investment in securities, at value (including repurchase $ 1,048,138 agreements of $351,160) - See accompanying schedule Interest receivable 12,543 TOTAL ASSETS 1,060,681 LIABILITIES Dividends payable $ 130 Accrued management fee 160 Other payables and accrued expenses 399 TOTAL LIABILITIES 689 NET ASSETS $ 1,059,992 Net Assets consist of: Paid in capital $ 1,060,399 Accumulated net realized gain (loss) on investments (407) NET ASSETS, for 1,060,399 shares outstanding $ 1,059,992 NET ASSET VALUE, offering price and redemption price per $1.00 share ($1,059,992 (divided by) shares)
STATEMENT OF OPERATIONS AMOUNTS IN THOUSANDS YEAR ENDED SEPTEMBER 30, 1994 INTEREST INCOME $ 40,731 EXPENSES Management fee $ 2,047 Transfer agent fees 2,982 Accounting fees and expenses 131 Non-interested trustees' compensation 7 Custodian fees and expenses 53 Registration fees 210 Audit 40 Reports to shareholders 59 TOTAL EXPENSES 5,529 NET INTEREST INCOME 35,202 NET REALIZED GAIN (LOSS) ON INVESTMENTS (31) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 35,171 STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEARS ENDED SEPTEMBER 30, 1994 1993 INCREASE (DECREASE) IN NET ASSETS Operations $ 35,202 $ 29,285 Net interest income Net realized gain (loss) (31) 20 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 35,171 29,305 FROM OPERATIONS Dividends to shareholders from net interest income (35,202) (29,285) Share transactions at net asset value of $1.00 per share 1,705,793 1,179,994 Proceeds from sales of shares Reinvestment of dividends from net interest income 33,487 27,738 Cost of shares redeemed (1,722,647) (1,456,797) Net increase (decrease) in net assets and shares 16,633 (249,065) resulting from share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS 16,602 (249,045) NET ASSETS Beginning of period 1,043,390 1,292,435 End of period $ 1,059,992 $ 1,043,390
FINANCIAL HIGHLIGHTS
YEARS ENDED SEPTEMBER 30, 1994 1993 1992 1991 1990 SELECTED PER-SHARE DATA Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 beginning of period Income from Investment .033 .025 .039 .061 .076 Operations Net interest income Less Distributions (.033) (.025) (.039) (.061) (.076) From net interest income Net asset value, $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 end of period TOTAL RETURN 3.32% 2.57% 3.95% 6.29% 7.86% RATIOS AND SUPPLEMENTAL DA TA Net assets, end of period $ 1,060 $ 1,043 $ 1,292 $ 1,436 $ 1,581 (in millions) Ratio of expenses to average .51% .73% .73% .72% .74% net assets Ratio of net interest income to 3.27% 2.57% 3.88% 6.13% 7.66% average net assets
NOTES TO FINANCIAL STATEMENTS For the period ended September 30, 1994 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity U.S. Government Reserves (the fund) is a fund of Fidelity Charles Street Trust (the trust) and is authorized to issue an unlimited number of shares. The trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust (see Note 5). The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. As permitted under Rule 2a-7 of the 1940 Act, and certain conditions therein, securities are valued initially at cost and thereafter assume a constant amortization to maturity of any discount or premium. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INTEREST INCOME. Interest income, which includes amortization of premium and accretion of original issue discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid monthly from net interest income. 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. REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The fund's investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of FMR, may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements that mature in 60 days or less from the date of purchase, and are collateralized by U.S. Treasury or Federal Agency obligations. 