UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2841
Fidelity Capital Trust
(Exact name of registrant as specified in charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address of principal executive offices) (Zip code)
Eric D. Roiter, Secretary
82 Devonshire St.
Boston, Massachusetts 02109
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-563-7000
Date of fiscal year end: | October 31 |
Date of reporting period: | October 31, 2005 |
Item 1. Reports to Stockholders
| Fidelity® Capital Appreciation Fund |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The managers’ review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 8 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 9 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 20 | Statements of assets and liabilities, | ||
| operations, and changes in net assets, | ||||
| as well as financial highlights. | ||||
| Notes | 24 | Notes to the financial statements. | ||
| Report of Independent | 30 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 31 | |||
| Distributions | 41 | |||
| Board Approval of | 42 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commis sion’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
| Annual Report |
| 2 |
| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s portfolio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund companies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that permit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to operate. However, this will only be achieved through close cooperation among regulators, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offenders should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers in cluding individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we real ize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active par ticipation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Past 10 | |||
| year | years | years | ||||
| Fidelity® Capital Appreciation Fund | 9.66% | 3.23% | 9.96% | |||
| $10,000 Over 10 Years | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Capital Appreciation Fund on October 31, 1995. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor’s 500SM Index performed over the same period.
5 Annual Report
5
Management’s Discussion of Fund Performance
Comments from Harry Lange, Portfolio Manager of Fidelity® Capital Appreciation Fund for most of the period covered by this report. Fergus Shiel became manager of the fund on October 31, 2005.
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. However the markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a corresponding leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite® Index at 8.15% . The Dow Jones Industrial AverageSM rose 6.45% .
For the 12 months ending October 31, 2005, the fund returned 9.66%, beating the S&P 500® and the 9.11% return of the LipperSM Capital Appreciation Funds Average. Stock selection in health care, financials and industrials particularly helped the fund’s perfor mance. Genentech was the fund’s top contributor both in absolute terms and compared to the index. Progress in the development of a number of the company’s medications for cancer and rheumatoid arthritis enabled the stock to almost double during the period. Seagate Technology, a maker of hard disk drives, also made a strong contribution to absolute and relative performance, as demand for its products continued to grow in markets such as portable digital music players and television set top boxes. Both stocks were sold by period end. Conversely, the sector that detracted the most was information technology, where a substantial overweighting and poor stock picking in the semiconduc tors and semiconductor equipment group held back the fund’s results. For example, sluggish demand for microprocessors in the telecommunications and personal computer markets made chip maker Altera the fund’s largest detractor by both absolute and relative measures. Meanwhile, biotech holding Biogen Idec was hurt by the controversy surround ing its jointly developed multiple sclerosis medication, Tysabri, which was withdrawn from the market early in the period amid questions about its safety.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
| Annual Report |
| 6 6 |
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments or redemption proceeds, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypotheti cal account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypotheti cal example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,107.30 | $ | 4.99 | ||||||
| Hypothetical (5% return per | ||||||||||||
| year before expenses) | $ | 1,000.00 | $ | 1,020.47 | $ | 4.79 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of .94%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
7 Annual Report
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Google, Inc. Class A (sub. vtg.) | 5.4 | 0.0 | ||
| Symantec Corp. | 3.5 | 2.2 | ||
| Yahoo! Japan Corp. | 3.4 | 2.0 | ||
| Monster Worldwide, Inc. | 3.1 | 1.7 | ||
| Univision Communications, Inc. Class A | 2.9 | 2.3 | ||
| UnitedHealth Group, Inc. | 2.6 | 2.1 | ||
| Wal Mart Stores, Inc. | 2.5 | 0.0 | ||
| eBay, Inc. | 2.3 | 0.2 | ||
| Juniper Networks, Inc. | 1.9 | 2.0 | ||
| Exxon Mobil Corp. | 1.9 | 3.6 | ||
| 29.5 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Information Technology | 26.5 | 34.9 | ||
| Consumer Discretionary | 20.1 | 17.3 | ||
| Energy | 8.9 | 8.9 | ||
| Health Care | 8.3 | 13.3 | ||
| Industrials | 7.5 | 8.2 | ||
Annual Report 8
| Investments October 31, 2005 | ||||||||
| Showing Percentage of Net Assets | ||||||||
| Common Stocks 85.7% | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| CONSUMER DISCRETIONARY – 20.1% | ||||||||
| Auto Components 0.2% | ||||||||
| Johnson Controls, Inc. | 43,400 | $ | 2,953 | |||||
| NOK Corp. | 289,500 | 8,750 | ||||||
| 11,703 | ||||||||
| Hotels, Restaurants & Leisure 3.0% | ||||||||
| Ambassadors Group, Inc. | 7,000 | 182 | ||||||
| Las Vegas Sands Corp. | 75,000 | 2,573 | ||||||
| McDonald’s Corp. | 982,675 | 31,053 | ||||||
| Royal Caribbean Cruises Ltd. | 299,200 | 12,399 | ||||||
| Starbucks Corp. (a)(d) | 4,510,400 | 127,554 | ||||||
| Wynn Resorts Ltd. (a)(d) | 733,900 | 34,258 | ||||||
| 208,019 | ||||||||
| Household Durables – 3.5% | ||||||||
| Beazer Homes USA, Inc. (d) | 142,400 | 8,252 | ||||||
| D.R. Horton, Inc. | 424,140 | 13,017 | ||||||
| Daito Trust Construction Co. | 766,500 | 38,102 | ||||||
| Garmin Ltd. | 187,400 | 10,762 | ||||||
| George Wimpey PLC | 650,000 | 4,707 | ||||||
| Harman International Industries, Inc. | 517,900 | 51,717 | ||||||
| KB Home | 470,600 | 30,754 | ||||||
| Lennar Corp. Class B | 50,462 | 2,606 | ||||||
| LG Electronics, Inc. | 791,530 | 51,328 | ||||||
| Sharp Corp. | 954,000 | 13,136 | ||||||
| Toll Brothers, Inc. (a) | 500,000 | 18,455 | ||||||
| 242,836 | ||||||||
| Internet & Catalog Retail 2.4% | ||||||||
| eBay, Inc. (a) | 4,125,000 | 163,350 | ||||||
| Senshukai Co. Ltd. | 547,000 | 5,883 | ||||||
| 169,233 | ||||||||
| Leisure Equipment & Products – 0.3% | ||||||||
| Mattel, Inc. | 1,527,400 | 22,529 | ||||||
| Media – 6.9% | ||||||||
| Clear Channel Communications, Inc. | 198,000 | 6,023 | ||||||
| Getty Images, Inc. (a) | 61,200 | 5,080 | ||||||
| Grupo Televisa SA de CV (CPO) sponsored ADR | 242,100 | 17,698 | ||||||
| Lamar Advertising Co. Class A (a) | 96,500 | 4,306 | ||||||
| McGraw Hill Companies, Inc. | 286,920 | 14,042 | ||||||
| News Corp.: | ||||||||
| Class A | 165,430 | 2,357 | ||||||
See accompanying notes which are an integral part of the financial statements.
| 9 Annual Report |
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER DISCRETIONARY – continued | ||||||
| Media – continued | ||||||
| News Corp.: – continued | ||||||
| Class B | 925,400 | $ | 13,937 | |||
| Playboy Enterprises, Inc.: | ||||||
| Class A (a) | 25,000 | 323 | ||||
| Class B (non-vtg.) (a) | 2,475,700 | 37,482 | ||||
| Time Warner, Inc. (d) | 3,458,326 | 61,662 | ||||
| Univision Communications, Inc. Class A (a) | 7,675,700 | 200,643 | ||||
| Walt Disney Co. | 3,274,993 | 79,812 | ||||
| XM Satellite Radio Holdings, Inc. Class A (a) | 1,322,400 | 38,125 | ||||
| 481,490 | ||||||
| Multiline Retail – 0.7% | ||||||
| Family Dollar Stores, Inc. | 1,362,400 | 30,164 | ||||
| Nordstrom, Inc. | 65,100 | 2,256 | ||||
| Target Corp. | 267,000 | 14,869 | ||||
| 47,289 | ||||||
| Specialty Retail – 3.1% | ||||||
| Abercrombie & Fitch Co. Class A | 250,000 | 12,998 | ||||
| AC Moore Arts & Crafts, Inc. (a) | 50,000 | 688 | ||||
| American Eagle Outfitters, Inc. | 500,000 | 11,775 | ||||
| Best Buy Co., Inc. | 1,596,550 | 70,663 | ||||
| Charlotte Russe Holding, Inc. (a) | 59,000 | 1,040 | ||||
| Chico’s FAS, Inc. (a) | 763,000 | 30,169 | ||||
| DSW, Inc. Class A | 76,600 | 1,595 | ||||
| Foot Locker, Inc. | 372,300 | 7,238 | ||||
| Gymboree Corp. (a) | 297,200 | 5,260 | ||||
| USS Co. Ltd. | 286,260 | 19,733 | ||||
| Wet Seal, Inc. Class A (a) | 80,000 | 414 | ||||
| Yamada Denki Co. Ltd. | 629,200 | 55,416 | ||||
| 216,989 | ||||||
| Textiles, Apparel & Luxury Goods – 0.0% | ||||||
| Polo Ralph Lauren Corp. Class A | 51,700 | 2,544 | ||||
| TOTAL CONSUMER DISCRETIONARY | 1,402,632 | |||||
| CONSUMER STAPLES 2.9% | ||||||
| Food & Staples Retailing – 2.5% | ||||||
| Wal-Mart Stores, Inc. | 3,650,200 | 172,691 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER STAPLES – continued | ||||||
| Food Products 0.3% | ||||||
| Archer-Daniels Midland Co. | 620,000 | $ | 15,109 | |||
| McCormick & Co., Inc. (non-vtg.) | 216,400 | 6,555 | ||||
| 21,664 | ||||||
| Tobacco 0.1% | ||||||
| UST, Inc. | 200,000 | 8,278 | ||||
| TOTAL CONSUMER STAPLES | 202,633 | |||||
| ENERGY 8.9% | ||||||
| Energy Equipment & Services – 2.4% | ||||||
| Baker Hughes, Inc. | 356,500 | 19,593 | ||||
| BJ Services Co. | 1,970,700 | 68,482 | ||||
| GlobalSantaFe Corp. | 128,200 | 5,711 | ||||
| Grant Prideco, Inc. (a) | 405,000 | 15,750 | ||||
| Halliburton Co. | 385,600 | 22,789 | ||||
| Pride International, Inc. (a) | 674,300 | 18,928 | ||||
| Schlumberger Ltd. (NY Shares) | 102,100 | 9,268 | ||||
| Transocean, Inc. (a) | 78,896 | 4,536 | ||||
| 165,057 | ||||||
| Oil, Gas & Consumable Fuels – 6.5% | ||||||
| Amerada Hess Corp. | 100,900 | 12,623 | ||||
| Arch Coal, Inc. | 834,000 | 64,276 | ||||
| Cameco Corp. | 300,000 | 14,426 | ||||
| Chesapeake Energy Corp. | 105,100 | 3,374 | ||||
| Cross Timbers Royalty Trust | 1,380 | 72 | ||||
| Exxon Mobil Corp. | 2,313,500 | 129,880 | ||||
| Massey Energy Co. | 749,400 | 30,028 | ||||
| Peabody Energy Corp. | 696,900 | 54,470 | ||||
| Pogo Producing Co. | 897,300 | 45,314 | ||||
| Range Resources Corp. | 178,300 | 6,364 | ||||
| Teekay Shipping Corp. | 388,600 | 15,326 | ||||
| Valero Energy Corp. | 754,000 | 79,351 | ||||
| 455,504 | ||||||
| TOTAL ENERGY | 620,561 | |||||
| FINANCIALS – 6.7% | ||||||
| Capital Markets 2.4% | ||||||
| 3i Group PLC | 452,463 | 6,072 | ||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| FINANCIALS – continued | ||||||
| Capital Markets continued | ||||||
| Ameritrade Holding Corp. (a) | 75,917 | $ | 1,597 | |||
| Apollo Investment Corp. | 1,740,010 | 32,503 | ||||
| E*TRADE Financial Corp. (a) | 1,947,500 | 36,126 | ||||
| JAFCO Co. Ltd. | 130,000 | 7,836 | ||||
| Nomura Holdings, Inc. | 5,121,300 | 79,329 | ||||
| 163,463 | ||||||
| Commercial Banks – 3.8% | ||||||
| Mitsubishi UFJ Financial Group, Inc. | 9,157 | 116,202 | ||||
| Mizuho Financial Group, Inc. | 13,365 | 89,354 | ||||
| Sumitomo Mitsui Financial Group, Inc. | 6,681 | 61,909 | ||||
| 267,465 | ||||||
| Consumer Finance – 0.0% | ||||||
| First Cash Financial Services, Inc. (a) | 35,600 | 934 | ||||
| Diversified Financial Services – 0.0% | ||||||
| Chardan China Acquisition Corp. (a) | 31,300 | 276 | ||||
| Insurance – 0.2% | ||||||
| Millea Holdings, Inc. | 770 | 14,009 | ||||
| Real Estate 0.2% | ||||||
| Equity Residential (SBI) | 162,800 | 6,390 | ||||
| New York Mortgage Trust, Inc. (e) | 1,322,600 | 7,975 | ||||
| 14,365 | ||||||
| Thrifts & Mortgage Finance – 0.1% | ||||||
| Countrywide Financial Corp. | 91,662 | 2,912 | ||||
| Golden West Financial Corp., Delaware | 81,500 | 4,786 | ||||
| 7,698 | ||||||
| TOTAL FINANCIALS | 468,210 | |||||
| HEALTH CARE – 8.3% | ||||||
| Biotechnology – 2.0% | ||||||
| Amgen, Inc. (a) | 393,786 | 29,833 | ||||
| Biogen Idec, Inc. (a) | 1,776,500 | 72,179 | ||||
| Charles River Laboratories International, Inc. (a) | 721,500 | 31,573 | ||||
| Martek Biosciences (a) | 113,500 | 3,504 | ||||
| 137,089 | ||||||
| Health Care Equipment & Supplies – 1.0% | ||||||
| Cytyc Corp. (a) | 238,400 | 6,043 | ||||
| Greatbatch, Inc. (a) | 513,900 | 13,392 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| HEALTH CARE – continued | ||||||
| Health Care Equipment & Supplies – continued | ||||||
| INAMED Corp. (a) | 88,200 | $ | 6,271 | |||
| Kinetic Concepts, Inc. (a) | 59,000 | 2,118 | ||||
| Medtronic, Inc. | 599,600 | 33,973 | ||||
| Thermo Electron Corp. (a) | 312,000 | 9,419 | ||||
| 71,216 | ||||||
| Health Care Providers & Services – 4.4% | ||||||
| Acibadem Saglik Hizmetleri AS | 242 | 2 | ||||
| American Retirement Corp. (a) | 50,000 | 956 | ||||
| Caremark Rx, Inc. (a) | 734,000 | 38,462 | ||||
| Express Scripts, Inc. (a) | 462,300 | 34,862 | ||||
| Medco Health Solutions, Inc. (a) | 734,000 | 41,471 | ||||
| UnitedHealth Group, Inc. | 3,134,700 | 181,468 | ||||
| VCA Antech, Inc. (a) | 270,000 | 6,966 | ||||
| 304,187 | ||||||
| Pharmaceuticals – 0.9% | ||||||
| Allergan, Inc. | 123,600 | 11,037 | ||||
| Barr Pharmaceuticals, Inc. (a) | 929,700 | 53,411 | ||||
| 64,448 | ||||||
| TOTAL HEALTH CARE | 576,940 | |||||
| INDUSTRIALS – 7.5% | ||||||
| Aerospace & Defense – 0.1% | ||||||
| Rockwell Collins, Inc. | 72,800 | 3,336 | ||||
| Air Freight & Logistics – 1.2% | ||||||
| C.H. Robinson Worldwide, Inc. | 461,200 | 16,262 | ||||
| FedEx Corp. | 382,750 | 35,186 | ||||
| United Parcel Service, Inc. Class B | 405,600 | 29,584 | ||||
| 81,032 | ||||||
| Airlines – 0.0% | ||||||
| US Airways Group, Inc. (a) | 13,400 | 331 | ||||
| Commercial Services & Supplies – 3.6% | ||||||
| Adecco SA sponsored ADR | 269,000 | 2,873 | ||||
| Cintas Corp. | 221,682 | 8,994 | ||||
| Hudson Highland Group, Inc. (a) | 31,500 | 754 | ||||
| Monster Worldwide, Inc. (a)(e) | 6,645,600 | 218,042 | ||||
| Waste Management, Inc. | 792,800 | 23,396 | ||||
| 254,059 | ||||||
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INDUSTRIALS – continued | ||||||
| Electrical Equipment – 0.2% | ||||||
| American Power Conversion Corp. | 475,900 | $ | 10,180 | |||
| Energy Conversion Devices, Inc. (a) | 89,366 | 2,765 | ||||
| 12,945 | ||||||
| Machinery – 0.7% | ||||||
| Caterpillar, Inc. | 833,960 | 43,858 | ||||
| Pentair, Inc. | 135,300 | 4,396 | ||||
| 48,254 | ||||||
| Road & Rail 0.9% | ||||||
| Burlington Northern Santa Fe Corp. | 160,100 | 9,936 | ||||
| Landstar System, Inc. | 60,000 | 2,311 | ||||
| Norfolk Southern Corp. | 1,272,450 | 51,152 | ||||
| 63,399 | ||||||
| Trading Companies & Distributors – 0.8% | ||||||
| Finning International, Inc. | 1,573,300 | 51,395 | ||||
| WESCO International, Inc. (a) | 145,302 | 5,776 | ||||
| 57,171 | ||||||
| TOTAL INDUSTRIALS | 520,527 | |||||
| INFORMATION TECHNOLOGY – 26.5% | ||||||
| Communications Equipment – 5.1% | ||||||
| Belden CDT, Inc. | 319,000 | 6,358 | ||||
| Cisco Systems, Inc. (a) | 1,259,500 | 21,978 | ||||
| Comverse Technology, Inc. (a) | 322,900 | 8,105 | ||||
| Juniper Networks, Inc. (a) | 5,631,200 | 131,376 | ||||
| Motorola, Inc. | 4,052,200 | 89,797 | ||||
| QUALCOMM, Inc. | 2,347,800 | 93,349 | ||||
| 350,963 | ||||||
| Computers & Peripherals – 0.8% | ||||||
| Apple Computer, Inc. (a) | 929,600 | 53,536 | ||||
| Dot Hill Systems Corp. (a) | 130,000 | 901 | ||||
| Hutchinson Technology, Inc. (a) | 113,505 | 2,815 | ||||
| 57,252 | ||||||
| Electronic Equipment & Instruments – 1.4% | ||||||
| Flextronics International Ltd. (a) | 3,333,600 | 30,969 | ||||
| Molex, Inc. | 585,044 | 14,807 | ||||
| Nichicon Corp. | 923,300 | 11,914 | ||||
| Solectron Corp. (a) | 456,300 | 1,611 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| Electronic Equipment & Instruments – continued | ||||||
| Tech Data Corp. (a) | 464,000 | $ | 16,073 | |||
| Vishay Intertechnology, Inc. (a) | 1,759,100 | 19,948 | ||||
| 95,322 | ||||||
| Internet Software & Services – 10.4% | ||||||
| Google, Inc. Class A (sub. vtg.) (a) | 1,006,177 | 374,437 | ||||
| Homestore, Inc. (a) | 4,722,307 | 17,142 | ||||
| Yahoo! Japan Corp | 110,673 | 117,889 | ||||
| Yahoo! Japan Corp. New | 110,673 | 119,806 | ||||
| Yahoo!, Inc. (a) | 2,624,780 | 97,038 | ||||
| 726,312 | ||||||
| IT Services – 0.7% | ||||||
| Accenture Ltd. Class A | 683,300 | 17,978 | ||||
| DST Systems, Inc. (a) | 187,100 | 10,500 | ||||
| Infosys Technologies Ltd. sponsored ADR | 276,200 | 18,782 | ||||
| Pegasus Solutions, Inc. (a) | 222,804 | 1,889 | ||||
| 49,149 | ||||||
| Semiconductors & Semiconductor Equipment – 4.4% | ||||||
| Advanced Micro Devices, Inc. (a) | 1,300,000 | 30,186 | ||||
| Altera Corp. (a) | 2,730,400 | 45,461 | ||||
| Analog Devices, Inc. | 849,100 | 29,532 | ||||
| ASML Holding NV (NY Shares) (a) | 3,700 | 63 | ||||
| Freescale Semiconductor, Inc. Class B (a) | 50,216 | 1,199 | ||||
| Ikanos Communications, Inc. | 25,111 | 396 | ||||
| Integrated Device Technology, Inc. (a) | 300,000 | 2,964 | ||||
| Intersil Corp. Class A | 689,031 | 15,682 | ||||
| Microchip Technology, Inc. | 264,400 | 7,977 | ||||
| Samsung Electronics Co. Ltd. | 171,020 | 90,424 | ||||
| Silicon Laboratories, Inc. (a) | 274,800 | 8,840 | ||||
| Texas Instruments, Inc. | 2,516,400 | 71,843 | ||||
| Xilinx, Inc. | 132,800 | 3,181 | ||||
| 307,748 | ||||||
| Software 3.7% | ||||||
| Autodesk, Inc. (a) | 167,500 | 7,559 | ||||
| Nippon System Development Co. Ltd. | 109,800 | 3,176 | ||||
| Symantec Corp. (a) | 10,310,725 | 245,911 | ||||
| 256,646 | ||||||
| TOTAL INFORMATION TECHNOLOGY | 1,843,392 | |||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| MATERIALS 2.5% | ||||||
| Chemicals – 1.8% | ||||||
| Airgas, Inc. | 792,900 | $ | 22,415 | |||
| Lyondell Chemical Co. | 1,316,500 | 35,282 | ||||
| Monsanto Co. | 937,700 | 59,084 | ||||
| Praxair, Inc. | 90,200 | 4,457 | ||||
| 121,238 | ||||||
| Containers & Packaging – 0.0% | ||||||
| Sealed Air Corp. (a) | 23,900 | 1,202 | ||||
| Metals & Mining – 0.7% | ||||||
| Alcoa, Inc. | 534,000 | 12,971 | ||||
| Allegheny Technologies, Inc. | 200,000 | 5,742 | ||||
| Nucor Corp. (d) | 351,500 | 21,037 | ||||
| Phelps Dodge Corp. | 95,400 | 11,493 | ||||
| 51,243 | ||||||
| TOTAL MATERIALS | 173,683 | |||||
| TELECOMMUNICATION SERVICES – 2.2% | ||||||
| Diversified Telecommunication Services – 0.1% | ||||||
| Qwest Communications International, Inc. (a) | 1,152,000 | 5,023 | ||||
| Wireless Telecommunication Services – 2.1% | ||||||
| Alamosa Holdings, Inc. (a) | 1,668,000 | 24,686 | ||||
| American Tower Corp. Class A (a) | 2,504,800 | 59,739 | ||||
| Dobson Communications Corp. Class A (a) | 683,000 | 4,979 | ||||
| Sprint Nextel Corp. | 2,609,300 | 60,823 | ||||
| 150,227 | ||||||
| TOTAL TELECOMMUNICATION SERVICES | 155,250 | |||||
| UTILITIES – 0.1% | ||||||
| Gas Utilities 0.1% | ||||||
| Equitable Resources, Inc. | 163,000 | 6,300 | ||||
| TOTAL COMMON STOCKS | ||||||
| (Cost $5,480,544) | 5,970,128 | |||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 16 |
| Convertible Preferred Stocks 0.0% | ||||||||||
| Shares | Value (Note 1) | |||||||||
| (000s) | ||||||||||
| INFORMATION TECHNOLOGY – 0.0% | ||||||||||
| Communications Equipment – 0.0% | ||||||||||
| Chorum Technologies, Inc. Series E (a)(g) | 15,100 | $ | 0 | |||||||
| TOTAL CONVERTIBLE PREFERRED STOCKS | ||||||||||
| (Cost $227) | 0 | |||||||||
| Convertible Bonds 0.0% | ||||||||||
| Principal | ||||||||||
| Amount (000s) | ||||||||||
| CONSUMER DISCRETIONARY – 0.0% | ||||||||||
| Media – 0.0% | ||||||||||
| Playboy Enterprises, Inc. 3% 3/15/25 (f) | $ | 3,545 | 3,781 | |||||||
| TOTAL CONVERTIBLE BONDS | ||||||||||
| (Cost $3,545) | 3,781 | |||||||||
| Money Market Funds 3.2% | ||||||||||
| Shares | ||||||||||
| Fidelity Cash Central Fund, 3.92% (b) | 151,300,998 | 151,301 | ||||||||
| Fidelity Securities Lending Cash Central Fund, 3.94% (b)(c) | 72,629,800 | 72,630 | ||||||||
| TOTAL MONEY MARKET FUNDS | ||||||||||
| (Cost $223,931) | 223,931 | |||||||||
| TOTAL INVESTMENT PORTFOLIO 88.9% | ||||||||||
| (Cost $5,708,247) | 6,197,840 | |||||||||
| NET OTHER ASSETS 11.1% | 771,751 | |||||||||
| NET ASSETS 100% | $ | 6,969,591 | ||||||||
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
| Investments continued | ||||||||||
| Futures Contracts | ||||||||||
| Expiration | Underlying | Unrealized | ||||||||
| Date | Face Amount | Appreciation/ | ||||||||
| at Value (000s) | (Depreciation) | |||||||||
| (000s) | ||||||||||
| Purchased | ||||||||||
| Equity Index Contracts | ||||||||||
| 2,600 S&P 500 Index Contracts | Dec. 2005 | $ | 786,370 | $ | (1,508) | |||||
The face value of futures purchased as a percentage of net assets – 11.3%
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. (c) Investment made with cash collateral received from securities on loan. (d) Security or a portion of the security is on loan at period end. (e) Affiliated company (f) 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 $3,781,000 or 0.1% of net assets. |
| (g) Restricted securities – Investment in securities not registered under the Securities Act of 1933 (excluding 144A issues). At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $0 or 0.0% of net assets. |
Additional information on each holding is as follows:
| Acquisition | Acquisition | |||||
| Security | Date | Cost (000s) | ||||
| Chorum | ||||||
| Technologies, Inc. | ||||||
| Series E | 9/19/00 | $ | 260 |
Other Information
Distribution of investments by country of issue, as a percentage of total net assets, is as follows:
| United States of America | 83.5% | |
| Japan | 11.1% | |
| Korea (South) | 2.0% | |
| Others (individually less than 1%) . | 3.4% | |
| 100.0% |
See accompanying notes which are an integral part of the financial statements.
Annual Report 18
An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Companies which are affiliates of the fund at period-end are noted in the fund’s Schedule of Investments. Transactions during the period with companies which are or were affiliates are as follows:
| Value, | ||||||||||||||
| Affiliate | beginning of | Sales | Dividend | Value, end of | ||||||||||
| (Amounts in thousands) | period | Purchases | Proceeds | Income | period | |||||||||
| Monster Worldwide, Inc. . | $ 65,194 | $ 127,515 | $ | $ | $ 218,042 | |||||||||
| New York Mortgage Trust, | ||||||||||||||
| Inc. | 11,865 | 55 | 1,265 | 7,975 | ||||||||||
| Teradyne, Inc | 137,915 | 70,271 | 188,300 | — | — | |||||||||
| Total | $ 214,974 | $ 197,786 | $188,355 | $ 1,265 | $ 226,017 |
See accompanying notes which are an integral part of the financial statements.
19 Annual Report
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| Amounts in thousands (except per share amount) | October 31, 2005 | |||||||
| Assets | ||||||||
| Investment in securities, at value (including securities | ||||||||
| loaned of $72,299) (cost $5,708,247) See | ||||||||
| accompanying schedule | $ | 6,197,840 | ||||||
| Foreign currency held at value (cost $7) | 7 | |||||||
| Receivable for investments sold | 2,850,062 | |||||||
| Receivable for fund shares sold | 10,409 | |||||||
| Dividends receivable | 2,075 | |||||||
| Interest receivable | 501 | |||||||
| Other affiliated receivables | 26 | |||||||
| Other receivables | 1,097 | |||||||
| Total assets | 9,062,017 | |||||||
| Liabilities | ||||||||
| Payable for investments purchased | $ | 2,000,649 | ||||||
| Payable for fund shares redeemed | 11,884 | |||||||
| Accrued management fee | 4,046 | |||||||
| Payable for daily variation on futures contracts | 1,508 | |||||||
| Other affiliated payables | 1,443 | |||||||
| Other payables and accrued expenses | 266 | |||||||
| Collateral on securities loaned, at value | 72,630 | |||||||
| Total liabilities | 2,092,426 | |||||||
| Net Assets | $ | 6,969,591 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 5,816,356 | ||||||
| Accumulated net investment loss | (89) | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments and foreign currency transactions | 665,227 | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments and assets and liabilities in foreign | ||||||||
| currencies | 488,097 | |||||||
| Net Assets, for 265,824 shares outstanding | $ | 6,969,591 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($6,969,591 ÷ 265,824 shares) | $ | 26.22 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 20 |
| Statement of Operations | �� | |||||
| Amounts in thousands | Year ended October 31, 2005 | |||||
| Investment Income | ||||||
| Dividends (including $1,265 received from affiliated | ||||||
| issuers) | $ | 42,907 | ||||
| Special Dividends | 8,828 | |||||
| Interest | 3,384 | |||||
| Security lending | 717 | |||||
| Total income | 55,836 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 37,393 | ||||
| Performance adjustment | 7,919 | |||||
| Transfer agent fees | 14,250 | |||||
| Accounting and security lending fees | 1,123 | |||||
| Independent trustees’ compensation | 31 | |||||
| Appreciation in deferred trustee compensation account | 9 | |||||
| Custodian fees and expenses | 330 | |||||
| Registration fees | 264 | |||||
| Audit | 95 | |||||
| Legal | 21 | |||||
| Miscellaneous | 105 | |||||
| Total expenses before reductions | 61,540 | |||||
| Expense reductions | (2,384) | 59,156 | ||||
| Net investment income (loss) | (3,320) | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on: | ||||||
| Investment securities (Including realized gain (loss) of | ||||||
| $(51,819) from affiliated issuers) | 683,231 | |||||
| Foreign currency transactions | (1,221) | |||||
| Total net realized gain (loss) | 682,010 | |||||
| Change in net unrealized appreciation (depreciation) on: | ||||||
| Investment securities | (101,802) | |||||
| Assets and liabilities in foreign currencies | (41) | |||||
| Futures contracts | (1,508) | |||||
| Total change in net unrealized appreciation | ||||||
| (depreciation) | (103,351) | |||||
| Net gain (loss) | 578,659 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 575,339 | ||||
See accompanying notes which are an integral part of the financial statements.
21 Annual Report
| Financial Statements continued | ||||||||
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| Amounts in thousands | 2005 | 2004 | ||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | (3,320) | $ | (6,099) | ||||
| Net realized gain (loss) | 682,010 | 365,269 | ||||||
| Change in net unrealized appreciation (depreciation) | (103,351) | (102,741) | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 575,339 | 256,429 | ||||||
| Distributions to shareholders from net investment income | (2,359) | (1,746) | ||||||
| Distributions to shareholders from net realized gain | (285,485) | (3,492) | ||||||
| Total distributions | (287,844) | (5,238) | ||||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 2,301,286 | 3,593,121 | ||||||
| Reinvestment of distributions | 276,903 | 5,025 | ||||||
| Cost of shares redeemed | (1,757,319) | (1,930,667) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | 820,870 | 1,667,479 | ||||||
| Total increase (decrease) in net assets | 1,108,365 | 1,918,670 | ||||||
| Net Assets | ||||||||
| Beginning of period | 5,861,226 | 3,942,556 | ||||||
| End of period (including accumulated net investment | ||||||||
| loss of $89 and accumulated net investment loss of | ||||||||
| $2,662, respectively) | $ | 6,969,591 | $ | 5,861,226 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 89,960 | 145,868 | ||||||
| Issued in reinvestment of distributions | 10,812 | 215 | ||||||
| Redeemed | (68,970) | (79,601) | ||||||
| Net increase (decrease) | 31,802 | 66,482 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 22 |
| Financial Highlights | ||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||
| Selected Per Share Data | ||||||||||
| Net asset value, | ||||||||||
| beginning of period . | $ 25.05 | $ 23.53 | $ 16.28 | $ 18.57 | $ 25.82 | |||||
| Income from Investment | ||||||||||
| Operations | ||||||||||
| Net investment | ||||||||||
| income (loss)C | (.01)D | (.03) | (.06) | (.07) | .04 | |||||
| Net realized and un | ||||||||||
| realized gain (loss) | 2.40 | 1.58 | 7.31 | (2.22) | (5.01) | |||||
| Total from investment | ||||||||||
| operations | 2.39 | 1.55 | 7.25 | (2.29) | (4.97) | |||||
| Distributions from net | ||||||||||
| investment income | (.01) | (.01) | — | — | (.15) | |||||
| Distributions from net | ||||||||||
| realized gain | (1.21) | (.02) | — | — | (2.13) | |||||
| Total distributions | (1.22) | (.03) | — | — | (2.28) | |||||
| Net asset value, end of | ||||||||||
| period | $ 26.22 | $ 25.05 | $ 23.53 | $ 16.28 | $ 18.57 | |||||
| Total ReturnA,B | 9.66% | 6.60% | 44.53% | (12.33)% | (20.86)% | |||||
| Ratios to Average Net AssetsE | ||||||||||
| Expenses before ex- | ||||||||||
| pense reductions | 94% | .94% | .91% | 1.07% | .94% | |||||
| Expenses net of | ||||||||||
| voluntary waivers, | ||||||||||
| if any | 94% | .94% | .91% | 1.07% | .94% | |||||
| Expenses net of all | ||||||||||
| reductions | 90% | .91% | .88% | 1.03% | .91% | |||||
| Net investment | ||||||||||
| income (loss) | (.05)%D | (.12)% | (.31)% | (.35)% | .17% | |||||
| Supplemental Data | ||||||||||
| Net assets, end of | ||||||||||
| period (in millions) | $ 6,970 | $ 5,861 | $ 3,943 | $ 1,705 | $ 2,118 | |||||
| Portfolio turnover rate | 109% | 72% | 54% | 80% | 120% | |||||
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. B Total returns do not include the effect of the former contingent deferred sales charge. C Calculated based on average shares outstanding during the period. D Investment income per share reflects a special dividend which amounted to $.03 per share. Excluding the special dividend, the ratio of net investment income to average net assets would have been (.19)%. E Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions repre sent the net expenses paid by the fund. |
See accompanying notes which are an integral part of the financial statements.
