-----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, OdiFMOdWweKIayD+LIMT37jcUyHzgVjv1oO4XLP36WhbzZP+evhaBhElN5DVmXdq 9SGs80RVehTIfdrHH/ff6Q== 0000275309-98-000004.txt : 19980220 0000275309-98-000004.hdr.sgml : 19980220 ACCESSION NUMBER: 0000275309-98-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980219 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY INVESTMENT TRUST CENTRAL INDEX KEY: 0000744822 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04008 FILM NUMBER: 98545522 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174391269 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAILZONE ZH-1 CITY: BOSTON STATE: MA ZIP: 02109 FORMER COMPANY: FORMER CONFORMED NAME: FIDELITY OVERSEAS FUND DATE OF NAME CHANGE: 19861228 N-30D 1 (2_FIDELITY_LOGOS)FIDELITY NEW MARKETS INCOME FUND ANNUAL REPORT DECEMBER 31, 1997 CONTENTS PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES. PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME. FUND TALK 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 18 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS. NOTES 22 NOTES TO THE FINANCIAL STATEMENTS. REPORT OF INDEPENDENT 28 THE AUDITORS' OPINION. ACCOUNTANTS DISTRIBUTIONS 29 PROXY RESULTS 30 To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. PRESIDENT'S MESSAGE (PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER: Although financial turmoil in Pacific Basin countries was a catalyst for significant volatility in U.S. markets throughout the fourth quarter, the Standard & Poor's 500 Index rose more than 33% in 1997, about three times its historical annual average. Meanwhile, bond markets - primarily influenced by a relatively steady flow of positive news on the inflation front - continued to post solid returns as the year drew to a close. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. 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). You can also look at the fund's income, as reflected in its yield, to measure performance. If Fidelity had not reimbursed certain expenses, the life of fund total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF YEAR FUND FIDELITY NEW MARKETS INCOME 17.52% 107.86% J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS 13.02% N/A EMERGING MARKETS DEBT FUNDS AVERAGE 13.80% N/A CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year or since the fund started on May 4, 1993. For example, if you had invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to those of the J.P. Morgan Emerging Markets Bond Index Plus - a market capitalization weighted total return index of U.S. dollar- and other external currency-denominated Brady bonds, loans, Eurobonds, and local market debt instruments traded in emerging markets. To measure how the fund's performance stacked up against its peers, you can compare it to the emerging markets debt funds average, which reflects the performance of mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. The past one year average represents a peer group of 27 mutual funds. These benchmarks reflect reinvestment of dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1997 PAST 1 LIFE OF YEAR FUND FIDELITY NEW MARKETS INCOME 17.52% 16.99% J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS 13.02% N/A EMERGING MARKETS DEBT FUNDS AVERAGE 13.80% 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 IMAHDR PRASUN SHR__CHT 19971231 19980122 102222 S00000000000001 New Markets Income JP Emg Mkt Bond Index 00331 JP001 1993/05/04 10000.00 10000.00 1993/05/31 10300.87 10333.23 1993/06/30 10710.66 10694.64 1993/07/31 11253.11 11140.58 1993/08/31 11586.74 11364.17 1993/09/30 11955.99 11513.02 1993/10/31 12900.58 12483.31 1993/11/30 13042.02 12358.35 1993/12/31 13883.68 13113.02 1994/01/31 14404.11 13148.55 1994/02/28 12954.23 12054.52 1994/03/31 11006.80 10675.65 1994/04/30 10542.95 10680.55 1994/05/31 11095.86 11418.07 1994/06/30 10464.54 10498.62 1994/07/31 10752.29 10756.51 1994/08/31 11938.20 11525.27 1994/09/30 12528.12 11638.59 1994/10/31 12291.04 11309.04 1994/11/30 12238.94 11424.20 1994/12/31 11585.89 10663.40 1995/01/31 10244.50 10294.64 1995/02/28 9514.84 9758.04 1995/03/31 9213.43 9482.39 1995/04/30 9862.05 10500.46 1995/05/31 10518.02 11425.42 1995/06/30 10659.69 11647.17 1995/07/31 10678.43 11655.74 1995/08/31 11026.21 11930.78 1995/09/30 11455.38 12341.81 1995/10/31 11377.65 12215.01 1995/11/30 11743.18 12642.57 1995/12/31 12509.53 13600.61 1996/01/31 13426.92 14798.16 1996/02/29 12701.78 13758.65 1996/03/31 12839.61 14111.49 1996/04/30 13515.35 14821.44 1996/05/31 13894.84 15005.82 1996/06/30 14254.79 15421.13 1996/07/31 14387.90 15538.74 1996/08/31 14906.81 16042.88 1996/09/30 16125.36 17021.13 1996/10/31 16574.14 17089.13 1996/11/30 17521.71 18045.94 1996/12/31 17687.29 18246.86 1997/01/31 18443.09 18905.97 1997/02/28 18765.22 19245.33 1997/03/31 18014.98 18494.33 1997/04/30 18635.49 19122.21 1997/05/31 19470.77 19890.35 1997/06/30 20091.13 20352.83 1997/07/31 20976.37 21334.15 1997/08/31 20850.07 21124.04 1997/09/30 21518.36 21831.42 1997/10/31 19407.58 19481.84 1997/11/30 20139.53 20516.75 1997/12/31 20786.22 21194.30 IMATRL PRASUN SHR__CHT 19971231 19980122 102224 R00000000000059 $10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was invested in Fidelity New Markets Income Fund on May 4, 1993, when the fund started. As the chart shows, by December 31, 1997, the value of the investment would have grown to $20,786 - a 107.86% increase on the initial investment. For comparison, look at how the J.P. Morgan Emerging Markets Bond Index did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 would have grown to $21,194 - a 111.94% increase. UNDERSTANDING PERFORMANCE MANY MARKETS AROUND THE GLOBE OFFER THE POTENTIAL FOR SIGNIFICANT GROWTH OVER TIME; HOWEVER, INVESTING IN FOREIGN MARKETS MEANS ASSUMING GREATER RISKS THAN INVESTING IN THE UNITED STATES. FACTORS LIKE CHANGES IN A COUNTRY'S FINANCIAL MARKETS, ITS LOCAL POLITICAL AND ECONOMIC CLIMATE, AND THE FLUCTUATING VALUE OF ITS CURRENCY CREATE THESE RISKS. FOR THESE REASONS AN INTERNATIONAL FUND'S PERFORMANCE MAY BE MORE VOLATILE THAN A FUND THAT INVESTS EXCLUSIVELY IN THE UNITED STATES. (CHECKMARK) DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 6 PAST 1 MONTH MONTHS YEAR DIVIDENDS PER SHARE 40.29(CENTS) 87.48(CENTS) 131.77(CENTS) ANNUALIZED DIVIDEND RATE 34.48% 12.06% 9.44% 30-DAY ANNUALIZED YIELD 8.11% - -
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 $13.76 over the past one month, $14.39 over the past six months and $13.96 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 bond funds based on the yields of the bonds in the fund, averaged over the past 30 days. This figure shows you the yield characteristics of the fund's investments at the end of the period. It also helps you compare funds from different companies on an equal basis. It does not reflect the cost of hedging and other currency gains and losses. FUND TALK: THE MANAGER'S OVERVIEW MARKET RECAP The year that ended December 31, 1997, displayed the complexity and variety of the world's financial markets. The serenity of low interest rates and subdued inflation that had boosted a number of markets was rudely interrupted in late October when Asian markets stumbled dramatically. Developed-market government bonds benefited from this crisis, as investors sought the perceived safety of high-quality issues. A strong U.S. dollar, however, undermined gains for U.S.-based investors in the Japanese and most European markets. The Salomon Brothers World Government Bond Index - a measure of government bond market performance in developed nations - returned just 0.23% for the period. Inflation was well-controlled throughout Europe, and bond prices in countries such as Spain and Italy were buoyed by steady progress toward meeting the requirements for membership in the European Monetary Union (EMU). Unlike other European currencies, the pound sterling maintained its strength, helping boost bond performance in the United Kingdom. The Asian volatility staggered emerging bond markets in October and left lingering concerns as the new year began. The J.P. Morgan Emerging Markets Bond Index returned 16.15% for the period. Most of these gains were posted during the first three quarters of the year, boosted by low interest rates and positive government reforms. A lack of inflation, declining interest rates and the late-year flight to quality boosted bonds in the U.S., with the Lehman Brothers Aggregate Bond Index returning 9.65% in 1997. An interview with John Carlson, Portfolio Manager of Fidelity New Markets Income Fund Q. HOW DID THE FUND PERFORM, JOHN? A. Quite well. For the 12 months that ended December 31, 1997, the fund posted a return of 17.52%. The emerging markets debt funds average, as tracked by Lipper Analytical Services, returned 13.80% during this time. The J.P. Morgan Emerging Markets Bond Index Plus returned 13.02%. Q. HOW WOULD YOU CHARACTERIZE THE CLIMATE FOR EMERGING MARKET DEBT SECURITIES OVER THE PAST YEAR? A. Overall, emerging-market debt had a good run through much of 1997. From January through late October, the market enjoyed a favorable backdrop of low interest rates, continued economic reform and a benign global environment, which resulted in a favorable credit spread environment. Credit spreads measure the premium an investor pays for global risk. The last quarter of the year, however, was a different story altogether. Concerns about weakness in Southeast Asia and possible contagion to Latin America, as well as the late-October market declines in both Asian and U.S. equity markets, put pressure on emerging-market investments. Q. SOUTHEAST ASIA HAD A MAJOR COLLAPSE DURING THE PERIOD AS SEVERAL CURRENCIES DECLINED. HOW BADLY WAS THE FUND AFFECTED? A. The direct impact was minimal. The fund's exposure to Southeast Asia historically has been limited for a number of reasons. First, there have always been very few long-term, non-investment-grade debt opportunities in that region. Second, the currencies of both Japan and China depreciated by almost 50% over the past couple of years. In comparing the other regional currencies in Asia to both Japan and China, it was my feeling that the smaller Asian markets were becoming less competitive as their currencies were appreciating relative to those in Japan and China. Finally, the historically high level of economic growth of many of the Asian "tigers" appeared unsustainable in light of excess global capacity and competitive pressures. Q. DID YOU PURSUE ANY PARTICULAR STRATEGIES GIVEN THIS VOLATILITY? A. Around late August, I perceived increased risk in the marketplace due to some initial weakness in currency and equity markets as well as some strong words of caution from the chairman of the U.S. Federal Reserve Board. Despite these factors, though, volatility was decreasing and options - which give the buyer the right, but not the obligation, to buy a security within a specified period of time at a set price - were cheap. As a result, I bought an option position on a Brazilian bond that worked out quite favorably. When the market corrected dramatically in late October, the fund had at risk only the amount that it had paid for the premium on the option. If I hadn't had the option - and the fund owned the security itself - the fund's losses would have been considerably higher. Owning the option gave the fund exposure in Brazil, which I felt was important, and allowed the fund to participate in the early-fall rally of Brazilian Brady bonds, which are dollar-denominated and issued by foreign governments. When the market corrected, the option provided downside protection. Q. SIX MONTHS AGO, YOU WERE OPTIMISTIC ABOUT THE FUND'S EXPOSURE TO RUSSIA. HOW DID RUSSIAN BONDS PERFORM DURING THE PERIOD? A. At the beginning of the year, the fund was underweighted in Russian bonds relative to the index. As fiscal reform in Russia appeared promising, I began to raise the fund's Russian exposure in the late spring and early summer and the bonds performed well. As economic conditions weakened in Asia, however, I felt that Russia - being a major emerging-market country with some remaining fiscal concerns - would be vulnerable. I subsequently began decreasing the fund's Russian exposure - and adding Russian options - to try to limit the fund's downside risk. This strategy has paid off, as pressure on the Russian bond market increased toward the close of the period. Q. WHICH OTHER POSITIONS CONTRIBUTED POSITIVELY TO PERFORMANCE? WHICH WERE DISAPPOINTMENTS? A. The fund's positions in Bulgaria, Argentina and Brazil also turned in strong performances. On a down note, I reduced the fund's positions in Ecuador earlier in the year due to political uncertainty. However, the bonds continued to rally. Q. WHAT'S YOUR OUTLOOK? A. With all that has gone on in recent months, I'm certainly concerned. While global volatility has been alarming, one bright spot may be that the dislocation - or downward re-pricing - of certain emerging-market securities may present ample opportunities. I'll keep a close eye on risk, credit spreads and interest rates as they relate to the portfolio. Shareholders should expect a continuation of this same disciplined investment approach. 