-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TVsq5D50imIkmXNVw0wISA1TJzYX4pL6vjSFf2EXQI5mxiTcu9QWv1kxfbeyqp0b UAh8mP0NCs/oXy8qxbH2Mw== 0001039264-97-000002.txt : 19970515 0001039264-97-000002.hdr.sgml : 19970515 ACCESSION NUMBER: 0001039264-97-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY CHARLES STREET TRUST CENTRAL INDEX KEY: 0000354046 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [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: 97604755 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)SPARTAN(registered trademark) INVESTMENT GRADE BOND FUND SEMIANNUAL REPORT MARCH 31, 1997 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. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER: As the first quarter of 1997 came to an end, stock and bond markets experienced the kind of short-term volatility that can affect them from time to time. After climbing steadily upward for more than two years, stock prices saw a sharp correction over the second half of March. Returns in the bond market were essentially stagnant as the Federal Reserve Board implemented a long-expected increase in short-term interest rates at the end of March. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. The longer your investment time frame, the less likely it is that you will be affected by short-term market volatility. A 10-year investment horizon appropriate for saving for a college education, for example, enables you to weather market cycles in a long-term fund, which may have a higher risk potential, but also has a higher potential rate of return. An intermediate-length fund could make sense if your investment horizon is two to four years, while 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. These funds seek income and a stable share price by investing in high-quality, short-term investments. Of course, it's important to remember that there is no assurance that a money market fund will achieve its goal of maintaining a stable net asset value of $1.00 per share, and that these types of funds are neither insured nor guaranteed by any agency of the U.S. government. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value), and the effect of the $5 account closeout fee on an average sized account. You can also look at the fund's income, as reflected in the fund's yield, to measure performance. If Fidelity had not reimbursed certain expenses, the fund's total returns and dividends would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 6 PAST 1 LIFE OF MONTHS YEAR FUND Spartan Investment Grade Bond 2.25% 4.35% 35.29% Lehman Brothers Aggregate Bond Index 2.42% 4.91% 30.43% Corporate Debt BBB Funds Average 2.64% 5.02% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year or since the fund started on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers Aggregate Bond Index - a market value weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of at least one year. To measure how the fund's performance stacked up against its peers, you can compare it to the corporate debt BBB funds average, which reflects the performance of 115 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past six months. These benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 1 LIFE OF YEAR FUND Spartan Investment Grade Bond 4.35% 6.95% Lehman Brothers Aggregate Bond Index 4.91% 6.08% Corporate Debt BBB Funds Average 5.02% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER LIFE OF FUND 1992/10/01 10000.00 10000.00 1992/10/31 9812.23 9867.42 1992/11/30 9910.58 9869.65 1992/12/31 10141.51 10026.59 1993/01/31 10397.72 10218.86 1993/02/28 10729.65 10397.75 1993/03/31 10789.98 10441.07 1993/04/30 10830.04 10513.78 1993/05/31 10871.84 10527.17 1993/06/30 11226.71 10717.95 1993/07/31 11392.79 10778.57 1993/08/31 11782.44 10967.50 1993/09/30 11816.73 10997.62 1993/10/31 11913.99 11038.71 1993/11/30 11705.42 10944.81 1993/12/31 11740.02 11004.13 1994/01/31 11984.80 11152.70 1994/02/28 11571.41 10958.94 1994/03/31 11183.62 10688.76 1994/04/30 11070.36 10603.41 1994/05/31 11000.02 10601.92 1994/06/30 10994.05 10578.49 1994/07/31 11184.69 10788.61 1994/08/31 11183.61 10802.00 1994/09/30 11019.13 10643.01 1994/10/31 10995.76 10633.53 1994/11/30 11028.07 10609.91 1994/12/31 11132.78 10683.18 1995/01/31 11333.41 10894.60 1995/02/28 11549.35 11153.63 1995/03/31 11689.77 11222.06 1995/04/30 11838.95 11378.82 1995/05/31 12332.88 11819.15 1995/06/30 12424.27 11905.80 1995/07/31 12383.63 11879.21 1995/08/31 12539.11 12022.57 1995/09/30 12665.77 12139.54 1995/10/31 12831.52 12297.41 1995/11/30 13022.66 12481.68 1995/12/31 13204.49 12656.85 1996/01/31 13294.65 12740.90 1996/02/29 13063.03 12519.43 1996/03/31 12964.75 12432.41 1996/04/30 12876.88 12362.49 1996/05/31 12843.90 12337.39 1996/06/30 13004.84 12503.07 1996/07/31 13036.96 12537.28 1996/08/31 13015.72 12516.27 1996/09/30 13230.84 12734.39 1996/10/31 13515.06 13016.48 1996/11/30 13731.49 13239.43 1996/12/31 13616.13 13116.33 1997/01/31 13661.24 13156.50 1997/02/28 13686.05 13189.22 1997/03/31 13530.63 13043.07 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Spartan Investment Grade Bond Fund on October 1, 1992, when the fund started. As the chart shows, by March 31, 1997, the value of the investment would have grown to $13,531 - a 35.31% increase on the initial investment. This assumes the fund was still owned on March 31, 1997 and therefore does not include the effect of the $5 account closeout fee on an average sized account. For comparison, look at how the Lehman Brothers Aggregate Bond Index did over the same period. With dividends and capital gains, if any, reinvested the same $10,000 investment would have grown to $13,043 - a 30.43% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER ENDED 1, 1992 MARCH 31, (COMMENCEME NT OF OPERATIONS) T O SEPTEMBER 30, 1997 1996 1995 1994 1993 Dividend return 3.16% 6.33% 7.66% 6.24% 8.77% Capital appreciation return -0.91% -1.88% 7.27% -13.01% 9.37% Total return 2.25% 4.45% 14.93% -6.77% 18.14% TOTAL RETURN COMPONENTS include both dividend returns and capital appreciation returns. 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 capital gains paid by the fund are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee on an average sized account. DIVIDENDS AND YIELD PERIODS ENDED MARCH 31, 1997 PAST 1 PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 5.58(cents) 31.82(cents) 63.98(cents) Annualized dividend rate 6.58% 6.32% 6.39% 30-day annualized yield 6.65% - - DIVIDENDS per share show the income paid by the fund for a set period and do not reflect any tax reclassifications. If you annualize this number, based on an average share price of $9.99 over the past one month, $10.10 over the past six months and $10.02 over the past one 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. If Fidelity had not reimbursed certain fund expenses, the yield would have been 6.39%. FUND TALK: THE MANAGER'S OVERVIEW NOTE TO SHAREHOLDERS: Kevin Grant became Portfolio Manager of Spartan Investment Grade Bond Fund on February 3, 1997. Q. KEVIN, HOW HAS THE FUND PERFORMED? A. For the six months that ended March 31, 1997, the fund had a total return of 2.25%. That slightly lagged the 2.64% return of the corporate debt BBB funds average tracked by Lipper Analytical Services. For the same six-month period, the Lehman Brothers Aggregate Bond Index posted a return of 2.42%. For the 12 months that ended March 31, 1997, the fund returned 4.35%, while the corporate debt BBB funds average and the Lehman Brothers Aggregate Bond Index returned 5.02% and 4.91%, respectively. Q. WHAT WAS THE BOND MARKET LIKE OVER THE PAST SIX MONTHS? A. The market did a turnaround over the period. In the fourth quarter of 1996, the bond market rallied through the end of November as investors thought the economy was slowing and believed that the Federal Reserve Board wouldn't raise short-term interest rates. Then, in December Fed Chairman Alan Greenspan expressed concern that sentiment in the capital markets was characterized by "irrational exuberance." That proved to be a turning point. The bond market took Greenspan's comments to mean that the Fed was going to become more aggressive in fighting inflation by raising interest rates to slow the economy. As a result, interest rates rose - and bond prices fell - in anticipation of the Fed's action. At the end of February, Greenspan testified before Congress, reiterating the Fed's inclination to raise rates. And, indeed, in March the Fed did increase the fed funds rate, the rate banks charge each other for overnight loans. The market, however, had already anticipated such a move. Q. WHY DID THE FUND'S RETURN TRAIL THAT OF THE LIPPER AVERAGE? A. The fund's duration - or sensitivity to interest rates - is maintained in line with the duration of the overall market as represented by the fund's benchmark index. Many of the funds that comprise the Lipper average tend to maintain longer durations - and, hence, more interest rate sensitivity - than the fund and the index. Therefore, when interest rates fell - and bond prices rose - during the last part of 1996, the funds with longer durations generally performed better than this fund. Q. WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND? A. First off, I'd like to mention that the former manager, Michael Gray, and I worked very closely together for some time. As a result, the transition was quite smooth. I maintained a stake in corporate bonds, concentrating on those companies that I felt wouldn't be affected by shifts in the economy. In particular, I've been attracted to bonds issued by banks. Historically, bank earnings were sensitive to the economy. However, over the past several years, banks increased their fees, making them less sensitive to interest rates and loans. Bonds issued by energy companies proved to be positive performers for the fund, helped by an upward spike in energy prices in the winter. This rise in prices helped increase the companies' cash flows, which they used to pay down debt. In the corporate area overall, I've focused on shorter maturities in the two- to four-year range. These bonds offer a yield advantage over Treasuries, but are short enough in maturity that they shouldn't markedly underperform Treasuries if the market becomes nervous about credit risk. Q. WERE THERE OTHER TYPES OF CORPORATE BONDS THAT INTERESTED YOU? A. Yes. Bank bonds known as capital securities presented an opportunity during the period. Because of a change brought about by the Fed last fall, banks were given the ability to issue these long-term bonds for which the interest payments are tax-deductible by the banks. A new market was created, as banks sought to issue as many capital securities as possible before Congress had the chance to close this tax loophole. A flood of capital securities came to market very cheaply, so I added some to the fund. I also was attracted to put bonds, which are described at length in my additional comments at the end of this interview. Q. WHAT ABOUT MORTGAGE-BACKED SECURITIES? WERE THEY ATTRACTIVE INVESTMENTS? A. Late last year, the mortgage market started to get very expensive by historical standards. As a result, the fund's mortgage position was reduced. Mortgage-backed securities continued to get very rich - or expensive - through January and February, and I've maintained a smaller stake in them than the fund did six months ago. Q. WHAT'S YOUR OUTLOOK? A. I don't manage the fund based on any prediction about the economy or the market. However, I do believe that at least one more interest rate increase by the Fed is priced into the market. As far as the fund is concerned, I'll probably keep a reduced stake in mortgages because the sector is trading at such rich levels. On the other hand, corporate bonds have cheapened a bit, making that sector somewhat attractive. While I won't be forecasting where the economy is going, I will be keeping an eye on the effect any slowdown in the economy might have on individual company performance. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: high current income FUND NUMBER: 448 TRADING SYMBOL: FSIBX STATE DATE: October 1, 1992 SIZE: as of March 31, 1997, more than $356 million MANAGER: Kevin Grant, since February 1997; also manager of several Fidelity investment-grade taxable bond funds; joined Fidelity in 1993 (checkmark) KEVIN GRANT ON PUT BONDS: "Put bonds have proven to be attractive investments for the fund. These are corporate issues that give the investor the option to redeem the security at some point prior to its actual maturity. They are very attractive for their flexibility and ability to provide positive performance in a variety of investing environments. For example, let's say the fund holds a position in a 10-year corporate bond that is "putable" in five years. If interest rates are higher in five years, we'll exercise the put, get our money and reinvest that money at the higher rate. Conversely, if rates are lower after five years, we'll hang onto the bonds. Then, instead of having a bond that is maturing, we'll have a security offering an above-market rate that has another five years to maturity. In a fund like this that invests in mortgage securities, put bonds tend to offset prepayment risk - or the risk that mortgage holders will pay off their loans before maturity to take advantage of lower interest rates." INVESTMENT CHANGES QUALITY DIVERSIFICATION AS OF MARCH 31, 1997 (MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Aaa 58.5 75.9 Aa 3.2 3.0 A 10.3 10.5 Baa 15.1 8.9 Ba 4.8 1.7 Non-rated 0.0 0.0 TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY. AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1997 6 MONTHS AGO Years 8.0 7.9 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF MARCH 31, 1997 6 MONTHS AGO Years 4.8 4.6 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF MARCH 31, 1997 * AS OF SEPTEMBER 30, 1996 ** Corporate bonds 31.6% U.S. government and government agency obligations 34.3% U.S. government agency - mortgage- backed securities 19.6% Short-term investments 8.1% Other 6.4% Corporate bonds 21.0% U.S. government and government agency obligations 47.8% U.S. government agency - mortgage- backed securities 25.1% Short-term investments 0.0% Other 6.1% Row: 1, Col: 1, Value: 6.4 Row: 1, Col: 2, Value: 8.1 Row: 1, Col: 3, Value: 19.6 Row: 1, Col: 4, Value: 34.3 Row: 1, Col: 5, Value: 31.6 Row: 1, Col: 1, Value: 6.1 Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 3, Value: 25.1 Row: 1, Col: 4, Value: 47.8 Row: 1, Col: 5, Value: 21.0 * FOREIGN INVESTMENTS 5.9% ** FOREIGN INVESTMENTS 7.6% INVESTMENTS MARCH 31, 1997 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities NONCONVERTIBLE BONDS - 31.6% MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) BASIC INDUSTRIES - 0.3% CHEMICALS & PLASTICS - 0.3% Praxair, Inc., 6.90%, 11/1/06 A3 $ 1,000,000 $ 963,960 DURABLES - 1.0% AUTOS, TIRES, & ACCESSORIES - 0.2% Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa3 870,000 845,057 TEXTILES & APPAREL - 0.8% Levi Strauss & Co. 7%, 11/1/06 (a) Baa2 3,000,000 2,886,420 TOTAL DURABLES 3,731,477 ENERGY - 1.7% ENERGY SERVICES - 1.1% Petroliam Nasional BHD yankee (a): 6 7/8%, 7/1/03 A1 1,750,000 1,707,948 7 1/8%, 8/15/05 A1 450,000 440,649 7 1/8%, 10/18/06 A1 2,000,000 1,951,600 4,100,197 OIL & GAS - 0.6% Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 670,000 646,952 Pennzoil Co. 9 5/8%, 11/15/99 Baa3 730,000 775,355 Ras Laffan Liquid Natural Gas Co. Ltd. 7.628%, 9/15/06 (a) A3 750,000 740,087 2,162,394 TOTAL ENERGY 6,262,591 FINANCE - 14.7% ASSET-BACKED SECURITIES - 1.1% Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 553,350 550,238 Green Tree Financial Corp. 6.10%, 4/15/27 Aaa 1,752,418 1,734,073 Premier Auto Trust: 8.05%, 4/4/00 Aaa 790,000 802,838 6%, 5/6/00 Aaa 950,000 946,438 4,033,587 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) FINANCE - CONTINUED BANKS - 6.8% ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 $ 1,750,000 $ 1,713,425 Banc One Corp. 6.70%, 3/24/00 Aa3 2,100,000 2,089,584 BankBoston Captial Trust I 7 3/4%, 12/15/26 (a) Baa1 1,750,000 1,628,708 BanPonce Corp.: 5 3/4%, 3/1/99 A3 690,000 674,510 6 3/8%, 4/8/99 A3 770,000 759,644 BanPonce Trust I 8.327%, 2/1/27 (a) Baa1 1,960,000 1,914,116 Capital One 6.42%, 11/12/99 Baa3 4,000,000 3,947,800 Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 1,000,000 1,031,030 Corporacion Andina de Fomento yankee 7.10%, 2/1/03 Baa2 1,000,000 975,870 Fleet/Norstar Financial Group, Inc. 9%, 12/1/01 A3 250,000 263,738 Hartford National Corp. 9.85%, 6/1/99 A3 1,650,000 1,748,753 Kansallis-Osake-Pankki 10%, 5/1/02 A3 430,000 478,943 Korea Development Bank yankee 6 1/2%, 11/15/02 A1 1,000,000 959,110 Midland Bank PLC yankee 7 5/8%, 6/15/06 A1 1,300,000 1,304,342 Provident Bank 6 1/8%, 12/15/00 A3 210,000 203,246 Signet Bank 7.80%, 9/15/06 Baa1 1,000,000 1,003,810 Summit Bancorp. 8 5/8%, 12/10/02 BBB 1,000,000 1,060,670 Union Planters Corp. 6 3/4%, 11/1/05 Baa2 1,200,000 1,132,056 Union Planters National Bank 6.81%, 8/20/01 A3 1,000,000 998,750 U.S. Bancorp Capital I 8.27%, 12/15/26 (a) A2 1,100,000 1,090,837 24,978,942 CREDIT & OTHER FINANCE - 4.3% AT&T Capital Corp.: 6.02%, 12/1/98 Baa3 2,000,000 1,979,400 6.16%, 12/3/99 Baa3 750,000 735,510 Associates Corp. of North America 7 1/2%, 5/15/99 Aa3 3,000,000 3,043,800 BCH Cayman Islands Ltd. yankee 7.70%, 7/15/06 A3 500,000 499,865 BHP Finance USA Ltd. 6 3/4%, 11/1/13 A2 1,000,000 903,020 Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,960,000 1,935,676 Commercial Credit Group, Inc. 10%, 5/15/09 A1 350,000 412,080 First Securities Capital I 8.41%, 12/15/26 (a) A3 420,000 418,345 Fleet Mortgage Group 6 1/2%, 9/15/99 A2 250,000 247,825 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Ford Motor Credit Co. 8 3/8%, 1/15/23 A1 $ 500,000 $ 505,805 General Electric Capital Corp. 6.94%, 4/13/09 (c) Aaa 1,750,000 1,754,988 General Motors Acceptance Corp. 6.65%, 5/24/00 A3 2,520,000 2,497,370 MCN Investment Corp. 6.03%, 2/1/01 Baa2 800,000 770,400 15,704,084 INSURANCE - 1.2% Executive Risk Capital Trust 8.675%, 2/1/27 (a) Baa3 2,750,000 2,672,670 Protective Life Corp. 7.95%, 7/1/04 A3 400,000 404,660 SunAmerica, Inc. 6.20%, 10/31/99 Baa1 1,500,000 1,473,930 4,551,260 SAVINGS & LOANS - 1.3% Ahmanson (H.F.) & Co. 9 7/8%, 11/15/99 Baa2 1,000,000 1,070,970 Great West Financial Trust II 8.206%, 2/1/27 Baa2 4,000,000 3,913,280 4,984,250 TOTAL FINANCE 54,252,123 HEALTH - 0.5% MEDICAL FACILITIES MANAGEMENT - 0.5% Columbia/HCA Healthcare Corp.: 6 1/2%, 3/15/99 A2 1,000,000 997,040 6 7/8%, 7/15/01 A3 1,000,000 991,830 1,988,870 INDUSTRIAL MACHINERY & EQUIPMENT - 0.6% POLLUTION CONTROL - 0.6% WMX Technologies, Inc. 6 1/4%, 4/1/99 A1 2,200,000 2,178,792 MEDIA & LEISURE - 3.7% BROADCASTING - 2.0% TCI Communication, Inc. 7 1/4%, 6/15/99 Ba1 3,200,000 3,198,848 Tele-Communications, Inc. 7 3/8%, 2/15/00 Ba1 1,000,000 997,120 Time Warner, Inc. 9 1/8%, 1/15/13 Ba1 3,000,000 3,186,660 7,382,628 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) MEDIA & LEISURE - CONTINUED LODGING & GAMING - 0.5% Circus Circus Enterprises, Inc. 7%, 11/15/36 Baa2 $ 500,000 $ 470,415 Mirage Resorts, Inc. 7 1/4%, 10/15/06 Baa2 1,500,000 1,454,865 1,925,280 PUBLISHING - 1.1% Harcourt General, Inc. 8 7/8%, 6/1/22 Baa1 1,000,000 1,084,300 Time Warner Entertainment Co. LP: 10.15%, 5/1/12 Baa3 250,000 291,925 8 7/8%, 10/1/12 Baa3 750,000 794,543 8 3/8%, 3/15/23 Baa3 1,750,000 1,727,303 3,898,071 RESTAURANTS - 0.1% Darden Restaurants, Inc. 6 3/8%, 2/1/06 Baa1 500,000 449,725 TOTAL MEDIA & LEISURE 13,655,704 NONDURABLES - 1.0% FOODS - 0.5% ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 2,040,000 2,015,642 TOBACCO - 0.5% Philip Morris Companies, Inc. 6.95%, 6/1/06 A2 1,850,000 1,839,825 TOTAL NONDURABLES 3,855,467 RETAIL & WHOLESALE - 0.5% GENERAL MERCHANDISE STORES - 0.2% Dayton Hudson Corp. 6.40%, 2/15/03 Baa1 1,000,000 952,200 GROCERY STORES - 0.3% Kroger Co. 8.15%, 7/15/06 Baa3 1,000,000 1,021,870 TOTAL RETAIL & WHOLESALE 1,974,070 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) TECHNOLOGY - 2.3% COMPUTERS & OFFICE EQUIPMENT - 1.6% Comdisco, Inc. 6 3/8%, 11/30/01 Baa1 $ 6,000,000 $ 5,780,280 ELECTRONICS - 0.7% Texas Instruments, Inc. 6 7/8%, 7/15/00 A3 2,600,000 2,592,382 TOTAL TECHNOLOGY 8,372,662 TRANSPORTATION - 1.3% AIR TRANSPORTATION - 1.3% Delta Air Lines, Inc. equipment trust certificate 8.54%, 1/2/07 Baa1 2,600,864 2,711,791 United Air Lines, Inc. 10 1/4%, 7/15/21 Baa3 1,000,000 1,178,490 United Airlines pass through trust 7.27%, 1/30/13 Baa1 982,979 933,044 4,823,325 UTILITIES - 4.0% CELLULAR - 0.4% 360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba1 1,610,000 1,571,940 ELECTRIC UTILITY - 0.6% British Columbia Hydro & Power Authority yankee 12 1/2%, 1/15/14 Aa2 410,000 464,366 Hydro-Quebec yankee 8%, 2/1/13 A2 250,000 255,795 Philadelphia Electric Co. 1st & ref. mtg.: 8 5/8%, 6/1/22 Baa1 300,000 296,103 8 1/4%, 9/1/22 Baa1 100,000 96,149 7 3/4%, 5/1/23 Baa1 1,000,000 931,230 2,043,643 GAS - 0.7% Mitchell Energy & Development Corp. 8%, 7/15/99 Ba3 1,390,000 1,413,713 Panhandle Eastern Corp. 8 5/8%, 12/1/99 Baa2 1,000,000 1,036,500 2,450,213 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) UTILITIES - CONTINUED TELEPHONE SERVICES - 2.3% GTE Corp.: 8 3/4%, 11/1/21 A3 $ 200,000 $ 220,522 7.83%, 5/1/23 A3 1,000,000 956,000 MFS Communications, Inc. 0%, 1/15/04 (d) Ba3 4,000,000 3,590,000 WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 3,800,000 3,763,292 8,529,814 TOTAL UTILITIES 14,595,610 TOTAL NONCONVERTIBLE BONDS (Cost $118,852,529) 116,654,651 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 34.3% U.S. TREASURY OBLIGATIONS - 26.6% 6 5/8%, 6/30/01 Aaa 59,460,000 59,162,700 7 7/8%, 8/15/01 Aaa 2,095,000 2,182,403 12 3/8%, 5/15/04 Aaa 2,880,000 3,753,446 7%, 7/15/06 Aaa 16,091,000 16,131,228 9%, 11/15/18 Aaa 11,781,000 14,039,653 7 1/4%, 2/ 15/23 Aaa 1,000,000 987,970 6 1/2%, 11/15/26 Aaa 1,957,000 1,801,653 98,059,053 U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.7% Federal Home Loan Bank: 7.31%, 6/16/04 Aaa 5,000,000 5,054,700 7.36%, 7/1/04 Aaa 7,900,000 8,027,111 7.87%, 10/20/04 Aaa 1,700,000 1,775,701 Federal Home Loan Mortgage Corporation: 8.065%, 1/27/05 Aaa 3,000,000 3,152,340 8.115%, 1/31/05 Aaa 1,200,000 1,266,192 Federal National Mortgage Association 6.85%, 8/22/05 Aaa 1,000,000 978,590 Financing Corporation 0%, 3/26/04 Aaa 5,606,000 3,435,188 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) Series 1994-C, 6.61%, 9/15/99 Aaa $ 52,497 $ 52,738 State of Israel (guaranteed by U.S. Government through Agency for International Development): 0%, 11/15/01 Aaa 3,280,000 2,404,601 5.89%, 8/15/05 Aaa 1,280,000 1,178,353 U.S. Department of Housing and Urban Development Government guaranteed participation certificates Series 1995-A, 8.24%, 8/1/04 Aaa 1,000,000 1,061,010 28,386,524 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $127,806,020) 126,445,577 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 19.6% FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.2% 7%, 6/1/01 to 7/1/01 Aaa 735,922 735,687 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 13.1% 5 1/2%, 1/1/09 to 3/1/11 Aaa 17,144,219 15,783,566 6%, 1/1/24 to 11/1/25 Aaa 6,933,878 6,298,760 6 1/2%, 4/1/03 to 1/1/26 Aaa 12,695,442 11,985,167 7 1/2%, 1/1/26 to 4/1/27 Aaa 5,748,826 5,643,239 8%, 12/1/21 to 4/1/27 Aaa 7,186,114 7,221,308 9 1/2%, 4/1/17 to 12/1/18 Aaa 1,451,798 1,566,045 48,498,085 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.3% 6%, 10/15/08 to 4/15/11 Aaa 17,200,047 16,272,607 7 1/2%, 12/15/25 to 5/15/26 Aaa 1,979,682 1,940,451 9%, 7/15/24 to 11/15/26 Aaa 3,705,366 3,884,146 9 1/2%, 7/15/16 to 3/15/22 Aaa 1,017,913 1,097,139 23,194,343 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $74,212,060) 72,428,115 COMMERCIAL MORTGAGE SECURITIES - 3.6% MOODY'S PRINCIPAL VALUE RATINGS (B) AMOUNT (NOTE 1) BKB Commerical Mortgage Trust Series 1997-C1 Class A-1, 6 7/8%, 2/25/43 (a) AAA $ 6,000,000 $ 6,001,875 CS First Boston Mortgage Securities Corp. Series 1995-AEWI Class A1, 6.665%, 11/25/27 AAA 119,703 119,404 Equitable Life Assurance Society of the United States (The) (a): sequential pay Series 174 Class A1, 7.24%, 5/15/06 Aaa 1,500,000 1,511,250 Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,000,000 997,500 Series 1996-1 Class C1, 7.52%, 5/15/06 A2 1,000,000 1,002,500 Oregon Commercial Mortgage, Inc. Series 1995-1 Class A, 7.15%, 6/25/26 (a) AAA 270,887 269,279 Resolution Trust Corp. Series 1995-C1 Class A-4A, 6 1/4%, 2/25/27 Aaa 69,779 69,692 Structured Asset Securities Corp. sequential pay: Series 1995-C4 Class A-1A, 6.90%, 6/25/26 AAA 226,901 226,404 Series 1996 Class A-2A, 7 3/4%, 2/25/28 AAA 2,042,172 2,062,913 Wells Fargo Capital Markets Apartment Financing Trust 6.56%, 12/29/05 (a) Aaa 1,000,000 970,000 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $13,224,695) 13,230,817 FOREIGN GOVERNMENT OBLIGATIONS - 2.5% Irish Republic yankee 7 7/8%, 12/1/01 Aa1 500,000 517,270 New Brunswick Province yankee 7 5/8%, 2/15/13 A1 500,000 502,170 Newfoundland Province yankee 9 7/8%, 6/1/20 Baa1 1,500,000 1,784,820 Ontario Province 7%, 8/4/05 Aa3 2,000,000 1,964,740 Quebec Province yankee 7.22%, 7/22/36 (c) A2 4,000,000 4,052,400 Saskatchewan Province yankee 8 1/2%, 7/15/22 A3 300,000 322,824 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $9,130,475) 9,144,224 SUPRANATIONAL OBLIGATIONS - 0.3% African Development Bank 7 3/4%, 12/15/01 (Cost $1,048,180) Aa1 1,000,000 1,027,740 CASH EQUIVALENTS - 8.1% MATURITY VALUE AMOUNT (NOTE 1) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 6.46%, dated 3/31/97 due 4/1/97 $ 29,863,358 $ 29,858,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $374,131,959) $ 368,789,124 LEGEND 1. 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 $26,203,784 or 7.4% of net assets. 2. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 3. Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. 4. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows: MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 69.7% AAA, AA, A 68.2% Baa 14.8% BBB 21.0% Ba 4.8% BB 0.9% B 0.0% B 0.0% Caa 0.0% CCC 0.0% Ca, C 0.0% CC, C 0.0% D 0.0% INCOME TAX INFORMATION At March 31, 1997, the aggregate cost of investment securities for income tax purposes was $374,131,959. Net unrealized depreciation aggregated $5,342,835, of which $779,678 related to appreciated investment securities and $6,122,513 related to depreciated investment securities. At September 30, 1996, the fund had a capital loss carryforward of approximately $551,000 of which $105,000 and $446,000 will expire on September 30, 2003 and 2004, respectively. The fund intends to elect to defer to its fiscal year ending September 30, 1997 approximately $7,391,000 of losses recognized during the period November 1, 1995 to September 30, 1996. At September 30, 1996, the fund was required to defer approximately $61,000 of losses on futures contracts and options. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase $ 368,789,124 agreements of $29,858,000) (cost $374,131,959) - See accompanying schedule Cash 912 Receivable for investments sold 18,705,295 Interest receivable 4,968,190 TOTAL ASSETS 392,463,521 LIABILITIES Payable for investments purchased $ 34,995,728 Payable for fund shares redeemed 720,851 Distributions payable 311,580 Accrued management fee 113,725 TOTAL LIABILITIES 36,141,884 NET ASSETS $ 356,321,637 Net Assets consist of: Paid in capital $ 371,377,568 Distributions in excess of net investment income (225,021) Accumulated undistributed net realized gain (loss) on (9,488,075) investments and foreign currency transactions Net unrealized appreciation (depreciation) on (5,342,835) investments NET ASSETS, for 36,011,358 shares outstanding $ 356,321,637 NET ASSET VALUE, offering price and redemption price per $9.89 share ($356,321,637 (divided by) 36,011,358 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) INVESTMENT INCOME $ 12,351,474 Interest EXPENSES Management fee $ 1,154,056 Non-interested trustees' compensation 858 Total expenses before reductions 1,154,914 Expense reductions (81,100) 1,073,814 NET INVESTMENT INCOME 11,277,660 REALIZED AND UNREALIZED GAIN (LOSS) (1,480,097) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) (1,981,803) on investment securities NET GAIN (LOSS) (3,461,900) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 7,815,760 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1997 1996 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 11,277,660 $ 19,418,378 Net investment income Net realized gain (loss) (1,480,097) (6,833,471) Change in net unrealized appreciation (depreciation) (1,981,803) (5,538,097) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 7,815,760 7,046,810 FROM OPERATIONS Distributions to shareholders from net investment income (11,233,143) (19,294,801) Share transactions 109,964,090 432,893,618 Net proceeds from sales of shares Reinvestment of distributions 9,465,465 16,270,304 Cost of shares redeemed (103,523,147) (240,703,507) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 15,906,408 208,460,415 FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 12,489,025 196,212,424 NET ASSETS Beginning of period 343,832,612 147,620,188 End of period (including distributions in excess $ 356,321,637 $ 343,832,612 of net investment income of $225,021 and $269,538, respectively) OTHER INFORMATION Shares Sold 10,878,577 42,285,053 Issued in reinvestment of distributions 938,405 1,618,766 Redeemed (10,258,749) (23,963,038) Net increase (decrease) 1,558,233 19,940,781
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992 ENDED MARCH (COMMENCEMENT 31, 1997 OF OPERATIONS) TO SEPTEMBER 30, (UNAUDITED) 1996 1995 1994 1993 E
SELECTED PER-SHARE DATA Net asset value, $ 9.980 $ 10.170 $ 9.510 $ 10.940 $ 10.000 beginning of period Income from Investment .320 D .655 .693 .668 .799 Operations Net investment income Net realized and unrealized (.092) (.211) .673 (1.384) .940 gain (loss) Total from investment .228 .444 1.366 (.716) 1.739 operations Less Distributions From net investment income (.318) (.634) (.686) (.704) (.798) In excess of net - - - - (.001) investment income In excess of net realized - - (.020) (.010) - gain Total distributions (.318) (.634) (.706) (.714) (.799) Net asset value, $ 9.890 $ 9.980 $ 10.170 $ 9.510 $ 10.940 end of period TOTAL RETURN B, C 2.27% 4.46% 14.94% (6.75)% 18.17% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 356,322 $ 343,833 $ 147,620 $ 106,207 $ 128,860 (000 omitted) Ratio of expenses to average .61% A, .65% .65% .65% .65% net assets F Ratio of expenses to .60% A, .65% .65% .65% .65% average net assets after G expense reductions Ratio of net investment 6.35% A 6.35% 6.92% 6.90% 7.58% income to average net assets Portfolio turnover rate 164% A 169% 147% 44% 55%