23 Annual Report
Notes to Financial Statements
| For the period ended October 31, 2005 (Amounts in thousands except ratios) |
1. Significant Accounting Policies.
Fidelity Capital Appreciation Fund (the fund) is a fund of Fidelity Capital 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 fund may invest in affiliated money market central funds (Money Market Central Funds) which are open end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affili ates. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require manage ment to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund:
Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Debt securities, including restricted securities, for which quotations are readily available, are valued by independent pricing services or by dealers who make markets in such securities. Pricing services consider yield or price of bonds of comparable quality, coupon, maturity and type as well as dealer supplied prices. Investments in open end mutual funds are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of
| Annual Report |
| 24 |
| 1. Significant Accounting Policies continued Security Valuation - continued |
securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
Foreign Currency. The fund uses foreign currency contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms.
Foreign denominated assets, including investment securities, and liabilities are trans lated into U.S. dollars at the exchange rate at period end. Purchases and sales of invest ment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transac tion date.
The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Large, non recurring dividends recognized by the fund are presented separately on the Statement of Operations as “Special Dividends” and the impact of these dividends is presented in the Financial Highlights. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
25 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) |
1. Significant Accounting Policies continued
Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the fund or are invested in a cross section of other Fidelity funds, and are marked to market. Deferred amounts remain in the fund until distributed in accordance with the Plan.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests.
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. In addition, the fund will claim a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
Book tax differences are primarily due to futures transactions, foreign currency transac tions, passive foreign investment companies (PFIC), deferred trustees compensation, and losses deferred due to wash sales.
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 656,694 | ||
| Unrealized depreciation | (178,013) | |||
| Net unrealized appreciation (depreciation) | 478,681 | |||
| Undistributed ordinary income | 5,643 | |||
| Undistributed long term capital gain | 649,725 | |||
| Cost for federal income tax purposes | $ | 5,719,159 | ||
The tax character of distributions paid was as follows:
| October 31, 2005 | October 31, 2004 | |||||||
| Ordinary Income | $ | 2,359 | $ | 1,724 | ||||
| Long term Capital Gains | 285,485 | 3,514 | ||||||
| Total | $ | 287,844 | $ | 5,238 |
Annual Report 26
| 2. Operating Policies. |
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
Futures Contracts. The fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund’s exposure to the underlying instrument, while selling futures tends to decrease a fund’s exposure to the underlying instrument or hedge other fund investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption “Futures Contracts.” This amount reflects each contract’s exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contracts’ terms. Gains (losses) are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded.
Restricted Securities. The fund may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transac tions 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. Information regarding restricted securities is included at the end of the fund’s Schedule of Investments.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $6,884,188 and $6,993,324, respectively.
27 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 4. Fees and Other Transactions with Affiliates. |
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment (up to a maximum of .20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .69% of the fund’s average net assets.
Sales Load. Fidelity Distributors Corporation (FDC), an affiliate of FMR, is the general distributor of the fund. Shares purchased prior to October 12, 1990, were subject to a 1% deferred sales charge upon redemption. For the period, FDC received sales charges of $81 on redemption of shares of the fund. Effective July 1, 2005, the deferred sales charge was eliminated.
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 ac count. FSC pays for typesetting, printing and mailing of shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .22% of average net assets.
Accounting and Security Lending Fees. FSC maintains the fund’s accounting rec ords. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Invest ments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $5,717 for the period.
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $143 for the period.
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| 28 |
| 5. Committed Line of Credit. |
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insol vency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the fund’s Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
| 7. Expense Reductions. |
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $2,251 for the period. In addition, through arrangements with the fund’s custodian and transfer agent, credits realized as a result of uninvested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s custody and transfer agent expenses by $1 and $132, respectively.
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is considered remote.
29 Annual Report
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and the Shareholders of Fidelity Capital Appreciation Fund:
In our opinion, the accompanying statement of assets and liabilities, including the sched ule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Capital Appreciation Fund (a fund of Fidelity Capital Trust) at October 31, 2005 and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereaf ter referred to as “financial statements”) are the responsibility of the Fidelity Capital Appreciation 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP |
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| 30 |
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-544-8544.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Di rector and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Man agement, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
31 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity In vestments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Capital Appreciation
(2005 present). He also serves as Senior Vice President of other Fidelity funds (2005 present). Mr. Jonas is Executive Director of FMR
(2005 present). Previously, Mr. Jonas served as President of Fidelity En terprise Operations and Risk Services (2004 2005), Chief Administra tive Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and management positions including Chief Financial Officer of FMR. In addition, he serves on the Boards of Boston Ballet (2003 present) and Simmons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
| Annual Report |
| 32 |
| Independent Trustees: |
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addi tion, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
33 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Acad emy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Pre viously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technologies Inc. (telecommu nications network surveillance, 2001 2004), and Teletech Holdings (cus tomer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
| Annual Report |
| 34 |
| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corporation (IBM) and President and General Manager of various IBM divisions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Com pany Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Car olina (16 school system).
35 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief In vestment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2002
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Mem ber of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
| Annual Report |
| 36 |
Advisory Board Members and Executive Officers:
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his re tirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Direc tor (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Capital Appreciation. Mr. Churchill also serves as Vice President of certain Equity Funds (2005 present) and certain High In come Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Churchill joined Fidelity in 1993 as Vice President and Group Leader of Taxable Fixed Income Investments.
37 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Capital Appreciation. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Man agement & Research (U.K.) Inc. (2001 present), Fidelity Management & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Management, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Capital Appreciation. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003 present), Vice President and Secretary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Capi tal Appreciation. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Investments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Capital Appreciation. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Manage ment Services Group (FPCMS).
| Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Capital Appreciation. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Executive Vice President of Risk Oversight for Fidelity Investments (2002). Previously, he served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Com pany, Inc. (1998 2002).
| Annual Report |
| 38 |
| Name, Age; Principal Occupation John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Capital Appreciation. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Capital Appreciation. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Capital Appreciation. Ms. Monasterio also serves as Deputy Treasurer of other Fidelity funds (2004) and is an employee of FMR (2004). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Tem pleton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment: 2005
Deputy Treasurer of Capital Appreciation. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s de partment of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accoun tant, United States Securities and Exchange Commission (2000 2002).
| Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Capital Appreciation. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000 2003).
39 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation John H. Costello (59) |
Year of Election or Appointment: 1986
Assistant Treasurer of Capital Appreciation. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Capital Appreciation. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Capital Appreciation. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Capital Appreciation. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR (2005 present). Previously, Mr. Ryan served as Vice Pres ident of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Capital Appreciation. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
| Annual Report |
| 40 |
| Distributions |
The Board of Trustees of Capital Appreciation Fund voted to pay on December 12, 2005, to shareholders of record at the opening of business on December 09, 2005, a distribution of $2.46 per share derived from capital gains realized from sales of port folio securities.
The fund hereby designates as capital gain dividends: For dividends with respect to the taxable year ended October 31, 2005, $650,503,000 or, if subsequently determined to be different, the net capital gain of such year, and for dividends with respect to the taxable year ended October 31, 2004, $284,706,000 or, if subsequently determined to be different, the excess of: (a) the net capital gain of such year, over (b) amounts previously designated as capital gain dividends with respect to such year.
The fund designates 100% of the dividend distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
The fund designates 100% of the dividend distributed in December during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
41 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Capital Appreciation Fund
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
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prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
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Board Approval of Investment Advisory Contracts and Management Fees continued
account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objec tive similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the second quartile for the one and five year periods and the first quartile for the three year period. The Board also stated that the relative investment performance of the fund has compared favorably to its benchmark over time.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services provided by Fidelity will benefit the fund’s shareholders, particularly in light of the
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Board Approval of Investment Advisory Contracts and Management Fees continued
Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 15% means that 85% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s positive performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s positive performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that the fund’s total expenses ranked below its competitive median for 2004.
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
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Board Approval of Investment Advisory Contracts and Management Fees continued
Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or
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expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
49 Annual Report
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 Automated Service Telephone provides 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.
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.
* 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 guar anteed 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.
Annual Report 50
To Write Fidelity
We’ll give your correspondence immediate attention and send you written confirmation upon completion of your request.
| (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
51 Annual Report
To Visit Fidelity
| For directions and hours, please call 1 800 544 9797. Arizona 7001 West Ray Road Chandler, AZ 7373 N. Scottsdale Road Scottsdale, AZ California 815 East Birch Street Brea, CA 1411 Chapin Avenue Burlingame, CA 851 East Hamilton Avenue Campbell, CA 19200 Von Karman Avenue Irvine, CA 601 Larkspur Landing Circle Larkspur, CA 10100 Santa Monica Blvd. Los Angeles, CA 27101 Puerta Real Mission Viejo, CA 73 575 El Paseo Palm Desert, CA 251 University Avenue Palo Alto, CA 123 South Lake Avenue Pasadena, CA 16995 Bernardo Ctr. Drive Rancho Bernardo, CA 1740 Arden Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 8 Montgomery Street San Francisco, CA 3793 State Street Santa Barbara, CA 21701 Hawthorne Boulevard Torrance, CA 2001 North Main Street Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA |
| Colorado 1625 Broadway Denver, CO 9185 East Westview Road Littleton, 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. Federal Highway Boca Raton, FL 121 Alhambra Plaza Coral Gables, FL 2948 N. Federal Highway Ft. Lauderdale, FL 1907 West State Road 434 Longwood, FL 8880 Tamiami Trail, North Naples, FL 3550 Tamiami Trail, South Sarasota, FL 1502 N. Westshore Blvd. Tampa, FL 2465 State Road 7 Wellington, FL 3501 PGA Boulevard West Palm Beach, FL Georgia 3445 Peachtree Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA Illinois One North LaSalle Street Chicago, IL 875 North Michigan Ave. 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 Kansas 5400 College Boulevard Overland Park, KS Maine Three Canal Plaza Portland, ME Maryland 7315 Wisconsin Avenue Bethesda, MD One W. Pennsylvania Ave. Towson, MD Massachusetts 801 Boylston Street Boston, MA 155 Congress Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 405 Cochituate Road Framingham, MA 416 Belmont Street Worcester, MA Michigan 500 E. Eisenhower Pkwy. Ann Arbor, MI 280 Old N. Woodward Ave. Birmingham, MI 43420 Grand River Avenue Novi, MI 29155 Northwestern Hwy. Southfield, MI Minnesota 7600 France Avenue South Edina, MN Missouri 8885 Ladue Road Ladue, MO |
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| Nevada 2225 Village Walk Drive Henderson, NV New Jersey 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 396 Route 17, North Paramus, NJ 3518 Route 1 North Princeton, NJ 530 Highway 35 Shrewsbury, NJ New York 1055 Franklin Avenue Garden City, NY 37 West Jericho Turnpike Huntington Station, NY 1271 Avenue of the Americas New York, NY 61 Broadway New York, NY 350 Park Avenue New York, NY 200 Fifth Avenue New York, NY 733 Third Avenue New York, NY 11 Penn Plaza New York, NY 2070 Broadway New York, NY 1075 Northern Blvd. Roslyn, NY North Carolina 4611 Sharon Road Charlotte, NC Ohio 3805 Edwards Road Cincinnati, OH 1324 Polaris Parkway Columbus, OH 28699 Chagrin Boulevard Woodmere Village, OH Oregon 16850 SW 72nd Avenue Tigard, OR |
| Pennsylvania 600 West DeKalb Pike King of Prussia, PA 1735 Market Street Philadelphia, PA 12001 Perry Highway Wexford, PA Rhode Island 47 Providence Place Providence, RI Tennessee 6150 Poplar Avenue Memphis, TN Texas 10000 Research Boulevard Austin, TX 4001 Northwest Parkway Dallas, TX 12532 Memorial Drive Houston, TX 2701 Drexel Drive Houston, TX 6500 N. MacArthur Blvd. Irving, TX 6005 West Park Boulevard Plano, TX 14100 San Pedro San Antonio, TX 1576 East Southlake Blvd. Southlake, TX 19740 IH 45 North Spring, TX Utah 215 South State Street Salt Lake City, UT Virginia 1861 International Drive McLean, VA Washington 411 108th Avenue, N.E. Bellevue, WA 1518 6th Avenue Seattle, WA Washington, DC 1900 K Street, N.W. Washington, DC Wisconsin 595 North Barker Road Brookfield, WI |
Fidelity Brokerage Services, Inc., 100 Summer St., Boston, MA 02110 Member NYSE/SIPC
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| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian Brown Brothers Harriman & Co. Boston, MA |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| CAF UANN-1205 1.784775.102 |
| Fidelity® Disciplined Equity Fund |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The manager’s review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 8 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 9 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 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 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 29 | |||
| Distributions | 39 | |||
| Board Approval of | 40 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commis sion’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
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| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Refer ence Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s portfolio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund companies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that per mit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to operate. However, this will only be achieved through close cooperation among regulators, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offenders should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers including individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we realize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active par ticipation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Past 10 | |||
| year | years | years | ||||
| Fidelity® Disciplined Equity Fund | 14.92% | 0.12% | 8.84% | |||
| $10,000 Over 10 Years | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Disciplined Equity Fund on October 31, 1995. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor’s 500SM Index performed over the same period.
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5
Management’s Discussion of Fund Performance
Comments from Steve Snider, Portfolio Manager of Fidelity® Disciplined Equity Fund
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. However, the markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a corresponding leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite® Index at 8.15% . The Dow Jones Industrial AverageSM rose 6.45% .
For the 12 month period that ended October 31, 2005, the fund gained 14.92%, topping the S&P 500® and the LipperSM Growth Funds Average, which rose 10.58% . Good security selection was critical to the fund’s success versus the index, with the strongest gains coming from the technology, health care, financial and industrial sectors. Apple Computer, Internet search giant Google and oil refiner Valero Energy were among the largest contrib utors for the one year period, as their businesses remained strong and investors continued to reward the stocks. Other positive investments were copper producer Phelps Dodge, which benefited from increased global copper demand, and insurance company Prudential Financial, which reported solid earnings growth, especially from its international business. In contrast, homebuilder Toll Brothers was the largest detractor from performance relative to the index. While our investment process indicated that the company had attractive valuations and prospects, the stock declined as mortgage rates rose and fears spread of a “housing bubble,” which shook homebuilding stocks. Two large financial companies, Goldman Sachs and Bank of America, also were a drag on the fund’s relative return.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
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| 6 6 |
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
| Actual Expenses |
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the share holder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,084.00 | $ | 4.57 | ||||||
| Hypothetical (5% return per year | ||||||||||||
| before expenses) | $ | 1,000.00 | $ | 1,020.82 | $ | 4.43 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of .87%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
7 Annual Report
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Exxon Mobil Corp. | 3.3 | 3.8 | ||
| Prudential Financial, Inc. | 2.4 | 0.6 | ||
| MetLife, Inc. | 2.4 | 0.2 | ||
| Apple Computer, Inc. | 2.3 | 1.9 | ||
| Intel Corp. | 2.2 | 2.5 | ||
| Bank of America Corp. | 2.1 | 2.1 | ||
| International Business Machines Corp. | 2.0 | 0.4 | ||
| Johnson & Johnson | 2.0 | 2.4 | ||
| Texas Instruments, Inc. | 1.9 | 0.0 | ||
| Chevron Corp. | 1.9 | 1.7 | ||
| 22.5 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Financials | 21.5 | 20.2 | ||
| Information Technology | 16.8 | 16.3 | ||
| Health Care | 13.2 | 13.1 | ||
| Energy | 11.0 | 10.3 | ||
| Industrials | 10.6 | 10.8 | ||
Annual Report 8
| Investments October 31, 2005 | ||||||||
| Showing Percentage of Net Assets | ||||||||
| Common Stocks 98.1% | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| CONSUMER DISCRETIONARY – 8.9% | ||||||||
| Auto Components 0.2% | ||||||||
| Goodyear Tire & Rubber Co. (a)(d) | 700,000 | $ | 10,948 | |||||
| Hotels, Restaurants & Leisure 0.9% | ||||||||
| Darden Restaurants, Inc. | 280,000 | 9,078 | ||||||
| Hilton Hotels Corp. | 550,000 | 10,698 | ||||||
| Jack in the Box, Inc. (a) | 100,000 | 2,970 | ||||||
| McDonald’s Corp. | 1,075,000 | 33,970 | ||||||
| 56,716 | ||||||||
| Household Durables – 2.6% | ||||||||
| Black & Decker Corp. | 150,000 | 12,320 | ||||||
| D.R. Horton, Inc. | 760,100 | 23,327 | ||||||
| Lennar Corp. Class A | 754,900 | 41,957 | ||||||
| Meritage Homes Corp. (a) | 78,000 | 4,857 | ||||||
| Standard Pacific Corp. | 300,000 | 11,574 | ||||||
| Toll Brothers, Inc. (a) | 1,544,400 | 57,004 | ||||||
| 151,039 | ||||||||
| Media – 1.8% | ||||||||
| Comcast Corp. Class A (a)(d) | 2,400,000 | 66,792 | ||||||
| Getty Images, Inc. (a) | 40,000 | 3,320 | ||||||
| McGraw Hill Companies, Inc. | 175,000 | 8,565 | ||||||
| Time Warner, Inc. | 928,900 | 16,562 | ||||||
| Viacom, Inc. Class B (non-vtg.) | 273,800 | 8,480 | ||||||
| 103,719 | ||||||||
| Multiline Retail – 0.8% | ||||||||
| JCPenney Co., Inc. | 350,000 | 17,920 | ||||||
| Nordstrom, Inc. | 500,000 | 17,325 | ||||||
| Target Corp. | 225,000 | 12,530 | ||||||
| 47,775 | ||||||||
| Specialty Retail – 2.0% | ||||||||
| American Eagle Outfitters, Inc. | 581,600 | 13,697 | ||||||
| Home Depot, Inc. | 1,533,600 | 62,939 | ||||||
| Lowe’s Companies, Inc. | 263,000 | 15,983 | ||||||
| Payless ShoeSource, Inc. (a) | 100,000 | 1,837 | ||||||
| Sports Authority, Inc. (a) | 186,900 | 5,203 | ||||||
| Tiffany & Co., Inc. | 220,000 | 8,668 | ||||||
| Urban Outfitters, Inc. (a) | 300,000 | 8,499 | ||||||
| 116,826 | ||||||||
| Textiles, Apparel & Luxury Goods – 0.6% | ||||||||
| Coach, Inc. (a) | 694,600 | 22,352 | ||||||
See accompanying notes which are an integral part of the financial statements.
| 9 Annual Report |
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| CONSUMER DISCRETIONARY – continued | ||||||||
| Textiles, Apparel & Luxury Goods – continued | ||||||||
| Phillips Van Heusen Corp. | 115,000 | $ | 3,272 | |||||
| Timberland Co. Class A (a) | 170,000 | 4,786 | ||||||
| VF Corp. | 75,000 | 3,919 | ||||||
| 34,329 | ||||||||
| TOTAL CONSUMER DISCRETIONARY | 521,352 | |||||||
| CONSUMER STAPLES 7.9% | ||||||||
| Beverages – 2.4% | ||||||||
| Pepsi Bottling Group, Inc. | 250,000 | 7,108 | ||||||
| PepsiCo, Inc. | 1,490,000 | 88,029 | ||||||
| The Coca-Cola Co. | 1,045,300 | 44,718 | ||||||
| 139,855 | ||||||||
| Food & Staples Retailing – 2.5% | ||||||||
| BJ’s Wholesale Club, Inc. (a) | 207,800 | 5,918 | ||||||
| CVS Corp. | 1,423,700 | 34,753 | ||||||
| Kroger Co. (a) | 1,500,000 | 29,850 | ||||||
| Longs Drug Stores Corp. | 300,000 | 12,513 | ||||||
| Performance Food Group Co. (a) | 190,000 | 5,242 | ||||||
| Wal-Mart Stores, Inc. | 632,500 | 29,924 | ||||||
| Whole Foods Market, Inc. | 200,000 | 28,826 | ||||||
| 147,026 | ||||||||
| Food Products 1.8% | ||||||||
| Archer-Daniels Midland Co. | 3,100,000 | 75,547 | ||||||
| Dean Foods Co. (a) | 430,000 | 15,545 | ||||||
| Hershey Co. | 127,100 | 7,223 | ||||||
| Pilgrims Pride Corp. Class B | 189,000 | 5,950 | ||||||
| 104,265 | ||||||||
| Household Products – 0.8% | ||||||||
| Church & Dwight Co., Inc. | 120,000 | 4,206 | ||||||
| Energizer Holdings, Inc. (a) | 75,000 | 3,787 | ||||||
| Procter & Gamble Co. | 649,200 | 36,349 | ||||||
| 44,342 | ||||||||
| Tobacco 0.4% | ||||||||
| Altria Group, Inc. | 350,000 | 26,268 | ||||||
| TOTAL CONSUMER STAPLES | 461,756 | |||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| ENERGY 11.0% | ||||||
| Energy Equipment & Services – 0.7% | ||||||
| Baker Hughes, Inc. | 720,700 | $ | 39,610 | |||
| Lone Star Technologies, Inc. (a) | 76,800 | 3,514 | ||||
| 43,124 | ||||||
| Oil, Gas & Consumable Fuels – 10.3% | ||||||
| Amerada Hess Corp. | 84,700 | 10,596 | ||||
| Apache Corp. | 462,500 | 29,521 | ||||
| Burlington Resources, Inc. | 620,000 | 44,776 | ||||
| Chevron Corp. | 1,946,004 | 111,058 | ||||
| ConocoPhillips | 1,250,000 | 81,725 | ||||
| Exxon Mobil Corp. | 3,461,900 | 194,339 | ||||
| Murphy Oil Corp. | 300,000 | 14,055 | ||||
| Occidental Petroleum Corp. | 250,000 | 19,720 | ||||
| Overseas Shipholding Group, Inc. | 164,600 | 7,835 | ||||
| Sunoco, Inc. | 250,000 | 18,625 | ||||
| Valero Energy Corp. | 650,000 | 68,406 | ||||
| 600,656 | ||||||
| TOTAL ENERGY | 643,780 | |||||
| FINANCIALS – 21.5% | ||||||
| Capital Markets 6.9% | ||||||
| Bear Stearns Companies, Inc. | 259,100 | 27,413 | ||||
| Franklin Resources, Inc. | 284,900 | 25,177 | ||||
| Goldman Sachs Group, Inc. | 750,000 | 94,778 | ||||
| Legg Mason, Inc. | 260,000 | 27,901 | ||||
| Lehman Brothers Holdings, Inc. | 531,900 | 63,652 | ||||
| Merrill Lynch & Co., Inc. | 903,400 | 58,486 | ||||
| Morgan Stanley | 1,975,700 | 107,498 | ||||
| 404,905 | ||||||
| Commercial Banks – 4.1% | ||||||
| Bank of America Corp. | 2,868,300 | 125,459 | ||||
| Center Financial Corp., California | 96,500 | 2,445 | ||||
| Comerica, Inc. | 100,000 | 5,778 | ||||
| KeyCorp | 200,000 | 6,448 | ||||
| SunTrust Banks, Inc. | 120,000 | 8,698 | ||||
| Taylor Capital Group, Inc. | 16,300 | 671 | ||||
| U.S. Bancorp, Delaware | 1,089,800 | 32,236 | ||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| FINANCIALS – continued | ||||||||
| Commercial Banks – continued | ||||||||
| UnionBanCal Corp. | 65,600 | $ | 4,492 | |||||
| Wachovia Corp. | 1,003,500 | 50,697 | ||||||
| 236,924 | ||||||||
| Consumer Finance – 0.1% | ||||||||
| AmeriCredit Corp. (a) | 175,000 | 3,911 | ||||||
| Diversified Financial Services – 1.0% | ||||||||
| CIT Group, Inc. | 250,000 | 11,433 | ||||||
| Citigroup, Inc. | 517,300 | 23,682 | ||||||
| Moody’s Corp. | 237,600 | 12,655 | ||||||
| Principal Financial Group, Inc. | 257,800 | 12,795 | ||||||
| 60,565 | ||||||||
| Insurance – 8.3% | ||||||||
| Allmerica Financial Corp. (a) | 105,700 | 4,027 | ||||||
| American International Group, Inc. | 1,360,000 | 88,128 | ||||||
| Assurant, Inc. | 300,000 | 11,460 | ||||||
| First American Corp., California | 100,000 | 4,382 | ||||||
| Hartford Financial Services Group, Inc. | 525,500 | 41,909 | ||||||
| MetLife, Inc. | 2,832,900 | 139,974 | ||||||
| Prudential Financial, Inc. | 1,945,900 | 141,642 | ||||||
| The Chubb Corp. | 275,000 | 25,567 | ||||||
| The St. Paul Travelers Companies, Inc. | 590,000 | 26,568 | ||||||
| 483,657 | ||||||||
| Real Estate 0.2% | ||||||||
| CB Richard Ellis Group, Inc. Class A (a) | 230,000 | 11,236 | ||||||
| Thrifts & Mortgage Finance – 0.9% | ||||||||
| Golden West Financial Corp., Delaware | 260,600 | 15,305 | ||||||
| IndyMac Bancorp, Inc. | 160,000 | 5,973 | ||||||
| Washington Mutual, Inc. | 852,084 | 33,743 | ||||||
| 55,021 | ||||||||
| TOTAL FINANCIALS | 1,256,219 | |||||||
| HEALTH CARE – 13.2% | ||||||||
| Biotechnology – 2.4% | ||||||||
| Amgen, Inc. (a) | 1,200,000 | 90,912 | ||||||
| Genentech, Inc. (a) | 485,000 | 43,941 | ||||||
| Invitrogen Corp. (a) | 140,000 | 8,903 | ||||||
| 143,756 | ||||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| HEALTH CARE – continued | ||||||
| Health Care Equipment & Supplies – 0.2% | ||||||
| Bausch & Lomb, Inc. | 150,000 | $ | 11,129 | |||
| Health Care Providers & Services – 6.7% | ||||||
| Aetna, Inc. | 1,137,300 | 100,719 | ||||
| Amedisys, Inc. (a) | 127,900 | 4,887 | ||||
| CIGNA Corp. | 475,000 | 55,038 | ||||
| Community Health Systems, Inc. (a) | 103,100 | 3,826 | ||||
| Coventry Health Care, Inc. (a) | 511,500 | 27,616 | ||||
| Humana, Inc. (a) | 320,200 | 14,214 | ||||
| McKesson Corp. | 330,000 | 14,992 | ||||
| PacifiCare Health Systems, Inc. (a) | 200,000 | 16,472 | ||||
| Sierra Health Services, Inc. (a) | 50,000 | 3,750 | ||||
| UnitedHealth Group, Inc. | 1,344,600 | 77,839 | ||||
| WellPoint, Inc. (a) | 956,000 | 71,394 | ||||
| 390,747 | ||||||
| Pharmaceuticals – 3.9% | ||||||
| Johnson & Johnson | 1,822,900 | 114,150 | ||||
| Merck & Co., Inc. | 686,600 | 19,376 | ||||
| Pfizer, Inc. | 1,683,200 | 36,593 | ||||
| Wyeth | 1,300,000 | 57,928 | ||||
| 228,047 | ||||||
| TOTAL HEALTH CARE | 773,679 | |||||
| INDUSTRIALS – 10.6% | ||||||
| Aerospace & Defense – 2.8% | ||||||
| General Dynamics Corp. | 180,000 | 20,934 | ||||
| Honeywell International, Inc. | 400,000 | 13,680 | ||||
| Northrop Grumman Corp. | 391,800 | 21,020 | ||||
| Precision Castparts Corp. | 240,000 | 11,366 | ||||
| Raytheon Co. | 386,700 | 14,289 | ||||
| Rockwell Collins, Inc. | 139,600 | 6,396 | ||||
| The Boeing Co. | 818,300 | 52,895 | ||||
| United Technologies Corp. | 425,000 | 21,794 | ||||
| 162,374 | ||||||
| Air Freight & Logistics – 0.5% | ||||||
| United Parcel Service, Inc. Class B | 400,000 | 29,176 | ||||
| Commercial Services & Supplies – 0.4% | ||||||
| FTI Consulting, Inc. (a) | 378,900 | 10,370 | ||||
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| INDUSTRIALS – continued | ||||||||
| Commercial Services & Supplies – continued | ||||||||
| Labor Ready, Inc. (a) | 380,500 | $ | 8,885 | |||||
| R.R. Donnelley & Sons Co. | 100,000 | 3,502 | ||||||
| 22,757 | ||||||||
| Construction & Engineering – 0.2% | ||||||||
| McDermott International, Inc. (a) | 300,000 | 10,899 | ||||||
| Washington Group International, Inc. (a) | 75,000 | 3,728 | ||||||
| 14,627 | ||||||||
| Industrial Conglomerates – 1.9% | ||||||||
| General Electric Co. | 3,267,100 | 110,787 | ||||||
| Machinery – 2.2% | ||||||||
| Caterpillar, Inc. | 700,000 | 36,813 | ||||||
| Columbus McKinnon Corp. (NY Shares) (a) | 93,200 | 2,127 | ||||||
| Cummins, Inc. | 80,000 | 6,830 | ||||||
| Illinois Tool Works, Inc. | 400,000 | 33,904 | ||||||
| Ingersoll-Rand Co. Ltd. Class A | 785,200 | 29,673 | ||||||
| JLG Industries, Inc. | 200,000 | 7,672 | ||||||
| PACCAR, Inc. | 225,000 | 15,755 | ||||||
| 132,774 | ||||||||
| Road & Rail 2.5% | ||||||||
| Burlington Northern Santa Fe Corp. | 490,800 | 30,459 | ||||||
| CNF, Inc. | 64,100 | 3,607 | ||||||
| CSX Corp. | 2,060,800 | 94,405 | ||||||
| Norfolk Southern Corp. | 422,000 | 16,964 | ||||||
| 145,435 | ||||||||
| Trading Companies & Distributors – 0.1% | ||||||||
| WESCO International, Inc. (a) | 108,600 | 4,317 | ||||||
| TOTAL INDUSTRIALS | 622,247 | |||||||
| INFORMATION TECHNOLOGY – 16.8% | ||||||||
| Communications Equipment – 1.9% | ||||||||
| Comtech Telecommunications Corp. (a) | 546,500 | 20,964 | ||||||
| Corning, Inc. (a) | 800,000 | 16,072 | ||||||
| Harris Corp. | 540,000 | 22,194 | ||||||
| Motorola, Inc. | 2,478,200 | 54,917 | ||||||
| 114,147 | ||||||||
| Computers & Peripherals – 6.3% | ||||||||
| Apple Computer, Inc. (a) | 2,369,400 | 136,454 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| Computers & Peripherals – continued | ||||||
| Dell, Inc. (a) | 572,200 | $ | 18,242 | |||
| Emulex Corp. (a) | 200,000 | 3,702 | ||||
| Hewlett-Packard Co. | 2,500,000 | 70,100 | ||||
| International Business Machines Corp. | 1,450,000 | 118,726 | ||||
| Komag, Inc. (a) | 300,000 | 8,046 | ||||
| NCR Corp. (a) | 500,000 | 15,110 | ||||
| 370,380 | ||||||
| Electronic Equipment & Instruments – 0.1% | ||||||
| Ingram Micro, Inc. Class A (a) | 219,500 | 3,973 | ||||
| Internet Software & Services – 1.2% | ||||||
| Google, Inc. Class A (sub. vtg.) (a) | 190,000 | 70,707 | ||||
| Semiconductors & Semiconductor Equipment – 5.0% | ||||||
| Intel Corp. | 5,519,100 | 129,699 | ||||
| National Semiconductor Corp. | 922,800 | 20,883 | ||||
| NVIDIA Corp. (a) | 800,000 | 26,840 | ||||
| Texas Instruments, Inc. (d) | 3,936,000 | 112,373 | ||||
| 289,795 | ||||||
| Software 2.3% | ||||||
| McAfee, Inc. (a) | 900,000 | 27,027 | ||||
| Microsoft Corp. | 1,837,900 | 47,234 | ||||
| Oracle Corp. (a) | 4,545,500 | 57,637 | ||||
| 131,898 | ||||||
| TOTAL INFORMATION TECHNOLOGY | 980,900 | |||||
| MATERIALS 2.3% | ||||||
| Chemicals – 0.1% | ||||||
| FMC Corp. (a) | 56,600 | 3,081 | ||||
| Metals & Mining – 2.2% | ||||||
| Carpenter Technology Corp. | 53,700 | 3,238 | ||||
| Nucor Corp. | 725,400 | 43,415 | ||||
| Phelps Dodge Corp. | 537,200 | 64,716 | ||||
| Quanex Corp. | 140,000 | 8,107 | ||||
| Reliance Steel & Aluminum Co. | 160,000 | 9,123 | ||||
| 128,599 | ||||||
| TOTAL MATERIALS | 131,680 | |||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Investments continued | ||||||||||
| Common Stocks continued | ||||||||||
| Shares | Value (Note 1) | |||||||||
| (000s) | ||||||||||
| TELECOMMUNICATION SERVICES – 2.6% | ||||||||||
| Diversified Telecommunication Services – 1.1% | ||||||||||
| AT&T Corp. | 900,000 | $ | 17,802 | |||||||
| CenturyTel, Inc. | 650,000 | 21,275 | ||||||||
| SBC Communications, Inc. | 1,009,600 | 24,079 | ||||||||
| 63,156 | ||||||||||
| Wireless Telecommunication Services – 1.5% | ||||||||||
| Sprint Nextel Corp. | 3,815,000 | 88,928 | ||||||||
| TOTAL TELECOMMUNICATION SERVICES | 152,084 | |||||||||
| UTILITIES – 3.3% | ||||||||||
| Electric Utilities – 0.9% | ||||||||||
| Edison International | 369,400 | 16,165 | ||||||||
| Exelon Corp. | 390,000 | 20,292 | ||||||||
| FirstEnergy Corp. | 125,000 | 5,938 | ||||||||
| PPL Corp. | 300,000 | 9,402 | ||||||||
| 51,797 | ||||||||||
| Independent Power Producers & Energy Traders – 2.0% | ||||||||||
| AES Corp. (a) | 754,500 | 11,989 | ||||||||
| Duke Energy Corp. | 716,300 | 18,968 | ||||||||
| TXU Corp. | 856,100 | 86,252 | ||||||||
| 117,209 | ||||||||||
| Multi-Utilities – 0.4% | ||||||||||
| PG&E Corp. | 130,000 | 4,729 | ||||||||
| Sempra Energy | 372,800 | 16,515 | ||||||||
| 21,244 | ||||||||||
| TOTAL UTILITIES | 190,250 | |||||||||
| TOTAL COMMON STOCKS | ||||||||||
| (Cost $4,932,143) | 5,733,947 | |||||||||
| U.S. Treasury Obligations 0.0% | ||||||||||
| Principal | ||||||||||
| Amount (000s) | ||||||||||
| U.S. Treasury Bills, yield at date of purchase 3.47% 12/8/05 (e) | ||||||||||
| (Cost $2,491) | $ | 2,500 | 2,491 | |||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 16 |
| Money Market Funds 2.5% | ||||||||||
| Shares | Value (Note 1) | |||||||||
| (000s) | ||||||||||
| Fidelity Cash Central Fund, 3.92% (b) | 118,461,872 | $ | 118,462 | |||||||
| Fidelity Securities Lending Cash Central Fund, 3.94% (b)(c) | 26,266,250 | 26,266 | ||||||||
| TOTAL MONEY MARKET FUNDS | �� | |||||||||
| (Cost $144,728) | 144,728 | |||||||||
| TOTAL INVESTMENT PORTFOLIO 100.6% | ||||||||||
| (Cost $5,079,362) | 5,881,166 | |||||||||
| NET OTHER ASSETS – (0.6)% | (36,257) | |||||||||
| NET ASSETS 100% | $ | 5,844,909 | ||||||||
| Futures Contracts | ||||||||||
| Expiration | Underlying | Unrealized | ||||||||
| Date | Face Amount | Appreciation/ | ||||||||
| at Value (000s) | (Depreciation) | |||||||||
| (000s) | ||||||||||
| Purchased | ||||||||||
| Equity Index Contracts | ||||||||||
| 150 S&P 500 Index Contracts | Dec. 2005 | $ | 45,368 | $ | (1,199) | |||||
The face value of futures purchased as a percentage of net assets – 0.8%
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. (c) Investment made with cash collateral received from securities on loan. |
| (d) Security or a portion of the security is on loan at period end. (e) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $2,491,000. |
Income Tax Information
At October 31, 2005, the fund had a capital loss carryforward of approximately $70,866,000 of which $47,095,000 and $23,771,000 will expire on October 31, 2010 and 2011, respectively.