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. JOHN CARLSON EXPLORES THE "CONTAGION EFFECT": "ALONG WITH THE SOUTHEAST ASIAN TURMOIL WE'VE WITNESSED RECENTLY, THE PHRASE "CONTAGION" HAS BECOME PART OF THE MARKET'S DAILY LANGUAGE. CONTAGION REFERS TO BOTH THE REAL AND PSYCHOLOGICAL EFFECTS THAT IMPACT INVESTOR BEHAVIOR WITHIN OR ACROSS MARKETS. THERE ARE A NUMBER OF CATCHY PHRASES THAT DESCRIBE THIS LINK BETWEEN MARKETS, SUCH AS `WHEN THE U.S. ECONOMY SNEEZES, MEXICO CATCHES A COLD.' "ASIAN CONTAGION, BEGINNING LAST YEAR AS A CURRENCY CRISIS IN THAILAND, IS AN EXAMPLE. AS SPECULATION AGAINST THE SUSTAINABILITY OF THAILAND'S CURRENCY REGIME INCREASED, THAI AUTHORITIES DEVALUED THE COUNTRY'S CURRENCY. PRESSURE SPILLED OVER TO OTHER SOUTHEAST ASIAN COUNTRIES, RESULTING IN A WAVE OF COMPETITIVE DEVALUATIONS IN COUNTRIES SUCH AS INDONESIA, THE PHILIPPINES AND SINGAPORE. INVESTORS WONDERED WHERE IT WOULD STOP, AND THIS UNCERTAINTY SPREAD TO BOTH BRAZIL AND RUSSIA. "BUT THE CONTAGION WASN'T LIMITED TO CURRENCY PRESSURES. INVESTORS SUFFERING LOSSES IN SOUTHEAST ASIAN MARKETS TOOK PROFITS BY SELLING EQUITY POSITIONS IN OTHER REGIONS. THIS COMPOUNDED THE DOWNWARD PRESSURE ON MANY CURRENCIES, RESULTING IN ADDITIONAL SELLING. STOCK MARKETS IN EMERGING COUNTRIES SUCH AS ARGENTINA SUFFERED MAJOR LOSSES AS DID HONG KONG. THE EFFECTS OF SUCH DEVELOPMENTS WILL BE SLOWER GLOBAL ECONOMIC GROWTH, WHICH HAS LED TO CONCERNS ABOUT GROWTH RATES IN THE U.S. AND OTHER DEVELOPED COUNTRIES IN THE YEAR AHEAD." FUND FACTS GOAL: A HIGH LEVEL OF CURRENT INCOME BY INVESTING PRIMARILY IN DEBT SECURITIES AND OTHER INSTRUMENTS OF ISSUERS IN EMERGING MARKETS; AS A SECONDARY OBJECTIVE, THE FUND MAY SEEK CAPITAL APPRECIATION FUND NUMBER: 331 TRADING SYMBOL: FNMIX START DATE: MAY 4, 1993 SIZE: AS OF DECEMBER 31, 1997, MORE THAN $380 MILLION MANAGER: JOHN CARLSON, SINCE 1995; JOINED FIDELITY IN 1995 (CHECKMARK) INVESTMENT CHANGES TOP FIVE COUNTRIES AS OF DECEMBER 31, 1997 (EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO BRAZIL 19.1 13.3 ARGENTINA 15.8 14.7 MEXICO 9.9 9.0 RUSSIA 7.1 9.6 VENEZUELA 5.4 10.5 TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY, INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT RISKS. TOP FIVE HOLDINGS AS OF DECEMBER 31, 1997
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE HOLDINGS 6 MONTHS AGO BRAZILIAN FEDERATIVE REPUBLIC 18.6 11.6 ARGENTINIAN REPUBLIC 12.5 12.8 UNITED MEXICAN STATES 5.8 9.0 BULGARIAN REPUBLIC 5.0 5.2 VENEZUELAN REPUBLIC 4.9 10.5
AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1997 6 MONTHS AGO YEARS 15.9 14.4 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. ASSET ALLOCATION (% OF FUND'S INVESTMENTS) AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997 CORPORATE BONDS 8.4% FOREIGN GOVERNMENT OBLIGATIONS 71.4% OTHER 9.9% SHORT-TERM INVESTMENTS 10.3% CORPORATE BONDS 4.8% FOREIGN GOVERNMENT OBLIGATIONS 68.6% OTHER 12.5% SHORT-TERM INVESTMENTS 14.1% ROW: 1, COL: 1, VALUE: 10.3 ROW: 1, COL: 2, VALUE: 9.9 ROW: 1, COL: 3, VALUE: 71.40000000000001 ROW: 1, COL: 4, VALUE: 8.4 ROW: 1, COL: 1, VALUE: 14.1 ROW: 1, COL: 2, VALUE: 12.5 ROW: 1, COL: 3, VALUE: 68.59999999999999 ROW: 1, COL: 4, VALUE: 4.8 INVESTMENTS DECEMBER 31, 1997 SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES NONCONVERTIBLE BONDS - 8.4% MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) ARGENTINA - 3.3% Compania Latinoamericana de Infraestructura & Servicios SA: 11 5/8%, 6/1/04 (e) BB- $ 4,935,000 $ 5,033,700 11 5/8%, 6/1/04 BB- 2,670,000 2,723,400 Telefonica De Argentina 11 7/8%, 11/1/04 Ba3 3,910,000 4,545,375 12,302,475 KOREA (SOUTH) - 0.5% Korea Development Bank: yankee 7 1/4%, 5/15/06 Ba1 1,240,000 967,200 6 5/8%, 11/21/03 Ba1 1,100,000 858,000 1,825,200 MEXICO - 4.1% Banco Nacional de Comercio Exte SNC 11 1/4%, 5/30/06 (Reg.) Ba2 10,290,000 11,473,350 Petroleos Mexicanos 9 1/2%, 9/15/27 BB 3,880,000 3,860,600 15,333,950 VENEZUELA - 0.5% Bariven SA 10 5/8%, 3/17/02 Ba2 1,880,000 2,039,800 TOTAL NONCONVERTIBLE BONDS (Cost $32,100,876) 31,501,425 FOREIGN GOVERNMENT OBLIGATIONS (H) - 71.4% ANGOLA - 0.1% Banco Nacional de Angola 0%, 9/10/27 (London) (f) - 1,788,368 536,510 ARGENTINA - 12.5% Argentinian Republic: Brady par euro 5 1/2%, 3/31/23 (g) Ba3 37,375,000 27,400,547 BOCON 3.29%, 4/1/07 (g) Ba3 ARS 84,897 59,334 global bond 9 3/4%, 9/19/27 Ba3 10,431,000 9,994,202 global bond 11 3/8%, 1/30/17 Ba3 1,810,000 1,980,140 global bond 11 3/8%, 1/30/17 Ba3 4,120,000 4,507,280 11 3/4%, 2/12/07 Ba3 ARS 2,340,000 2,200,018 11 3/4%, 2/12/07 (e) Ba3 ARS 1,000,000 940,179 47,081,700 FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) BRAZIL - 18.6% Brazilian Federative Republic: Brady: capitalization bond 8%, 4/15/14 B1 $ 53,181,727 $ 41,814,133 debt conversion bond euro 6 3/4%, 4/15/12 (g) B1 22,730,000 17,274,800 par 5 1/4%, 4/15/24 (g) B1 3,900,000 2,810,437 global bond 10 1/8%, 5/15/27 B1 8,522,000 7,989,375 69,888,745 BULGARIA - 5.0% Bulgarian Republic Brady: discount 6.6875%, 7/28/24 (g) B2 8,380,000 6,452,600 FLIRB A 2 1/4%, 7/28/12 (g) B2 20,225,000 12,311,970 18,764,570 IVORY COAST - 0.3% Ivory Coast past due interest 0%, 12/29/49 (f) - 2,790,000 1,095,075 DOMINICAN REPUBLIC - 0.9% Dominican Republic Brady 0%, 8/30/09 (d) B1 4,177,800 3,243,017 ECUADOR - 3.9% Ecuador Republic Brady: par euro 3 1/2%, 2/28/25 (g) B1 17,520,000 9,657,900 past due interest euro 6.6875%, 2/28/15 (bearer) (g) B1 7,622,112 4,982,956 14,640,856 JORDAN - 0.9% Kingdom of Jordan 5%, 12/23/23 (e)(g) Ba3 5,000,000 3,400,000 KAZAKHSTAN - 1.0% Kazakhstan Republic 9 1/4%, 12/20/99 (Reg.) Ba3 3,930,000 3,831,750 MEXICO - 5.8% United Mexican States: Brady discount: par A 6 1/4%, 12/31/19 unit Ba2 11,470,000 9,563,112 par B 6 1/4%, 12/31/19 unit Ba2 6,555,000 5,465,231 global bond 11 1/2%, 5/15/26 Ba2 5,695,000 6,748,575 21,776,918 FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) PANAMA - 1.6% Panamanian Republic: Brady par 3 1/4%, 7/17/26 (d) Ba1 $ 4,800,000 $ 3,072,000 euro 7 7/8%, 2/13/02 (Reg.) Ba1 2,830,000 2,734,487 5,806,487 PERU - 3.7% Peruvian Republic Brady FLIRB: 3 1/4%, 3/7/17 (e)(g) B2 825,000 489,328 3 1/4%, 3/7/17 (g) B2 22,515,000 13,354,209 13,843,537 PHILIPPINES - 0.8% Philippine Government Brady par 6 1/2%, 12/1/17 (d) Ba1 3,760,000 3,139,600 POLAND - 3.6% Polish Republic: Brady par 3%, 10/27/24 (d) Baa 17,630,000 10,820,412 7 1/8%, 7/1/04 Baa 2,810,000 2,810,000 13,630,412 RUSSIA - 3.9% Bank for Foreign Economic Affairs of Russia (Vnesheconombank) interest notes: 6.7188%, 12/15/15 (e) Ba2 10,912,119 7,679,404 6.7188%, 12/15/15 Ba2 2,800,000 1,970,500 Russian Government euro 10%, 6/26/07 Ba2 5,610,000 5,182,237 14,832,141 TURKEY - 3.9% Turkish Republic Treasury Bill: 0%, 5/13/98 (i) - TRL 690,710 2,360,628 0%, 8/5/98 (i) - TRL 389,380 1,108,384 0%, 8/12/98 (i) - TRL 2,469,340 6,921,251 0%, 9/16/98 (i) - TRL 1,661,030 4,351,889 14,742,152 FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) VENEZUELA - 4.9% Venezuelan Republic: Brady: debt conversion bond 6.8125%, 12/18/07 (g) Ba2 $ 9,523,811 $ 8,517,859 par A euro 6 3/4%, 3/31/20 Ba2 9,640,000 8,362,700 par A 6 3/4%, 3/31/20 unit Ba2 1,625,000 1,409,687 Oil recovery rights 3/31/20 - 51,970 - 18,290,246 TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $262,055,918) 268,543,716 SOVEREIGN LOAN PARTICIPATIONS - 8.4% CAMEROON - 0.2% Cameroon Republic loan participation (a): - Societe Generale - DEM 3,120,000 485,738 - Societe Generale - FRF 6,240,000 290,064 775,802 CONGO - 0.2% Congo Republic loan participation (a): - Societe Generale - DEM 849,310 141,670 - Societe Generale - FRF 2,765,958 137,758 - Societe Generale - 1,528,578 458,573 738,001 IVORY COAST - 1.7% Ivory Coast restructured loan (a): - - Morgan Grenfeld - 2,400,000 1,038,000 - Morgan (J.P.) Securities, Inc. - 6,750,000 2,919,375 - Paribas Capital Markets - 5,350,000 2,313,875 6,271,250 MOROCCO - 4.1% Moroccan Kingdom loan participation: - - The Chase Manhattan Bank 6.6563%, 1/1/09 (g) - 3,720,000 3,203,850 - ING Bank NV 6.6563%, 1/1/09 (g) - 3,000,000 2,583,750 - Merrill Lynch, Pierce, Fenner & Smith, Inc. 6.6563%, 1/1/09 (g) - 1,250,000 1,076,563 SOVEREIGN LOAN PARTICIPATIONS - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) MOROCCO - CONTINUED Moroccan Kingdom loan participation: - continued - Morgan Guaranty Trust Company of New York 6.6563%, 1/1/09 (g) - $ 7,700,000 $ 6,631,625 - Paribas Capital Markets 6.6563%, 1/1/09 (f)(g) - 2,230,000 1,920,588 15,416,376 RUSSIA - 2.2% Bank for Foreign Economic Affairs of Russia (Vnesheconombank) loan participation restructured under 1997 agreement: - The Chase Manhattan Bank 6.7188%, 12/15/20 (f)(g) - 5,570,000 3,446,438 - ING Bank NV 6.7188%, 12/15/20 (f)(g) - 7,790,000 4,820,063 8,266,501 TOTAL SOVEREIGN LOAN PARTICIPATIONS (Cost $28,929,821) 31,467,930 CASH EQUIVALENTS - 10.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 6.40%, dated 12/31/97 due 1/2/98 (Cost $38,774,000) $ 38,787,792 38,774,000 PURCHASED OPTIONS - 1.5% EXPIRATION DATE/ UNDERLYING FACE STRIKE PRICE AMOUNT AT VALUE BRAZIL - 0.5% Merrill Lynch International Call Option on $25,770,588 notional amount of Brazilian Federative Republic Brady capitalization bond Mar. 98/ 8%, 4/15/14 72 3/4 $ 20,262,125 1,873,522 RUSSIA - 1.0% The Chase Manhattan Bank Call Option on $13,900,000 notional amount of Bank for Foreign Economic Affairs of Russia (Vnescheconombank) loan participation restructured under 1997 agreement Mar. 98/ 6.7188%, 12/15/20 55 8,600,625 1,148,140 PURCHASED OPTIONS - 1.5% EXPIRATION DATE/ UNDERLYING FACE VALUE STRIKE PRICE AMOUNT AT VALUE (NOTE 1) RUSSIA - CONTINUED Merrill Lynch International Call Option on $28,000,000 notional amount of Bank for Foreign Economic Affairs of Russia (Vnescheconombank) loan participation restructured under 1997 agreement Mar. 98/ 6.7188%, 12/15/20 54 5/8 $ 17,325,000 $ 2,492,000 3,640,140 TOTAL PURCHASED OPTIONS (Cost $3,902,125) 5,513,662 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $365,762,740) $ 375,800,733 SECURITY TYPE ABBREVIATIONS FLIRB - Front Loaded Interest Reduction Bonds CURRENCY ABBREVIATIONS ARS - Argentine peso FRF - French franc DEM - German deutsche mark TRL - Turkish lira LEGEND 1. Non-income producing 2. Principal amount is stated in United States dollars unless otherwise noted. 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. The rate shown is the rate at period end. 