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E 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, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). NOTES TO FINANCIAL STATEMENTS For the period ended March 31, 1997 (Unaudited) 1. 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. 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. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. 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. 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, which may result in distribution reclassifications, are primarily due to differing treatments for paydown gains/losses on certain securities, market discount, capital loss carryforwards and losses deferred due to excise tax regulations. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain (loss). Distributions in excess of net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences that will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, the fund had no investments in restricted securities (excluding 144A issues). 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $286,148,362 and $280,924,496, respectively, of which U.S. government and government agency obligations aggregated $193,994,173 and $239,557,549, 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. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $9,662 for the period. 5. EXPENSE REDUCTIONS. Effective March 1, 1997, FMR voluntarily agreed to reimburse operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) above an annual rate of .38% of the fund's average net assets. For the period, the reimbursement reduced expenses by $78,650. In addition, FMR has entered into arrangements on behalf of the fund with the fund's custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's expenses were reduced by $2,450 under these arrangements. MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. 1 For quotes.* 2 For account balances and holdings. 3 To review orders and mutual fund activity. 4 To change your PIN. 5 To speak to a Fidelity representative. * 0 BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO 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 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT 29 South Main Street West Hartford, 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 1502 N. Westshore Blvd. Tampa, 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 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL 3232 Lake Avenue Wilmette, IL INDIANA 4729 East 82nd Street Indianapolis, IN LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 4611 Sharon Road Charlotte, NC 2200 West Main Street Durham, NC OHIO 600 Vine Street Cincinnati, OH 28699 Chagrin Boulevard Woodmere Village, OH 1903 East Ninth Street Cleveland, 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 2701 Drexel Drive Houston, TX 1010 Lamar Street 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 511 Pine Street Seattle, WA WASHINGTON, DC 1900 K Street, N.W. Washington, DC WISCONSIN 595 North Barker Road Brookfield, 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)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 2300 Litton Lane - KH1A Hebron, KY 41048 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 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 Fred L. Henning Jr., Vice President Kevin Grant, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA * INDEPENDENT TRUSTEES TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA 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 New Markets Income Short-Intermediate Government Short-Term Bond Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Short-Intermediate Government Spartan Short-Term Bond Target Timeline 1999, 2001 & 2003 THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 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) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)SPARTAN(registered trademark) SHORT-TERM BOND FUND SEMIANNUAL REPORT MARCH 31, 1997 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 22 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 26 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER: As the first quarter of 1997 came to an end, stock and bond markets experienced the kind of short-term volatility that can affect them from time to time. After climbing steadily upward for more than two years, stock prices saw a sharp correction over the second half of March. Returns in the bond market were essentially stagnant as the Federal Reserve Board implemented a long-expected increase in short-term interest rates at the end of March. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. The longer your investment time frame, the less likely it is that you will be affected by short-term market volatility. A 10-year investment horizon appropriate for saving for a college education, for example, enables you to weather market cycles in a long-term fund, which may have a higher risk potential, but also has a higher potential rate of return. An intermediate-length fund could make sense if your investment horizon is two to four years, while 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. These funds seek income and a stable share price by investing in high-quality, short-term investments. Of course, it's important to remember that there is no assurance that a money market fund will achieve its goal of maintaining a stable net asset value of $1.00 per share, and that these types of funds are neither insured nor guaranteed by any agency of the U.S. government. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value), and the effect of the $5 account closeout fee on an average sized account. You can also look at the fund's income, as reflected in the fund's yield, to measure performance. If Fidelity had not reimbursed certain fund expenses, the total returns and dividends would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 6 PAST 1 LIFE OF MONTHS YEAR FUND Spartan Short-Term Bond Fund 2.63% 5.40% 21.25% Lehman Brothers 1-3 Year 2.57% 5.41% 24.87% Government/Corporate Bond Index Short Investment Grade Debt Funds Average 2.48% 5.05% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year or since the fund started on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return, over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers 1-3 Year Government/Corporate Bond Index - a market value weighted performance benchmark for government and corporate fixed-rate debt issues, with maturities between one and three years. To measure how the fund's performance stacked up against its peers, you can compare it to the short investment grade debt funds average, which reflects the performance of 103 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past six months. These benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 1 LIFE OF YEAR FUND Spartan Short-Term Bond Fund 5.40% 4.37% Lehman Brothers 1-3 Year 5.41% 5.06% Government/Corporate Bond Index Short Investment Grade Debt Funds Average 5.05% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER LIFE OF FUND 1992/10/01 10000.00 10000.00 1992/10/31 9933.83 9939.84 1992/11/30 9941.15 9925.83 1992/12/31 10033.23 10019.57 1993/01/31 10177.58 10126.50 1993/02/28 10293.46 10209.11 1993/03/31 10359.82 10242.28 1993/04/30 10422.38 10306.56 1993/05/31 10447.70 10283.07 1993/06/30 10563.40 10360.95 1993/07/31 10625.81 10384.64 1993/08/31 10730.26 10471.58 1993/09/30 10769.15 10505.37 1993/10/31 10828.20 10529.88 1993/11/30 10852.94 10532.97 1993/12/31 10937.02 10575.62 1994/01/31 11008.69 10642.99 1994/02/28 10928.78 10578.50 1994/03/31 10722.16 10524.11 1994/04/30 10602.28 10484.15 1994/05/31 10704.77 10498.36 1994/06/30 10566.90 10525.97 1994/07/31 10645.16 10621.77 1994/08/31 10701.15 10657.62 1994/09/30 10734.70 10633.92 1994/10/31 10721.91 10658.23 1994/11/30 10730.94 10613.53 1994/12/31 10431.41 10633.72 1995/01/31 10514.42 10779.79 1995/02/28 10616.21 10928.94 1995/03/31 10675.48 10990.96 1995/04/30 10781.00 11090.46 1995/05/31 10960.94 11282.47 1995/06/30 11029.96 11343.87 1995/07/31 11074.81 11389.19 1995/08/31 11144.76 11458.21 1995/09/30 11201.30 11514.86 1995/10/31 11299.47 11610.46 1995/11/30 11393.82 11710.38 1995/12/31 11468.73 11799.17 1996/01/31 11568.54 11900.12 1996/02/29 11527.39 11854.80 1996/03/31 11503.70 11846.14 1996/04/30 11516.45 11858.09 1996/05/31 11543.44 11885.49 1996/06/30 11632.79 11972.43 1996/07/31 11672.01 12019.00 1996/08/31 11711.35 12063.29 1996/09/30 11813.69 12173.72 1996/10/31 11944.82 12311.13 1996/11/30 12034.26 12403.43 1996/12/31 12046.05 12405.49 1997/01/31 12096.35 12465.44 1997/02/28 12127.00 12496.34 1997/03/31 12126.30 12486.66 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Spartan Short-Term Bond Fund on October 1, 1992, when the fund started. As the chart shows, by March 31, 1997, the value of the investment would have grown to $12,126 - a 21.26% increase on the initial investment. This assumes the fund was still owned on March 31, 1997 and therefore does not include the effect of the $5 account closeout fee on an average sized account. For comparison, look at how the Lehman Brothers 1-3 Year Government/Corporate Bond Index did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $12,487 - a 24.87% increase. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. Bond prices, for example, generally move in the opposite direction of interest rates. In turn, the share price, return, and yield of a fund that invests in bonds will vary. That means if you sell your shares during a market downturn, you might lose money. But if you can ride out the market's ups and downs, you may have a gain. (checkmark) TOTAL RETURN COMPONENTS SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992 ENDED (COMMENCEMEN MARCH 31, T OF OPERATIONS) T O SEPTEMBER 30, 1997 1996 1995 1994 1993 Dividend return 3.20% 6.67% 6.49% A 6.19% A 7.79% Capital appreciation return -0.57% -1.22% -2.16% -6.53% -0.11% Total return 2.63% 5.45% 4.33% -0.34% 7.68% TOTAL RETURN COMPONENTS include both dividend returns and capital appreciation returns. 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 capital gains paid by the fund are reinvested. Capital appreciation and total returns include the effect of the $5 account closeout fee on an average sized account. DIVIDENDS AND YIELD PERIODS ENDED MARCH 31, 1997 PAST 1 PAST 6 PAST 1 MONTH MONTHS YEAR Dividends per share 4.95(cents) 28.71(cents) 58.74(cents) Annualized dividend rate 6.48% 6.37% 6.50% 30-day annualized yield 6.28% - - 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 $9.00 over the past one month, $9.04 over the past six months and $9.03 over the past one 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. If Fidelity had not reimbursed certain fund expenses during the periods shown, the yield would have been 6.01%. A NON-TAXABLE DIVIDENDS: DIVIDENDS PAID ARE BASED ON THE FUND'S INVESTMENT INCOME AND DO NOT REFLECT CURRENCY RELATED LOSSES. AS A RESULT OF CURRENCY LOSSES, DIVIDENDS PAID DURING 1995 OF APPROXIMATELY 14.2(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL. DIVIDENDS PAID DURING 1994 OF APPROXIMATELY 11.0(CENTS) PER SHARE WERE A NON-TAXABLE RETURN OF CAPITAL. FUND TALK: THE MANAGER'S OVERVIEW NOTE TO SHAREHOLDERS: Andrew Dudley became Portfolio Manager of Spartan Short-Term Bond Fund on February 3, 1997. Q. HOW DID THE FUND PERFORM, ANDY? A. For the six months that ended March 31, 1997, the fund had a return of 2.63%. This topped the Lehman Brothers 1-3 Year Government/Corporate Bond Index, which returned 2.57% over the same period. The short investment grade debt funds average, maintained by Lipper Analytical Services, had a six-month return of 2.48%. For the 12 months that ended March 31, 1997, the fund returned 5.40%, while the Lehman Brothers index and Lipper peer group had returns of 5.41% and 5.05%, respectively. Q. CAN YOU DISCUSS THE BOND MARKET GOINGS-ON OVER THE PAST SIX MONTHS? A. The bond market has gone through several different phases over the past six months, instilling a significant degree of uncertainty among investors. Late last fall, the economy slowed somewhat and bond investors anticipated an easing of interest rates, causing the market to rally. In December, however, we saw signs that the economy was regaining momentum, inflation became a concern once again, and Federal Reserve Board chairman Alan Greenspan twice warned the markets that Fed action might be forthcoming. By the time the Fed raised short-term rates 25 basis points in late March, the bond market already had priced in this increase. Q. HOW DID ALL THIS AFFECT THE FUND'S PERFORMANCE? A. I think our approach of de-emphasizing interest rate anticipation strategies is most effective in a choppy market such as we've seen. I tried to keep the duration - the fund's overall sensitivity to interest rate fluctuations - in line with that of its benchmark and concentrated on finding opportunities in the various "spread" sectors. This strategy wasn't the only reason that the fund beat its peer group, but I think it was an important one. Q. WHAT ARE "SPREAD" SECTORS AND HOW DID THEY CONTRIBUTE TO THE FUND'S PERFORMANCE? A. Spread sectors are segments of the fixed-income market that can offer attractive yield spreads, or yield advantages, over comparable Treasuries. The spread sectors I monitor most closely are corporate bonds, mortgage-backed bonds and asset-backed bonds. Corporates continued to be the biggest position in the fund and performed well thanks to a beneficial economic climate of moderate growth and low inflation. Asset-backed bonds also performed well. In the mortgage area, the fund's emphasis on commercial mortgage-backed securities, which have gradually gained acceptance among investors, and the strategy of picking seasoned mortgage pass-throughs both worked out beneficially. Q. HOW WAS THE FUND ALLOCATED DURING THE PERIOD? A. Corporate issues - exclusive of asset-backed securities - accounted for approximately 45-50% of the fund at the end of the period, while asset-backed and mortgage securities made up around 20% and 12%, respectively. Much of the mortgage holdings were in the commercial mortgage-backed area. The remainder of the fund's assets were sprinkled among Treasuries and agencies. The fund's significant position in corporate bonds reflects the view that economic fundamentals remain stable despite the Fed-induced market volatility. I continued to find attractive opportunities amidst the turbulence. Unless a severe downtown occurs, this allocation will most likely remain consistent going forward. Q. WHILE YOU'RE NOT REACTING DIRECTLY TO INTEREST RATE MOVEMENTS, ARE THERE SPECIFIC STRATEGIES YOU EMPLOY WHEN INTEREST RATES ARE RISING? A. There are certain moves I can make to try to offset the volatility in spreads caused by climbing interest rates. One is that I can adopt a more defensive approach with respect to the fund's spread product durations. By having a shorter duration in the corporates that I own, I can reduce the fund's exposure to yield-spread turbulence. Also, if the Fed gets more aggressive with its interest rate policy than is expected, I may look to scale back some of the fund's corporate holdings whose credit fundamentals are sensitive to interest rates. Q. HAVE YOU MADE ANY CHANGES TO THE PORTFOLIO SINCE TAKING OVER IN FEBRUARY? A. Nothing of major significance to the fund's performance so far. I do have a considerable amount of experience in the mortgage arena, and the portfolio may come to reflect that. One investment discipline that will remain constant is that I'll manage the fund's overall duration to mirror that of its benchmark. I feel this strategy will keep us from getting whipsawed should the market make any drastic moves. Q. WERE THERE ANY PARTICULAR HOLDINGS THAT CONTRIBUTED POSITIVELY TO PERFORMANCE? ANYTHING THAT HELD THE FUND BACK? A. Certain asset-backed and commercial mortgage-backed securities continued to provide stable, positive returns over the period, despite the rocky markets. In terms of disappointments, I can't think of any individual issues that detracted from performance. However, I would again point to the overall uncertainty that pervaded our market during the period. Q. WHAT'S YOUR OUTLOOK? A. As we talk now, I think the market is showing its vulnerable side. While these difficulties may continue, depending on how aggressively the Fed chooses to set monetary policy, I'll continue to scour the spread product groups for opportunities. I think the firms that have the appropriate research capabilities - such as we have here at Fidelity - will be able to uncover some good buys. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: high current income with preservation of capital FUND NUMBER: 449 TRADING SYMBOL: FTBDX START DATE: October 1, 1992 SIZE: as of March 31, 1997, more than $306 million MANAGER: Andrew Dudley, since February 1997; manager, Fidelity Short-Term Bond Fund, since February 1997; joined Fidelity in 1996 (checkmark) ANDY DUDLEY DISCUSSES THE IMPACT OF RISING INTEREST RATES ON CERTAIN SPREAD SECTORS: "A tightening in monetary policy historically has resulted in rising interest rates and can ripple through to the spread sectors. If we get a situation like we had in 1994 where we saw several successive moves by the Fed, there will be more volatility with all spread products. Mortgages are the most susceptible to an unexpected increase in volatility. Mortgages probably will still outperform Treasuries over longer periods of time, but you'll see more short periods of underperformance as the market adjusts to a new level of interest rates. At the end of the day, the relative performance of the corporate market will be driven as much by credit fundamentals as by market turbulence. Like mortgages, corporates may show signs of weakness at first, but then settle down. Fed tightening occurs due to stronger-than-expected economic growth. Corporates may be able to weather the storm because a strong economy typically reflects strong corporate earnings. The last piece of the puzzle, asset-backeds, tend to be of higher quality than corporates. While I think asset-backed bonds will parallel the movements of their corporate counterparts in a rising rate environment, their overall spread volatility will be lower." INVESTMENT CHANGES QUALITY DIVERSIFICATION AS OF MARCH 31, 1997 (MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Aaa 38.8 55.3 Aa 4.8 2.4 A 13.8 12.2 Baa 28.4 21.9 Ba 6.7 4.6 Not rated 1.8 2.7 TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS. SECURITIES RATED AS "BA" OR BELOW WERE RATED INVESTMENT GRADE BY OTHER NATIONALLY RECOGNIZED RATING AGENCIES OR ASSIGNED AN INVESTMENT GRADE RATING AT THE TIME OF ACQUISITION BY FIDELITY. AVERAGE YEARS TO MATURITY AS OF MARCH 31, 1997 6 MONTHS AGO Years 2.2 2.2 AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT. DURATION AS OF MARCH 31, 1997 6 MONTHS AGO Years 1.7 1.7 DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS EXAMPLE. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF MARCH 31, 1997 * AS OF SEPTEMBER 30, 1996 ** Corporate bonds 67.9% U.S. government and government agency obligations 15.0% CMOs and other mortgage-related securities 9.8% Short-term investments 5.7% Other 1.6% FOREIGN INVESTMENTS 3.0% Corporate bonds 53.2% U.S. government and government agency obligations 31.5% CMOs and other mortgage-related securities 12.7% Short-term investments 0.9% Other 1.7% FOREIGN INVESTMENTS 1.2% Row: 1, Col: 1, Value: 1.6 Row: 1, Col: 2, Value: 5.7 Row: 1, Col: 3, Value: 9.800000000000001 Row: 1, Col: 4, Value: 15.0 Row: 1, Col: 5, Value: 67.90000000000001 Row: 1, Col: 1, Value: 1.7 Row: 1, Col: 2, Value: 0.9 Row: 1, Col: 3, Value: 12.7 Row: 1, Col: 4, Value: 31.5 Row: 1, Col: 5, Value: 53.2 * ** INVESTMENTS MARCH 31, 1997 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities NONCONVERTIBLE BONDS - 67.9% MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) BASIC INDUSTRIES - 1.2% CHEMICALS & PLASTICS - 1.2% Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 3,500 $ 3,711 DURABLES - 0.4% AUTOS, TIRES, & ACCESSORIES - 0.4% General Motors Corp. 9 5/8%, 12/1/00 A3 1,160 1,256 ENERGY - 2.3% OIL & GAS - 2.3% Occidental Petroleum Corp.: 5.85%, 11/9/98 Baa3 1,000 986 5.90%, 11/9/98 Baa3 780 770 6.09%, 11/29/99 Baa3 580 566 Pennzoil Co. 9 5/8%, 11/15/99 Baa3 630 669 Ras Laffan Liquid Natural Gas Co. Ltd. yankee 7.628%, 9/15/06 (c) A3 1,400 1,381 Tosco Corp. 7%, 7/15/00 BBB- 2,200 2,184 USX Corp.: 8 7/8%, 9/15/97 Baa3 380 385 6 3/8%, 7/15/98 Baa3 421 420 7,361 FINANCE - 42.1% ASSET-BACKED SECURITIES - 20.4% Capita Equipment Receivables Trust 6.57%, 3/15/01 Aa3 810 805 Case Equipment Loan Trust: 6.15%, 9/15/02 Aaa 6,209 6,239 6.45%, 9/15/02 A3 1,330 1,317 5.85%, 2/15/03 A3 690 671 Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 380 377 Chase Manhattan Grantor Trust 5.90%, 11/15/01 Aaa 2,617 2,605 CPS Auto Grantor Trust 6.70%, 2/15/02 Aaa 652 651 Chevy Chase Auto Receivables Trust 5.80%, 6/15/02 Aaa 1,632 1,623 Discover Card Master Trust I 6.90%, 2/16/00 A2 1,900 1,905 Fidelity Funding Automobile Trust 6.99%, 11/15/02 Aaa 650 650 Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa 2,844 2,828 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) FINANCE - CONTINUED ASSET-BACKED SECURITIES - CONTINUED Green Tree Financial Corp.: 5 1/2%, 1/31/00 Aaa $ 320 $ 313 5.80%, 2/15/27 Aaa 3,200 3,169 6.10%, 4/15/27 Aaa 2,565 2,538 6.45%, 5/15/27 Aaa 1,320 1,311 6 1/2%, 6/15/27 Aaa 770 764 6.65%, 7/15/27 Aaa 1,650 1,653 General Motors Acceptance Corp. Grantor Trust 1995-A, 7.15%, 3/15/00 Aaa 1,834 1,848 KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 205 204 MBNA Master Credit Card Trust 7 3/4%, 10/15/98 Aaa 68 68 Norwest Automobile Trust 6.30%, 5/15/03 A2 1,130 1,109 Onyx Acceptance Grantor Trust 6.20%, 6/15/03 Aaa 2,720 2,699 Olympic Automobile Receivables Trust: 6 1/8%, 11/15/04 Aaa 1,000 991 6.40%, 9/15/01 Aaa 1,280 1,275 Premier Auto Trust: 4.95%, 2/2/99 A2 68 68 8.05%, 4/4/00 Aaa 5,360 5,447 6%, 5/6/00 Aaa 980 976 6.35%, 7/6/00 A3 1,690 1,670 Reliance Auto Receivables Corp., Inc. 6.10%, 7/15/02 (c) Aaa 1,300 1,291 Standard Credit Card Master Trust I: 7.65%, 2/15/00 A2 700 711 6 3/4%, 6//7/00 Aaa 4,470 4,487 TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 594 589 Toyota Auto Receivables Grantor Trust 6.15%, 1/15/99 Baa2 410 408 Union Federal Savings Bank Grantor Trust: 6.975%, 7/10/00 Baa2 303 301 7.275%, 10/10/00 Baa2 278 277 8.20%, 1/10/01 Baa2 277 279 Western Financial Grantor Trust: 6.20%, 2/1/02 Aaa 868 860 5 7/8%, 3/1/02 Aaa 2,008 2,008 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) FINANCE - CONTINUED ASSET-BACKED SECURITIES - CONTINUED WFS Financial Owner Trust: 6.05%, 6/1/00 Aaa $ 2,950 $ 2,938 7.05%, 11/20/03 Aaa 2,510 2,495 6.90%, 12/20/03 Aaa 1,630 1,622 64,040 BANKS - 12.1% Banc One Corp. 6.70%, 3/24/00 Aa3 1,250 1,244 Banponce Financial Corp.: 6%, 4/15/97 A3 230 230 6.34%, 3/29/99 A3 560 554 7.65%, 5/3/00 A3 1,140 1,146 6.88%, 6/16/00 A3 510 506 BanPonce Corp.: 5 3/4%, 3/1/99 A3 850 831 6.378%, 4/8/99 A3 940 927 6.488%, 3/3/00 A3 800 787 Capital One: 6.66%, 8/17/98 Baa3 2,580 2,580 6.42%, 11/12/99 Baa3 2,200 2,171 Corporacion Andina De Fomento yankee 7 3/8%, 7/21/00 Baa2 750 756 First Chicago Corp. sub. cap. notes 9 7/8%, 7/1/99 A2 2,450 2,604 First Fidelity Bancorp. 8 1/2%, 4/1/98 A2 950 967 First Union Corp. 6 3/4%, 1/15/98 A1 500 502 First USA Bank: 6 1/8%, 10/30/97 Baa3 1,430 1,429 5 3/4%, 1/15/99 Baa3 2,920 2,862 6 1/2%, 12/23/99 Baa3 1,700 1,673 Kansallis-Osake-Pankki yankee 9 3/4%, 12/15/98 A3 860 900 Key Bank NA 6%, 10/7/98 Aa3 1,100 1,093 Mellon Financial Co. 6 1/2%, 12/1/97 A2 600 601 Signet Banking Corp. (d): 5.629%, 5/15/97 Baa2 3,970 3,965 5.813%, 4/15/98 Baa2 5,950 5,931 Union Planters National Bank: 6.29%, 8/20/98 A3 1,800 1,798 6.53%, 8/20/99 A3 1,960 1,950 38,007 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - 9.5% AT&T Capital Corp.: 6.02%, 12/4/98 Baa3 $ 2,500 $ 2,474 6.16%, 12/3/99 Baa3 1,940 1,903 Aristar, Inc. 7 1/2%, 7/1/99 Baa1 2,010 2,035 Associates Corp. of North America: 6 1/2%, 9/9/98 Aa3 3,970 3,966 6 3/8%, 8/15/99 Aa3 1,200 1,187 Boatmens Auto Trust 6.35%, 10/15/01 A2 610 605 Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,720 1,699 Edison Mission Energy Funding Corp. 6.77%, 9/15/03 (c) Baa1 2,056 2,023 Finova Capital Corp. 6.14%, 11/2/98 Baa1 580 576 General Motors Acceptance Corp.: 5 3/8%, 3/9/98 A3 1,850 1,835 5.45%, 3/1/99 A3 3,030 2,957 6 3/8%, 4/26/99 A3 2,500 2,482 Greyhound Financial Corp. 6.94%, 1/28/98 Baa2 2,500 2,511 MCN Investment Corp. 5.84%, 2/1/99 Baa2 1,450 1,428 North American Mortgage Co. 5.80%, 11/2/98 Baa2 750 741 Sears, Roebuck Acceptance Corp. 6.17%, 1/29/99 A2 1,000 991 Union Acceptance Corp. 7.075%, 7/10/02 Baa2 396 394 29,807 SAVINGS & LOANS - 0.1% Golden West Financial Corp.: 10 1/4%, 5/15/97 A3 100 101 8 5/8%, 8/30/98 A3 100 102 203 TOTAL FINANCE 132,057 MEDIA & LEISURE - 4.1% BROADCASTING - 3.5% Tele-Communications, Inc. 7 3/8%, 2/15/00 Ba1 2,000 1,995 Time Warner, Inc.: 7.45%, 2/1/98 Ba1 1,980 1,990 7.95%, 2/1/00 Ba1 6,880 7,021 11,006 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) MEDIA & LEISURE - CONTINUED LEISURE DURABLES & TOYS - 0.6% Mattel, Inc. 6 7/8%, 8/1/97 A3 $ 2,000 $ 2,006 TOTAL MEDIA & LEISURE 13,012 NONDURABLES - 2.1% FOODS - 1.8% Dole Food, Inc. 6 3/4%, 7/15/00 Baa3 1,690 1,672 Nabisco, Inc. 8%, 1/15/00 Baa2 3,910 4,001 5,673 TOBACCO - 0.3% RJR Nabisco, Inc. 8%, 1/15/00 Baa3 1,040 1,048 TOTAL NONDURABLES 6,721 RETAIL & WHOLESALE - 0.9% APPAREL STORES - 0.4% Limited, Inc. 9 1/8%, 2/1/01 Baa2 1,230 1,288 GENERAL MERCHANDISE STORES - 0.5% Dayton Hudson Corp. 10%, 12/1/00 Baa1 910 992 Sears, Roebuck & Co. 5.83%, 7/27/98 A2 430 427 1,419 TOTAL RETAIL & WHOLESALE 2,707 TECHNOLOGY - 3.5% COMPUTERS & OFFICE EQUIPMENT - 3.5% Comdisco, Inc.: 6.59%, 9/01/98 Baa1 520 521 6.29%, 10/22/98 Baa1 1,060 1,055 5 3/4%, 1/19/99 Baa2 3,900 3,836 6.86%, 7/29/99 Baa1 1,580 1,576 6.55%, 2/4/00 Baa1 4,000 3,963 10,951 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) TRANSPORTATION - 4.8% AIR TRANSPORTATION - 4.8% AMR Corp.: 7 3/4%, 12/1/97 Baa3 $ 4,600 $ 4,635 9 1/2%, 7/15/98 Baa3 4,415 4,573 9 1/2%, 5/15/01 Baa3 1,400 1,504 Delta Air Lines, Inc. 9 7/8%, 1/1/98 Baa3 1,090 1,118 United Air Lines, Inc. 6 3/4%, 12/1/97 Baa3 3,180 3,182 15,012 UTILITIES - 6.5% CELLULAR - 0.7% 360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba1 2,370 2,314 ELECTRIC UTILITY - 1.0% Indiana Michigan Power Co. 6.40%, 3/1/00 Baa1 2,000 1,960 Ohio Edison Co. 8 3/4%, 2/15/98 Baa2 950 969 2,929 GAS - 3.0% Arkla, Inc.: 8 7/8%, 7/15/99 Baa3 5,500 5,726 8.60%, 9/15/98 Ba2 500 511 8.43%, 9/17/98 Ba1 440 449 Florida Gas Transmission Co. 7 3/4%, 11/1/97 (c) Baa2 1,560 1,573 Mitchell Energy & Development Corp. 8%, 7/15/99 Ba3 1,200 1,220 9,479 TELEPHONE SERVICES - 1.8% MFS Communications, Inc. (b): 0%, 1/15/04 Ba3 1,350 1,211 0%, 1/15/06 Ba3 850 638 WorldCom, Inc. 7.55%, 4/1/04 Ba1 3,800 3,776 5,625 TOTAL UTILITIES 20,347 TOTAL NONCONVERTIBLE BONDS (Cost $215,188) 213,135 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 12.3% MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) U.S. TREASURY OBLIGATIONS - 9.9% 9%, 5/15/98 Aaa $ 1,765 $ 1,819 9 1/4%, 8/15/98 Aaa 3,593 3,730 8 7/8%, 11/15/98 Aaa 360 374 7 3/4%, 12/31/99 Aaa 12,707 13,070 6 7/8%, 3/31/00 Aaa 11,854 11,935 30,928 U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.4% Israel Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 Aaa 769 766 Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) Series 1994-C, 6.61%, 9/15/99 Aaa 381 383 Government Trust Certificates (assets of Trust guaranteed by U.S. Government through Defense Security Assistance Agency): Class C-1, 9 1/4%, 11/15/01 Aaa 1,712 1,802 Class T-3, 9 5/8%, 5/15/02 Aaa 476 502 Private Export Funding Corp. secured 6.86%, 4/30/04 Aaa 1,241 1,238 State of Israel (guaranteed by U.S. government through Agency for International Development) 7 3/4%, 11/15/99 Aaa 2,843 2,910 7,601 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $38,943) 38,529 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 2.7% FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.7% 7%, 8/1/99 to 7/1/01 Aaa 1,895 1,896 12%, 11/1/19 Aaa 171 193 2,089 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2% 11 1/2%, 11/1/15 Aaa 600 675 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.8% 11%, 2/15/10 to 9/15/19 Aaa $ 2,986 $ 3,319 11 1/2%, 5/15/13 to 7/15/15 Aaa 1,006 1,136 12%, 2/15/16 Aaa 984 1,131 5,586 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $8,447) 8,350 COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6% PRIVATE SPONSOR - 0.2% GE Capital Mortgage Services, Inc. planned amortization class Series 1994-2 Class A-4, 6%, 1/25/09 Aaa 750 730 U.S. GOVERNMENT AGENCY - 0.4% Federal National Mortgage Association: planned amortization class Series 155-PC, 5 1/4%, 3/25/13 Aaa 494 491 Series 1994-M3 Class A, 7.71%, 4/1/06 Aaa 844 852 1,343 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $2,081) 2,073 COMMERCIAL MORTGAGE SECURITIES - 9.2% BKB Commercial Mortgage Trust Series 1997-C1 Class B, 7.218%, 2/25/43 (c)(d) AA 1,810 1,807 Blackrock Capital Funding LLC Series 1996 Class C2, 7.635%, 11/16/26 (c)(d) AAA 372 373 CBM Funding Corp. sequential pay: Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 176 178 Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 870 862 CS First Boston Mortgage Securities Corp.: Series 1995-AEWI Class A1, 6.665%, 11/25/27 AAA 776 774 floater Series 1994-CFB1 Class A-1, 5.925%, 1/25/28 (d) Aaa 1,337 1,336 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) Equitable Life Assurance Society of the United States floater Series 174 Class D-2, 6.489%, 5/15/03 (c)(d) Baa2 $ 1,000 $ 1,000 Federal Deposit Insurance Corp. sequential pay: Series 1994-C1 Class 2A2, 7.85%, 9/25/25 Aaa 1,817 1,833 Series 1996-C1 Class 1A, 6.75%, 7/25/26 Aaa 2,273 2,242 Meritor Mortgage Security Corp. Series 1987-1 Class A3, 9.40%, 6/1/99 Baa3 266 266 Nomura Asset Securities Corp. floater Series 1994-MD-II Class A-6, 6.953%, 7/4/03 (d) - 1,249 1,258 Oregon Commercial Mortgage, Inc. Series 1995-1 Class A, 7.15%, 6/25/23 (c) AAA 2,438 2,424 Resolution Trust Corp.: floater Series 1993-C2 Class A-2, 6.558%, 3/25/25 (d) AAA 2,962 2,969 floater Series 1994-C1 Class A-3, 6.238%, 6/25/26 (d) AAA 2,075 2,062 Series 1995-C1 Class A-4A, 6 1/4%, 2/25/27 Aaa 401 401 Series 1995-C2 C Class A-1B, 6 1/4%, 5/25/27 Aaa 1,360 1,344 SC Finance Corp. floater 7.238%, 8/1/04 (c)(d) - 4,300 4,295 Structured Asset Securities Corp. sequential pay: Series 1993-C1 Class A-1A, 6.60%, 10/25/24 AA+ 328 326 Series 1995-C4 Class A-1A, 6.90%, 6/25/26 AAA 749 747 Series 1996 Class A-1B, 5.751%, 2/25/28 AAA 195 194 Series 1996 Class A-1C, 5.944%, 2/25/28 AAA 1,401 1,376 Series 1996-C3 Class A, 6 3/4%, 6/25/30 (c)(d) AAA 793 783 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $29,042) 28,850 FOREIGN GOVERNMENT OBLIGATIONS - 0.6% Israeli State 6 3/8%, 12/19/01 A3 1,500 1,446 Ontario Province yankee 15 1/4%, 8/31/12 Aa3 410 448 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $1,961) 1,894 CERTIFICATES OF DEPOSIT - 1.0% MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (A) AMOUNT (000S) (000S) Canadian Imperial Bank New York yankee 6.475%, 1/24/00 (Cost $3,104) Aa3 $ 3,100 $ 3,088 CASH EQUIVALENTS - 5.7% MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 6.46%, dated 3/31/97 due 4/1/97 $ 17,872 17,869 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $316,635) $ 313,788 LEGEND 1. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 2. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 3. 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 $16,950,000 or 5.5% of net assets. 4. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. OTHER INFORMATION The composition of long-term debt holdings as a percentage of total value of investment in securities, is as follows: MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 52.8% AAA, AA, A 51.7% Baa 27.8% BBB 31.1% Ba 6.7% BB 8.2% 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 both S&P and Moody's amounted to 1.8%. INCOME TAX INFORMATION At March 31, 1997, the aggregate cost of investment securities for income tax purposes was $316,635,000. Net unrealized depreciation aggregated $2,847,000, of which $270,000 related to appreciated investment securities and $3,117,000 related to depreciated investment securities. At September 30, 1996, the fund had a capital loss carryforward of approximately $75,382,000 of which $39,973,000, and $35,409,000 will expire on September 30, 2003, and 2004, respectively. The fund intends to elect to defer to its fiscal year ending September 30, 1997 approximately $3,738,000 of losses recognized during the period November 1, 1995 to September 30, 1996. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) MARCH 31, 1997 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase $ 313,788 agreements of $17,869) (cost $316,635) - See accompanying schedule Cash 1 Receivable for investments sold 477 Interest receivable 3,309 TOTAL ASSETS 317,575 LIABILITIES Payable for investments purchased $ 10,701 Payable for fund shares redeemed 310 Distributions payable 303 Accrued management fee 104 TOTAL LIABILITIES 11,418 NET ASSETS $ 306,157 Net Assets consist of: Paid in capital $ 391,691 Distributions in excess of net investment income (1,675) Accumulated undistributed net realized gain (loss) (81,012) on investments and foreign currency transactions Net unrealized appreciation (depreciation) on (2,847) investments NET ASSETS, for 34,143 shares outstanding $ 306,157 NET ASSET VALUE, offering price and redemption price per $8.97 share ($306,157 (divided by) 34,143 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) INVESTMENT INCOME $ 11,343 Interest EXPENSES Management fee $ 1,055 Non-interested trustees' compensation 1 Total expenses before reductions 1,056 Expense reductions (73) 983 NET INVESTMENT INCOME 10,360 REALIZED AND UNREALIZED GAIN (LOSS) (1,789) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) (31) on investment securities NET GAIN (LOSS) (1,820) NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 8,540 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1997 1996 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 10,360 $ 28,025 Net investment income Net realized gain (loss) (1,789) (3,969) Change in net unrealized appreciation (depreciation) (31) (706) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 8,540 23,350 FROM OPERATIONS Distributions to shareholders from net investment income (10,327) (28,023) Share transactions 49,944 93,000 Net proceeds from sales of shares Reinvestment of distributions 8,362 23,083 Cost of shares redeemed (93,940) (289,546) NET INCREASE (DECREASE) IN NET ASSETS RESULTING (35,634) (173,463) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS (37,421) (178,136) NET ASSETS Beginning of period 343,578 521,714 End of period (including distributions in excess of $ 306,157 $ 343,578 net investment income of $1,675 and $1,708, respectively) OTHER INFORMATION Shares Sold 5,519 10,225 Issued in reinvestment of distributions 925 2,536 Redeemed (10,385) (31,809) Net increase (decrease) (3,941) (19,048)
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER 1, 1992 ENDED (COMMENCEMEN MARCH 31, 1997 T OF OPERATIONS) TO SEPTEMBER 30, (UNAUDITED) 1996 1995 1994 E 1993
SELECTED PER-SHARE DATA Net asset value, beginning $ 9.020 $ 9.130 $ 9.330 $ 9.990 $ 10.000 of period Income from Investment .288 D .598 .584 .574 .747 Operations Net investment income Net realized and (.051) (.112) (.199) (.604) (.009) unrealized gain (loss) Total from investment .237 .486 .385 (.030) .738 operations Less Distributions From net investment (.287) (.596) (.443) (.477) (.747) income In excess of net - - - (.033) (.001) investment income In excess of net - - - (.010) - realized gain Return of capital - - (.142) (.110) - Total distributions (.287) (.596) (.585) (.630) (.748) Net asset value, end $ 8.970 $ 9.020 $ 9.130 $ 9.330 $ 9.990 of period TOTAL RETURN B, C 2.65% 5.47% 4.35% (.32)% 7.69% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 306 $ 344 $ 522 $ 798 $ 1,471 (in millions) Ratio of expenses to .61% A, .65% .65% .54% F .20% average net assets F F Ratio of expenses to .61% A .64% .65% .54% .20% average net assets after G expense reductions Ratio of net investment 6.39% A 6.52% 6.45% 6.42% 7.32% income to average net assets Portfolio turnover rate 106% A 134% 159% 97% 112%