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| Amounts in thousands (except per share amount) | October 31, 2005 | |||||||
| Assets | ||||||||
| Investment in securities, at value (including securities | ||||||||
| loaned of $26,032) (cost $5,079,362) See | ||||||||
| accompanying schedule | $ | 5,881,166 | ||||||
| Receivable for investments sold | 9,012 | |||||||
| Receivable for fund shares sold | 9,839 | |||||||
| Dividends receivable | 2,510 | |||||||
| Interest receivable | 375 | |||||||
| Receivable for daily variation on futures contracts | 379 | |||||||
| Other affiliated receivables | 32 | |||||||
| Other receivables | 251 | |||||||
| Total assets | 5,903,564 | |||||||
| Liabilities | ||||||||
| Payable for investments purchased | $ | 25,613 | ||||||
| Payable for fund shares redeemed | 2,405 | |||||||
| Accrued management fee | 2,909 | |||||||
| Other affiliated payables | 1,302 | |||||||
| Other payables and accrued expenses | 160 | |||||||
| Collateral on securities loaned, at value | 26,266 | |||||||
| Total liabilities | 58,655 | |||||||
| Net Assets | $ | 5,844,909 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 5,097,018 | ||||||
| Undistributed net investment income | 22,960 | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments | (75,674) | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments | 800,605 | |||||||
| Net Assets, for 218,850 shares outstanding | $ | 5,844,909 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($5,844,909 ÷ 218,850 shares) | $ | 26.71 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 18 |
| Statement of Operations | ||||||
| Amounts in thousands | Year ended October 31, 2005 | |||||
| Investment Income | ||||||
| Dividends | $ | 71,250 | ||||
| Special Dividends | 11,644 | |||||
| Interest | 5,143 | |||||
| Security lending | 156 | |||||
| Total income | 88,193 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 30,423 | ||||
| Performance adjustment | 3,083 | |||||
| Transfer agent fees | 12,361 | |||||
| Accounting and security lending fees | 1,067 | |||||
| Independent trustees’ compensation | 25 | |||||
| Appreciation in deferred trustee compensation account | 9 | |||||
| Custodian fees and expenses | 96 | |||||
| Registration fees | 138 | |||||
| Audit | 82 | |||||
| Legal | 17 | |||||
| Miscellaneous | 34 | |||||
| Total expenses before reductions | 47,335 | |||||
| Expense reductions | (1,233) | 46,102 | ||||
| Net investment income (loss) | 42,091 | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on: | ||||||
| Investment securities | 445,059 | |||||
| Futures contracts | (4,803) | |||||
| Total net realized gain (loss) | 440,256 | |||||
| Change in net unrealized appreciation (depreciation) on: | ||||||
| Investment securities | 216,551 | |||||
| Futures contracts | (1,199) | |||||
| Total change in net unrealized appreciation | ||||||
| (depreciation) | 215,352 | |||||
| Net gain (loss) | 655,608 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 697,699 | ||||
See accompanying notes which are an integral part of the financial statements.
19 Annual Report
| Financial Statements continued | ||||||||
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| Amounts in thousands | 2005 | 2004 | ||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | 42,091 | $ | 21,448 | ||||
| Net realized gain (loss) | 440,256 | 231,043 | ||||||
| Change in net unrealized appreciation (depreciation) . | 215,352 | 55,680 | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 697,699 | 308,171 | ||||||
| Distributions to shareholders from net investment income . | (34,684) | (19,052) | ||||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 1,140,712 | 806,831 | ||||||
| Reinvestment of distributions | 34,006 | 18,606 | ||||||
| Cost of shares redeemed | (459,923) | (367,737) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | 714,795 | 457,700 | ||||||
| Total increase (decrease) in net assets | 1,377,810 | 746,819 | ||||||
| Net Assets | ||||||||
| Beginning of period | 4,467,099 | 3,720,280 | ||||||
| End of period (including undistributed net investment | ||||||||
| income of $22,960 and undistributed net investment | ||||||||
| income of $15,553, respectively) | $ | 5,844,909 | $ | 4,467,099 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 44,473 | 35,241 | ||||||
| Issued in reinvestment of distributions | 1,371 | 853 | ||||||
| Redeemed | (17,831) | (16,065) | ||||||
| Net increase (decrease) | 28,013 | 20,029 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 20 |
| Financial Highlights | ||||||||||||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, | ||||||||||||||||||||
| beginning of period | $ | 23.41 | $ | 21.78 | $ | 18.41 | $ | 20.56 | $ | 31.14 | ||||||||||
| Income from Investment | ||||||||||||||||||||
| Operations | ||||||||||||||||||||
| Net investment income (loss)B | 20C | .12 | .10 | .03 | .10 | |||||||||||||||
| Net realized and unrealized | ||||||||||||||||||||
| gain (loss) | 3.28 | 1.62 | 3.30 | (2.13) | (6.95) | |||||||||||||||
| Total from investment | ||||||||||||||||||||
| operations | 3.48 | 1.74 | 3.40 | (2.10) | (6.85) | |||||||||||||||
| Distributions from net investment | ||||||||||||||||||||
| income | (.18) | (.11) | (.03) | (.05) | (.16) | |||||||||||||||
| Distributions from net realized | ||||||||||||||||||||
| gain | — | — | — | — | (3.57) | |||||||||||||||
| Total distributions | (.18) | (.11) | (.03) | (.05) | (3.73) | |||||||||||||||
| Net asset value, | ||||||||||||||||||||
| end of period | $ | 26.71 | $ | 23.41 | $ | 21.78 | $ | 18.41 | $ | 20.56 | ||||||||||
| Total ReturnA | 14.92% | 8.03% | 18.50% | (10.25)% | (24.70)% | |||||||||||||||
| Ratios to Average Net AssetsD | ||||||||||||||||||||
| Expenses before expense | ||||||||||||||||||||
| reductions | 89% | .89% | .92% | 1.01% | .85% | |||||||||||||||
| Expenses net of voluntary | ||||||||||||||||||||
| waivers, if any | 89% | .89% | .92% | 1.01% | .85% | |||||||||||||||
| Expenses net of all reductions | 87% | .88% | .90% | 1.00% | .84% | |||||||||||||||
| Net investment income (loss) | 79%C | .51% | .50% | .16% | .42% | |||||||||||||||
| Supplemental Data | ||||||||||||||||||||
| Net assets, end of period | ||||||||||||||||||||
| (in millions) | $ | 5,845 | $ | 4,467 | $ | 3,720 | $ | 2,777 | $ | 2,792 | ||||||||||
| Portfolio turnover rate | 80% | 42% | 64% | 68% | 101% | |||||||||||||||
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. BG Calculated based on average shares outstanding during the period. C Investment income per share reflects a special dividend which amounted to $.06 per share. Excluding the special dividend, the ratio of net investment income to average net assets would have been .57%. D Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions repre sent the net expenses paid by the fund. |
See accompanying notes which are an integral part of the financial statements.
21 Annual Report
| Notes to Financial Statements For the period ended October 31, 2005 (Amounts in thousands except ratios) |
1. Significant Accounting Policies.
Fidelity Disciplined Equity Fund (the fund) is a fund of Fidelity Capital 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 fund may invest in affiliated money market central funds (Money Market Central Funds) which are open end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affili ates. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require manage ment to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund:
Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Investments in open end mutual funds, are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
Annual Report 22
1. Significant Accounting Policies continued
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Large, non recurring dividends recognized by the fund are presented separately on the Statement of Operations as “Special Dividends” and the impact of these dividends is presented in the Financial Highlights. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the fund or are invested in a cross section of other Fidelity funds, and are marked to market. Deferred amounts remain in the fund until distributed in accordance with the Plan.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements.
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. In addition, the fund will claim a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
Book tax differences are primarily due to futures transactions, capital loss carryforwards and losses deferred due to wash sales.
23 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 1. Significant Accounting Policies continued Income Tax Information and Distributions to Shareholders continued |
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 1,014,777 | ||||||
| Unrealized depreciation | (218,981) | |||||||
| Net unrealized appreciation (depreciation) | 795,796 | |||||||
| Undistributed ordinary income | 22,882 | |||||||
| Capital loss carryforward | (70,866) | |||||||
| Cost for federal income tax purposes | $ | 5,085,370 | ||||||
The tax character of distributions paid was as follows: | ||||||||
| October 31, 2005 | October 31, 2004 | |||||||
| Ordinary Income | $ | 34,684 | $ | 19,052 | ||||
| 2. Operating Policies. | ||||||||
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
Futures Contracts. The fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund’s exposure to the underlying instrument, while selling futures tends to decrease a fund’s exposure to the underlying instrument or hedge other fund investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption ”Futures Contracts.” This amount reflects each contract’s exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contracts’ terms. Gains
| Annual Report |
| 24 |
2. Operating Policies continued
Futures Contracts continued
(losses) are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $4,885,511 and $4,144,282, respectively.
4. Fees and Other Transactions with Affiliates.
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment (up to a maximum of ±.20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .63% of the fund’s average net assets.
Transfer Agent Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund’s transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of 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 and Security Lending Fees. FSC maintains the fund’s accounting records. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
25 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 4. Fees and Other Transactions with Affiliates continued |
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Invest ments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $5,495 for the period.
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $56 for the period.
| 5. Committed Line of Credit. |
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the fund’s Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
| Annual Report |
| 26 |
| 7. Expense Reductions. |
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $1,045 for the period. In addition, through arrangements with the fund’s transfer agent, credits realized as a result of uninvested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s transfer agent expenses by $188.
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the perfor mance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is considered remote.
At the end of the period, Fidelity Freedom 2010 Fund, Fidelity Freedom 2020 Fund and Fidelity Freedom 2030 Fund were the owners of record of approximately 10%, 17% and 12%, respectively, of the total outstanding shares of the fund. The Fidelity Freedom Funds were the owners of record, in the aggregate, of approximately 53% of the total outstanding shares of the fund.
27 Annual Report
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and the Shareholders of Fidelity Disciplined Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including the sched ule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Disciplined Equity Fund (a fund of Fidelity Capital Trust) at October 31, 2005 and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fidelity Disciplined Equity 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis statement. 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 October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
| /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts December 7, 2005 |
| Annual Report |
| 28 |
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-544-8544.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Man agement, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
29 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity Investments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Disciplined Equity (2005 present). He also serves as Senior Vice President of other Fidelity funds (2005 present). Mr. Jonas is Executive Director of FMR (2005 present). Previously, Mr. Jonas served as President of Fidelity Enterprise Opera tions and Risk Services (2004 2005), Chief Administrative Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and management positions including Chief Financial Officer of FMR. In addition, he serves on the Boards of Boston Ballet (2003 present) and Simmons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
| Annual Report |
| 30 |
| Independent Trustees: |
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Com pany (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addi tion, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
31 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Acad emy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Pre viously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technologies Inc. (telecommu nications network surveillance, 2001 2004), and Teletech Holdings (cus tomer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
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| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corporation (IBM) and President and General Manager of various IBM divisions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Com pany Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Car olina (16 school system).
33 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Ste vens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2001
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Mem ber of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
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Advisory Board Members and Executive Officers:
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Direc tor (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Disciplined Equity. Mr. Churchill also serves as Vice President of certain Equity Funds (2005 present) and certain High Income Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Churchill joined Fidelity in 1993 as Vice President and Group Leader of Taxable Fixed Income Investments.
35 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Steven J. Snider (45) |
Year of Election or Appointment: 2000
Vice President of Disciplined Equity. Prior to assuming his current responsibilities, Mr. Snider managed a variety of Fidelity funds. Mr. Snider also serves as Vice President of FMR and FMR Co., Inc. (2002).
| Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Disciplined Equity. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Man agement & Research (U.K.) Inc. (2001 present), Fidelity Management & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Management, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Disciplined Equity. Mr. Fross also serves as Assis tant Secretary of other Fidelity funds (2003 present), Vice President and Secretary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Disci plined Equity. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Investments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Disciplined Equity. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Manage ment Services Group (FPCMS).
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| 36 |
| Name, Age; Principal Occupation Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Disciplined Equity. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Executive Vice President of Risk Oversight for Fidelity Investments (2002). Previously, he served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998 2002).
| John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Disciplined Equity. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Disciplined Equity. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Disciplined Equity. Ms. Monasterio also serves as Deputy Treasurer of other Fidelity funds (2004) and is an employee of FMR (2004). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Tem pleton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment: 2005
Deputy Treasurer of Disciplined Equity. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s department of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accoun tant, United States Securities and Exchange Commission (2000 2002).
37 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Disciplined Equity. Mr. Byrnes also serves as Assis tant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice Presi dent of the Investment Operations Group (2000 2003).
| John H. Costello (59) |
Year of Election or Appointment: 1988
Assistant Treasurer of Disciplined Equity. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Disciplined Equity. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Disciplined Equity. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Disciplined Equity. Mr. Ryan also serves as Assis tant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Disciplined Equity. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
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| 38 |
| Distributions |
The fund designates 100% of the dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
The fund designates 100% of the dividends distributed in December during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
39 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Disciplined Equity Fund
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
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prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
41 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objec tive similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the second quartile for the one and five year periods and the first quartile for the three year period. The Board also stated that the relative investment performance of the fund has compared favorably to its benchmark over time.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services provided by Fidelity will benefit the fund’s shareholders, particularly in light of the
43 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 15% means that 85% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s positive performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s positive performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that the fund’s total expenses ranked below its competitive median for 2004.
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
45 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or
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expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
47 Annual Report
| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian State Street Bank and Trust Company Quincy, MA |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| FDE-UANN-1205 1.784777.102 |
| Fidelity® Focused Stock Fund |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The manager’s review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 8 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 9 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 14 | Statements of assets and liabilities, | ||
| operations, and changes in net assets, | ||||
| as well as financial highlights. | ||||
| Notes | 18 | Notes to the financial statements. | ||
| Report of Independent | 24 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 25 | |||
| Distributions | 35 | |||
| Board Approval of | 36 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commis sion’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
| Annual Report |
| 2 |
| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Refer ence Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s portfolio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund companies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that permit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to operate. However, this will only be achieved through close cooperation among regulators, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offend ers should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers including individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we realize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active participation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Life of | |||
| year | years | fundA | ||||
| Fidelity® Focused Stock Fund | 24.78% | 4.76% | 4.84% | |||
| A From November 12, 1996. | ||||||
| $10,000 Over Life of Fund | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Focused Stock Fund on November 12, 1996, when the fund started. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor’s 500SM Index performed over the same period.
A From November 12, 1996.
5 Annual Report
5
Management’s Discussion of Fund Performance
Comments from Robert Haber, Portfolio Manager of Fidelity® Focused Stock Fund
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. The markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a correspond ing leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite® Index at 8.15% . The Dow Jones Industrial Aver ageSM rose 6.45% .
Fidelity Focused Stock Fund was up 24.78% for the 12 month period ending October 31, 2005, solidly outperforming the S&P 500® index and the LipperSM Growth Funds Average which rose 10.58% . Favorable stock selection as well as a focus on strong performing mid capitalization stocks made the biggest contributions to the fund’s performance relative to its index. The fund’s top three performers were oil refineries Valero Energy and Tesoro, which benefited from high global demand for oil and rising gasoline prices, and Apple Computer, which was helped by the popularity of its iPod franchise. All of these stocks contributed a lot by both absolute and relative measures. Other notable contributors were utility companies AES and TXU, and HMO Aetna. In terms of disappointments, stock selection in the consumer staples sector held back the fund’s overall returns, primarily due to its holdings in grain processor Archer Daniels Midland. Semiconductor company Cree and farm machinery maker Deere & Company also were notable detractors.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
| Annual Report |
| 6 6 |
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
| Actual Expenses |
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the share holder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,139.30 | $ | 5.39 | ||||||
| Hypothetical (5% return per year | ||||||||||||
| before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of 1.00%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
7 Annual Report
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| MetLife, Inc. | 4.3 | 0.0 | ||
| Aetna, Inc. | 4.3 | 1.3 | ||
| Valero Energy Corp. | 4.0 | 2.5 | ||
| Kroger Co. | 3.9 | 0.0 | ||
| Radian Group, Inc. | 3.9 | 3.9 | ||
| First American Corp., California | 3.8 | 3.2 | ||
| Sprint Nextel Corp. | 3.8 | 2.5 | ||
| TXU Corp. | 3.7 | 0.2 | ||
| McAfee, Inc. | 3.6 | 0.0 | ||
| Tesoro Corp. | 3.6 | 1.9 | ||
| 38.9 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Financials | 22.3 | 17.4 | ||
| Consumer Discretionary | 12.1 | 11.4 | ||
| Energy | 11.4 | 10.1 | ||
| Information Technology | 11.3 | 12.1 | ||
| Health Care | 9.7 | 11.1 | ||
Annual Report 8
| Investments October 31, 2005 | ||||||
| Showing Percentage of Net Assets | ||||||
| Common Stocks 94.0% | ||||||
| Shares | Value (Note 1) | |||||
| CONSUMER DISCRETIONARY – 12.1% | ||||||
| Household Durables – 5.8% | ||||||
| D.R. Horton, Inc. | 67,733 | $ 2,078,726 | ||||
| Hovnanian Enterprises, Inc. Class A (a) | 1,700 | 76,483 | ||||
| KB Home | 46,710 | 3,052,499 | ||||
| Toll Brothers, Inc. (a) | 32,600 | 1,203,266 | ||||
| 6,410,974 | ||||||
| Multiline Retail – 2.7% | ||||||
| Federated Department Stores, Inc. | 5,100 | 312,987 | ||||
| Nordstrom, Inc. | 76,400 | 2,647,260 | ||||
| 2,960,247 | ||||||
| Textiles, Apparel & Luxury Goods – 3.6% | ||||||
| Polo Ralph Lauren Corp. Class A | 58,100 | 2,858,520 | ||||
| Timberland Co. Class A (a) | 40,000 | 1,126,000 | ||||
| 3,984,520 | ||||||
| TOTAL CONSUMER DISCRETIONARY | 13,355,741 | |||||
| CONSUMER STAPLES 9.0% | ||||||
| Food & Staples Retailing – 5.5% | ||||||
| BJ’s Wholesale Club, Inc. (a) | 32,900 | 936,992 | ||||
| Kroger Co. (a) | 217,200 | 4,322,280 | ||||
| Nash-Finch Co. | 25,000 | 776,500 | ||||
| 6,035,772 | ||||||
| Food Products 2.7% | ||||||
| General Mills, Inc. | 62,300 | 3,006,598 | ||||
| Tobacco 0.8% | ||||||
| Altria Group, Inc. | 10,990 | 824,800 | ||||
| TOTAL CONSUMER STAPLES | 9,867,170 | |||||
| ENERGY 11.4% | ||||||
| Energy Equipment & Services – 1.0% | ||||||
| Lone Star Technologies, Inc. (a) | 23,800 | 1,088,850 | ||||
| Oil, Gas & Consumable Fuels – 10.4% | ||||||
| Anadarko Petroleum Corp | 2,300 | 208,633 | ||||
| Exxon Mobil Corp. | 31,500 | 1,768,410 | ||||
| Sunoco, Inc. | 15,780 | 1,175,610 | ||||
See accompanying notes which are an integral part of the financial statements.
| 9 Annual Report |
| Investments continued | ||||
| Common Stocks continued | ||||
| Shares | Value (Note 1) | |||
| ENERGY – continued | ||||
| Oil, Gas & Consumable Fuels – continued | ||||
| Tesoro Corp. | 64,690 | $ 3,955,794 | ||
| Valero Energy Corp. | 41,700 | 4,388,508 | ||
| 11,496,955 | ||||
| TOTAL ENERGY | 12,585,805 | |||
| FINANCIALS – 22.3% | ||||
| Commercial Banks – 1.4% | ||||
| Bank of America Corp. | 35,200 | 1,539,648 | ||
| Diversified Financial Services – 0.1% | ||||
| Citigroup, Inc. | 2,900 | 132,762 | ||
| Insurance – 13.7% | ||||
| First American Corp., California | 95,900 | 4,202,338 | ||
| LandAmerica Financial Group, Inc. | 16,200 | 1,023,192 | ||
| MetLife, Inc. | 95,230 | 4,705,313 | ||
| Selective Insurance Group, Inc. | 24,300 | 1,334,313 | ||
| The Chubb Corp. | 1,700 | 158,049 | ||
| Triad Guaranty, Inc. (a) | 13,500 | 567,810 | ||
| UICI | 34,200 | 1,235,304 | ||
| W.R. Berkley Corp. | 43,600 | 1,905,320 | ||
| 15,131,639 | ||||
| Real Estate 0.3% | ||||
| Jones Lang LaSalle, Inc. | 6,100 | 306,708 | ||
| Thrifts & Mortgage Finance – 6.8% | ||||
| MGIC Investment Corp. | 52,900 | 3,133,796 | ||
| Radian Group, Inc. | 82,500 | 4,298,250 | ||
| 7,432,046 | ||||
| TOTAL FINANCIALS | 24,542,803 | |||
| HEALTH CARE – 9.7% | ||||
| Biotechnology – 0.5% | ||||
| Amgen, Inc. (a) | 7,500 | 568,200 | ||
| Health Care Providers & Services – 7.9% | ||||
| Aetna, Inc. | 52,700 | 4,667,112 | ||
| CIGNA Corp. | 1,000 | 115,870 | ||
| Humana, Inc. (a) | 72,800 | 3,231,592 | ||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| HEALTH CARE – continued | ||||||
| Health Care Providers & Services – continued | ||||||
| TriZetto Group, Inc. (a) | 29,100 | $ | 412,347 | |||
| UnitedHealth Group, Inc. | 4,400 | 254,716 | ||||
| 8,681,637 | ||||||
| Pharmaceuticals – 1.3% | ||||||
| Johnson & Johnson | 23,600 | 1,477,832 | ||||
| TOTAL HEALTH CARE | 10,727,669 | |||||
| INDUSTRIALS – 8.6% | ||||||
| Aerospace & Defense – 0.6% | ||||||
| AAR Corp. (a) | 41,600 | 662,688 | ||||
| Industrial Conglomerates – 1.3% | ||||||
| General Electric Co. | 39,700 | 1,346,227 | ||||
| Machinery – 5.4% | ||||||
| Deere & Co. | 53,400 | 3,240,312 | ||||
| Terex Corp. (a) | 49,600 | 2,726,512 | ||||
| 5,966,824 | ||||||
| Road & Rail 0.4% | ||||||
| CSX Corp. | 9,800 | 448,938 | ||||
| Trading Companies & Distributors – 0.9% | ||||||
| WESCO International, Inc. (a) | 25,500 | 1,013,625 | ||||
| TOTAL INDUSTRIALS | 9,438,302 | |||||
| INFORMATION TECHNOLOGY – 11.3% | ||||||
| Computers & Peripherals – 4.7% | ||||||
| Apple Computer, Inc. (a) | 45,200 | 2,603,068 | ||||
| Hewlett-Packard Co. | 81,400 | 2,282,456 | ||||
| Western Digital Corp. (a) | 24,070 | 291,247 | ||||
| 5,176,771 | ||||||
| IT Services – 2.1% | ||||||
| Ceridian Corp. (a) | 88,700 | 1,943,417 | ||||
| infoUSA, Inc. | 35,700 | 382,704 | ||||
| 2,326,121 | ||||||
| Semiconductors & Semiconductor Equipment – 0.8% | ||||||
| NVIDIA Corp. (a) | 25,300 | 848,815 | ||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| INFORMATION TECHNOLOGY – continued | ||||||||
| Software 3.7% | ||||||||
| McAfee, Inc. (a) | 133,000 | $ 3,993,990 | ||||||
| Microsoft Corp. | 6,200 | 159,340 | ||||||
| 4,153,330 | ||||||||
| TOTAL INFORMATION TECHNOLOGY | 12,505,037 | |||||||
| MATERIALS 2.1% | ||||||||
| Containers & Packaging – 1.7% | ||||||||
| Crown Holdings, Inc. (a) | 43,500 | 705,570 | ||||||
| Silgan Holdings, Inc. | 35,800 | 1,151,686 | ||||||
| 1,857,256 | ||||||||
| Metals & Mining – 0.4% | ||||||||
| Nucor Corp. | 1,400 | 83,790 | ||||||
| Phelps Dodge Corp. | 3,100 | 373,457 | ||||||
| 457,247 | ||||||||
| TOTAL MATERIALS | 2,314,503 | |||||||
| TELECOMMUNICATION SERVICES – 3.8% | ||||||||
| Wireless Telecommunication Services – 3.8% | ||||||||
| Sprint Nextel Corp. | 177,869 | 4,146,126 | ||||||
| UTILITIES – 3.7% | ||||||||
| Independent Power Producers & Energy Traders – 3.7% | ||||||||
| TXU Corp. | 40,870 | 4,117,653 | ||||||
| TOTAL COMMON STOCKS | ||||||||
| (Cost $95,474,339) | 103,600,809 | |||||||
| U.S. Treasury Obligations 0.1% | ||||||||
| Principal | ||||||||
| Amount | ||||||||
| U.S. Treasury Bills, yield at date of purchase 3.43% to | ||||||||
| 3.78% 11/3/05 to 1/12/06 (c) | ||||||||
| (Cost $139,307) | $ | 140,000 | 139,325 | |||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Money Market Funds 5.5% | ||||||
| Shares | Value (Note 1) | |||||
| Fidelity Cash Central Fund, 3.92% (b) | ||||||
| (Cost $6,091,441) | 6,091,441 | $ 6,091,441 | ||||
| TOTAL INVESTMENT PORTFOLIO 99.6% | ||||||
| (Cost $101,705,087) | 109,831,575 | |||||
| NET OTHER ASSETS – 0.4% | 423,464 | |||||
| NET ASSETS 100% | $ 110,255,039 | |||||
| Futures Contracts | ||||||
| Expiration | Underlying | Unrealized | ||||
| Date | Face Amount | Appreciation/ | ||||
| at Value | (Depreciation) | |||||
| Purchased | ||||||
| Equity Index Contracts | ||||||
| 44 S&P 500 E-Mini Index Contracts | Dec. 2005 | $ 2,661,560 | $ 35,815 | |||
The face value of futures purchased as a percentage of net assets – 2.4%
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. (c) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $139,325. |
Income Tax Information
At October 31, 2005, the fund had a capital loss carryforward of approximately $12,142,008 of which $7,919,335 and $4,222,673 will expire on October 31, 2010 and 2011, respectively.
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| October 31, 2005 | ||||||||
| Assets | ||||||||
| Investment in securities, at value (cost $101,705,087) | ||||||||
| See accompanying schedule | $ | 109,831,575 | ||||||
| Receivable for fund shares sold | 1,016,993 | |||||||
| Dividends receivable | 37,673 | |||||||
| Interest receivable | 12,160 | |||||||
| Receivable for daily variation on futures contracts | 20,885 | |||||||
| Receivable from investment adviser for expense | ||||||||
| reductions | 755 | |||||||
| Other affiliated receivables | 191 | |||||||
| Other receivables | 12,765 | |||||||
| Total assets | 110,932,997 | |||||||
| Liabilities | ||||||||
| Payable for fund shares redeemed | $ | 558,587 | ||||||
| Accrued management fee | 57,808 | |||||||
| Other affiliated payables | 27,061 | |||||||
| Other payables and accrued expenses | 34,502 | |||||||
| Total liabilities | 677,958 | |||||||
| Net Assets | $ | 110,255,039 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 114,119,206 | ||||||
| Undistributed net investment income | 159,778 | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments and foreign currency transactions | (12,186,248) | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments | 8,162,303 | |||||||
| Net Assets, for 9,698,122 shares outstanding | $ | 110,255,039 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($110,255,039 ÷ 9,698,122 shares) | $ | 11.37 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Statement of Operations | ||||||
| Year ended October 31, 2005 | ||||||
| Investment Income | ||||||
| Dividends | $ | 751,744 | ||||
| Special Dividends | 115,002 | |||||
| Interest | 116,764 | |||||
| Security lending | 2,242 | |||||
| Total income | 985,752 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 406,235 | ||||
| Performance adjustment | (24,048) | |||||
| Transfer agent fees | 230,433 | |||||
| Accounting and security lending fees | 29,083 | |||||
| Independent trustees’ compensation | 299 | |||||
| Custodian fees and expenses | 5,508 | |||||
| Registration fees | 31,128 | |||||
| Audit | 41,205 | |||||
| Legal | 1,122 | |||||
| Miscellaneous | 547 | |||||
| Total expenses before reductions | 721,512 | |||||
| Expense reductions | (23,946) | 697,566 | ||||
| Net investment income (loss) | 288,186 | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on: | ||||||
| Investment securities | 7,030,766 | |||||
| Foreign currency transactions | 82 | |||||
| Futures contracts | (34,901) | |||||
| Total net realized gain (loss) | 6,995,947 | |||||
| Change in net unrealized appreciation (depreciation) on: | ||||||
| Investment securities | 5,047,844 | |||||
| Futures contracts | 35,815 | |||||
| Total change in net unrealized appreciation | ||||||
| (depreciation) | 5,083,659 | |||||
| Net gain (loss) | 12,079,606 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 12,367,792 | ||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Financial Statements continued | ||||||||
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| 2005 | 2004 | |||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | 288,186 | $ | 2,097 | ||||
| Net realized gain (loss) | 6,995,947 | 2,936,713 | ||||||
| Change in net unrealized appreciation (depreciation) . | 5,083,659 | 610,038 | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 12,367,792 | 3,548,848 | ||||||
| Distributions to shareholders from net investment income . | (128,489) | (81,588) | ||||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 97,160,584 | 10,421,332 | ||||||
| Reinvestment of distributions | 122,574 | 77,547 | ||||||
| Cost of shares redeemed | (38,158,401) | (8,675,487) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | 59,124,757 | 1,823,392 | ||||||
| Redemption fees | 17,708 | 1,288 | ||||||
| Total increase (decrease) in net assets | 71,381,768 | 5,291,940 | ||||||
| Net Assets | ||||||||
| Beginning of period | 38,873,271 | 33,581,331 | ||||||
| End of period (including undistributed net investment | ||||||||
| income of $159,778 and undistributed net invest- | ||||||||
| ment income of $0, respectively) | $ | 110,255,039 | $ | 38,873,271 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 8,970,777 | 1,179,746 | ||||||
| Issued in reinvestment of distributions | 12,482 | 9,188 | ||||||
| Redeemed | (3,538,668) | (987,625) | ||||||
| Net increase (decrease) | 5,444,591 | 201,309 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 16 |
| Financial Highlights | ||||||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||
| Selected Per Share Data | ||||||||||||||
| Net asset value, beginning of period | $ 9.14 | $ | 8.29 | $ | 7.26 | $ 10.54 | $ 15.92 | |||||||
| Income from Investment Operations | ||||||||||||||
| Net investment income (loss)B | 04F | —D | .02 | (.07) | .01 | |||||||||
| Net realized and unrealized gain | ||||||||||||||
| (loss) | 2.22 | .87 | 1.01 | (3.21) | (4.12) | |||||||||
| Total from investment operations | 2.26 | .87 | 1.03 | (3.28) | (4.11) | |||||||||
| Distributions from net investment | ||||||||||||||
| income | (.03) | (.02) | — | — | (.02) | |||||||||
| Distributions from net realized gain | — | — | — | (1.25) | ||||||||||
| Total distributions | (.03) | (.02) | — | — | (1.27) | |||||||||
| Redemption fees added to paid in | ||||||||||||||
| capitalB,D | — | — | — | — | — | |||||||||
| Net asset value, end of period | $ 11.37 | $ | 9.14 | $ | 8.29 | $ 7.26 | $ 10.54 | |||||||
| Total ReturnA,E | 24.78% | 10.51% | 14.19% | (31.12)% | (27.74)% | |||||||||
| Ratios to Average Net AssetsC | ||||||||||||||
| Expenses before expense | ||||||||||||||
| reductions | 1.01% | 1.07% | 1.08% | 1.33% | 1.26% | |||||||||
| Expenses net of voluntary waiv- | ||||||||||||||
| ers, if any | 1.01% | 1.07% | 1.08% | 1.33% | 1.26% | |||||||||
| Expenses net of all reductions | 98% | 1.02% | 1.03% | 1.20% | 1.22% | |||||||||
| Net investment income (loss) | 40%F | .01% | .20% | (.71)% | .09% | |||||||||
| Supplemental Data | ||||||||||||||
| Net assets, end of period | ||||||||||||||
| (000 omitted) | $110,255 | $ | 38,873 | $ | 33,581 | $33,214 | $49,135 | |||||||
| Portfolio turnover rate | 158% | 201% | 199% | 256% | 309% |
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. B Calculated based on average shares outstanding during the period. C Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions repre sent the net expenses paid by the fund. D Amount represents less than $.01 per share. E Total returns do not include the effect of the former sales charges. F Investment income per share reflects an in kind dividend received in a corporate reorganization which amounted to $.02 per share. Excluding this dividend, the ratio of net investment income to average net assets would have been .24%. |
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
Notes to Financial Statements
| For the period ended October 31, 2005 |
1. Significant Accounting Policies.
Fidelity Focused Stock Fund (the fund) is a fund of Fidelity Capital 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 manage ment investment company organized as a Massachusetts business trust. The fund may invest in affiliated money market central funds (Money Market Central Funds) which are open end investment companies available to investment companies and other accounts managed by FMR and its affiliates. The financial statements have been pre pared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant account ing policies of the fund: Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Debt securities, including restricted securities, for which quotations are readily available, are valued by independent pricing services or by dealers who make markets in such securities. Pricing services consider yield or price of bonds of comparable quality, coupon, maturity and type as well as dealer supplied prices. Investments in open end mutual funds, are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
| Annual Report |
| 18 |
1. Significant Accounting Policies continued
Foreign Currency. The fund uses foreign currency contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms.