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 $17,542,611 or 4.6% of net assets. 6. Security purchased on a delayed delivery or when-issued basis (see Note 2 of Notes to Financial Statements). 7. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 8. 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. 9. Principal amount in millions. 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 0.0% AAA, AA, A 0.0% Baa 3.6% BBB 5.7% Ba 36.7% BB 50.5% B 32.0% B 6.2% 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 Moody's or S&P amounted to 8.8%. FMR has determined that unrated debt securities that are lower quality account for 8.8% of the total value of investment in securities. INCOME TAX INFORMATION At December 31, 1997, the aggregate cost of investment securities for income tax purposes was $375,083,292. Net unrealized appreciation aggregated $717,441, of which $12,913,593 related to appreciated investment securities and $12,196,152 related to depreciated investment securities. The fund hereby designates approximately $3,011,000 as a capital gain dividend for the purpose of the dividend paid deduction. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 10.ASSETS 11. 12. 13.INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE 14. $ 375,800,733 AGREEMENTS OF $38,774,000) (COST $365,762,740) - SEE ACCOMPANYING SCHEDULE 15.CASH 16. 747 17.RECEIVABLE FOR INVESTMENTS SOLD 18. 5,651,413 REGULAR DELIVERY 19. DELAYED DELIVERY 14,051,448 20.INTEREST RECEIVABLE 21. 5,842,479 22.REDEMPTION FEES RECEIVABLE 23. 2,491 24. 25.TOTAL ASSETS 26. 401,349,311 27.LIABILITIES 28. 29. 30.PAYABLE FOR INVESTMENTS PURCHASED $ 3,609,700 31. REGULAR DELIVERY 32. DELAYED DELIVERY 13,730,300 33. 34.PAYABLE FOR FUND SHARES REDEEMED 1,281,439 35. 36.DISTRIBUTIONS PAYABLE 1,511,638 37. 38.ACCRUED MANAGEMENT FEE 217,105 39. 40.OTHER PAYABLES AND ACCRUED EXPENSES 164,472 41. 42. 43.TOTAL LIABILITIES 44. 20,514,654 45.46.NET ASSETS 47. $ 380,834,657 48.NET ASSETS CONSIST OF: 49. 50. 51.PAID IN CAPITAL 52. $ 366,007,384 53.UNDISTRIBUTED NET INVESTMENT INCOME 54. 1,117,086 55.ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 56. 3,756,887 INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 57.NET UNREALIZED APPRECIATION (DEPRECIATION) ON 58. 9,953,300 INVESTMENTS AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 59.60.NET ASSETS, FOR 29,372,343 SHARES OUTSTANDING 61. $ 380,834,657 62.63.NET ASSET VALUE, OFFERING PRICE AND REDEMPTION 64. $12.97 PRICE PER SHARE ($380,834,657 (DIVIDED BY) 29,372,343 SHARES)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 65.INVESTMENT INCOME 67. $ 33,848,024 66.INTEREST 68.LESS FOREIGN TAXES WITHHELD (458,964) 69. TOTAL INCOME 70. 33,389,060 71.EXPENSES 72. 73. 74.MANAGEMENT FEE $ 2,662,459 75. 76.TRANSFER AGENT FEES 873,203 77. 78.ACCOUNTING FEES AND EXPENSES 291,248 79. 80.NON-INTERESTED TRUSTEES' COMPENSATION 1,632 81. 82.CUSTODIAN FEES AND EXPENSES 117,710 83. 84.REGISTRATION FEES 82,622 85. 86.AUDIT 85,199 87. 88.LEGAL 3,329 89. 90.INTEREST 4,708 91. 92.REPORTS TO SHAREHOLDERS 45,720 93. 94.MISCELLANEOUS 1,456 95. 96. TOTAL EXPENSES BEFORE REDUCTIONS 4,169,286 97. 98. EXPENSE REDUCTIONS (7,053) 4,162,233 99.100.NET INVESTMENT INCOME 101. 29,226,827 102.REALIZED AND UNREALIZED GAIN (LOSS) 104. 105. 103.NET REALIZED GAIN (LOSS) ON: 106. INVESTMENT SECURITIES 36,905,710 107. 108. FOREIGN CURRENCY TRANSACTIONS 25,504 36,931,214 109.CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 110. 111. ON: 112. INVESTMENT SECURITIES (13,405,748) 113. 114. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (84,249) (13,489,997) 115.116.NET GAIN (LOSS) 117. 23,441,217 118.119.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 121. $ 52,668,044 120.FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 122.INCREASE (DECREASE) IN NET ASSETS 123.OPERATIONS $ 29,226,827 $ 17,040,354 NET INVESTMENT INCOME 124. NET REALIZED GAIN (LOSS) 36,931,214 47,181,545 125. CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (13,489,997) 11,371,516 126. 52,668,044 75,593,415 127.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 128.DISTRIBUTIONS TO SHAREHOLDERS (36,824,907) (18,678,021) FROM NET INVESTMENT INCOME 129. FROM NET REALIZED GAIN (23,562,318) - 130. 131.TOTAL DISTRIBUTIONS (60,387,225) (18,678,021) 132.SHARE TRANSACTIONS 279,802,013 249,711,880 NET PROCEEDS FROM SALES OF SHARES 133. REINVESTMENT OF DISTRIBUTIONS 56,096,039 16,989,502 134. COST OF SHARES REDEEMED (258,266,914) (190,785,299) 135.136. 77,631,138 75,916,083 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 137. REDEMPTION FEES 777,898 813,848 138. 70,689,855 133,645,325 139.TOTAL INCREASE (DECREASE) IN NET ASSETS 140.NET ASSETS 141. 142. 143. BEGINNING OF PERIOD 310,144,802 176,499,477 144. $ 380,834,657 $ 310,144,802 END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $1,117,086 AND $5,295,341, RESPECTIVELY) 145.OTHER INFORMATION 147. 148. 146.SHARES 149. SOLD 20,050,430 21,889,153 150. ISSUED IN REINVESTMENT OF DISTRIBUTIONS 4,190,974 1,486,315 151. REDEEMED (18,794,517) (17,185,701) 152. NET INCREASE (DECREASE) 5,446,887 6,189,767
FINANCIAL HIGHLIGHTS 153. YEARS ENDED DECEMBER 31, MAY 4, 1993 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 154. 1997 1996 1995 1994 1993
155.SELECTED PER-SHARE DATA 156.NET ASSET VALUE, BEGINNING $ 12.960 $ 9.950 $ 10.190 $ 13.070 $ 10.000 OF PERIOD 157.INCOME FROM INVESTMENT 1.065 D .866 1.222 .573 .486 D OPERATIONS NET INVESTMENT INCOME 158. NET REALIZED AND 1.105 3.035 (.583) (2.687) 3.302 UNREALIZED GAIN (LOSS) 159. TOTAL FROM INVESTMENT 2.170 3.901 .639 (2.114) 3.788 OPERATIONS 160.LESS DISTRIBUTIONS 161. FROM NET INVESTMENT (1.318) (.932) (.916) (.529) (.486) INCOME 162. IN EXCESS OF NET INVESTMENT - - - (.057) (.062) INCOME 163. FROM NET REALIZED GAIN (.870) - - (.180) (.170) 164. TOTAL DISTRIBUTIONS (2.188) (.932) (.916) (.766) (.718) 165.REDEMPTION FEES ADDED TO .028 .041 .037 - - PAID IN CAPITAL 166.NET ASSET VALUE, END OF $ 12.970 $ 12.960 $ 9.950 $ 10.190 $ 13.070 PERIOD 167.TOTAL RETURN B, C 17.52% 41.39% 7.97% (16.55)% 38.84% 168.RATIOS AND SUPPLEMENTAL DATA 169.NET ASSETS, END OF PERIOD $ 380,835 $ 310,145 $ 176,499 $ 179,114 $ 286,593 (000 OMITTED) 170.RATIO OF EXPENSES TO 1.08% 1.09% 1.17% 1.28% E 1.24% A, E AVERAGE NET ASSETS 171.RATIO OF NET INVESTMENT 7.56% 7.68% 9.51% 5.87% 6.29% A INCOME TO AVERAGE NET ASSETS 172.PORTFOLIO TURNOVER RATE 656% 405% 306% 409% 324% A
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. D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD HAVE BEEN HIGHER. NOTES TO FINANCIAL STATEMENTS For the period ended December 31, 1997 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity New Markets Income Fund (the fund) is a fund of Fidelity Investment 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. At a special meeting of the shareholders of the fund held on September 17 , 1997, shareholders approved an Agreement and Plan of Reorganization, providing for the reorganization of the fund into Fidelity School Street Trust, effective on or about February 26, 1998. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price in the principal market in which such securities are normally traded. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investmentsecurities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to U.S. federal income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The fund may be subject to foreign taxes on income and gains on investments which are accrued based upon the fund's understanding of the tax rules and regulations 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME TAXES - CONTINUED that exist in the markets in which it invests. The fund accrues such taxes as applicable. 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. Interest 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 among 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 foreign currency transactions, market discount and losses deferred due to wash sales. The fund also utilized earnings and profits distributed to shareholders on redemption of shares as a part of the dividends paid deduction for income tax purposes. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid in capital. 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. REDEMPTION FEES. Shares held in the fund less than 180 days are subject to a redemption fee equal to 1% of the proceeds of the redeemed shares. The fee, which is retained by the fund, is accounted for as an addition to paid in capital. 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 (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. INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other registered investment companies having management contracts with FMR, may participate in an interfund lending program. This program provides an alternative credit facility allowing the fund to borrow from, or lend money to, other participating funds. WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a when-issued basis. Payment and delivery may take place a month or more after the date of the transaction. The price of the underlying securities is fixed at the time the transaction is negotiated. The market values of the securities purchased on a when-issued or forward commitment 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 when-issued 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. The payables and receivables associated with the purchases and sales of when-issued securities having the same settlement date and broker are offset. When-issued securities that have been purchased from and sold to different brokers are reflected as both payables and receivables in the statement of assets and liabilities under the caption "Delayed delivery." Losses may arise due to changes in the market value of the underlying securities, if the counterparty does not perform under the contract, or if the issuer does not issue the securities due to political, economic, or other factors. OPTIONS. The fund may use options to manage its exposure to the bond market and to fluctuations in interest rates and currency values. Writing puts and buying calls tend to increase the fund's exposure to the underlying instrument. Buying puts and writing calls tend to decrease the fund's exposure to the underlying instrument, or hedge other fund investments. The underlying face amount at value of any open options at period end is shown in the schedule of investments under the caption 2. OPERATING POLICIES - CONTINUED OPTIONS - CONTINUED "Purchased Options." This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparties do not perform under the contracts' terms. Gains and losses are realized upon the expiration or closing of the options. Realized gains (losses) on purchased options are included in realized gains (losses) on investment securities . Exchange-traded options are valued using the last sale price or, in the absence of a sale, the last offering price. Options traded over-the-counter are valued using dealer-supplied valuations. 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). LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to invest in loans and loan participations, trade claims or other receivables. These investments may include standby financing commitments that obligate the fund to supply additional cash to the borrower on demand. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary. At the end of the period, these investments amounted to $31,476,930 or 8.3% of net assets. 3. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $2,253,805,349 and $2,216,905,192, respectively. 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly fee that is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of the fund. The group fee rate is the weighted average of a series of rates and is based on the monthly average net assets of all the mutual funds advised by FMR. The rates ranged from .1100% to .3700% for the period. The annual individual fund fee rate is .55%. 