A ANNUALIZED B THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). C TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E 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, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). NOTES TO FINANCIAL STATEMENTS For the period ended March 31, 1997 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES. 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities are valued based upon a computerized matrix system and/or appraisals by a pricing service, both of which consider market transactions and dealer-supplied valuations. 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. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 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, which may result in distribution reclassifications, are primarily due to differing treatments for paydown gains/losses on certain securities, foreign currency transactions, market discount, capital loss carryforwards and losses deferred due to wash sales and excise tax regulations. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Distributions in excess of net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. 2. OPERATING POLICIES - CONTINUED REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, the fund had no investments in restricted securities (excluding 144A issues). 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $169,098,000 and $211,641,000, respectively, of which U.S. government and government agency obligations aggregated $77,896,000 and $142,598,000, 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. To offset the cost of providing these services, FMR or its affiliates collect certain transaction fees from the fund's shareholders which amounted to $5,000 for the period. 5. EXPENSE REDUCTIONS. Effective March 1, 1997, FMR voluntarily agreed to reimburse operating expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) above an annual rate of .38% of the funds average net assets. For the period, the reimbursement reduced expenses by $68,000. In addition, FMR has entered into an arrangement on behalf of the fund with the fund's custodian whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's expenses were reduced by $5,000 under this arrangement. MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. 1 For quotes.* 2 For account balances and holdings. 3 To review orders and mutual fund activity. 4 To change your PIN. 5 To speak to a Fidelity representative. * 0 BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO 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 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT 29 South Main Street West Hartford, 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 1502 N. Westshore Blvd. Tampa, 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 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL 3232 Lake Avenue Wilmette, IL INDIANA 4729 East 82nd Street Indianapolis, IN LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 4611 Sharon Road Charlotte, NC 2200 West Main Street Durham, NC OHIO 600 Vine Street Cincinnati, OH 28699 Chagrin Boulevard Woodmere Village, OH 1903 East Ninth Street Cleveland, 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 2701 Drexel Drive Houston, TX 1010 Lamar Street 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 511 Pine Street Seattle, WA WASHINGTON, DC 1900 K Street, N.W. Washington, DC WISCONSIN 595 North Barker Road Brookfield, 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 Fred L. Henning, Jr., Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Robert M.Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA * INDEPENDENT TRUSTEES TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA 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 New Markets Income Short-Intermediate Government Short-Term Bond Spartan(registered trademark) Ginnie Mae Spartan Government Income Spartan High Income Spartan Investment Grade Bond Spartan Limited Maturity Government Spartan Short-Intermediate Government Spartan Short-Term Bond Target Timeline 1999, 2001 & 2003 THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 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) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)FIDELITY ASSET MANAGER SM SEMIANNUAL REPORT MARCH 31, 1997 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 6 The managers' 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 44 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 48 Notes to the financial statements. REPORT OF INDEPENDENT 53 The auditors' 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, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (photo_of_Edward_C_Johnson_3d) DEAR SHAREHOLDER: As the first quarter of 1997 came to an end, stock and bond markets experienced the kind of short-term volatility that can affect them from time to time. After climbing steadily upward for more than two years, stock prices saw a sharp correction over the second half of March. Returns in the bond market were essentially stagnant as the Federal Reserve Board implemented a long-expected increase in short-term interest rates at the end of March. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. First, investors are encouraged to take a long-term view of their portfolios. If you can afford to leave your money invested through the inevitable up and down cycles of the financial markets, you will greatly reduce your vulnerability to any single decline. We know from experience, for example, that stock prices have gone up over longer periods of time, have significantly outperformed other types of investments and have stayed ahead of inflation. Second, you can further manage your investing risk through diversification. Asset Manager funds are already diversified because they invest in stocks, bonds and short-term and money market instruments, both in the U.S. and overseas. If you have a shorter investment time horizon, you might want to consider moving some of your investment into Asset Manager: Income, which generally has a higher weighting in short-term investments compared with the other Asset Manager funds. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 6 PAST 1 PAST 5 LIFE OF MONTHS YEAR YEARS FUND Fidelity Asset Manager 5.87% 10.86% 67.22% 160.40% S&P 500(registered trademark) 11.24% 19.82% 113.93% 248.39% Flexible Portfolio Funds Average 5.01% 10.12% 69.42% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years or since the fund started on December 28, 1988. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Standard & Poor's 500 Index - a widely recognized, unmanaged index of common stocks. To measure how the fund's performance stacked up against its peers, you can compare it to the flexible portfolio funds average, which reflects the performance of 212 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past six months. These benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Fidelity Asset Manager 10.86% 10.83% 12.28% S&P 500 19.82% 16.42% 16.31% Flexible Portfolio Funds Average 10.12% 10.93% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER LIFE OF FUND 1988/12/31 10000.00 10000.00 10000.00 1989/01/31 10378.86 10732.00 10291.60 1989/02/28 10219.34 10464.77 10200.52 1989/03/31 10309.07 10708.60 10320.38 1989/04/30 10578.27 11264.38 10593.04 1989/05/31 10887.34 11720.59 10846.43 1989/06/30 11006.98 11653.78 10999.47 1989/07/31 11326.02 12706.12 11415.14 1989/08/31 11355.93 12955.15 11426.55 1989/09/30 11355.93 12902.04 11453.98 1989/10/31 11405.78 12602.71 11519.04 1989/11/30 11485.54 12859.81 11656.23 1989/12/31 11527.69 13168.44 11770.69 1990/01/31 11158.89 12284.84 11486.90 1990/02/28 11243.19 12443.31 11560.30 1990/03/31 11359.10 12773.06 11674.05 1990/04/30 11169.43 12453.74 11566.30 1990/05/31 11759.51 13667.97 12058.22 1990/06/30 11854.35 13575.03 12133.34 1990/07/31 11843.81 13531.59 12207.35 1990/08/31 11443.39 12308.34 11829.78 1990/09/30 11211.58 11708.92 11724.02 1990/10/31 11243.19 11658.57 11808.08 1990/11/30 11780.58 12411.72 12162.21 1990/12/31 12147.79 12758.00 12361.43 1991/01/31 12795.97 13314.25 12597.16 1991/02/28 13354.74 14266.22 12912.59 1991/03/31 13578.25 14611.46 13052.82 1991/04/30 13790.59 14646.53 13138.45 1991/05/31 14137.03 15279.26 13347.09 1991/06/30 13835.29 14579.47 13174.11 1991/07/31 14204.08 15258.87 13438.91 1991/08/31 14528.17 15620.51 13678.12 1991/09/30 14550.52 15359.65 13743.09 1991/10/31 14662.28 15565.47 13865.40 1991/11/30 14405.24 14938.18 13769.87 1991/12/31 15019.76 16647.11 14448.31 1992/01/31 15236.74 16337.47 14290.39 1992/02/29 15526.05 16549.86 14381.71 1992/03/31 15526.05 16227.13 14277.73 1992/04/30 15743.03 16704.21 14453.35 1992/05/31 15899.73 16786.06 14595.28 1992/06/30 15899.73 16535.95 14601.70 1992/07/31 16225.20 17212.27 14998.28 1992/08/31 16152.88 16859.42 14940.69 1992/09/30 16273.42 17058.36 15105.93 1992/10/31 16249.31 17118.06 15045.81 1992/11/30 16610.94 17701.79 15246.52 1992/12/31 16934.14 17919.52 15433.44 1993/01/31 17225.45 18070.05 15626.36 1993/02/28 17402.77 18315.80 15844.19 1993/03/31 17975.71 18702.26 16006.75 1993/04/30 18052.42 18249.67 15909.43 1993/05/31 18435.97 18738.76 16080.30 1993/06/30 18668.08 18793.10 16251.07 1993/07/31 18951.91 18717.93 16271.88 1993/08/31 19493.76 19427.34 16672.16 1993/09/30 19481.53 19277.75 16655.16 1993/10/31 20054.14 19676.80 16826.37 1993/11/30 20015.09 19489.87 16696.81 1993/12/31 20877.83 19725.69 16812.35 1994/01/31 21555.68 20396.37 17142.55 1994/02/28 20877.83 19843.63 16817.52 1994/03/31 19867.84 18978.44 16382.96 1994/04/30 19854.17 19221.37 16425.55 1994/05/31 20018.25 19536.60 16536.26 1994/06/30 19577.74 19057.95 16370.90 1994/07/31 19962.97 19683.05 16716.65 1994/08/31 20430.74 20490.06 17004.51 1994/09/30 20182.51 19988.05 16755.23 1994/10/31 20279.40 20437.78 16915.74 1994/11/30 19974.87 19693.44 16669.99 1994/12/31 19499.59 19985.49 16824.89 1995/01/31 19344.50 20503.72 17139.38 1995/02/28 19640.59 21302.75 17567.66 1995/03/31 19953.26 21931.39 17836.51 1995/04/30 20364.82 22577.27 18157.21 1995/05/31 20847.33 23479.68 18758.73 1995/06/30 21133.35 24025.12 19009.94 1995/07/31 21718.80 24821.79 19252.21 1995/08/31 21861.60 24884.09 19378.96 1995/09/30 22219.16 25934.20 19797.94 1995/10/31 22147.35 25841.62 19910.63 1995/11/30 22563.87 26976.06 20401.22 1995/12/31 23039.92 27495.62 20693.86 1996/01/31 23534.15 28431.57 21046.40 1996/02/29 23417.86 28695.13 20969.12 1996/03/31 23419.07 28971.47 20994.53 1996/04/30 23623.99 29398.51 21081.78 1996/05/31 23872.82 30156.69 21303.90 1996/06/30 24006.08 30271.59 21462.49 1996/07/31 23548.68 28934.19 21122.27 1996/08/31 23696.23 29544.41 21301.30 1996/09/30 24523.08 31207.17 21938.89 1996/10/31 25147.68 32067.87 22393.29 1996/11/30 26337.40 34491.88 23244.14 1996/12/31 25972.41 33808.59 22984.18 1997/01/31 26760.88 35920.96 23740.59 1997/02/28 26981.65 36202.58 23866.65 1997/03/31 25961.97 34715.01 23280.84 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Fidelity Asset Manager on December 31, 1988, shortly after the fund started. As the chart shows, by March 31, 1997, the value of the investment would have grown to $25,962 - a 159.62% increase on the initial investment. For comparison, look at how the S&P 500 did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $34,715 - a 247.15% increase. You can also look at how the Fidelity Asset Allocation Composite Index, a hypothetical combination of unmanaged indices, did over the same period. The composite index combines the total returns of the S&P 500 (+247.15%), the Lehman Brothers Aggregate Bond Index (+102.25%) and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (+55.49%) according to the fund's neutral mix*, and assumes monthly rebalancing of the mix. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $23,281 - a 132.81% 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) * CURRENTLY 50% STOCKS, 40% BONDS AND 10% SHORT-TERM/MONEY MARKET INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 40%, 40% AND 20%, RESPECTIVELY, BETWEEN JUNE 1, 1992 AND DECEMBER 31, 1996; 30%, 40%, AND 30%, RESPECTIVELY, PRIOR TO JUNE 1, 1992. FUND TALK: THE MANAGERS' OVERVIEW NOTE TO SHAREHOLDERS: Effective December 1, 1996, John Todd (bottom right) became sub-manager for the redefined short-term/money market class of Fidelity Asset Manager. In addition, Charles Morrison (bottom left) became sub-manager for bonds on February 3, 1997. The following is an interview with Richard Habermann (top left), Portfolio Manager of Fidelity Asset Manager, George Vanderheiden (top right), sub-manager for stocks, John Todd and Charles Morrison. Q. DICK, HOW DID THE FUND PERFORM? D.H. For the six months that ended March 31, 1997, the fund had a total return of 5.87%, performing slightly better than the 5.01% return posted over the same period by the flexible portfolio funds average tracked by Lipper Analytical Services. For the 12 months that ended March 31, 1997, the fund returned 10.86%, again slightly beating the 10.12% return of the flexible portfolio funds average for the same period. Q. WHAT HELPED THE FUND BEAT THE AVERAGE? D.H. Through most of the period, the fund was overweighted in stocks relative to its competitors and its neutral mix targets. At the end of the period, the fund had 55% invested in stocks, 37% in bonds and 8% in short-term/money market securities, versus its neutral mix of 50% stocks, 40% bonds and 10% short-term/money market securities. This overweighting in stocks helped the fund, as equities performed best among the three asset classes. Equities outperformed because most companies continued to post good earnings reports, helped in part by limited wage growth and cost cutting. In addition, the economy was stronger than expected in the fourth quarter of 1996 and the first quarter of 1997, with companies posting moderately strong unit growth. Q. WHAT WAS THE ENVIRONMENT LIKE FOR THE BOND MARKET? D.H. The bond market has struggled because of concerns that continued economic growth might lead to inflation. Employment has reached a level where inevitably there should be increased upward pressure on wages. In this cycle of inflationary expectations, the Federal Reserve Board has tried to anticipate and head off incipient inflation by raising the fed funds rate - the rate banks charge each other for overnight loans - to 5.50% near the end of the period. This pre-emptive move was well-telegraphed, as Fed Chairman Alan Greenspan had indicated the Fed's inclination toward raising interest rates twice before the Fed acted. As a result, the rate increases were already priced into the market. Although the equity market was leery of interest rate increases, the strong economy still supported continued earnings growth overall. The bond market, however, is concerned that interest rates are going to move higher - and bond prices lower - so its performance has suffered. Q. WHAT WAS YOUR RATIONALE FOR OVERWEIGHTING STOCKS? D.H. As I said, corporate earnings remained strong, as did the economy. Another key factor was the strength of the dollar, although that can act as a double-edged sword. On the positive side, a strong dollar has a positive effect on inflation, in that it keeps import prices down. In addition, investors, especially those abroad, tend to feel more comfortable putting money into U.S. equities when the dollar is strong, and that helps to sustain stock prices. On the negative side, a rising dollar acts as a drag on the economy by slowing exports and suppressing corporate earnings. This especially affects large, multinational corporations. Q. TURNING TO YOU, GEORGE, WHAT AFFECT DO YOU SEE THE FED INTEREST RATE INCREASE HAVING ON THE STOCK MARKET? G.V. Rising interest rates are poison to high price/earnings - or P/E - multiples, and large-cap consumer growth stocks carry some of the highest P/E ratios in the market today. These stocks have done very well over the past three years, while smaller- to mid-cap stocks have suffered both on a relative and an absolute basis since mid-1996. I have been reallocating assets to these smaller-cap stocks where I think there is better value. Q. WHAT IS YOUR POSITION ON TOBACCO STOCKS? G.V. The fund owns tobacco stocks because they've operated a profitable business that has offered above-average returns to shareholders over the long term. The stocks provide better-than-average earnings growth, lower-than-average P/E ratios and high yields. Nothing that has occurred over the past year has changed that. We have determined that the tobacco stocks are selling at a "litigation discount" far in excess of any reasonable estimate of potential liabilities. In spite of the barrage of litigation over the past 10 years and the occurrence of the "Marlboro Friday" price-cutting incident - when the company's stock dropped because the company cut product prices to increase market share - Philip Morris has appreciated by 5 1/2-fold over the 10-year period - versus a four-fold increase in the S&P 500 - and also has paid a higher dividend yield versus the market during the same time period. Q. HOW DO YOU GO ABOUT STEERING THE FUND'S STOCK INVESTMENTS THROUGH DIFFICULT MARKET PHASES? G.V. One of the ways to do so is to emphasize companies with reliable and above-average earnings growth rates whose stock carries a dividend yield equal to or better than the market, and whose stock valuation is lower than that of the market. Much of the fund's stock assets at period end are in growth companies such as Philip Morris, Fannie Mae - the Federal National Mortgage Association - Fleet Financial, IBM, Freddie Mac - the Federal Home Loan Mortgage Corporation - Columbia/HCA Healthcare and Vodafone. This combined group of companies has an earnings growth rate of 14%, nearly twice that of the S&P 500. The average dividend yield of this group of stocks is 2%, similar to that of the S&P 500. The average P/E ratio of this group of stocks - based on 1997 earnings - is 14 while that of the S&P 500 is 17. I took much comfort that these companies in aggregate had much better earnings prospects than the S&P 500, yet were selling for a lower valuation. In a rising market, they've got superior growth going for them and, in a falling market, they've had conservative valuations giving them support. Q. CHARLIE, WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND'S BOND INVESTMENTS? C.M. For most of the period, I focused on positioning the portfolio more aggressively by increasing its weighting in corporate and mortgage-backed securities, while decreasing the percentage held in Treasuries. Part of that move was accomplished with Dick's reallocation of assets away from bonds. In reducing the fund's stake in bonds, I sold Treasuries. At the same time, I tended to focus any new purchases on investments that offered a yield advantage over Treasuries. Specific areas of focus included BBB-rated corporate bonds and commercial mortgage-backed securities. Q. WHAT KINDS OF BONDS DID YOU FOCUS ON IN THE CORPORATE MARKET? C.M. One area of interest over the period was in the bank market. I continued to add long-term bank paper in the form of capital securities. Last fall, the Federal Reserve Board ruled that domestic banking companies could issue capital securities, which offered the banks significant tax advantages, as well as the opportunity to strengthen their balance sheets. Numerous banks took advantage of this opportunity, and inundated the market with these securities. The large amount of supply in a relatively concentrated period of time allowed us to purchase many capital securities at cheap levels. This market has performed very well following the initial supply. The second area of focus was in the put bond market. These securities offer an option to buyers that, at their discretion, allows them the opportunity to redeem the securities at a date before their actual stated maturities. The structural characteristics of these bonds are appealing today. They can be purchased at attractive levels given that recent interest rate volatility has been very low. In the event that volatility moves back to more traditional levels, I believe these bonds should perform well. Q. JOHN, WHAT HAS THE BACKDROP FOR THE SHORT-TERM AND MONEY MARKETS BEEN LIKE SINCE YOU CAME ON BOARD? J.T. As Dick pointed out, economic growth accelerated in the fourth quarter of 1996. As we entered the first quarter of 1997, it became evident that the economy was carrying a lot of upward momentum. Finally, as you know, the Fed raised the fed funds rate by 0.25% in March. This move had largely been anticipated and priced into the short-term markets. Q. WHAT SORT OF STRATEGY DID YOU PURSUE DURING THAT TIME? J.T. Early on, I kept the short-term/money market investments' average maturity relatively short, keeping it ready to take advantage of the increase in short-term rates that was on the horizon. As interest rates in the short end of the market reacted to the Fed's upward move and factored in additional moves in the future, I extended the average maturity of the money market investments in order to lock in the higher yields that were being offered. Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK? D.H. A lot depends on how far interest rates go up and what kind of impact this has on corporate earnings looking forward to 1998. At this point, it appears that 1997 will be a reasonable year for earnings. But remember, investors pay for future earnings, and at this point 1998 is a question mark. If the economy continues to grow in such a way that the Fed has to raise interest rates, then bonds will become more attractive. Bond yields already are more attractive compared to where they were a few months ago. It's possible that Fed actions will check the growth in the strong elements of the economy. If that's the case, continued moderate economic growth would be a positive backdrop for the stock market. We'll have to see. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: high total return with reduced risk over the long term by allocating assets among stocks, bonds and short-term and money market instruments of all types FUND NUMBER: 314 TRADING SYMBOL: FASMX START DATE: December 28, 1988 SIZE: as of March 31, 1997, more than $10.4 billion MANAGER: Richard Habermann, since 1996; manager, Fidelity Asset Manager: Income and Fidelity Asset Manager: Growth, since 1996; manager, Fidelity Trend Fund, 1977-1981; Fidelity Magellan Fund, 1972-1977; joined Fidelity in 1968 (checkmark) DICK HABERMANN ON MITIGATING VOLATILITY THROUGH ASSET ALLOCATION: "The fund's asset allocation strategy is one way to mitigate the kind of volatility we've seen in the markets lately. The concept behind the fund is that the bond and short-term/money market investments serve to dampen volatility for the stock portion. While a smaller concentration in stocks may affect performance in periods where the stock market is quite strong, the fund can benefit from its diversification during periods when bonds, short-term securities or money market instruments outperform stocks. Stocks and bonds experience periods when they do relatively well at the same time. At other times, however, one asset class performs better than the other. Over the past couple of years, however, a select group of large-company stocks has been unique in its clear outperformance of the rest of the market. By the same token, there are periods when bonds do well and equities do not. What it comes down to is a trade-off in terms of risk and return. The fund has a lower risk profile than most diversified stock funds." INVESTMENT CHANGES TOP FIVE STOCKS AS OF MARCH 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 5.1 3.4 Federal National Mortgage Association 4.1 3.9 General Motors Corp. 2.1 2.0 International Business Machines Corp. 1.8 1.4 Federal Home Loan Mortgage Corporation 1.7 1.3 TOP FIVE BOND ISSUERS AS OF MARCH 31, 1997 (WITH MATURITIES MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE ISSUERS 6 MONTHS AGO U.S. Treasury 8.9 21.8 Federal National Mortgage Association 5.2 5.2 Government National Mortgage Association 1.8 2.7 Ford Motor Credit Co. 0.9 0.9 State of Israel (guaranteed by U.S. 0.6 0.2 Government through Agency for International Development) TOP FIVE COUNTRIES AS OF MARCH 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO United States 87.8 90.3 United Kingdom 2.7 2.0 Netherlands 2.1 1.4 Canada 1.8 2.0 Japan 1.3 0.9 TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURTIY, INDICATING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES CONTRACTS, IF APPLICABLE. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF MARCH 31, 1997 * AS OF SEPTEMBER 30, 1996 ** Row: 1, Col: 1, Value: 8.0 Row: 1, Col: 2, Value: 37.0 Row: 1, Col: 3, Value: 55.0 Stock class 46% Bond class 38% Short-term class 16% FOREIGN INVESTMENTS 10% Stock class 55% Bond class 37% Short-term class 8% FOREIGN INVESTMENTS 12% Row: 1, Col: 1, Value: 16.0 Row: 1, Col: 2, Value: 38.0 Row: 1, Col: 3, Value: 46.0 * ** ASSET ALLOCATIONS IN THE PIE CHARTS REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS MARCH 31, 1997 Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 54.6% SHARES VALUE (NOTE 1) (000S) AEROSPACE & DEFENSE - 1.0% AEROSPACE & DEFENSE - 0.6% Boeing Co. 631,300 $ 62,262 Gulfstream Aerospace Corp. (a) 125,700 2,734 64,996 DEFENSE ELECTRONICS - 0.3% Raytheon Co. 748,500 33,776 SHIP BUILDING & REPAIR - 0.1% Avondale Industries, Inc. (a) 50,200 866 Newport News Shipbuilding, Inc. 166,500 2,414 3,280 TOTAL AEROSPACE & DEFENSE 102,052 BASIC INDUSTRIES - 2.9% CHEMICALS & PLASTICS - 1.9% Air Products & Chemicals, Inc. 204,000 13,847 du Pont (E.I.) de Nemours & Co. 1,284,300 136,136 Raychem Corp. 325,700 26,830 Union Carbide Corp. 637,400 28,205 205,018 IRON & STEEL - 0.0% Inland Steel Industries, Inc. 17,200 335 METALS & MINING - 0.0% Aluminum Co. of America 24,800 1,686 Special Metals Corp. 27,500 481 2,167 PACKAGING & CONTAINERS - 0.3% Owens-Illinois, Inc. (a) 1,200,300 29,557 Tupperware Corp. 105,700 3,541 33,098 PAPER & FOREST PRODUCTS - 0.7% Boise Cascade Corp. 422,700 12,892 Champion International Corp. 659,200 29,994 International Paper Co. 364,200 14,158 Temple-Inland, Inc. 116,400 6,111 Willamette Industries, Inc. 80,400 5,025 68,180 TOTAL BASIC INDUSTRIES 308,798 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) CONSTRUCTION & REAL ESTATE - 0.5% CONSTRUCTION - 0.4% Centex Corp. 224,490 $ 7,913 D.R. Horton, Inc. 466,010 5,010 Fleetwood Enterprises, Inc. 989,887 24,747 Kaufman & Broad Home Corp. 502,800 6,662 U.S. Home Corp. (a) 52,500 1,332 45,664 ENGINEERING - 0.1% Fluor Corp. 183,000 9,608 TOTAL CONSTRUCTION & REAL ESTATE 55,272 DURABLES - 3.6% AUTOS, TIRES, & ACCESSORIES - 3.4% Circuit City Stores, Inc. CarMax Group 47,800 717 Cummins Engine Co., Inc. 286,100 14,663 Dana Corp. 183,600 6,036 Discount Auto Parts, Inc. (a) 313,400 5,014 Federal-Mogul Corp. 364,200 8,968 General Motors Corp. 4,055,592 224,578 Gentex Corp. (a) 21,000 415 Goodyear Tire & Rubber Co. 150,800 7,880 Honda Motor Co. Ltd. 581,000 17,320 Magna International, Inc. Class A 559,000 27,676 Superior Industries International, Inc. 680,800 15,403 Volvo AB Class B 977,400 26,044 354,714 CONSUMER ELECTRONICS - 0.1% Newell Co. 344,300 11,534 TEXTILES & APPAREL - 0.1% Burlington Industries, Inc. (a) 818,500 9,413 Hat Brands, Inc. (warrants) (a)(g) 90,346 294 Liz Claiborne, Inc. 129,900 5,667 15,374 TOTAL DURABLES 381,622 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) ENERGY - 5.4% ENERGY SERVICES - 0.2% McDermott International, Inc. 834,200 $ 17,831 OIL & GAS - 5.2% Amerada Hess Corp. 327,500 17,358 Anadarko Petroleum Corp. 45,300 2,542 Atlantic Richfield Co. 463,900 62,627 British Petroleum PLC: ADR 583,097 80,030 Ord. 1,524 18 Burlington Resources, Inc. 787,000 33,644 Canada Occidental Petroleum Ltd. 677,400 12,476 Chevron Corp. 48,300 3,363 Elf Aquitaine SA sponsored ADR 169,257 8,336 Enron Oil & Gas Co. 48,800 1,013 Kerr-McGee Corp. 159,000 9,838 Louisiana Land & Exploration Co. 595,500 28,212 Mobil Corp. 48,300 6,308 Noble Affiliates, Inc. 74,000 2,794 Occidental Petroleum Corp. 1,085,800 26,738 Royal Dutch Petroleum Co.: ADR 920,700 161,123 Ord. 97,400 17,656 Santa Fe Energy Resources, Inc. (a) 487,400 6,763 Sun Co., Inc. 460,600 12,033 Tosco Corp. 1,347,300 38,398 Total SA: Class B 84,103 7,262 sponsored ADR 299,372 12,686 Union Pacific Resources Group, Inc. 128,200 3,428 554,646 TOTAL ENERGY 572,477 FINANCE - 11.3% BANKS - 0.6% BankAmerica Corp. 65,500 6,599 Canadian Imperial Bank of Commerce 68,500 1,549 Credit Suisse Group (Reg.) 120,500 14,371 Hong Leong Bank BHD 4,215,000 13,772 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - CONTINUED BANKS - CONTINUED NationsBank Corp. 305,500 $ 16,917 State Street Boston Corp. 80,900 5,612 58,820 CLOSED END INVESTMENT COMPANY - 0.1% First NIS Regional Fund (a) 480,000 7,320 CREDIT & OTHER FINANCE - 1.4% Beneficial Corp. 10,000 646 Fleet Financial Group, Inc. 2,241,934 128,351 Homeside, Inc. 12,800 189 Hong Leong Credit BHD 2,430,000 15,880 Transamerica Corp. 52,300 4,681 149,747 FEDERAL SPONSORED CREDIT - 5.8% Federal Home Loan Mortgage Corporation 6,676,300 181,929 Federal National Mortgage Association 12,054,400 435,465 617,394 INSURANCE - 3.1% AFLAC, Inc. 271,100 10,166 Allmerica Financial Corp. 359,700 12,634 Allstate Corp. 1,606,513 95,387 American International Group, Inc. 619,750 72,743 CIGNA Corp. 33,900 4,954 Equitable of Iowa Companies 40,200 2,010 General Re Corp. 232,600 36,751 Loews Corp. 64,700 5,750 MGIC Investment Corp. 211,100 14,935 Nationwide Financial Services, Inc. Class A 39,500 1,017 Provident Companies, Inc. 28,600 1,566 Providian Corp. 616,000 32,956 Reliastar Financial Corp. 98,604 5,830 Torchmark Corp. 389,500 21,569 Travelers Property Casualty Corp. Class A 94,400 2,997 UNUM Corp. 33,600 2,453 323,718 SAVINGS & LOANS - 0.2% Golden West Financial Corp. 380,600 23,883 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - CONTINUED SECURITIES INDUSTRY - 0.1% United Asset Management Corp. 612,900 $ 15,706 TOTAL FINANCE 1,196,588 HEALTH - 3.6% DRUGS & PHARMACEUTICALS - 1.1% American Home Products Corp. 28,500 1,710 Amgen, Inc. (a) 511,600 28,586 Astra AB Class A Free shares 804,500 38,682 Idexx Laboratories, Inc. 262,200 3,671 Novartis AG (Reg.) (a) 9,500 11,713 Pharmacia & Upjohn, Inc. 34,800 1,275 Schering-Plough Corp. 445,100 32,381 Warner-Lambert Co. 48,000 4,152 122,170 MEDICAL EQUIPMENT & SUPPLIES - 0.4% Abbott Laboratories 29,200 1,639 Allegiance Corp. 53,760 1,189 Baxter International, Inc. 117,200 5,054 Biomet, Inc. 643,700 10,862 Guidant Corp. 13,500 830 Johnson & Johnson 73,700 3,897 St. Jude Medical, Inc. (a) 621,600 20,746 44,217 MEDICAL FACILITIES MANAGEMENT - 2.1% Columbia/HCA Healthcare Corp. 4,698,823 157,998 Health Management Associates, Inc. Class A (a) 37,000 879 Humana, Inc. (a) 913,200 20,090 Tenet Healthcare Corp. (a) 812,300 20,003 United HealthCare Corp. 404,400 19,260 218,230 TOTAL HEALTH 384,617 HOLDING COMPANIES - 0.1% U.S. Industries, Inc. (a) 294,500 10,381 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) INDUSTRIAL MACHINERY & EQUIPMENT - 1.3% ELECTRICAL EQUIPMENT - 0.8% Alcatel Alsthom Compagnie Generale d'Electricite SA 172,400 $ 20,728 Alcatel Alsthom Compagnie Generale d'Electricite SA sponsored ADR 21,100 501 Emerson Electric Co. 162,000 7,290 General Electric Co. 351,800 34,916 Scientific-Atlanta, Inc. 401,500 6,123 Sensormatic Electronics Corp. 152,500 2,573 Westinghouse Electric Corp. 548,200 9,731 81,862 INDUSTRIAL MACHINERY & EQUIPMENT - 0.3% Caterpillar, Inc. 320,800 25,744 Dover Corp. 38,800 2,037 Kennametal, Inc. 14 1 Ultratech Stepper, Inc. (a) 272,000 6,018 33,800 POLLUTION CONTROL - 0.2% Browning-Ferris Industries, Inc. 805,600 23,262 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 138,924 MEDIA & LEISURE - 1.5% BROADCASTING - 0.1% Chancellor Trust Class I unit (g) 148 7,046 HSN, Inc. (a) 112,650 2,858 9,904 ENTERTAINMENT - 0.1% Cedar Fair LP (depositary unit) 27,200 1,027 Royal Caribbean Cruises Ltd. 202,300 6,170 7,197 LEISURE DURABLES & TOYS - 0.4% Nintendo Co. Ltd. Ord. 569,800 40,878 LODGING & GAMING - 0.5% Bally Gaming International, Inc. (warrants) (a) 149,100 205 Circus Circus Enterprises, Inc. (a) 874,100 22,727 Fitzgeralds South, Inc. (warrants) (a)(h) 1,640 - COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) MEDIA & LEISURE - CONTINUED LODGING & GAMING - CONTINUED Mirage Resorts, Inc. (a) 729,300 $ 15,497 Sun International Hotels Ltd. Ord. (a) 419,600 14,686 53,115 RESTAURANTS - 0.4% Brinker International, Inc. (a) 240,700 3,039 McDonald's Corp. 890,200 42,062 Papa John's International, Inc. (a) 9,700 256 45,357 TOTAL MEDIA & LEISURE 156,451 NONDURABLES - 6.0% HOUSEHOLD PRODUCTS - 0.0% Premark International, Inc. 157,700 3,134 TOBACCO - 6.0% Philip Morris Companies, Inc. 4,751,200 542,231 RJR Nabisco Holdings Corp. 2,634,995 84,978 UST, Inc. 132,900 3,705 630,914 TOTAL NONDURABLES 634,048 PRECIOUS METALS - 0.1% Barrick Gold Corp. 126,400 2,985 Santa Fe Pacific Gold Corp. 259,650 4,285 7,270 RETAIL & WHOLESALE - 3.7% APPAREL STORES - 0.1% Lamonts Apparel, Inc. (warrants) (a) 394,561 - TJX Companies, Inc. 182,900 7,819 7,819 DRUG STORES - 0.0% CVS Corp. 103,300 4,765 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) RETAIL & WHOLESALE - CONTINUED GENERAL MERCHANDISE STORES - 1.4% Federated Department Stores, Inc. (a) 626,700 $ 20,603 Wal-Mart Stores, Inc. 4,494,400 125,281 145,884 GROCERY STORES - 0.1% Safeway, Inc. (a) 150,600 6,984 RETAIL & WHOLESALE, MISCELLANEOUS - 2.1% Circuit City Stores, Inc. Circuit City Group 920,900 30,735 Corporate Express, Inc. (a) 255,900 2,623 Home Depot, Inc. (The) 1,328,800 71,091 Lowe's Companies, Inc. 1,285,100 48,030 Officemax, Inc. (a) 1,165,075 15,146 Office Depot, Inc. (a) 176,350 3,593 Rex Stores Corp. (a) 51,200 454 Staples, Inc. (a) 215,300 4,333 Toys "R" Us, Inc. (a) 975,200 27,306 U.S. Office Products Co. (a) 348,900 8,635 Viking Office Products, Inc. (a) 418,400 8,107 220,053 TOTAL RETAIL & WHOLESALE 385,505 SERVICES - 0.0% ADVERTISING - 0.0% Interpublic Group of Companies, Inc. 50,900 2,685 SERVICES - 0.0% HCIA, Inc. (a) 24,300 407 TOTAL SERVICES 3,092 TECHNOLOGY - 8.0% COMMUNICATIONS EQUIPMENT - 0.1% Cisco Systems, Inc. (a) 122,800 5,910 Nokia Corp. AB sponsored ADR 77,100 4,491 10,401 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED COMPUTER SERVICES & SOFTWARE - 1.3% America Online, Inc. (a) 64,700 $ 2,742 American Management Systems, Inc. (a) 57,800 1,272 Automatic Data Processing, Inc. 534,700 22,391 CUC International, Inc. (a) 118,400 2,664 Ceridian Corp. (a) 212,600 7,627 Cerner Corp. (a) 14,100 185 CompUSA, Inc. (a) 225,300 3,548 Electronic Data Systems Corp. 478,000 19,299 First Data Corp. 623,700 21,128 Microsoft Corp. (a) 153,000 14,028 Netscape Communications Corp. (a) 94,700 2,847 Oracle Systems Corp. (a) 333,050 12,843 Paychex, Inc. 230,200 9,467 Policy Management Systems Corp. (a) 406,900 17,751 137,792 COMPUTERS & OFFICE EQUIPMENT - 3.7% Adaptec, Inc. (a) 5,600 200 Bay Networks, Inc. (a) 1,196,200 21,382 Compaq Computer Corp. (a) 1,539,600 117,972 Hewlett-Packard Co. 417,500 22,232 Ingram Micro, Inc. Class A (a) 63,200 1,319 International Business Machines Corp. 1,351,900 185,717 SCI Systems, Inc. (a) 552,400 27,965 Seagate Technology (a) 283,700 12,731 Silicon Graphics, Inc. (a) 69,400 1,353 Tech Data Corp. (a) 244,200 5,891 396,762 ELECTRONIC INSTRUMENTS - 0.9% Applied Materials, Inc. (a) 383,900 17,803 Berg Electronics Corp. (a)(h) 54,968 1,573 Cognex Corp. (a) 169,100 3,213 KLA Instruments Corp. (a) 111,100 4,055 Lam Research Corp. (a) 431,800 14,573 Novellus Systems, Inc. (a) 221,800 15,304 Teradyne, Inc. (a) 535,700 15,468 Thermo Electron Corp. (a) 201,800 6,231 Varian Associates, Inc. 221,300 11,840 90,060 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED ELECTRONICS - 2.0% AMP, Inc. 1,333,500 $ 45,839 Atmel Corp. (a) 246,000 5,889 Intel Corp. 376,200 52,339 Methode Electronics, Inc. Class A 93,900 1,315 Microchip Technology, Inc. (a) 69,700 2,091 Molex, Inc. 181,662 6,358 Motorola, Inc. 18,200 1,099 National Semiconductor Corp. (a) 33,200 913 Solectron Corp. (a) 1,131,100 56,696 Storage Technology Corp. (a) 204,100 8,011 Texas Instruments, Inc. 421,700 31,575 Thomas & Betts Corp. 14,000 599 Xilinx, Inc. (a) 