Foreign denominated assets, including investment securities, and liabilities are trans lated into U.S. dollars at the exchange rate at period end. Purchases and sales of invest ment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transac tion date.
The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Large, non recurring divi dends recognized by the fund are presented separately in the Statement of Operations as “Special Dividends” and the impact of these dividends is presented in the Financial Highlights. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests.
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles.
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
19 Annual Report
| Notes to Financial Statements continued 1. Significant Accounting Policies continued Income Tax Information and Distributions to Shareholders continued |
Book tax differences are primarily due to futures transactions, capital loss carryforwards and losses deferred due to wash sales.
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 10,869,427 | ||
| Unrealized depreciation | (2,751,367) | |||
| Net unrealized appreciation (depreciation) | 8,118,060 | |||
| Undistributed ordinary income | 159,778 | |||
| Capital loss carryforward | (12,142,008) | |||
| Cost for federal income tax purposes | $ | 101,713,515 | ||
The tax character of distributions paid was as follows:
| October 31, | October 31, | |||||||
| 2005 | 2004 | |||||||
| Ordinary Income | $ | 128,489 | $ | 81,588 |
Short Term Trading (Redemption) Fees. Shares held in the fund less than 30 days are subject to a redemption fee equal to .75% of the proceeds of the redeemed shares. All redemption fees, including any estimated redemption fees paid by Fidelity Management & Research Company (FMR), are retained by the fund and accounted for as an addition to paid in capital.
| 2. Operating Policies. |
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
| Annual Report |
| 20 |
2. Operating Policies continued
Futures Contracts. The fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund’s exposure to the underlying instrument, while selling futures tends to decrease a fund’s exposure to the underlying instrument or hedge other fund investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption “Futures Contracts.” This amount reflects each contract’s exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contracts’ terms. Gains (losses) are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $162,307,782 and $106,438,282, respectively.
4. Fees and Other Transactions with Affiliates.
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment (up to a maximum of +/ 20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .54% of the fund’s average net assets.
Transfer Agent Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund’s transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset based fees that vary according to account size and type of ac count. FSC pays for typesetting, printing and mailing of shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .32% of average net assets.
21 Annual Report
| Notes to Financial Statements continued 4. Fees and Other Transactions with Affiliates continued |
Accounting and Security Lending Fees. FSC maintains the fund’s accounting re cords. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Invest ments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $118,768 for the period
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $3,711 for the period.
| 5. Committed Line of Credit. |
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insol vency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. At period end there were no security loans outstanding. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
| Annual Report |
| 22 |
| 7. Expense Reductions. |
Effective February 1, 2005, FMR voluntarily agreed to reimburse the fund to the extent annual operating expenses exceeded 1.00% of average net assets. Some expenses, for example interest expense, are excluded from this reimbursement. During the period, this reimbursement reduced the fund’s expenses by $755.
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $23,176 for the period. In addition, Through arrangements with the fund’s custodian, credits realized as a result of unin vested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s custody expenses by $15.
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the perfor mance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum expo sure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is consid ered remote.
23 Annual Report
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and the Shareholders of Fidelity Focused Stock Fund:
In our opinion, the accompanying statement of assets and liabilities, including the sched ule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Focused Stock Fund (a fund of Fidelity Capital Trust) at October 31, 2005 and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fidelity Focused Stock Fund’s management; our responsibility is to express an opinion on these financial state ments based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material mis statement. 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 October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
| /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts December 9, 2005 |
| Annual Report |
| 24 |
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-544-8544.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Man agement, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
25 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity Investments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Focused Stock (2005 present). He also serves as Senior Vice President of other Fidelity funds (2005 pres ent). Mr. Jonas is Executive Director of FMR (2005 present). Previously, Mr. Jonas served as President of Fidelity Enterprise Operations and Risk Services (2004 2005), Chief Administrative Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and management positions including Chief Financial Officer of FMR. In addi tion, he serves on the Boards of Boston Ballet (2003 present) and Sim mons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
| Annual Report |
| 26 |
| Independent Trustees: |
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Com pany (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addi tion, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
27 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Acad emy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Pre viously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technologies Inc. (telecommu nications network surveillance, 2001 2004), and Teletech Holdings (cus tomer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
| Annual Report |
| 28 |
| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corpora tion (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corporation (IBM) and President and General Manager of various IBM divisions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Com pany Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Car olina (16 school system).
29 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Ste vens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2001
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Mem ber of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
| Annual Report |
| 30 |
Advisory Board Members and Executive Officers:
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Direc tor (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Focused Stock. Mr. Churchill also serves as Vice Presi dent of certain Equity Funds (2005 present) and certain High Income Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Churchill joined Fidelity in 1993 as Vice President and Group Leader of Taxable Fixed Income Investments.
31 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Robert J. Haber (47) |
Year of Election or Appointment: 2004
Vice President of Focused Stock. Prior to assuming his current responsibilities, Mr. Haber managed a variety of Fidelity funds. Mr. Haber also serves as Senior Vice President of FMR (2001) and FMR Co., Inc. (2001).
| Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Focused Stock. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001 present), Fidelity Management & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Manage ment, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corpora tion (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Focused Stock. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003 present), Vice President and Sec retary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Focused Stock. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Investments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Focused Stock. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Manage ment Services Group (FPCMS).
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| 32 |
| Name, Age; Principal Occupation Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Focused Stock. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Execu tive Vice President of Risk Oversight for Fidelity Investments (2002). Pre viously, he served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998 2002).
| John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Focused Stock. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Focused Stock. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Focused Stock. Ms. Monasterio also serves as Dep uty Treasurer of other Fidelity funds (2004) and is an employee of FMR (2004). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Temple ton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment: 2005
Deputy Treasurer of Focused Stock. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s department of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accoun tant, United States Securities and Exchange Commission (2000 2002).
33 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Focused Stock. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice Presi dent of the Investment Operations Group (2000 2003).
| John H. Costello (59) |
Year of Election or Appointment: 1996
Assistant Treasurer of Focused Stock. Mr. Costello also serves as Assis tant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Focused Stock. Mr. Lydecker also serves as Assis tant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Focused Stock. Mr. Osterheld also serves as Assis tant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Focused Stock. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Focused Stock. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
| Annual Report |
| 34 |
| Distributions |
The fund designates 100% of the dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
The fund designates 79% of the dividends distributed in December during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
35 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Focused Stock Fund
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
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| 36 |
prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
37 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objec tive similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the first quartile for the one year period, the fourth quartile for the three year period, and the third quartile for the five year period. The Board also stated that the relative investment performance of the fund was lower than its benchmark for certain periods, although the one year cumulative total return of the fund compared favorably to its benchmark.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services
39 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
provided by Fidelity will benefit the fund’s shareholders, particularly in light of the Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 15% means that 85% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s negative performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s negative performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that, but for the fund’s negative performance adjustment, the fund’s total expenses would have ranked above its competitive median for 2004. Furthermore, the Board considered that, effective February 1, 2005, FMR voluntarily agreed to reim burse the fund to the extent that total operating expenses (excluding certain expenses) exceed 100 basis points. The Board considered that, if the 100 basis point voluntary expense reimbursement had been in effect in 2004, the fund’s total expenses would have ranked below the median.
41 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds
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(including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
43 Annual Report
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 Automated Service Telephone provides 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.
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.
* 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 guar anteed 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.
Annual Report 44
To Write Fidelity
We’ll give your correspondence immediate attention and send you written confirmation upon completion of your request.
| (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
45 Annual Report
To Visit Fidelity
| For directions and hours, please call 1 800 544 9797. Arizona 7001 West Ray Road Chandler, AZ 7373 N. Scottsdale Road Scottsdale, AZ California 815 East Birch Street Brea, CA 1411 Chapin Avenue Burlingame, CA 851 East Hamilton Avenue Campbell, CA 19200 Von Karman Avenue Irvine, CA 601 Larkspur Landing Circle Larkspur, CA 10100 Santa Monica Blvd. Los Angeles, CA 27101 Puerta Real Mission Viejo, CA 73 575 El Paseo Palm Desert, CA 251 University Avenue Palo Alto, CA 123 South Lake Avenue Pasadena, CA 16995 Bernardo Ctr. Drive Rancho Bernardo, CA 1740 Arden Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 8 Montgomery Street San Francisco, CA 3793 State Street Santa Barbara, CA 21701 Hawthorne Boulevard Torrance, CA 2001 North Main Street Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA |
| Colorado 1625 Broadway Denver, CO 9185 East Westview Road Littleton, 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. Federal Highway Boca Raton, FL 121 Alhambra Plaza Coral Gables, FL 2948 N. Federal Highway Ft. Lauderdale, FL 1907 West State Road 434 Longwood, FL 8880 Tamiami Trail, North Naples, FL 3550 Tamiami Trail, South Sarasota, FL 1502 N. Westshore Blvd. Tampa, FL 2465 State Road 7 Wellington, FL 3501 PGA Boulevard West Palm Beach, FL Georgia 3445 Peachtree Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA Illinois One North LaSalle Street Chicago, IL 875 North Michigan Ave. 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 Kansas 5400 College Boulevard Overland Park, KS Maine Three Canal Plaza Portland, ME Maryland 7315 Wisconsin Avenue Bethesda, MD One W. Pennsylvania Ave. Towson, MD Massachusetts 801 Boylston Street Boston, MA 155 Congress Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 405 Cochituate Road Framingham, MA 416 Belmont Street Worcester, MA Michigan 500 E. Eisenhower Pkwy. Ann Arbor, MI 280 Old N. Woodward Ave. Birmingham, MI 43420 Grand River Avenue Novi, MI 29155 Northwestern Hwy. Southfield, MI Minnesota 7600 France Avenue South Edina, MN Missouri 8885 Ladue Road Ladue, MO |
Annual Report 46
| Nevada 2225 Village Walk Drive Henderson, NV New Jersey 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 396 Route 17, North Paramus, NJ 3518 Route 1 North Princeton, NJ 530 Highway 35 Shrewsbury, NJ New York 1055 Franklin Avenue Garden City, NY 37 West Jericho Turnpike Huntington Station, NY 1271 Avenue of the Americas New York, NY 61 Broadway New York, NY 350 Park Avenue New York, NY 200 Fifth Avenue New York, NY 733 Third Avenue New York, NY 11 Penn Plaza New York, NY 2070 Broadway New York, NY 1075 Northern Blvd. Roslyn, NY North Carolina 4611 Sharon Road Charlotte, NC Ohio 3805 Edwards Road Cincinnati, OH 1324 Polaris Parkway Columbus, OH 28699 Chagrin Boulevard Woodmere Village, OH Oregon 16850 SW 72nd Avenue Tigard, OR |
| Pennsylvania 600 West DeKalb Pike King of Prussia, PA 1735 Market Street Philadelphia, PA 12001 Perry Highway Wexford, PA Rhode Island 47 Providence Place Providence, RI Tennessee 6150 Poplar Avenue Memphis, TN Texas 10000 Research Boulevard Austin, TX 4001 Northwest Parkway Dallas, TX 12532 Memorial Drive Houston, TX 2701 Drexel Drive Houston, TX 6500 N. MacArthur Blvd. Irving, TX 6005 West Park Boulevard Plano, TX 14100 San Pedro San Antonio, TX 1576 East Southlake Blvd. Southlake, TX 19740 IH 45 North Spring, TX Utah 215 South State Street Salt Lake City, UT Virginia 1861 International Drive McLean, VA Washington 411 108th Avenue, N.E. Bellevue, WA 1518 6th Avenue Seattle, WA Washington, DC 1900 K Street, N.W. Washington, DC Wisconsin 595 North Barker Road Brookfield, WI |
Fidelity Brokerage Services, Inc., 100 Summer St., Boston, MA 02110 Member NYSE/SIPC
47 Annual Report
47
| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian JPMorgan Chase Bank New York, NY |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| TQG UANN-1205 1.784778.102 |
| Fidelity® Small Cap Independence Fund |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The managers’ review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 9 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 10 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 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 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 29 | |||
| Distributions | 39 | |||
| Board Approval of | 40 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commis sion’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
| Annual Report |
| 2 |
| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Refer ence Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s portfolio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund companies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that permit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to operate. However, this will only be achieved through close cooperation among regulators, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offenders should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers including individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we realize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active par ticipation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Past 10 | |||
| year | years | years | ||||
| Fidelity® Small Cap Independence Fund | 19.05% | 6.81% | 8.15% | |||
| $10,000 Over 10 Years | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Small Cap Independence Fund on October 31, 1995. The chart shows how the value of your investment would have changed, and also shows how the Russell 2000® Index performed over the same period.
5 Annual Report
5
Management’s Discussion of Fund Performance
Comments from Jamie Harmon, Portfolio Manager of Fidelity® Small Cap Independence Fund for most of the period covered by this report. Richard Thompson became manager of the fund on October 31, 2005.
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. However, the markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a corresponding leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite® Index at 8.15% . The Dow Jones Industrial AverageSM rose 6.45% ..
The fund gained 19.05% during the past year, beating the 12.08% and 12.68% returns of the Russell 2000® Index and the LipperSM Small Cap Funds Average, respectively. Energy, consumer discretionary and health care helped the most. In energy, Oil States Inter national benefited from strong demand for its products and services, which help other energy companies find more gas and oil. Another winner was Vintage Petroleum, which agreed to be acquired by Occidental Petroleum. Among consumer discretionary stocks, William Lyon Homes did well. The company gained as the market started to focus on the company’s plans to expand new home community openings in 2006. Other strong perform ers included Ambassadors Group, which runs educational trips for students, and wireless communications service provider NII Holdings. Both William Lyon Homes and NII were sold from the portfolio before period end. By contrast, investments in financials and consumer staples hurt performance. In financials, reinsurance company Montpelier Re Holdings was hurt by the claims stemming from Hurricane Katrina. In consumer staples, BJ’s Wholesale Club performed poorly as investors questioned the durability of its turn around as well as the future strength of consumer spending. Elsewhere, Regis, the largest operator of hair salons, was hurt by fashion trends, with longer hairstyles leading to fewer haircuts.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
| Annual Report |
| 6 6 |
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
| Actual Expenses |
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the share holder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
7 Annual Report
Shareholder Expense Example continued
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,144.00 | $ | 4.22 | ||||||
| Hypothetical (5% return per year | ||||||||||||
| before expenses) | $ | 1,000.00 | $ | 1,021.27 | $ | 3.97 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of .78%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
| Annual Report |
| 8 |
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Philadelphia Consolidated Holdings Corp. | 2.5 | 2.3 | ||
| Alliant Techsystems, Inc. | 2.0 | 2.3 | ||
| Fisher Scientific International, Inc. | 2.0 | 2.6 | ||
| Renal Care Group, Inc. | 2.0 | 1.9 | ||
| Omnicare, Inc. | 1.9 | 1.4 | ||
| Sierra Health Services, Inc. | 1.7 | 0.6 | ||
| Fidelity National Financial, Inc. | 1.7 | 1.7 | ||
| Oil States International, Inc. | 1.6 | 1.0 | ||
| Jarden Corp. | 1.6 | 1.7 | ||
| Plains Exploration & Production Co. | 1.6 | 1.0 | ||
| 18.6 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Financials | 19.6 | 22.9 | ||
| Health Care | 19.4 | 14.1 | ||
| Consumer Discretionary | 16.6 | 16.9 | ||
| Energy | 12.6 | 12.9 | ||
| Information Technology | 11.8 | 9.0 | ||
9 Annual Report
| Investments October 31, 2005 | ||||||||
| Showing Percentage of Net Assets | ||||||||
| Common Stocks 99.4% | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| CONSUMER DISCRETIONARY – 16.6% | ||||||||
| Auto Components 1.3% | ||||||||
| Aftermarket Technology Corp. (a) | 643,200 | $ | 11,854 | |||||
| Keystone Automotive Industries, Inc. (a) | 84,836 | 2,427 | ||||||
| Noble International Ltd. | 299,300 | 7,031 | ||||||
| 21,312 | ||||||||
| Distributors – 1.4% | ||||||||
| Advanced Marketing Services, Inc. (a) | 528,746 | 2,062 | ||||||
| Prestige Brands Holdings, Inc. | 1,634,400 | 19,695 | ||||||
| 21,757 | ||||||||
| Diversified Consumer Services – 2.3% | ||||||||
| Jackson Hewitt Tax Service, Inc. | 928,700 | 22,957 | ||||||
| Regis Corp. | 350,837 | 13,458 | ||||||
| 36,415 | ||||||||
| Hotels, Restaurants & Leisure 3.1% | ||||||||
| Ambassadors Group, Inc. | 494,404 | 12,845 | ||||||
| Applebee’s International, Inc. | 737,741 | 16,164 | ||||||
| Domino’s Pizza, Inc. | 786,800 | 18,820 | ||||||
| Fox & Hound Restaurant Group (a) | 189,500 | 2,482 | ||||||
| 50,311 | ||||||||
| Household Durables – 2.0% | ||||||||
| Blount International, Inc. (a) | 415,100 | 6,583 | ||||||
| Jarden Corp. (a)(d) | 751,825 | 25,404 | ||||||
| 31,987 | ||||||||
| Internet & Catalog Retail 0.7% | ||||||||
| Insight Enterprises, Inc. (a) | 552,500 | 11,337 | ||||||
| Varsity Group, Inc. (a) | 35,372 | 177 | ||||||
| 11,514 | ||||||||
| Media – 1.1% | ||||||||
| New Frontier Media, Inc. (a)(e) | 1,161,112 | 6,560 | ||||||
| Saga Communications, Inc. Class A (a) | 834,494 | 10,506 | ||||||
| 17,066 | ||||||||
| Specialty Retail – 4.2% | ||||||||
| Asbury Automotive Group, Inc. (a) | 490,600 | 8,291 | ||||||
| Big 5 Sporting Goods Corp. | 612,071 | 13,576 | ||||||
| Group 1 Automotive, Inc. (a) | 134,761 | 3,725 | ||||||
| Lithia Motors, Inc. Class A (sub. vtg.) | 371,879 | 10,130 | ||||||
| Pacific Sunwear of California, Inc. (a) | 318,000 | 7,956 | ||||||
| PETCO Animal Supplies, Inc. (a) | 679,700 | 12,921 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER DISCRETIONARY – continued | ||||||
| Specialty Retail – continued | ||||||
| Pomeroy IT Solutions, Inc. (a) | 264,466 | $ | 3,028 | |||
| The Men’s Wearhouse, Inc. (a) | 293,150 | 7,241 | ||||
| Whitehall Jewellers, Inc. (a)(e) | 774,200 | 790 | ||||
| 67,658 | ||||||
| Textiles, Apparel & Luxury Goods – 0.5% | ||||||
| Perry Ellis International, Inc. (a) | 410,104 | 8,485 | ||||
| TOTAL CONSUMER DISCRETIONARY | 266,505 | |||||
| CONSUMER STAPLES 1.5% | ||||||
| Food & Staples Retailing – 1.5% | ||||||
| BJ’s Wholesale Club, Inc. (a) | 859,783 | 24,487 | ||||
| ENERGY 12.6% | ||||||
| Energy Equipment & Services – 3.4% | ||||||
| Offshore Logistics, Inc. (a) | 206,000 | 7,004 | ||||
| Oil States International, Inc. (a) | 785,500 | 26,000 | ||||
| Superior Energy Services, Inc. (a) | 469,900 | 9,577 | ||||
| Unit Corp. (a) | 231,600 | 12,136 | ||||
| 54,717 | ||||||
| Oil, Gas & Consumable Fuels – 9.2% | ||||||
| Atlas America, Inc. (a) | 130,500 | 6,081 | ||||
| Encore Acquisition Co. (a) | 574,750 | 19,720 | ||||
| Energy Partners Ltd. (a) | 338,300 | 8,583 | ||||
| Forest Oil Corp. (a) | 231,700 | 10,121 | ||||
| Holly Corp. | 282,200 | 16,255 | ||||
| KCS Energy, Inc. (a) | 421,300 | 10,162 | ||||
| Petroleum Development Corp. (a) | 245,800 | 8,254 | ||||
| Plains Exploration & Production Co. (a) | 651,200 | 25,397 | ||||
| Vintage Petroleum, Inc. | 372,000 | 19,303 | ||||
| Whiting Petroleum Corp. New (a) | 264,800 | 10,738 | ||||
| World Fuel Services Corp. | 423,054 | 13,495 | ||||
| 148,109 | ||||||
| TOTAL ENERGY | 202,826 | |||||
| FINANCIALS – 19.6% | ||||||
| Commercial Banks – 3.2% | ||||||
| Hanmi Financial Corp. | 789,882 | 14,463 | ||||
| Nara Bancorp, Inc. | 158,236 | 2,853 | ||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| FINANCIALS – continued | ||||||
| Commercial Banks – continued | ||||||
| Oriental Financial Group, Inc. | 524,900 | $ | 6,519 | |||
| Sterling Financial Corp., Washington | 376,400 | 9,425 | ||||
| UCBH Holdings, Inc. | 771,700 | 13,428 | ||||
| Wilshire Bancorp, Inc. | 284,400 | 4,644 | ||||
| 51,332 | ||||||
| Diversified Financial Services – 1.1% | ||||||
| EuroBancshares, Inc. (a) | 503,000 | 5,241 | ||||
| Marlin Business Services Corp. (a) | 514,711 | 12,096 | ||||
| 17,337 | ||||||
| Insurance – 12.5% | ||||||
| AmerUs Group Co. (d) | 232,624 | 13,753 | ||||
| Aspen Insurance Holdings Ltd. | 530,300 | 12,828 | ||||
| Berkshire Hathaway, Inc. Class A (a) | 173 | 14,861 | ||||
| Fidelity National Financial, Inc. | 725,500 | 27,177 | ||||
| Fidelity National Title Group, Inc. Class A | 125,422 | 2,728 | ||||
| Hilb Rogal & Hobbs Co. | 495,900 | 18,571 | ||||
| IPC Holdings Ltd. | 147,676 | 3,888 | ||||
| LandAmerica Financial Group, Inc. | 135,800 | 8,577 | ||||
| Montpelier Re Holdings Ltd. | 734,924 | 14,772 | ||||
| Philadelphia Consolidated Holdings Corp. (a) | 411,916 | 39,648 | ||||
| Protective Life Corp. | 130,100 | 5,704 | ||||
| Reinsurance Group of America, Inc. | 141,200 | 6,460 | ||||
| Scottish Re Group Ltd. | 332,350 | 8,159 | ||||
| StanCorp Financial Group, Inc. | 182,077 | 16,769 | ||||
| Universal American Financial Corp. (a) | 565,100 | 8,363 | ||||
| 202,258 | ||||||
| Real Estate 0.6% | ||||||
| Education Realty Trust, Inc. | 334,516 | 5,185 | ||||
| Windrose Medical Properties Trust | 279,400 | 4,233 | ||||
| 9,418 | ||||||
| Thrifts & Mortgage Finance – 2.2% | ||||||
| Doral Financial Corp. (d) | 552,976 | 4,733 | ||||
| Farmer Mac Class C (non-vtg.) | 331,100 | 8,609 | ||||
| NetBank, Inc. | 396,200 | 3,098 | ||||
| R&G Financial Corp. Class B | 671,819 | 6,584 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| FINANCIALS – continued | ||||||
| Thrifts & Mortgage Finance – continued | ||||||
| Rainier Pacific Financial Group, Inc. | 271,380 | $ | 4,101 | |||
| W Holding Co., Inc. | 1,084,034 | 8,358 | ||||
| 35,483 | ||||||
| TOTAL FINANCIALS | 315,828 | |||||
| HEALTH CARE – 19.4% | ||||||
| Health Care Equipment & Supplies – 4.0% | ||||||
| CONMED Corp. (a) | 654,700 | 15,700 | ||||
| Fisher Scientific International, Inc. (a) | 585,381 | 33,074 | ||||
| Merit Medical Systems, Inc. (a) | 860,092 | 10,252 | ||||
| Nutraceutical International Corp. (a) | 490,406 | 6,469 | ||||
| 65,495 | ||||||
| Health Care Providers & Services – 15.4% | ||||||
| Allied Healthcare International, Inc. (a)(e) | 2,309,858 | 14,067 | ||||
| American Dental Partners, Inc. (a) | 71,081 | 1,507 | ||||
| AmSurg Corp. (a) | 521,400 | 12,383 | ||||
| Apria Healthcare Group, Inc. (a) | 860,114 | 19,843 | ||||
| Corvel Corp. (a) | 150,611 | 3,310 | ||||
| Genesis HealthCare Corp. (a) | 428,000 | 17,368 | ||||
| Humana, Inc. (a) | 306,100 | 13,588 | ||||
| LifePoint Hospitals, Inc. (a) | 508,900 | 19,898 | ||||
| Omnicare, Inc. | 566,428 | 30,644 | ||||
| Pediatrix Medical Group, Inc. (a) | 127,200 | 9,802 | ||||
| RehabCare Group, Inc. (a) | 500,100 | 10,647 | ||||
| Renal Care Group, Inc. (a) | 671,817 | 31,475 | ||||
| Sierra Health Services, Inc. (a) | 373,100 | 27,983 | ||||
| Universal Health Services, Inc. Class B | 318,100 | 14,995 | ||||
| WellChoice, Inc. (a) | 263,700 | 19,949 | ||||
| 247,459 | ||||||
| TOTAL HEALTH CARE | 312,954 | |||||
| INDUSTRIALS – 11.8% | ||||||
| Aerospace & Defense – 3.1% | ||||||
| Alliant Techsystems, Inc. (a) | 471,730 | 33,125 | ||||
| DRS Technologies, Inc. | 354,800 | 17,477 | ||||
| 50,602 | ||||||
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INDUSTRIALS – continued | ||||||
| Air Freight & Logistics – 0.8% | ||||||
| Pacer International, Inc. | 466,877 | $ | 12,069 | |||
| Commercial Services & Supplies – 5.0% | ||||||
| Corrections Corp. of America (a) | 450,319 | 17,959 | ||||
| FTI Consulting, Inc. (a) | 906,500 | 24,811 | ||||
| Intersections, Inc. (a) | 255,778 | 3,440 | ||||
| PeopleSupport, Inc. | 88,731 | 710 | ||||
| SOURCECORP, Inc. (a)(e) | 793,600 | 18,054 | ||||
| The Geo Group, Inc. (a)(e) | 746,275 | 16,299 | ||||
| 81,273 | ||||||
| Construction & Engineering – 1.1% | ||||||
| URS Corp. (a) | 438,600 | 17,733 | ||||
| Electrical Equipment – 0.6% | ||||||
| Genlyte Group, Inc. (a) | 174,300 | 8,884 | ||||
| Road & Rail 0.1% | ||||||
| Universal Truckload Services, Inc. | 57,100 | 1,151 | ||||
| Trading Companies & Distributors – 1.1% | ||||||
| BlueLinx Corp. | 579,130 | 7,031 | ||||
| UAP Holding Corp. | 548,000 | 10,467 | ||||
| 17,498 | ||||||
| TOTAL INDUSTRIALS | 189,210 | |||||
| INFORMATION TECHNOLOGY – 11.8% | ||||||
| Communications Equipment – 1.5% | ||||||
| Black Box Corp. | 180,200 | 7,230 | ||||
| Plantronics, Inc. | 570,800 | 17,038 | ||||
| 24,268 | ||||||
| Electronic Equipment & Instruments – 1.9% | ||||||
| Global Imaging Systems, Inc. (a) | 402,087 | 14,318 | ||||
| Measurement Specialties, Inc. (a) | 590,400 | 14,105 | ||||
| SYNNEX Corp. (a) | 97,400 | 1,725 | ||||
| 30,148 | ||||||
| Internet Software & Services – 1.1% | ||||||
| Digital River, Inc. (a) | 635,500 | 17,800 | ||||
| IT Services – 5.1% | ||||||
| Affiliated Computer Services, Inc. Class A (a) | 241,039 | 13,043 | ||||
| Anteon International Corp. (a) | 379,600 | 17,158 | ||||
| CACI International, Inc. Class A (a) | 259,700 | 14,164 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| IT Services – continued | ||||||
| Computer Sciences Corp. (a)(d) | 381,800 | $ | 19,567 | |||
| SI International, Inc. (a) | 227,571 | 6,570 | ||||
| The BISYS Group, Inc. (a) | 900,300 | 11,416 | ||||
| 81,918 | ||||||
| Semiconductors & Semiconductor Equipment – 0.1% | ||||||
| ESS Technology, Inc. (a) | 543,199 | 1,570 | ||||
| Software 2.1% | ||||||
| Blackbaud, Inc. | 637,451 | 9,179 | ||||
| EPIQ Systems, Inc. (a) | 496,787 | 9,464 | ||||
| Pervasive Software, Inc. (a) | 818,468 | 3,438 | ||||
| SERENA Software, Inc. (a) | 522,424 | 11,436 | ||||
| 33,517 | ||||||
| TOTAL INFORMATION TECHNOLOGY | 189,221 | |||||
| MATERIALS 4.6% | ||||||
| Chemicals – 2.2% | ||||||
| OM Group, Inc. (a) | 437,000 | 6,983 | ||||
| RPM International, Inc. | 773,100 | 14,395 | ||||
| Spartech Corp. | 707,800 | 13,427 | ||||
| 34,805 | ||||||
| Containers & Packaging – 0.4% | ||||||
| Packaging Dynamics Corp. (e) | 729,387 | 7,425 | ||||
| Metals & Mining – 1.4% | ||||||
| Compania de Minas Buenaventura SA sponsored ADR | 653,000 | 16,828 | ||||
| Olympic Steel, Inc. (a)(d) | 340,444 | 6,053 | ||||
| 22,881 | ||||||
| Paper & Forest Products 0.6% | ||||||
| Schweitzer-Mauduit International, Inc. | 395,400 | 9,577 | ||||
| TOTAL MATERIALS | 74,688 | |||||
| TELECOMMUNICATION SERVICES – 0.3% | ||||||
| Diversified Telecommunication Services – 0.3% | ||||||
| Premiere Global Services, Inc. (a) | 498,600 | 4,228 | ||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| UTILITIES – 1.2% | ||||||||
| Multi-Utilities – 1.2% | ||||||||
| CMS Energy Corp. (a) | 1,292,800 | $ | 19,276 | |||||
| TOTAL COMMON STOCKS | ||||||||
| (Cost $1,406,690) | 1,599,223 | |||||||
| Money Market Funds 3.9% | ||||||||
| Fidelity Cash Central Fund, 3.92% (b) | 39,424,240 | 39,424 | ||||||
| Fidelity Securities Lending Cash Central Fund, | ||||||||
| 3.94% (b)(c) | 23,145,325 | 23,145 | ||||||
| TOTAL MONEY MARKET FUNDS | ||||||||
| (Cost $62,569) | 62,569 | |||||||
| TOTAL INVESTMENT PORTFOLIO 103.3% | ||||||||
| (Cost $1,469,259) | 1,661,792 | |||||||
| NET OTHER ASSETS – (3.3)% | (52,309) | |||||||
| NET ASSETS 100% | $ | 1,609,483 | ||||||
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. (c) Investment made with cash collateral received from securities on loan. (d) Security or a portion of the security is on loan at period end. (e) Affiliated company |
See accompanying notes which are an integral part of the financial statements.
Annual Report 16
| Other Information |
An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Companies which are affiliates of the fund at period-end are noted in the fund’s Schedule of Investments. Transactions during the period with companies which are or were affiliates are as follows:
| Value, | Value, | |||||||||||||||||||
| Affiliate | beginning of | Sales | Dividend | end of | ||||||||||||||||
| (amounts in thouands) | period | Purchases | Proceeds | Income | period | |||||||||||||||
| Allied Healthcare | ||||||||||||||||||||
| International, Inc | $ | — | $ | 14,228 | $ | — | $ | — | $ | 14,067 | ||||||||||
| New Frontier Media, | ||||||||||||||||||||
| Inc | — | 10,340 | 256 | — | 6,560 | |||||||||||||||
| Packaging Dynamics | ||||||||||||||||||||
| Corp | — | 9,764 | — | 74 | 7,425 | |||||||||||||||
| Rainier Pacific Financial | ||||||||||||||||||||
| Group, Inc | 7,818 | 176 | 3,163 | 81 | ||||||||||||||||
| SOURCECORP, Inc | — | 17,054 | 250 | 18,054 | ||||||||||||||||
| The Geo Group, Inc | 11,300 | 5,189 | 177 | — | 16,299 | |||||||||||||||
| Whitehall Jewellers, Inc. | 6,249 | 179 | 217 | — | 790 | |||||||||||||||
| Total | $ | 25,367 | $ | 56,930 | $ | 4,063 | $ | 155 | $ | 63,195 | ||||||||||
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| Amounts in thousands (except per share amount) | October 31, 2005 | |||||||
| Assets | ||||||||
| Investment in securities, at value (including securities | ||||||||
| loaned of $23,214) (cost $1,469,259) See | ||||||||
| accompanying schedule | $ | 1,661,792 | ||||||
| Cash | 141 | |||||||
| Receivable for investments sold | 9,712 | |||||||
| Receivable for fund shares sold | 7,397 | |||||||
| Dividends receivable | 246 | |||||||
| Interest receivable | 246 | |||||||
| Other affiliated receivables | 1 | |||||||
| Other receivables | 157 | |||||||
| Total assets | 1,679,692 | |||||||
| Liabilities | ||||||||
| Payable for investments purchased | $ | 43,832 | ||||||
| Payable for fund shares redeemed | 2,156 | |||||||
| Accrued management fee | 637 | |||||||
| Other affiliated payables | 339 | |||||||
| Other payables and accrued expenses | 100 | |||||||
| Collateral on securities loaned, at value | 23,145 | |||||||
| Total liabilities | 70,209 | |||||||
| Net Assets | $ | 1,609,483 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 1,293,552 | ||||||
| Undistributed net investment income | 5,927 | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments | 117,471 | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments | 192,533 | |||||||
| Net Assets, for 77,316 shares outstanding | $ | 1,609,483 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($1,609,483 ÷ 77,316 shares) | $ | 20.82 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 18 |
| Statement of Operations | ||||||
| Amounts in thousands | Year ended October 31, 2005 | |||||
| Investment Income | ||||||
| Dividends (including $155 received from affiliated | ||||||
| issuers) | $ | 6,335 | ||||
| Special Dividends | 7,187 | |||||
| Interest | 1,288 | |||||
| Security lending | 175 | |||||
| Total income | 14,985 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 7,544 | ||||
| Performance adjustment | (1,859) | |||||
| Transfer agent fees | 3,110 | |||||
| Accounting and security lending fees | 382 | |||||
| Independent trustees’ compensation | 6 | |||||
| Custodian fees and expenses | 43 | |||||
| Registration fees | 138 | |||||
| Audit | 49 | |||||
| Legal | 5 | |||||
| Interest | 1 | |||||
| Miscellaneous | 11 | |||||
| Total expenses before reductions | 9,430 | |||||
| Expense reductions | (374) | 9,056 | ||||
| Net investment income (loss) | 5,929 | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on investment securities | ||||||
| (including realized gain (loss) of $(259) from affiliated | ||||||
| issuers) | 119,721 | |||||
| Change in net unrealized appreciation (depreciation) on | ||||||
| investment securities | 54,939 | |||||
| Net gain (loss) | 174,660 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 180,589 | ||||
See accompanying notes which are an integral part of the financial statements.