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 annual rate of .69% of average net assets. SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc., Fidelity Management & Research (Far East) Inc., Fidelity 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED SUB-ADVISER FEE - CONTINUED International Investment Advisors (FIIA), and Fidelity Investments Japan Ltd. (FIJ) In addition, FIIA entered into a sub-advisory agreement with its subsidiary, Fidelity International Investment Advisors (U.K.) Limited (FIIA (U.K.) L). Under the sub-advisory arrangements, FMR may receive investment advice and research services and may grant the sub-advisers investment management authority to buy and sell securities. FMR pays its sub-advisers either a portion of its management fee or a fee based on costs incurred for these services. FIIA pays FIIA (U.K.) L a fee based on costs incurred for either service. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .23% 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. 5. INTERFUND LENDING PROGRAM. The fund participated in the interfund lending program as a borrower. The maximum loan and the average daily loan balances during the period for which loans were outstanding amounted to $7,763,000 and $7,358,750, respectively. The weighted average interest rate was 5.76%. 6. EXPENSE REDUCTIONS. The fund has entered into arrangements with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $6,122 and $931, respectively, under these arrangements. 7. CREDIT RISK. The fund's relatively large investment in countries with limited or developing capital markets may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The yields of emerging market debt obligations reflect, among other things, perceived credit risk. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the fund's investments and the income they generate, as well as the fund's ability to repatriate such amounts. 8. 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. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Investment Trust and the Shareholders of Fidelity New Markets Income Fund: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments (except for Moody's and Standard & Poor's ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity New Markets Income Fund (a fund of Fidelity Investment Trust) at December 31, 1997, the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fidelity New Markets Income Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1997 by correspondence with the custodian and the application of alternative auditing procedures where securities purchased were not yet received by the custodian, provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts February 6, 1998 DISTRIBUTIONS The Board of Trustees of Fidelity New Markets Income Fund voted to pay to shareholders of record at the opening of business on record date, the following distributions derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income: PAY DATE 1/2/98 RECORD DATE 12/26/97 DIVIDENDS $0 SHORT-TERM CAPITAL GAINS $.80 LONG-TERM CAPITAL GAINS $.07 LONG-TERM CAPITAL GAIN BREAKDOWN: 28% rate 76.77% 20% rate 23.23% The percentage of dividends distributed during the fiscal year representing income derived from sources within, and taxes paid to, foreign countries or possessions of the United States are 45.91% and 0.05%, respectively. The fund will notify shareholders in January 1998 of the applicable percentage for use in preparing 1997 income tax returns. PROXY VOTING RESULTS A special meeting of the fund's shareholders was held on September 17, 1997. The results of votes taken among shareholders on proposals before them are listed below. PROPOSAL 1 To elect as Trustees the following twelve nominees. # OF % OF SHARES VOTED SHARES VOTED RALPH F. COX AFFIRMATIVE 307,469,095.652 87.117 WITHHELD 45,467,029.324 12.883 TOTAL 352,936,124.976 100.00 PHYLLIS BURKE DAVIS AFFIRMATIVE 307,387,377.836 87.094 WITHHELD 45,548,747.140 12.906 TOTAL 352,936,124.976 100.000 ROBERT M. GATES AFFIRMATIVE 307,219,404.498 87.047 WITHHELD 45,716,720.478 12.953 TOTAL 352,936,124.976 100.000 EDWARD C. JOHNSON 3D AFFIRMATIVE 307,304,255.082 87.071 WITHHELD 45,631,869.894 12.929 TOTAL 352,936,124.976 100.00 E. BRADLEY JONES AFFIRMATIVE 307,163,389.202 87.031 WITHHELD 45,772,735.774 12.969 TOTAL 352,936,124.976 100.000 DONALD J. KIRK AFFIRMATIVE 307,589,965.173 87.152 WITHHELD 45,346,159.803 12.848 TOTAL 352,936,124.976 100.000 # OF % OF SHARES VOTED SHARES VOTED PETER S. LYNCH AFFIRMATIVE 307,609,611.247 87.157 WITHHELD 45,326,513.729 12.843 TOTAL 352,936,124.976 100.000 WILLIAM O. MCCOY AFFIRMATIVE 307,616,784.105 87.159 WITHHELD 45,319,340.871 12.841 TOTAL 352,936,124.976 100.000 GERALD C. MCDONOUGH AFFIRMATIVE 307,384,278.082 87.093 WITHHELD 45,551,846.894 12.907 TOTAL 352,936,124.976 100.000 MARVIN L. MANN AFFIRMATIVE 307,596,505.166 87.154 WITHHELD 45,339,619.810 12.846 TOTAL 352,936,124.976 100.000 ROBERT C. POZEN AFFIRMATIVE 307,465,181.656 87.116 WITHHELD 45,470,943.320 12.884 TOTAL 352,936,124.976 100.000 THOMAS R. WILLIAMS AFFIRMATIVE 307,326,062.668 87.077 WITHHELD 45,610,062.308 12.923 TOTAL 352,936,124.976 100.000 PROPOSAL 2 To ratify the selection of Coopers & Lybrand L.L.P. and Price Waterhouse LLP as independent accountants of the trust. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 297,481,581.663 84.288 AGAINST 4,739,203.560 1.342 ABSTAIN 50,715,339.753 14.370 TOTAL 352,936,124.976 100.000 PROPOSAL 3 To amend the Declaration of Trust to provide voting rights based on a shareholder's total dollar investment in a fund, rather than on the number of shares owned. Trust: # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 274,619,710.990 79.850 AGAINST 15,944,801.447 4.637 ABSTAIN 53,353,237.539 15.513 TOTAL 343,917,749.976 100.000 BROKER 9,018,375.000 NON-VOTES Fund: # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 12,755,520.470 89.184 AGAINST 822,901.708 5.753 ABSTAIN 724,091.771 5.063 TOTAL 14,302,513.949 100.000 BROKER 820,890.000 NON-VOTES PROPOSAL 4 To amend the Declaration of Trust to eliminate the requirement that shareholders be notified in the event of an appointment of a trustee within three months of the appointment. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 273,821,090.658 79.618 AGAINST 14,687,878.962 4.271 ABSTAIN 55,408,780.356 16.111 TOTAL 343,917,749.976 100.000 BROKER 9,018,375.000 NON-VOTES PROPOSAL 5 To amend the Declaration of Trust to clarify that the Trustees may authorize the investment of all of a fund's assets in another open-end investment company. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 253,910,627.527 73.810 AGAINST 33,659,944.597 9.785 ABSTAIN 56,433,204.852 16.405 TOTAL 344,003,776.976 100.000 BROKER 8,932,348.000 NON-VOTES PROPOSAL 6 To adopt a new fundamental investment policy for the fund that would permit it to invest all of its assets in another open-end investment company managed by FMR or an affiliate with substantially the same investment objective and policies. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 11,807,783.041 82.557 AGAINST 1,653,518.013 11.561 ABSTAIN 841,212.895 5.882 TOTAL 14,302,513.949 100.000 BROKER 820,890.000 NON-VOTES PROPOSAL 7 To approve an amended management contract for the fund that would reduce the management fee payable to FMR by the fund as FMR's assets under management increase. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 13,478,969.145 89.127 AGAINST 697,743.170 4.613 ABSTAIN 946,691.634 6.260 TOTAL 15,123,403.949 100.000 PROPOSAL 8 To approve an agreement and plan providing for the reorganization of the fund from a separate series of one Massachusetts business trust to another Massachusetts business trust. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 12,522,747.019 87.556 AGAINST 824,960.047 5.768 ABSTAIN 954,806.883 6.676 TOTAL 14,302,513.949 100.000 BROKER 820,890.000 NON-VOTES MANAGING YOUR INVESTMENTS Fidelity offers several ways to conveniently manage your personal investments via your telephone or PC. You can access your account information, conduct trades and research your investments 24 hours a day. BY PHONE Fidelity TouchTone Xpressprovides a single toll-free number to access account balances, positions, quotes and trading. It's easy to navigate the service, and on your first call, the system will help you create a personal identification number (PIN) for security. SM (PHONE_GRAPHIC)TOUCHTONE XPRESS 1-800-544-5555 PRESS For mutual fund and brokerage trading. For quotes.* For account balances and holdings. To review orders and mutual fund activity. To change your PIN. To speak to a Fidelity representative. 0 * BY PC Fidelity's Web site on the Internet provides a wide range of information, including daily financial news, fund performance, interactive planning tools and news about Fidelity products and services. (PHONE_GRAPHIC)FIDELITY'S WEB SITE WWW.FIDELITY.COM If you are not currently on the Internet, call Fidelity at 1-800-544-7272 for significant savings on Web access from internetMCI. SM (PHONE_GRAPHIC) FIDELITY ON-LINE XPRESS+ TM Fidelity On-line Xpress+ software for Windows combines comprehensive portfolio management capabilities, securities trading and access to research and analysis tools . . . all on your desktop. Call Fidelity at 1-800-544-7272 or visit our Web site for more information on how to manage your investments via your PC. * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. TO VISIT FIDELITY For directions and hours, please call 1-800-544-9797. ARIZONA 7373 N. Scottsdale Road Scottsdale, AZ CALIFORNIA 815 East Birch Street Brea, CA 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 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 48 West Putnam Avenue Greenwich, CT 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. 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Atlanta, GA 1000 Abernathy Road Atlanta, GA HAWAII 700 Bishop Street Honolulu, HI ILLINOIS One North Franklin Street 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 155 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. 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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 500 Merrimack, NH 03054-0500 (LETTER_GRAPHIC)FOR RETIREMENT ACCOUNTS BUYING SHARES Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 SELLING SHARES Fidelity Investments P.O. Box 660602 Dallas, TX 75266-0602 OVERNIGHT EXPRESS Fidelity Investments Attn: Redemptions - CP6R 400 East Las Colinas Blvd. Irving, TX 75309-5517 GENERAL CORRESPONDENCE Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research (U.K.) Inc., London, England Fidelity Management & Research (Far East) Inc., Tokyo, Japan Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited Fidelity Investments Japan Limited OFFICERS Edward C. Johnson 3d, President Robert C. Pozen, Senior Vice President John H. Carlson, Vice President Bart A. Grenier, Vice President Eric D. Roiter, Secretary Richard A. Silver, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Robert C. Pozen Thomas R. Williams * ADVISORY BOARD J. Gary Burkhead GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA * INDEPENDENT TRUSTEES TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN The Chase Manhattan Bank New York, NY FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Government Securities Intermediate Bond International 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 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 INTERNATIONAL BOND FUND (FORMERLY FIDELITY GLOBAL BOND FUND) ANNUAL REPORT DECEMBER 31, 1997 CONTENTS PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES. PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME. FUND TALK 7 THE MANAGERS' 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 19 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS. NOTES 23 NOTES TO THE FINANCIAL STATEMENTS. REPORT OF INDEPENDENT 28 THE AUDITORS' OPINION. ACCOUNTANTS PROXY VOTING RESULTS 29 THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. To reduce expenses and demonstrate respect for our environment, we have initiated a project through which we will begin eliminating duplicate copies of most financial reports and prospectuses to most households, even if they have more than one account in the fund. If additional copies of financial reports, prospectuses or historical account information are needed, please call 1-800-544-6666. PRESIDENT'S MESSAGE (PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER: Although financial turmoil in Pacific Basin countries was a catalyst for significant volatility in U.S. markets throughout the fourth quarter, the Standard & Poor's 500 Index rose more than 33% in 1997, about three times its historical annual average. Meanwhile, bond markets - primarily influenced by a relatively steady flow of positive news on the inflation front - continued to post solid returns as the year drew to a close. While it's impossible to predict the future direction of the markets with any degree of certainty, there are certain basic principles that can help investors plan for their future needs. 