5,000 244 212,968 TOTAL TECHNOLOGY 847,983 TRANSPORTATION - 0.6% AIR TRANSPORTATION - 0.1% Continental Airlines, Inc. Class B (a) 127,200 3,991 Delta Air Lines, Inc. 74,000 6,225 Northwest Airlines Corp. Class A (a) 159,500 6,001 16,217 RAILROADS - 0.4% Bombardier, Inc. Class B 326,200 5,902 Burlington Northern Santa Fe Corp. 154,200 11,411 CSX Corp. 451,400 20,990 38,303 SHIPPING - 0.1% Stolt-Nielsen SA 100,600 1,735 Stolt-Nielsen SA Class B sponsored ADR 292,300 5,161 6,896 TRUCKING & FREIGHT - 0.0% Roadway Express, Inc. 57,500 1,114 Yellow Corp. (a) 241,900 4,506 5,620 TOTAL TRANSPORTATION 67,036 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) UTILITIES - 5.0% CELLULAR - 1.7% AirTouch Communications, Inc. (a) 1,754,900 $ 40,363 SK Telecom Ltd. 24 15 360 Degrees Communications Co. (a) 102,800 1,773 Vodafone Group PLC 4,956,523 22,632 Vodafone Group PLC sponsored ADR 2,500,300 110,325 175,108 ELECTRIC UTILITY - 0.1% American Electric Power Co., Inc. 25,800 1,064 El Paso Electric Co. (a) 56,000 336 Entergy Corp. 492,200 12,059 13,459 GAS - 0.1% Enron Corp. 359,800 13,672 TELEPHONE SERVICES - 3.1% AT&T Corp. 576,300 20,026 Ameritech Corp. 557,100 34,262 Bell Atlantic Corp. 377,000 22,950 BellSouth Corp. 908,800 38,397 Deutsche Telekom AG 209,400 4,751 MCI Communications Corp. 1,830,300 65,204 Nextlink Communications, Inc. unit (h) 128,840 5,669 NYNEX Corp. 830,800 37,905 SBC Communications, Inc. 814,740 42,876 Sprint Corp. 1,217,100 55,378 WorldCom, Inc. (a) 19,400 427 327,845 TOTAL UTILITIES 530,084 TOTAL COMMON STOCKS (Cost $4,557,762) 5,782,200 PREFERRED STOCKS - 0.8% SHARES VALUE (NOTE 1) (000S) CONVERTIBLE PREFERRED STOCKS - 0.0% RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 70,123 $ 1,692 NONCONVERTIBLE PREFERRED STOCKS - 0.8% CONSTRUCTION & REAL ESTATE - 0.0% REAL ESTATE INVESTMENT TRUSTS - 0.0% Walden Residential Properties, Inc. 9.20% 95,900 2,398 ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd., Series 1, adj. rate 520,415 1,571 FINANCE - 0.2% BANKS - 0.1% California Federal Bank FSB 9 1/8% 453,300 11,049 INSURANCE - 0.1% American Annuity Group Capital Trust II 4,320 4,298 TOTAL FINANCE 15,347 HEALTH - 0.0% MEDICAL FACILITIES MANAGEMENT - 0.0% Fresenius Medical Care Capital Trust 9% 2,892 2,856 MEDIA & LEISURE - 0.6% BROADCASTING - 0.5% American Radio System 11 3/8% pay-in-kind (h) 53,061 5,200 Cablevision System Corp. depositary shares 72,203 6,444 SFX Broadcasting, Inc. 12 5/8% 80,140 7,734 Sinclair Capital 11 5/8% (h) 82,440 8,038 Time Warner, Inc., Series M, 10 1/4% pay-in-kind 22,092 23,528 50,944 PREFERRED STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) NONCONVERTIBLE PREFERRED STOCKS - CONTINUED MEDIA & LEISURE - CONTINUED PUBLISHING - 0.1% K-III Communications Corp.: Series B, $11.625 pay-in-kind (a) 5,800 $ 629 Series D, $200 91,921 9,169 9,798 TOTAL MEDIA & LEISURE 60,742 NONDURABLES - 0.0% HOUSEHOLD PRODUCTS - 0.0% Revlon Group, Inc., Series B, 14 7/8% 18,400 1,872 TOTAL NONCONVERTIBLE PREFERRED STOCKS 84,786 TOTAL PREFERRED STOCKS (Cost $86,856) 86,478 NONCONVERTIBLE BONDS - 16.3% MOODY'S RATINGS (D) PRINCIPAL (UNAUDITED) AMOUNT (000S) AEROSPACE & DEFENSE - 0.2% AEROSPACE & DEFENSE - 0.0% BE Aerospace, Inc. 9 7/8%, 2/1/06 B2 $ 3,260 3,342 Rohr, Inc. 11 5/8%, 5/15/03 Ba3 1,210 1,340 4,682 DEFENSE ELECTRONICS - 0.0% Tracor, Inc. 8 1/2%, 3/1/07 (h) B1 3,380 3,270 SHIP BUILDING & REPAIR - 0.2% Newport News Shipbuilding, Inc.: 8 5/8%, 12/1/06 Ba2 4,610 4,610 9 1/4%, 12/1/06 B1 11,330 11,443 16,053 TOTAL AEROSPACE & DEFENSE 24,005 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) BASIC INDUSTRIES - 0.5% CHEMICALS & PLASTICS - 0.3% Acetex Corp. yankee 9 3/4%, 10/1/03 B1 $ 3,780 $ 3,704 Freedom Chemical Co. 10 5/8%, 10/15/06 B3 910 937 General Chemical Corp. 9 1/4%, 8/15/03 B2 3,850 3,850 Ivex Holdings Corp. 0%, 3/15/05 (e) Caa 2,100 1,638 NL Industries, Inc. 11 3/4%, 10/15/03 B1 2,770 2,930 Praxair, Inc. 6.90%, 11/1/06 A3 12,000 11,568 Sterling Chemicals Holdings, Inc. 11 3/4%, 8/15/06 B3 2,720 2,856 27,483 IRON & STEEL - 0.0% AK Steel Corp. 9 1/8%, 12/15/06 Ba2 4,520 4,452 PACKAGING & CONTAINERS - 0.1% Owens-Illinois, Inc. 9.95%, 10/15/04 B2 4,755 5,028 PAPER & FOREST PRODUCTS - 0.1% Asia Pulp & Paper Finance II Mauritius Ltd. 12%, 3/15/04 (h) B3 2,850 2,736 Florida Coast Paper Co. LLC/Florida Coast Paper Finance Corp. 12 3/4%, 6/1/03 B3 2,680 2,626 Repap Wisconsin, Inc. 9 1/4%, 2/1/02 B2 5,340 5,207 Stone Container Corp. 10 3/4%, 10/1/02 B1 3,830 3,849 14,418 TOTAL BASIC INDUSTRIES 51,381 CONSTRUCTION & REAL ESTATE - 0.4% BUILDING MATERIALS - 0.3% Building Materials Corp. of America 0%, 7/1/04 (e) B1 10,740 9,451 Nortek, Inc. 9 1/4%, 3/15/07 (h) Ba3 2,310 2,270 Usinor Sacilor yankee 7 1/4%, 8/1/06 Baa2 17,500 16,911 28,632 CONSTRUCTION - 0.1% Greystone Homes, Inc. 10 3/4%, 3/1/04 B1 3,080 3,172 McDermott J Ray SA 9 3/8%, 7/15/06 B1 3,170 3,202 6,374 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) CONSTRUCTION & REAL ESTATE - CONTINUED REAL ESTATE - 0.0% Iron Mountain, Inc. 10 1/8%, 10/1/06 B3 $ 3,070 $ 3,162 TOTAL CONSTRUCTION & REAL ESTATE 38,168 DURABLES - 0.7% AUTOS, TIRES, & ACCESSORIES - 0.2% APS, Inc. 11 7/8%, 1/15/06 B2 7,410 7,447 Aftermarket Technology Corp. 12%, 8/1/04 B3 1,845 2,030 Blue Bird Body Co. 10 3/4%, 11/15/06 B2 4,050 4,151 Delco Remy International, Inc. 10 5/8%, 8/1/06 (h) B2 1,210 1,258 Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa3 7,970 7,742 22,628 HOME FURNISHINGS - 0.1% Interlake Corp. 12 1/8%, 3/1/02 B3 7,520 7,821 Knoll, Inc. 10 7/8%, 3/15/06 B3 2,180 2,365 10,186 TEXTILES & APPAREL - 0.4% GFSI, Inc. 9 5/8%, 3/1/07 (h) B3 7,270 7,088 Hat Brands, Inc. 12 5/8%, 9/15/02 (c) - 5,870 3,229 Levi Strauss & Co. 7%, 11/1/06 (h) Baa2 31,050 29,874 Pillowtex Corp. 10%, 11/15/06 B2 4,370 4,523 44,714 TOTAL DURABLES 77,528 ENERGY - 1.2% ENERGY SERVICES - 0.4% Falcon Drilling, Inc.: 9 3/4%, 1/15/01 Ba3 2,670 2,710 9 3/4%, 11/15/06 B1 940 954 Petroliam Nasional BHD yankee (h): 7 1/8%, 10/18/06 A1 20,000 19,516 7 3/4%, 8/15/15 A1 4,000 3,973 7 5/8%, 10/15/26 A1 20,000 19,418 46,571 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) ENERGY - CONTINUED OIL & GAS - 0.8% Cross Timbers Oil Co. 9 1/4%, 4/1/07 (h) B2 $ 4,300 $ 4,171 Diamond Shamrock, Inc. 7.65%, 7/1/26 Baa3 7,000 7,155 Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 5,690 5,804 Forcenergy, Inc.: 9 1/2%, 11/1/06 B2 510 500 8 1/2%, 2/15/07 (h) B2 6,420 5,971 Gulf Canada Resources Ltd. yankee 9 5/8%, 7/1/05 Ba2 3,250 3,421 HS Resources, Inc. 9 1/4%, 11/15/06 (h) B2 490 472 Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 8,380 8,092 Norcen Energy Resources Ltd. yankee 7 3/8%, 5/15/06 Baa3 7,500 7,334 Occidental Petroleum Corp.: 6.39%, 11/9/00 Baa3 3,000 2,925 8 1/2%, 11/9/01 Baa2 4,370 4,575 Pennzoil Co. 9 5/8%, 11/15/99 Baa3 7,220 7,668 Ras Laffan Liquid Natural Gas Co. Ltd. yankee 7.628%, 9/15/06 (h) A3 15,510 15,305 Union Oil Co. California 7.67%, 4/19/02 Baa2 9,660 9,845 83,238 TOTAL ENERGY 129,809 FINANCE - 6.4% ASSET-BACKED SECURITIES - 0.9% Airplanes Pass Through Trust 10 7/8%, 3/15/19 Ba2 19,640 21,751 Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 3,000 2,978 CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 10,250 10,196 Green Tree Financial Corp.: 6 1/2%, 6/15/27 Aaa 6,200 6,155 6.80%, 6/15/27 Aaa 6,500 6,427 Olympic Automobile Receivables Trust 6.40%, 9/15/01 Aaa 13,560 13,507 Premier Auto Trust: 8.05%, 4/4/00 Aaa 23,540 23,923 6%, 5/6/00 Aaa 8,060 8,030 92,967 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) FINANCE - CONTINUED BANKS - 2.1% ABN Amro Bank NV (Chicago) 6 5/8%, 10/31/01 Aa3 $ 21,500 $ 21,051 Banc One Corp. 6.70%, 3/24/00 Aa3 13,250 13,184 BanPonce Corp. 6.665%, 3/5/01 A3 13,900 13,646 BanPonce Financial Corp. 7.72%, 4/13/00 A3 7,000 7,079 BanPonce Trust I 8.327%, 2/1/27 (h) Baa1 20,520 20,040 Capital One Bank: 6.74%, 5/31/99 Baa3 12,500 12,444 7.20%, 7/19/99 Baa3 28,000 28,117 6.42%, 11/12/99 Baa3 14,000 13,817 Den Danske Bank Group AS 6.55%, 9/15/03 (h) A2 1,500 1,435 HSBC Americas, Inc. 7%, 11/1/06 Baa1 24,500 23,444 Midland Bank PLC yankee 7 5/8%, 6/15/06 A1 10,700 10,736 Signet Bank 7.80%, 9/15/06 Baa1 10,000 10,038 Southern National Corp. 7.05%, 5/23/03 A3 17,500 17,253 Summit Bancorp. 8 5/8%, 12/10/02 BBB- 5,500 5,834 Union Planters National Bank 6.81%, 8/20/01 A3 10,000 9,988 U.S. Bancorp Capital I 8.27%, 12/15/26 (h) A2 11,420 11,325 219,431 CREDIT & OTHER FINANCE - 2.8% AT&T Capital Corp.: 6.02%, 12/1/98 Baa3 24,000 23,753 6.39%, 1/22/99 Baa3 24,900 24,758 6.26%, 2/18/99 Baa3 5,350 5,302 6.16%, 12/3/99 Baa3 9,000 8,826 Ahmanson Capital Trust I 8.36%, 12/1/26 (h) Baa3 13,000 12,740 BCH Cayman Islands Ltd. yankee 7.70%, 7/15/06 A3 3,500 3,498 CIT Group Holdings, Inc. 6 1/4%, 10/4/99 Aa3 20,500 20,237 Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 23,960 23,663 Finova Capital Corp. 6.12%, 5/28/02 Baa1 7,000 6,656 First Securities Capital I 8.41%, 12/15/26 (h) A3 5,290 5,268 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Ford Motor Credit Co.: 5.73%, 2/23/00 A1 $ 11,500 $ 11,152 5.83%, 2/28/00 A1 22,550 21,922 6.65%, 5/22/00 A1 9,000 8,926 6.20%, 3/12/01 A1 10,000 9,704 6.57%, 3/19/01 A1 11,300 11,105 7%, 9/25/01 A1 38,000 37,774 General Electric Capital Corp. 6.94%, 4/13/09 (f) Aaa 22,500 22,564 General Motors Acceptance Corp. 5 5/8%, 2/1/99 A3 16,500 16,192 HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 6,000 5,970 Heller Financial, Inc. 7 7/8%, 11/1/99 A2 16,260 16,639 North American Mortgage Co. 7.29%, 8/19/03 Baa2 3,500 3,464 300,113 INSURANCE - 0.3% Reliance Group: 9%, 11/15/00 Ba3 6,835 6,903 9 3/4%, 11/15/03 B1 2,850 2,921 SunAmerica, Inc. 6.20%, 10/31/99 Baa1 17,000 16,705 26,529 SAVINGS & LOANS - 0.3% Chevy Chase Savings Bank FSB 9 1/4%, 12/1/08 B1 9,230 9,045 First Nationwide Escrow Corp. 10 5/8%, 10/1/03 (h) Ba3 3,320 3,503 First Nationwide Parent Holdings Ltd. 12 1/2%, 4/15/03 B3 8,210 9,010 Great Western Financial Corp. 8.60%, 2/1/02 Baa1 7,000 7,365 St. Paul Bancorp, Inc. 7 1/8%, 2/15/04 Ba2 5,400 5,209 34,132 TOTAL FINANCE 673,172 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) HEALTH - 0.5% MEDICAL EQUIPMENT & SUPPLIES - 0.1% IMED Corp. 9 3/4%, 12/1/06 (h) B3 $ 760 $ 752 McKesson Corp. 6.60%, 3/1/00 (h) A3 13,610 13,486 14,238 MEDICAL FACILITIES MANAGEMENT - 0.4% Columbia/HCA Healthcare Corp.: 6 1/2%, 3/15/99 A2 10,000 9,970 6 7/8%, 7/15/01 A3 9,000 8,926 Mariner Health Group, Inc. 9 1/2%, 4/1/06 B2 1,070 1,049 Tenet Healthcare Corp.: 8%, 1/15/05 Ba1 820 789 10 1/8%, 3/1/05 Ba3 4,800 5,148 8 5/8%, 1/15/07 Ba3 14,940 14,381 40,263 TOTAL HEALTH 54,501 INDUSTRIAL MACHINERY & EQUIPMENT - 0.2% INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% Continental Global Group, Inc. 11%, 4/1/07 (h) B2 2,110 2,099 Exide Corp. 10%, 4/15/05 B1 1,640 1,665 Goss Graphic System, Inc. 12%, 10/15/06 B2 5,660 5,929 9,693 POLLUTION CONTROL - 0.1% Allied Waste of North America, Inc. 10 1/4%, 12/1/06 (h) B3 6,750 6,936 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 16,629 MEDIA & LEISURE - 2.5% BROADCASTING - 1.5% Adelphia Communications Corp.: 9 1/2%, 2/15/04 B3 6,530 5,485 9 7/8%, 3/1/07 (h) - 6,180 5,577 Cablevision System Corp.: 9 1/4%, 11/1/05 B2 4,110 3,925 9 7/8%, 5/15/06 B2 3,145 3,082 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED CapStar Broadcasting Partners, Inc. 0%, 2/1/09 (e)(h) CCC $ 1,960 $ 1,038 Diamond Cable Communications PLC yankee (e): 0%, 9/30/04 B3 7,720 6,041 0%, 2/15/07 (h) - 7,660 4,156 Granite Broadcasting Corp. 10 3/8%, 5/15/05 B3 2,150 2,150 Intermedia Capital Partners IV LP/Intermedia Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 2,850 2,900 International Cabletel, Inc.: 0%, 2/1/06 (e) B3 4,550 2,776 10%, 2/15/07 (h) - 7,530 7,154 Lenfest Communications, Inc. 8 3/8%, 11/1/05 Ba3 6,050 5,551 Olympus Communication LP/Olympus Capital Corp. 10 5/8%, 11/15/06 (h) B1 2,530 2,517 Rogers Cablesystems Ltd. yankee 11%, 12/1/15 B2 5,370 5,585 SCI Television, Inc. secured 11%, 6/30/05 Ba1 5,510 5,827 SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 5,140 5,320 TCI Communications, Inc. 6.82%, 9/15/10 (i) Ba1 19,280 19,172 TCI Satellite Entertainment, Inc. 0%, 2/15/07 (e)(h) B- 5,350 2,381 Telemundo Group, Inc. 7%, 2/15/06 (f) B1 7,130 6,987 Telewest PLC 0%, 10/1/07 (e) B1 13,000 8,515 Time Warner, Inc.: 7.95%, 2/1/00 Ba1 25,200 25,716 7 3/4%, 6/15/05 Ba1 19,500 19,260 9.15%, 2/1/23 Ba1 3,550 3,742 154,857 ENTERTAINMENT - 0.1% AMC Entertainment, Inc. 9 1/2%, 3/15/09 (h) B2 4,520 4,396 Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 1,130 1,113 Viacom, Inc. 8%, 7/7/06 B1 10,210 9,444 14,953 LODGING & GAMING - 0.6% American Skiing Co. 12%, 7/15/06 B3 8,130 8,171 Circus Circus Enterprises, Inc. 7%, 11/15/36 Baa2 7,000 6,586 Courtyard by Marriott II LP/Courtyard II Finance Co. 10 3/4%, 2/1/08 B- 3,800 3,962 GB Property Funding Corp. gtd. 1st mtg. 10 7/8%, 1/15/04 B3 1,110 888 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) MEDIA & LEISURE - CONTINUED LODGING & GAMING - CONTINUED HMH Properties, Inc. 9 1/2%, 5/15/05 Ba3 $ 9,880 $ 9,905 Harrah's Jazz Co. 14 1/4%, 11/15/01 (c) Caa 4,925 2,167 Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 920 915 Mirage Resorts, Inc. 7 1/4%, 10/15/06 Baa2 18,500 17,943 Prime Hospitality Corp. 9 3/4%, 4/1/07 (h) B1 4,880 4,819 Sun International Hotels Ltd. 9%, 3/15/07 (h) Ba3 5,120 4,851 60,207 PUBLISHING - 0.1% Golden Books Publishing, Inc. 7.65%, 9/15/02 B1 1,530 1,346 News America Holdings, Inc. 7.70%, 10/30/25 Baa3 13,470 12,272 Sun Media Corp. yankee 9 1/2%, 2/15/07 (h) B3 3,950 3,851 17,469 RESTAURANTS - 0.2% Foodmaker, Inc. 9 3/4%, 6/1/02 B3 6,960 7,082 Host Marriott Travel Plazas, Inc. 9 1/2%, 5/15/05 B1 10,870 10,924 18,006 TOTAL MEDIA & LEISURE 265,492 NONDURABLES - 0.4% FOODS - 0.3% Chiquita Brands International, Inc.: 9 5/8%, 1/15/04 B1 9,670 9,815 10 1/4%, 11/1/06 B1 5,430 5,661 ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 13,500 13,339 Foodbrands of America, Inc. 10 3/4%, 5/15/06 B3 3,310 3,707 Specialty Foods Corp.: 10 1/4%, 8/15/01 B3 1,820 1,784 11 1/8%, 10/1/02 B3 6,260 6,260 40,566 HOUSEHOLD PRODUCTS - 0.1% Revlon Consumer Products Corp. 10 1/2%, 2/15/03 B3 4,270 4,473 Revlon Worldwide Parent Corp. 0%, 3/15/01 (h) - 2,750 1,708 6,181 TOTAL NONDURABLES 46,747 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) RETAIL & WHOLESALE - 0.7% APPAREL STORES - 0.0% Lamonts Apparel, Inc. 10 1/4%, 11/1/99 pay-in-kind (c)(h) - $ 13,118 $ 525 GENERAL MERCHANDISE STORES - 0.5% Dayton Hudson Corp.: 6.80%, 10/1/01 Baa1 20,000 19,650 7 1/2%, 7/15/06 Baa1 9,000 8,927 K mart Corp.: 12 1/2%, 3/1/05 Ba3 2,890 3,439 8 1/4%, 1/1/22 Ba3 5,420 4,688 Michaels Stores, Inc. 10 7/8%, 6/18/06 Ba2 6,110 6,278 Parisian, Inc. 9 7/8%, 7/15/03 B1 6,110 6,141 49,123 GROCERY STORES - 0.2% Kroger Co. 8.15%, 7/15/06 Baa3 7,000 7,153 Pathmark Stores, Inc.: 9 5/8%, 5/1/03 B3 10,620 9,970 0%, 11/1/03 (e) Caa 6,640 4,432 Penn Traffic Co.: sr. 10 1/4%, 2/15/02 B2 3,190 2,790 8 5/8%, 12/15/03 B2 1,350 1,100 10 3/8%, 10/1/04 B2 840 727 26,172 TOTAL RETAIL & WHOLESALE 75,820 SERVICES - 0.2% PRINTING - 0.1% Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa 4,150 4,202 SERVICES - 0.1% Borg-Warner Security Corp. 9 5/8%, 3/15/07 (h) B3 2,750 2,668 Orion Network Systems, Inc. unit: 11 1/4%, 1/15/07 B2 8,130 8,028 0%, 1/15/07 (e) B2 6,830 3,466 14,162 TOTAL SERVICES 18,364 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) TECHNOLOGY - 0.5% COMMUNICATIONS EQUIPMENT - 0.0% Echostar Satellite Broadcasting Corp. 0%, 3/15/04 (e) Caa $ 3,840 $ 3,053 COMPUTERS & OFFICE EQUIPMENT - 0.4% Comdisco, Inc.: 7.21%, 7/2/01 Baa1 12,000 12,023 6 3/8%, 11/30/01 Baa1 13,775 13,271 Unisys Corp.: 12%, 4/15/03 B1 4,670 4,857 11 3/4%, 10/15/04 B1 4,110 4,274 34,425 ELECTRONIC INSTRUMENTS - 0.0% Packard Bioscience, Inc. 9 3/8%, 3/1/07 (h) B3 2,030 1,958 ELECTRONICS - 0.1% Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 6,210 6,707 Fairchild Semiconductor Corp. 10 1/8%, 3/15/07 (h) B2 5,480 5,480 12,187 TOTAL TECHNOLOGY 51,623 TRANSPORTATION - 0.4% AIR TRANSPORTATION - 0.3% Delta Air Lines, Inc.: 9 7/8%, 5/15/00 Baa3 6,000 6,424 10 1/2%, 4/30/16 Baa1 8,000 9,481 Northwest Airlines Pass Through Trust 8.97%, 1/2/15 Baa3 2,960 3,014 US Air, Inc.: 9 5/8%, 2/1/01 B3 7,150 7,150 10%, 7/1/03 B3 6,320 6,320 10 3/8%, 3/1/13 B1 1,975 2,044 34,433 RAILROADS - 0.1% Burlington Northern Santa Fe Corp. 7.29%, 6/1/36 Baa2 10,500 10,379 TOTAL TRANSPORTATION 44,812 NONCONVERTIBLE BONDS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) UTILITIES - 1.5% CELLULAR - 0.3% Arch Communications Group, Inc. 0%, 3/15/08 (e) B3 $ 2,730 $ 1,160 Globalstar LP/Globalstar Capital C unit 11 3/8%, 2/15/04 (h) B3 4,020 3,920 McCaw International Ltd. unit 0%, 4/15/07 (e)(h) CCC 9,180 4,315 Millicom International Cellular SA 0%, 6/1/06 (e) B3 4,540 2,985 Rogers Cantel, Inc. 9 3/8%, 6/1/08 Ba3 4,240 4,282 360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba1 14,960 14,606 31,268 ELECTRIC UTILITY - 0.5% Calenergy, Inc. 9 1/2%, 9/15/06 Ba2 4,280 4,408 Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa2 15,380 15,384 Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 18,250 18,489 NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 A3 12,700 12,592 50,873 TELEPHONE SERVICES - 0.7% Brooks Fiber Properties, Inc. 0%, 11/1/06 (e) - 3,040 1,794 Call-Net Enterprises, Inc. yankee 0%, 12/1/04 (e) B2 3,600 2,997 MFS Communications, Inc. (e): 0%, 1/15/04 Ba3 12,185 10,936 0%, 1/15/06 Ba3 20,595 15,447 McLeod, Inc. 0%, 3/1/07 (e)(h) B3 890 481 Shared Technologies Fairchild Communications Corp. 0%, 3/1/06 (e) Caa 3,410 2,762 Teleport Communications Group, Inc. 9 7/8%, 7/1/06 B1 1,610 1,650 Winstar Equipment Corp. 12 1/2%, 3/15/04 (h) CCC+ 3,280 3,149 WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 38,000 37,633 76,849 TOTAL UTILITIES 158,990 TOTAL NONCONVERTIBLE BONDS (Cost $1,757,218) 1,727,041 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 10.9% MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) U.S. TREASURY OBLIGATIONS - 8.9% 6 1/8%, 3/31/98 Aaa $ 68,560 $ 68,592 8 7/8%, 11/15/98 Aaa 38,140 39,582 9 1/8%, 5/15/99 Aaa 6,780 7,127 8%, 8/15/99 Aaa 23,970 24,730 7 3/4%, 12/31/99 Aaa 235,050 241,770 6 7/8%, 3/31/00 Aaa 69,980 70,461 5 3/4%, 10/31/00 Aaa 13,494 13,096 7 7/8%, 8/15/01 Aaa 880 917 10 3/4%, 5/15/03 Aaa 27,750 33,087 11 1/4%, 8/15/03 Aaa 8,710 10,602 11 7/8%, 11/15/03 Aaa 28,988 36,575 12 3/8%, 5/15/04 Aaa 48,000 62,558 7%, 7/15/06 Aaa 97,224 97,467 11 3/4%, 2/15/10 (callable) Aaa 71,750 91,941 12 3/4%, 11/15/10 (callable) Aaa 38,000 51,805 8 7/8%, 2/15/19 Aaa 21,610 25,476 7 1/4%, 2/15/23 Aaa 38,948 38,479 6 1/2%, 11/15/26 Aaa 29,083 26,774 941,039 U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.0% Federal Home Loan Bank: 7.70%, 9/20/04 Aaa 2,360 2,437 8.09%, 12/28/04 Aaa 11,000 11,610 6.85%, 5/26/05 Aaa 10,000 9,795 Federal Home Loan Mortgage Corporation 7.35%, 3/22/05 Aaa 5,000 5,051 Federal National Mortgage Association: 6.85%, 4/5/04 Aaa 5,350 5,274 7.49%, 3/2/05 Aaa 4,725 4,826 6.44%, 6/21/05 Aaa 3,500 3,339 Financing Corp.: 0%, 4/15/02 - 2,276 1,616 0%, 5/11/02 Aaa 2,275 1,603 0%, 12/6/02 - 3,794 2,568 0%, 2/3/03 Aaa 2,032 1,354 0%, 12/6/03 - 3,385 2,125 0%, 5/2/04 Aaa 4,033 2,449 0%, 8/8/05 - 5,311 2,931 0%, 11/30/05 Aaa 1,666 898 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) Series 1994-A, 7.12%, 4/15/06 Aaa $ 25,026 $ 25,140 State of Israel (guaranteed by U.S. Government through Agency for International Development): 0%, 11/15/01 Aaa 15,700 11,510 8%, 11/15/01 Aaa 5,700 5,936 6 5/8%, 8/15/03 Aaa 22,140 21,736 5 5/8%, 9/15/03 Aaa 26,920 25,043 U.S. Department of Housing and Urban Development Government guaranteed participation certificates Series 1996-A: 6.73%, 8/1/02 Aaa 21,675 21,424 6.83%, 8/1/03 Aaa 11,700 11,542 7.57%, 8/1/13 Aaa 10,090 9,941 U.S. Trade Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) 6.69%, 1/15/09 (h) Aaa 18,943 18,399 208,547 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $1,173,067) 1,149,586 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 7.2% FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.3% 5 1/2%, 8/1/02 to 5/1/03 Aaa 13,913 13,151 6%, 10/1/23 to 9/1/25 Aaa 13,608 12,357 7%, 5/1/99 to 7/1/01 Aaa 5,927 5,931 8 1/2%, 2/1/19 to 8/1/22 Aaa 436 449 31,888 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 5.1% 5 1/2%, 10/1/02 to 5/1/26 Aaa 23,870 22,253 6%, 4/1/00 to 6/1/26 Aaa 167,474 155,984 6 1/2%, 7/1/25 to 10/1/26 Aaa 260,948 242,859 7%, 5/1/00 to 5/1/26 Aaa 55,271 52,901 7 1/2%, 6/1/22 to 4/1/27 Aaa 30,996 30,428 7 1/2%, 4/1/27 (k) Aaa 34,100 33,471 537,896 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.8% 6%, 10/15/08 to 4/15/26 Aaa $ 46,242 $ 43,833 6 1/2%, 12/15/07 to 8/15/09 Aaa 72,236 69,939 8%, 4/15/24 to 12/15/25 Aaa 6,900 6,938 8 1/2%, 4/15/26 to 10/15/26 Aaa 75,368 77,264 197,974 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $772,805) 767,758 COMMERCIAL MORTGAGE SECURITIES - 1.5% American Southwest Financial Securities Series 1994-C2 Class B2, 12.79%, 12/25/01 (h)(i) - 3,880 3,743 BKB Commercial Mortgage Trust Series 1997-C1 Class D, 7.83%, 2/25/43 (h)(i) BBB 5,378 5,354 Bardell Associates Note Trust 12 1/2%, 11/1/08 (g) - 17,703 18,809 Berkeley Federal Bank & Trust FSB Series 1994 Class 1-B, 7.6832%, 8/1/24 (h)(i) - 2,280 1,609 Blackrock Capital Funding LLC Series 1996 Class C2, 7.6351%, 11/16/26 (h)(i) AAA 4,130 4,157 CBA Mortgage Corp. Series 1993-C1 Class E, 7.76%, 12/25/03 (h)(i) Ba2 5,083 4,734 CS First Boston Mortgage Securities Corp. (h): floater Series 1995-AEWI Class E, 9.9764%, 11/25/97 (i) - 2,510 2,374 Series 1994-CFB1 Class E, 7.6411%, 1/25/28 (i) Ba2 6,629 5,808 Series 1994-M1 Class E, 12.60%, 2/15/02 - 1,000 998 Equitable Life Assurance Society of the United States (The) (h): sequential pay Series 174 Class A1, 7.24%, 5/15/06 Aaa 17,600 17,732 Series 174 Class B1, 7.33%, 5/15/06 Aa2 10,400 10,374 Series 1996-1 Class C1, 7.52%, 5/15/06 A2 8,000 8,020 Series 1996-1 Class D1, 7.77%, 5/15/06 Baa2 6,800 6,885 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc. Series 1996-C1 Class F, 7.86%, 11/15/06 (h) Ba3 1,250 1,086 Lehman Structured Securities Corp. Series 1996-1 Class E-2, 7.995%, 6/25/26 BB 1,600 1,531 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) Merrill Lynch Mortgage Investments, Inc. Series 1994 Class M1-E, 8.0933%, 6/25/22 (h)(i) Ba2 $ 1,060 $ 954 Morgan Stanley Capital I, Inc. sequential pay Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa 13,600 13,677 Mortgage Capital Funding, Inc. Series 1996-MC1 Class G, 7.15%, 7/15/28 (h) BB 1,359 1,126 NB Commercial Mortgage pass through certificate sequential pay Series FSI Class A, 7.187%, 10/20/23 (h) - 7,161 7,140 Nomura Asset Securities Corp. (h): Series 1993-1 Class B2, 6.68%, 12/15/01 - 3,930 3,302 Series 1993-1 Class B3, 6.68%, 12/15/03 B 1,800 1,398 Oregon Commercial Mortgage, Inc. Series 1995 Class E, 9.72%, 6/25/26 (h)(i) BB 2,650 2,520 Penn Mutual Life Insurance Co. (The) Series 1996-PML (h): Class K, 7.90%, 11/15/26 - 750 437 Class L, 7.90%, 11/15/26 - 600 261 Resolution Trust Corp.: floater Series 1991-M2 Class A1, 7.1864%, 9/25/20 (i) Ba3 550 391 sequential pay Series 1994-C1 Class F, 8%, 6/25/26 B 2,847 2,651 Series 1994-C2 Class G, 8%, 4/25/25 B 2,157 2,031 Series 1994-N2 (f)(h): Class 5-A, 10 5/8%, 12/15/04 B2 3,400 3,400 Class 5-B, 10 5/8%, 12/15/04 B2 1,000 1,000 Series 1995-C2 Class F, 7%, 5/25/27 B1 655 576 SML, Inc. Series 1994-C1 Class C, 9.20%, 9/18/99 (g) - 5,225 3,475 Structured Asset Securities Corp.: sequential pay Series 1996 Class A-2A, 7 3/4%, 2/25/28 AAA 5,672 5,729 Series 1995-C1 Class E, 7 3/8%, 9/25/24 (h) BB 2,190 1,787 Series 1996-CFL Class F, 7 3/4%, 2/25/28 - 1,000 944 Series 1996-CFL Class G, 7 3/4%, 2/25/28 (h) - 1,200 1,000 Series 1996-C3 Class E, 8.458%, 6/25/30 (h)(i) - 500 463 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S RATINGS (D) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (000S) (000S) Wells Fargo Capital Markets Apartment Financing Trust 6.56%, 12/29/05 (h) Aaa $ 15,230 $ 14,773 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $158,687) 162,249 COMPLEX MORTGAGE SECURITIES - 0.0% INTEREST ONLY STRIPS - 0.0% SML, Inc. commercial Series 1994-C1 Class S, 0.81%, 9/18/99 (j) (Cost $2,078) - 125,474 1,921 FOREIGN GOVERNMENT OBLIGATIONS (L) - 0.7% Israeli State euro 6 3/8%, 12/19/01 A3 18,265 17,603 Newfoundland Province yankee: 11 5/8%, 10/15/07 Baa1 5,750 7,421 7.32%, 10/13/23 Baa1 9,750 9,119 Quebec Province yankee 7.22%, 7/22/36 (f) A2 35,000 35,459 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $69,899) 69,602 CERTIFICATES OF DEPOSIT - 3.1% ABN-Amro Bank NV yankee 5.65%, 12/23/97 5,000 4,987 Bank of Tokyo-Mitswoishi Ltd. yankee 5.60%, 6/11/97 26,000 25,992 Bayerische Hypotheken und Wechsel Bank AG yankee 5.40%, 4/7/97 34,000 33,998 Bayerische Vereinsbank AG yankee 5.40%, 4/2/97 28,700 28,699 Canadian Imperial Bank of Commerce yankee 5.35%, 4/14/97 27,200 27,196 Dresdner Bank AG yankee 5.32%, 4/9/97 4,000 4,000 Deutsche Bank AG yankee 5.34%, 5/28/97 26,000 25,983 Landesbank Hessen-Thuringen yankee: 5.78%, 1/27/98 14,500 14,464 5.67%, 2/11/98 6,000 5,983 National Westminster Bank PLC yankee 5 1/2%, 8/5/97 25,600 25,564 CERTIFICATES OF DEPOSIT - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (000S) (000S) Rabobank Nederland, Cooperative Centrale yankee: 5.40%, 4/9/97 $ 7,000 $ 6,999 5.97%, 3/20/98 8,000 8,003 Royal Bank of Canada yankee 5.74%, 1/7/98 15,000 14,952 Sanwa Bank Ltd. yankee 5.51%, 5/19/97 27,000 26,992 Societe Generale yankee 5.55%, 7/28/97 26,000 25,974 Sumitomo Bank Ltd. yankee 5.58%, 4/8/97 25,000 24,999 Swiss Bank Corp. yankee 5 1/2%, 8/4/97 25,000 24,969 TOTAL CERTIFICATES OF DEPOSIT (Cost $329,974) 329,754 COMMERCIAL PAPER - 1.9% Caisse Des Depots Et Consigns yankee 5.32%, 4/4/97 4,000 3,997 Cregem North America, Inc. yankee 5.35%, 5/5/97 10,000 9,946 CIESCO, LP 5.32%, 4/11/97 15,000 14,973 Delaware Funding Corp. 5.60%, 5/19/97 13,000 12,901 Electricite De France yankee 5.33%, 7/28/97 1,100 1,080 Fleet Funding Corp. 5.32%, 4/9/97 26,000 25,961 GTE Corp.: 5.42%, 4/8/97 12,000 11,984 5.36%, 4/10/97 13,000 12,978 General Motors Acceptance Corp. 5.465%, 6/23/97 28,000 27,629 Nationwide Building Society yankee 5.32%, 8/11/97 14,000 13,707 Norfolk Southern Corp.: 5.35%, 4/4/97 6,000 5,996 5.35%, 4/9/97 21,000 20,969 PHH Corp. 5.65%, 5/7/97 27,000 26,844 Preferred Receivables Fund Corp. 5.35%, 4/2/97 12,750 12,746 TOTAL COMMERCIAL PAPER (Cost $201,790) 201,711 BANK NOTES - 0.2% Bank of America National Trust & Savings 5 1/2%, 6/19/97 (Cost $20,000) 20,000 19,986 CASH EQUIVALENTS - 2.8% MATURITY VALUE (NOTE 1) AMOUNT (000S) (000S) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 6 1/2%, dated 3/31/97 due 4/1/97 $ 1,110 $ 1,110 SHARES Taxable Central Cash Fund (b) 290,328,429 290,328 TOTAL CASH EQUIVALENTS (Cost $291,438) 291,438 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $9,421,574) $ 10,589,724 LEGEND 1. Non-income producing 2. At period end, the seven-day yield on the Taxable Central Cash Fund was 5.62%. The yield refers to the income earned by investing in the fund over the seven-day period, expressed as an annual percentage. 3. Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. 4. Standard & Poor's 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. Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. 7. 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 Note Trust 12 1/2%, 11/1/08 4/19/94 $ 18,326 Chancellor Trust Class I unit 10/12/94 $ 2,990 Hat Brands, Inc. 9/2/92 (warrants) to 2/23/94 $ - SML, Inc. Series 1994-C1 Class C, 9.20%, 9/18/99 8/11/94 $ 3,398 8. 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 $409,164,000 or 3.9% of net assets. 9. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 10. Security represents right to receive monthly interest payments on an underlying pool of mortgages. Principal shown is the par amount of the mortgage pool. 11. Security purchased on a delayed delivery basis (see Note 2 of Notes to Financial Statements). 12. For foreign government obligations not 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 23.9% AAA, AA, A 22.9% Baa 4.7% BBB 6.8% Ba 3.0% BB 1.6% B 3.7% B 3.4% Caa 0.0% CCC 0.4% 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 both S&P and Moody's amounted to 0.8%. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 87.8% United Kingdom 2.7 Netherlands 2.1 Canada 1.8 Japan 1.3 Germany 1.1 Others (individually less than 1%) 3.2 TOTAL 100.0% INCOME TAX INFORMATION At March 31, 1997, the aggregate cost of investment securities for income tax purposes was $9,426,271,000. Net unrealized appreciation aggregated $1,163,453,000, of which $1,360,894,000 related to appreciated investment securities and $197,441,000 related to depreciated investment securities. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) MARCH 31, 1997 ASSETS Investment in securities, at value (including repurchase $ 10,589,724 agreements of $1,110) (cost $9,421,574) - See accompanying schedule Cash 787 Receivable for investments sold 74,639 Receivable for fund shares sold 11,662 Dividends receivable 12,677 Interest receivable 60,191 Other receivables 204 U.S. Treasury obligations, at value, held as collateral 28,377 for securities loaned TOTAL ASSETS 10,778,261 LIABILITIES Payable for investments purchased $ 158,199 Regular delivery Delayed delivery 34,036 Payable for fund shares redeemed 36,741 Accrued management fee 4,989 Other payables and accrued expenses 2,515 Collateral on securities loaned, at value 88,865 TOTAL LIABILITIES 325,345 NET ASSETS $ 10,452,916 Net Assets consist of: Paid in capital $ 9,039,662 Undistributed net investment income 7,102 Accumulated undistributed net realized gain (loss) on 237,892 investments and foreign currency transactions Net unrealized appreciation (depreciation) on 1,168,260 investments and assets and liabilities in foreign currencies NET ASSETS, for 640,228 shares outstanding $ 10,452,916 NET ASSET VALUE, offering price and redemption price per $16.33 share ($10,452,916 (divided by) 640,228 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1997 INVESTMENT INCOME $ 50,265 Dividends Interest (including income on securities loaned of $323) 190,035 TOTAL INCOME 240,300 EXPENSES Management fee $ 30,191 Transfer agent fees 12,675 Accounting and security lending fees 481 Non-interested trustees' compensation 43 Custodian fees and expenses 282 Registration fees 35 Audit 134 Legal 24 Interest 20 Miscellaneous 65 Total expenses before reductions 43,950 Expense reductions (802) 43,148 NET INVESTMENT INCOME 197,152 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 284,426 Foreign currency transactions 109 284,535 Change in net unrealized appreciation (depreciation) on: Investment securities 144,617 Assets and liabilities in foreign currencies 121 144,738 NET GAIN (LOSS) 429,273 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 626,425 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1997 1996 INCREASE (DECREASE) IN NET ASSETS Operations $ 197,152 $ 397,024 Net investment income Net realized gain (loss) 284,535 671,756 Change in net unrealized appreciation (depreciation) 144,738 3,779 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 626,425 1,072,559 FROM OPERATIONS Distributions to shareholders (245,047) (374,329) From net investment income From net realized gain (468,542) - TOTAL DISTRIBUTIONS (713,589) (374,329) Share transactions 1,064,080 2,206,154 Net proceeds from sales of shares Reinvestment of distributions 701,522 366,382 Cost of shares redeemed (1,899,197) (3,680,752) NET INCREASE (DECREASE) IN NET ASSETS RESULTING (133,595) (1,108,216) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS (220,759) (409,986) NET ASSETS Beginning of period 10,673,675 11,083,661 End of period (including undistributed net investment $ 10,452,916 $ 10,673,675 income of $7,102 and $54,997, respectively) OTHER INFORMATION Shares Sold 62,720 137,775 Issued in reinvestment of distributions 42,184 22,890 Redeemed (111,938) (229,788) Net increase (decrease) (7,034) (69,123)
FINANCIAL HIGHLIGHTS SIX MONTHS YEARS ENDED SEPTEMBER 30, ENDED MARCH 31, 1997 1996 1995 1994 D 1993 1992
SELECTED PER-SHARE DATA Net asset value, $ 16.49 $ 15.47 $ 14.58 $ 14.97 $ 13.50 $ 13.02 beginning of period Income from Investment Operations Net investment .31 G .62 .49 .34 .52 .46 income Net realized and .67 .96 .93 .21 2.01 .97 unrealized gain (loss) Total from investment .98 1.58 1.42 .55 2.53 1.43 operations Less Distributions From net (.39) (.56) (.44) (.44) (.87) (.45) investment income From net realized gain (.75) - - (.45) (.19) (.50) In excess of net - - (.09) (.05) - - realized gain Total distributions (1.14) (.56) (.53) (.94) (1.06) (.95) Net asset value, end $ 16.33 $ 16.49 $ 15.47 $ 14.58 $ 14.97 $ 13.50 of period TOTAL RETURN B, C 5.87% 10.37% 10.09% 3.60% 19.71% 11.84% RATIOS AND SUPPLEMENTAL DATA Net assets, end of $ 10,453 $ 10,674 $ 11,084 $ 11,792 $ 7,266 $ 2,762 period (in millions) Ratio of expenses to .81% A .95% .97% 1.04% 1.09% 1.17% average net assets Ratio of expenses to .80% A .93% .97% 1.04% 1.09% 1.17% average net assets , E E after expense reductions Ratio of net investment 3.65% A 3.64% 4.27% 3.63% 4.28% 5.58% income to average net assets Portfolio turnover rate 86% A 131% 137% 109% 98% 134% Average commission $ .0038 $ .0045 rate F