19 Annual Report
| Financial Statements continued | ||||||||
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| Amounts in thousands | 2005 | 2004 | ||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | 5,929 | $ | (4,704) | ||||
| Net realized gain (loss) | 119,721 | 86,866 | ||||||
| Change in net unrealized appreciation (depreciation) . | 54,939 | (6,654) | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 180,589 | 75,508 | ||||||
| Distributions to shareholders from net realized gain | (46,445) | — | ||||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 715,075 | 242,457 | ||||||
| Reinvestment of distributions | 45,487 | — | ||||||
| Cost of shares redeemed | (230,542) | (305,800) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | 530,020 | (63,343) | ||||||
| Redemption fees | 198 | 254 | ||||||
| Total increase (decrease) in net assets | 664,362 | 12,419 | ||||||
| Net Assets | ||||||||
| Beginning of period | 945,121 | 932,702 | ||||||
| End of period (including undistributed net investment | ||||||||
| income of $5,927 and accumulated net investment | ||||||||
| loss of $2, respectively) | $ | 1,609,483 | $ | 945,121 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 34,937 | 13,349 | ||||||
| Issued in reinvestment of distributions | 2,370 | — | ||||||
| Redeemed | (11,624) | (17,014) | ||||||
| Net increase (decrease) | 25,683 | (3,665) | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 20 |
| Financial Highlights | ||||||||||||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of | ||||||||||||||||||||
| period | $ | 18.30 | $ | 16.87 | $ | 13.56 | $ | 15.40 | $ | 16.87 | ||||||||||
| Income from Investment | ||||||||||||||||||||
| Operations | ||||||||||||||||||||
| Net investment income | ||||||||||||||||||||
| (loss)B | 10C | (.09) | (.08) | (.08) | .10D | |||||||||||||||
| Net realized and unreal- | ||||||||||||||||||||
| ized gain (loss) | 3.31 | 1.52 | 3.38 | (1.33) | (.81) | |||||||||||||||
| Total from investment | ||||||||||||||||||||
| operations | 3.41 | 1.43 | 3.30 | (1.41) | (.71) | |||||||||||||||
| Distributions from net | ||||||||||||||||||||
| investment income | — | — | — | — | (.03) | |||||||||||||||
| Distributions from net realized | ||||||||||||||||||||
| gain | (.89) | — | — | (.44) | (.74) | |||||||||||||||
| Total distributions | (.89) | — | — | (.44) | (.77) | |||||||||||||||
| Redemption fees added to | ||||||||||||||||||||
| paid in capitalB | —F | —F | .01 | .01 | .01 | |||||||||||||||
| Net asset value, end of period | $ | 20.82 | $ | 18.30 | $ | 16.87 | $ | 13.56 | $ | 15.40 | ||||||||||
| Total ReturnA | 19.05% | 8.48% | 24.41% | (9.58)% | (4.29)% | |||||||||||||||
| Ratios to Average Net AssetsE | ||||||||||||||||||||
| Expenses before expense | ||||||||||||||||||||
| reductions | 78% | .95% | 1.06% | 1.12% | .86% | |||||||||||||||
| Expenses net of voluntary | ||||||||||||||||||||
| waivers, if any | 78% | .95% | 1.06% | 1.12% | .86% | |||||||||||||||
| Expenses net of all | ||||||||||||||||||||
| reductions | 75% | .91% | .93% | .91% | .74% | |||||||||||||||
| Net investment income | ||||||||||||||||||||
| (loss) | 49%C | (.49)% | (.59)% | (.52)% | .66% | |||||||||||||||
| Supplemental Data | ||||||||||||||||||||
| Net assets, end of period | ||||||||||||||||||||
| (in millions) | $ | 1,609 | $ | 945 | $ | 933 | $ | 892 | $ | 773 | ||||||||||
| Portfolio turnover rate | 61% | 95% | 220% | 290% | 450% | |||||||||||||||
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. B Calculated based on average shares outstanding during the period. C Investment income per share reflects special dividends which amounted to $.12 per share. Excluding these special dividends, the ratio of net investment income to average net assets would have been (.10)%. D Investment income per share reflects a special dividend which amounted to $.05. E Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions repre sent the net expenses paid by the fund. F Amount represents less than $.01 per share. |
See accompanying notes which are an integral part of the financial statements.
21 Annual Report
Notes to Financial Statements
| For the period ended October 31, 2005 (Amounts in thousands except ratios) |
1. Significant Accounting Policies.
Fidelity Small Cap Independence Fund (the fund) is a fund of Fidelity Capital 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 fund may invest in affiliated money market central funds (Money Market Central Funds) which are open end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affili ates. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require manage ment to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund:
Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Investments in open end mutual funds, are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
| Annual Report |
| 22 |
1. Significant Accounting Policies continued
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Large, non recurring dividends recognized by the fund are presented separately on the Statement of Operations as “Special Dividends” and the impact of these dividends is presented in the Financial Highlights. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements.
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. In addition, the fund will claim a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
Book tax differences are primarily due to short term capital gains and losses deferred due to wash sales.
23 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 1. Significant Accounting Policies continued Income Tax Information and Distributions to Shareholders continued |
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 281,337 | ||||||
| Unrealized depreciation | (90,657) | |||||||
| Net unrealized appreciation (depreciation) | 190,680 | |||||||
| Undistributed ordinary income | 44,288 | |||||||
| Undistributed long term capital gain | 70,426 | |||||||
| Cost for federal income tax purposes | $ | 1,471,112 | ||||||
| The tax character of distributions paid was as follows: | ||||||||
| October 31, 2005 | October 31, 2004 | |||||||
| Ordinary Income | $ | 1,044 | $ | — | ||||
| Long term Capital Gains | 45,401 | — | ||||||
| Total | $ | 46,445 | $ | — | ||||
Short Term Trading (Redemption) Fees. Shares held in the fund less than 90 days are subject to a redemption fee equal to 1.50% of the proceeds of the redeemed shares. All redemption fees, including any estimated redemption fees paid by FMR, are retained by the fund and accounted for as an addition to paid in capital.
| 2. Operating Policies. |
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $1,282,334 and $720,472, respectively.
| Annual Report |
| 24 |
4. Fees and Other Transactions with Affiliates.
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .35% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment (up to a maximum of ±.20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .47% of the fund’s average net assets.
Transfer Agent Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund’s transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset based fees that vary according to account size and type of ac count. FSC pays for typesetting, printing and mailing of shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .26% of average net assets.
Accounting and Security Lending Fees. FSC maintains the fund’s accounting rec ords. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Invest ments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $2,029 for the period.
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $118 for the period.
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 funds to borrow from, or lend money to, other participating affiliated funds. At period end, there were no interfund loans outstanding.
25 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 4. Fees and Other Transactions with Affiliates continued Interfund Lending Program continued |
The fund’s activity in this program during the period for which loans were outstanding was as follows:
| Interest Earned | ||||||||||||||||
| Borrower or | Average Daily | Weighted Average | (included in | Interest | ||||||||||||
| Lender | Loan Balance | Interest Rate | interest income) | Expense | ||||||||||||
| Borrower | $ | 6,721 | 3.12% | $ | — | $ | 1 | |||||||||
| 5. Committed Line of Credit. | ||||||||||||||||
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insol vency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the fund’s Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
| 7. Expense Reductions. |
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $340 for the period. In addition, through arrangements with the fund’s transfer agent, credits realized as a result of uninvested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s transfer agent expenses by $34.
| Annual Report |
| 26 |
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the perfor- mance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is considered remote.
27 Annual Report
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and Shareholders of Fidelity Small Cap Independence Fund:
We have audited the accompanying statement of assets and liabilities of Fidelity Small Cap Independence Fund (the Fund), a fund of Fidelity Capital Trust, including the schedule of investments, as of October 31, 2005, 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 standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures in cluded confirmation of securities owned as of October 31, 2005, by correspondence with the custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 Small Cap Independence Fund as of October 31, 2005, 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 its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 9, 2005
| Annual Report |
| 28 |
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-544-8544.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Di rector and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Man agement, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
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Trustees and Officers - continued
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity In vestments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Small Cap Independence
(2005 present). He also serves as Senior Vice President of other Fidelity funds (2005 present). Mr. Jonas is Executive Director of FMR
(2005 present). Previously, Mr. Jonas served as President of Fidelity En terprise Operations and Risk Services (2004 2005), Chief Administra tive Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and management positions including Chief Financial Officer of FMR. In addition, he serves on the Boards of Boston Ballet (2003 present) and Simmons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
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| Independent Trustees: |
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addi tion, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
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Trustees and Officers - continued
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsyl vania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (auto motive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technolo gies Inc. (telecommunications network surveillance, 2001 2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
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| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripher als), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corpo ration (IBM) and President and General Manager of various IBM divi sions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Company Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse Col lege of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Car olina (16 school system).
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Trustees and Officers - continued
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief In vestment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2002
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Mem ber of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
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Advisory Board Members and Executive Officers:
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his re tirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Direc tor (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Small Cap Independence. Mr. Churchill also serves as Vice President of certain Equity Funds (2005 present) and certain High Income Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Churchill joined Fidelity in 1993 as Vice President and Group Leader of Taxable Fixed Income Investments.
35 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Small Cap Independence. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001 present), Fidelity Manage ment & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Management, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Small Cap Independence. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003 present), Vice President and Secretary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Small Cap Independence. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Invest ments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Small Cap Independence. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Management Services Group (FPCMS).
| Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Small Cap Independence. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Executive Vice President of Risk Oversight for Fidelity Investments (2002). Previously, he served as Executive Vice President and Chief Op erating Officer for Fidelity Investments Institutional Services Company, Inc. (1998 2002).
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| Name, Age; Principal Occupation John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Small Cap Independence. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Small Cap Independence. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice Presi dent of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Ser vices (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Small Cap Independence. Ms. Monasterio also serves as Deputy Treasurer of other Fidelity funds (2004) and is an em ployee of FMR (2004). Before joining Fidelity Investments, Ms. Monas terio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Templeton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment: 2005
Deputy Treasurer of Small Cap Independence. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s de partment of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accoun tant, United States Securities and Exchange Commission (2000 2002).
| Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Small Cap Independence. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000 2003).
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Trustees and Officers - continued
| Name, Age; Principal Occupation John H. Costello (59) |
Year of Election or Appointment: 1993
Assistant Treasurer of Small Cap Independence. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Small Cap Independence. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Small Cap Independence. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Small Cap Independence. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an em ployee of FMR (2005 present). Previously, Mr. Ryan served as Vice Pres ident of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Small Cap Independence. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Invest ments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
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| Distributions |
The Board of Trustees of Fidelity Small Cap Independence Fund voted to pay on December 5, 2005, to shareholders of record at the opening of business on Decem-ber 2, 2005, a distribution of $1.34 per share derived from capital gains realized from sales of portfolio securities and a dividend of $.07 per share from net investment income.
The fund hereby designates as capital gain dividends: For dividends with respect to the taxable year ended October 31, 2005, $70,520,000, or, if subsequently determined to be different, the net capital gain of such year, and for dividends with respect to the taxable year ended October 31, 2004, $45,307,000, or, if subsequently determined to be different, the excess of: (a) the net capital gain of such year, over (b) amounts previously designated as capital gain dividends with respect to such year.
The fund designates 100% of the dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
The fund designates 100% of the dividends distributed during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
39 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Small Cap Independence Fund
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
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prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
41 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objec tive similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the third quartile for the one and three year periods and the second quartile for the five year period. The Board also stated that the relative investment performance of the fund was lower than its bench mark for certain periods, although the five year cumulative total return of the fund was higher than its benchmark. The Board discussed with FMR actions to be taken by FMR to improve the fund’s more recent disappointing performance.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative
43 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
performance, the Board concluded that the nature, extent, and quality of the services provided by Fidelity will benefit the fund’s shareholders, particularly in light of the Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 11% means that 89% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s negative performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s negative performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that the fund’s total expenses ranked below its competitive median for 2004.
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
45 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or
| Annual Report |
| 46 |
expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
47 Annual Report
| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (Far East) Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian Brown Brothers Harriman & Co. Boston, MA |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| SCS-UANN-1205 1.784779.102 |
| Fidelity® Stock Selector |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The manager’s review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 8 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 9 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 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 | 29 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 30 | |||
| Distributions | 40 | |||
| Board Approval of | 41 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commis sion’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
| Annual Report |
| 2 |
| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s port folio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund companies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that permit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to op erate. However, this will only be achieved through close cooperation among regula tors, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offenders should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers including individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we realize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active participation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Past 10 | |||
| year | years | years | ||||
| Fidelity® Stock Selector | 12.12% | 1.68% | 7.23% | |||
| $10,000 Over 10 Years | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Stock Selector on October 31, 1995. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor’s 500SM Index (S&P 500®) performed over the same period.
5 Annual Report
5
Management’s Discussion of Fund Performance
Comments from James Catudal, Portfolio Manager of Fidelity® Stock Selector
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. However, the markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a corresponding leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite® Index at 8.15% . The Dow Jones Industrial AverageSM rose 6.45% .
During the past year, Fidelity Stock Selector returned 12.12%, outperforming both the S&P 500® index and the LipperSM Growth Funds Average, which returned 10.58% . Stock selection was the principal determinant of performance relative to the index, with solid gains coming from the health care, financials, industrials, consumer discretionary and energy sectors. The top individual contributor was UnitedHealth Group, an HMO that continued to exceed earnings expectations as memberships rose, premiums stood firm and costs remained under control. During a period in which virtually the entire energy sector fared well, several energy holdings turned in particularly strong results, including refiner Valero Energy, coal miner Peabody Energy and oil field services company Halliburton. Other strong contributors included Internet search firm Google and Roche Holdings, a Swiss pharmaceutical company. Disappointments included two information technology holdings that failed to meet expectations: semiconductor company Altera and Dell, the leading personal computer company. Shares of Elan, an Irish biotechnology company, fell hard when potentially lethal side effects were found in a drug under development with Biogen Idec for the treatment of multiple sclerosis. An underweighted position in consumer products giant Altria Group parent of Philip Morris held back relative results, as the company’s stock gained on the heels of several court victories in tobacco liability lawsuits.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
| Annual Report |
| 6 6 |
Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
| Actual Expenses |
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the share holder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,087.50 | $ | 4.42 | ||||||
| Hypothetical (5% return per year | ||||||||||||
| before expenses) | $ | 1,000.00 | $ | 1,020.97 | $ | 4.28 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of .84%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
7 Annual Report
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Microsoft Corp. | 4.7 | 5.3 | ||
| General Electric Co. | 4.1 | 3.3 | ||
| American International Group, Inc. | 2.9 | 2.5 | ||
| UnitedHealth Group, Inc. | 2.3 | 1.7 | ||
| Johnson & Johnson | 2.3 | 1.9 | ||
| Exxon Mobil Corp. | 2.2 | 3.3 | ||
| Bank of America Corp. | 1.7 | 1.6 | ||
| Intel Corp. | 1.5 | 2.6 | ||
| Altria Group, Inc. | 1.3 | 1.0 | ||
| United Technologies Corp. | 1.3 | 1.4 | ||
| 24.3 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Information Technology | 20.6 | 22.8 | ||
| Financials | 19.6 | 14.7 | ||
| Health Care | 15.6 | 16.0 | ||
| Industrials | 13.6 | 13.2 | ||
| Energy | 9.9 | 7.6 | ||
Annual Report 8
| Investments October 31, 2005 | ||||||
| Showing Percentage of Net Assets | ||||||
| Common Stocks 99.9% | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER DISCRETIONARY – 8.7% | ||||||
| Hotels, Restaurants & Leisure 1.6% | ||||||
| Ctrip.com International Ltd. sponsored ADR | 9,000 | $ | 518 | |||
| Kerzner International Ltd. (a) | 16,800 | 980 | ||||
| Marriott International, Inc. Class A | 25,400 | 1,514 | ||||
| Sonic Corp. (a) | 77,700 | 2,249 | ||||
| Starbucks Corp. (a) | 151,800 | 4,293 | ||||
| Wendy’s International, Inc. | 37,940 | 1,773 | ||||
| Wynn Resorts Ltd. (a) | 15,000 | 700 | ||||
| 12,027 | ||||||
| Household Durables – 0.1% | ||||||
| Beazer Homes USA, Inc. | 800 | 46 | ||||
| Garmin Ltd. | 10,100 | 580 | ||||
| Sony Corp. sponsored ADR | 200 | 7 | ||||
| 633 | ||||||
| Internet & Catalog Retail 0.6% | ||||||
| eBay, Inc. (a) | 110,180 | 4,363 | ||||
| Media – 2.8% | ||||||
| Clear Channel Communications, Inc. | 41,260 | 1,255 | ||||
| E.W. Scripps Co. Class A | 86,040 | 3,941 | ||||
| Lamar Advertising Co. Class A (a) | 57,400 | 2,561 | ||||
| News Corp. Class A | 77,183 | 1,100 | ||||
| Time Warner, Inc. | 212,560 | 3,790 | ||||
| Univision Communications, Inc. Class A (a) | 217,800 | 5,693 | ||||
| Walt Disney Co. | 100,600 | 2,452 | ||||
| XM Satellite Radio Holdings, Inc. Class A (a) | 32,400 | 934 | ||||
| 21,726 | ||||||
| Multiline Retail – 0.6% | ||||||
| Dollar General Corp. | 48,800 | 949 | ||||
| JCPenney Co., Inc. | 100 | 5 | ||||
| Kohl’s Corp. (a) | 400 | 19 | ||||
| Target Corp. | 72,820 | 4,055 | ||||
| 5,028 | ||||||
| Specialty Retail – 2.8% | ||||||
| Bed Bath & Beyond, Inc. (a) | 47,300 | 1,917 | ||||
| Best Buy Co., Inc. | 71,500 | 3,165 | ||||
| Chico’s FAS, Inc. (a) | 22,000 | 870 | ||||
| Home Depot, Inc. | 150,600 | 6,181 | ||||
| Lowe’s Companies, Inc. | 27,300 | 1,659 | ||||
| PETsMART, Inc. | 76,600 | 1,800 | ||||
| See accompanying notes which are an integral part of the financial statements. | ||||||
| 9 | Annual Report | |||||
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER DISCRETIONARY – continued | ||||||
| Specialty Retail – continued | ||||||
| Staples, Inc. | 147,525 | $ | 3,353 | |||
| Tiffany & Co., Inc. | 62,200 | 2,451 | ||||
| 21,396 | ||||||
| Textiles, Apparel & Luxury Goods – 0.2% | ||||||
| Liz Claiborne, Inc. | 46,900 | 1,651 | ||||
| TOTAL CONSUMER DISCRETIONARY | 66,824 | |||||
| CONSUMER STAPLES 5.6% | ||||||
| Beverages – 0.8% | ||||||
| PepsiCo, Inc. | 101,700 | 6,008 | ||||
| Food & Staples Retailing – 1.2% | ||||||
| CVS Corp. | 138,400 | 3,378 | ||||
| Safeway, Inc. | 39,200 | 912 | ||||
| Wal-Mart Stores, Inc. | 99,880 | 4,725 | ||||
| 9,015 | ||||||
| Food Products 0.9% | ||||||
| Bunge Ltd. | 25,000 | 1,299 | ||||
| Corn Products International, Inc. | 30,100 | 717 | ||||
| Nestle SA sponsored ADR | 70,400 | 5,252 | ||||
| 7,268 | ||||||
| Household Products – 1.4% | ||||||
| Colgate-Palmolive Co. | 163,050 | 8,635 | ||||
| Procter & Gamble Co. | 37,055 | 2,075 | ||||
| 10,710 | ||||||
| Tobacco 1.3% | ||||||
| Altria Group, Inc. | 138,080 | 10,363 | ||||
| TOTAL CONSUMER STAPLES | 43,364 | |||||
| ENERGY 9.9% | ||||||
| Energy Equipment & Services – 5.1% | ||||||
| Cooper Cameron Corp. (a) | 100,400 | 7,402 | ||||
| Diamond Offshore Drilling, Inc. | 14,300 | 807 | ||||
| ENSCO International, Inc. | 102,200 | 4,659 | ||||
| Halliburton Co. | 140,000 | 8,274 | ||||
| Nabors Industries Ltd. (a) | 25,000 | 1,716 | ||||
| Schlumberger Ltd. (NY Shares) | 91,700 | 8,324 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| ENERGY – continued | ||||||
| Energy Equipment & Services – continued | ||||||
| Smith International, Inc. | 186,200 | $ | 6,033 | |||
| Weatherford International Ltd. (a) | 36,900 | 2,310 | ||||
| 39,525 | ||||||
| Oil, Gas & Consumable Fuels – 4.8% | ||||||
| ConocoPhillips | 138,900 | 9,081 | ||||
| Exxon Mobil Corp. | 306,010 | 17,179 | ||||
| OMI Corp. | 84,300 | 1,524 | ||||
| Peabody Energy Corp. | 43,400 | 3,392 | ||||
| Valero Energy Corp. | 50,340 | 5,298 | ||||
| 36,474 | ||||||
| TOTAL ENERGY | 75,999 | |||||
| FINANCIALS – 19.6% | ||||||
| Capital Markets 3.9% | ||||||
| Ameriprise Financial, Inc. (a) | 75,080 | 2,794 | ||||
| Charles Schwab Corp. | 81,700 | 1,242 | ||||
| E*TRADE Financial Corp. (a) | 113,700 | 2,109 | ||||
| Franklin Resources, Inc. | 29,400 | 2,598 | ||||
| Goldman Sachs Group, Inc. | 42,600 | 5,383 | ||||
| Merrill Lynch & Co., Inc. | 114,820 | 7,433 | ||||
| Nomura Holdings, Inc. sponsored ADR | 144,600 | 2,240 | ||||
| State Street Corp. | 117,400 | 6,484 | ||||
| 30,283 | ||||||
| Commercial Banks – 4.9% | ||||||
| Bank of America Corp. | 305,120 | 13,346 | ||||
| China Construction Bank Corp. (H Shares) | 2,614,000 | 792 | ||||
| Hokuhoku Financial Group, Inc. | 204,000 | 846 | ||||
| Mitsui Trust Holdings, Inc. | 61,000 | 736 | ||||
| Mizuho Financial Group, Inc. | 104 | 695 | ||||
| Nishi-Nippon City Bank Ltd. (a) | 160,000 | 934 | ||||
| Standard Chartered PLC (United Kingdom) | 110,000 | 2,310 | ||||
| Sumitomo Mitsui Financial Group, Inc. | 124 | 1,149 | ||||
| Wachovia Corp. | 197,000 | 9,952 | ||||
| Wells Fargo & Co. | 121,900 | 7,338 | ||||
| 38,098 | ||||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| FINANCIALS – continued | ||||||
| Consumer Finance – 0.5% | ||||||
| American Express Co. | 60,400 | $ | 3,006 | |||
| Capital One Financial Corp. | 10,300 | 786 | ||||
| 3,792 | ||||||
| Diversified Financial Services – 0.1% | ||||||
| Citigroup, Inc. | 100 | 5 | ||||
| NETeller PLC (a) | 65,000 | 793 | ||||
| 798 | ||||||
| Insurance – 8.3% | ||||||
| ACE Ltd. | 80,300 | 4,184 | ||||
| AFLAC, Inc. | 25,600 | 1,223 | ||||
| American International Group, Inc. | 343,230 | 22,241 | ||||
| Endurance Specialty Holdings Ltd. | 55,000 | 1,824 | ||||
| Everest Re Group Ltd. | 26,780 | 2,663 | ||||
| Fidelity National Financial, Inc. | 91,900 | 3,443 | ||||
| Fidelity National Title Group, Inc. Class A | 31,082 | 676 | ||||
| Hartford Financial Services Group, Inc. | 100,930 | 8,049 | ||||
| Montpelier Re Holdings Ltd. | 700 | 14 | ||||
| National Financial Partners Corp. | 39,900 | 1,805 | ||||
| PartnerRe Ltd. | 38,400 | 2,447 | ||||
| Prudential Financial, Inc. | 67,300 | 4,899 | ||||
| PXRE Group Ltd. | 80,000 | 864 | ||||
| W.R. Berkley Corp. | 135,255 | 5,911 | ||||
| XL Capital Ltd. Class A | 54,920 | 3,518 | ||||
| 63,761 | ||||||
| Real Estate 0.4% | ||||||
| Equity Residential (SBI) | 59,200 | 2,324 | ||||
| Vornado Realty Trust | 7,900 | 640 | ||||
| 2,964 | ||||||
| Thrifts & Mortgage Finance – 1.5% | ||||||
| Countrywide Financial Corp. | 68,627 | 2,180 | ||||
| Freddie Mac | 60,000 | 3,681 | ||||
| Golden West Financial Corp., Delaware | 50,000 | 2,937 | ||||
| Hudson City Bancorp, Inc. | 201,800 | 2,389 | ||||
| 11,187 | ||||||
| TOTAL FINANCIALS | 150,883 | |||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| HEALTH CARE – 15.6% | ||||||
| Biotechnology – 3.0% | ||||||
| Affymetrix, Inc. (a) | 12,800 | $ | 582 | |||
| Amgen, Inc. (a) | 129,990 | 9,848 | ||||
| Biogen Idec, Inc. (a) | 27,100 | 1,101 | ||||
| Cephalon, Inc. (a) | 46,400 | 2,115 | ||||
| Genentech, Inc. (a) | 260 | 24 | ||||
| Gilead Sciences, Inc. (a) | 100 | 5 | ||||
| ImClone Systems, Inc. (a) | 37,800 | 1,312 | ||||
| Invitrogen Corp. (a) | 50,870 | 3,235 | ||||
| MedImmune, Inc. (a) | 29,400 | 1,028 | ||||
| Protein Design Labs, Inc. (a) | 126,900 | 3,556 | ||||
| 22,806 | ||||||
| Health Care Equipment & Supplies – 2.8% | ||||||
| Alcon, Inc. | 13,200 | 1,754 | ||||
| Baxter International, Inc. | 86,500 | 3,307 | ||||
| Becton, Dickinson & Co. | 58,900 | 2,989 | ||||
| C.R. Bard, Inc. | 37,400 | 2,333 | ||||
| DJ Orthopedics, Inc. (a) | 90,700 | 2,638 | ||||
| Fisher Scientific International, Inc. (a) | 25,400 | 1,435 | ||||
| Guidant Corp. | 5,000 | 315 | ||||
| Medtronic, Inc. | 104,460 | 5,919 | ||||
| Millipore Corp. (a) | 21,400 | 1,310 | ||||
| 22,000 | ||||||
| Health Care Providers & Services – 3.7% | ||||||
| Aetna, Inc. | 49,400 | 4,375 | ||||
| American Healthways, Inc. (a) | 13,440 | 545 | ||||
| Covance, Inc. (a) | 30,600 | 1,489 | ||||
| Henry Schein, Inc. (a) | 92,300 | 3,659 | ||||
| Phase Forward, Inc. (a) | 43,989 | 480 | ||||
| UnitedHealth Group, Inc. | 304,900 | 17,651 | ||||
| 28,199 | ||||||
| Pharmaceuticals – 6.1% | ||||||
| Johnson & Johnson | 277,710 | 17,390 | ||||
| Novartis AG sponsored ADR | 105,000 | 5,651 | ||||
| Pfizer, Inc. | 187,940 | 4,086 | ||||
| Roche Holding AG (participation certificate) | 57,037 | 8,521 | ||||
| Sepracor, Inc. (a) | 43,800 | 2,464 | ||||
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| HEALTH CARE – continued | ||||||
| Pharmaceuticals – continued | ||||||
| Teva Pharmaceutical Industries Ltd. sponsored ADR | 71,400 | $ | 2,722 | |||
| Wyeth | 140,300 | 6,252 | ||||
| 47,086 | ||||||
| TOTAL HEALTH CARE | 120,091 | |||||
| INDUSTRIALS – 13.6% | ||||||
| Aerospace & Defense – 3.2% | ||||||
| Aviall, Inc. (a) | 124,850 | 3,939 | ||||
| EDO Corp. | 59,300 | 1,714 | ||||
| Goodrich Corp. | 20,800 | 750 | ||||
| Honeywell International, Inc. | 185,160 | 6,332 | ||||
| The Boeing Co. | 30,530 | 1,973 | ||||
| United Technologies Corp. | 195,720 | 10,037 | ||||
| 24,745 | ||||||
| Air Freight & Logistics – 0.8% | ||||||
| FedEx Corp. | 69,800 | 6,417 | ||||
| Airlines – 0.4% | ||||||
| AirTran Holdings, Inc. (a) | 90,000 | 1,346 | ||||
| Southwest Airlines Co. | 122,100 | 1,955 | ||||
| 3,301 | ||||||
| Commercial Services & Supplies – 0.7% | ||||||
| Aramark Corp. Class B | 44,000 | 1,118 | ||||
| Herman Miller, Inc. | 100 | 3 | ||||
| Robert Half International, Inc. | 125,500 | 4,628 | ||||
| 5,749 | ||||||
| Construction & Engineering – 0.6% | ||||||
| McDermott International, Inc. (a) | 125,700 | 4,567 | ||||
| Quanta Services, Inc. (a) | 33,700 | 387 | ||||
| 4,954 | ||||||
| Electrical Equipment – 0.1% | ||||||
| Evergreen Solar, Inc. (a) | 63,200 | 521 | ||||
| Industrial Conglomerates – 5.3% | ||||||
| 3M Co. | 94,830 | 7,205 | ||||
| General Electric Co. | 932,100 | 31,608 | ||||
| Tyco International Ltd. | 65,880 | 1,739 | ||||
| 40,552 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INDUSTRIALS – continued | ||||||
| Machinery – 0.9% | ||||||
| Caterpillar, Inc. | 21,700 | $ | 1,141 | |||
| Danaher Corp. | 73,900 | 3,850 | ||||
| ITT Industries, Inc. | 3,400 | 345 | ||||
| Pentair, Inc. | 50,000 | 1,625 | ||||
| 6,961 | ||||||
| Marine – 0.1% | ||||||
| Alexander & Baldwin, Inc. | 12,221 | 598 | ||||
| Road & Rail 1.5% | ||||||
| Laidlaw International, Inc. | 101,100 | 2,299 | ||||
| Landstar System, Inc. | 75,600 | 2,912 | ||||
| Norfolk Southern Corp. | 152,400 | 6,126 | ||||
| 11,337 | ||||||
| TOTAL INDUSTRIALS | 105,135 | |||||
| INFORMATION TECHNOLOGY – 20.6% | ||||||
| Communications Equipment – 3.8% | ||||||
| Cisco Systems, Inc. (a) | 523,940 | 9,143 | ||||
| Comverse Technology, Inc. (a) | 34,100 | 856 | ||||
| Corning, Inc. (a) | 352,160 | 7,075 | ||||
| Juniper Networks, Inc. (a) | 140,880 | 3,287 | ||||
| Motorola, Inc. | 212,640 | 4,712 | ||||
| QUALCOMM, Inc. | 100,700 | 4,004 | ||||
| Research In Motion Ltd. (a) | 4,350 | 267 | ||||
| 29,344 | ||||||
| Computers & Peripherals – 3.1% | ||||||
| Apple Computer, Inc. (a) | 97,500 | 5,615 | ||||
| Dell, Inc. (a) | 305,800 | 9,749 | ||||
| EMC Corp. (a) | 520,200 | 7,262 | ||||
| Hewlett-Packard Co. | 29,300 | 822 | ||||
| 23,448 | ||||||
| Electronic Equipment & Instruments – 0.8% | ||||||
| Agilent Technologies, Inc. (a) | 127,200 | 4,072 | ||||
| Solectron Corp. (a) | 249,200 | 880 | ||||
| Symbol Technologies, Inc. | 101,800 | 845 | ||||
| 5,797 | ||||||
| Internet Software & Services – 1.7% | ||||||
| Akamai Technologies, Inc. (a) | 58,500 | 1,014 | ||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| Internet Software & Services – continued | ||||||
| Google, Inc. Class A (sub. vtg.) (a) | 17,900 | $ | 6,661 | |||
| Homestore, Inc. (a) | 400,446 | 1,454 | ||||
| Yahoo!, Inc. (a) | 112,610 | 4,163 | ||||
| 13,292 | ||||||
| IT Services – 0.8% | ||||||
| Computer Sciences Corp. (a) | 20,000 | 1,025 | ||||
| Paychex, Inc. | 140,780 | 5,457 | ||||
| 6,482 | ||||||
| Semiconductors & Semiconductor Equipment – 4.4% | ||||||
| Altera Corp. (a) | 76,100 | 1,267 | ||||
| Analog Devices, Inc. | 80,600 | 2,803 | ||||
| ARM Holdings PLC sponsored ADR | 190,900 | 1,098 | ||||
| ASML Holding NV (NY Shares) (a) | 136,700 | 2,321 | ||||
| FormFactor, Inc. (a) | 43,200 | 1,064 | ||||
| Freescale Semiconductor, Inc.: | ||||||
| Class A (a) | 150,000 | 3,554 | ||||
| Class B (a) | 30,578 | 730 | ||||
| Intel Corp. | 479,940 | 11,279 | ||||
| KLA Tencor Corp. | 300 | 14 | ||||
| Lam Research Corp. (a) | 56,000 | 1,889 | ||||
| LTX Corp. (a) | 76,500 | 263 | ||||
| Microchip Technology, Inc. | 75,600 | 2,281 | ||||
| National Semiconductor Corp. | 102,200 | 2,313 | ||||
| PMC-Sierra, Inc. (a) | 72,850 | 517 | ||||
| Samsung Electronics Co. Ltd. | 250 | 132 | ||||
| Taiwan Semiconductor Manufacturing Co. Ltd. sponsored | ||||||
| ADR | 115,000 | 929 | ||||
| Teradyne, Inc. (a) | 100,900 | 1,366 | ||||
| 33,820 | ||||||
| Software 6.0% | ||||||
| Adobe Systems, Inc. | 100 | 3 | ||||
| BEA Systems, Inc. (a) | 128,800 | 1,136 | ||||
| Cognos, Inc. (a) | 21,000 | 783 | ||||
| FileNET Corp. (a) | 75,700 | 2,131 | ||||
| Macrovision Corp. (a) | 16,200 | 305 | ||||
| Microsoft Corp. | 1,400,260 | 35,988 | ||||
| Oracle Corp. (a) | 111,850 | 1,418 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 16 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| Software – continued | ||||||
| Symantec Corp. (a) | 165,302 | $ | 3,942 | |||
| TIBCO Software, Inc. (a) | 88,900 | 675 | ||||
| 46,381 | ||||||
| TOTAL INFORMATION TECHNOLOGY | 158,564 | |||||
| MATERIALS 3.2% | ||||||
| Chemicals – 2.2% | ||||||
| Ashland, Inc. | 88,500 | 4,736 | ||||
| Lyondell Chemical Co. | 44,000 | 1,179 | ||||
| Monsanto Co. | 86,200 | 5,431 | ||||
| Praxair, Inc. | 107,900 | 5,331 | ||||
| 16,677 | ||||||
| Containers & Packaging – 0.3% | ||||||
| Owens Illinois, Inc. (a) | 71,753 | 1,366 | ||||
| Smurfit-Stone Container Corp. (a) | 113,500 | 1,199 | ||||
| 2,565 | ||||||
| Metals & Mining – 0.7% | ||||||
| Alcoa, Inc. | 78,200 | 1,899 | ||||
| Newmont Mining Corp. | 85,700 | 3,651 | ||||
| 5,550 | ||||||
| TOTAL MATERIALS | 24,792 | |||||
| TELECOMMUNICATION SERVICES – 1.7% | ||||||
| Diversified Telecommunication Services – 0.9% | ||||||
| Covad Communications Group, Inc. (a) | 809,400 | 720 | ||||
| Qwest Communications International, Inc. (a) | 396,800 | 1,730 | ||||
| SBC Communications, Inc. | 198,100 | 4,725 | ||||
| 7,175 | ||||||
| Wireless Telecommunication Services – 0.8% | ||||||
| Nextel Partners, Inc. Class A (a) | 114,300 | 2,875 | ||||
| Sprint Nextel Corp. | 127,210 | 2,965 | ||||
| 5,840 | ||||||
| TOTAL TELECOMMUNICATION SERVICES | 13,015 | |||||
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
| Investments continued | ||||||||
| Common Stocks continued | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| UTILITIES – 1.4% | ||||||||
| Independent Power Producers & Energy Traders – 0.8% | ||||||||
| TXU Corp. | 61,000 | $ | 6,146 | |||||
| Multi-Utilities – 0.6% | ||||||||
| Public Service Enterprise Group, Inc. | 76,900 | 4,836 | ||||||
| TOTAL UTILITIES | 10,982 | |||||||
| TOTAL COMMON STOCKS | ||||||||
| (Cost $733,653) | 769,649 | |||||||
| Money Market Funds 0.4% | ||||||||
| Fidelity Cash Central Fund, 3.92% (b) | ||||||||
| (Cost $2,950) | 2,950,395 | 2,950 | ||||||
| TOTAL INVESTMENT PORTFOLIO 100.3% | ||||||||
| (Cost $736,603) | 772,599 | |||||||
| NET OTHER ASSETS – (0.3)% | (2,415) | |||||||
| NET ASSETS 100% | $ | 770,184 | ||||||
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. |
Income Tax Information
At October 31, 2005, the fund had a capital loss carryforward of approximately $47,228,000 all of which will expire on October 31, 2010.