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). You can also look at the fund's income, as reflected in its yield, to measure performance. If Fidelity had not reimbursed certain fund expenses, the past 10 years total return would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY INTERNATIONAL BOND -1.21% 11.09% 64.30% SB WORLD GOVT. BOND, UNHEDGED 0.23% 43.32% 113.58% GLOBAL INCOME FUNDS AVERAGE 3.00% 39.73% 99.51% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, one year, five years or 10 years. For example, if you had invested $1,000 in a fund that had a 5% return over the past year, the value of your investment would be $1,050. You can compare the fund's returns to the performance of the Salomon Brothers World Government Bond Index, Unhedged - a market-capitalization weighted index of debt issues traded in 14 world government bond markets. Issues included in the index have fixed-rate coupons and maturities of at least one year. To measure how the fund's performance stacked up against its peers, you can compare it to the global income funds average, which reflects the performance of mutual funds with similar objectives tracked by Lipper Analytical Services, Inc. The past one year average represents a peer group of 139 mutual funds. These benchmarks reflect reinvestment of dividends and capital gains, if any, and exclude the effect of sales charges. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 5 PAST 10 YEAR YEARS YEARS FIDELITY INTERNATIONAL BOND -1.21% 2.13% 5.09% SB WORLD GOVT. BOND, UNHEDGED 0.23% 7.46% 7.88% GLOBAL INCOME FUNDS AVERAGE 3.00% 6.83% 7.09% AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you what would have happened if the fund had performed at a constant rate each year. (Note: Lipper calculates average annual total returns by annualizing each fund's total return, then taking an arithmetic average. This may produce a slightly different figure than that obtained by averaging the cumulative total returns and annualizing the result.) $10,000 OVER 10 YEARS IMAHDR PRASUN SHR__CHT 19971231 19980109 160728 S00000000000001 Global Bond SB World Government Bond 00451 SB006 1987/12/31 10000.00 10000.00 1988/01/31 9723.46 9945.52 1988/02/29 9794.83 10032.36 1988/03/31 10035.68 10211.45 1988/04/30 10026.76 10161.82 1988/05/31 9982.16 10066.35 1988/06/30 9875.11 9846.81 1988/07/31 9884.03 9786.94 1988/08/31 9812.67 9677.44 1988/09/30 9928.64 9927.18 1988/10/31 10231.94 10385.67 1988/11/30 10419.27 10544.80 1988/12/31 10366.49 10437.46 1989/01/31 10337.48 10284.81 1989/02/28 10250.45 10291.82 1989/03/31 10221.44 10148.88 1989/04/30 10356.82 10283.19 1989/05/31 10182.76 10066.35 1989/06/30 10395.51 10268.62 1989/07/31 10733.96 10736.29 1989/08/31 10579.24 10375.42 1989/09/30 10704.95 10572.31 1989/10/31 10850.01 10660.77 1989/11/30 10966.05 10757.32 1989/12/31 11188.46 10888.94 1990/01/31 11158.17 10744.92 1990/02/28 11016.80 10579.86 1990/03/31 11148.07 10475.21 1990/04/30 11148.07 10442.85 1990/05/31 11299.54 10789.69 1990/06/30 11541.89 10987.65 1990/07/31 11945.81 11331.79 1990/08/31 11875.12 11243.32 1990/09/30 12026.59 11369.01 1990/10/31 12309.33 11877.12 1990/11/30 12440.60 12074.01 1990/12/31 12562.03 12193.21 1991/01/31 12838.00 12497.98 1991/02/28 12959.42 12501.75 1991/03/31 12782.80 12047.58 1991/04/30 12959.42 12233.13 1991/05/31 13113.96 12217.49 1991/06/30 12959.42 12089.65 1991/07/31 13092.06 12348.02 1991/08/31 13215.35 12586.98 1991/09/30 13518.45 13079.45 1991/10/31 13701.44 13216.46 1991/11/30 13632.82 13423.05 1991/12/31 14166.40 14121.04 1992/01/31 14023.55 13870.22 1992/02/29 14083.07 13793.08 1992/03/31 14059.42 13646.91 1992/04/30 14250.55 13744.54 1992/05/31 14513.34 14166.35 1992/06/30 14693.26 14562.81 1992/07/31 14913.45 14902.10 1992/08/31 15130.40 15319.06 1992/09/30 14919.79 15472.79 1992/10/31 14822.80 15052.59 1992/11/30 14600.26 14813.64 1992/12/31 14789.30 14902.10 1993/01/31 14960.15 15162.09 1993/02/28 15190.52 15460.38 1993/03/31 15525.16 15697.72 1993/04/30 15672.80 16029.45 1993/05/31 15960.89 16190.19 1993/06/30 16281.32 16155.67 1993/07/31 16529.09 16201.52 1993/08/31 16946.64 16688.60 1993/09/30 17043.22 16886.56 1993/10/31 17484.72 16857.98 1993/11/30 17429.06 16737.15 1993/12/31 18029.11 16879.55 1994/01/31 18225.97 17015.48 1994/02/28 17233.67 16904.36 1994/03/31 15992.92 16880.09 1994/04/30 15677.98 16899.51 1994/05/31 15765.41 16751.17 1994/06/30 15086.18 16992.83 1994/07/31 15360.84 17128.22 1994/08/31 15551.64 17068.88 1994/09/30 15552.43 17192.41 1994/10/31 15623.30 17468.04 1994/11/30 15687.94 17228.01 1994/12/31 15088.30 17275.47 1995/01/31 14956.61 17637.95 1995/02/28 14914.35 18089.43 1995/03/31 15011.64 19163.92 1995/04/30 15264.79 19518.85 1995/05/31 15725.14 20067.96 1995/06/30 15872.45 20186.09 1995/07/31 15843.00 20233.56 1995/08/31 15353.65 19538.27 1995/09/30 15619.14 19974.65 1995/10/31 15810.72 20123.52 1995/11/30 15917.64 20351.15 1995/12/31 16092.59 20564.22 1996/01/31 15893.12 20310.16 1996/02/29 15900.11 20206.59 1996/03/31 15868.81 20178.54 1996/04/30 15812.06 20098.17 1996/05/31 15822.83 20102.49 1996/06/30 15913.73 20260.53 1996/07/31 16190.33 20648.90 1996/08/31 16217.62 20729.27 1996/09/30 16293.71 20813.42 1996/10/31 16536.18 21202.87 1996/11/30 16777.01 21482.28 1996/12/31 16631.43 21308.59 1997/01/31 16140.45 20738.98 1997/02/28 16034.53 20584.17 1997/03/31 15871.16 20427.21 1997/04/30 15751.59 20250.28 1997/05/31 16176.00 20798.32 1997/06/30 16336.40 21046.44 1997/07/31 16181.86 20882.46 1997/08/31 16129.50 20870.06 1997/09/30 16516.97 21314.53 1997/10/31 16766.15 21756.84 1997/11/30 16517.08 21422.95 1997/12/31 16429.82 21358.22 IMATRL PRASUN SHR__CHT 19971231 19980109 160732 R00000000000123 $10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested in Fidelity International Bond Fund on December 31, 1987. As the chart shows, by December 31, 1997, the value of the investment would have grown to $16,430 - a 64.30% increase on the initial investment. For comparison, look at how the Salomon Brothers World Government Bond Index, Unhedged did over the same period. With dividends and capital gains, if any, reinvested, the same $10,000 would have grown to $21,358 - a 113.58% increase. UNDERSTANDING PERFORMANCE MANY MARKETS AROUND THE GLOBE OFFER THE POTENTIAL FOR SIGNIFICANT GROWTH OVER TIME; HOWEVER, INVESTING IN FOREIGN MARKETS MEANS ASSUMING GREATER RISKS THAN INVESTING IN THE UNITED STATES. FACTORS LIKE CHANGES IN A COUNTRY'S FINANCIAL MARKETS, ITS LOCAL POLITICAL AND ECONOMIC CLIMATE, AND THE FLUCTUATING VALUE OF ITS CURRENCY CREATE THESE RISKS. FOR THESE REASONS AN INTERNATIONAL FUND'S PERFORMANCE MAY BE MORE VOLATILE THAN A FUND THAT INVESTS EXCLUSIVELY IN THE UNITED STATES. (CHECKMARK) DIVIDENDS AND YIELD PERIODS ENDED DECEMBER 31, 1997 PAST 1 PAST 6 PAST 1 MONTH MONTHS YEAR DIVIDENDS PER SHARE A 4.15(CENTS) 24.29(CENTS) 49.61(CENTS) ANNUALIZED DIVIDEND RATE 5.35% 5.24% 5.37% 30-DAY ANNUALIZED YIELD 3.75% - - DIVIDENDS per share show the income paid by the fund for a set period. If you annualize this number, based on the fund's average share price of $9.14 over the past one month, $9.19 over the past six months and $9.23 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. It does not reflect the cost of hedging and other currency gains and losses. F 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 OF APPROXIMATELY 35(CENTS) PER SHARE PAID DURING 1997 WERE A NON-TAXABLE RETURN OF CAPITAL. THE EXACT NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR INCOME TAX RETURN WILL DEPEND ON YOUR SHARE ACTIVITY AND WAS REPORTED TO YOU IN JANUARY 1998. FUND TALK: THE MANAGERS' OVERVIEW MARKET RECAP The year that ended December 31, 1997, displayed the complexity and variety of the world's financial markets. The serenity of low interest rates and subdued inflation that had boosted a number of markets was rudely interrupted in late October when Asian markets stumbled dramatically. Developed-market government bonds benefited from this crisis, as investors sought the perceived safety of high-quality issues. A strong U.S. dollar, however, undermined gains for U.S.-based investors in the Japanese and most European markets. The Salomon Brothers World Government Bond Index, Unhedged - a measure of government bond market performance in developed nations - returned just 0.23% for the period. Inflation was well-controlled throughout Europe, and bond prices in countries such as Spain and Italy were buoyed by steady progress toward meeting the requirements for membership in the European Monetary Union (EMU). Unlike other European currencies, the pound sterling maintained its strength, helping boost bond performance in the United Kingdom. The Asian volatility staggered emerging bond markets in October and left lingering concerns as the new year began. The J.P. Morgan Emerging Markets Bond Index returned 16.15% for the period. Most of these gains were posted during the first three quarters of the year, boosted by low interest rates and positive government reforms. A lack of inflation, declining interest rates and the late-year flight to quality boosted bonds in the U.S., with the Lehman Brothers Aggregate Bond Index returning 9.65% in 1997. NOTE TO SHAREHOLDERS: Effective February 27, 1998, the fund's name changed to Fidelity International Bond Fund. In addition, John Carlson (top right) became lead manager of the fund. Ian Spreadbury (top left), continues to manage the fund's investment-grade developed market investments, while Luis Martins (bottom right) now manages the fund's new emerging market sub-portfolio. The following is an interview with Ian Spreadbury and Christine Thompson (bottom left), who managed the fund's U.S. investments during the period covered by this report; comments from John Carlson regarding changes to the fund and his outlook; and Luis Martins on his investment style. Q. HOW DID THE FUND PERFORM, IAN? I.S. For the 12 months that ended December 31, 1997, the fund had a total return of -1.21%. Over the same period, the Salomon Brothers World Government Bond Index, Unhedged, returned 0.23%, and the global income funds average tracked by Lipper Analytical Services returned 3.00%. Q. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE RELATIVE TO THE LIPPER AVERAGE? I.S. Unlike this fund, some of the other funds that make up the Lipper average may have invested in lower-quality, emerging market securities - - which performed quite well through much of the year - or engaged in currency hedging during the period. By doing so, they were able to offset the negative effect caused by the fact that the dollar strengthened over the period. Finally, because we managed the fund to closely approximate the duration - or interest-rate sensitivity - and currency exposure of the broad world bond market as measured by the index, the fund had significant exposure to the underperforming Japanese market, one which many peers avoided. I should like to add, though, that because the fund did not invest in emerging markets in 1997 it performed much better late in the year when emerging markets were caught up in the turmoil caused by currency problems in Asia. Q. TURNING TO YOU, CHRIS, WHAT WAS THE U.S. BOND MARKET LIKE OVER THE PAST YEAR? C.T. U.S. interest rates declined during the year. Despite fears of wage pressures given historically low unemployment rates, the market was supported by benign reported inflation trends. Bond valuation measures across sectors were very compressed, meaning that different issues with similar maturities or interest-rate sensitivity did not provide much of a variation in returns. This environment makes it more difficult to differentiate returns with sector- and issue-selection strategies than it would be in an environment where credit quality, cash-flow structures and characteristics of the various non-government sectors have less compressed valuation measures. Toward the end of the year, though, as the U.S. market rally extended, corporate issuance increased, cheapening valuation measures in that sector. Similarly, an increase in interest-rate volatility caused mortgage valuation measures to increasingly diverge. These repricing trends have been beneficial to the research-based strategies we have employed in managing the fund. Q. JOHN, PLEASE OUTLINE THE CHANGES TO THE FUND THAT ARE COMING IN FEBRUARY. J.C. The fund will be repositioned as an international fund rather than a global fund, and will be investing primarily outside the U.S. This change will allow investors to determine their own allocations between foreign and domestic bonds by combining an investment in the fund with investments in one or more of Fidelity's domestic fixed-income funds. The fund's new policies call for it to invest at least 65% in foreign debt securities. In addition, the fund will now have the ability to invest up to 35% of its assets in emerging markets, including both investment-grade and lower-quality debt securities. Further, the fund will be able to invest in lower-quality debt securities of companies in developed countries such as Canada or the U.K. However, the fund will limit its overall investments in lower-quality debt securities to 35% of its assets. Q. WHAT'S YOUR OUTLOOK? J.C. With all that has gone on in recent months - especially the fallout from the Asian situation - I'm certainly concerned. While global volatility has been alarming, one bright spot may be that the dislocation, or repricing of certain emerging market securities downward, may present ample opportunities in those markets. As far as the developed markets are concerned, if interest rates remain low and inflation benign, relative performance should largely depend on the relative weakness or strength of each country's currency. 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. LUIS MARTINS ON HIS INVESTMENT APPROACH: "In choosing investments for the fund's emerging market sub-portfolio, I start by using a quantitative approach. That is, I employ computer models to help me analyze both issuers and securities at a number of different levels. I use risk models to help me research the relative creditworthiness of government issuers. I also utilize analytical tools to help me discern the relative price of securities. This quantitative analysis is combined with the experience of Fidelity's analysts, whose opportunity for personal contact with issuers factors into my investment decisions. I also consider important market conditions, especially liquidity - the strength of investor activity and interest in a particular market. In this case, Fidelity's emerging market trading desk is very important, since the traders are well-aware of market conditions and levels of trading activity, which can significantly affect a bond's relative value. "As this research unfolds, I then have a final set of country weightings, which reflects my assessment of each nation's creditworthiness. Additionally, I have selected the most attractively valued securities within each country. Once again, an important factor for choosing investments is liquidity: Depending on market conditions, I intend to shy away from bonds that are not actively traded, instead focusing on larger issuers whose bonds I can buy and sell easily and quickly, if necessary." FUND FACTS GOAL: high total investment return FUND NUMBER: 451 TRADING SYMBOL: FGBDX START DATE: December 30, 1986 SIZE: as of December 31, 1997, more than $78 million MANAGERS: John Carlson, lead manager, since February 1998; Ian Spreadbury, manager, investment-grade developed markets, since 1996; Luis Martins, manager, emerging market investments, since February 1998 (checkmark) INVESTMENT CHANGES THE CHARTS BELOW HIGHLIGHT THREE DIFFERENT ASPECTS OF THE FUND'S INVESTMENTS: THE COUNTRY WHERE THEY WERE ISSUED, THEIR SENSITIVITY TO INTEREST RATE CHANGES, AND THEIR CURRENCY EXPOSURE. THE TOP COUNTRIES IN EACH TABLE DIFFER BECAUSE SOME SECURITIES HAVE MORE INTEREST RATE RISK THAN OTHERS, AND BECAUSE SECURITIES ISSUED IN ONE COUNTRY MAY BE DENOMINATED IN ANOTHER COUNTRY'S CURRENCY. TOP FIVE COUNTRIES AS OF DECEMBER 31, 1997 (EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS INVESTMENTS IN THESE COUNTRIES 6 MONTHS AGO UNITED STATES 30 29 GERMANY 10 10 FRANCE 8 8 UNITED KINGDOM 8 8 ITALY 6 5 TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY, INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT RISKS. TOP INTEREST RATE EXPOSURES AS OF DECEMBER 31, 1997 (ESTIMATED BY COUNTRY) % OF FUND'S % OF INTEREST RATE TOTAL INTEREST EXPOSURE RATE EXPOSURE 6 MONTHS AGO UNITED STATES 32 32 JAPAN 21 24 GERMANY 10 9 UNITED KINGDOM 8 8 FRANCE 8 7 FIDELITY ESTIMATES INTEREST RATE EXPOSURE BASED ON THE DURATION, OR INTEREST RATE SENSITIVITY, OF THE FUND'S HOLDINGS. AS OF DECEMBER 31, 1997 THE FUND WAS MOST SENSITIVE TO INTEREST RATE MOVEMENTS IN THE U.S., WHICH ACCOUNTS FOR 32% OF THE FUND'S INTEREST RATE EXPOSURE. TOP CURRENCY EXPOSURES AS OF DECEMBER 31, 1997 (ESTIMATED BY CURRENCY) % OF FUND'S % OF NET ASSETS NET ASSETS 6 MONTHS AGO U.S. DOLLAR 32 33 JAPANESE YEN 19 20 GERMAN DEUTSCHE MARK 11 10 FRENCH FRANC 8 7 ITALIAN LIRA 7 6 THE JAPANESE YEN, AT APPROXIMATELY 19% OF NET ASSETS, WAS THE FUND'S LARGEST FOREIGN CURRENCY EXPOSURE AS OF DECEMBER 31, 1997. INVESTMENTS DECEMBER 31, 1997 SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES CORPORATE BONDS - 27.0% MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) AUSTRALIA - 1.2% Queensland Treasury Corp. 8%, 5/14/03 Aaa AUD 1,000,000 $ 710,416 St. George Bank Ltd. yankee 7.15%, 10/15/05 (d) Baa 175,000 180,288 890,704 CANADA - 3.5% British Columbia Hydro & Power Authority yankee 12 1/2%, 1/15/14 Aa2 140,000 154,193 Broadcast Central Trust 7.53%, 5/1/27 Aaa CAD 1,138,385 911,233 Ford Credit CDA Ltd. 8 3/4%, 3/20/00 A1 CAD 1,000,000 744,430 Methanex Corp. yankee 8 7/8%, 11/15/01 A2 480,000 505,339 Trizec Hahn Corp. 7.45%, 6/1/04 - CAD 500,000 355,916 2,671,111 FINLAND - 0.4% Merita Bank Ltd. yankee 6 1/2%, 1/15/06 A3 350,000 344,775 FRANCE - 0.8% Total Cie Francaise des Petroles 8 1/4%, 2/26/02 Aa3 DEM 1,000,000 616,291 GERMANY - 3.4% Lake Baden Wuerttemberg Finance NV euro 3 3/4%, 6/21/99 (c) Aaa JPY 250,000 2,002,681 Norddeutsche Landesbank Girozentrale 5 7/8%, 9/25/07 Aa1 DEM 1,000,000 565,304 2,567,985 NETHERLANDS - 2.3% Bank Voor Nederlandse he Gemeenten NV 6 1/2%, 8/25/99 Aaa DEM 1,000,000 573,255 Dresdner Finance BV 7 1/4%, 1/12/00 Aa1 DEM 2,000,000 1,171,877 1,745,132 PANAMA - 0.1% Banco Latinoamericano Exportaciones SA euro 6.90%, 12/6/99 (d) Baa 100,000 101,126 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) UNITED KINGDOM - 3.1% Argyll Group PLC Class L 8 1/8%, 10/4/02 - GBP 250,000 $ 425,673 Bell Cablemedia PLC yankee 0%, 9/15/05 (f) Baa 100,000 88,612 Ford Credit Europe PLC 11.70%, 11/18/98 (c) A1 ITL 1,185,000 704,013 Lloyds Bank PLC 7 3/8%, 3/11/04 Aa2 GBP 500,000 838,899 Midland Bank PLC yankee 7 5/8%, 6/15/06 Aa3 270,000 286,897 2,344,094 UNITED STATES OF AMERICA - 12.2% AT&T Capital Corp. 6.65%, 4/30/99 Baa 250,000 251,913 Aristar, Inc. 7 1/2%, 7/1/99 Baa 250,000 254,640 Banc One Corp. 6.70%, 3/24/00 Aa3 120,000 121,307 BanPonce Corp. 6.488%, 3/3/00 A3 100,000 100,440 BanPonce Financial Corp. 6.642%, 4/8/99 A3 320,000 322,358 Chrysler Financial Corp. 6 3/8%, 1/28/00 A3 180,000 180,862 Columbia Gas System, Inc. 6.61%, 11/28/02 Baa 130,000 131,108 Comdisco, Inc.: 6 1/2%, 6/15/00 Baa 600,000 602,850 5 3/4%, 2/15/01 Baa 200,000 196,684 Dayton Hudson Corp. 6.80%, 10/1/01 Baa 150,000 152,258 Edison Mission Energy Funding Corp. 6.77%, 9/15/03 (d) Baa 232,741 235,038 Federated Department Stores, Inc.: 10%, 2/15/01 Baa 150,000 164,775 6.79%, 7/15/27 Baa 100,000 102,677 First Fidelity Bancorp. 9 5/8%, 8/15/99 A2 181,000 190,358 First Hawaiian, Inc. 6 1/4%, 8/15/00 Baa 270,000 269,055 First Tennessee National Corp. 6 3/4%, 11/15/05 Baa 100,000 101,548 Firstar Corp. 7.15%, 9/1/00 A3 320,000 321,856 Fleet Financial Group, Inc. 7 5/8%, 12/1/99 A3 100,000 102,459 KFW International Finance, Inc. 10 5/8%, 9/3/01 Aaa 250,000 455,657 Kansallis-Osake-Pankki (NY Branch) 10%, 5/1/02 A3 100,000 113,639 KeyCorp 8.40%, 4/1/99 A2 250,000 256,890 Levi Strauss & Co. 6.80%, 11/1/03 (d) Baa 350,000 355,961 Long Island Savings Bank FSB 7%, 6/13/02 Baa 250,000 253,750 MCN Investment Corp.: 5.84%, 2/1/99 Baa 210,000 210,126 6.03%, 2/1/01 Baa 280,000 279,210 CORPORATE BONDS - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) UNITED STATES OF AMERICA - CONTINUED Manufacturers Hanover Corp. 8 1/2%, 2/15/99 A1 $ 130,000 $ 133,195 Massachusetts Electric Co. 6.78%, 11/20/06 A1 250,000 257,255 Occidental Petroleum Corp.: 5.85%, 11/9/98 Baa 90,000 89,780 5.93%, 11/9/98 Baa 130,000 129,766 6 3/4%, 9/16/99 Baa 120,000 121,237 6.09%, 11/29/99 Baa 150,000 149,876 Penney (J.C.) Co., Inc. 6.95%, 4/1/00 A2 150,000 152,418 Philip Morris Companies, Inc. 7%, 7/15/05 A2 150,000 152,904 Provident Bank (Cincinnati, Ohio) 6 1/8%, 12/15/00 A3 510,000 507,618 Raytheon Co.: 6.30%, 8/15/00 Baa 140,000 140,438 6.45%, 8/15/04 Baa 160,000 160,786 Shawmut National Corp. 8 5/8%, 12/15/99 A3 290,000 302,505 Southwest Gas Corp. 9 3/4%, 6/15/02 Baa 90,000 101,357 Star Banc Corp. 6.21%, 9/26/00 A3 150,000 150,443 TCI Communication, Inc. 7 1/4%, 6/15/99 Ba1 250,000 252,868 Time Warner, Inc. 7.95%, 2/1/00 Ba1 260,000 267,992 Union Planters Corp. 6 3/4%, 11/1/05 Baa 200,000 201,256 WorldCom, Inc. 9 3/8%, 1/15/04 Ba1 261,000 276,339 9,275,452 TOTAL CORPORATE BONDS (Cost $21,465,740) 20,556,670 GOVERNMENT OBLIGATIONS (E) - 60.0% AUSTRIA - 3.0% Austrian Republic euro: 4 1/2 %, 9/28/05 (c) Aaa JPY 170,000 1,558,805 3 3/4%, 2/3/09 (c) Aaa JPY 85,000 752,843 2,311,648 BELGIUM - 2.4% Belgian Kingdom: 7%, 4/29/99 (c) Aa1 BEF 15,000 418,924 9%, 3/28/03 (c) Aa1 BEF 25,000 796,401 7 1/2%, 7/29/08 (c) Aa1 BEF 20,000 624,127 1,839,452 GOVERNMENT OBLIGATIONS (E) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) CANADA - 0.9% Canadian Government 10%, 5/1/02 Aa1 CAD 870,000 $ 713,442 DENMARK - 1.8% Danish Kingdom Bullet: 6%, 12/10/99 Aaa DKK 2,000,000 299,829 8%, 5/15/03 Aaa DKK 4,500,000 742,412 8%, 3/15/06 Aaa DKK 2,000,000 338,166 1,380,407 FINLAND - 0.6% Finnish Government 10%, 9/15/01 (Reg.) Aaa FIM 2,000,000 430,336 