ANNUALIZED TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). 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, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 7 OF NOTES TO FINANCIAL STATEMENTS). FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER. NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. NOTES TO FINANCIAL STATEMENTS For the period ended March 31, 1997 1. 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Equity securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Debt securities for which quotations are readily available are valued by a pricing service at their market values as determined by their most recent bid prices in the principal market (sales prices if the principal market is an exchange) in which such securities are normally traded. 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. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts , disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." 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. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for contingent interest, paydown gains/losses on certain securities, foreign currency transactions, passive foreign investment companies (PFIC), market discount, non-taxable dividends, capital loss carryforwards, and losses deferred due to wash sales and excise tax regulations. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances 2. OPERATING POLICIES - CONTINUED JOINT TRADING ACCOUNT - CONTINUED are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is an open-end money market fund available only to investment companies and other accounts managed by FMR and its affiliates. The Cash Fund seeks preservation of capital, liquidity, and current income by investing in U.S. Treasury securities and repurchase agreements for these securities. Dividends from the Cash Fund are declared daily and paid monthly from net interest income. Income distributions received by the fund are recorded as interest income in the accompanying financial statements. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a delayed delivery 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 market values of the securities purchased or sold on a delayed delivery basis are identified as such in the fund's schedule of investments. The fund may receive compensation for interest forgone in the purchase of a delayed delivery security. With respect to purchase commitments, the fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $29,624,000 or 0.3% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $4,235,905,000 and $4,558,606,000, respectively, of which U.S. government and government agency obligations aggregated $1,161,745,000 and $2,710,526,000, 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 .2500% to .5200% for the period. The annual individual fund fee rate is .25%. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. For the period, the management fee was equivalent to an annualized rate of .56% of average net assets. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annualized rate of .23% of average net assets. ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's accounting records and administers the security lending program. The security lending fee is based on the number and duration of lending transactions. The accounting fee is based on the level of average net assets for the month plus out-of-pocket expenses. BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms were $523,000 for the period. 5. SECURITY LENDING. The fund loaned securities to certain brokers who paid the fund negotiated lenders' fees. These fees are included in interest income. The fund receives U.S. Treasury obligations and/or cash as collateral against the loaned securities, in an amount at least equal to 102% of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the loan. At period end, the value of the securities loaned and the value of collateral amounted to $84,176,000 and $88,865,000, respectively. 6. BANK BORROWINGS. The fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The fund has established borrowing arrangements with certain banks. Under the most restrictive arrangement, the fund must pledge to the bank securities having a market value in excess of 220% of the total bank borrowings. The interest rate on the borrowings is the bank's base rate, as revised from time to time. The maximum loan and the average daily loan balances during the period for which loans were outstanding amounted to $22,268,000 and $18,117,000, respectively. The weighted average interest rate was 5.8%. 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 $430,000 under this arrangement. In addition, the fund has entered into arrangements with its custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $32,000 and $340,000, respectively, under these arrangements. 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 March 31, 1997, the results of its operations for the six months then ended, and 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'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 at March 31, 1997 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 May 6, 1997 MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. 1 For quotes.* 2 For account balances and holdings. 3 To review orders and mutual fund activity. 4 To change your PIN. 5 To speak to a Fidelity representative. * 0 BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO WRITE FIDELITY If more than one address is listed, please locate the address that is closest to you. We'll give your correspondence immediate attention and send you written confirmation upon completion of your request. (LETTER_GRAPHIC)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 2300 Litton Lane - KH1A Hebron, KY 41048 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 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 William J. Hayes, Vice President Richard C. Habermann, Vice President George A. Vanderheiden, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer Robert H. Morrison, Manager, Security Transactions John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Thomas R. Williams * * INDEPENDENT TRUSTEES GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN The Chase Manhattan Bank, N.A. New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager SM Asset Manager: Growth SM Asset Manager: Income SM Fidelity Freedom Funds- Income, 2000, 2010, 2020, 2030 SM THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 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) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE ASSET MANAGER: INCOME SM SEMIANNUAL REPORT MARCH 31, 1997 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 6 The managers' 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 35 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 39 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (photo_of_Edward_C_Johnson_3d) DEAR SHAREHOLDER: As the first quarter of 1997 came to an end, stock and bond markets experienced the kind of short-term volatility that can affect them from time to time. After climbing steadily upward for more than two years, stock prices saw a sharp correction over the second half of March. Returns in the bond market were essentially stagnant as the Federal Reserve Board implemented a long-expected increase in short-term interest rates at the end of March. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. First, investors are encouraged to take a long-term view of their portfolios. If you can afford to leave your money invested through the inevitable up and down cycles of the financial markets, you will greatly reduce your vulnerability to any single decline. We know from experience, for example, that stock prices have gone up over longer periods of time, have significantly outperformed other types of investments and have stayed ahead of inflation. Second, you can further manage your investing risk through diversification. Asset Manager funds are already diversified because they invest in stocks, bonds and short-term and money market instruments, both in the U.S. and overseas. If you have a short investment time horizon, you might want to consider moving some of your investment into a money market fund, which seeks income and a stable share price by investing in high-quality, short-term investments. Of course, it's important to remember that there is no assurance that a money market fund will achieve its goal of maintaining a stable net asset value of $1.00 per share, and that these types of funds are neither insured nor guaranteed by any agency of the U.S. government. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value). If Fidelity had not reimbursed certain fund expenses, the fund's life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 6 PAST 1 LIFE OF MONTHS YEAR FUND Fidelity Asset Manager: Income 4.21% 7.53% 46.47% Lehman Brothers Aggregate Bond Index 2.42% 4.91% 30.43% Income Funds Average 4.41% 8.71% n/a CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year or since the fund started on October 1, 1992. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Lehman Brothers Aggregate Bond Index - a market value weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed and mortgage-backed securities, with maturities of at least one year. To measure how the fund's performance stacked up against its peers, you can compare it to the income funds average, which reflects the performance of 55 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. over the past six months. These benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 1 LIFE OF YEAR FUND Fidelity Asset Manager: Income 7.53% 8.85% Lehman Brothers Aggregate Bond Index 4.91% 6.08% Income Funds Average 8.71% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER LIFE OF FUND 1992/10/01 10000.00 10000.00 10000.00 1992/10/31 9890.00 9867.42 9975.40 1992/11/30 10020.30 9869.65 10049.92 1992/12/31 10222.02 10026.59 10139.46 1993/01/31 10485.16 10218.86 10235.58 1993/02/28 10657.39 10397.75 10336.92 1993/03/31 10891.49 10441.07 10403.69 1993/04/30 10973.54 10513.78 10390.17 1993/05/31 11035.05 10527.17 10455.11 1993/06/30 11158.52 10717.95 10544.50 1993/07/31 11251.64 10778.57 10568.43 1993/08/31 11500.56 10967.50 10732.98 1993/09/30 11531.81 10997.62 10742.43 1993/10/31 11688.44 11038.71 10812.79 1993/11/30 11615.38 10944.81 10770.08 1993/12/31 11794.96 11004.13 10822.75 1994/01/31 11997.58 11152.70 10955.22 1994/02/28 11783.98 10958.94 10838.32 1994/03/31 11558.83 10688.76 10686.15 1994/04/30 11569.50 10603.41 10704.53 1994/05/31 11602.06 10601.92 10753.45 1994/06/30 11536.90 10578.49 10711.95 1994/07/31 11689.09 10788.61 10859.99 1994/08/31 11809.10 10802.00 10969.78 1994/09/30 11699.69 10643.01 10890.25 1994/10/31 11732.89 10633.53 10959.62 1994/11/30 11644.89 10609.91 10896.23 1994/12/31 11634.28 10683.18 10973.55 1995/01/31 11701.27 10894.60 11116.60 1995/02/28 11913.79 11153.63 11298.73 1995/03/31 12037.44 11222.06 11414.46 1995/04/30 12194.96 11378.82 11553.94 1995/05/31 12488.19 11819.15 11814.64 1995/06/30 12612.60 11905.80 11925.30 1995/07/31 12816.64 11879.21 12019.77 1995/08/31 12930.56 12022.57 12095.88 1995/09/30 13101.93 12139.54 12260.02 1995/10/31 13124.85 12297.41 12336.48 1995/11/30 13355.23 12481.68 12529.29 1995/12/31 13575.82 12656.85 12660.13 1996/01/31 13727.97 12740.90 12798.73 1996/02/29 13634.06 12519.43 12769.98 1996/03/31 13622.07 12432.41 12788.07 1996/04/30 13633.74 12362.49 12827.43 1996/05/31 13681.62 12337.39 12915.01 1996/06/30 13788.98 12503.07 13001.18 1996/07/31 13694.14 12537.28 12923.62 1996/08/31 13729.26 12516.27 12998.42 1996/09/30 14055.41 12734.39 13236.63 1996/10/31 14358.16 13016.48 13426.12 1996/11/30 14772.98 13239.43 13726.98 1996/12/31 14636.75 13116.33 13659.69 1997/01/31 14851.07 13156.50 13869.17 1997/02/28 14914.15 13189.22 13924.48 1997/03/31 14647.34 13043.07 13751.15 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Fidelity Asset Manager: Income on October 1, 1992, when the fund started. As the chart shows, by March 31, 1997, the value of the investment would have grown to $14,647 - a 46.47% increase on the initial investment. For comparison, look at how the Lehman Brothers Aggregate Bond Index did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $13,043 - a 30.43% increase. You can also look at how the Fidelity Conservative Composite Index, a hypothetical combination of unmanaged indices, did over the same period. The composite index combines the total returns of the S&P 500 (+103.51%), the Lehman Brothers Aggregate Bond Index (+30.43%) and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (+22.00%) according to the fund's neutral mix* and assumes monthly rebalancing of the mix. With dividends and interest, if any, reinvested, the same $10,000 investment would have grown to $13,751 - a 37.51% 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) * CURRENTLY 20% STOCKS, 50% BONDS AND 30% SHORT-TERM/MONEY MARKET INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 20%, 30% AND 50%, RESPECTIVELY, PRIOR TO JANUARY 1, 1997. FUND TALK: THE MANAGERS' OVERVIEW NOTE TO SHAREHOLDERS: Effective December 1, 1996, John Todd (bottom right) became sub-manager for the redefined short-term/money market class of Fidelity Asset Manager: Income. In addition, Charles Morrison (bottom left) became sub-manager for bonds on February 3, 1997. The following is an interview with Richard Habermann (top left), Portfolio Manager of Fidelity Asset Manager: Income, George Vanderheiden (top right), sub-manager for stocks, John Todd and Charles Morrison. Q. DICK, HOW DID THE FUND PERFORM? D.H. For the six months that ended March 31, 1997, the fund had a total return of 4.21%, performing in line with the 4.41% return posted over the same period by the income funds average tracked by Lipper Analytical Services. For the 12 months that ended March 31, 1997, the fund returned 7.53%, compared with the 8.71% return of the income funds average for the same period. Q. WHAT AFFECTED THE FUND'S PERFORMANCE? D.H. Through most of the period, the fund was overweighted in stocks, and short-term and money market securities relative to its neutral mix targets. At the end of the period, the fund had 23% invested in stocks, 46% in bonds and 31% in short-term/money market securities, versus its neutral mix of 20% stocks, 50% bonds and 30% short-term/money market securities. The overweighting in stocks helped the fund, as equities performed best among the three asset classes. Equities outperformed because most companies continued to post good earnings reports, helped in part by limited wage growth and cost cutting. In addition, the economy was stronger than expected in the fourth quarter of 1996 and the first quarter of 1997, with companies posting moderately strong unit growth. Q. WHAT WAS THE ENVIRONMENT LIKE FOR THE BOND MARKET? D.H. The bond market has struggled because of concerns that continued economic growth might lead to inflation. Employment has reached a level where inevitably there should be increased upward pressure on wages. In this cycle of inflationary expectations, the Federal Reserve Board has tried to anticipate and head off incipient inflation by raising the fed funds rate - the rate banks charge each other for overnight loans - to 5.50% near the end of the period. This pre-emptive move was well-telegraphed, as Fed Chairman Alan Greenspan had indicated the Fed's inclination toward raising interest rates twice before the Fed acted. As a result, the rate increases were already priced into the market. Although the equity market was leery of interest rate increases, the strong economy still supported continued earnings growth overall. The bond market, however, is concerned that interest rates are going to move higher - and bond prices lower - so its performance has suffered. Q. WHAT WAS YOUR RATIONALE FOR OVERWEIGHTING STOCKS AND SHORT-TERM SECURITIES? D.H. As I said, corporate earnings remained strong, as did the economy. Another key factor was the strength of the dollar, although that can act as a double-edged sword. On the positive side, a strong dollar has a positive effect on inflation, in that it keeps import prices down. In addition, investors, especially those abroad, tend to feel more comfortable putting money into U.S. equities when the dollar is strong, and that helps to sustain stock prices. On the negative side, a rising dollar acts as a drag on the economy by slowing exports and suppressing corporate earnings. This especially affects large, multinational corporations. I overweighted the short-term and money market portion of the portfolio because short-term securities were poised to benefit from the Fed's increases in short-term interest rates. Q. TURNING TO YOU, GEORGE, WHAT EFFECT DO YOU SEE THE FED INTEREST RATE INCREASE HAVING ON THE STOCK MARKET? G.V. Rising interest rates are poison to high price/earnings - or P/E - multiples, and large-cap consumer growth stocks carry some of the highest P/E ratios in the market today. These stocks have done very well over the past three years, while smaller- to mid-cap stocks have suffered on both a relative basis and an absolute basis since mid-1996. I have been reallocating assets to these smaller-cap stocks where I think there is better value. Q. WHAT IS YOUR POSITION ON TOBACCO STOCKS? G.V. The fund owns tobacco stocks because they operate a profitable business that has offered above-average returns to shareholders over the long term. The stocks provide better-than-average earnings growth, lower-than-average P/E ratios and high yields. Nothing that has occurred over the past year has changed that. We have determined that the tobacco stocks are selling at a "litigation discount" far in excess of any reasonable estimate of potential liabilities. In spite of the barrage of litigation over the past 10 years and the occurrence of the "Marlboro Friday" price-cutting incident - when the company's stock dropped because the company cut product prices to increase market share - Philip Morris has appreciated by 5-1/2 fold over the 10-year period - versus a four-fold increase in the S&P 500 - and also has paid a higher dividend yield compared to the market during the same time period. Q. HOW DO YOU GO ABOUT STEERING THE FUND'S STOCK INVESTMENTS THROUGH DIFFICULT MARKET PHASES? G.V. One of the ways to do so is to emphasize companies with reliable and above-average earnings growth rates whose stock carries a dividend yield equal to or better than the market, and whose stock valuation is lower than that of the market. Much of the fund's stock assets at period end are in growth companies such as Philip Morris, Fannie Mae - the Federal National Mortgage Association - Fleet Financial, IBM, Freddie Mac - the Federal Home Loan Mortgage Corporation - Columbia/HCA Healthcare and Vodafone. This combined group of companies has an earnings growth rate of 14%, nearly twice that of the S&P 500. The average dividend yield of this group of stocks is 2%, similar to that of the S&P 500. The average P/E ratio of this group of stocks - based on 1997 earnings - is 14 while that of the S&P 500 is 17. I took much comfort that these companies in aggregate had much better earnings prospects than the S&P 500, yet were selling for a lower valuation. In a rising market, they've had superior growth going for them and, in a falling market, they've got conservative valuations giving them support. Q. CHARLIE, WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND'S BOND INVESTMENTS? C.M. For most of the period, I focused on positioning the bonds more aggressively by increasing the portfolio's weighting in corporate securities, while decreasing the percentage held in Treasuries. Part of that move was accomplished with Dick's reallocation of assets away from bonds. In reducing the fund's stake in bonds, I sold Treasuries. At the same time, I tended to focus any new purchases on investments that offered a yield advantage over Treasuries. Specific areas of focus included BBB-rated corporate bonds and commercial mortgage-backed securities. Q. WHAT KINDS OF BONDS DID YOU FOCUS ON IN THE CORPORATE MARKET? C.M. One area of interest over the period was in the bank market. I continued to add long-term bank paper in the form of capital securities. Last fall, the Federal Reserve Board ruled that domestic banking companies could issue capital securities, which offered the banks significant tax advantages, as well as the opportunity to strengthen their balance sheets. Numerous banks took advantage of this opportunity, and inundated the market with these securities. The large amount of supply in a relatively concentrated period of time allowed us to purchase many capital securities at cheap levels. This market has performed very well following the initial supply. The second area of focus was in the put bond market. These securities offer an option to buyers that, at their discretion, allows them the opportunity to redeem the securities at a date before their actual stated maturities. The structural characteristics of these bonds are appealing today. They can be purchased at attractive levels given that recent interest rate volatility has been very low. In the event that volatility moves back to more traditional levels, I believe these bonds should perform well. Q. JOHN, WHAT HAS THE BACKDROP FOR THE SHORT-TERM AND MONEY MARKETS BEEN LIKE SINCE YOU CAME ON BOARD? J.T. As Dick pointed out, economic growth accelerated in the fourth quarter of 1996. As we entered the first quarter of 1997, it became evident that the economy was carrying a lot of upward momentum. Finally, as you know, the Fed raised the fed funds rate by 0.25% in March. This move largely had been anticipated and priced into the short-term markets. Q. WHAT SORT OF STRATEGY DID YOU PURSUE DURING THAT TIME? J.T. Early on, I kept the short-term and money market investments average maturity relatively short, keeping it ready to take advantage of the increase in short-term rates that was on the horizon. As interest rates in the short end of the market reacted to the Fed's upward move and factored in additional moves in the future, I extended the average maturity of the money market investments in order to lock in the higher yields that were being offered. Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK? D.H. A lot depends on how far interest rates go up and what kind of impact this has on corporate earnings looking forward to 1998. At this point, it appears that 1997 will be a reasonable year for earnings. But remember, investors pay for future earnings, and at this point 1998 is a question mark. If the economy continues to grow in such a way that the Fed has to raise interest rates, then bonds will become more attractive. Bond yields already are more attractive compared to where they were a few months ago. It's possible that Fed actions will check the growth in the strong elements of the economy. If that's the case, continued moderate economic growth would be a positive backdrop for the stock market. We'll have to see. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: high current income, and capital appreciation when appropriate FUND NUMBER: 328 TRADING SYMBOL: FASIX START DATE: October 1, 1992 SIZE: as of March 31, 1997, more than $593 million MANAGER: Richard Habermann, since 1996; manager, Fidelity Asset Manager and Fidelity Asset Manager: Growth, since 1996; Fidelity Trend Fund, 1977-1981; Fidelity Magellan Fund, 1972-1977; joined Fidelity in 1968 (checkmark) DICK HABERMANN ON MITIGATING VOLATILITY THROUGH ASSET ALLOCATION: "The fund's asset allocation strategy is one way to mitigate the kind of volatility we've seen in the markets lately. The concept behind the fund is that the bond and short-term/money market investments serve to dampen volatility for the stock portion. While a smaller concentration in stocks may affect performance in periods where the stock market is quite strong, the fund can benefit from its diversification during periods when bonds, short-term securities or money market instruments outperform stocks. Stocks and bonds experience periods when they do relatively well at the same time. At other times, however, one asset class performs better than the other. Over the past couple of years, however, a select group of large-company stocks has been unique in its clear outperformance of the rest of the market. By the same token, there are periods when bonds do well and equities do not. What it comes down to is a trade-off in terms of risk and return. The fund has a lower risk profile than most diversified stock funds." INVESTMENT CHANGES TOP FIVE BOND ISSUERS AS OF MARCH 31, 1997 (WITH MATURITIES MORE THAN ONE YEAR) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE ISSUERS 6 MONTHS AGO U.S. Treasury 11.1 34.0 Federal National Mortgage Association 5.6 6.2 Resolution Trust Corp. 1.4 2.5 Government National Mortgage 1.3 2.2 Association U.S. Department of Housing and 0.9 1.0 Urban Development Government guaranteed participation certificates QUALITY DIVERSIFICATION AS OF MARCH 31, 1997 (MOODY'S RATINGS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS 6 MONTHS AGO Aaa, Aa, A 36.4 65.4 Baa 6.8 4.9 Ba and Below 2.1 1.0 Not Rated 0.3 0.6 WHERE MOODY'S RATINGS ARE UNAVAILABLE, WE HAVE USED S&P RATINGS. TOP FIVE STOCKS AS OF MARCH 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 2.2 1.8 Federal National Mortgage Association 1.7 2.0 General Motors Corp. 0.9 1.0 International Business Machines Corp. 0.7 0.7 Federal Home Loan Mortgage Corporation 0.7 0.7 ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF MARCH 31, 1997 * AS OF SEPTEMBER 30, 1996 ** Row: 1, Col: 1, Value: 30.0 Row: 1, Col: 2, Value: 47.0 Row: 1, Col: 3, Value: 23.0 Row: 1, Col: 1, Value: 41.0 Row: 1, Col: 2, Value: 37.0 Row: 1, Col: 3, Value: 22.0 Stock class 23% Bond class 46% Short-term class 31% FOREIGN INVESTMENTS 23% Stock class 22% Bond class 37% Short-term class 41% FOREIGN INVESTMENTS 6% * ** ASSET ALLOCATIONS IN PIE CHART REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS MARCH 31, 1997 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 23.0% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.4% AEROSPACE & DEFENSE - 0.3% Boeing Co. 15,100 $ 1,489,238 Gulfstream Aerospace Corp. (a) 2,800 60,900 1,550,138 DEFENSE ELECTRONICS - 0.1% Raytheon Co. 19,300 870,913 SHIP BUILDING & REPAIR - 0.0% Avondale Industries, Inc. (a) 1,300 22,425 Newport News Shipbuilding, Inc. 4,000 58,000 80,425 TOTAL AEROSPACE & DEFENSE 2,501,476 BASIC INDUSTRIES - 1.2% CHEMICALS & PLASTICS - 0.8% Air Products & Chemicals, Inc. 4,800 325,800 du Pont (E.I.) de Nemours & Co. 30,100 3,190,600 Raychem Corp. 7,700 634,288 Union Carbide Corp. 15,100 668,175 4,818,863 IRON & STEEL - 0.0% Inland Steel Industries, Inc. 300 5,850 METALS & MINING - 0.0% Aluminum Co. of America 600 40,800 Special Metals Corp. 700 12,250 53,050 PACKAGING & CONTAINERS - 0.1% Owens-Illinois, Inc. (a) 16,600 408,775 Tupperware Corp. 2,500 83,750 492,525 PAPER & FOREST PRODUCTS - 0.3% Boise Cascade Corp. 10,000 305,000 Champion International Corp. 15,600 709,800 International Paper Co. 8,600 334,325 Temple-Inland, Inc. 2,800 147,000 Willamette Industries, Inc. 1,900 118,750 1,614,875 TOTAL BASIC INDUSTRIES 6,985,163 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) CONSTRUCTION & REAL ESTATE - 0.2% CONSTRUCTION - 0.2% Centex Corp. 5,600 $ 197,400 D.R. Horton, Inc. 22,948 246,691 Fleetwood Enterprises, Inc. 23,302 582,550 Kaufman & Broad Home Corp. 11,900 157,675 U.S. Home Corp. (a) 1,300 32,988 1,217,304 ENGINEERING - 0.0% Fluor Corp. 4,300 225,750 TOTAL CONSTRUCTION & REAL ESTATE 1,443,054 DURABLES - 1.5% AUTOS, TIRES, & ACCESSORIES - 1.4% Circuit City Stores, Inc. CarMax Group 1,200 18,000 Cummins Engine Co., Inc. 11,300 579,125 Dana Corp. 4,400 144,650 Discount Auto Parts, Inc. (a) 7,700 123,200 Federal-Mogul Corp. 8,800 216,700 General Motors Corp. 94,342 5,224,188 Gentex Corp. (a) 500 9,875 Goodyear Tire & Rubber Co. 3,400 177,650 Honda Motor Co. Ltd. 15,000 447,164 Magna International, Inc. Class A 13,400 663,443 Superior Industries International, Inc. 16,200 366,525 Volvo AB Class B 25,900 690,134 8,660,654 CONSUMER ELECTRONICS - 0.0% Newell Co. 8,100 271,350 TEXTILES & APPAREL - 0.1% Burlington Industries, Inc. (a) 19,900 228,850 Liz Claiborne, Inc. 3,100 135,238 364,088 TOTAL DURABLES 9,296,092 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ENERGY - 2.3% ENERGY SERVICES - 0.1% McDermott International, Inc. 19,700 $ 421,088 OIL & GAS - 2.2% Amerada Hess Corp. 7,700 408,100 Anadarko Petroleum Corp. 1,100 61,738 Atlantic Richfield Co. 11,300 1,525,500 British Petroleum PLC: ADR 14,205 1,949,636 Ord. 125 1,447 Burlington Resources, Inc. 18,700 799,425 Canada Occidental Petroleum Ltd. 16,100 296,522 Chevron Corp. 1,200 83,550 Elf Aquitaine SA sponsored ADR 3,953 194,685 Enron Oil & Gas Co. 1,200 24,900 Kerr-McGee Corp. 3,800 235,125 Louisiana Land & Exploration Co. 14,400 682,200 Mobil Corp. 1,100 143,688 Noble Affiliates, Inc. 1,800 67,950 Occidental Petroleum Corp. 25,600 630,400 Royal Dutch Petroleum Co.: ADR 18,800 3,290,000 Ord. 5,300 960,764 Santa Fe Energy Resources, Inc. (a) 11,500 159,563 Sun Co., Inc. 11,000 287,375 Tosco Corp. 39,000 1,111,500 Total SA: Class B 1,637 141,347 sponsored ADR 6,445 273,107 Union Pacific Resources Group, Inc. 3,100 82,925 13,411,447 TOTAL ENERGY 13,832,535 FINANCE - 4.6% BANKS - 0.2% BankAmerica Corp. 1,600 161,200 Canadian Imperial Bank of Commerce 1,700 38,431 Credit Suisse Group (Reg.) 2,900 345,858 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) FINANCE - CONTINUED BANKS - CONTINUED NationsBank Corp. 7,200 $ 398,700 State Street Boston Corp. 2,000 138,750 1,082,939 CREDIT & OTHER FINANCE - 0.6% Beneficial Corp. 300 19,388 Fleet Financial Group, Inc. 56,536 3,236,686 Homeside, Inc. 400 5,900 Transamerica Corp. 1,230 110,085 3,372,059 FEDERAL SPONSORED CREDIT - 2.4% Federal Home Loan Mortgage Corporation 158,300 4,313,675 Federal National Mortgage Association 275,200 9,941,600 14,255,275 INSURANCE - 1.2% AFLAC, Inc. 6,400 240,000 Allmerica Financial Corp. 8,700 305,588 Allstate Corp. 36,608 2,173,600 American International Group, Inc. 14,450 1,696,069 CIGNA Corp. 800 116,900 Equitable of Iowa Companies 1,000 50,000 General Re Corp. 5,000 790,000 Loews Corp. 1,500 133,313 MGIC Investment Corp. 5,200 367,900 Nationwide Financial Services, Inc. Class A 1,000 25,750 Provident Companies, Inc. 700 38,325 Providian Corp. 14,600 781,100 Reliastar Financial Corp. 2,600 153,725 Torchmark Corp. 9,200 509,450 Travelers Property Casualty Corp. Class A 2,200 69,850 UNUM Corp. 800 58,400 7,509,970 SAVINGS & LOANS - 0.1% Golden West Financial Corp. 9,000 564,750 SECURITIES INDUSTRY - 0.1% United Asset Management Corp. 15,800 404,875 TOTAL FINANCE 27,189,868 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) HEALTH - 1.6% DRUGS & PHARMACEUTICALS - 0.5% American Home Products Corp. 700 $ 42,000 Amgen, Inc. 12,200 681,675 Astra AB Class A Free shares 24,900 1,197,234 Idexx Laboratories, Inc. 6,100 85,400 Novartis AG (Reg.) (a) 300 369,900 Pharmacia & Upjohn, Inc. 850 31,131 Schering-Plough Corp. 10,500 763,875 Warner-Lambert Co. 1,100 95,150 3,266,365 MEDICAL EQUIPMENT & SUPPLIES - 0.2% Abbott Laboratories 700 39,288 Allegiance Corp. 1,320 29,205 Baxter International, Inc. 2,700 116,438 Biomet, Inc. 15,200 256,500 Guidant Corp. 300 18,450 Johnson & Johnson 1,700 89,888 St. Jude Medical, Inc. (a) 15,100 503,963 1,053,732 MEDICAL FACILITIES MANAGEMENT - 0.9% Columbia/HCA Healthcare Corp. 110,903 3,729,097 Health Management Associates, Inc. Class A (a) 900 21,375 Humana, Inc. (a) 21,800 479,600 Tenet Healthcare Corp. (a) 19,200 472,800 United HealthCare Corp. 9,500 452,438 5,155,310 TOTAL HEALTH 9,475,407 HOLDING COMPANIES - 0.1% U.S. Industries, Inc. (a) 9,200 324,300 INDUSTRIAL MACHINERY & EQUIPMENT - 0.5% ELECTRICAL EQUIPMENT - 0.3% Alcatel Alsthom Compagnie Generale d'Electricite SA 4,000 480,936 Alcatel Alsthom Compagnie Generale d'Electricite SA sponsored ADR 500 11,962 Emerson Electric Co. 3,800 171,000 General Electric Co. 8,300 823,775 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED ELECTRICAL EQUIPMENT - CONTINUED Scientific-Atlanta, Inc. 6,400 $ 97,600 Sensormatic Electronics Corp. 3,700 62,438 Westinghouse Electric Corp. 13,300 236,075 1,883,786 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% Caterpillar, Inc. 7,400 593,850 Dover Corp. 900 47,250 Ultratech Stepper, Inc. (a) 6,600 146,025 787,125 POLLUTION CONTROL - 0.1% Browning-Ferris Industries, Inc. 18,300 528,413 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 3,199,324 MEDIA & LEISURE - 0.6% BROADCASTING - 0.0% HSN, Inc. (a) 2,790 70,796 ENTERTAINMENT - 0.0% Cedar Fair LP (depositary unit) 700 26,425 Royal Caribbean Cruises Ltd. 4,500 137,250 163,675 LEISURE DURABLES & TOYS - 0.2% Nintendo Co. Ltd. Ord. 13,300 954,145 LODGING & GAMING - 0.2% Circus Circus Enterprises, Inc. (a) 20,600 535,600 Mirage Resorts, Inc. (a) 17,200 365,500 Sun International Hotels Ltd. Ord. (a) 10,500 367,500 1,268,600 RESTAURANTS - 0.2% Brinker International, Inc. (a) 6,900 87,113 McDonald's Corp. 21,100 996,975 Papa John's International, Inc. (a) 200 5,275 1,089,363 TOTAL MEDIA & LEISURE 3,546,579 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) NONDURABLES - 2.6% HOUSEHOLD PRODUCTS - 0.0% Premark International, Inc. 3,800 $ 75,525 TOBACCO - 2.6% Philip Morris Companies, Inc. 116,150 13,255,619 RJR Nabisco Holdings Corp. 62,161 2,004,692 UST, Inc. 3,100 86,413 15,346,724 TOTAL NONDURABLES 15,422,249 PRECIOUS METALS - 0.0% Barrick Gold Corp. 3,000 70,853 Santa Fe Pacific Gold Corp. 5,940 98,010 168,863 RETAIL & WHOLESALE - 1.5% APPAREL STORES - 0.0% TJX Companies, Inc. 3,100 132,525 DRUG STORES - 0.0% CVS Corp. 2,400 110,700 GENERAL MERCHANDISE STORES - 0.6% Federated Department Stores, Inc. (a) 14,900 489,838 Wal-Mart Stores, Inc. 106,800 2,977,050 3,466,888 GROCERY STORES - 0.0% Safeway, Inc. (a) 3,600 166,950 RETAIL & WHOLESALE, MISCELLANEOUS - 0.9% Circuit City Stores, Inc. Circuit City Group 14,800 493,950 Corporate Express, Inc. 5,800 59,450 Home Depot, Inc. (The) 31,200 1,669,200 Lowe's Companies, Inc. 30,400 1,136,200 Officemax, Inc. (a) 27,500 357,500 Office Depot, Inc. (a) 4,200 85,575 Rex Stores Corp. (a) 3,000 26,625 Staples, Inc. (a) 4,400 88,550 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) RETAIL & WHOLESALE - CONTINUED RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED Toys "R" Us, Inc. (a) 23,000 $ 644,000 U.S. Office Products Co. (a) 8,700 215,325 Viking Office Products, Inc. (a) 9,800 189,875 4,966,250 TOTAL RETAIL & WHOLESALE 8,843,313 SERVICES - 0.0% ADVERTISING - 0.0% Interpublic Group of Companies, Inc. 1,200 63,300 SERVICES - 0.0% HCIA, Inc. (a) 900 15,075 TOTAL SERVICES 78,375 TECHNOLOGY - 3.4% COMMUNICATIONS EQUIPMENT - 0.0% Cisco Systems, Inc. (a) 3,000 144,375 Nokia Corp. AB sponsored ADR 1,800 104,850 249,225 COMPUTER SERVICES & SOFTWARE - 0.5% America Online, Inc. (a) 1,600 67,800 American Management Systems, Inc. (a) 1,300 28,600 Automatic Data Processing, Inc. 12,700 531,813 CUC International, Inc. (a) 2,800 63,000 Ceridian Corp. (a) 5,000 179,375 Cerner Corp. (a) 300 3,938 CompUSA, Inc. (a) 5,400 85,050 Electronic Data Systems Corp. 11,000 444,125 First Data Corp. 15,000 508,125 Microsoft Corp. (a) 3,600 330,075 Netscape Communications Corp. (a) 2,200 66,138 Oracle Systems Corp. (a) 7,850 302,716 Paychex, Inc. 5,600 230,300 Policy Management Systems Corp. (a) 8,900 388,263 3,229,318 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TECHNOLOGY - CONTINUED COMPUTERS & OFFICE EQUIPMENT - 1.6% Adaptec, Inc. (a) 100 $ 3,575 Bay Networks, Inc. (a) 29,000 518,375 Compaq Computer Corp. (a) 