See accompanying notes which are an integral part of the financial statements.
Annual Report 18
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| Amounts in thousands (except per share amount) | October 31, 2005 | |||||||
| Assets | ||||||||
| Investment in securities, at value (cost $736,603) See | ||||||||
| accompanying schedule | $ | 772,599 | ||||||
| Cash | 310 | |||||||
| Receivable for investments sold | 10,276 | |||||||
| Receivable for fund shares sold | 159 | |||||||
| Dividends receivable | 249 | |||||||
| Interest receivable | 7 | |||||||
| Other receivables | 111 | |||||||
| Total assets | 783,711 | |||||||
| Liabilities | ||||||||
| Payable for investments purchased | $ | 12,299 | ||||||
| Payable for fund shares redeemed | 666 | |||||||
| Accrued management fee | 356 | |||||||
| Other affiliated payables | 157 | |||||||
| Other payables and accrued expenses | 49 | |||||||
| Total liabilities | 13,527 | |||||||
| Net Assets | $ | 770,184 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 795,942 | ||||||
| Undistributed net investment income | 2,687 | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments and foreign currency transactions | (64,441) | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments | 35,996 | |||||||
| Net Assets, for 32,436 shares outstanding | $ | 770,184 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($770,184 ÷ 32,436 shares) | $ | 23.74 | ||||||
See accompanying notes which are an integral part of the financial statements.
19 Annual Report
| Financial Statements continued | ||||||
| Statement of Operations | ||||||
| Amounts in thousands | Year ended October 31, 2005 | |||||
| Investment Income | ||||||
| Dividends | $ | 9,712 | ||||
| Special Dividends | 4,852 | |||||
| Interest | 394 | |||||
| Security lending | 2 | |||||
| Total income | 14,960 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 4,484 | ||||
| Performance adjustment | 59 | |||||
| Transfer agent fees | 1,626 | |||||
| Accounting and security lending fees | 263 | |||||
| Independent trustees’ compensation | 4 | |||||
| Custodian fees and expenses | 40 | |||||
| Registration fees | 23 | |||||
| Audit | 52 | |||||
| Legal | 3 | |||||
| Miscellaneous | 11 | |||||
| Total expenses before reductions | 6,565 | |||||
| Expense reductions | (336) | 6,229 | ||||
| Net investment income (loss) | 8,731 | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on: | ||||||
| Investment securities | 64,303 | |||||
| Foreign currency transactions | (7) | |||||
| Futures contracts | 1,104 | |||||
| Total net realized gain (loss) | 65,400 | |||||
| Change in net unrealized appreciation (depreciation) on: | ||||||
| Investment securities | 16,636 | |||||
| Futures contracts | (311) | |||||
| Total change in net unrealized appreciation | ||||||
| (depreciation) | 16,325 | |||||
| Net gain (loss) | 81,725 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 90,456 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 20 |
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| Amounts in thousands | 2005 | 2004 | ||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | 8,731 | $ | 3,697 | ||||
| Net realized gain (loss) | 65,400 | 90,485 | ||||||
| Change in net unrealized appreciation (depreciation) . | 16,325 | (32,899) | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 90,456 | 61,283 | ||||||
| Distributions to shareholders from net investment income | . | (9,003) | (4,700) | |||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 65,665 | 64,883 | ||||||
| Reinvestment of distributions | 8,598 | 4,477 | ||||||
| Cost of shares redeemed | (162,412) | (139,058) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | (88,149) | (69,698) | ||||||
| Total increase (decrease) in net assets | (6,696) | (13,115) | ||||||
| Net Assets | ||||||||
| Beginning of period | 776,880 | 789,995 | ||||||
| End of period (including undistributed net investment | ||||||||
| income of $2,687 and undistributed net investment | ||||||||
| income of $2,884, respectively) | $ | 770,184 | $ | 776,880 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 2,910 | 3,082 | ||||||
| Issued in reinvestment of distributions | 383 | 224 | ||||||
| Redeemed | (7,146) | (6,597) | ||||||
| Net increase (decrease) | (3,853) | (3,291) | ||||||
See accompanying notes which are an integral part of the financial statements.
21 Annual Report
| Financial Highlights | ||||||||||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||
| Selected Per Share Data | ||||||||||||||||||
| Net asset value, beginning of | ||||||||||||||||||
| period | $ | 21.41 | $ | 19.96 | $ | 16.83 | $ | 19.54 | $ 31.80 | |||||||||
| Income from Investment | ||||||||||||||||||
| Operations | ||||||||||||||||||
| Net investment income (loss)B | 25C | .10 | .11 | .07 | .14 | |||||||||||||
| Net realized and unrealized | ||||||||||||||||||
| gain (loss) | 2.33 | 1.47 | 3.08 | (2.64) | (7.33) | |||||||||||||
| Total from investment operations | 2.58 | 1.57 | 3.19 | (2.57) | (7.19) | |||||||||||||
| Distributions from net investment | ||||||||||||||||||
| income | (.25) | (.12) | (.06) | (.14) | (.13) | |||||||||||||
| Distributions from net realized | ||||||||||||||||||
| gain | — | — | — | (4.94) | ||||||||||||||
| Total distributions | (.25) | (.12) | (.06) | (.14) | (5.07) | |||||||||||||
| Net asset value, end of period | $ | 23.74 | $ | 21.41 | $ | 19.96 | $ | 16.83 | $ 19.54 | |||||||||
| Total ReturnA | 12.12% | 7.91% | 19.01% | (13.30)% | (26.41)% | |||||||||||||
| Ratios to Average Net AssetsD | ||||||||||||||||||
| Expenses before expense | ||||||||||||||||||
| reductions | 84% | .85% | .86% | .94% | .67% | |||||||||||||
| Expenses net of voluntary | ||||||||||||||||||
| waivers, if any | 84% | .85% | .86% | .94% | .67% | |||||||||||||
| Expenses net of all reductions | 79% | .81% | .82% | .83% | .63% | |||||||||||||
| Net investment income (loss) | 1.11%C | .46% | .63% | .39% | .62% | |||||||||||||
| Supplemental Data | ||||||||||||||||||
| Net assets, end of period (in | ||||||||||||||||||
| millions) | $ | 770 | $ | 777 | $ | 790 | $ | 744 | $ 1,017 | |||||||||
| Portfolio turnover rate | 136% | 134% | 159% | 255% | 137% |
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. B Calculated based on average shares outstanding during the period. C Investment income per share reflects a special dividend which amounted to $.14 per share. Excluding the special dividend, the ratio of net investment income to average net assets would have been .49%. D Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions repre sent the net expenses paid by the fund. |
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 22 |
Notes to Financial Statements
| For the period ended October 31, 2005 (Amounts in thousands except ratios) |
1. Significant Accounting Policies.
Fidelity Stock Selector (the fund) is a fund of Fidelity Capital 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 manage ment investment company organized as a Massachusetts business trust. The fund may invest in affiliated money market central funds (Money Market Central Funds) which are open end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affili ates. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require manage ment to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund:
Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Investments in open end mutual funds, are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
23 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 1. Significant Accounting Policies continued |
Foreign Currency. The fund uses foreign currency contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms.
Foreign denominated assets, including investment securities, and liabilities are trans lated into U.S. dollars at the exchange rate at period end. Purchases and sales of invest ment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transac tion date.
The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Large, non recurring dividends recognized by the fund are presented separately on the Statement of Operations as “Special Dividends” and the impact of these dividends is presented in the Financial Highlights. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests.
| Annual Report |
| 24 |
| 1. Significant Accounting Policies continued Income Tax Information and Distributions to Shareholders continued |
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
Book tax differences are primarily due to futures transactions, foreign currency transac tions, capital loss carryforwards and losses deferred due to wash sales.
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 65,494 | ||||||
| Unrealized depreciation | (46,711) | |||||||
| Net unrealized appreciation (depreciation) | 18,783 | |||||||
| Undistributed ordinary income | 2,689 | |||||||
| Capital loss carryforward | (47,228) | |||||||
| Cost for federal income tax purposes | $ | 753,816 | ||||||
| The tax character of distributions paid was as follows: | ||||||||
| October 31, 2005 | October 31, 2005 | |||||||
| Ordinary Income | $ | 9,003 | $ | 4,700 | ||||
| 2. Operating Policies. | ||||||||
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
25 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 2. Operating Policies continued |
Futures Contracts. The fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund’s exposure to the underlying instrument, while selling futures tends to decrease a fund’s exposure to the underlying instrument or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the con tracts’ terms. Gains (losses) are realized upon the expiration or closing of the futures contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $1,045,385 and $1,109,011, respectively.
4. Fees and Other Transactions with Affiliates.
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment (up to a maximum of ±.20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .58% of the fund’s average net assets.
Transfer Agent Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund’s transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset based fees that vary according to account size and type of ac count. FSC pays for typesetting, printing and mailing of shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .21% of average net assets.
Accounting and Security Lending Fees. FSC maintains the fund’s accounting re cords. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
| Annual Report |
| 26 |
4. Fees and Other Transactions with Affiliates continued
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Invest ments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $381 for the period.
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $80 for the period.
| 5. Committed Line of Credit. |
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insol vency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. At period end there were no security loans outstanding. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
27 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 7. Expense Reductions. |
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $333 for the period. In addition, through arrangements with the fund’s transfer agent, credits realized as a result of uninvested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s transfer agent expenses by $3.
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the perfor mance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum expo sure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is consid ered remote.
| Annual Report |
| 28 |
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and Shareholders of Fidelity Stock Selector:
We have audited the accompanying statement of assets and liabilities of Fidelity Stock Selector (the Fund), a fund of Fidelity Capital Trust, including the schedule of invest ments, as of October 31, 2005, 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 standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. Our procedures in cluded confirmation of securities owned as of October 31, 2005, by correspondence with the custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 Stock Selector as of October 31, 2005, 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 its financial highlights for each of the five years in the period then ended, in conformity with accounting prin ciples generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 9, 2005
29 Annual Report
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-800-544-8544.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Di rector and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Man agement, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
| Annual Report |
| 30 |
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity In vestments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Stock Selector. He also serves as Senior Vice President of other Fidelity funds (2005 present). Mr. Jonas is Executive Director of FMR (2005 present). Previously, Mr. Jonas served as President of Fidelity Enterprise Operations and Risk Services (2004 2005), Chief Administrative Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and man agement positions including Chief Financial Officer of FMR. In addition, he serves on the Boards of Boston Ballet (2003 present) and Simmons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
31 Annual Report
Trustees and Officers - continued
Independent Trustees:
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addi tion, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
| Annual Report |
| 32 |
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsyl vania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (auto motive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technolo gies Inc. (telecommunications network surveillance, 2001 2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
33 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corporation (IBM) and President and General Manager of various IBM divisions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Com pany Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the University of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Car olina (16 school system).
| Annual Report |
| 34 |
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief In vestment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2002
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Mem ber of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
35 Annual Report
Trustees and Officers - continued
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his re tirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Direc tor (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Stock Selector (2005 present). Mr. Churchill also serves as Vice President of certain Equity Funds (2005 present) and certain High Income Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Chur chill joined Fidelity in 1993 as Vice President and Group Leader of Tax able Fixed Income Investments.
| James F. Catudal (44) |
Year of Election or Appointment: 2002
Vice President of Stock Selector. Prior to assuming his current responsibi lities, Mr. Catudal managed a varity of Fidelity funds. Mr. Catudal also serves as Vice President of FMR (2002 present) and FMR Co., Inc. (2002 present)
| Annual Report |
| 36 |
| Name, Age; Principal Occupation Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Stock Selector. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001 present), Fidelity Management & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Manage ment, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corpora tion (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Stock Selector. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003 present), Vice President and Sec retary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Stock Selector. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Investments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Stock Selector. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Manage ment Services Group (FPCMS).
| Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Stock Selector. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Execu tive Vice President of Risk Oversight for Fidelity Investments (2002). Pre viously, he served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998 2002).
37 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Stock Selector. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Stock Selector. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity In vestments Institutional Services Group (FIIS)/Fidelity Investments Institu tional Operations Corporation, Inc. (FIIOC) Client Services (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Stock Selector. Ms. Monasterio also serves as Deputy Treasurer of other Fidelity funds (2004) and is an employee of FMR (2004). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Tem pleton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment:2005
Deputy Treasurer of Stock Selector. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s department of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accoun tant, United States Securities and Exchange Commission (2000 2002).
| Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Stock Selector. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice Presi dent of the Investment Operations Group (2000 2003).
| Annual Report |
| 38 |
| Name, Age; Principal Occupation John H. Costello (59) |
Year of Election or Appointment: 1990
Assistant Treasurer of Stock Selector. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Stock Selector. Mr. Lydecker also serves as Assis tant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Stock Selector. Mr. Osterheld also serves as Assis tant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Stock Selector. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Stock Selector. Mr. Schiavone also serves as Assis tant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Investments, Mr. Schia vone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
39 Annual Report
| Distributions |
The fund designates 100% of the dividend distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
The fund designates 100% of the dividend distributed in December, during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
| Annual Report |
| 40 |
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Stock Selector
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
41 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
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account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objec tive similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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Board Approval of Investment Advisory Contracts and Management Fees continued
The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the second quartile for the one , three , and five year periods. The Board also stated that the relative investment performance of the fund was lower than its benchmark over time.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services provided by Fidelity will benefit the fund’s shareholders, particularly in light of the
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Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 17% means that 83% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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Board Approval of Investment Advisory Contracts and Management Fees continued
The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s positive performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s positive performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that the fund’s total expenses ranked below its competitive median for 2004.
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
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Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or
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Board Approval of Investment Advisory Contracts and Management Fees continued
expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
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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 Automated Service Telephone provides 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.
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.
* 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 guar anteed 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.
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To Visit Fidelity
| For directions and hours, please call 1 800 544 9797. Arizona 7001 West Ray Road Chandler, AZ 7373 N. Scottsdale Road Scottsdale, AZ California 815 East Birch Street Brea, CA 1411 Chapin Avenue Burlingame, CA 851 East Hamilton Avenue Campbell, CA 19200 Von Karman Avenue Irvine, CA 601 Larkspur Landing Circle Larkspur, CA 10100 Santa Monica Blvd. Los Angeles, CA 27101 Puerta Real Mission Viejo, CA 73 575 El Paseo Palm Desert, CA 251 University Avenue Palo Alto, CA 123 South Lake Avenue Pasadena, CA 16995 Bernardo Ctr. Drive Rancho Bernardo, CA 1740 Arden Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 8 Montgomery Street San Francisco, CA 3793 State Street Santa Barbara, CA 21701 Hawthorne Boulevard Torrance, CA 2001 North Main Street Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA |
| Colorado 1625 Broadway Denver, CO 9185 East Westview Road Littleton, 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. Federal Highway Boca Raton, FL 121 Alhambra Plaza Coral Gables, FL 2948 N. Federal Highway Ft. Lauderdale, FL 1907 West State Road 434 Longwood, FL 8880 Tamiami Trail, North Naples, FL 3550 Tamiami Trail, South Sarasota, FL 1502 N. Westshore Blvd. Tampa, FL 2465 State Road 7 Wellington, FL 3501 PGA Boulevard West Palm Beach, FL Georgia 3445 Peachtree Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA Illinois One North LaSalle Street Chicago, IL 875 North Michigan Ave. 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 Kansas 5400 College Boulevard Overland Park, KS Maine Three Canal Plaza Portland, ME Maryland 7315 Wisconsin Avenue Bethesda, MD One W. Pennsylvania Ave. Towson, MD Massachusetts 801 Boylston Street Boston, MA 155 Congress Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 405 Cochituate Road Framingham, MA 416 Belmont Street Worcester, MA Michigan 500 E. Eisenhower Pkwy. Ann Arbor, MI 280 Old N. Woodward Ave. Birmingham, MI 43420 Grand River Avenue Novi, MI 29155 Northwestern Hwy. Southfield, MI Minnesota 7600 France Avenue South Edina, MN Missouri 8885 Ladue Road Ladue, MO |
Annual Report 50
| Nevada 2225 Village Walk Drive Henderson, NV New Jersey 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 396 Route 17, North Paramus, NJ 3518 Route 1 North Princeton, NJ 530 Highway 35 Shrewsbury, NJ New York 1055 Franklin Avenue Garden City, NY 37 West Jericho Turnpike Huntington Station, NY 1271 Avenue of the Americas New York, NY 61 Broadway New York, NY 350 Park Avenue New York, NY 200 Fifth Avenue New York, NY 733 Third Avenue New York, NY 11 Penn Plaza New York, NY 2070 Broadway New York, NY 1075 Northern Blvd. Roslyn, NY North Carolina 4611 Sharon Road Charlotte, NC Ohio 3805 Edwards Road Cincinnati, OH 1324 Polaris Parkway Columbus, OH 28699 Chagrin Boulevard Woodmere Village, OH Oregon 16850 SW 72nd Avenue Tigard, OR |
| Pennsylvania 600 West DeKalb Pike King of Prussia, PA 1735 Market Street Philadelphia, PA 12001 Perry Highway Wexford, PA Rhode Island 47 Providence Place Providence, RI Tennessee 6150 Poplar Avenue Memphis, TN Texas 10000 Research Boulevard Austin, TX 4001 Northwest Parkway Dallas, TX 12532 Memorial Drive Houston, TX 2701 Drexel Drive Houston, TX 6500 N. MacArthur Blvd. Irving, TX 6005 West Park Boulevard Plano, TX 14100 San Pedro San Antonio, TX 1576 East Southlake Blvd. Southlake, TX 19740 IH 45 North Spring, TX Utah 215 South State Street Salt Lake City, UT Virginia 1861 International Drive McLean, VA Washington 411 108th Avenue, N.E. Bellevue, WA 1518 6th Avenue Seattle, WA Washington, DC 1900 K Street, N.W. Washington, DC Wisconsin 595 North Barker Road Brookfield, WI |
Fidelity Brokerage Services, Inc., 100 Summer St., Boston, MA 02110 Member NYSE/SIPC
51 Annual Report
51
To Write Fidelity
We’ll give your correspondence immediate attention and send you written confirmation upon completion of your request.
| (such as changing name, address, bank, etc.) Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0002 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
| Buying shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0003 Selling shares Fidelity Investments P.O. Box 770001 Cincinnati, OH 45277-0035 Overnight Express Fidelity Investments Attn: Distribution Services 100 Crosby Parkway KC1H Covington, KY 41015 General Correspondence Fidelity Investments P.O. Box 500 Merrimack, NH 03054-0500 |
Annual Report 52
53 Annual Report
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55 Annual Report
| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian Brown Brothers Harriman & Co. Boston, MA |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| FSS-UANN-1205 1.784780.102 |
| Fidelity® Value Fund |
| Annual Report October 31, 2005 |
| Contents | ||||
| Chairman’s Message | 4 | Ned Johnson’s message to shareholders. | ||
| Performance | 5 | How the fund has done over time. | ||
| Management’s Discussion | 6 | The manager’s review of fund | ||
| performance, strategy and outlook. | ||||
| Shareholder Expense | 7 | An example of shareholder expenses. | ||
| Example | ||||
| Investment Changes | 8 | A summary of major shifts in the fund’s | ||
| investments over the past six months. | ||||
| Investments | 9 | A complete list of the fund’s investments | ||
| with their market values. | ||||
| Financial Statements | 23 | Statements of assets and liabilities, | ||
| operations, and changes in net assets, | ||||
| as well as financial highlights. | ||||
| Notes | 27 | Notes to the financial statements. | ||
| Report of Independent | 33 | |||
| Registered Public | ||||
| Accounting Firm | ||||
| Trustees and Officers | 34 | |||
| Distributions | 44 | |||
| Board Approval of | 45 | |||
| Investment Advisory | ||||
| Contracts and | ||||
| Management Fees | ||||
| To view a fund’s proxy voting guidelines and proxy voting record for the 12 month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commission’s (SEC) web site at www.sec.gov. You may also call 1-800-544-8544 to request a free copy of the proxy voting guidelines. Standard & Poor’s, S&P and S&P 500 are registered service marks of The McGraw Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. Other third party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR Corp. or an affiliated company. |
Annual Report 2
| 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. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N Q. Forms N Q are available on the SEC’s web site at http://www.sec.gov. A fund’s Forms N Q may be reviewed and copied at the SEC’s Public Refer ence Room in Washington, DC. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling 1-800-SEC-0330. For a complete list of a fund’s portfolio holdings, view the most recent quarterly holdings report, semiannual report, or annual report on Fidelity’s web site at http://www.fidelity.com/holdings. NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE Neither the fund nor Fidelity Distributors Corporation is a bank. |
3 Annual Report
Chairman’s Message
(photograph of Edward C. Johnson 3d)
Dear Shareholder:
During the past year or so, much has been reported about the mutual fund industry, and much of it has been more critical than I believe is warranted. Allegations that some companies have been less than forthright with their shareholders have cast a shadow on the entire industry. I continue to find these reports disturbing, and assert that they do not create an accurate picture of the industry overall. Therefore, I would like to remind every one where Fidelity stands on these issues. I will say two things specifically regarding allegations that some mutual fund compa nies were in violation of the Securities and Exchange Commission’s forward pricing rules or were involved in so called “market timing” activities.
First, Fidelity has no agreements that permit customers who buy fund shares after 4 p.m. to obtain the 4 p.m. price. This is not a new policy. This is not to say that some one could not deceive the company through fraudulent acts. However, we are extremely diligent in preventing fraud from occurring in this manner and in every other. But I underscore again that Fidelity has no so called “agreements” that sanction illegal practices.
Second, Fidelity continues to stand on record, as we have for years, in opposition to predatory short term trading that adversely affects shareholders in a mutual fund. Back in the 1980s, we initiated a fee which is returned to the fund and, therefore, to investors to discourage this activity. Further, we took the lead several years ago in developing a Fair Value Pricing Policy to prevent market timing on foreign securities in our funds. I am confident we will find other ways to make it more difficult for predatory traders to operate. However, this will only be achieved through close cooperation among regulators, legislators and the industry.
Yes, there have been unfortunate instances of unethical and illegal activity within the mutual fund industry from time to time. That is true of any industry. When this occurs, confessed or convicted offenders should be dealt with appropriately. But we are still concerned about the risk of over regulation and the quick application of simplistic solutions to intricate problems. Every system can be improved, and we support and applaud well thought out improvements by regulators, legislators and industry representatives that achieve the common goal of building and protecting the value of investors’ holdings.
For nearly 60 years, Fidelity has worked very hard to improve its products and service to justify your trust. When our family founded this company in 1946, we had only a few hundred customers. Today, we serve more than 18 million customers in cluding individual investors and participants in retirement plans across America.
Let me close by saying that we do not take your trust in us for granted, and we realize that we must always work to improve all aspects of our service to you. In turn, we urge you to continue your active par ticipation with your financial matters, so that your interests can be well served.
Best regards,
/s/ Edward C. Johnson 3d
Edward C. Johnson 3d
Annual Report 4
Performance: The Bottom Line
Average annual total return reflects the change in the value of an investment, assuming reinvestment of the fund’s dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of perfor mance each year. The $10,000 table and the fund’s returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. During periods of reimbursement by Fidelity, a fund’s total return will be greater than it would be had the reimbursement not occurred. How a fund did yesterday is no guarantee of how it will do tomorrow.
| Average Annual Total Returns | ||||||
| Periods ended October 31, 2005 | Past 1 | Past 5 | Past 10 | |||
| year | years | years | ||||
| Fidelity® Value Fund | 16.13% | 14.27% | 12.18% | |||
| $10,000 Over 10 Years | ||||||
Let’s say hypothetically that $10,000 was invested in Fidelity® Value Fund on October 31, 1995. The chart shows how the value of your investment would have changed, and also shows how the Russell Midcap® Value Index performed over the same period.
5 Annual Report
5
Management’s Discussion of Fund Performance
Comments from Rich Fentin, Portfolio Manager of Fidelity® Value Fund
U.S. equity markets had respectable performance during the year that ended October 31, 2005. The period got off to a great start with a strong November and December of 2004. However, the markets were later dragged down by surging oil prices, further disorder in Iraq, potential new troubles with Iran and Syria, and terrorist attacks in London. While stocks recovered nicely, Hurricane Katrina would drive them down again. The devastating storm led to record high prices for gasoline, natural gas and oil, as well as fears of a corresponding leap in inflation. The Federal Reserve Board responded to this and to other inflationary pressures during the period by raising short term interest rates eight times. Nonetheless, stocks moved higher despite a very weak October. Market breadth was narrow, as most of the gains were concentrated in rapidly appreciating energy related investments. For the year overall, the Standard & Poor’s 500SM Index was up 8.72%, followed closely by the technology laden NASDAQ Composite®Index at 8.15% . The Dow Jones Industrial AverageSM rose 6.45% .
The fund returned 16.13% during the past year. In comparison, the Russell Midcap® Value Index rose 19.50%, while the LipperSM Mid Cap Value Funds Average and the Lipper Growth Funds Average advanced 14.51% and 10.58%, respectively. The fund lagged the Russell index partly because it held underperforming stocks that weren’t found in the benchmark, including electronics manufacturing outsource companies Celestica and Flextronics. A sizable position in Symbol Technologies, a maker of bar coding and wireless data equipment, also hurt performance within technology, while weak results from con sumer discretionary holdings, including retailer Pier 1 Imports, further detracted. Addition ally, the fund had less exposure than the index to oil and gas production companies that performed well in the high energy price environment, while aluminum companies Alcan and Alcoa underperformed when they were unable to pass higher energy costs through to their customers. On the other hand, the fund’s overall energy overweighting was a positive, as energy services companies Halliburton, Helmerich & Payne and National Oilwell Varco benefited from increased demand. Significantly underweighting weak performing bank stocks also provided a boost versus the index, as did overweighted investments in health care, including drug distributor McKesson. Capital goods stocks such as Precision Castparts contributed to returns, as did some good technology picks, including Agilent Technologies.
The views expressed in this statement reflect those of the portfolio manager only through the end of the period of the report as stated on the cover and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
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Shareholder Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (May 1, 2005 to October 31, 2005).
| Actual Expenses |
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the share holder reports of the other funds. A small balance maintenance fee of $12.00 that is charged once a year may apply for certain accounts with a value of less than $2,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Expenses Paid | ||||||||||||
| Beginning | Ending | During Period* | ||||||||||
| Account Value | Account Value | May 1, 2005 | ||||||||||
| May 1, 2005 | October 31, 2005 | to October 31, 2005 | ||||||||||
| Actual | $ | 1,000.00 | $ | 1,088.50 | $ | 3.47 | ||||||
| Hypothetical (5% return per year | ||||||||||||
| before expenses) | $ | 1,000.00 | $ | 1,021.88 | $ | 3.36 | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of .66%; multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one half year period).