FRANCE - 7.4% French Government: 4 3/4%, 4/12/99 Aaa FRF 3,500,000 586,055 6 3/4%, 10/25/04 Aaa FRF 6,800,000 1,237,852 8 1/2%, 12/26/12 Aaa FRF 5,000,000 1,074,458 OAT: 9 1/2%, 1/25/01 Aaa FRF 5,300,000 1,002,367 8 1/2%, 4/25/03 Aaa FRF 2,200,000 426,048 7 1/2%, 4/25/05 Aaa FRF 5,500,000 1,043,206 8 1/2%, 4/25/23 Aaa FRF 1,300,000 290,452 5,660,438 GERMANY - 6.2% Germany Federal Republic: 6 1/2%, 1/2/99 Aaa DEM 500,000 284,960 8 3/8%, 5/21/01 Aaa DEM 1,800,000 1,116,230 6 1/2%, 10/14/05 Aaa DEM 2,500,000 1,498,610 6%, 6/20/16 Aaa DEM 900,000 516,530 Treuhandstalt 7 3/4%, 10/1/02 Aaa DEM 2,100,000 1,306,939 4,723,269 ITALY - 5.8% Italian Republic: 12%, 9/1/01 (c) Aa3 ITL 1,400,000 967,785 8 1/2%, 4/1/04 (c) Aa3 ITL 1,300,000 850,818 9 1/2%, 1/1/05 (c) Aa3 ITL 3,750,000 2,601,184 4,419,787 GOVERNMENT OBLIGATIONS (E) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) NETHERLANDS - 3.0% Dutch Government: 6 3/4%, 2/15/99 AAA NLG 800,000 $ 406,020 7%, 6/15/05 AAA NLG 1,850,000 1,012,958 8 1/4%, 2/15/07 AAA NLG 1,400,000 834,473 2,253,451 SPAIN - 5.4% Spanish Kingdom: 11.45%, 8/30/98 (c) Aa2 ESP 120,000 820,102 10.90%, 8/30/03 (c) Aa2 ESP 140,000 1,167,669 10.15%, 1/31/06 (c) Aa2 ESP 50,000 425,160 3.10%, 9/20/06 (c) Aa2 ESP 200,000 1,676,431 4,089,362 SWEDEN - 1.8% Swedish Kingdom 6%, 2/9/05 Aa1 SEK 4,700,000 597,000 Swedish National Housing Finance Corp. 9%, 6/15/01 A1 SEK 5,800,000 797,700 1,394,700 UNITED KINGDOM - 4.9% United Kingdom Great Britain & Northern Ireland: 8%, 12/7/00 Aaa GBP 200,000 340,518 11 3/4%, 1/22/07 Aaa GBP 510,000 1,024,746 8 1/2%, 7/16/07 Aaa GBP 400,000 757,953 8 3/4%, 8/25/17 Aaa GBP 750,000 1,573,394 3,696,611 UNITED STATES OF AMERICA - 16.8% Federal Farm Credit Bank 8.06%, 1/4/05 Aaa 1,000,000 1,112,810 Federal Home Loan Mortgage Corporation 7%, 6/1/01 Aaa 93,661 94,859 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 445,990 474,605 Class 2-E, 9.40%, 5/15/02 Aaa 594,771 631,808 Guaranteed Export Trust Certificates (assets of Trust guaranteed by U.S. Government through Export-Import Bank): Series 1993-C, 5.20%, 10/15/04 Aaa 58,489 56,935 Series 1993-D, 5.23%, 5/15/05 Aaa 102,128 99,275 Series 1994-A, 7.12%, 4/15/06 Aaa 118,456 123,004 Series 1994-C, 6.61%, 9/15/99 Aaa 23,623 23,756 GOVERNMENT OBLIGATIONS (E) - CONTINUED MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) UNITED STATES OF AMERICA - 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 $ 110,000 $ 112,031 Overseas Private Investment Corp. U.S. Government guaranteed participation certificate Series 1994-195, 6.08%, 8/15/04 (callable) Aaa 230,000 230,246 State of Israel (guaranteed by U.S. Government through Agency for International Development): 8%, 11/15/01 Aaa 740,000 793,036 6 1/8%, 3/15/03 Aaa 162,000 162,886 U.S. Treasury: 6%, 8/15/99 Aaa 300,000 301,452 7 3/4%, 12/31/99 Aaa 39,000 40,517 10 3/4%, 5/15/03 Aaa 255,000 312,972 11 5/8%, 11/15/04 Aaa 1,100,000 1,460,074 12%, 8/15/13 (callable) Aaa 65,000 95,774 9 7/8%, 11/15/15 Aaa 2,140,000 3,045,819 9%, 11/15/18 Aaa 115,000 155,358 7 1/4%, 2/15/23 Aaa 3,000,000 3,424,680 12,751,897 TOTAL GOVERNMENT OBLIGATIONS (Cost $48,073,538) 45,664,800 SUPRANATIONAL OBLIGATIONS - 11.4% African Development Bank 7 3/4%, 12/15/01 Aa1 340,000 358,265 Asian Development Bank 5%, 2/5/03 (c) Aaa JPY 280,000 2,524,343 European Investment Bank 3%, 9/20/06 (c) Aaa JPY 265,000 2,216,604 Inter-American Development Bank 6 3/4%, 2/20/01 (c) Aaa JPY 250,000 2,260,195 International Bank Reconstruction & Development 4 3/4%, 12/20/04 (c) Aaa JPY 140,000 1,292,669 TOTAL SUPRANATIONAL OBLIGATIONS (Cost $9,594,332) 8,652,076 COMMERCIAL MORTGAGE SECURITIES - 1.4% MOODY'S RATINGS (C) PRINCIPAL VALUE (NOTE 1) (UNAUDITED) AMOUNT (B) UNITED STATES OF AMERICA - 1.4% Ford Credit Grantor Trust 5.90%, 10/15/00 Aaa $ 266,531 $ 266,365 GS Mortgage Securities Corp. II Series 1997-GL Class A2-B, 6.86%, 7/13/30 Aaa 150,000 154,061 Green Tree Financial Corp. 6.45%, 5/15/27 Aaa 160,000 160,250 Petroleum Enhanced Trust Receivables Offering Petroleum Trust 6.1875%, 2/5/03 (d) Baa 180,226 180,226 Structured Asset Securities Corp. sequential pay Series 1995-C4 Class A-1A, 6.90%, 6/25/26 Aaa 5,544 5,517 WFS Financial Owner Trust 7.05%, 11/20/03 Aaa 270,000 275,935 TOTAL COMMERCIAL MORTGAGE SECURITIES (Cost $874,083) 1,042,354 CASH EQUIVALENTS - 0.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account at 6.40%, dated 12/31/97 due 1/2/98 $ 129,046 129,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $80,136,693) $ 76,044,900 CURRENCY ABBREVIATIONS AUD - Australian dollar BEF - Belgian franc GBP - British pound CAD - Canadian dollar DKK - Danish krone NLG - Dutch guilder FIM - Finnish markka FRF - French franc DEM - German deutsche mark ITL - Italian lira JPY - Japanese yen ESP - Spanish peseta SEK - Swedish krona LEGEND 1. Principal amount is stated in United States dollars unless otherwise noted. 2. Standard & Poor's credit ratings are used in the absence of a rating by Moody's Investors Service, Inc. 3. Principal amount in thousands. 4. 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 $1,052,639 or 1.3% of net assets. 5. 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. 6. 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 (ratings are unaudited): MOODY'S RATINGS S&P RATINGS Aaa, Aa, A 86.0% AAA, AA, A 83.4% Baa 6.9% BBB 11.1% Ba 1.0% BB 0.0% 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 Moody's or S&P amounted to 1.0%. MARKET SECTOR DIVERSIFICATION As a Percentage of Total Value of Investment in Securities Aerospace & Defense 0.4% Basic Industries 0.6 Cash Equivalents 0.2 Commercial Mortgage Securities 1.4 Construction & Real Estate 0.5 Durables 0.5 Energy 1.5 Finance 18.1 Government Obligations 60.0 Media & Leisure 0.8 Nondurables 0.2 Retail & Wholesale 1.3 Services 0.9 Supranational Obligations 11.4 Technology 1.0 Utilities 1.2 100.0% INCOME TAX INFORMATION At December 31, 1997, the aggregate cost of investment securities for income tax purposes was $80,136,734. Net unrealized depreciation aggregated $4,091,834, of which $1,311,114 related to appreciated investment securities and $5,402,948 related to depreciated investment securities. At December 31, 1997, the fund had a capital loss carryforward of approximately $94,000,000 of which $81,000,000 and $13,000,000 will expire on December 31, 2002 and 2003, respectively. The percentage of dividends distributed during the fiscal year representing income derived from sources within, and taxes paid to foreign countries or possessions of the United States are 103.38% and 3.38%, respectively (unaudited). FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 7.ASSETS 8. 9. 10.INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE 11. $ 76,044,900 AGREEMENTS OF $129,000) (COST $80,136,693) - SEE ACCOMPANYING SCHEDULE 12.CASH 13. 507 14.RECEIVABLE FOR INVESTMENTS SOLD 15. 1,567,983 16.INTEREST RECEIVABLE 17. 2,008,342 18. 19.TOTAL ASSETS 20. 79,621,732 21.LIABILITIES 22. 23. 24.PAYABLE FOR INVESTMENTS PURCHASED $ 875,919 25. 26.PAYABLE FOR FUND SHARES REDEEMED 233,179 27. 28.ACCRUED MANAGEMENT FEE 45,917 29. 30.OTHER PAYABLES AND ACCRUED EXPENSES 84,378 31. 32. 33.TOTAL LIABILITIES 34. 1,239,393 35.36.NET ASSETS 37. $ 78,382,339 38.NET ASSETS CONSIST OF: 39. 40. 41.PAID IN CAPITAL 42. $ 177,087,402 43.DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME 44. (361,431) 45.ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON 46. (94,171,675) INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 47.NET UNREALIZED APPRECIATION (DEPRECIATION) ON 48. (4,171,957) INVESTMENTS AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 49.50.NET ASSETS, FOR 8,619,985 SHARES OUTSTANDING 51. $ 78,382,339 52.53.NET ASSET VALUE, OFFERING PRICE AND REDEMPTION 54. $9.09 PRICE PER SHARE ($78,382,339 (DIVIDED BY) 8,619,985 SHARES)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 55.INVESTMENT INCOME 57. $ 6,132,503 56.INTEREST 58.EXPENSES 59. 60. 61.MANAGEMENT FEE $ 638,301 62. 63.TRANSFER AGENT FEES 318,200 64. 65.ACCOUNTING FEES AND EXPENSES 70,104 66. 67.NON-INTERESTED TRUSTEES' COMPENSATION 406 68. 69.CUSTODIAN FEES AND EXPENSES 22,052 70. 71.REGISTRATION FEES 24,712 72. 73.AUDIT 68,283 74. 75.LEGAL 934 76. 77.INTEREST 7,283 78. 79.REPORTS TO SHAREHOLDERS 23,855 80. 81.MISCELLANEOUS 797 82. 83. TOTAL EXPENSES BEFORE REDUCTIONS 1,174,927 84. 85. EXPENSE REDUCTIONS (1,398) 1,173,529 86.87.NET INVESTMENT INCOME 88. 4,958,974 89.REALIZED AND UNREALIZED GAIN (LOSS) 91. 92. 90.NET REALIZED GAIN (LOSS) ON: 93. INVESTMENT SECURITIES (2,839,911) 94. 95. FOREIGN CURRENCY TRANSACTIONS (215,320) (3,055,231) 96.CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 97. 98. ON: 99. INVESTMENT SECURITIES (3,642,784) 100. 101. ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (56,864) (3,699,648) 102.103.NET GAIN (LOSS) 104. (6,754,879) 105.106.NET INCREASE (DECREASE) IN NET ASSETS RESULTING 107. $ (1,795,905) FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1997 1996 108.INCREASE (DECREASE) IN NET ASSETS 109.OPERATIONS $ 4,958,974 $ 8,916,006 NET INVESTMENT INCOME 110. NET REALIZED GAIN (LOSS) (3,055,231) (7,015,348) 111. CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (3,699,648) 1,182,260 112. (1,795,905) 3,082,918 113.NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 114.DISTRIBUTIONS TO SHAREHOLDERS (1,504,944) (1,498,070) FROM NET INVESTMENT INCOME 115. RETURN OF CAPITAL (3,461,039) (6,776,101) 116. 117.TOTAL DISTRIBUTIONS (4,965,983) (8,274,171) 118.SHARE TRANSACTIONS 38,795,875 84,390,375 NET PROCEEDS FROM SALES OF SHARES 119. REINVESTMENT OF DISTRIBUTIONS 4,325,909 7,117,696 120. COST OF SHARES REDEEMED (71,608,454) (169,547,782) 121.122. (28,486,670) (78,039,711) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 123. (35,248,558) (83,230,964) 124.TOTAL INCREASE (DECREASE) IN NET ASSETS 125.NET ASSETS 126. 127. 128. BEGINNING OF PERIOD 113,630,897 196,861,861 129. $ 78,382,339 $ 113,630,897 END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME OF $361,431 AND $573,011, RESPECTIVELY) 130.OTHER INFORMATION 132. 133. 131.SHARES 134. SOLD 4,190,363 8,703,025 135. ISSUED IN REINVESTMENT OF DISTRIBUTIONS 469,964 735,927 136. REDEEMED (7,737,241) (17,554,058) 137. NET INCREASE (DECREASE) (3,076,914) (8,115,106)
FINANCIAL HIGHLIGHTS
138. YEARS ENDED DECEMBER 31, 139. 1997 1996 1995 1994 1993 140.SELECTED PER-SHARE DATA 141.NET ASSET VALUE, $ 9.710 $ 9.940 $ 9.880 $ 12.610 $ 11.340 BEGINNING OF PERIOD 142.INCOME FROM INVESTMENT .497 A .550 .745 B .569 B .731 OPERATIONS NET INVESTMENT INCOME 143. NET REALIZED AND (.621) (.234) (.109) B (2.589) B 1.648 UNREALIZED GAIN (LOSS) 144. TOTAL FROM INVESTMENT (.124) .316 .636 (2.020) 2.379 OPERATIONS 145.LESS DISTRIBUTIONS 146. FROM NET INVESTMENT (.150) (.096) (.516) (.225) (.629) INCOME 147. IN EXCESS OF NET - - - (.054) - INVESTMENT INCOME 148. FROM NET REALIZED GAIN - - - - (.280) 149. IN EXCESS OF NET REALIZED - - - (.020) (.200) GAIN 150. RETURN OF CAPITAL (.346) (.450) (.060) (.411) - 151. TOTAL DISTRIBUTIONS (.496) (.546) (.576) (.710) (1.109) 152.NET ASSET VALUE, END OF $ 9.090 $ 9.710 $ 9.940 $ 9.880 $ 12.610 PERIOD 153.TOTAL RETURN (1.21)% 3.35% 6.66% (16.31)% 21.91% 154.RATIOS AND SUPPLEMENTAL DATA 155.NET ASSETS, END OF PERIOD $ 78,382 $ 113,631 $ 196,862 $ 382,803 $ 686,252 (000 OMITTED) 156.RATIO OF EXPENSES TO 1.27% 1.22% 1.16% 1.14% 1.17% AVERAGE NET ASSETS 157.RATIO OF NET INVESTMENT 5.36% 6.09% 6.19% 6.50% 6.79% INCOME TO AVERAGE NET ASSETS 158.PORTFOLIO TURNOVER RATE 74% 91% 322% 367% 198%
A NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. B CERTAIN PER-SHARE AMOUNTS HAVE BEEN RECLASSIFIED TO PERMIT COMPARISON WITH CURRENT YEAR PRESENTATION. NOTES TO FINANCIAL STATEMENTS For the period ended December 31, 1997 7. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Global Bond Fund (the fund), is a fund of Fidelity Investment 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. At a special meeting of the shareholders of the fund, held on September 17, 1997, shareholders approved an Agreement and Plan of Reorganization providing for the reorganization of the fund into Fidelity School Street Trust, effective on or about February 26, 1998. Effective February 27, 1998, Fidelity Global Bond Fund will change its name to Fidelity International Bond Fund. The following summarizes the significant accounting policies of the fund: SECURITY VALUATION. Securities for which quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price in the principal market in which such securities are normally traded. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith under consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing rates of exchange at period end. Income receipts and expense payments are translated into U.S. dollars at the prevailing exchange rate on the respective dates of the transactions. Purchases and sales of securities are translated into U.S. dollars at the contractual currency exchange rates established at the time of each trade. Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, the fund is not subject to U.S. federal income taxes to the extent that it distributes substantially all of its taxable income for its fiscal year. The fund may be subject to foreign taxes on income and gains on investments 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INCOME TAXES - CONTINUED which are accrued based upon the fund's understanding of the tax rules and regulations that exist in the markets in which it invests. The fund accrues such taxes as applicable. 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. Interest 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 among 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. 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 that will reverse in a subsequent period. Any taxable income or gain remaining at fiscal year end is distributed in the following year. For the periods ended December 31, 1996 and 1997, the fund's distributions exceeded the aggregate amount of taxable income and net realized gains resulting in a return of capital. This was due to certain foreign currency losses which decreased taxable income available for distribution after certain distributions had been made. (The tax treatment of distributions for the 1997 calendar year was reported to shareholders prior to February 1, 1998.) 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. 8. 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 2. OPERATING POLICIES - CONTINUED FOREIGN CURRENCY CONTRACTS - CONTINUED 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. 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). 9. PURCHASES AND SALES OF INVESTMENTS. Purchases and sales of securities, other than short-term securities, aggregated $66,711,762 and $103,029,630, respectively, of which U.S. government and government agency obligations aggregated $18,016,186 and $30,436,484, respectively. 10. 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 .55%. 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 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED equivalent to an annual rate of .69% of average net assets. SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc., Fidelity Management & Research (Far East) Inc., Fidelity International Investment Advisors (FIIA) and Fidelity Investments Japan Limited (FIJ). In addition, FIIA entered into a sub-advisory agreement with its subsidiary, Fidelity International Investment Advisors (U.K.) Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may receive investment advice and research services and may grant the sub-advisers investment management authority to buy and sell securities. FMR pays its sub-advisers either a portion of its management fee or a fee based on costs incurred for these services. FIIA pays FIIA(U.K.)L a fee based on costs incurred for either service. TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund's transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset-based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .34% 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. 11. 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 $6,232,000 and $3,495,846, respectively. The weighted average interest rate was 5.77%. 12. EXPENSE REDUCTIONS. The fund has entered into arrangements with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's expenses. During the period, the fund's custodian and transfer agent fees were reduced by $981 and $417, respectively, under these arrangements. 13. 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. REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees of Fidelity Investment Trust and the Shareholders of Fidelity Global Bond Fund: We have audited the accompanying statement of assets and liabilities of Fidelity Investment Trust: Fidelity Global Bond Fund, including the schedule of portfolio investments, as of December 31, 1997, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1997 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Fidelity Investment Trust: Fidelity Fidelity Global Bond Fund as of December 31, 1997, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts February 13, 1998 PROXY VOTING RESULTS A special meeting of the fund's shareholders was held on September 17, 1997. The results of votes taken among shareholders on proposals before them are listed below. PROPOSAL 1 To elect as Trustees the following twelve nominees. # OF % OF SHARES VOTED SHARES VOTED RALPH F. COX AFFIRMATIVE 307,469,095.652 87.117 WITHHELD 45,467,029.324 12.883 TOTAL 352,936,124.976 100.00 PHYLLIS BURKE DAVIS AFFIRMATIVE 307,387,377.836 87.094 WITHHELD 45,548,747.140 12.906 TOTAL 352,936,124.976 100.000 ROBERT M. GATES AFFIRMATIVE 307,219,404.498 87.047 WITHHELD 45,716,720.478 12.953 TOTAL 352,936,124.976 100.000 EDWARD C. JOHNSON 3D AFFIRMATIVE 307,304,255.082 87.071 WITHHELD 45,631,869.894 12.929 TOTAL 352,936,124.976 100.00 E. BRADLEY JONES AFFIRMATIVE 307,163,389.202 87.031 WITHHELD 45,772,735.774 12.969 TOTAL 352,936,124.976 100.000 DONALD J. KIRK AFFIRMATIVE 307,589,965.173 87.152 WITHHELD 45,346,159.803 12.848 TOTAL 352,936,124.976 100.000 # OF % OF SHARES VOTED SHARES VOTED PETER S. LYNCH AFFIRMATIVE 307,609,611.247 87.157 WITHHELD 45,326,513.729 12.843 TOTAL 352,936,124.976 100.000 WILLIAM O. MCCOY AFFIRMATIVE 307,616,784.105 87.159 WITHHELD 45,319,340.871 12.841 TOTAL 352,936,124.976 100.000 GERALD C. MCDONOUGH AFFIRMATIVE 307,384,278.082 87.093 WITHHELD 45,551,846.894 12.907 TOTAL 352,936,124.976 100.000 MARVIN L. MANN AFFIRMATIVE 307,596,505.166 87.154 WITHHELD 45,339,619.810 12.846 TOTAL 352,936,124.976 100.000 ROBERT C. POZEN AFFIRMATIVE 307,465,181.656 87.116 WITHHELD 45,470,943.320 12.884 TOTAL 352,936,124.976 100.000 THOMAS R. WILLIAMS AFFIRMATIVE 307,326,062.668 87.077 WITHHELD 45,610,062.308 12.923 TOTAL 352,936,124.976 100.000 PROPOSAL 2 To ratify the selection of Coopers & Lybrand L.L.P. and Price Waterhouse LLP as independent accountants of the trust. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 297,481,581.663 84.288 AGAINST 4,739,203.560 1.342 ABSTAIN 50,715,339.753 14.370 TOTAL 352,936,124.976 100.000 PROPOSAL 3 To amend the Declaration of Trust to provide voting rights based on a shareholder's total dollar investment in a fund, rather than on the number of shares owned. Trust: # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 274,619,710.990 79.850 AGAINST 15,944,801.447 4.637 ABSTAIN 53,353,237.539 15.513 TOTAL 343,917,749.976 100.000 BROKER 9,018,375.000 NON-VOTES Fund: # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,771,105.904 78.026 AGAINST 293,814.441 6.079 ABSTAIN 768,239.099 15.895 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES PROPOSAL 4 To amend the Declaration of Trust to eliminate the requirement that shareholders be notified in the event of an appointment of a trustee within three months of the appointment. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 273,821,090.658 79.618 AGAINST 14,687,878.962 4.271 ABSTAIN 55,408,780.356 16.111 TOTAL 343,917,749.976 100.000 BROKER 9,018,375.000 NON-VOTES PROPOSAL 5 To amend the Declaration of Trust to clarify that the Trustees may authorize the investment of all of a fund's assets in another open-end investment company. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 253,910,627.527 73.810 AGAINST 33,659,944.597 9.785 ABSTAIN 56,433,204.852 16.405 TOTAL 344,003,776.976 100.000 BROKER 8,932,348.000 NON-VOTES PROPOSAL 6 To adopt a new fundamental investment policy for the fund that would permit it to invest all of its assets in another open-end investment company managed by FMR or an affiliate with substantially the same investment objective and policies. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,448,413.276 71.349 AGAINST 576,895.526 11.936 ABSTAIN 807,850.642 16.715 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES PROPOSAL 7 To approve an amended management contract for the fund that would reduce the management fee payable to FMR by the fund as FMR's assets under management increase. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 4,193,586.439 80.538 AGAINST 212,930.174 4.089 ABSTAIN 800,467.831 15.373 TOTAL 5,206,984.444 100.000 PROPOSAL 8 To approve a new sub-advisory agreement with Fidelity Investments Japan Limited to provide investment advice and research ser- vices or investment management services. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,721,551.812 77.000 AGAINST 266,051.649 5.505 ABSTAIN 845,555.983 17.495 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES PROPOSAL 9 To approve an agreement and plan providing for the reorganization of the fund from a separate series of one Massachusetts business trust to another Massachusetts business trust. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,823,993.214 79.120 AGAINST 200,578.095 4.150 ABSTAIN 808,588.135 16.730 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES PROPOSAL 10 To amend the fund's fundamental investment limitation concerning real estate. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,536,086.144 73.163 AGAINST 452,631.685 9.365 ABSTAIN 844,441.615 17.472 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES PROPOSAL 11 To amend the fund's fundamental investment limitation concerning borrowing. # OF % OF SHARES VOTED SHARES VOTED AFFIRMATIVE 3,644,371.021 75.403 AGAINST 351,045.669 7.264 ABSTAIN 837,742.754 17.333 TOTAL 4,833,159.444 100.000 BROKER 373,825.000 NON-VOTES 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 Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited Fidelity Investments Japan Limited OFFICERS Edward C. Johnson 3d, President Robert C. Pozen, Senior Vice President John H. Carlson, Vice President Fred L. Henning, Jr., Vice President Eric D. Roiter, Secretary Richard A. Silver, Treasurer John H. Costello, Assistant Treasurer Leonard M. Rush, Assistant Treasurer BOARD OF TRUSTEES Ralph F. Cox * Phyllis Burke Davis * Robert M. Gates * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk * Peter S. Lynch Marvin L. Mann * William O. McCoy * Gerald C. McDonough * Robert C. Pozen Thomas R. Williams * ADVISORY BOARD J. Gary Burkhead GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA * INDEPENDENT TRUSTEES TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Company, Inc. Boston, MA CUSTODIAN The Chase Manhattan Bank New York, NY FIDELITY'S TAXABLE BOND FUNDS Capital & Income Ginnie Mae Government Securities Intermediate Bond International 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 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 -----END PRIVACY-ENHANCED MESSAGE-----