3. JOINT TRADING ACCOUNT. At the end of the period, the fund had 20% or more of its total investments in repurchase agreements through a joint trading account. These repurchase agreements were with entities whose creditworthiness has been reviewed and found satisfactory by FMR. The repurchase agreements were dated 9/30/94 and due 10/3/94. The maturity values of the joint trading account investments were $252,160,000 at 5%. The investments in repurchase agreements through the joint trading account are summarized as follows: 3. JOINT TRADING ACCOUNT - CONTINUED SUMMARY OF JOINT TRADING ACCOUNT AT 5% Number of Dealers or Banks 2 Maximum Amount With One Dealer or Bank 74% Aggregate Principal Amount of Agreements $ 1,400,000,000 Aggregate Maturity Amount of Agreements $ 1,900,000,000 Aggregate Market Value of Collateral $ 1,939,026,062 Coupon Rates of Collateral 0-11.95% Maturity Dates of Collateral 10/3/94-11/15/94 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. On September 21, 1994, shareholders approved a revision to the fund's management contract (see Note 5). The revised structure , which was voluntarily adopted by FMR on September 1, 1993, provides for a lower individual fund fee rate (from .28% to .03%) and the addition of an income fee component that depends on the fund's yield. As the fund's investment adviser, FMR receives a monthly fee that is calculated by adding the sum of a group fee rate and an individual fund fee rate to an income-based component of 6% of the fund's gross income in excess of a 5% yield, and multiplying the results by the fund's average net assets. The maximum income-based component is .24% (annualized) of average net assets. 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 .14% to .37% for the period October 1, 1993 to October 31, 1993; .1325% to .3700% for the period November 1, 1993 to July 31, 1994; and .1200% to .3700% for the period August 1, 1994 to September 30, 1994. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. For the period, the management fee was equivalent to an annual rate of .19% of average net assets. SUB-ADVISER FEE. As the fund's investment sub-adviser, FMR Texas Inc., a wholly owned subsidiary of FMR, receives a fee from FMR of 50% of the management fee payable to FMR. The fee is paid prior to any voluntary expense reimbursements which may be in effect, and after reducing the fee for any payments by FMR pursuant to the fund's Distribution and Service Plan. TRANSFER AGENT FEES. Fidelity Service Co. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is based on the level of average net assets for the month plus out-of-pocket expenses. 5. SHAREHOLDER MEETING. At a special meeting of shareholders on September 21, 1994, shareholders approved amendments to certain fundamental investment limitations of the fund. In addition, shareholders approved an Agreement and Plan of Conversion and Termination (the Plan of Conversion), providing for the conversion of the fund (the current fund) from a separate series of Fidelity Charles Street Trust, a Massachusetts business trust, to a separate series (the successor fund) of Fidelity Phillips Street Trust, a Delaware business trust, effective January 13,1995. The individual investment objective, policies and limitations of the successor fund will be identical to those of the current fund. In connection with the Plan of Conversion, a new managment contract, new sub-advisory agreement and new distribution plan identical to those currently in effect for the current fund will take effect on January 13, 1995. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of Fidelity U.S. Government Reserves: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity U.S. Government Reserves at September 30, 1994, and the results of its operations for the year then ended, the changes in its net assets for each of the two years then ended, and its financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at September 30, 1994 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE, L.L.P. Dallas, Texas October 26, 1994 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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 100 Crosby Parkway - KP2C Covington, KY 41015-4399 SELLING SHARES Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 Fidelity Investments P.O. Box 30281 Salt Lake City, UT 84130-0281 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions World Trade Center 164 Northern Avenue Boston, MA 02210 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)(LETTER_GRAPHIC)(LETTER_GRAPHIC)(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 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 TO CALL FIDELITY FOR FUND INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800- 544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1. For an individual fund quote. 