7 Annual Report
| Investment Changes | ||||
| Top Ten Stocks as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Xerox Corp. | 1.5 | 1.3 | ||
| Fluor Corp. | 1.4 | 1.4 | ||
| Baxter International, Inc. | 1.4 | 1.6 | ||
| Ceridian Corp. | 1.2 | 0.7 | ||
| McKesson Corp. | 1.1 | 1.1 | ||
| Safeway, Inc. | 1.1 | 0.8 | ||
| Tyco International Ltd. | 1.1 | 0.5 | ||
| AmerisourceBergen Corp. | 1.0 | 1.0 | ||
| Schering Plough Corp. | 1.0 | 1.2 | ||
| Halliburton Co. | 1.0 | 0.7 | ||
| 11.8 | ||||
| Top Five Market Sectors as of October 31, 2005 | ||||
| % of fund’s | % of fund’s net assets | |||
| net assets | 6 months ago | |||
| Information Technology | 19.9 | 18.4 | ||
| Consumer Discretionary | 14.5 | 11.2 | ||
| Health Care | 13.9 | 14.4 | ||
| Financials | 12.1 | 12.1 | ||
| Industrials | 10.3 | 11.4 | ||
Annual Report 8
| Investments October 31, 2005 | ||||||||
| Showing Percentage of Net Assets | ||||||||
| Common Stocks 94.2% | ||||||||
| Shares | Value (Note 1) | |||||||
| (000s) | ||||||||
| CONSUMER DISCRETIONARY – 14.3% | ||||||||
| Auto Components 0.3% | ||||||||
| BorgWarner, Inc. | 585,300 | $ | 33,942 | |||||
| Automobiles – 0.3% | ||||||||
| Monaco Coach Corp. | 706,800 | 8,672 | ||||||
| Nissan Motor Co. Ltd. | 2,913,684 | 30,521 | ||||||
| 39,193 | ||||||||
| Diversified Consumer Services – 0.1% | ||||||||
| Service Corp. International (SCI) | 1,361,500 | 11,396 | ||||||
| Hotels, Restaurants & Leisure 3.9% | ||||||||
| Applebee’s International, Inc. | 461,400 | 10,109 | ||||||
| Brinker International, Inc. | 2,306,600 | 87,928 | ||||||
| Carnival Corp. unit | 1,395,500 | 69,314 | ||||||
| CBRL Group, Inc. | 637,100 | 22,107 | ||||||
| Domino’s Pizza, Inc. | 352,700 | 8,437 | ||||||
| Harrah’s Entertainment, Inc. | 211,735 | 12,806 | ||||||
| Hilton Hotels Corp. | 624,700 | 12,150 | ||||||
| Outback Steakhouse, Inc. | 2,251,020 | 84,773 | ||||||
| Rare Hospitality International, Inc. (a) | 383,000 | 11,704 | ||||||
| Royal Caribbean Cruises Ltd. | 3,068,220 | 127,147 | ||||||
| Wendy’s International, Inc. | 557,600 | 26,051 | ||||||
| WMS Industries, Inc. (a) | 1,456,500 | 36,602 | ||||||
| 509,128 | ||||||||
| Household Durables – 0.6% | ||||||||
| Matsushita Electric Industrial Co. Ltd. | 1,070,000 | 19,688 | ||||||
| Newell Rubbermaid, Inc. | 2,220,200 | 51,042 | ||||||
| Sony Corp. sponsored ADR | 365,000 | 11,972 | ||||||
| 82,702 | ||||||||
| Leisure Equipment & Products – 1.5% | ||||||||
| Brunswick Corp. | 1,814,400 | 69,183 | ||||||
| Eastman Kodak Co. | 4,838,900 | 105,972 | ||||||
| K2, Inc. (a) | 2,010,204 | 20,162 | ||||||
| 195,317 | ||||||||
| Media – 2.6% | ||||||||
| Citadel Broadcasting Corp. | 291,300 | 4,014 | ||||||
| Clear Channel Communications, Inc. | 1,457,700 | 44,343 | ||||||
| E.W. Scripps Co. Class A | 846,600 | 38,774 | ||||||
| Emmis Communications Corp. Class A (a) | 1,249,402 | 24,451 | ||||||
| Gannett Co., Inc. | 574,900 | 36,023 | ||||||
| Lamar Advertising Co. Class A (a) | 1,069,500 | 47,721 | ||||||
See accompanying notes which are an integral part of the financial statements.
| 9 Annual Report |
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER DISCRETIONARY – continued | ||||||
| Media – continued | ||||||
| The New York Times Co. Class A | 1,311,600 | $ | 35,728 | |||
| The Reader’s Digest Association, Inc. (non-vtg.) | 2,618,371 | 40,113 | ||||
| Tribune Co. | 1,150,900 | 36,265 | ||||
| Viacom, Inc. Class B (non-vtg.) | 1,115,975 | 34,562 | ||||
| 341,994 | ||||||
| Multiline Retail – 0.9% | ||||||
| Big Lots, Inc. (a) | 4,374,360 | 50,611 | ||||
| Family Dollar Stores, Inc. | 2,866,100 | 63,455 | ||||
| 114,066 | ||||||
| Specialty Retail – 3.4% | ||||||
| AnnTaylor Stores Corp. (a) | 3,218,900 | 78,123 | ||||
| AutoNation, Inc. (a) | 1,138,400 | 22,631 | ||||
| Gap, Inc. | 2,643,700 | 45,683 | ||||
| Hot Topic, Inc. (a) | 1,323,700 | 19,710 | ||||
| Linens ’N Things, Inc. (a) | 1,228,800 | 30,892 | ||||
| Office Depot, Inc. (a) | 957,800 | 26,368 | ||||
| OfficeMax, Inc. | 573,700 | 16,075 | ||||
| Pier 1 Imports, Inc. (e) | 4,821,100 | 49,754 | ||||
| Select Comfort Corp. (a) | 27,770 | 608 | ||||
| Sports Authority, Inc. (a)(e) | 1,592,400 | 44,332 | ||||
| TBC Corp. (a) | 1,010,044 | 34,937 | ||||
| Tiffany & Co., Inc. | 1,854,000 | 73,048 | ||||
| 442,161 | ||||||
| Textiles, Apparel & Luxury Goods – 0.7% | ||||||
| Liz Claiborne, Inc. | 2,327,600 | 81,932 | ||||
| Warnaco Group, Inc. (a) | 735,080 | 16,672 | ||||
| 98,604 | ||||||
| TOTAL CONSUMER DISCRETIONARY | 1,868,503 | |||||
| CONSUMER STAPLES 2.8% | ||||||
| Beverages – 0.3% | ||||||
| Coca-Cola Enterprises, Inc. | 1,341,244 | 25,350 | ||||
| Cott Corp. (a) | 1,169,300 | 17,079 | ||||
| 42,429 | ||||||
| Food & Staples Retailing – 1.1% | ||||||
| Safeway, Inc. | 6,167,570 | 143,458 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 10 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| CONSUMER STAPLES – continued | ||||||
| Food Products 0.7% | ||||||
| Corn Products International, Inc. | 1,107,800 | $ | 26,377 | |||
| Dean Foods Co. (a) | 1,560,898 | 56,426 | ||||
| Global Bio-Chem Technology Group Co. Ltd. | 3,698,000 | 1,467 | ||||
| TreeHouse Foods, Inc. (a) | 312,179 | 8,067 | ||||
| 92,337 | ||||||
| Household Products – 0.5% | ||||||
| Colgate-Palmolive Co. | 1,258,800 | 66,666 | ||||
| Personal Products 0.2% | ||||||
| Avon Products, Inc. | 661,400 | 17,851 | ||||
| NBTY, Inc. (a) | 344,900 | 6,901 | ||||
| 24,752 | ||||||
| TOTAL CONSUMER STAPLES | 369,642 | |||||
| ENERGY 8.7% | ||||||
| Energy Equipment & Services – 8.3% | ||||||
| Baker Hughes, Inc. | 1,320,860 | 72,594 | ||||
| BJ Services Co. | 1,727,400 | 60,027 | ||||
| Cooper Cameron Corp. (a) | 1,262,550 | 93,088 | ||||
| ENSCO International, Inc. | 994,700 | 45,348 | ||||
| FMC Technologies, Inc. (a) | 933,300 | 34,028 | ||||
| GlobalSantaFe Corp. | 1,014,320 | 45,188 | ||||
| Grant Prideco, Inc. (a) | 1,769,525 | 68,817 | ||||
| Halliburton Co. | 2,247,800 | 132,845 | ||||
| Helmerich & Payne, Inc. | 1,299,700 | 72,003 | ||||
| Hercules Offshore, Inc. | 136,000 | 2,961 | ||||
| Nabors Industries Ltd. (a) | 847,600 | 58,171 | ||||
| National Oilwell Varco, Inc. (a) | 2,118,000 | 132,311 | ||||
| Noble Corp. | 956,100 | 61,554 | ||||
| Pride International, Inc. (a) | 790,600 | 22,192 | ||||
| Smith International, Inc. | 2,139,000 | 69,304 | ||||
| Transocean, Inc. (a) | 1,104,100 | 63,475 | ||||
| Weatherford International Ltd. (a) | 764,174 | 47,837 | ||||
| 1,081,743 | ||||||
| Oil, Gas & Consumable Fuels – 0.4% | ||||||
| Double Hull Tankers, Inc. | 425,800 | 5,037 | ||||
See accompanying notes which are an integral part of the financial statements.
11 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| ENERGY – continued | ||||||
| Oil, Gas & Consumable Fuels – continued | ||||||
| McMoRan Exploration Co. (a)(d) | 576,400 | $ | 9,782 | |||
| Valero Energy Corp. | 361,834 | 38,079 | ||||
| 52,898 | ||||||
| TOTAL ENERGY | 1,134,641 | |||||
| FINANCIALS – 12.0% | ||||||
| Capital Markets 2.1% | ||||||
| Ameriprise Financial, Inc. (a) | 225,700 | 8,401 | ||||
| Ameritrade Holding Corp. (a) | 146,200 | 3,075 | ||||
| Janus Capital Group, Inc. | 3,270,900 | 57,404 | ||||
| Lehman Brothers Holdings, Inc. | 510,500 | 61,092 | ||||
| Merrill Lynch & Co., Inc. | 1,352,300 | 87,548 | ||||
| Nuveen Investments, Inc. Class A | 460,700 | 18,645 | ||||
| State Street Corp. | 617,900 | 34,127 | ||||
| 270,292 | ||||||
| Commercial Banks – 1.2% | ||||||
| Bank of America Corp. | 905,460 | 39,605 | ||||
| UnionBanCal Corp. | 712,828 | 48,814 | ||||
| Wachovia Corp. | 1,392,367 | 70,342 | ||||
| 158,761 | ||||||
| Consumer Finance – 0.1% | ||||||
| Capital One Financial Corp. | 203,000 | 15,499 | ||||
| Diversified Financial Services – 0.0% | ||||||
| Citigroup, Inc. | 148,824 | 6,813 | ||||
| Insurance – 3.9% | ||||||
| AFLAC, Inc. | 1,901,920 | 90,874 | ||||
| AMBAC Financial Group, Inc. | 970,500 | 68,799 | ||||
| Axis Capital Holdings Ltd. | 101,800 | 2,640 | ||||
| Genworth Financial, Inc. Class A (non-vtg.) | 804,400 | 25,491 | ||||
| Marsh & McLennan Companies, Inc. | 475,800 | 13,870 | ||||
| MBIA, Inc. | 1,239,700 | 72,200 | ||||
| MetLife, Inc. | 1,123,690 | 55,522 | ||||
| MetLife, Inc. unit | 506,500 | 13,853 | ||||
| Montpelier Re Holdings Ltd. | 435,400 | 8,752 | ||||
| Prudential Financial, Inc. | 708,400 | 51,564 | ||||
| Scottish Re Group Ltd. | 834,560 | 20,488 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 12 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| FINANCIALS – continued | ||||||
| Insurance – continued | ||||||
| The St. Paul Travelers Companies, Inc. | 1,523,320 | $ | 68,595 | |||
| Willis Group Holdings Ltd. | 470,300 | 17,467 | ||||
| 510,115 | ||||||
| Real Estate 3.2% | ||||||
| Alexandria Real Estate Equities, Inc. | 425,800 | 34,426 | ||||
| Apartment Investment & Management Co. Class A | 35,600 | 1,367 | ||||
| CenterPoint Properties Trust (SBI) | 793,220 | 36,139 | ||||
| Digital Realty Trust, Inc. | 397,400 | 7,622 | ||||
| Duke Realty Corp. | 951,300 | 32,439 | ||||
| Education Realty Trust, Inc. | 1,052,400 | 16,312 | ||||
| Equity Office Properties Trust | 894,300 | 27,544 | ||||
| Equity Residential (SBI) | 709,000 | 27,828 | ||||
| General Growth Properties, Inc. | 1,459,650 | 62,006 | ||||
| GMH Communities Trust | 980,700 | 14,681 | ||||
| Kimco Realty Corp. | 803,600 | 23,803 | ||||
| Reckson Associates Realty Corp. | 1,017,300 | 35,707 | ||||
| Trizec Properties, Inc. | 1,143,100 | 25,434 | ||||
| United Dominion Realty Trust, Inc. (SBI) | 1,225,100 | 27,111 | ||||
| Vornado Realty Trust | 529,100 | 42,857 | ||||
| 415,276 | ||||||
| Thrifts & Mortgage Finance – 1.5% | ||||||
| Countrywide Financial Corp. | 1,761,305 | 55,957 | ||||
| Fannie Mae | 1,360,200 | 64,637 | ||||
| Freddie Mac | 989,400 | 60,700 | ||||
| Hudson City Bancorp, Inc. | 996,500 | 11,799 | ||||
| 193,093 | ||||||
| TOTAL FINANCIALS | 1,569,849 | |||||
| HEALTH CARE – 13.7% | ||||||
| Biotechnology – 0.8% | ||||||
| Biogen Idec, Inc. (a) | 667,000 | 27,100 | ||||
| Cephalon, Inc. (a) | 988,800 | 45,079 | ||||
| MedImmune, Inc. (a) | 741,600 | 25,941 | ||||
| ONYX Pharmaceuticals, Inc. (a) | 374,100 | 9,611 | ||||
| 107,731 | ||||||
| Health Care Equipment & Supplies – 3.8% | ||||||
| Baxter International, Inc. | 4,781,340 | 182,791 | ||||
| Becton, Dickinson & Co. | 1,339,460 | 67,978 | ||||
See accompanying notes which are an integral part of the financial statements.
13 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| HEALTH CARE – continued | ||||||
| Health Care Equipment & Supplies – continued | ||||||
| CONMED Corp. (a) | 687,900 | $ | 16,496 | |||
| Dade Behring Holdings, Inc. | 1,346,840 | 48,500 | ||||
| Fisher Scientific International, Inc. (a) | 1,090,332 | 61,604 | ||||
| Hospira, Inc. (a) | 417,000 | 16,617 | ||||
| Varian, Inc. (a)(e) | 2,035,000 | 74,827 | ||||
| Waters Corp. (a) | 621,800 | 22,509 | ||||
| 491,322 | ||||||
| Health Care Providers & Services – 7.5% | ||||||
| AmerisourceBergen Corp. | 1,765,800 | 134,678 | ||||
| Community Health Systems, Inc. (a) | 2,868,500 | 106,450 | ||||
| Emdeon Corp. (a) | 3,191,850 | 29,365 | ||||
| HCA, Inc. | 2,026,040 | 97,635 | ||||
| Health Net, Inc. (a) | 1,906,300 | 89,291 | ||||
| Laboratory Corp. of America Holdings (a) | 530,300 | 25,587 | ||||
| McKesson Corp. | 3,230,100 | 146,743 | ||||
| Omnicare, Inc. | 658,500 | 35,625 | ||||
| Pediatrix Medical Group, Inc. (a) | 580,080 | 44,701 | ||||
| Quest Diagnostics, Inc. | 2,268,620 | 105,967 | ||||
| Sunrise Senior Living, Inc. (a) | 1,322,400 | 42,766 | ||||
| Triad Hospitals, Inc. (a) | 1,086,750 | 44,698 | ||||
| Universal Health Services, Inc. Class B | 1,576,380 | 74,311 | ||||
| 977,817 | ||||||
| Pharmaceuticals – 1.6% | ||||||
| Forest Laboratories, Inc. (a) | 273,700 | 10,376 | ||||
| Schering-Plough Corp. | 6,610,250 | 134,452 | ||||
| Teva Pharmaceutical Industries Ltd. sponsored ADR | 1,440,300 | 54,904 | ||||
| Wyeth | 170,000 | 7,575 | ||||
| 207,307 | ||||||
| TOTAL HEALTH CARE | 1,784,177 | |||||
| INDUSTRIALS – 10.3% | ||||||
| Aerospace & Defense – 0.9% | ||||||
| EADS NV (d) | 1,348,900 | 46,731 | ||||
| Honeywell International, Inc. | 1,064,100 | 36,392 | ||||
| Lockheed Martin Corp. | 195,190 | 11,821 | ||||
| Precision Castparts Corp. | 542,020 | 25,670 | ||||
| 120,614 | ||||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 14 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INDUSTRIALS – continued | ||||||
| Airlines – 0.5% | ||||||
| ACE Aviation Holdings, Inc. Class A (a) | 588,800 | $ | 15,455 | |||
| Ryanair Holdings PLC sponsored ADR (a) | 902,400 | 44,732 | ||||
| Southwest Airlines Co. | 609,900 | 9,764 | ||||
| 69,951 | ||||||
| Building Products 0.8% | ||||||
| American Standard Companies, Inc. | 203,300 | 7,734 | ||||
| Masco Corp. | 3,369,800 | 96,039 | ||||
| 103,773 | ||||||
| Commercial Services & Supplies – 1.1% | ||||||
| Aramark Corp. Class B | 1,910,300 | 48,560 | ||||
| Manpower, Inc. | 848,000 | 38,397 | ||||
| Navigant Consulting, Inc. (a) | 1,681,400 | 35,259 | ||||
| Steelcase, Inc. Class A | 1,666,000 | 23,857 | ||||
| 146,073 | ||||||
| Construction & Engineering – 1.7% | ||||||
| EMCOR Group, Inc. (a) | 527,300 | 32,165 | ||||
| Fluor Corp. | 2,955,780 | 187,988 | ||||
| 220,153 | ||||||
| Electrical Equipment – 0.1% | ||||||
| A.O. Smith Corp. | 410,480 | 13,291 | ||||
| Industrial Conglomerates – 1.1% | ||||||
| Tyco International Ltd. | 5,121,470 | 135,156 | ||||
| Machinery – 2.7% | ||||||
| Albany International Corp. Class A (e) | 1,594,590 | 61,599 | ||||
| Briggs & Stratton Corp. | 1,406,600 | 44,983 | ||||
| Crane Co. | 679,000 | 21,022 | ||||
| Harsco Corp. | 794,500 | 51,047 | ||||
| Kennametal, Inc. | 1,454,203 | 74,324 | ||||
| SPX Corp. | 1,898,330 | 81,666 | ||||
| Wabash National Corp | 874,630 | 16,102 | ||||
| 350,743 | ||||||
| Road & Rail 1.3% | ||||||
| Canadian National Railway Co. | 940,900 | 68,118 | ||||
| CSX Corp. | 784,400 | 35,933 | ||||
| Laidlaw International, Inc. | 2,601,500 | 59,158 | ||||
| 163,209 | ||||||
See accompanying notes which are an integral part of the financial statements.
15 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INDUSTRIALS – continued | ||||||
| Transportation Infrastructure 0.1% | ||||||
| Macquarie Infrastructure Co. Trust | 516,395 | $ | 15,492 | |||
| TOTAL INDUSTRIALS | 1,338,455 | |||||
| INFORMATION TECHNOLOGY – 19.8% | ||||||
| Communications Equipment – 2.1% | ||||||
| Alcatel SA sponsored ADR (a) | 3,104,400 | 36,446 | ||||
| Andrew Corp. (a) | 1,885,800 | 20,027 | ||||
| Dycom Industries, Inc. (a)(e) | 3,872,700 | 77,183 | ||||
| Motorola, Inc. | 2,618,600 | 58,028 | ||||
| Nokia Corp. sponsored ADR | 2,700,700 | 45,426 | ||||
| Powerwave Technologies, Inc. (a) | 3,306,800 | 37,069 | ||||
| 274,179 | ||||||
| Computers & Peripherals – 2.3% | ||||||
| Maxtor Corp. (a) | 8,016,300 | 28,057 | ||||
| NCR Corp. (a) | 844,400 | 25,518 | ||||
| Seagate Technology | 5,271,300 | 76,381 | ||||
| UNOVA, Inc. (a) | 1,478,700 | 45,840 | ||||
| Western Digital Corp. (a) | 10,046,880 | 121,567 | ||||
| 297,363 | ||||||
| Electronic Equipment & Instruments – 5.5% | ||||||
| Agilent Technologies, Inc. (a) | 3,435,300 | 109,964 | ||||
| Arrow Electronics, Inc. (a) | 2,378,500 | 70,190 | ||||
| Avnet, Inc. (a) | 4,145,695 | 95,558 | ||||
| Celestica, Inc. (sub. vtg.) (a) | 8,350,300 | 79,190 | ||||
| Flextronics International Ltd. (a) | 11,755,800 | 109,211 | ||||
| Mettler-Toledo International, Inc. (a) | 1,284,175 | 66,263 | ||||
| Molex, Inc. | 2,095,600 | 53,040 | ||||
| Solectron Corp. (a) | 8,456,600 | 29,852 | ||||
| Symbol Technologies, Inc. | 8,111,500 | 67,325 | ||||
| Tech Data Corp. (a) | 682,900 | 23,656 | ||||
| Tektronix, Inc. | 626,730 | 14,402 | ||||
| 718,651 | ||||||
| IT Services – 2.5% | ||||||
| Accenture Ltd. Class A | 1,276,800 | 33,593 | ||||
| Affiliated Computer Services, Inc. Class A (a) | 1,743,340 | 94,332 | ||||
| BearingPoint, Inc. (a) | 1,485,300 | 10,427 | ||||
| Ceridian Corp. (a) | 7,021,960 | 153,851 | ||||
| Hewitt Associates, Inc. Class A (a) | 564,400 | 15,064 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 16 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| INFORMATION TECHNOLOGY – continued | ||||||
| IT Services – continued | ||||||
| Iron Mountain, Inc. (a) | 295,300 | $ | 11,517 | |||
| The BISYS Group, Inc. (a) | 380,400 | 4,823 | ||||
| 323,607 | ||||||
| Office Electronics – 1.5% | ||||||
| Xerox Corp. (a) | 14,203,110 | 192,739 | ||||
| Semiconductors & Semiconductor Equipment – 3.3% | ||||||
| AMIS Holdings, Inc. (a) | 1,669,000 | 18,593 | ||||
| Amkor Technology, Inc. (a) | 1,503,700 | 7,940 | ||||
| Applied Materials, Inc. | 3,430,300 | 56,188 | ||||
| ASM International NV (Nasdaq) (a) | 565,800 | 7,514 | ||||
| ASML Holding NV (NY Shares) (a) | 3,795,900 | 64,454 | ||||
| DSP Group, Inc. (a) | 304,531 | 7,485 | ||||
| Exar Corp. (a) | 811,269 | 10,214 | ||||
| Fairchild Semiconductor International, Inc. (a) | 2,845,010 | 43,813 | ||||
| Freescale Semiconductor, Inc.: | ||||||
| Class A (a) | 1,083,900 | 25,678 | ||||
| Class B (a) | 2,261,036 | 53,994 | ||||
| Microsemi Corp. (a) | 1,057,200 | 24,495 | ||||
| MKS Instruments, Inc. (a) | 344,300 | 6,497 | ||||
| National Semiconductor Corp. | 2,909,700 | 65,847 | ||||
| Novellus Systems, Inc. (a) | 1,666,100 | 36,421 | ||||
| 429,133 | ||||||
| Software 2.6% | ||||||
| Borland Software Corp. (a) | 1,989,647 | 10,048 | ||||
| Cadence Design Systems, Inc. (a) | 2,852,700 | 45,586 | ||||
| Hyperion Solutions Corp. (a) | 471,815 | 22,817 | ||||
| JDA Software Group, Inc. (a) | 564,100 | 9,121 | ||||
| Quest Software, Inc. (a) | 1,514,821 | 21,071 | ||||
| Siebel Systems, Inc. | 3,618,700 | 37,454 | ||||
| Sybase, Inc. (a) | 861,300 | 19,164 | ||||
| Symantec Corp. (a) | 463,655 | 11,058 | ||||
| Take-Two Interactive Software, Inc. (a) | 3,005,700 | 62,068 | ||||
| THQ, Inc. (a)(e) | 4,224,450 | 97,923 | ||||
| TIBCO Software, Inc. (a) | 1,426,200 | 10,825 | ||||
| 347,135 | ||||||
| TOTAL INFORMATION TECHNOLOGY | 2,582,807 | |||||
See accompanying notes which are an integral part of the financial statements.
17 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| MATERIALS 5.6% | ||||||
| Chemicals – 2.8% | ||||||
| Albemarle Corp. | 567,810 | $ | 19,924 | |||
| Ashland, Inc. | 1,075,520 | 57,551 | ||||
| Celanese Corp. Class A | 1,115,900 | 19,684 | ||||
| Chemtura Corp. | 4,903,682 | 52,469 | ||||
| Cytec Industries, Inc. | 1,227,900 | 50,712 | ||||
| Dow Chemical Co. | 276,220 | 12,667 | ||||
| Ferro Corp. | 1,321,000 | 23,567 | ||||
| Georgia Gulf Corp. | 421,700 | 12,271 | ||||
| Lyondell Chemical Co. | 1,091,919 | 29,263 | ||||
| OM Group, Inc. (a) | 444,200 | 7,098 | ||||
| OMNOVA Solutions, Inc. (a)(e) | 2,425,800 | 10,916 | ||||
| PolyOne Corp. (a) | 3,018,200 | 17,415 | ||||
| Spartech Corp. (e) | 1,767,100 | 33,522 | ||||
| Valspar Corp. | 895,000 | 19,735 | ||||
| 366,794 | ||||||
| Construction Materials 0.1% | ||||||
| Vulcan Materials Co. | 105,700 | 6,871 | ||||
| Containers & Packaging – 0.8% | ||||||
| Owens Illinois, Inc. (a) | 4,270,800 | 81,316 | ||||
| Packaging Corp. of America | 1,391,460 | 28,233 | ||||
| 109,549 | ||||||
| Metals & Mining – 1.6% | ||||||
| Agnico-Eagle Mines Ltd. | 1,424,800 | 19,544 | ||||
| Alcan, Inc. | 1,955,960 | 61,627 | ||||
| Alcoa, Inc. | 2,410,240 | 58,545 | ||||
| Newmont Mining Corp. | 681,300 | 29,023 | ||||
| Nucor Corp. | 564,100 | 33,761 | ||||
| 202,500 | ||||||
| Paper & Forest Products 0.3% | ||||||
| Aracruz Celulose SA (PN B) sponsored ADR | 137,200 | 5,255 | ||||
| MeadWestvaco Corp. | 939,900 | 24,644 | ||||
| Votorantim Celulose e Papel SA sponsored ADR (non-vtg.) | 860,250 | 10,297 | ||||
| 40,196 | ||||||
| TOTAL MATERIALS | 725,910 | |||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 18 |
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| TELECOMMUNICATION SERVICES – 2.4% | ||||||
| Diversified Telecommunication Services – 1.5% | ||||||
| Alaska Communication Systems Group, Inc. (d) | 718,600 | $ | 7,897 | |||
| BellSouth Corp. | 1,144,400 | 29,777 | ||||
| CenturyTel, Inc. | 645,800 | 21,137 | ||||
| Citizens Communications Co. | 3,278,300 | 40,126 | ||||
| Cogent Communications Group, Inc. (a) | 1,223,100 | 6,421 | ||||
| Iowa Telecommunication Services, Inc. (e) | 2,135,143 | 35,230 | ||||
| SBC Communications, Inc. | 1,051,100 | 25,069 | ||||
| Verizon Communications, Inc. | 920,400 | 29,002 | ||||
| 194,659 | ||||||
| Wireless Telecommunication Services – 0.9% | ||||||
| ALLTEL Corp. | 714,900 | 44,224 | ||||
| American Tower Corp. Class A (a) | 1,250,072 | 29,814 | ||||
| Crown Castle International Corp. (a) | 142,500 | 3,494 | ||||
| Dobson Communications Corp. Class A (a) | 3,571,600 | 26,037 | ||||
| Sprint Nextel Corp. | 696,400 | 16,233 | ||||
| 119,802 | ||||||
| TOTAL TELECOMMUNICATION SERVICES | 314,461 | |||||
| UTILITIES – 4.6% | ||||||
| Electric Utilities – 2.0% | ||||||
| Edison International | 2,055,280 | 89,939 | ||||
| Entergy Corp. | 848,060 | 59,975 | ||||
| Exelon Corp. | 952,100 | 49,538 | ||||
| PPL Corp. | 2,016,000 | 63,181 | ||||
| 262,633 | ||||||
| Independent Power Producers & Energy Traders – 1.7% | ||||||
| AES Corp. (a) | 2,502,500 | 39,765 | ||||
| Constellation Energy Group, Inc. | 653,700 | 35,823 | ||||
| NRG Energy, Inc. (a) | 1,263,800 | 54,356 | ||||
| TXU Corp. | 921,000 | 92,791 | ||||
| 222,735 | ||||||
| Multi-Utilities – 0.9% | ||||||
| CMS Energy Corp. (a) | 631,900 | 9,422 | ||||
See accompanying notes which are an integral part of the financial statements.
19 Annual Report
| Investments continued | ||||||
| Common Stocks continued | ||||||
| Shares | Value (Note 1) | |||||
| (000s) | ||||||
| UTILITIES – continued | ||||||
| Multi-Utilities – continued | ||||||
| PG&E Corp. | 1,657,400 | $ | 60,296 | |||
| Public Service Enterprise Group, Inc. | 634,900 | 39,929 | ||||
| 109,647 | ||||||
| TOTAL UTILITIES | 595,015 | |||||
| TOTAL COMMON STOCKS | ||||||
| (Cost $10,575,284) | 12,283,460 | |||||
| Preferred Stocks 0.8% | ||||||
| Convertible Preferred Stocks 0.7% | ||||||
| CONSUMER DISCRETIONARY – 0.2% | ||||||
| Automobiles – 0.2% | ||||||
| General Motors Corp. Series A, 4.50% | 893,800 | 20,808 | ||||
| Hotels, Restaurants & Leisure 0.0% | ||||||
| Six Flags, Inc. 7.25% PIERS | 210,000 | 4,830 | ||||
| TOTAL CONSUMER DISCRETIONARY | 25,638 | |||||
| FINANCIALS – 0.0% | ||||||
| Insurance – 0.0% | ||||||
| Hartford Financial Services Group, Inc. 6.00% | 88,800 | 6,267 | ||||
| HEALTH CARE – 0.1% | ||||||
| Health Care Equipment & Supplies – 0.1% | ||||||
| Baxter International, Inc. 7.00% | 402,000 | 21,905 | ||||
| MATERIALS 0.2% | ||||||
| Containers & Packaging – 0.2% | ||||||
| Owens Illinois, Inc. 4.75% | 681,200 | 24,012 | ||||
| UTILITIES – 0.2% | ||||||
| Multi-Utilities – 0.2% | ||||||
| Dominion Resources, Inc. 8.75% | 410,000 | 21,915 | ||||
| TOTAL CONVERTIBLE PREFERRED STOCKS | 99,737 | |||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 20 |
| Preferred Stocks continued | ||||||||||
| Shares | Value (Note 1) | |||||||||
| (000s) | ||||||||||
Nonconvertible Preferred Stocks 0.1% | ||||||||||
| FINANCIALS – 0.1% | ||||||||||
| Thrifts & Mortgage Finance – 0.1% | ||||||||||
| Fannie Mae 7.00% | 209,400 | $ | 11,507 | |||||||
| TOTAL PREFERRED STOCKS | ||||||||||
| (Cost $109,487) | 111,244 | |||||||||
| Nonconvertible Bonds 0.2% | ||||||||||
| Principal | ||||||||||
| Amount (000s) | ||||||||||
| CONSUMER DISCRETIONARY – 0.0% | ||||||||||
| Leisure Equipment & Products – 0.0% | ||||||||||
| K2, Inc. 7.375% 7/1/14 | $ | 80 | 78 | |||||||
| HEALTH CARE – 0.1% | ||||||||||
| Health Care Providers & Services – 0.1% | ||||||||||
| Tenet Healthcare Corp. 6.375% 12/1/11 | 15,515 | 13,576 | ||||||||
| INFORMATION TECHNOLOGY – 0.1% | ||||||||||
| Electronic Equipment & Instruments – 0.1% | ||||||||||
| Celestica, Inc. 7.875% 7/1/11 | 10,040 | 9,965 | ||||||||
| TOTAL NONCONVERTIBLE BONDS | ||||||||||
| (Cost $23,924) | 23,619 | |||||||||
| Money Market Funds 5.3% | ||||||||||
| Shares | ||||||||||
| Fidelity Cash Central Fund, 3.92% (b) | 633,273,793 | $ | 633,274 | |||||||
| Fidelity Securities Lending Cash Central Fund, 3.94% (b)(c) | 55,821,082 | 55,821 | ||||||||
| TOTAL MONEY MARKET FUNDS | ||||||||||
| (Cost $689,095) | 689,095 | |||||||||
| TOTAL INVESTMENT PORTFOLIO 100.5% | ||||||||||
| (Cost $11,397,790) | 13,107,418 | |||||||||
| NET OTHER ASSETS – (0.5)% | (67,262) | |||||||||
| NET ASSETS 100% | $ | 13,040,156 | ||||||||
See accompanying notes which are an integral part of the financial statements.
21 Annual Report
Investments continued
| Security Type Abbreviation | ||||
| PIERS — | Preferred Income Equity | |||
| Redeemable Securities | ||||
| Legend (a) Non-income producing (b) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund’s holdings as of its most recent quarter end is available upon request. |
| (c) Investment made with cash collateral received from securities on loan. (d) Security or a portion of the security is on loan at period end. (e) Affiliated company |
Other Information
An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Companies which are affiliates of the fund at period-end are noted in the fund’s Schedule of Investments. Transactions during the period with companies which are or were affiliates are as follows:
| Value, | Purchases | Sales | Dividend | Value, end of | ||||||||||||
| Affiliate | beginning of | Proceeds | Income | period | ||||||||||||
| (Amounts in thousands) | period | |||||||||||||||
| Albany International | ||||||||||||||||
| Corp. Class A | $ 47,404 | $ 3,899 | $ | 3,864 | $ | 532 | $ | 61,599 | ||||||||
| Dycom Industries, Inc. | 36,614 | 56,466 | — | — | 77,183 | |||||||||||
| Iowa Telecommunication | ||||||||||||||||
| Services, Inc. | — | 40,927 | — | 1,610 | 35,230 | |||||||||||
| OMNOVA Solutions, Inc. | 12,711 | — | — | — | 10,916 | |||||||||||
| Pier 1 Imports, Inc. | 28,002 | 53,415 | — | 1,643 | 49,754 | |||||||||||
| Spartech Corp. | — | 33,636 | — | 415 | 33,522 | |||||||||||
| Sports Authority, Inc. | — | 40,421 | 476 | — | 44,332 | |||||||||||
| THQ, Inc. | — | 94,660 | — | — | 97,923 | |||||||||||
| Varian, Inc. | — | 76,134 | — | — | 74,827 | |||||||||||
| Total | $ 124,731 | $ 399,558 | $ | 4,340 | $ | 4,200 | $ | 485,286 | ||||||||
See accompanying notes which are an integral part of the financial statements.
Annual Report 22
| Financial Statements | ||||||||
| Statement of Assets and Liabilities | ||||||||
| Amounts in thousands (except per share amount) | October 31, 2005 | |||||||
| Assets | ||||||||
| Investment in securities, at value (including securities | ||||||||
| loaned of $54,386) (cost $11,397,790) See | ||||||||
| accompanying schedule | $ | 13,107,418 | ||||||
| Cash | 566 | |||||||
| Receivable for investments sold | 48,393 | |||||||
| Receivable for fund shares sold | 32,178 | |||||||
| Dividends receivable | 8,984 | |||||||
| Interest receivable | 2,756 | |||||||
| Other affiliated receivables | 120 | |||||||
| Other receivables | 617 | |||||||
| Total assets | 13,201,032 | |||||||
| Liabilities | ||||||||
| Payable for investments purchased | $ | 77,001 | ||||||
| Payable for fund shares redeemed | 20,455 | |||||||
| Accrued management fee | 4,854 | |||||||
| Other affiliated payables | 2,318 | |||||||
| Other payables and accrued expenses | 427 | |||||||
| Collateral on securities loaned, at value | 55,821 | |||||||
| Total liabilities | 160,876 | |||||||
| Net Assets | $ | 13,040,156 | ||||||
| Net Assets consist of: | ||||||||
| Paid in capital | $ | 10,282,537 | ||||||
| Undistributed net investment income | 63,523 | |||||||
| Accumulated undistributed net realized gain (loss) on | ||||||||
| investments and foreign currency transactions | 984,483 | |||||||
| Net unrealized appreciation (depreciation) on | ||||||||
| investments and assets and liabilities in foreign | ||||||||
| currencies | 1,709,613 | |||||||
| Net Assets, for 172,465 shares outstanding | $ | 13,040,156 | ||||||
| Net Asset Value, offering price and redemption price per | ||||||||
| share ($13,040,156 ÷ 172,465 shares) | $ | 75.61 | ||||||
See accompanying notes which are an integral part of the financial statements.