36,000 2,758,500 Hewlett-Packard Co. 9,900 527,175 Ingram Micro, Inc. Class A (a) 1,600 33,400 International Business Machines Corp. 32,300 4,437,213 SCI Systems, Inc. (a) 12,500 632,813 Seagate Technology (a) 6,700 300,663 Silicon Graphics, Inc. (a) 1,700 33,150 Tech Data Corp. (a) 5,600 135,100 9,379,964 ELECTRONIC INSTRUMENTS - 0.4% Applied Materials, Inc. (a) 9,200 426,650 Cognex Corp. (a) 4,200 79,800 KLA Instruments Corp. (a) 2,800 102,200 Lam Research Corp. (a) 10,500 354,375 Novellus Systems, Inc. (a) 5,300 365,700 Teradyne, Inc. (a) 13,000 375,375 Thermo Electron Corp. (a) 4,900 151,288 Varian Associates, Inc. 5,200 278,200 2,133,588 ELECTRONICS - 0.9% AMP, Inc. 31,400 1,079,375 Atmel Corp. (a) 5,900 141,231 Intel Corp. 8,900 1,238,213 Methode Electronics, Inc. Class A 900 12,600 Microchip Technology, Inc. (a) 1,700 51,000 Molex, Inc. 4,268 149,380 Motorola, Inc. 500 30,188 National Semiconductor Corp. (a) 800 22,000 Solectron Corp. (a) 29,600 1,483,700 Storage Technology Corp. (a) 4,800 188,400 Texas Instruments, Inc. 10,000 748,750 Thomas & Betts Corp. 400 17,100 Xilinx, Inc. (a) 100 4,875 5,166,812 TOTAL TECHNOLOGY 20,158,907 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TRANSPORTATION - 0.3% AIR TRANSPORTATION - 0.1% Continental Airlines, Inc. (a) 3,100 $ 97,263 Delta Air Lines, Inc. 1,800 151,425 Northwest Airlines Corp. Class A (a) 4,000 150,500 399,188 RAILROADS - 0.2% Bombardier, Inc. Class B 7,700 139,312 Burlington Northern Santa Fe Corp. 3,700 273,800 CSX Corp. 10,800 502,200 915,312 SHIPPING - 0.0% Stolt-Nielsen SA 2,700 46,575 Stolt-Nielsen SA Class B sponsored ADR 6,600 116,531 163,106 TRUCKING & FREIGHT - 0.0% Roadway Express, Inc. 1,400 27,125 Yellow Corp. (a) 5,700 106,163 133,288 TOTAL TRANSPORTATION 1,610,894 UTILITIES - 2.2% CELLULAR - 0.8% AirTouch Communications, Inc. (a) 41,800 961,400 360 Degrees Communications Co. (a) 2,500 43,125 Vodafone Group PLC sponsored ADR 38,000 1,676,750 Vodafone Group PLC 468,961 2,141,279 4,822,554 ELECTRIC UTILITY - 0.0% American Electric Power Co., Inc. 700 28,875 Entergy Corp. 11,500 281,750 310,625 GAS - 0.1% Enron Corp. 8,500 323,000 TELEPHONE SERVICES - 1.3% AT&T Corp. 13,900 483,025 Ameritech Corp. 12,800 787,200 Bell Atlantic Corp. 9,200 560,050 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) UTILITIES - CONTINUED TELEPHONE SERVICES - CONTINUED BellSouth Corp. 21,100 $ 891,475 Deutsche Telekom AG 5,100 115,705 MCI Communications Corp. 43,300 1,542,563 NYNEX Corp. 19,600 894,250 SBC Communications, Inc. 20,000 1,052,500 Sprint Corp. 28,400 1,292,200 WorldCom, Inc. (a) 500 11,000 7,629,968 TOTAL UTILITIES 13,086,147 TOTAL COMMON STOCKS (Cost $113,496,774) 137,162,546 NONCONVERTIBLE PREFERRED STOCKS - 0.0% ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd., Series 1, adj. rate (Cost $48,552) 17,500 52,833 NONCONVERTIBLE BONDS - 18.6% MOODY'S PRINCIPAL RATINGS (C) AMOUNT BASIC INDUSTRIES - 0.3% CHEMICALS & PLASTICS - 0.3% Methanex Corp. yankee 8 7/8%, 11/15/01 A2 $ 900,000 954,333 Praxair, Inc. 6.90%, 11/1/06 A3 1,000,000 963,960 1,918,293 DURABLES - 0.6% AUTOS, TIRES, & ACCESSORIES - 0.2% General Motors Corp. 9 5/8%, 12/1/00 A3 630,000 682,214 Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa3 670,000 650,791 1,333,005 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) DURABLES - CONTINUED TEXTILES & APPAREL - 0.4% Levi Strauss & Co. 7%, 11/1/06 (e) Baa2 $ 2,440,000 $ 2,347,622 TOTAL DURABLES 3,680,627 ENERGY - 1.0% ENERGY SERVICES - 0.6% Petroliam Nasional BHD yankee (e): 7 1/8%, 8/15/05 A1 400,000 391,688 7 5/8%, 10/15/26 A1 3,000,000 2,912,640 3,304,328 OIL & GAS - 0.4% Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 670,000 646,952 Pennzoil Co. 9 5/8%, 11/15/99 Baa3 570,000 605,414 Ras Laffan Liquid Natural Gas Co. Ltd. yankee 7.628%, 9/15/06 (e) A3 1,120,000 1,105,196 2,357,562 TOTAL ENERGY 5,661,890 FINANCE - 11.6% ASSET-BACKED SECURITIES - 2.9% Case Equipment Loan Trust: 6.15%, 9/15/02 Aaa 1,647,762 1,655,885 5.85%, 2/15/03 A3 370,000 359,973 Chevy Chase Auto Receivables Trust 5.80%, 6/15/02 Aaa 985,801 979,640 CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 1,000,000 994,710 Discover Card Master Trust I 6.90%, 2/16/00 A2 580,000 581,450 Green Tree Financial Corp.: 5.80%, 2/15/27 Aaa 1,950,000 1,931,105 6.10%, 4/15/27 Aaa 1,409,900 1,395,140 6 1/2%, 6/15/27 Aaa 670,000 665,183 6.80%, 6/15/27 Aaa 650,000 642,688 KeyCorp Auto Grantor Trust 5.80%, 7/15/00 A3 192,002 191,177 MBNA Master Credit Card Trust 7 3/4%, 10/15/98 Aaa 66,667 66,500 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) FINANCE - CONTINUED ASSET-BACKED SECURITIES - CONTINUED Olympic Automobile Receivables Trust 6.40%, 9/15/01 Aaa $ 1,140,000 $ 1,135,547 Premier Auto Trust: 4.95%, 2/2/99 A2 247,560 245,704 6%, 5/6/00 Aaa 840,000 836,850 6.35%, 7/6/00 A3 920,000 909,070 Railcar Trust 7 3/4%, 6/1/04 Aaa 38,841 39,861 Standard Credit Card Master Trust I 7.65%, 2/15/00 A2 300,000 304,500 TMS Auto Grantor Trust 5.90%, 9/15/02 Aaa 357,256 354,799 Union Federal Savings Bank Grantor Trust: 6.975%, 7/10/00 Baa2 84,300 83,851 7.275%, 10/10/00 Baa2 81,737 81,508 8.20%, 1/10/01 Baa2 91,863 92,609 Western Financial Grantor Trust: 6.05%, 11/1/00 Aaa 357,421 353,512 6.20%, 2/1/02 Aaa 428,641 424,928 5 7/8%, 3/1/02 Aaa 1,209,709 1,209,604 WFS Financial Owner Trust 6.05%, 6/1/00 Aaa 1,630,000 1,623,378 17,159,172 BANKS - 4.5% ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 1,500,000 1,468,650 Banc One Corp. 6.70%, 3/24/00 Aa3 1,100,000 1,094,544 Bank of Boston Corp. euro 5.55%, 8/28/98 (f) Baa1 1,000,000 1,000,220 BanPonce Financial Corp.: 6.34%, 3/29/99 A3 310,000 306,705 7.65%, 5/3/00 A3 690,000 693,443 6.69%, 9/21/00 A3 1,000,000 985,290 6 3/4%, 8/9/01 A3 1,660,000 1,628,311 BanPonce Corp.: 5 3/4%, 3/1/99 A3 460,000 449,673 6.665%, 3/5/01 A3 1,100,000 1,079,870 BanPonce Trust I 8.327%, 2/1/27 (e) Baa1 1,550,000 1,513,715 Capital One 6.42%, 11/12/99 Baa3 4,400,000 4,342,580 Corporacion Andina de Fomento yankee 7 1/4%, 4/30/98 (e) Baa2 1,000,000 1,005,750 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) FINANCE - CONTINUED BANKS - CONTINUED First Fidelity Bancorp 8 1/2%, 4/1/98 A2 $ 570,000 $ 580,454 Firstar Corp. 7.15%, 9/1/00 A3 1,390,000 1,392,975 Kansallis-Osake-Pankki yankee 9 3/4%, 12/15/98 A3 470,000 491,625 Marine Midland Bank euro 5.8125%, 3/29/99 (f) Baa1 1,000,000 997,500 Midland Bank PLC yankee 7 5/8%, 6/15/06 A1 1,000,000 1,003,340 Provident Bank 6 1/8%, 12/15/00 A3 1,560,000 1,509,830 Signet Bank 7.80%, 9/15/06 Baa1 1,000,000 1,003,810 Signet Banking Corp. (f): 5.6289%, 5/15/97 Baa2 1,900,000 1,897,739 5.8125%, 4/15/98 Baa2 700,000 697,788 Union Planters National Bank 6.81%, 8/20/01 A3 1,000,000 998,750 U.S. Bancorp Capital I 8.27%, 12/15/26 (e) A2 900,000 892,503 27,035,065 CREDIT & OTHER FINANCE - 4.0% AT&T Capital Corp.: 6.39%, 1/22/99 Baa3 370,000 367,902 6.26%, 2/18/99 Baa3 2,800,000 2,774,660 Ahmanson Capital Trust I 8.36%, 12/1/26 (e) Baa3 1,000,000 980,000 Associates Corp. of North America 6 1/2%, 9/9/98 Aa3 1,500,000 1,498,575 BCH Cayman Islands Ltd. yankee 7.70%, 7/15/06 A3 2,600,000 2,599,298 Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 1,570,000 1,550,516 First Securities Capital I 8.41%, 12/15/26 (e) A3 420,000 418,345 Ford Motor Credit Co.: 6 1/4%, 2/26/98 A1 1,460,000 1,458,248 6.65%, 5/22/00 A1 2,700,000 2,677,887 6.57%, 3/19/01 A1 1,700,000 1,670,641 General Electric Capital Corp. 6.94%, 4/13/09 (d) Aaa 1,500,000 1,504,275 General Motors Acceptance Corp.: 5 3/8%, 3/9/98 A3 2,600,000 2,579,252 6.65%, 5/24/00 A3 1,200,000 1,189,224 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Greyhound Financial Corp. 6.94%, 1/28/98 Baa2 $ 500,000 $ 502,250 Heller Financial, Inc. 7 7/8%, 11/1/99 A2 1,220,000 1,248,414 MCN Investment Corp. 5.84%, 2/1/99 Baa2 730,000 718,787 23,738,274 INSURANCE - 0.2% SunAmerica, Inc. 6.20%, 10/31/99 Baa1 1,500,000 1,473,930 TOTAL FINANCE 69,406,441 HEALTH - 0.2% MEDICAL EQUIPMENT & SUPPLIES - 0.2% McKesson Corp. 6.60%, 3/1/00 (e) A3 1,150,000 1,139,512 MEDIA & LEISURE - 1.2% BROADCASTING - 0.7% TCI Communications, Inc.: 7 1/4%, 6/15/99 Ba1 1,550,000 1,549,442 6.46%, 3/6/00 Ba1 1,340,000 1,296,691 Time Warner, Inc. 7.95%, 2/1/00 Ba1 1,470,000 1,500,150 4,346,283 LODGING & GAMING - 0.3% Circus Circus Enterprises, Inc. 7%, 11/15/36 Baa2 500,000 470,415 Mirage Resorts, Inc. 7 1/4%, 10/15/06 Baa2 1,000,000 969,910 1,440,325 PUBLISHING - 0.2% News America Holdings, Inc. 7.70%, 10/30/25 Baa3 1,100,000 1,002,177 TOTAL MEDIA & LEISURE 6,788,785 NONDURABLES - 0.2% FOODS - 0.2% ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 1,000,000 988,060 RETAIL & WHOLESALE - 0.1% GENERAL MERCHANDISE STORES - 0.1% Dayton Hudson Corp. 10%, 12/1/00 Baa1 500,000 544,805 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) TECHNOLOGY - 0.9% COMPUTERS & OFFICE EQUIPMENT - 0.9% Comdisco, Inc.: 7 3/4%, 9/1/99 Baa1 $ 1,300,000 $ 1,325,805 6 3/8%, 11/30/01 Baa1 4,300,000 4,142,534 5,468,339 TRANSPORTATION - 0.6% AIR TRANSPORTATION - 0.6% AMR Corp.: 9 1/2%, 7/15/98 Baa3 2,245,000 2,325,438 9%, 8/1/12 Baa3 850,000 924,248 Delta Air Lines, Inc. 9 7/8%, 5/15/00 Baa3 500,000 535,295 3,784,981 UTILITIES - 1.9% CELLULAR - 0.3% 360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba1 1,610,000 1,571,940 ELECTRIC UTILITY - 0.6% Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa2 1,300,000 1,300,377 Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 1,480,000 1,499,403 NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 A3 1,000,000 991,510 3,791,290 GAS - 0.2% Florida Gas Transmission Co. 7 3/4%, 11/1/97 (e) Baa2 520,000 524,233 Southwest Gas Corp. 9 3/4%, 6/15/02 Baa2 300,000 329,292 853,525 TELEPHONE SERVICES - 0.8% MFS Communications, Inc.(h): 0%, 1/15/04 Ba3 1,075,000 964,813 0%, 1/15/06 Ba3 1,075,000 806,250 WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 3,200,000 3,169,088 4,940,151 TOTAL UTILITIES 11,156,906 TOTAL NONCONVERTIBLE BONDS (Cost $112,210,739) 110,538,639 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 16.0% MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) U.S. TREASURY OBLIGATIONS - 11.1% 8 3/4%, 10/15/97 Aaa $ 230,000 $ 233,558 8 7/8%, 11/15/98 Aaa 7,055,000 7,321,750 8 7/8%, 2/15/99 Aaa 4,940,000 5,150,740 8%, 8/15/99 Aaa 320,000 330,150 7 7/8%, 8/15/01 Aaa 155,000 161,467 10 3/4%, 5/15/03 Aaa 2,980,000 3,553,173 5 3/4%, 8/15/03 Aaa 1,920,000 1,812,307 11 7/8%, 11/15/03 Aaa 950,000 1,198,634 12 3/8%, 5/15/04 Aaa 2,660,000 3,466,725 7%, 7/15/06 Aaa 2,012,000 2,017,030 13 7/8%, 5/15/11 (callable) Aaa 12,760,000 18,551,892 8 3/4%, 5/15/17 Aaa 650,000 754,306 9%, 11/15/18 Aaa 3,170,000 3,777,752 8 7/8%, 2/15/19 Aaa 5,225,000 6,159,805 8 1/8%, 8/15/19 Aaa 1,490,000 1,634,813 7 1/4%, 2/15/23 Aaa 8,600,000 8,496,542 6 1/2%, 11/15/26 Aaa 2,017,000 1,856,891 TOTAL U.S. Treasury Obligations 66,477,535 U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.9% Federal Farm Credit Bank 6.47%, 6/7/05 Aaa 2,000,000 1,911,560 Federal Home Loan Bank 7.36%, 7/1/04 Aaa 600,000 609,654 Federal Home Loan Mortgage Corporation: 6.80%, 8/22/05 Aaa 680,000 663,639 Federal National Mortgage Association: 7.49%, 3/02/05 Aaa 3,080,000 3,145,943 6.85%, 8/22/05 Aaa 1,000,000 978,590 Financing Corp.: 0%, 5/2/04 Aaa 1,009,000 612,937 0%, 6/6/04 Aaa 2,502,000 1,509,832 0%, 11/2/04 - 1,200,000 701,700 Government Loan Trusts (assets of Trust guaranteed by U.S. Government through Agency for International Development) Class 1-B 8 1/2%, 4/1/06 Aaa 1,610,000 1,709,691 Government Trust Certificates (assets of Trust guaranteed by U.S. Government through Defense Security Assistance Agency): Class 1-C, 9 1/4%, 11/15/01 Aaa 507,703 534,291 Class 2-E, 9.40%, 5/15/02 Aaa 2,362,103 2,489,278 Class T-3, 9 5/8%, 5/15/02 Aaa 104,627 110,337 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) U.S. GOVERNMENT AGENCY OBLIGATIONS - CONTINUED Israel Export Trust Certificates (assets of Trust guaranteed by U.S. government through Export-Import Bank) Series 1994-1, 6.88%, 1/26/03 Aaa $ 458,824 $ 457,704 Private Export Funding Corp. secured 6.86%, 4/30/04 Aaa 1,023,750 1,021,006 State of Israel (guaranteed by U.S. government through Agency for International Development): 7 3/4%, 4/1/98 Aaa 226,174 229,241 7 1/8%, 8/15/99 Aaa 988,000 998,153 7 3/4%, 11/15/99 Aaa 317,000 324,446 0%, 11/15/01 Aaa 5,355,000 3,925,804 U.S. Department of Housing and Urban Development Government guaranteed participation certificates: Series 1995-A, 8.27%, 8/1/03 Aaa 1,000,000 1,061,130 Series 1996-A, 6.92%, 8/1/04 Aaa 3,640,000 3,589,768 Series 1996-A, 7.63%, 8/1/14 (callable) Aaa 1,000,000 985,290 U.S. Trade Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank) 6.69%, 1/15/09 (e) Aaa 1,450,000 1,408,342 TOTAL U.S. Government Agency Obligations 28,978,336 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $98,763,726) 95,455,871 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 6.4% FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.2% 7%, 7/1/01 Aaa 613,898 613,701 8 1/2%, 4/1/21 to 5/1/22 Aaa 135,990 140,410 12%, 11/1/19 Aaa 213,285 240,402 994,513 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 4.9% 6%, 12/1/10 to 12/1/24 Aaa 12,248,262 11,317,291 6 1/2%, 9/1/25 to 1/1/27 Aaa 14,828,057 13,796,032 7 1/2%, 4/1/27 (i) Aaa 3,960,000 3,886,988 11 1/2%, 11/1/15 Aaa 362,562 407,766 29,408,077 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.3% 6 1/2%, 11/15/08 to 6/15/09 Aaa $ 6,267,723 $ 6,068,722 9 1/2%, 8/15/16 Aaa 3,525 3,807 10%, 11/15/09 to 12/15/17 Aaa 506,627 556,216 11%, 7/15/10 to 12/15/15 Aaa 604,107 674,056 11 1/2%, 7/15/15 to 1/15/16 Aaa 552,857 627,898 7,930,699 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $38,704,335) 38,333,289 COMMERCIAL MORTGAGE SECURITIES - 3.1% BKB Commercial Mortgage Trust Series1997-C1 Class D, 7.83%, 2/25/43 (e)(f) BBB 450,000 448,031 CBM Funding Corp. sequential pay: Series 1996-1 Class A-1, 7.55%, 7/1/99 AA 225,092 227,624 Series 1996-1 Class A-2, 6.88%, 7/1/02 AA 1,100,000 1,090,203 CS First Boston Mortgage Securities Corp. floater Series 1994-CFB1 Class A-1, 5.9208%, 1/25/28 (f) Aaa 214,314 214,181 Equitable Life Assurance Society of the United States (The) (e): sequential pay Series 174 Class A1, 7.24%, 5/15/06 Aaa 1,500,000 1,511,250 Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,000,000 997,500 Series 1996-1 Class C1, 7.52%, 5/15/06 A2 700,000 701,750 Federal Deposit Insurance Corp. Series 1994-C1 Class II-A2, 7.85%, 9/25/25 Aaa 782,931 789,781 Meritor Mortgage Security Corp. Series 1987-1 Class A3, 9.40%, 6/1/99 Baa3 151,103 150,914 Morgan Stanley Capital I, Inc. sequential pay Series 97-C1 Class A-1C, 7.63%, 2/15/20 Aaa 1,150,000 1,156,469 New England Mutual Life Insurance Co. Series 1993 Class 1-A, 6.70%, 12/15/23 (e) Aa2 731,589 731,589 Nomura Asset Securities Corp. floater Series 1994-MD-II Class A-6, 6.7025%, 7/4/03 (f) - 382,364 385,172 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE RATINGS (C) AMOUNT (NOTE 1) Resolution Trust Corp.: floater Series 1993-C2 Class A-2, 6.5575%, 3/25/25 (f) Aaa $ 735,012 $ 736,620 floater Series 1994-C1 Class A-3, 6.2375%, 6/25/26 (f) Aaa 680,702 676,447 Series 1995-C1 Class A-2B, 6.55%, 2/25/27 Aaa 353,854 353,080 Series 1995-C1 Class A-4B, 6.65%, 2/25/27 Aaa 4,785,000 4,747,617 Series 1995-C1 Class C, 6.90%, 2/25/27 A2 1,200,000 1,143,000 Series 1995-C2 Class A-1B, 6 1/4%, 5/25/27 Aaa 829,871 820,275 SC Finance Corp. floater 6.9875%, 8/1/04 (e) (f) - 600,000 599,250 Structured Asset Securities Corp. sequential pay Series: 1993-C1 Class A-1A, 6.60%, 10/25/24 AA+ 93,577 93,284 1996 Class A-2A, 7 3/4%, 2/25/28 Aaa 729,347 736,754 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $18,372,330) 18,310,791 FOREIGN GOVERNMENT OBLIGATIONS (G) - 1.5% Israeli State euro 6 3/8%, 12/19/01 A3 1,400,000 1,349,250 Newfoundland Province yankee 7.32%, 10/13/23 Baa1 1,000,000 935,310 Ontario Province yankee 7 3/4%, 6/4/02 Aa3 3,000,000 3,089,610 Quebec Province yankee 7.22%, 7/22/36 (d) A2 3,500,000 3,545,850 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $8,952,937) 8,920,020 CERTIFICATES OF DEPOSIT - 17.0% ABN-Amro Bank NV yankee: 5.40%, 6/5/97 2,300,000 2,298,419 5.65%, 12/23/97 5,000,000 4,987,273 Bank of Tokyo-Mitswoishi Ltd. yankee 5.60%, 6/11/97 7,000,000 6,997,802 Bankers Trust Co. 5.41%, 4/23/97 8,000,000 7,998,753 Bayerische Hypotheken und Wechsel Bank AG yankee 5.40%, 4/7/97 6,500,000 6,499,533 Bayerische Vereinsbank AG yankee 5.40%, 4/2/97 6,700,000 6,699,870 CERTIFICATES OF DEPOSIT - CONTINUED PRINCIPAL VALUE AMOUNT (NOTE 1) Canadian Imperial Bank of Commerce yankee 5.35%, 4/14/97 $ 5,300,000 $ 5,299,308 Deutsche Bank AG yankee 5.34%, 5/28/97 8,000,000 7,994,916 Dresdner Bank AG yankee 5.32%, 4/9/97 4,000,000 3,999,632 Landesbank Hessen-Thuringen yankee: 5.78%, 1/27/98 4,000,000 3,990,065 5.67%, 2/11/98 2,000,000 1,994,333 National Westminster Bank PLC yankee 5 1/2%, 8/5/97 7,500,000 7,489,415 Rabobank Nederland, Cooperative Central yankee 5.97%, 3/20/98 2,000,000 2,000,728 Royal Bank of Scotland PLC yankee 5 1/2%, 8/7/97 5,000,000 4,992,834 Sanwa Bank Ltd. yankee 5.51%, 5/19/97 8,000,000 7,997,522 Societe Generale yankee 5.55%, 7/28/97 7,000,000 6,992,964 Sumitomo Bank Ltd. yankee 5.58%, 4/8/97 8,000,000 7,999,756 Swiss Bank Corp. yankee 5 1/2%, 8/4/97 5,000,000 4,993,851 TOTAL CERTIFICATES OF DEPOSIT (Cost $101,291,261) 101,226,974 COMMERCIAL PAPER - 8.7% Cregem North America, Inc. yankee 5.35%, 5/5/97 3,000,000 2,983,667 CIESCO LP 5.32%, 4/11/97 4,500,000 4,491,819 Delaware Funding Corp. 5.60%, 5/19/97 4,000,000 3,969,511 Fleet Funding Corp. 5.32%, 4/9/97 7,500,000 7,488,844 General Motors Acceptance Corp. 5.465%, 6/23/97 5,600,000 5,525,781 GTE Corp. 5.36%, 4/10/97 3,700,000 3,693,803 Nationwide Building Society yankee 5.32%, 8/11/97 4,000,000 3,916,358 Norfolk Southern Corp. 5.38%, 6/2/97 7,000,000 6,931,400 PHH Corp. 5.65%, 5/7/97 7,500,000 7,456,602 Preferred Receivables Fund Corp. 5.33%, 4/3/97 5,500,000 5,498,172 TOTAL COMMERCIAL PAPER (Cost $51,977,051) 51,955,957 BANK NOTES - 0.8% PRINCIPAL VALUE AMOUNT (NOTE 1) Bank of America National Trust & Savings 5 1/2%, 6/19/97 (Cost $5,000,000) $ 5,000,000 $ 4,996,500 CASH EQUIVALENTS - 4.9% MATURITY AMOUNT Investments in repurchase agreements, (U.S. Treasury obligations) in a joint trading account at 6 1/2%, dated 3/31/97 due 4/1/97 $ 2,746,496 2,746,000 SHARES Taxable Central Cash Fund (b) 26,549,717 26,549,717 TOTAL CASH EQUIVALENTS (Cost $29,295,717) 29,295,717 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $578,113,422) $ 596,249,137 LEGEND 1. Non-income producing 2. At period end, the seven-day yield on the Taxable Central Cash Fund was 5.62%. The yield refers to the income earned by investing in the fund over the seven-day period, expressed as an annual percentage. 3. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 4. Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. 5. Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $19,628,916 or 3.3% of net assets. 6. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 7. For foreign government obligations not 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. 8. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 9. 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: MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 35.8% AAA, AA, A 31.8% Baa 6.8% BBB 10.2% Ba 2.1% BB 1.1% 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 both S&P and Moody's amounted to 0.3%. Distribution of investments by country of issue, as a percentage of total value of investment in securities, is as follows: United States 77.5% Germany 4.9 United Kingdom 4.2 Japan 4.1 Canada 2.6 Netherland 2.5 France 1.4 Others (individually less than 1%) 2.8 TOTAL 100.0% INCOME TAX INFORMATION At March 31, 1997, the aggregate cost of investment securities for income tax purposes was $578,170,198. Net unrealized appreciation aggregated $18,078,939, of which $27,301,035 related to appreciated investment securities and $9,222,096 related to depreciated investment securities. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase $ 596,249,137 agreements of $2,746,000) (cost $578,113,422) - See accompanying schedule Cash 723 Receivable for investments sold 2,056,425 Receivable for fund shares sold 1,892,039 Dividends receivable 298,413 Interest receivable 5,163,534 Other receivables 8,707 TOTAL ASSETS 605,668,978 LIABILITIES Payable for investments purchased $ 5,889,287 Regular delivery Delayed delivery 3,952,575 Payable for fund shares redeemed 2,200,251 Accrued management fee 222,205 Other payables and accrued expenses 202,475 TOTAL LIABILITIES 12,466,793 NET ASSETS $ 593,202,185 Net Assets consist of: Paid in capital $ 566,357,903 Undistributed net investment income 2,288,287 Accumulated undistributed net realized gain (loss) on 6,411,517 investments and foreign currency transactions Net unrealized appreciation (depreciation) on 18,144,478 investments and assets and liabilities in foreign currencies NET ASSETS, for 51,388,222 shares outstanding $ 593,202,185 NET ASSET VALUE, offering price and redemption price per $11.54 share ($593,202,185 (divided by) 51,388,222 shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) INVESTMENT INCOME $ 1,133,665 Dividends Interest 15,412,547 TOTAL INCOME 16,546,212 EXPENSES Management fee $ 1,305,464 Transfer agent fees 798,660 Accounting fees and expenses 121,566 Non-interested trustees' compensation 3,747 Custodian fees and expenses 35,083 Registration fees 26,617 Audit 35,180 Legal 1,159 Miscellaneous 2,867 Total expenses before reductions 2,330,343 Expense reductions (48,456) 2,281,887 NET INVESTMENT INCOME 14,264,325 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 6,936,948 Foreign currency transactions 20,792 6,957,740 Change in net unrealized appreciation (depreciation) on: Investment securities 2,426,289 Assets and liabilities in foreign currencies 23,815 2,450,104 NET GAIN (LOSS) 9,407,844 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 23,672,169 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED SEPTEMBER 30, MARCH 31, 1997 1996 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 14,264,325 $ 29,209,104 Net investment income Net realized gain (loss) 6,957,740 20,668,906 Change in net unrealized appreciation (depreciation) 2,450,104 (9,434,691) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 23,672,169 40,443,319 FROM OPERATIONS Distributions to shareholders (15,765,536) (32,164,979) From net investment income From net realized gain (12,650,000) - TOTAL DISTRIBUTIONS (28,415,536) (32,164,979) Share transactions 132,718,928 228,615,077 Net proceeds from sales of shares Reinvestment of distributions 26,644,188 29,652,662 Cost of shares redeemed (127,521,631) (266,521,145) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 31,841,485 (8,253,406) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 27,098,118 24,934 NET ASSETS Beginning of period 566,104,067 566,079,133 End of period (including undistributed net investment $ 593,202,185 $ 566,104,067 income of $2,288,287 and $3,789,498, respectively) OTHER INFORMATION Shares Sold 11,291,280 19,790,260 Issued in reinvestment of distributions 2,278,524 2,580,669 Redeemed (10,840,738) (23,109,490) Net increase (decrease) 2,729,066 (738,561)
FINANCIAL HIGHLIGHTS
SIX MONTHS YEARS ENDED SEPTEMBER 30, OCTOBER 1, ENDED 1992 MARCH 31, 1997 (COMMENCEME NT OF OPERATIONS) TO SEPTEMBER 30, (UNAUDITED) 1996 1995 1994 D 1993
SELECTED PER-SHARE DATA Net asset value, beginning $ 11.63 $ 11.46 $ 10.69 $ 11.07 $ 10.00 of period Income from Investment Operations Net investment income .28 H .61 .56 .45 .46 Net realized and .21 .20 .68 (.29) 1.04 unrealized gain (loss) Total from investment .49 .81 1.24 .16 1.50 operations Less Distributions (.32) (.64) (.47) (.47) (.43) From net investment income From net realized gain (.26) - - (.04) - In excess of net - - - (.03) - realized gain Total distributions (.58) (.64) (.47) (.54) (.43) Net asset value, end of $ 11.54 $ 11.63 $ 11.46 $ 10.69 $ 11.07 period TOTAL RETURN B, C 4.21% 7.28% 11.99% 1.46% 15.32% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period $ 593,202 $ 566,104 $ 566,079 $ 501,349 $ 199,237 (000 omitted) Ratio of expenses to .80% A .82% .79% .71% E .65% average net assets E Ratio of expenses to .78% A, .80% .79% .71% .65% average net assets after F F expense reductions Ratio of net investment 4.90% A 5.03% 5.15% 4.92% 5.19% income to average net assets Portfolio turnover rate 106% A 148% 157% 83% 47% Average commission rate G $ .0403 $ .0286
ANNUALIZED TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). 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, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER. FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS). FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER. NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. NOTES TO FINANCIAL STATEMENTS For the period ended March 31, 1997 (Unaudited) 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Debt securities for which quotations are readily available are valued by a pricing service at their market values as determined by their most recent bid prices in the principal market (sales prices if the principal market is an exchange) in which such securities are normally traded. Equity securities for which 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 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. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME TAXES - CONTINUED schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, are recorded as soon as the fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for paydown gains/losses on certain securities, foreign currency transactions, passive foreign investment companies (PFIC), market discount, non-taxable dividends, capital loss carryforwards, and losses deferred due to wash sales and excise tax regulations. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. 2. OPERATING POLICIES - CONTINUED JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more joint trading accounts. These balances are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is an open-end money market fund available only to investment companies and other accounts managed by FMR and its affiliates. The Cash Fund seeks preservation of capital, liquidity, and current income by investing in U.S. Treasury securities and repurchase agreements for these securities. Dividends from the Cash Fund are declared daily and paid monthly from net interest income. Income distributions received by the fund are recorded as interest income in the accompanying financial statements. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a delayed delivery 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 market values of the securities purchased or sold on a delayed delivery basis are identified as such in the fund's schedule of investments. With respect to purchase commitments, the fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, the fund had no investments in restricted securities (excluding 144A issues). 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $238,310,309 and $358,840,563, respectively, of which U.S. government and government agency obligations aggregated $114,469,937 and $264,231,727, 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 .1100% to .3700% for the period. The annual individual fund fee rate is .30%. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. For the period, the management fee was equivalent to an annualized rate of .45% of average net assets. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annualized rate of .27% of average net assets. 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 $13,031 for the period. 5. EXPENSE REDUCTIONS. FMR has directed certain portfolio trades to brokers who paid a portion of the fund's expenses. For the period, the fund's expenses were reduced by $12,921 under this arrangement. In addition, the fund has entered into arrangements with its custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $902 and $34,633, respectively, under these arrangements. MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. 1 For quotes.* 2 For account balances and holdings. 3 To review orders and mutual fund activity. 4 To change your PIN. 5 To speak to a Fidelity representative. * 0 BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO 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 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT 29 South Main Street West Hartford, 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 1502 N. Westshore Blvd. Tampa, 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 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL 3232 Lake Avenue Wilmette, IL INDIANA 4729 East 82nd Street Indianapolis, IN LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 4611 Sharon Road Charlotte, NC 2200 West Main Street Durham, NC OHIO 600 Vine Street Cincinnati, OH 28699 Chagrin Boulevard Woodmere Village, OH 1903 East Ninth Street Cleveland, 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 2701 Drexel Drive Houston, TX 1010 Lamar Street 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 511 Pine Street Seattle, WA WASHINGTON, DC 1900 K Street, N.W. Washington, DC WISCONSIN 595 North Barker Road Brookfield, 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)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 2300 Litton Lane - KH1A Hebron, KY 41048 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 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 William J. Hayes, Vice President Richard C. Habermann, Vice President George A. Vanderheiden, Vice President John Todd, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer Robert H. Morrison, Manager, Security Transactions John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Thomas R. Williams * INDEPENDENT TRUSTEES GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN The Chase Manhattan Bank New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager SM Asset Manager: Growth SM Asset Manager: Income SM Fidelity Freedom Funds- Income, 2000, 2010, 2020, 2030 SM THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 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) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE (2_FIDELITY_LOGOS)FIDELITY ASSET MANAGER: GROWTH SM SEMIANNUAL REPORT MARCH 31, 1997 CONTENTS PRESIDENT'S MESSAGE 3 Ned Johnson on investing strategies. PERFORMANCE 4 How the fund has done over time. FUND TALK 6 The managers' 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 43 Statements of assets and liabilities, operations, and changes in net assets, as well as financial highlights. NOTES 47 Notes to the financial statements. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (photo_of_Edward_C_Johnson_3d) DEAR SHAREHOLDER: As the first quarter of 1997 came to an end, stock and bond markets experienced the kind of short-term volatility that can affect them from time to time. After climbing steadily upward for more than two years, stock prices saw a sharp correction over the second half of March. Returns in the bond market were essentially stagnant as the Federal Reserve Board implemented a long-expected increase in short-term interest rates at the end of March. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. First, investors are encouraged to take a long-term view of their portfolios. If you can afford to leave your money invested through the inevitable up and down cycles of the financial markets, you will greatly reduce your vulnerability to any single decline. We know from experience, for example, that stock prices have gone up over longer periods of time, have significantly outperformed other types of investments and have stayed ahead of inflation. Second, you can further manage your investing risk through diversification. Asset Manager funds are already diversified because they invest in stocks, bonds and short-term and money market instruments, both in the U.S. and overseas. If you have a shorter investment time horizon, you might want to consider moving some of your investment into Asset Manager: Income, which generally has a higher weighting in short-term investments compared with the other Asset Manager funds. Finally, no matter what your time horizon or portfolio diversity, it makes good sense to follow a regular investment plan, investing a certain amount of money in a fund at the same time each month or quarter and periodically reviewing your overall portfolio. By doing so, you won't get caught up in the excitement of a rapidly rising market, nor will you buy all your shares at market highs. While this strategy - known as dollar cost averaging - won't assure a profit or protect you from a loss in a declining market, it should help you lower the average cost of your purchases. If you have questions, please call us at 1-800-544-8888. We are available 24 hours a day, seven days a week to provide you the information you need to make the investments that are right for you. Best regards, Edward C. Johnson 3d PERFORMANCE: THE BOTTOM LINE There are several ways to evaluate a fund's historical performance. You can look at the total percentage change in value, the average annual percentage change or the growth of a hypothetical $10,000 investment. Total return reflects the change in the value of an investment, assuming reinvestment of the fund's dividend income and capital gains (the profits earned upon the sale of securities that have grown in value). If Fidelity had not reimbursed certain fund expenses, the past five year and life of fund figures would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 6 PAST 1 PAST 5 LIFE OF MONTHS YEAR YEARS FUND Fidelity Asset Manager: Growth 7.92% 13.97% 88.61% 98.42% S&P 500(registered trademark) 11.24% 19.82% 113.93% 114.02% Flexible Portfolio Funds 5.01% 10.12% 69.42% n/a Average CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years or since the fund started on December 30, 1991. For example, if you invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Standard & Poor's 500 Index - a widely recognized, unmanaged index of common stocks. To measure how the fund's performance stacked up against its peers, you can compare it to the flexible portfolio funds average, which reflects the performance of 212 mutual funds with similar objectives tracked by Lipper Analytical Services, Inc., over the past six months. These benchmarks include reinvested dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED MARCH 31, 1997 PAST 1 PAST 5 LIFE OF YEAR YEARS FUND Fidelity Asset Manager: Growth 13.97% 13.53% 13.92% S&P 500 19.82% 16.42% 15.57% Flexible Portfolio Funds Average 10.12% 10.93% n/a AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER LIFE OF FUND REPORT TYPE: SEMI-ANNUAL REPORT CHART PAGE FOR PERIOD ENDING: 03/31/97 FUND NAME: Asset Manager: Growth FUND NUMBER: 321 COMMENCEMENT DATE: Dec 30 1991 START DATE: 12/31/91 END DATE: 03/31/97 LOAD: no-load INITIAL INVESTMENT: $10,000 _________END VALUE______________PERCENT CHANGE ($) (%) Asset Manager: Growth 19,684 96.84 SP Standard & Poor 500 20,853 108.53 FI Aggressive Composite 18,088 80.88 10-Apr-97 09:02 AM Page 00321_CHART_SUM_1 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Fidelity Asset Manager: Growth on December 31, 1991, shortly after the fund started. As the chart shows, by March 31, 1997, the value of the investment would have grown to $19,684 - a 96.84% increase on the initial investment. For comparison, look at how the S&P 500 did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 investment would have grown to $20,853 - a 108.53% increase. You can also look at how the Fidelity Aggressive Asset Allocation Composite Index, a hypothetical combination of unmanaged indices, did over the same period. The composite index combines the total returns of the S&P 500 (+108.53%), the Lehman Brothers Aggregate Bond Index (+39.71%) and the Salomon Brothers 3-month T-Bill Total Rate of Return Index (+25.43%) according to the fund's neutral mix,* and assumes monthly rebalancing of the mix. With dividends and interest, if any, reinvested, the same $10,000 investment would have grown to $18,088 - an 80.88% 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) * CURRENTLY 70% STOCKS, 25% BONDS AND 5% SHORT-TERM/MONEY MARKET INSTRUMENTS EFFECTIVE JANUARY 1, 1997; 65%, 30% AND 5%, RESPECTIVELY, PRIOR TO JANUARY 1, 1997. FUND TALK: THE MANAGERS' OVERVIEW NOTE TO SHAREHOLDERS: Effective December 1, 1996, John Todd (bottom right) became sub-manager for the redefined short-term/money market class of Fidelity Asset Manager: Growth. In addition, Charles Morrison (bottom left) became sub-manager for bonds on February 3, 1997. The following is an interview with Richard Habermann (top left), Portfolio Manager of Fidelity Asset Manager: Growth, George Vanderheiden (top right), sub-manager for stocks, John Todd and Charles Morrison. Q. DICK, HOW DID THE FUND PERFORM? D.H. For the six months that ended March 31, 1997, the fund had a total return of 7.92%, performing better than the 5.01% return posted over the same period by the flexible portfolio funds average tracked by Lipper Analytical Services. For the 12 months that ended March 31, 1997, the fund returned 13.97%, again beating the 10.12% return of the flexible portfolio funds average for the same period. Q. WHAT HELPED THE FUND BEAT THE AVERAGE? D.H. Through most of the period, the fund was overweighted in stocks relative to its competitors and its neutral mix targets. At the end of the period, the fund had 76% invested in stocks, 20% in bonds and 4% in short-term/money market securities, versus its neutral mix of 70% stocks, 25% bonds and 5% short-term/money market securities. This overweighting in stocks helped the fund, as equities performed best. Among the three asset classes, equities outperformed because most companies continued to post good earnings reports, helped in part by limited wage growth and cost cutting. In addition, the economy was stronger than expected in the fourth quarter of 1996 and the first quarter of 1997, with companies posting moderately strong unit growth. Q. WHAT WAS THE ENVIRONMENT LIKE FOR THE BOND MARKET? D.H. The bond market has struggled because of concerns that continued economic growth might lead to inflation. Employment has reached a level where inevitably there should be increased upward pressure on wages. In this cycle of inflationary expectations, the Federal Reserve Board has tried to anticipate and head off incipient inflation by raising the fed funds rate - the rate banks charge each other for overnight loans - to 5.50% near the end of the period. This pre-emptive move was well-telegraphed, as Fed Chairman Alan Greenspan had indicated the Fed's inclination toward raising interest rates twice before the Fed acted. As a result, the rate increase was already priced into the market. Although the equity market was leery of interest rate increases, the strong economy still supported continued earnings growth overall. The bond market, however, is concerned that interest rates are going to move higher - and bond prices lower - so its performance has suffered. Q. WHAT WAS YOUR RATIONALE FOR OVERWEIGHTING STOCKS? D.H. As I said, corporate earnings remained strong, as did the economy. Another key factor was the strength of the dollar, although that can act as a double-edged sword. On the positive side, a strong dollar has a positive effect on inflation, in that it keeps import prices down. In addition, investors, especially those abroad, tend to feel more comfortable putting money into U.S. equities when the dollar is strong, and that helps to sustain stock prices. On the negative side, a rising dollar acts as a drag on the economy by slowing exports and suppressing corporate earnings. This especially affects large, multinational corporations. Q. TURNING TO YOU, GEORGE, WHAT EFFECT DO YOU SEE THE FED INTEREST RATE INCREASE HAVING ON THE STOCK MARKET? G.V. Rising interest rates are poison to high price/earnings - or P/E - multiples and large-cap consumer growth stocks carry some of the highest P/E ratios in the market today. These stocks have done very well over the past three years, while smaller- to mid-cap stocks have suffered both on a relative and an absolute basis since mid-1996. I have been reallocating assets to these smaller-cap stocks where I think there is better value. Q. WHAT IS YOUR POSITION ON TOBACCO STOCKS? G.V. The fund owns tobacco stocks because they've operated a profitable business that has offered above-average returns to shareholders over the long term. The stocks provide better-than-average earnings growth, lower-than-average P/E ratios and high yields. Nothing that has occurred over the past year has changed that. We have determined that the tobacco stocks are selling at a "litigation discount" far in excess of any reasonable estimate of potential liabilities. In spite of the barrage of litigation over the past 10 years and the occurrence of the "Marlboro Friday" price-cutting incident - when the company's stock dropped because the company cut product prices to increase market share - Philip Morris has appreciated by 5-1/2 fold over the 10-year period - compared to a four-fold increase in the S&P 500 - and also has paid a higher dividend yield compared to the market during the same time period. Q. HOW DO YOU GO ABOUT STEERING THE FUND'S STOCK INVESTMENTS THROUGH DIFFICULT MARKET PHASES? G.V. One of the ways to do so is to emphasize companies with reliable and above-average earnings growth rates whose stock carries a dividend yield equal to or better than the market, and whose stock valuation is lower than that of the market. Much of the fund's stock assets at period end are in growth companies such as Philip Morris, Fannie Mae - the Federal National Mortgage Association - Fleet Financial, IBM, Freddie Mac - the Federal Home Loan Mortgage Corporation - Columbia/HCA Healthcare and Vodafone. This combined group of companies has an earnings growth rate of 14%, nearly twice that of the S&P 500. The average dividend yield of this group of stocks is 2%, similar to that of the S&P 500. The average P/E ratio of this group of stocks - based on 1997 earnings - is 14 while that of the S&P 500 is 17. I took much comfort that these companies in aggregate had much better earnings prospects than the S&P 500, yet were selling for a lower valuation. In a rising market, they've got superior growth going for them and, in a falling market, they've had conservative valuations giving them support. Q. CHARLIE, WHAT CHANGES HAVE YOU MADE SINCE TAKING OVER THE FUND'S BOND INVESTMENTS? C.M. For most of the period, I focused on positioning the bonds more aggressively by increasing the portfolio's weighting in corporate and mortgage-backed securities, while decreasing the percentage held in Treasuries. Part of that move was accomplished with Dick's reallocation of assets away from bonds. In reducing the fund's stake in bonds, I sold Treasuries. At the same time, I tended to focus any new purchases on investments that offered a yield advantage over Treasuries. Specific areas of focus included BBB-rated corporate bonds and commercial mortgage-backed securities. Q. WHAT KINDS OF BONDS DID YOU FOCUS ON IN THE CORPORATE MARKET? C.M. One area of interest over the period was in the bank market. I continued to add long-term bank paper in the form of capital securities. Last fall, the Federal Reserve Board ruled that domestic banking companies could issue capital securities, which offered the banks significant tax advantages, as well as the opportunity to strengthen their balance sheets. Numerous banks took advantage of this opportunity, and inundated the market with these securities. The large amount of supply in a relatively concentrated period of time allowed us to purchase many capital securities at cheap levels. This market has performed very well following the initial supply. The second area of focus was in the put bond market. These securities offer an option to buyers that, at their discretion, allows them the opportunity to redeem the securities at a date before their actual stated maturities. The structural characteristics of these bonds are appealing today. They can be purchased at attractive levels given that recent interest rate volatility has been very low. In the event that volatility moves back to more traditional levels, I believe these bonds should perform well. Q. JOHN, WHAT HAS THE BACKDROP FOR THE SHORT-TERM AND MONEY MARKETS BEEN LIKE SINCE YOU CAME ON BOARD? J.T. As Dick pointed out, economic growth accelerated in the fourth quarter of 1996. As we entered the first quarter of 1997, it became evident that the economy was carrying a lot of upward momentum. Finally, as you know, the Fed raised the fed funds rate by 0.25% in March. This move had largely been anticipated and priced into the short-term markets. Q. WHAT SORT OF STRATEGY DID YOU PURSUE DURING THAT TIME? J.T. Early on, I kept the short-term/money market investments' average maturity relatively short, in order to take advantage of the increase in short-term rates that was on the horizon. As interest rates in the short end of the market reacted to the Fed's upward move and factored in additional moves in the future, I extended the average maturity of the money market investments in order to lock in the higher yields that were being offered. Q. TURNING BACK TO YOU, DICK, WHAT'S YOUR OUTLOOK? D.H. A lot depends on how far interest rates go up and what kind of impact this has on corporate earnings looking forward to 1998. At this point, it appears that 1997 will be a reasonable year for earnings. But remember, investors pay for future earnings, and at this point 1998 is a question mark. If the economy continues to grow in such a way that the Fed has to raise interest rates, then bonds will become more attractive. Bond yields already are more attractive compared to where they were a few months ago. It's possible that Fed actions will check the growth in the strong elements of the economy. If that's the case, continued moderate economic growth would be a positive backdrop for the stock market. We'll have to see. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND FACTS GOAL: maximum total return over the long term through investing in stocks, bonds and short-term and money market instruments FUND NUMBER: 321 TRADING SYMBOL: FASGX START DATE: December 30, 1991 SIZE: as of March 31, 1997, more than $3.4 billion MANAGER: Richard Habermann, since 1996; manager, Fidelity Asset Manager and Fidelity Asset Manager: Income, since 1996; Fidelity Trend Fund, 1977-1981; Fidelity Magellan Fund, 1972-1977; joined Fidelity in 1968 (checkmark) DICK HABERMANN ON MITIGATING VOLATILITY THROUGH ASSET ALLOCATION: "The fund's asset allocation strategy is one way to mitigate the kind of volatility we've seen in the markets lately. The concept behind the fund is that the bond and short-term/money market investments serve to dampen volatility for the stock portion. While a smaller concentration in stocks may affect performance in periods where the stock market is quite strong, the fund can benefit from its diversification during periods when bonds, short-term securities or money market instruments outperform stocks. Stocks and bonds experience periods when they do relatively well at the same time. At other times, however, one asset class performs better than the other. Over the past couple of years, however, a select group of large-company stocks has been unique in its clear outperformance of the rest of the market. By the same token, there are periods when bonds do well and equities do not. What it comes down to is a trade-off in terms of risk and return. The fund has a lower risk profile than most diversified stock funds." INVESTMENT CHANGES TOP FIVE STOCKS AS OF MARCH 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE STOCKS 6 MONTHS AGO Philip Morris Companies, Inc. 7.1 5.3 Federal National Mortgage Association 5.8 6.0 General Motors Corp. 2.8 3.1 International Business Machines Corp. 2.3 2.0 Federal Home Loan Mortgage Corp. 2.3 2.0 TOP FIVE MARKET SECTORS AS OF MARCH 31, 1997 (STOCKS ONLY) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE MARKET SECTORS 6 MONTHS AGO Finance 15.6 15.1 Technology 10.7 10.7 Nondurables 8.3 6.2 Energy 7.6 6.7 Utilities 6.9 6.1 TOP FIVE COUNTRIES AS OF MARCH 31, 1997 % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO United States 86.5 85.1 United Kingdom 3.3 2.9 Netherlands 2.5 2.2 Canada 1.9 2.7 Japan 1.2 1.4 TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY, INDICATING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT RISKS. PERCENTAGES ARE ADJUSTED FOR THE EFFECT OF OPEN FUTURES CONTRACTS, IF APPLICABLE. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF MARCH 31, 1997 * AS OF SEPTEMBER 30, 1996 ** Row: 1, Col: 1, Value: 4.0 Row: 1, Col: 2, Value: 20.0 Row: 1, Col: 3, Value: 50.0 Row: 1, Col: 4, Value: 26.0 Row: 1, Col: 1, Value: 8.0 Row: 1, Col: 2, Value: 21.0 Row: 1, Col: 3, Value: 50.0 Row: 1, Col: 4, Value: 21.0 Stock class 76% Bond class 20% Short-term class 4% FOREIGN INVESTMENTS 14% Stock class 71% Bond class 21% Short-term class 8% FOREIGN INVESTMENTS 15% * ** ASSET ALLOCATIONS IN THE PIE CHARTS REFLECT THE CATEGORIZATION OF ASSETS AS DEFINED IN THE FUND'S PROSPECTUS IN EFFECT AS OF THE TIME PERIODS INDICATED ABOVE. FINANCIAL STATEMENT CATEGORIZATIONS CONFORM TO ACCOUNTING STANDARDS AND WILL DIFFER FROM THE PIE CHART. INVESTMENTS MARCH 31, 1997 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 74.6% SHARES VALUE (NOTE 1) (000S) AEROSPACE & DEFENSE - 1.3% AEROSPACE & DEFENSE - 0.8% Boeing Co. 275,500 $ 27,171 Gulfstream Aerospace Corp. (a) 64,500 1,403 28,574 DEFENSE ELECTRONICS - 0.5% Raytheon Co. 357,900 16,150 SHIP BUILDING & REPAIR - 0.0% Avondale Industries, Inc. (a) 26,100 450 Newport News Shipbuilding, Inc. 71,500 1,037 1,487 TOTAL AEROSPACE & DEFENSE 46,211 BASIC INDUSTRIES - 3.9% CHEMICALS & PLASTICS - 2.7% Air Products & Chemicals, Inc. 90,200 6,122 du Pont (E.I.) de Nemours & Co. 567,900 60,197 Raychem Corp. 144,100 11,870 Union Carbide Corp. 281,800 12,470 90,659 IRON & STEEL - 0.0% Inland Steel Industries, Inc. 7,500 146 METALS & MINING - 0.0% Aluminum Co. of America 11,300 768 Special Metals Corp. 12,500 219 987 PACKAGING & CONTAINERS - 0.3% Owens-Illinois, Inc. (a) 367,000 9,037 Tupperware Corp. 47,600 1,595 10,632 PAPER & FOREST PRODUCTS - 0.9% Boise Cascade Corp. 186,900 5,700 Champion International Corp. 291,500 13,263 International Paper Co. 161,100 6,263 Temple-Inland, Inc. 52,800 2,772 Willamette Industries, Inc. 50,300 3,144 31,142 TOTAL BASIC INDUSTRIES 133,566 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) CONSTRUCTION & REAL ESTATE - 0.7% CONSTRUCTION - 0.6% Centex Corp. 100,500 $ 3,543 D.R. Horton, Inc. 206,053 2,215 Fleetwood Enterprises, Inc. 442,600 11,065 Kaufman & Broad Home Corp. 222,300 2,945 U.S. Home Corp. (a) 23,800 604 20,372 ENGINEERING - 0.1% Fluor Corp. 80,900 4,247 TOTAL CONSTRUCTION & REAL ESTATE 24,619 DURABLES - 4.8% AUTOS, TIRES, & ACCESSORIES - 4.5% Circuit City Stores, Inc. CarMax Group 21,700 326 Cummins Engine Co., Inc. 111,500 5,715 Dana Corp. 81,200 2,669 Discount Auto Parts, Inc. (a) 141,900 2,270 Federal-Mogul Corp. 159,700 3,933 General Motors Corp. 1,771,745 98,110 Gentex Corp. (a) 9,200 182 Goodyear Tire & Rubber Co. 66,700 3,485 Honda Motor Co. Ltd. 287,000 8,556 Magna International, Inc. Class A 251,500 12,452 Superior Industries International, Inc. 303,800 6,873 Volvo AB Class B 445,800 11,879 156,450 CONSUMER ELECTRONICS - 0.1% Newell Co. 152,200 5,099 TEXTILES & APPAREL - 0.2% Burlington Industries, Inc. (a) 351,400 4,041 Liz Claiborne, Inc. 55,600 2,426 6,467 TOTAL DURABLES 168,016 ENERGY - 7.6% ENERGY SERVICES - 0.2% McDermott International, Inc. 368,900 7,885 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) ENERGY - CONTINUED OIL & GAS - 7.4% Amerada Hess Corp. 144,800 $ 7,674 Anadarko Petroleum Corp. 20,600 1,156 Atlantic Richfield Co. 210,600 28,431 British Petroleum PLC: ADR 256,124 35,153 Ord. 507 6 Burlington Resources, Inc. 346,400 14,809 Canada Occidental Petroleum Ltd. 297,500 5,479 Chevron Corp. 21,300 1,483 Elf Aquitaine SA sponsored ADR 74,319 3,660 Enron Oil & Gas Co. 22,200 461 Kerr-McGee Corp. 70,300 4,350 Louisiana Land & Exploration Co. 270,200 12,801 Mobil Corp. 21,300 2,782 Noble Affiliates, Inc. 33,600 1,268 Occidental Petroleum Corp. 477,600 11,761 Royal Dutch Petroleum Co.: ADR 421,400 73,745 Ord. 26,400 4,786 Santa Fe Energy Resources, Inc. (a) 215,500 2,990 Sun Co., Inc. 203,700 5,322 Tosco Corp. 731,400 20,845 Total SA: Class B 100,055 8,639 sponsored ADR 136,151 5,769 Union Pacific Resources Group, Inc. 58,200 1,557 254,927 TOTAL ENERGY 262,812 FINANCE - 15.4% BANKS - 0.8% BankAmerica Corp. 29,000 2,922 Canadian Imperial Bank of Commerce 30,000 678 Credit Suisse Group (Reg.) 52,800 6,297 Hong Leong Bank BHD 2,618,000 8,554 NationsBank Corp. 135,100 7,481 State Street Boston Corp. 35,800 2,484 28,416 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) FINANCE - CONTINUED CLOSED END INVESTMENT COMPANY - 0.2% First NIS Regional Fund (a) 480,000 $ 7,320 CREDIT & OTHER FINANCE - 1.7% Beneficial Corp. 4,200 271 Fleet Financial Group, Inc. 793,417 45,423 Homeside, Inc. 6,000 89 Hong Leong Credit BHD 1,297,000 8,476 Transamerica Corp. 23,100 2,067 56,326 FEDERAL SPONSORED CREDIT - 8.1% Federal Home Loan Mortgage Corporation 2,961,500 80,701 Federal National Mortgage Association 5,557,900 200,779 281,480 INSURANCE - 4.1% AFLAC, Inc. 119,900 4,496 Allmerica Financial Corp. 157,800 5,543 Allstate Corp. 708,409 42,062 American International Group, Inc. 270,650 31,768 CIGNA Corp. 15,000 2,192 Equitable of Iowa Companies 18,300 915 General Re Corp. 102,800 16,242 Loews Corp. 28,600 2,542 MGIC Investment Corp. 93,000 6,580 Nationwide Financial Services, Inc. Class A 17,400 448 Provident Companies, Inc. 13,000 712 Providian Corp. 272,400 14,573 Reliastar Financial Corp. 44,337 2,621 Torchmark Corp. 172,200 9,536 Travelers Property Casualty Corp. Class A 41,700 1,324 UNUM Corp. 15,300 1,117 142,671 SAVINGS & LOANS - 0.3% Golden West Financial Corp. 168,320 10,562 SECURITIES INDUSTRY - 0.2% United Asset Management Corp. 279,700 7,167 TOTAL FINANCE 533,942 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) HEALTH - 4.9% DRUGS & PHARMACEUTICALS - 1.5% American Home Products Corp. 12,900 $ 773 Amgen, Inc. (a) 225,800 12,617 Astra AB Class A Free shares 356,700 17,151 Idexx Laboratories, Inc. 115,300 1,614 Novartis AG (Reg.) (a) 4,675 5,764 Pharmacia & Upjohn, Inc. 15,850 581 Schering-Plough Corp. 196,800 14,317 Warner-Lambert Co. 21,100 1,825 54,642 MEDICAL EQUIPMENT & SUPPLIES - 0.6% Abbott Laboratories 12,700 713 Allegiance Corp. 23,020 509 Baxter International, Inc. 51,800 2,234 Biomet, Inc. 284,600 4,803 Guidant Corp. 6,100 375 Johnson & Johnson 32,600 1,724 St. Jude Medical, Inc. (a) 282,400 9,425 19,783 MEDICAL FACILITIES MANAGEMENT - 2.8% Columbia/HCA Healthcare Corp. 2,072,125 69,676 Health Management Associates, Inc. Class A (a) 16,300 387 Humana, Inc. (a) 403,100 8,868 Tenet Healthcare Corp. (a) 359,200 8,845 United HealthCare Corp. 178,800 8,515 96,291 TOTAL HEALTH 170,716 HOLDING COMPANIES - 0.1% U.S. Industries, Inc. (a) 109,500 3,860 INDUSTRIAL MACHINERY & EQUIPMENT - 1.8% ELECTRICAL EQUIPMENT - 1.0% Alcatel Alsthom Compagnie Generale d'Electricite SA sponsored ADR 9,300 222 Alcatel Alsthom Compagnie Generale d'Electricite SA 75,600 9,090 Emerson Electric Co. 71,600 3,222 General Electric Co. 155,600 15,443 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED ELECTRICAL EQUIPMENT - CONTINUED Scientific-Atlanta, Inc. 177,500 $ 2,707 Sensormatic Electronics Corp. 66,600 1,124 Westinghouse Electric Corp. 246,800 4,381 36,189 INDUSTRIAL MACHINERY & EQUIPMENT - 0.5% Caterpillar, Inc. 145,500 11,677 Dover Corp. 17,600 924 Kennametal, Inc. 5 - Ultratech Stepper, Inc. (a) 120,200 2,659 15,260 POLLUTION CONTROL - 0.3% Browning-Ferris Industries, Inc. 356,200 10,285 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 61,734 MEDIA & LEISURE - 1.9% BROADCASTING - 0.0% HSN, Inc. (a) 51,135 1,298 ENTERTAINMENT - 0.1% Cedar Fair LP (depositary unit) 12,400 468 Royal Caribbean Cruises Ltd. 38,900 1,186 1,654 LEISURE DURABLES & TOYS - 0.5% Nintendo Co. Ltd. Ord. 250,200 17,949 LODGING & GAMING - 0.7% Bally Gaming International, Inc. (warrants) (a) 37,500 52 Circus Circus Enterprises, Inc. (a) 386,500 10,049 Fitzgeralds South, Inc. (warrants) (a)(i) 410 - Mirage Resorts, Inc. (a) 321,100 6,823 Sun International Hotels Ltd. Ord. (a) 202,200 7,077 24,001 RESTAURANTS - 0.6% Brinker International, Inc. (a) 120,200 1,518 McDonald's Corp. 389,600 18,409 Papa John's International, Inc. (a) 4,300 113 20,040 TOTAL MEDIA & LEISURE 64,942 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) NONDURABLES - 8.3% HOUSEHOLD PRODUCTS - 0.0% Premark International, Inc. 69,800 $ 1,387 TOBACCO - 8.3% Philip Morris Companies, Inc. 2,165,900 247,184 RJR Nabisco Holdings Corp. 1,164,984 37,571 UST, Inc. 60,500 1,686 286,441 TOTAL NONDURABLES 287,828 PRECIOUS METALS - 0.5% Barrick Gold Corp. 656,700 15,510 Santa Fe Pacific Gold Corp. 114,822 1,894 17,404 RETAIL & WHOLESALE - 4.9% APPAREL STORES - 0.2% Lamonts Apparel, Inc. (warrants) (a) 47,666 - TJX Companies, Inc. 145,900 6,237 6,237 DRUG STORES - 0.1% CVS Corp. 49,000 2,260 GENERAL MERCHANDISE STORES - 1.8% Federated Department Stores, Inc. (a) 272,500 8,959 Wal-Mart Stores, Inc. 1,986,700 55,379 64,338 GROCERY STORES - 0.1% Safeway, Inc. (a) 64,800 3,005 RETAIL & WHOLESALE, MISCELLANEOUS - 2.7% Circuit City Stores, Inc. Circuit City Group 308,700 10,302 Corporate Express, Inc. (a) 112,000 1,148 Home Depot, Inc. (The) 591,400 31,640 Lowe's Companies, Inc. 568,300 21,240 Officemax, Inc. (a) 515,175 6,697 Office Depot, Inc. (a) 79,550 1,621 Rex Stores Corp. (a) 18,900 168 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) RETAIL & WHOLESALE - CONTINUED RETAIL & WHOLESALE, MISCELLANEOUS - CONTINUED Staples, Inc. (a) 95,200 $ 1,916 Toys "R" Us, Inc. (a) 431,200 12,074 U.S. Office Products Co. (a) 156,900 3,883 Viking Office Products, Inc. (a) 183,600 3,557 94,246 TOTAL RETAIL & WHOLESALE 170,086 SERVICES - 0.0% ADVERTISING - 0.0% Interpublic Group of Companies, Inc. 23,100 1,219 SERVICES - 0.0% HCIA, Inc. (a) 10,400 174 TOTAL SERVICES 1,393 TECHNOLOGY - 10.7% COMMUNICATIONS EQUIPMENT - 0.1% Cisco Systems, Inc. (a) 55,700 2,681 Nokia Corp. AB sponsored ADR 32,900 1,916 4,597 COMPUTER SERVICES & SOFTWARE - 1.7% America Online, Inc. (a) 29,400 1,246 American Management Systems, Inc. (a) 25,400 559 Automatic Data Processing, Inc. 236,400 9,899 CUC International, Inc. (a) 51,700 1,163 Ceridian Corp. (a) 93,700 3,361 Cerner Corp. (a) 6,400 84 CompUSA, Inc. 100,100 1,577 Electronic Data Systems Corp. 211,300 8,531 First Data Corp. 276,600 9,370 Microsoft Corp. (a) 67,600 6,198 Netscape Communications Corp. (a) 41,900 1,260 Oracle Systems Corp. (a) 147,300 5,680 Paychex, Inc. 101,500 4,174 Policy Management Systems Corp. (a) 141,500 6,173 59,275 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TECHNOLOGY - CONTINUED COMPUTERS & OFFICE EQUIPMENT - 5.0% Adaptec, Inc. (a) 2,600 $ 94 Bay Networks, Inc. (a) 518,900 9,275 Compaq Computer Corp. (a) 676,900 51,867 Hewlett-Packard Co. 184,700 9,835 Ingram Micro, Inc. Class A (a) 28,600 597 International Business Machines Corp. 590,400 81,106 SCI Systems, Inc. (a) 242,100 12,256 Seagate Technology (a) 125,900 5,650 Silicon Graphics, Inc. (a) 30,700 599 Tech Data Corp. (a) 87,000 2,099 173,378 ELECTRONIC INSTRUMENTS - 1.2% Applied Materials, Inc. (a) 168,500 7,814 Cognex Corp. (a) 75,300 1,431 KLA Instruments Corp. (a) 49,100 1,792 Lam Research Corp. (a) 201,300 6,794 Novellus Systems, Inc. (a) 97,100 6,700 Teradyne, Inc. (a) 241,200 6,965 Thermo Electron Corp. (a) 89,900 2,776 Varian Associates, Inc. 92,500 4,949 39,221 ELECTRONICS - 2.7% AMP, Inc. 589,700 20,270 Atmel Corp. (a) 107,900 2,583 Intel Corp. 165,500 23,025 Methode Electronics, Inc. Class A 11,300 158 Microchip Technology, Inc. (a) 30,550 917 Molex, Inc. 80,300 2,811 Motorola, Inc. 8,200 495 National Semiconductor Corp. (a) 14,900 410 Solectron Corp. (a) 520,400 26,085 Storage Technology Corp. (a) 90,200 3,540 Texas Instruments, Inc. 184,800 13,837 Thomas & Betts Corp. 6,200 265 Xilinx, Inc. (a) 2,300 112 94,508 TOTAL TECHNOLOGY 370,979 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) TRANSPORTATION - 0.9% AIR TRANSPORTATION - 0.2% Continental Airlines, Inc. Class B (a) 56,300 $ 1,767 Delta Air Lines, Inc. 32,600 2,742 Northwest Airlines Corp. Class A (a) 70,600 2,656 7,165 RAILROADS - 0.5% Bombardier, Inc. Class B 139,300 2,520 Burlington Northern Santa Fe Corp. 68,200 5,047 CSX Corp. 199,600 9,281 16,848 SHIPPING - 0.1% Stolt-Nielsen SA Class B sponsored ADR 135,800 2,398 Stolt-Nielsen SA 36,900 637 3,035 TRUCKING & FREIGHT - 0.1% Roadway Express, Inc. 26,300 510 Yellow Corp. (a) 106,800 1,989 2,499 TOTAL TRANSPORTATION 29,547 UTILITIES - 6.9% CELLULAR - 2.3% AirTouch Communications, Inc. (a) 771,400 17,743 SK Telecom Ltd. 6 5 360 Degrees Communications Co. (a) 45,100 778 Vodafone Group PLC sponsored ADR 1,065,800 47,028 Vodafone Group PLC 3,312,763 15,126 80,680 ELECTRIC UTILITY - 0.2% American Electric Power Co., Inc. 11,600 479 El Paso Electric Co. (a) 14,900 89 Entergy Corp. 217,200 5,321 5,889 GAS - 0.2% Enron Corp. 159,100 6,046 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) UTILITIES - CONTINUED TELEPHONE SERVICES - 4.2% AT&T Corp. 260,200 $ 9,042 Ameritech Corp. 246,300 15,147 Bell Atlantic Corp. 163,700 9,965 BellSouth Corp. 401,800 16,976 Deutsche Telekom AG 89,100 2,022 MCI Communications Corp. 809,300 28,831 Nextlink Communications, Inc. unit (i) 58,550 2,576 NYNEX Corp. 367,400 16,763 SBC Communications, Inc. 370,884 19,518 Sprint Corp. 532,000 24,206 WorldCom, Inc. (a) 8,500 187 145,233 TOTAL UTILITIES 237,848 TOTAL COMMON STOCKS (Cost $2,242,504) 2,585,503 PREFERRED STOCKS - 1.1% CONVERTIBLE PREFERRED STOCKS - 0.0% RETAIL & WHOLESALE - 0.0% GROCERY STORES - 0.0% Supermarkets General Holdings Corp. $3.52 pay-in-kind (a) 18,200 439 NONCONVERTIBLE PREFERRED STOCKS - 1.1% CONSTRUCTION & REAL ESTATE - 0.1% REAL ESTATE INVESTMENT TRUSTS - 0.1% Walden Residential Properties, Inc. 9.20% 62,400 1,560 ENERGY - 0.0% OIL & GAS - 0.0% Gulf Canada Resources Ltd., Series 1, adj. rate 81,300 245 PREFERRED STOCKS - CONTINUED SHARES VALUE (NOTE 1) (000S) NONCONVERTIBLE PREFERRED STOCKS - CONTINUED FINANCE - 0.2% BANKS - 0.1% California Federal Bank FSB 9 1/8% 187,060 $ 4,560 INSURANCE - 0.1% American Annuity Group Capital Trust II 1,800 1,791 TOTAL FINANCE 6,351 HEALTH - 0.0% MEDICAL FACILITIES MANAGEMENT - 0.0% Fresenius Medical Care Capital Trust 9% 1,216 1,201 MEDIA & LEISURE - 0.8% BROADCASTING - 0.7% American Radio System 11 3/8% pay-in-kind (i) 24,269 2,378 Cablevision System Corp. depositary shares 32,589 2,909 SFX Broadcasting, Inc. 12 5/8% 37,390 3,608 Sinclair Capital 11 5/8% (i) 34,380 3,352 Time Warner, Inc., Series M, 10 1/4% pay-in-kind 9,413 10,025 22,272 PUBLISHING - 0.1% K-III Communications Corp.: Series B, $11.625 pay-in-kind (a) 2,390 259 Series D, 10% 41,288 4,119 4,378 TOTAL MEDIA & LEISURE 26,650 NONDURABLES - 0.0% HOUSEHOLD PRODUCTS - 0.0% Revlon Group, Inc., Series B, 14 7/8% 4,600 468 TOTAL NONCONVERTIBLE PREFERRED STOCKS 36,475 TOTAL PREFERRED STOCKS (Cost $37,209) 36,914 NONCONVERTIBLE BONDS - 12.4% MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) AEROSPACE & DEFENSE - 0.3% AEROSPACE & DEFENSE - 0.1% BE Aerospace Inc: 9 3/4%, 3/1/03 Ba3 $ 500 $ 513 9 7/8%, 2/1/06 B2 770 789 Rohr, Inc. 11 5/8%, 5/15/03 Ba3 320 354 1,656 DEFENSE ELECTRONICS - 0.0% Tracor, Inc. 8 1/2%, 3/1/07 (i) B1 1,420 1,374 SHIP BUILDING & REPAIR - 0.2% Newport News Shipbuilding, Inc.: 8 5/8%, 12/1/06 Ba2 1,250 1,250 9 1/4%, 12/1/06 B1 4,960 5,010 6,260 TOTAL AEROSPACE & DEFENSE 9,290 BASIC INDUSTRIES - 0.6% CHEMICALS & PLASTICS - 0.2% Acetex Corp. yankee 9 3/4%, 10/1/03 B1 2,010 1,970 Freedom Chemical Co. 10 5/8%, 10/15/06 B3 410 422 General Chemical Corp. 9 1/4%, 8/15/03 B2 1,600 1,600 Ivex Holdings Corp. 0%, 3/15/05 (d) Caa 900 702 NL Industries, Inc. 11 3/4%, 10/15/03 B1 1,210 1,280 Praxair Inc. 6.90%, 11/1/06 A3 2,000 1,928 Sterling Chemicals Holdings, Inc. 11 3/4%, 8/15/06 B3 1,180 1,239 9,141 IRON & STEEL - 0.1% AK Steel Corp. 9 1/8%, 12/15/06 Ba2 2,050 2,019 PACKAGING & CONTAINERS - 0.1% Owens-Illinois, Inc. 9.95%, 10/15/04 B2 2,120 2,242 PAPER & FOREST PRODUCTS - 0.2% Asia Pulp & Paper Finance II Mauritius Ltd. 12%, 3/15/04 (i) B3 1,180 1,133 Florida Coast Paper Co. LLC/Florida Coast Paper Finance Corp. 12 3/4%, 6/1/03 B3 1,250 1,225 Repap Wisconsin, Inc. 9 1/4%, 2/1/02 B2 2,450 2,389 Stone Container Corp. 10 3/4%, 10/1/02 B1 1,610 1,618 6,365 TOTAL BASIC INDUSTRIES 19,767 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) CONSTRUCTION & REAL ESTATE - 0.4% BUILDING MATERIALS - 0.2% Building Materials Corp. of America 0%, 7/1/04 (d) B1 $ 5,660 $ 4,981 Nortek, Inc. 9 1/4%, 3/15/07 (i) Ba3 960 943 Usinor Sacilor yankee 7 1/4%, 8/1/06 Baa2 2,250 2,174 8,098 CONSTRUCTION - 0.1% Greystone Homes, Inc. 10 3/4%, 3/1/04 B1 2,450 2,523 McDermott J. Ray SA 9 3/8%, 7/15/06 B1 1,480 1,495 4,018 REAL ESTATE - 0.1% Iron Mountain, Inc. 10 1/8%, 10/1/06 B3 1,370 1,411 TOTAL CONSTRUCTION & REAL ESTATE 13,527 DURABLES - 0.6% AUTOS, TIRES, & ACCESSORIES - 0.3% APS, Inc. 11 7/8%, 1/15/06 B2 3,260 3,276 Aftermarket Technology Corp. 12%, 8/1/04 B3 1,522 1,674 Blue Bird Body Co. 10 3/4%, 11/15/06 B2 1,880 1,927 Delco Remy International, Inc. 10 5/8%, 8/1/06 (i) B2 510 530 Tennessee Gas Pipeline Co. 7%, 3/15/27 Baa3 1,010 981 8,388 CONSUMER ELECTRONICS - 0.0% Tag Heuer International SA yankee 12%, 12/15/05 B3 1,040 1,183 HOME FURNISHINGS - 0.1% Interlake Corp. 12 1/8%, 3/1/02 B3 3,270 3,401 Knoll, Inc. 10 7/8%, 3/15/06 B3 600 651 4,052 TEXTILES & APPAREL - 0.2% GFSI, Inc. 9 5/8%, 3/1/07 (i) B3 3,040 2,964 Hat Brands, Inc. 12 5/8%, 9/15/02 (g) - 250 138 Levi Strauss & Co. 7%, 11/1/06 (i) Baa2 3,150 3,031 Pillowtex Corp. 10%, 11/15/06 B2 1,940 2,008 8,141 TOTAL DURABLES 21,764 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) ENERGY - 0.7% ENERGY SERVICES - 0.2% Falcon Drilling, Inc. 9 3/4%, 1/15/01 Ba3 $ 1,210 $ 1,228 Parker Drilling Co. 9 3/4%, 11/15/06 B1 410 416 Petroliam Nasional BHD yankee (i): 7 1/8%, 10/18/06 A1 3,000 2,927 7 5/8%, 10/15/26 A1 3,000 2,913 7,484 OIL & GAS - 0.5% Cross Timbers Oil Co. 9 1/4%, 4/1/07 (i) B2 1,940 1,883 Diamond Shamrock, Inc. 7.65%, 7/1/26 Baa3 1,000 1,022 Flores & Rucks, Inc. 9 3/4%, 10/1/06 B3 2,420 2,468 Forcenergy, Inc.: 9 1/2%, 11/1/06 B2 230 225 8 1/2%, 2/15/07 (i) B2 2,710 2,520 Gulf Canada Resources Ltd. yankee 9 5/8%, 7/1/05 Ba2 1,350 1,421 HS Resources, Inc. 9 1/4%, 11/15/06 (i) B2 230 221 Husky Oil Ltd. yankee 6 7/8%, 11/15/03 Baa3 1,010 975 Norcen Energy Resources Ltd. yankee 7 3/8%, 5/15/06 Baa3 1,000 978 Occidental Petroleum Corp.: 10.94%, 5/17/00 Baa3 1,200 1,325 6.39%, 11/9/00 Baa3 500 488 8 1/2%, 11/9/01 Baa2 530 555 Pennzoil Co. 9 5/8%, 11/15/99 Baa3 900 956 Ras Laffan Liquid Natural Gas Co. Ltd. yankee 7.628%, 9/15/06 (i) A3 2,030 2,003 17,040 TOTAL ENERGY 24,524 FINANCE - 3.4% ASSET-BACKED SECURITIES - 0.5% Airplanes Pass Through Trust 10 7/8%, 3/15/19 Ba2 9,040 10,012 Caterpillar Financial Asset Trust 6.55%, 5/22/02 A3 370 367 CPS Auto Grantor Trust 6.55%, 12/15/02 Aaa 1,300 1,293 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) FINANCE - CONTINUED ASSET-BACKED SECURITIES - CONTINUED Green Tree Financial Corp.: 6 1/2%, 6/15/27 Aaa $ 750 $ 745 6.80%, 6/15/27 Aaa 750 742 Olympic Automobile Receivables Trust 6.40%, 9/15/01 Aaa 1,710 1,701 Premier Auto Trust: 8.05%, 4/4/00 Aaa 2,966 3,014 6%, 5/6/00 Aaa 970 967 18,841 BANKS - 0.9% ABN Amro Bank NV 6 5/8%, 10/31/01 Aa3 3,000 2,937 Banc One Corp. 6.70%, 3/24/00 Aa3 1,700 1,692 BanPonce Financial Corp. 7.72%, 4/13/00 A3 1,000 1,011 BanPonce Corp. 6.665%, 3/5/01 A3 1,650 1,620 BanPonce Trust I 8.327%, 2/1/27 (i) Baa1 2,850 2,783 Capital One Bank: 6.74%, 5/31/99 Baa3 1,640 1,633 7.20%, 7/19/99 Baa3 4,000 4,017 6.42%, 11/12/99 Baa3 3,600 3,553 Central Fidelity Banks, Inc. 8.15%, 11/15/02 Baa2 1,100 1,134 HSBC Americas, Inc. 7%, 11/1/06 Baa1 3,150 3,014 Midland Bank PLC yankee 7 5/8%, 6/15/06 A1 1,220 1,224 Signet Bank 7.80%, 9/15/06 Baa1 1,250 1,255 Southern National Corp. 7.05%, 5/23/03 A3 2,200 2,169 Summit Bancorp 8 5/8%, 12/10/02 BBB- 650 689 U.S. Bancorp Capital I 8.27%, 12/15/26 (i) A2 1,550 1,537 Union Planters National Bank 6.81%, 8/20/01 A3 1,500 1,498 31,766 CREDIT & OTHER FINANCE - 1.4% Ahmanson Capital Trust I 8.36%, 12/1/26 (i) Baa3 1,800 1,764 AT&T Capital Corp.: 6.02%, 12/4/98 Baa3 3,250 3,216 6.39%, 1/22/99 Baa3 630 626 6.26%, 2/18/99 Baa3 4,300 4,261 6.16%, 12/3/99 Baa3 1,250 1,226 BCH Cayman Islands Ltd. yankee 7.70%, 7/15/06 A3 1,200 1,200 CIT Group Holdings, Inc. 6 1/4%, 10/4/99 Aa3 2,500 2,468 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) FINANCE - CONTINUED CREDIT & OTHER FINANCE - CONTINUED Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 $ 3,390 $ 3,348 Finova Capital Corp. 6.12%, 5/28/02 Baa1 1,000 951 First Securities Capital I 8.41%, 12/15/26 (i) A3 850 847 Ford Motor Credit: 5.73%, 2/23/00 A1 1,500 1,455 6.65%, 5/22/00 A1 4,000 3,967 6.57%, 3/19/01 A1 2,500 2,457 7%, 9/25/01 A1 8,000 7,952 General Electric Capital Corp. 6.94%, 4/13/09 (e) Aaa 3,000 3,009 General Motors Acceptance Corp. 5 5/8%, 2/1/99 A3 2,000 1,963 HMC Acquisition Properties, Inc. 9%, 12/15/07 Ba3 4,580 4,557 Heller Financial, Inc. 7 7/8%, 11/1/99 A2 2,230 2,282 North American Mortgage Co. 7.29%, 8/19/03 Baa2 500 495 48,044 INSURANCE - 0.3% Reliance Group: 9%, 11/15/00 Ba3 2,510 2,535 9 3/4%, 11/15/03 B1 3,950 4,049 SunAmerica, Inc. 6.20%, 10/31/99 Baa1 2,000 1,965 8,549 SAVINGS & LOANS - 0.3% Chevy Chase Savings Bank FSB 9 1/4%, 12/1/08 B1 4,050 3,969 First Nationwide Parent Holdings Ltd. 12 1/2%, 4/15/03 B3 4,330 4,753 First Nationwide Escrow Corp. 10 5/8%, 10/1/03 (i) Ba3 1,420 1,498 Great Western Financial Corp. 8.60%, 2/1/02 Baa1 1,000 1,052 St. Paul Bancorp, Inc. 7 1/8%, 2/15/04 Ba2 700 675 11,947 TOTAL FINANCE 119,147 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) HEALTH - 0.5% MEDICAL EQUIPMENT & SUPPLIES - 0.1% IMED Corp. 9 3/4%, 12/1/06 (i) B3 $ 350 $ 347 McKesson Corp. 6.60%, 3/1/00 (i) A3 1,720 1,704 2,051 MEDICAL FACILITIES MANAGEMENT - 0.4% Columbia/HCA Healthcare Corp.: 6 1/2%, 3/15/99 A2 1,500 1,496 6 7/8%, 7/15/01 A3 1,000 992 Mariner Health Group, Inc. 9 1/2%, 4/1/06 B2 500 490 Tenet Healthcare Corp.: 8%, 1/15/05 Ba1 380 366 10 1/8%, 3/1/05 Ba3 3,760 4,033 8 5/8%, 1/15/07 Ba3 6,950 6,689 14,066 TOTAL HEALTH 16,117 INDUSTRIAL MACHINERY & EQUIPMENT - 0.2% INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% Continental Global Group, Inc. 11%, 4/1/07 (i) B2 950 946 Exide Corp. 10%, 4/15/05 B1 890 903 Goss Graphic System, Inc. 12%, 10/15/06 B2 2,510 2,629 4,478 POLLUTION CONTROL - 0.1% Allied Waste of North America, Inc. 10 1/4%, 12/1/06 (i) B3 3,670 3,771 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 8,249 MEDIA & LEISURE - 2.5% BROADCASTING - 1.5% Adelphia Communications Corp.: 9 1/2%, 2/15/04 B3 2,760 2,319 9 7/8%, 3/1/07 (i) - 2,550 2,301 Cablevision System Corp.: 9 1/4%, 11/1/05 B2 1,710 1,633 9 7/8%, 5/15/06 B2 1,300 1,274 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) MEDIA & LEISURE - CONTINUED BROADCASTING - CONTINUED CapStar Broadcasting Partners, Inc. 0%, 2/1/09 (i) CCC $ 820 $ 435 Diamond Cable Communications PLC yankee (d): 0%, 9/30/04 B3 3,190 2,496 0%, 2/15/07 (i) - 3,210 1,741 Granite Broadcasting Corp. 10 3/8%, 5/15/05 B3 750 750 Intermedia Capital Partners IV LP / Intermedia Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 1,180 1,201 International Cabletel, Inc.: 0%, 2/1/06 (d) B3 2,090 1,275 10%, 2/15/07 (i) - 3,440 3,268 Lenfest Communications, Inc. 8 3/8%, 11/1/05 Ba3 3,230 2,964 Olympus Communication LP/Olympus Capital Corp. 10 5/8%, 11/15/06 (i) B1 1,060 1,055 Rogers Cablesystems Ltd. yankee 11%, 12/1/15 B2 2,500 2,600 SCI Television, Inc. secured 11%, 6/30/05 Ba1 3,576 3,781 SFX Broadcasting, Inc. 10 3/4%, 5/15/06 B3 2,475 2,562 TCI Communications, Inc.: 7 1/4%, 6/15/99 Ba1 2,840 2,839 6.46%, 3/6/00 Ba1 2,930 2,835 TCI Satellite Entertainment, Inc. 0%, 2/15/07 (d)(i) B- 2,210 983 Telemundo Group, Inc. 7%, 2/15/06 B1 3,090 3,028 Telewest PLC 0%, 10/1/07 (d) B1 5,880 3,851 Time Warner, Inc.: 7.95%, 2/1/00 Ba1 3,180 3,245 7 3/4%, 6/15/05 Ba1 2,200 2,173 9.15%, 2/1/23 sub. deb. Ba1 430 453 51,062 ENTERTAINMENT - 0.2% AMC Entertainment, Inc. 9 1/2%, 3/15/09 (i) B2 1,890 1,838 Cinemark USA, Inc. 9 5/8%, 8/1/08 B2 470 463 Viacom, Inc. 8%, 7/7/06 B1 4,690 4,338 6,639 LODGING & GAMING - 0.5% American Skiing Co. 12%, 7/15/06 B3 3,470 3,488 Circus Circus Enterprises, Inc. 7%, 11/15/36 Baa2 875 823 Courtyard by Marriott II LP/Courtyard II Finance Co. 10 3/4%, 2/1/08 B- 1,180 1,230 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) MEDIA & LEISURE - CONTINUED LODGING & GAMING - CONTINUED GB Property Funding Corp. gtd. 1st mtg. 10 7/8%, 1/15/04 B3 $ 470 $ 376 HMH Properties, Inc. 9 1/2%, 5/15/05 Ba3 3,920 3,930 Harrah's Jazz Co. 14 1/4%, 11/15/01 (g) Caa 495 218 Hollywood Casino Corp. 12 3/4%, 11/1/03 B2 390 388 Mirage Resorts, Inc. 7 1/4%, 10/15/06 Baa2 2,500 2,425 Prime Hospitality Corp. 9 3/4%, 4/1/07 (i) B1 2,040 2,015 Sun International Hotels Ltd. 9%, 3/15/07 (i) Ba3 2,220 2,103 Wyndham Hotel Corp. 10 1/2%, 5/15/06 B2 750 791 17,787 PUBLISHING - 0.1% Golden Books Publishing, Inc. 7.65%, 9/15/02 B1 650 571 News America Holdings, Inc. 7.70%, 10/30/25 Baa3 1,730 1,576 Sun Media Corp. 9 1/2%, 2/15/07 yankee (i) B3 1,630 1,589 3,736 RESTAURANTS - 0.2% Foodmaker, Inc. 9 3/4%, 6/1/02 B3 2,710 2,757 Host Marriott Travel Plazas, Inc. 9 1/2%, 5/15/05 B1 4,810 4,834 7,591 TOTAL MEDIA & LEISURE 86,815 NONDURABLES - 0.5% FOODS - 0.4% Chiquita Brands International, Inc.: 9 5/8%, 1/15/04 B1 4,970 5,045 10 1/4%, 11/1/06 B1 270 281 ConAgra, Inc. 7 1/8%, 10/1/26 Baa1 1,700 1,680 Foodbrands of America, Inc. 10 3/4%, 5/15/06 B3 1,440 1,613 Specialty Foods Corp.: 10 1/4%, 8/15/01 B3 480 470 11 1/8%, 10/1/02 B3 3,700 3,700 12,789 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) NONDURABLES - CONTINUED HOUSEHOLD PRODUCTS - 0.1% Revlon Worldwide Parent Corp. 0%, 3/15/01 (i) - $ 1,140 $ 708 Revlon Consumer Products Corp.: 9 3/8%, 4/1/01 B2 700 716 10 1/2%, 2/15/03 B3 3,260 3,415 4,839 TOTAL NONDURABLES 17,628 RETAIL & WHOLESALE - 0.7% APPAREL STORES - 0.0% Lamonts Apparel, Inc. 10 1/4%, 11/1/99 pay-in-kind (g)(i) - 1,584 63 GENERAL MERCHANDISE STORES - 0.4% Dayton Hudson Corp.: 6.80%, 10/1/01 Baa1 3,000 2,948 7 1/2%, 7/15/06 Baa1 2,000 1,984 K mart Corp.: 12 1/2%, 3/1/05 Ba3 1,360 1,618 8 1/4%, 1/1/22 Ba3 2,480 2,145 Michaels Stores, Inc. 10 7/8%, 6/18/06 Ba2 2,670 2,743 Parisian, Inc. 9 7/8%, 7/15/03 B1 2,580 2,593 14,031 GROCERY STORES - 0.3% Kroger Co. 8.15%, 7/15/06 Baa3 1,000 1,022 Pathmark Stores, Inc.: 9 5/8%, 5/1/03 B3 4,280 4,018 10%, 11/1/03 (d) Caa 3,970 2,650 Penn Traffic Co.: 10 1/4%, 2/15/02 sr. notes B2 1,390 1,216 8 5/8%, 12/15/03 B2 640 522 10 3/8%, 10/1/04 B2 390 337 9,765 TOTAL RETAIL & WHOLESALE 23,859 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) SERVICES - 0.3% PRINTING - 0.1% Sullivan Graphics, Inc. 12 3/4%, 8/1/05 Caa $ 1,810 $ 1,833 SERVICES - 0.2% Borg-Warner Security Corp. 9 5/8%, 3/15/07 (i) B3 1,150 1,115 Orion Network Systems, Inc. unit: 11 1/4%, 1/15/07 B2 3,690 3,644 0%, 1/15/07 (d) B2 3,180 1,614 6,373 TOTAL SERVICES 8,206 TECHNOLOGY - 0.4% COMMUNICATIONS EQUIPMENT - 0.0% Echostar Satellite Broadcasting Corp. 0%, 3/15/04 (d) Caa 1,680 1,336 COMPUTERS & OFFICE EQUIPMENT - 0.2% Comdisco, Inc.: 7.21%, 7/2/01 Baa1 1,750 1,753 6 3/8%, 11/30/01 Baa1 1,800 1,734 Unisys Corp.: 12%, 4/15/03 B1 2,090 2,174 11 3/4%, 10/15/04 B1 1,790 1,862 7,523 ELECTRONIC INSTRUMENTS - 0.0% Packard Bioscience, Inc. 9 3/8%, 3/1/07 (i) B3 850 820 ELECTRONICS - 0.2% Advanced Micro Devices, Inc. 11%, 8/1/03 Ba1 2,730 2,948 Fairchild Semiconductor Corp. 10 1/8%, 3/15/07 (i) B2 2,290 2,290 5,238 TOTAL TECHNOLOGY 14,917 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) TRANSPORTATION - 0.3% AIR TRANSPORTATION - 0.3% AMR Corp. 9%, 8/1/12 Baa3 $ 1,400 $ 1,522 Delta Air Lines, Inc.: 9 7/8%, 5/15/00 Baa3 500 535 10 1/2%, 4/30/16 Baa1 1,500 1,778 US Air, Inc.: 9 5/8%, 2/1/01 B3 2,350 2,350 10%, 7/1/03 B3 2,770 2,770 10 3/8%, 3/1/13 B1 940 973 9,928 RAILROADS - 0.0% Burlington Northern Santa Fe Corp. 7.29%, 6/1/36 Baa2 1,500 1,483 TOTAL TRANSPORTATION 11,411 UTILITIES - 1.0% CELLULAR - 0.2% Arch Communications Group, Inc. 0%, 3/15/08 (d) B3 1,140 485 Globalstar Lp /Globalstar Capital C unit 11 3/8%, 2/15/04 (i) B3 1,660 1,619 McCaw International Ltd. unit 0%, 4/15/07 (i) CCC 4,050 1,904 Millicom International Cellular SA 0%, 6/1/06 (d) B3 1,930 1,269 Rogers Cantel, Inc. 9 3/8%, 6/1/08 Ba3 2,010 2,030 360 Degrees Communications Co. 7 1/8%, 3/1/03 Ba1 280 273 Western Wireless Corp. 10 1/2%, 6/1/06 B3 1,300 1,261 8,841 ELECTRIC UTILITY - 0.3% CalEnergy, Inc. 9 1/2%, 9/15/06 Ba2 2,000 2,060 Commonwealth Edison Co. 7 3/8%, 9/15/02 Baa2 1,950 1,951 Hydro-Quebec yankee 7.40%, 3/28/25 A2 1,050 1,095 Long Island Lighting Co. 8 5/8%, 4/15/04 Ba1 2,230 2,259 NIPSCO Capital Markets, Inc. 7.39%, 4/1/04 A3 1,600 1,586 8,951 NONCONVERTIBLE BONDS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) UTILITIES - CONTINUED TELEPHONE SERVICES - 0.5% Brooks Fiber Properties, Inc. 0%, 11/1/06 (d) - $ 1,300 $ 766 Call-Net Enterprises, Inc. yankee 0%, 12/1/04 (d) B2 3,060 2,547 MFS Communications, Inc. (d): 0%, 1/15/04 Ba3 1,600 1,436 0%, 1/15/06 Ba3 5,130 3,848 Mcleod, Inc. 0%, 3/1/07 (d)(i) B3 380 205 Shared Technologies Fairchild Communications Corp. 0%, 3/1/06 (d) Caa 1,390 1,126 Teleport Communications Group, Inc. 9 7/8%, 7/1/06 B1 1,020 1,046 Winstar Equipment Corp. 12 1/2%, 3/15/04 (i) CCC+ 1,370 1,315 WorldCom, Inc. 7 3/4%, 4/1/07 Ba1 4,800 4,754 17,043 TOTAL UTILITIES 34,835 TOTAL NONCONVERTIBLE BONDS (Cost $433,371) 430,056 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 3.3% U.S. TREASURY OBLIGATIONS - 2.7% 9 1/4%, 8/15/98 Aaa 2,030 2,107 8 7/8%, 11/15/98 Aaa 9,520 9,880 8 7/8%, 2/15/99 Aaa 11,070 11,542 9 1/8%, 5/15/99 Aaa 1,040 1,093 8%, 8/15/99 Aaa 5,140 5,303 7 3/4%, 12/31/99 Aaa 2,830 2,911 7 7/8%, 8/15/01 Aaa 12,870 13,407 5 3/4%, 8/15/03 Aaa 3,590 3,389 11 1/4%, 8/15/03 Aaa 6,705 8,161 7%, 7/15/06 Aaa 21,028 21,081 12 3/4%, 11/15/10 (callable) Aaa 7,400 10,088 7 1/4%, 2/15/23 Aaa 1,410 1,393 6 1/2%, 11/15/26 Aaa 6,185 5,694 96,049 U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) U.S. GOVERNMENT AGENCY OBLIGATIONS - 0.6% Federal Home Loan Bank: 7.66%, 7/20/04 Aaa $ 4,540 $ 4,674 7.59%, 3/10/05 Aaa 1,550 1,593 Federal Home Loan Mortgage Corporation 6.80%, 8/22/05 Aaa 900 878 Federal National Mortgage Association 7.49%, 3/02/05 Aaa 2,320 2,370 Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. government through Export-Import Bank) Series 1994-A, 7.12%, 4/15/06 Aaa 3,139 3,153 U.S. Department of Housing and Urban Development U.S. government guaranteed participation certificates Series 1996-A: 6.83%, 8/1/03 Aaa 4,000 3,946 7.66%, 8/1/15 Aaa 1,200 1,182 U.S. Trade Trust Certificates (assets of Trust guaranteed by U.S. government through Export-Import Bank) 6.69%, 1/15/09 (i) Aaa 2,170 2,108 19,904 TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (Cost $118,403) 115,953 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - 3.1% FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.1% 5 1/2%, 2/1/03 to 5/1/03 Aaa 1,741 1,642 7%, 7/1/01 Aaa 442 442 2,084 FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.2% 5 1/2%, 4/1/03 to 6/1/03 Aaa 1,793 1,686 6%, 4/1/00 to 6/1/26 Aaa 28,088 26,199 6 1/2%, 9/1/25 to 6/1/26 Aaa 28,918 26,921 7%, 2/1/26 Aaa 11,347 10,868 7 1/2%, 4/1/27 Aaa 4,900 4,810 7 1/2%, 4/1/27 (l) Aaa 5,800 5,693 76,177 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 0.8% 6%, 6/15/08 to 4/15/26 Aaa 12,300 11,621 6 1/2%, 9/15/08 to 5/15/09 Aaa 9,133 8,843 U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - CONTINUED 8%, 5/15/25 to 11/15/25 Aaa $ 1,201 $ 1,208 8 1/2%, 5/15/26 to 10/15/26 Aaa 8,223 8,431 30,103 TOTAL U.S. GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES (Cost $109,414) 108,364 COMMERCIAL MORTGAGE SECURITIES - 0.9% American Southwest Financial Securities Series 1994-C2 Class B2, 12.79%, 12/25/01 (f)(i) - 1,670 1,611 BKB Commercial Mortgage Trust Series 1997-C1 Class D, 7.83%, 2/25/43 (f)(i) BBB 680 677 Berkeley Federal Bank & Trust FSB Series 1994 Class 1-B, 7.683%, 8/1/24 (f)(i) - 1,900 1,341 Blackrock Capital Funding LLC Series 1996 Class C2, 7.635%, 11/16/26 (f)(i) Aaa 619 623 CBA Mortgage Corp. Series 1993-C1 Class E, 7.76%, 12/25/03 (f)(i) Ba2 1,352 1,259 CS First Boston Mortgage Securities Corp. (i): Series 1994-M1 Class E, 12.60%, 2/15/02 - 800 798 floater Series 1995-AEWI Class E, 9.976%, 11/25/97 (f) - 650 615 Series 1994-CFB1 Class E, 7.641%, 1/25/28 (f) Ba2 1,213 1,063 DLJ Mortgage Acceptance Corp. Series 1993 MF12 Class B-2, 10.10%, 9/18/03 (i) - 1,650 1,538 Equitable Life Assurance Society of the United States (The) (i): sequential pay Series 174 Class A1, 7.24%, 5/15/06 Aaa 2,300 2,317 Series 174 Class B1, 7.33%, 5/15/06 Aa2 1,200 1,197 Series 1996-1 Class C1, 7.52%, 5/15/06 A2 1,000 1,003 General Motors Acceptance Corp. Commercial Mortgage Securities, Inc. Series 1996-C1 Class F, 7.86%, 11/15/06 (i) Ba3 750 651 Lehman Structured Securities Corp. Series 1996-1 Class E-2, 7.995%, 6/25/26 BB 546 523 Merrill Lynch Mortgage Investments, Inc. Series 1994 Class M1-E, 8.093%, 6/25/22 (f)(i) Ba2 270 243 COMMERCIAL MORTGAGE SECURITIES - CONTINUED MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) Morgan Stanley Capital International, Inc. sequential pay Series 1997-C1 Class A-1C, 7.63%, 2/15/20 Aaa $ 1,720 $ 1,730 Morgan Stanley Capital One, Inc. Series 1996-MBL1 Class E, 8.661%, 5/25/21 (f)(i) - 1,819 1,602 Mortgage Capital Funding, Inc. Series 1996-MC1 Class G, 7.15%, 7/15/28 (i) BB 1,000 829 NB Commercial Mortgage pass thru certificate sequential pay, Series FSI Class A, 7.187%, 10/20/23 (i) 842 840 Nomura Asset Securities Corp. Series 1993-1 (i): Class B2, 6.68%, 12/15/01 - 1,070 899 Class B3, 6.68%, 12/15/03 B 1,200 932 Oregon Commercial Mortgage, Inc.Series 1995 Class E, 9.72%, 6/25/26 (f)(i) BB 830 789 Penn Mutual Life Insurance Co. (The) Series 1996-PML (i): Class K, 7.90%, 11/15/26 - 1,750 1,019 Class L, 7.90%, 11/15/26 - 1,300 566 Resolution Trust Corp.: Series 1994-N2 Class 5-B, 10 5/8%, 12/15/04 (e)(i) B2 250 250 Series 1994-C2 Class G, 8%, 4/25/25 B 481 453 sequential pay Series 1994-C1 Class F, 8%, 6/25/26 B 379 353 Series 1995-C2 Class F, 7%, 5/25/27 B1 218 192 Structured Asset Securities Corp.: Series 1995-C1 Class E, 7 3/8%, 9/25/24 (i) BB 1,000 816 Series 1993-C1 Class E, 6.60%, 10/25/24 (i) B 1,250 463 sequential pay Series 1996 Class A-2A, 7 3/4%, 2/25/28 Aaa 712 719 Series 1996-CFL Class G, 7 3/4%, 2/25/28 (i) - 1,000 833 Series 1996-C3 Class E, 8.458%, 6/25/30 (i) - 1,000 927 SML, Inc. Series 1994-C1 Class C, 9.20%, 9/18/99 (h) - 1,325 881 Wells Fargo Capital Markets Apartment Financing Trust 6.56%, 12/29/05 (i) Aaa 2,060 1,998 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $31,658) 32,550 COMPLEX MORTGAGE SECURITIES - 0.0% MOODY'S PRINCIPAL VALUE (NOTE 1) RATINGS (C) AMOUNT (000S) (000S) INTEREST ONLY STRIPS - 0.0% SML, Inc. commercial Series 1994-C1 Class S, 0.81%, 9/18/99 (k) (Cost $547) - $ 31,799 $ 487 FOREIGN GOVERNMENT OBLIGATIONS (J) - 0.3% Israeli State 6 3/8%, 12/19/01 A3 2,410 2,323 Manitoba Province yankee 6 3/8%, 10/15/99 A1 3,000 2,962 Newfoundland Province yankee 7.32%, 10/13/23 Baa1 1,000 935 Quebec Province yankee 7.22%, 7/22/36 (e) A2 5,000 5,066 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $11,316) 11,286 CERTIFICATES OF DEPOSIT - 1.9% ABN-Amro Bank NV yankee 5.65%, 12/23/97 3,000 2,992 Bank of Tokyo-Mitswoishi Ltd. yankee 5.60%, 6/11/97 5,000 4,998 Bankers Trust Co. 5.42%, 4/22/97 5,000 4,999 Bayerische Hypotheken und Wechsel Bank AG yankee 5.40%, 4/7/97 4,600 4,600 Bayerische Vereinsbank AG yankee 5.40%, 4/2/97 4,700 4,700 Canadian Imperial Bank of Commerce yankee 5.35%, 4/14/97 5,000 4,999 Deutsche Bank AG yankee: 5.32%, 4/9/97 4,000 4,000 5.34%, 5/28/97 5,000 4,997 Landesbank Hessen-Thuringen yankee: 5.78%, 1/27/98 3,000 2,994 5.67%, 2/11/98 1,000 997 National Westminster Bank PLC yankee 5 1/2%, 8/5/97 4,500 4,494 Rabobank Nederlan, Coop Central yankee 5.97%, 3/20/98 1,300 1,300 Royal Bank of Canada yankee 5.58%, 12/11/97 786 784 Sanwa Bank Ltd. yankee 5.51%, 5/19/97 5,000 4,998 Societe Generale yankee 5.55%, 7/28/97 4,500 4,495 Sumitomo Bank Ltd. yankee 5.58%, 4/8/97 4,000 4,000 CERTIFICATES OF DEPOSIT - CONTINUED PRINCIPAL VALUE (NOTE 1) AMOUNT (000S) (000S) Swiss Bank Corp. yankee 5 1/2%, 8/4/97 $ 4,000 $ 3,995 Morgan Guaranty Trust Co. 5.36%, 5/15/97 100 100 TOTAL CERTIFICATES OF DEPOSIT (Cost $64,480) 64,442 COMMERCIAL PAPER - 1.1% Caisse Des Depots Et Consigns yankee 5.32%, 4/4/97 500 500 Cregem North America, Inc. yankee 5.35%, 5/5/97 2,000 1,989 CIESCO LP 5.32%, 4/11/97 3,000 2,995 Delaware Funding Corp. 5.60%, 5/19/97 3,000 2,977 Electricite De France yankee 5.33%, 7/28/97 3,300 3,239 Fleet Funding Corporation 5.32%, 4/9/97 4,500 4,493 Ford Motor Credit Co. 5.33%, 4/22/97 1,000 996 General Motors Acceptance Corp. 5.465%, 6/23/97 4,000 3,947 GTE Corp. 5.36%, 4/10/97 1,000 998 Nationwide Building Society yankee 5.32%, 8/11/97 3,000 2,937 Norfolk Southern Corp. 5.38%, 6/2/97 3,600 3,565 PHH Corp. 5.65%, 5/7/97 5,000 4,971 Preferred Receivables Fund Corp. 5.33%, 4/3/97 3,000 2,999 TOTAL COMMERCIAL PAPER (Cost $36,620) 36,606 CASH EQUIVALENTS - 1.3% MATURITY AMOUNT (000S) Investments in repurchase agreements (U.S. Treasury obligations) in a joint trading account at 6 1/2%, dated 3/31/97 due 4/1/97 $ 236 236 SHARES Taxable Central Cash Fund (b) 44,538,000 44,538 TOTAL CASH EQUIVALENTS (Cost $44,774) 44,774 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $3,130,296) $ 3,466,935 LEGEND 1. Non-income producing 2. At period end, the seven-day yield on the Taxable Central Cash Fund was 5.62%. The yield refers to the income earned by investing in the fund over the seven-day period, expressed as an annual percentage. 3. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 4. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. 5. Debt obligation initially issued at one coupon which converts to a higher coupon at a specified date. 6. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 7. Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. 8. 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) SML, Inc. Series 1994- C1 Class C, 9.20%, 9/18/99 8/11/94 $ 862 9. 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 $103,119,000 or 3.0% of net assets. 10. For foreign government obligations not 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. 11. Security represents the right to receive monthly interest payments on an underlying pool of mortgages. Principal shown is the par amount of the mortgage pool. 12. 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: MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 9.2% AAA, AA, A 8.7% Baa 2.0% BBB 3.0% Ba 2.7% BB 2.3% B 5.3% B 4.8% Caa 0.2% CCC 0.5% 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 both S&P and Moody's amounted to 0.7%. FMR has determined that unrated debt securities that are lower quality account for 0.6% 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 86.5% United Kingdom 3.3 Netherlands 2.5 Canada 1.9 Japan 1.2 France 1.1 Others (individually less than 1%) 3.5 TOTAL 100.0% INCOME TAX INFORMATION At March 31, 1997, the aggregate cost of investment securities for income tax purposes was $3,130,748,000. Net unrealized appreciation aggregated $336,187,000, of which $417,156,000 related to appreciated investment securities and $80,969,000 related to depreciated investment securities. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNTS) MARCH 31, 1997 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase $ 3,466,935 agreements of $236) (cost $3,130,296) - See accompanying schedule Cash 962 Receivable for investments sold 30,898 Receivable for fund shares sold 7,875 Dividends receivable 5,672 Interest receivable 11,738 Other receivables 38 TOTAL ASSETS 3,524,118 LIABILITIES Payable for investments purchased $ 47,585 Regular delivery Delayed delivery 5,789 Payable for fund shares redeemed 10,526 Accrued management fee 1,815 Other payables and accrued expenses 943 TOTAL LIABILITIES 66,658 NET ASSETS $ 3,457,460 Net Assets consist of: Paid in capital $ 2,971,904 Undistributed net investment income 19,257 Accumulated undistributed net realized gain (loss) on 129,694 investments and foreign currency transactions Net unrealized appreciation (depreciation) on 336,605 investments and assets and liabilities in foreign currencies NET ASSETS, for 211,026 shares outstanding $ 3,457,460 NET ASSET VALUE, offering price and redemption price per $16.38 share ($3,457,460 (divided by) 211,026 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED) INVESTMENT INCOME $ 22,235 Dividends Interest 35,162 TOTAL INCOME 57,397 EXPENSES Management fee $ 10,316 Transfer agent fees 4,278 Accounting fees and expenses 418 Non-interested trustees' compensation 14 Custodian fees and expenses 109 Registration fees 135 Audit 47 Legal 6 Interest 3 Miscellaneous 14 Total expenses before reductions 15,340 Expense reductions (269) 15,071 NET INVESTMENT INCOME 42,326 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 147,780 Foreign currency transactions (103) 147,677 Change in net unrealized appreciation (depreciation) on: Investment securities 54,380 Assets and liabilities in foreign currencies (27) 54,353 NET GAIN (LOSS) 202,030 NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 244,356 FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS YEAR ENDED ENDED MARCH 31, SEPTEMBER 30, 1997 1996 (UNAUDITED) INCREASE (DECREASE) IN NET ASSETS Operations $ 42,326 $ 74,300 Net investment income Net realized gain (loss) 147,677 257,319 Change in net unrealized appreciation (depreciation) 54,353 27,068 NET INCREASE (DECREASE) IN NET ASSETS RESULTING 244,356 358,687 FROM OPERATIONS Distributions to shareholders (81,646) (43,221) From net investment income From net realized gain (203,145) - TOTAL DISTRIBUTIONS (284,791) (43,221) Share transactions 605,874 815,995 Net proceeds from sales of shares Reinvestment of distributions 282,710 42,752 Cost of shares redeemed (489,433) (925,769) NET INCREASE (DECREASE) IN NET ASSETS RESULTING 399,151 (67,022) FROM SHARE TRANSACTIONS TOTAL INCREASE (DECREASE) IN NET ASSETS 358,716 248,444 NET ASSETS Beginning of period 3,098,744 2,850,300 End of period (including undistributed net investment $ 3,457,460 $ 3,098,744 income of $19,257 and $66,610, respectively) OTHER INFORMATION Shares Sold 35,280 52,211 Issued in reinvestment of distributions 17,155 2,839 Redeemed (28,583) (59,383) Net increase (decrease) 23,852 (4,333)
S
FINANCIAL HIGHLIGHTS SIX MONTHS YEARS ENDED SEPTEMBER 30, DECEMBER 30, 1991 ENDED MARCH (COMMENCEMENT 31, 1997 OF OPERATIONS) TO (UNAUDITED) SEPTEMBER 30, 1996 1995 1994 E 1993 1992
SELECTED PER-SHARE DATA Net asset value, beginning of period $ 16.56 $ 14.88 $ 13.91 $ 13.77 $ 11.16 $ 10.00 Income from Investment Operations Net investment income .21 D .47 .26 .13 .18 .14 Net realized and unrealized gain (loss) 1.11 1.44 1.07 .61 2.66 1.02 Total from investment operations 1.32 1.91 1.33 .74 2.84 1.16 Less Distributions From net investment income (.43) (.23) (.27) (.18) (.15) - From net realized gain (1.07) - - (.37) (.08) - In excess of net realized gain - - (.09) (.05) - - Total distributions (1.50) (.23) (.36) (.60) (.23) - Net asset value, end of period $ 16.38 $ 16.56 $ 14.88 $ 13.91 $ 13.77 $ 11.16 TOTAL RETURN B, C 7.92% 12.99% 9.95% 5.39% 25.83% 11.60% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (in millions) $ 3,457 $ 3,099 $ 2,850 $ 3,071 $ 1,243 $ 94 Ratio of expenses to average net assets .91% A 1.02% 1.03% 1.15% 1.19% F 1.64% A Ratio of expenses to average net assets after expense .89% A, 1.01% 1.02% 1.15% 1.19% 1.64% reductions G G G A Ratio of net investment income to average net assets 2.50% A 2.51% 3.16% 2.64% 3.02% 3.50% A Portfolio turnover rate 73% A 138% 119% 104% 97% 693% A Average commission rate H $ .0025 $ .0027
A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS). D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E 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, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES. F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER. G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS). H FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY DIFFER. NOTES TO FINANCIAL STATEMENTS For the period ended March 31, 1997 (Unaudited) 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 financial statements have been prepared in conformity with generally accepted accounting principles which permit management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Equity securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Debt securities for which quotations are readily available are valued by a pricing service at their market values as determined by their most recent bid prices in the principal market (sales prices if the principal market is an exchange) in which such securities are normally traded. 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. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The schedule of investments includes information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENT INCOME - CONTINUED passed, are recorded as soon as the fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of original issue discount, is accrued as earned. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences, which may result in distribution reclassifications, are primarily due to differing treatments for contingent interest, futures and options transactions, foreign currency transactions, passive foreign investment companies (PFIC), market discount, non-taxable dividends and losses deferred due to wash sales. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. Undistributed net investment income and accumulated undistributed net realized gain (loss) on investments and foreign currency transactions may include temporary book and tax basis differences which will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. SECURITY TRANSACTIONS. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost. 2. OPERATING POLICIES. FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms. The U.S. dollar value of foreign currency contracts is determined using contractual currency exchange rates established at the time of each trade. The cost of the foreign currency contracts is included in the cost basis of the associated investment. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the SEC), the fund, along with other affiliated entities of Fidelity Management & Research Company (FMR), may transfer uninvested cash balances into one or more 2. OPERATING POLICIES - CONTINUED JOINT TRADING ACCOUNT - CONTINUED joint trading accounts. These balances are invested in one or more repurchase agreements for U.S. Treasury or Federal Agency obligations. REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency Securities are transferred to an account of the fund, or to the Joint Trading Account, at a bank custodian. The securities are marked-to-market daily and maintained at a value at least equal to the principal amount of the repurchase agreement (including accrued interest). FMR, the fund's investment adviser, is responsible for determining that the value of the underlying securities remains in accordance with the market value requirements stated above. TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund) managed by FMR Texas, an affiliate of FMR. The Cash Fund is an open-end money market fund available only to investment companies and other accounts managed by FMR and its affiliates. The Cash Fund seeks preservation of capital, liquidity, and current income by investing in U.S. Treasury securities and repurchase agreements for these securities. Dividends from the Cash Fund are declared daily and paid monthly from net interest income. Income distributions received by the fund are recorded as interest income in the accompanying financial statements. DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on a delayed delivery 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 market values of the securities purchased or sold on a delayed delivery basis are identified as such in the fund's schedule of investments. The fund may receive compensation for interest forgone in the purchase of a delayed delivery security. With respect to purchase commitments, the fund identifies securities as segregated in its custodial records with a value at least equal to the amount of the commitment. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. INDEXED SECURITIES. The fund may invest in indexed securities whose values are linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other underlying instruments. The fund uses these securities to increase or decrease its exposure to different underlying instruments and to gain exposure to markets that might be difficult to invest in through conventional securities. Indexed securities may be more volatile than their underlying instruments, but any loss is limited to the amount of the original investment. RESTRICTED SECURITIES. The fund is permitted to invest in securities that are subject to legal or contractual restrictions on 2. OPERATING POLICIES - CONTINUED RESTRICTED SECURITIES - CONTINUED resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $881,000 or 0.0% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $1,310,820,000 and $1,159,335,000, respectively, of which U.S. government and government agency obligations aggregated $207,061,000 and $444,428,000, 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 .2500% to .5200% for the period. The annual individual fund fee rate is .30%. In the event that these rates were lower than the contractual rates in effect during the period, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. For the period, the management fee was equivalent to an annualized rate of .61% of average net assets. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annualized rate of .25% of average net assets. 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 $227,000 for the period. 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 5. BANK BORROWINGS - CONTINUED time. The maximum loan and the average daily loan balance during the period for which the loan was outstanding amounted to $16,365,000. The weighted average interest rate was 5.6%. 6. EXPENSE REDUCTIONS. FMR has directed certain portfolio trades to brokers who paid a portion of the fund's expenses. For the period, the fund's expenses were reduced by $141,000 under this arrangement. In addition, the fund has entered into arrangements with its custodian and transfer agent whereby interest earned on uninvested cash balances was used to offset a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $15,000 and $113,000, respectively, under these arrangements. 7. LITIGATION. The fund is engaged in litigation against the obligor on the inflation adjusted debt of Siderurgica Brasileiras SA, contesting the calculation of the principal adjustment. The probability of success of this litigation cannot be predicted and the amount of recovery cannot be estimated. Any recovery from this litigation would inure to the benefit of the fund. As of period end, the fund no longer holds Siderurgica Brasileiras SA debt securities. MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. 1 For quotes.* 2 For account balances and holdings. 3 To review orders and mutual fund activity. 4 To change your PIN. 5 To speak to a Fidelity representative. * 0 BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO WRITE FIDELITY If more than one address is listed, please locate the address that is closest to you. We'll give your correspondence immediate attention and send you written confirmation upon completion of your request. (LETTER_GRAPHIC)MAKING CHANGES TO YOUR ACCOUNT (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 (LETTER_GRAPHIC)FOR NON-RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 OVERNIGHT EXPRESS Fidelity Investments 2300 Litton Lane - KH1A Hebron, KY 41048 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6I 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 193 Boston, MA 02210-0193 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 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 950 Northgate Drive San Rafael, CA 1400 Civic Drive Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA COLORADO 1625 Broadway Denver, CO CONNECTICUT 265 Church Street New Haven, CT 300 Atlantic Street Stamford, CT 29 South Main Street West Hartford, 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 1502 N. Westshore Blvd. Tampa, 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 1415 West 22nd Street Oak Brook, IL 1700 East Golf Road Schaumburg, IL 3232 Lake Avenue Wilmette, IL INDIANA 4729 East 82nd Street Indianapolis, IN LOUISIANA 201 St. Charles Avenue New Orleans, LA MAINE 3 Canal Plaza Portland, ME MARYLAND 7401 Wisconsin Avenue Bethesda, MD 1 West Pennsylvania Ave. Towson, MD MASSACHUSETTS 470 Boylston Street Boston, MA 21 Congress Street Boston, MA 25 State Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 416 Belmont Street Worcester, MA MICHIGAN 280 North Woodward Ave. Birmingham, MI 29155 Northwestern Hwy. Southfield, MI MINNESOTA 7600 France Avenue South Edina, MN MISSOURI 700 West 47th Street Kansas City, MO 8885 Ladue Road Ladue, MO 200 North Broadway St. Louis, MO NEW JERSEY 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 501 Route 17, South Paramus, NJ NEW YORK 1050 Franklin Avenue Garden City, NY 999 Walt Whitman Road Melville, L.I., NY 1271 Avenue of the Americas New York, NY 71 Broadway New York, NY 350 Park Avenue New York, NY 10 Bank Street White Plains, NY NORTH CAROLINA 4611 Sharon Road Charlotte, NC 2200 West Main Street Durham, NC OHIO 600 Vine Street Cincinnati, OH 28699 Chagrin Boulevard Woodmere Village, OH 1903 East Ninth Street Cleveland, 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 2701 Drexel Drive Houston, TX 1010 Lamar Street 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 511 Pine Street Seattle, WA WASHINGTON, DC 1900 K Street, N.W. Washington, DC WISCONSIN 595 North Barker Road Brookfield, 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 William J. Hayes, Vice President Richard C. Habermann, Vice President George A. Vanderheiden, Vice President John Todd, Vice President Arthur S. Loring, Secretary Kenneth A. Rathgeber, Treasurer Robert H. Morrison, Manager, Security Transactions John H . Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Thomas R. Williams * * INDEPENDENT TRUSTEES GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN The Chase Manhattan Bank New York, NY FIDELITY'S ASSET ALLOCATION FUNDS Asset Manager SM Asset Manager: Growth SM Asset Manager: Income SM Fidelity Freedom Funds- Income, 2000, 2010, 2020, 2030 SM THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Exchanges/Redemptions 1-800-544-7777 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) TouchTone Xpress 1-800-544-5555 SM AUTOMATED LINE FOR QUICKEST SERVICE -----END PRIVACY-ENHANCED MESSAGE-----