2. For the ten most frequently requested Fidelity fund quotes. 3. For quotes on Fidelity Select Portfolios.(registered trademark) 4. To change your Personal Identification Number (PIN). 5. To speak with a Fidelity representative. 6. (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1. For your most recent fund activity (purchases, redemptions, and dividends). 2. To change your Personal Identification Number (PIN). 3. To speak with a Fidelity representative. 4. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 851 East Hamilton Avenue Campbell, CA 527 North Brand Boulevard Glendale, CA 19100 Von Karman Avenue Irvine, CA 10100 Santa Monica Blvd. Los Angeles, CA 811 Wilshire Boulevard Los Angeles, CA 251 University Avenue Palo Alto, CA 1760 Challenge Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 455 Market Street San Francisco, CA 1400 Civic Drive Walnut Creek, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 185 Asylum Street Hartford, CT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT DELAWARE 222 Delaware Avenue Wilmington, DE FLORIDA 4400 N. Federal Highway Boca Raton, FL 90 Alhambra Plaza Coral Gables, FL 4090 N. Ocean Boulevard Ft. Lauderdale, FL 4001 Tamiami Trail, North Naples, FL 1907 West State Road 434 Orlando, FL 2401 PGA Boulevard Palm Beach Gardens, FL 8065 Beneva Road Sarasota, FL 2000 66th Street, North St. Petersburg, FL GEORGIA 3525 Piedmont Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS 215 East Erie Street Chicago, IL One North Franklin Chicago, IL 540 Lake Cook Road Deerfield, IL 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 1 West Pennsylvania Ave. Towson, MD 7401 Wisconsin Avenue Bethesda, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 101 Cambridge Street Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 26955 Northwestern Hwy. Southfield, MI MINNESOTA 38 South Sixth Street Minneapolis, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 60B South Street Morristown, NJ 501 Route 17, South Paramus, NJ 505 Millburn Avenue Short Hills, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 2200 West Main Street Durham, NC 4611 Sharon Road Charlotte, NC OHIO 600 Vine Street Cincinnati, OH 1903 East Ninth Street Cleveland, OH 28699 Chagrin Boulevard Woodmere Village, OH OREGON 121 S.W. Morrison Street Portland, OR PENNSYLVANIA 1735 Market Street Philadelphia, PA 439 Fifth Avenue Pittsburgh, PA TENNESSEE 5100 Poplar Avenue Memphis, TN TEXAS 10000 Research Boulevard Austin, TX 7001 Preston Road Dallas, TX 1155 Dairy Ashford Houston, TX 1010 Lamar Street Houston, TX 2701 Drexel Drive Houston, TX 400 East Las Colinas Blvd. Irving, TX 14100 San Pedro San Antonio, TX UTAH 215 South State Street Salt Lake City, UT VERMONT 199 Main Street Burlington, VT VIRGINIA 8180 Greensboro Drive McLean, VA WASHINGTON 411 108th Avenue, N.E. Bellevue, WA 1001 Fourth Avenue Seattle, WA WASHINGTON, DC 1775 K Street, N.W. Washington, DC WISCONSIN 222 East Wisconsin Avenue Milwaukee, WI INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA (registered trademark) SUB-ADVISER FMR Texas Inc. Irving, TX OFFICERS Edward C. Johnson 3d, President J. Gary Burkhead, Senior Vice President Fred L. Henning, Jr., Vice President Leland Barron, Vice President Thomas D. Maher, Assistant Vice President Gary L. French, Treasurer John H . Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer Arthur S. Loring, Secretary BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox* Phyllis Burke Davis* Richard J. Flynn* Edward C. Johnson 3d E. Bradley Jones* Donald J. Kirk* Peter S. Lynch Edward H. Malone* Marvin L. Mann* Gerald C. McDonough* Thomas R. Williams* GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIAN Morgan Guaranty Trust Co. of New York New York, NY FIDELITY'S TAXABLE MONEY MARKET FUNDS Fidelity Cash Reserves Fidelity Daily Income Trust Fidelity U.S. Government Reserves Spartan(registered trademark) Money Market Fund Spartan U.S. Government Money Market Fund Spartan U.S. Treasury Money Market Fund THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances ** 1-800-544-7544 Exchanges/Redemptions ** 1-800-544-7777 Mutual Fund Quotes ** 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0118for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) * INDEPENDENT TRUSTEES ** AUTOMATED LINES FOR QUICKEST SERVICE -----END PRIVACY-ENHANCED MESSAGE-----