23 Annual Report
| Financial Statements continued | ||||||
| Statement of Operations | ||||||
| Amounts in thousands | Year ended October 31, 2005 | |||||
| Investment Income | ||||||
| Dividends (including $4,200 received from affiliated | ||||||
| issuers) | $ | 124,740 | ||||
| Interest | 22,164 | |||||
| Security lending | 619 | |||||
| Total income | 147,523 | |||||
| Expenses | ||||||
| Management fee | ||||||
| Basic fee | $ | 64,985 | ||||
| Performance adjustment | (5,444) | |||||
| Transfer agent fees | 21,591 | |||||
| Accounting and security lending fees | 1,308 | |||||
| Independent trustees’ compensation | 51 | |||||
| Appreciation in deferred trustee compensation account | 26 | |||||
| Custodian fees and expenses | 217 | |||||
| Registration fees | 612 | |||||
| Audit | 116 | |||||
| Legal | 27 | |||||
| Miscellaneous | 86 | |||||
| Total expenses before reductions | 83,575 | |||||
| Expense reductions | (2,167) | 81,408 | ||||
| Net investment income (loss) | 66,115 | |||||
| Realized and Unrealized Gain (Loss) | ||||||
| Net realized gain (loss) on: | ||||||
| Investment securities (Including realized gain (loss) of | ||||||
| $432 from affiliated issuers) | 986,025 | |||||
| Foreign currency transactions | (196) | |||||
| Total net realized gain (loss) | 985,829 | |||||
| Change in net unrealized appreciation (depreciation) on: | ||||||
| Investment securities | 467,413 | |||||
| Assets and liabilities in foreign currencies | (17) | |||||
| Total change in net unrealized appreciation | ||||||
| (depreciation) | 467,396 | |||||
| Net gain (loss) | 1,453,225 | |||||
| Net increase (decrease) in net assets resulting from | ||||||
| operations | $ | 1,519,340 | ||||
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 24 |
| Statement of Changes in Net Assets | ||||||||
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| Amounts in thousands | 2005 | 2004 | ||||||
| Increase (Decrease) in Net Assets | ||||||||
| Operations | ||||||||
| Net investment income (loss) | $ | 66,115 | $ | 28,475 | ||||
| Net realized gain (loss) | 985,829 | 550,026 | ||||||
| Change in net unrealized appreciation (depreciation) . | 467,396 | 715,831 | ||||||
| Net increase (decrease) in net assets resulting | ||||||||
| from operations | 1,519,340 | 1,294,332 | ||||||
| Distributions to shareholders from net investment income . | (21,476) | (25,437) | ||||||
| Distributions to shareholders from net realized gain | (497,964) | (5,530) | ||||||
| Total distributions | (519,440) | (30,967) | ||||||
| Share transactions | ||||||||
| Proceeds from sales of shares | 4,888,658 | 2,951,054 | ||||||
| Reinvestment of distributions | 502,873 | 29,769 | ||||||
| Cost of shares redeemed | (2,253,711) | (1,669,977) | ||||||
| Net increase (decrease) in net assets resulting from | ||||||||
| share transactions | 3,137,820 | 1,310,846 | ||||||
| Total increase (decrease) in net assets | 4,137,720 | 2,574,211 | ||||||
| Net Assets | ||||||||
| Beginning of period | 8,902,436 | 6,328,225 | ||||||
| End of period (including undistributed net investment | ||||||||
| income of $63,523 and undistributed net investment | ||||||||
| income of $21,179, respectively) | $ | 13,040,156 | $ | 8,902,436 | ||||
| Other Information | ||||||||
| Shares | ||||||||
| Sold | 66,494 | 45,757 | ||||||
| Issued in reinvestment of distributions | 7,187 | 501 | ||||||
| Redeemed | (30,784) | (25,970) | ||||||
| Net increase (decrease) | 42,897 | 20,288 | ||||||
See accompanying notes which are an integral part of the financial statements.
25 Annual Report
| Financial Highlights | ||||||||||||||||||||
| Years ended October 31, | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||
| Selected Per Share Data | ||||||||||||||||||||
| Net asset value, | ||||||||||||||||||||
| beginning of period | $ | 68.71 | $ | 57.91 | $ | 44.71 | $ | 46.64 | $ | 42.79 | ||||||||||
| Income from Investment | ||||||||||||||||||||
| Operations | ||||||||||||||||||||
| Net investment income (loss)B | 43 | .24 | .33 | .52D | .63 | |||||||||||||||
| Net realized and unrealized | ||||||||||||||||||||
| gain (loss) | 10.34 | 10.84 | 13.23 | (1.94)D | 4.17 | |||||||||||||||
| Total from investment | ||||||||||||||||||||
| operations | 10.77 | 11.08 | 13.56 | (1.42) | 4.80 | |||||||||||||||
| Distributions from net investment | ||||||||||||||||||||
| income | (.16) | (.23) | (.36) | (.51) | (.95) | |||||||||||||||
| Distributions from net | ||||||||||||||||||||
| realized gain | (3.71) | (.05) | — | — | — | |||||||||||||||
| Total distributions | (3.87) | (.28) | (.36) | (.51) | (.95) | |||||||||||||||
| Net asset value, | ||||||||||||||||||||
| end of period | $ | 75.61 | $ | 68.71 | $ | 57.91 | $ | 44.71 | $ | 46.64 | ||||||||||
| Total ReturnA | 16.13% | 19.21% | 30.52% | (3.18)% | 11.37% | |||||||||||||||
| Ratios to Average Net AssetsC | ||||||||||||||||||||
| Expenses before expense | ||||||||||||||||||||
| reductions | 73% | .95% | 1.00% | .97% | .81% | |||||||||||||||
| Expenses net of voluntary | ||||||||||||||||||||
| waivers, if any | 73% | .95% | 1.00% | .97% | .81% | |||||||||||||||
| Expenses net of all reductions | 72% | .93% | .98% | .95% | .77% | |||||||||||||||
| Net investment income (loss) | 58% | .37% | .66% | 1.02%D | 1.29% | |||||||||||||||
| Supplemental Data | ||||||||||||||||||||
| Net assets, end of period | ||||||||||||||||||||
| (in millions) | $13,040 | $ | 8,902 | $ | 6,328 | $ | 4,984 | $ | 4,567 | |||||||||||
| Portfolio turnover rate | 29% | 40% | 40% | 42% | 49% | |||||||||||||||
| A Total returns would have been lower had certain expenses not been reduced during the periods shown. B Calculated based on average shares outstanding during the period. C Expense ratios reflect operating expenses of the fund. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the fund during periods when reimbursements or reductions occur. Expenses net of any voluntary waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the fund. D Effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and discount on all debt securities. Per share data and ratios for periods prior to adoption have not been restated to reflect this change. |
See accompanying notes which are an integral part of the financial statements.
| Annual Report |
| 26 |
Notes to Financial Statements
| For the period ended October 31, 2005 (Amounts in thousands except ratios) |
1. Significant Accounting Policies.
Fidelity Value Fund (the fund) is a fund of Fidelity Capital 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 manage ment investment company organized as a Massachusetts business trust. The fund may invest in affiliated money market central funds (Money Market Central Funds), which are open end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affili ates. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require manage ment to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the fund:
Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the fund uses independent pricing services approved by the Board of Trustees to value its investments.
Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Debt securities, including restricted securities, for which quotations are readily available, are valued by independent pricing services or by dealers who make markets in such securities. Pricing services consider yield or price of bonds of comparable quality, coupon, maturity and type as well as dealer supplied prices. Investments in open end mutual funds, are valued at their closing net asset value each business day. Short term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.
When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securi ties market, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange traded funds. Because the fund’s utilization of fair value pricing depends on market activity, the frequency with which fair value pricing
27 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 1. Significant Accounting Policies continued Security Valuation continued |
is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.
Foreign Currency. The fund uses foreign currency contracts to facilitate transactions in foreign denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts’ terms.
Foreign denominated assets, including investment securities, and liabilities are translated into U.S. dollars at the exchange rate at period end. Purchases and sales of investment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.
The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.
Investment Transactions and Income. Security transactions are accounted for as of trade date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds received from litigation. Dividend income is recorded on the ex dividend date, except for certain dividends from foreign securities where the ex dividend date may have passed, which are recorded as soon as the fund is informed of the ex dividend date. Non cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income is accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securi ties. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.
Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each fund in the trust.
| Annual Report |
| 28 |
1. Significant Accounting Policies continued
Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of the fund or are invested in a cross section of other Fidelity funds, and are marked to market. Deferred amounts remain in the fund until distributed in accordance with the Plan.
Income Tax Information and Distributions to Shareholders. Each year, the fund intends to qualify as a regulated investment company by distributing all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests.
Distributions are recorded on the ex dividend date. Income and capital gain distribu tions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. In addition, the fund will claim a portion of the payment made to redeeming shareholders as a distribution for income tax purposes.
Capital accounts within the financial statements are adjusted for permanent book tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book tax differences will reverse in a subsequent period.
Book tax differences are primarily due to foreign currency transactions, market dis count, deferred trustees compensation, and losses deferred due to wash sales.
The tax basis components of distributable earnings and the federal tax cost as of period end were as follows:
| Unrealized appreciation | $ | 2,447,019 | ||
| Unrealized depreciation | (735,153) | |||
| Net unrealized appreciation (depreciation) | $ | 1,711,866 | ||
| Undistributed ordinary income | 98,429 | |||
| Undistributed long term capital gain | 850,539 | |||
| Cost for federal income tax purposes | $ | 11,395,552 | ||
The tax character of distributions paid was as follows:
| October 31, 2005 | October 31, 2004 | |||||||
| Ordinary Income | $ | 89,930 | $ | 25,437 | ||||
| Long term Capital Gains | 429,510 | 5,530 | ||||||
| Total | $ | 519,440 | $ | 30,967 |
29 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 2. Operating Policies. |
Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non government securities. Collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.
3. Purchases and Sales of Investments.
Purchases and sales of securities, other than short term securities and U.S. government securities, aggregated $5,759,971 and $3,089,556, respectively.
4. Fees and Other Transactions with Affiliates.
Management Fee. FMR and its affiliates provide the fund with investment manage ment related services for which the fund pays a monthly management fee. The manage ment fee is the sum of an individual fund fee rate that is based on an annual rate of .30% of the fund’s average net assets and a group fee rate that averaged .27% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. In addition, the management fee is subject to a performance adjustment up to a maximum of ±.20% of the fund’s average net assets over a 36 month performance period). The upward or downward adjustment to the management fee is based on the fund’s relative investment performance as compared to an appropriate benchmark index. For the period, the total annual management fee rate, including the performance adjustment, was .52% of the fund’s average net assets.
Transfer Agent Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, is the fund’s transfer, dividend disbursing and shareholder servicing agent. FSC receives account fees and asset based fees that vary according to account size and type of account. FSC pays for typesetting, printing and mailing of shareholder reports, except proxy statements. For the period, the transfer agent fees were equivalent to an annual rate of .19% of average net assets.
| Annual Report |
| 30 |
4. Fees and Other Transactions with Affiliates continued
Accounting and Security Lending Fees. FSC maintains the fund’s accounting records. The accounting fee is based on the level of average net assets for the month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions.
Affiliated Central Funds. The fund may invest in Money Market Central Funds which seek preservation of capital and current income and are managed by Fidelity Investments Money Management, Inc. (FIMM), an affiliate of FMR.
The Money Market Central Funds do not pay a management fee. Income distributions earned by the fund are recorded as income in the accompanying financial statements and totaled $21,437 for the period.
Brokerage Commissions. The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $192 for the period.
| 5. Committed Line of Credit. |
The fund participates with other funds managed by FMR in a $4.2 billion credit facility (the “line of credit”) to be utilized for temporary or emergency purposes to fund share holder redemptions or for other short term liquidity purposes. The fund has agreed to pay commitment fees on its pro rata portion of the line of credit. During the period, there were no borrowings on this line of credit.
| 6. Security Lending. |
The fund lends portfolio securities from time to time in order to earn additional income. The fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. If the borrower defaults on its obligation to return the securities loaned because of insol vency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Cash collateral is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the fund’s Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities.
31 Annual Report
| Notes to Financial Statements continued (Amounts in thousands except ratios) 7. Expense Reductions. |
Many of the brokers with whom FMR places trades on behalf of the fund provided services to the fund in addition to trade execution. These services included payments of certain expenses on behalf of the fund totaling $1,986 for the period. In addition, through arrangements with the fund’s custodian and transfer agent, credits realized as a result of uninvested cash balances were used to reduce the fund’s expenses. During the period, these credits reduced the fund’s custody and transfer agent expenses by $4 and $177, respectively.
| 8. Other. |
The fund’s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the per formance of their duties to the fund. In the normal course of business, the fund may also enter into contracts that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the fund. The risk of material loss from such claims is considered remote.
| Annual Report |
| 32 |
Report of Independent Registered Public Accounting Firm
To the Trustees of Fidelity Capital Trust and the Shareholders of Fidelity Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including the sched ule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Fidelity Value Fund (a fund of Fidelity Capital Trust) at October 31, 2005 and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fidelity Value Fund’s manage ment; 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 esti mates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
| /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts December 9, 2005 |
33 Annual Report
Trustees and Officers
The Trustees, Members of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund’s activities, review contractual arrangements with companies that provide services to the fund, and review the fund’s performance. Except for William O. McCoy, Stephen P. Jonas, and Kenneth L. Wolfe, each of the Trustees oversees 322 funds advised by FMR or an affiliate. Mr. McCoy oversees 324 funds advised by FMR or an affiliate. Mr. Jonas and Mr. Wolfe oversee 319 funds advised by FMR or an affiliate.
The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instru ment signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Members hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.
The fund’s Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-877-208-0098.
| Interested Trustees*: |
Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Edward C. Johnson 3d (75)** |
Year of Election or Appointment: 1978
Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as Chief Executive Officer, Chairman, and a Director of FMR Corp.; a Director and Chairman of the Board and of the Executive Committee of FMR; Chairman and a Director of Fidelity Management & Research (Far East) Inc.; Chairman and a Director of Fidelity Investments Money Management, Inc.; and Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc.
| Annual Report |
| 34 |
| Name, Age; Principal Occupation Abigail P. Johnson (43)** |
Year of Election or Appointment: 2001
Ms. Johnson serves as President of Fidelity Employer Services Company (FESCO) (2005 present). She is President and a Director of Fidelity Investments Money Management, Inc. (2001 present), FMR Co., Inc. (2001 present), and a Director of FMR Corp. Previously, Ms. Johnson served as President and a Director of FMR (2001 2005), Senior Vice President of the Fidelity funds (2001 2005), and managed a number of Fidelity funds.
| Stephen P. Jonas (52) |
Year of Election or Appointment: 2005
Mr. Jonas is Senior Vice President of Value Fund (2005 present). He also serves as Senior Vice President of other Fidelity funds (2005 present). Mr. Jonas is Executive Director of FMR (2005 present). Previously, Mr. Jonas served as President of Fidelity Enterprise Operations and Risk Services (2004 2005), Chief Administrative Officer (2002 2004), and Chief Financial Officer of FMR Co. (1998 2000). Mr. Jonas has been with Fidelity Investments since 1987 and has held various financial and man agement positions including Chief Financial Officer of FMR. In addition, he serves on the Boards of Boston Ballet (2003 present) and Simmons College (2003 present).
| Robert L. Reynolds (53) |
Year of Election or Appointment: 2003
Mr. Reynolds is a Director (2003 present) and Chief Operating Officer (2002 present) of FMR Corp. He also serves on the Board at Fidelity Investments Canada, Ltd. (2000 present). Previously, Mr. Reynolds served as President of Fidelity Investments Institutional Retirement Group (1996 2000).
* Trustees have been determined to be “Interested Trustees” by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.
** Edward C. Johnson 3d, Trustee, is Abigail P. Johnson’s father.
35 Annual Report
Trustees and Officers - continued
Independent Trustees:
Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235.
| Name, Age; Principal Occupation Dennis J. Dirks (57) |
Year of Election or Appointment: 2005
Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999 2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999 2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999 2003). In addition, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001 2003) and Chief Executive Officer and Board member of the Mortgage Backed Securities Clearing Corporation (2001 2003). Mr. Dirks also serves as a Trustee of Manhattan College (2005 present).
| Robert M. Gates (62) |
Year of Election or Appointment: 1997
Dr. Gates is Vice Chairman of the Independent Trustees (2005 present). Dr. Gates is President of Texas A&M University (2002 present). He was Director of the Central Intelligence Agency (CIA) from 1991 to 1993. From 1989 to 1991, Dr. Gates served as Assistant to the President of the United States and Deputy National Security Advisor. Dr. Gates is a Director of NACCO Industries, Inc. (mining and manufacturing), Parker Drilling Co., Inc. (drilling and rental tools for the energy industry, 2001 present), and Brinker International (restaurant management, 2003 present). Previously, Dr. Gates served as a Director of LucasVarity PLC (automotive components and diesel engines), a Director of TRW Inc. (automotive, space, defense, and information technology), and Dean of the George Bush School of Government and Public Service at Texas A&M University (1999 2001). Dr. Gates also is a Trustee of the Forum for International Policy.
| Annual Report |
| 36 |
| Name, Age; Principal Occupation George H. Heilmeier (69) |
Year of Election or Appointment: 2004
Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (commu nication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineer ing and information technology support for the government), and HRL Laboratories (private research and development, 2004 present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE) (2000 present). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992 2002), Compaq (1994 2002), Automatic Data Processing, Inc. (ADP) (technology based business outsourcing, 1995 2002), INET Technologies Inc. (telecommu nications network surveillance, 2001 2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid display.
| Marie L. Knowles (59) |
Year of Election or Appointment: 2001
Prior to Ms. Knowles’ retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996 2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare ser vice, 2002 present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
37 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation Ned C. Lautenbach (61) |
Year of Election or Appointment: 2000
Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corpora tion (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Italtel Holding S.p.A. (telecommunications (Milan, Italy), 2004 present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005 present), as well as a member of the Council on Foreign Relations.
| Marvin L. Mann (72) |
Year of Election or Appointment: 1993
Mr. Mann is Chairman of the Independent Trustees (2001 present). He is Chairman Emeritus of Lexmark International, Inc. (computer peripherals), where he served as CEO until April 1998, retired as Chairman May 1999, and remains a member of the Board. Prior to 1991, he held the positions of Vice President of International Business Machines Corpora tion (IBM) and President and General Manager of various IBM divisions and subsidiaries. He is a member of the Executive Committee of the Independent Director’s Council of the Investment Company Institute. In addition, Mr. Mann is a member of the President’s Cabinet at the Uni versity of Alabama and the Board of Visitors of the Culverhouse College of Commerce and Business Administration at the University of Alabama.
| William O. McCoy (72) |
Year of Election or Appointment: 1997
Prior to his retirement in December 1994, Mr. McCoy was Vice Chair man of the Board of BellSouth Corporation (telecommunications) and President of BellSouth Enterprises. He is currently a Director of Liberty Corporation (holding company), Duke Realty Corporation (real estate), and Progress Energy, Inc. (electric utility). He is also a partner of Frank lin Street Partners (private investment management firm) and a member of the Research Triangle Foundation Board. In addition, Mr. McCoy served as the Interim Chancellor (1999 2000) and a member of the Board of Visitors for the University of North Carolina at Chapel Hill and currently serves on the Board of Directors of the University of North Carolina Health Care System and the Board of Visitors of the Kenan Flagler Business School (University of North Carolina at Chapel Hill). He also served as Vice President of Finance for the University of North Carolina (16 school system).
| Annual Report |
| 38 |
| Name, Age; Principal Occupation Cornelia M. Small (61) |
Year of Election or Appointment: 2005
Ms. Small is a member (2000 present) and Chairperson (2002 present) of the Investment Committee, and a member (2002 present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999 2000), Director of Global Equity Investments (1996 1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990 1997) and Scudder Kemper Investments (1997 1998). In addition, Ms. Small served as Co Chair (2000 2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
| William S. Stavropoulos (66) |
Year of Election or Appointment: 2002
Mr. Stavropoulos is Chairman of the Board (2000 present) and a Member of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993 2000; 2002 2003), CEO (1995 2000; 2002 2004), and Chair man of the Executive Committee (2000 2004). Currently, he is a Direc tor of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corpo ration, Maersk Inc. (industrial conglomerate, 2002 present), and Metal mark Capital (private equity investment firm, 2005 present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
| Kenneth L. Wolfe (66) |
Year of Election or Appointment: 2005
Mr. Wolfe also serves as a Trustee (2005 present) or Member of the Advisory Board (2004 present) of other investment companies advised by FMR. Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993 2001). He currently serves as a member of the boards of Adelphia Communica tions Corporation (2003 present), Bausch & Lomb, Inc., and Revlon Inc. (2004 present).
39 Annual Report
Trustees and Officers - continued
Advisory Board Members and Executive Officers:
Correspondence intended for Mr. Gamper may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205 5235. Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.
| Name, Age; Principal Occupation Albert R. Gamper, Jr. (63) |
Year of Election or Appointment: 2005
Member of the Advisory Board of Fidelity Capital Trust. Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987 1989; 1999 2001; 2002 2004), Chief Executive Officer (1987 2004), and President (1989 2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001 present), Chairman of the Board of Governors, Rutgers University (2004 present), and Chairman of the Board of Saint Barnabas Health Care System.
| Peter S. Lynch (61) |
Year of Election or Appointment: 2003
Member of the Advisory Board of Fidelity Capital Trust. Vice Chairman and a Director of FMR, and Vice Chairman (2001 present) and a Director (2000 present) of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990 2003). In addition, he serves as a Trustee of Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield, John F. Kennedy Library, and the Museum of Fine Arts of Boston.
| Dwight D. Churchill (51) |
Year of Election or Appointment: 2005
Vice President of Value Fund. Mr. Churchill also serves as Vice President of certain Equity Funds (2005 present) and certain High Income Funds (2005 present). Previously, he served as Head of Fidelity’s Fixed Income Division (2000 2005), Vice President of Fidelity’s Money Market Funds (2000 2005), Vice President of Fidelity’s Bond Funds, and Senior Vice President of FIMM (2000) and FMR. Mr. Churchill joined Fidelity in 1993 as Vice President and Group Leader of Taxable Fixed Income Investments.
| Richard B. Fentin (50) |
Year of Election or Appointment: 1996
Vice President of Value Fund. Mr. Fentin serves as Vice President of another fund advised by FMR. Mr. Fentin also serves as Senior Vice President of FMR and FMR Co., Inc. (2001).
| Annual Report |
| 40 |
| Name, Age; Principal Occupation Eric D. Roiter (56) |
Year of Election or Appointment: 1998
Secretary of Value Fund. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001 present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001 present), Fidelity Management & Research (Far East) Inc. (2001 present), and Fidelity Investments Money Management, Inc. (2001 present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003 present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998 2005).
| Stuart Fross (46) |
Year of Election or Appointment: 2003
Assistant Secretary of Value Fund. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003 present), Vice President and Secretary of FDC (2005 present), and is an employee of FMR.
| Christine Reynolds (47) |
Year of Election or Appointment: 2004
President, Treasurer, and Anti Money Laundering (AML) officer of Value Fund. Ms. Reynolds also serves as President, Treasurer, and AML officer of other Fidelity funds (2004) and is a Vice President (2003) and an employee (2002) of FMR. Before joining Fidelity Investments, Ms. Reynolds worked at PricewaterhouseCoopers LLP (PwC) (1980 2002), where she was most recently an audit partner with PwC’s investment management practice.
| Paul M. Murphy (58) |
Year of Election or Appointment: 2005
Chief Financial Officer of Value Fund. Mr. Murphy also serves as Chief Financial Officer of other Fidelity funds (2005 present). He also serves as Senior Vice President of Fidelity Pricing and Cash Management Services Group (FPCMS).
| Kenneth A. Rathgeber (58) |
Year of Election or Appointment: 2004
Chief Compliance Officer of Value Fund. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004) and Executive Vice President of Risk Oversight for Fidelity Investments (2002). Previously, he served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998 2002).
41 Annual Report
Trustees and Officers - continued
| Name, Age; Principal Occupation John R. Hebble (47) |
Year of Election or Appointment: 2003
Deputy Treasurer of Value Fund. Mr. Hebble also serves as Deputy Treasurer of other Fidelity funds (2003), and is an employee of FMR. Before joining Fidelity Investments, Mr. Hebble worked at Deutsche Asset Management where he served as Director of Fund Accounting (2002 2003) and Assistant Treasurer of the Scudder Funds (1998 2003).
| Bryan A. Mehrmann (44) |
Year of Election or Appointment: 2005
Deputy Treasurer of Value Fund. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998 2004).
| Kimberley H. Monasterio (41) |
Year of Election or Appointment: 2004
Deputy Treasurer of Value Fund. Ms. Monasterio also serves as Deputy Treasurer of other Fidelity funds (2004) and is an employee of FMR (2004). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000 2004) and Chief Financial Officer (2002 2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Templeton Services, LLC (2000 2004).
| Kenneth B. Robins (36) |
Year of Election or Appointment: 2005
Deputy Treasurer of Value Fund. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2004 present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG’s department of professional practice (2002 2004) and a Senior Manager (1999 2000). In addition, Mr. Robins served as Assistant Chief Accountant, United States Securities and Exchange Commission (2000 2002).
| Robert G. Byrnes (38) |
Year of Election or Appointment: 2005
Assistant Treasurer of Value Fund. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003 2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000 2003).
| Annual Report |
| 42 |
| Name, Age; Principal Occupation John H. Costello (59) |
Year of Election or Appointment: 1986
Assistant Treasurer of Value Fund. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
| Peter L. Lydecker (51) |
Year of Election or Appointment: 2004
Assistant Treasurer of Value Fund. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
| Mark Osterheld (50) |
Year of Election or Appointment: 2002
Assistant Treasurer of Value Fund. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
| Gary W. Ryan (47) |
Year of Election or Appointment: 2005
Assistant Treasurer of Value Fund. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999 2005).
| Salvatore Schiavone (39) |
Year of Election or Appointment: 2005
Assistant Treasurer of Value Fund. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005 present) and is an employee of FMR (2005 present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003 2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996 2003).
43 Annual Report
| Distributions |
The Board of Trustees of Fidelity Value Fund voted to pay on December 05, 2005, to shareholders of record at the opening of business on December 02, 2005, a distribution of $5.14 per share derived from capital gains realized from sales of portfolio securities and a dividend of $.43 per share from net investment income.
The fund hereby designates as capital gain dividends: For dividends with respect to the taxable year ended October 31, 2005, $850,539,000, or, if subsequently determined to be different, the net capital gain of such year, and for dividends with respect to the taxable year ended October 31, 2004, $429,510,000, or, if subsequently determined to be different, the excess of: (a) the net capital gain of such year, over (b) amounts previously designated as capital gain dividends with respect to such year.
The fund designates 83% of the dividends distributed during the fiscal year as qualifying for the dividends–received deduction for corporate shareholders.
The fund designates 78% of the dividends distributed in December during the fiscal year as amounts which may be taken into account as a dividend for the purposes of the maximum rate under section 1(h)(11) of the Internal Revenue Code.
The fund will notify shareholders in January 2006 of amounts for use in preparing 2005 income tax returns.
| Annual Report |
| 44 |
Board Approval of Investment Advisory Contracts and Management Fees
Fidelity Value Fund
Each year, typically in July, the Board of Trustees, including the independent Trustees (together, the Board), votes on the renewal of the management contract and sub advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and independent Trustees’ counsel, requests and considers a broad range of information throughout the year.
The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund’s Advisory Contracts, including the services and support provided to the fund and its shareholders by Fidelity. At the time of the renewal, the Board had 11 standing committees, each composed of independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such com mittee, the Equity Contract Committee, meets periodically during the first six months of each year and as necessary to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the independent Trustees concerning, the approval and annual review of the Advisory Contracts.
At its July 2005 meeting, the Board of Trustees, including the independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (1) the nature, extent, and quality of the services to be provided to the fund and its shareholders by Fidelity (including the investment performance of the fund); (2) the competitiveness of the management fee and total expenses of the fund; (3) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (4) the extent to which economies of scale would be realized as the fund grows; and (5) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.
In determining whether to renew the Advisory Contracts for the fund, the Board ulti mately reached a determination, with the assistance of fund counsel and independent Trustees’ counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity’s fidu ciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund’s shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its
45 Annual Report
Board Approval of Investment Advisory Contracts and Management Fees continued
prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.
Nature, Extent, and Quality of Services Provided by Fidelity. The Board consid ered staffing within the investment adviser, FMR, and the sub advisers (together, the Investment Advisers), including the background of the fund’s portfolio manager and the fund’s investment objective and discipline. The independent Trustees also had discus sions with senior management of Fidelity’s investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.
Fidelity Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers’ invest ment staff, their use of technology, and the Investment Advisers’ approach to recruiting, training, and retaining portfolio managers and other research, advisory, and manage ment personnel. The Board considered Fidelity’s extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity’s analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity’s portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund’s portfolio, as well as an electronic communication system that provides immediate real time access to research concerning issuers and credit enhancers.
Shareholder and Administrative Services. The Board considered the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund. The Board also considered the nature and extent of the Investment Advisers’ supervision of third party service providers, principally custodians and subcustodians. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of “soft” commission dollars to pay for research services. The Board also considered that Fidelity voluntarily decided in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources. The Board also considered the resources devoted to, and the record of compliance with, the fund’s compliance policies and procedures.
The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24 hour access to
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account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.
Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. For example, fund shareholders are offered the privilege of exchanging shares of the fund for shares of other Fidelity funds, as set forth in the fund’s prospectus, without paying a sales charge. The Board noted that, since the last Advisory Contract renewals in July 2004, Fidelity has taken a number of actions that benefited particular funds, including (i) voluntarily deciding in 2004 to stop using “soft” commission dollars to pay for market data and, instead, to pay for that data out of its own resources, (ii) contractually agreeing to impose management fee reductions and expense limitations on its five Spartan stock index funds and its stock index fund available through variable insurance products, (iii) contractually agreeing to eliminate the management fees on the Fidelity Freedom Funds and the Fidelity Advisor Freedom Funds, (iv) contractually agreeing to reduce the management fees on most of its investment grade taxable bond funds, and (v) contractually agreeing to impose expense limitations on its retail and Spartan investment grade taxable bond funds.
Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund’s absolute investment performance, as well as the fund’s relative investment performance measured against (i) a broad based securities market index, and (ii) a peer group of mutual funds over multiple periods. The following charts considered by the Board show, over the one , three , and five year periods ended December 31, 2004, the fund’s returns, the returns of a broad based securities market index (“benchmark”), and a range of returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objective similar to that of the fund. The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten number noted below each chart corresponds to the percentile box and represents the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the fund.
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Board Approval of Investment Advisory Contracts and Management Fees continued
The Board reviewed the fund’s relative investment performance against its Lipper peer group and stated that the performance of the fund was in the first quartile for the one , three , and five year periods. The Board noted that FMR does not consider that Lipper peer group to be a meaningful comparison for the fund, however, because the peer group includes funds with different investment mandates (some broader, some narrower) than the fund. For example, the peer group includes funds that are not limited to a particular investment style, funds that focus on growth oriented stocks, and funds that (like the fund) focus their investments on value oriented securities. The Board also stated that the relative investment performance of the fund was lower than its benchmark over time.
The Board also considered that the fund’s management fee is subject to upward or downward adjustment depending upon whether, and to what extent, the fund’s invest ment performance for the performance period exceeds, or is exceeded by, the record (over the same period) of a Board approved performance adjustment index. The Board realizes that the performance adjustment provides FMR with a strong economic incen tive to seek to achieve superior performance for the fund’s shareholders and helps to more closely align the interests of FMR and the fund’s shareholders.
The Board has had thorough discussions with FMR throughout the year about the Board’s and FMR’s concerns about equity research, equity fund performance, and compliance with internal policies governing gifts and entertainment. FMR has taken steps that it believes will refocus and strengthen equity research and equity portfolio management and compliance. The Board noted with favor FMR’s recent reorganization of its senior management team and FMR’s plans to dedicate additional resources to investment research, and participated in the process that led to those changes.
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Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services provided by Fidelity will benefit the fund’s shareholders, particularly in light of the Board’s view that the fund’s shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.
Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund’s management fee and total expenses compared to “mapped groups” of competitive funds and classes. Fidelity creates “mapped groups” by combining similar Lipper investment objective categories that have comparable management fee charac teristics. Combining Lipper investment objective categories aids the Board’s manage ment fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.
The Board considered two proprietary management fee comparisons for the 12 month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the “Total Mapped Group” and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund’s standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. “TMG %” represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund’s. For example, a TMG % of 15% means that 85% of the funds in the Total Mapped Group had higher management fees than the fund. The “Asset Size Peer Group” (ASPG) comparison focuses on a fund’s standing relative to non Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile (“quadrant”) in which the fund’s management fee ranked and the impact of the fund’s performance adjustment, is also included in the chart and considered by the Board.
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Board Approval of Investment Advisory Contracts and Management Fees continued
The Board noted that the fund’s management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2004. The Board also noted the effect of the fund’s positive performance adjustment on the fund’s management fee ranking.
Based on its review, the Board concluded that the fund’s management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.
In its review of the fund’s total expenses, the Board considered the fund’s management fee as well as other fund expenses, such as transfer agent fees, pricing and bookkeeping fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses, as well as the fund’s positive performance adjustment. As part of its review, the Board also considered current and historical total expenses of the fund compared to competitive fund median expenses. The fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.
The Board noted that the fund’s total expenses ranked below its competitive median for 2004.
In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.
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Based on its review, the Board concluded that the fund’s total expenses were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.
Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, market ing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity’s profits in respect of all the Fidelity funds.
On an annual basis, FMR presents to the Board Fidelity’s profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year’s methodologies.
PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board’s assessment of the results of Fidelity’s profitability analysis. PwC’s engagement includes the review and assessment of Fidelity’s methodologies used in determining the revenues and expenses attributable to Fidelity’s mutual fund business, and completion of agreed upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC’s reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity’s profitabil ity methodologies are reasonable in all material respects.
The Board has also reviewed Fidelity’s non fund businesses and any fall out benefits related to the mutual fund business as well as cases where Fidelity’s affiliates may benefit from or be related to the fund’s business. In addition, a special committee of the Board reviewed services provided to Fidelity by its affiliates and determined that the fees that Fidelity paid for such services were reasonable.
The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.
Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or
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Board Approval of Investment Advisory Contracts and Management Fees continued
expense reductions, including reductions that occur through operation of the transfer agent agreement. The transfer agent fee varies in part based on the number of accounts in the fund. If the number of accounts decreases or the average account size increases, the overall transfer agent fee rate decreases.
The Board recognized that the fund’s management contract incorporates a “group fee” structure, which provides for lower fee rates as total fund assets under FMR’s manage ment increase, and for higher fee rates as total fund assets under FMR’s management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity’s costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR’s management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.
The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.
Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information regarding (i) equity fund transfer agency fees; (ii) Fidelity’s fund profitability methodology and the impact of various changes in the methodology over time; (iii) benefits to shareholders from economies of scale; (iv) composition and characteristics of various fund and industry data used in comparisons; and (v) com pensation of portfolio managers and research analysts.
Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the existing advisory fee structures are fair and reasonable, and that the fund’s existing Advisory Contracts should be renewed.
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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 Automated Service Telephone provides 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.
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.
* 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 guar anteed 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.
53 Annual Report
To Visit Fidelity
| For directions and hours, please call 1-800-544-9797. Arizona 7001 West Ray Road Chandler, AZ 7373 N. Scottsdale Road Scottsdale, AZ California 815 East Birch Street Brea, CA 1411 Chapin Avenue Burlingame, CA 851 East Hamilton Avenue Campbell, CA 19200 Von Karman Avenue Irvine, CA 601 Larkspur Landing Circle Larkspur, CA 10100 Santa Monica Blvd. Los Angeles, CA 27101 Puerta Real Mission Viejo, CA 73 575 El Paseo Palm Desert, CA 251 University Avenue Palo Alto, CA 123 South Lake Avenue Pasadena, CA 16995 Bernardo Ctr. Drive Rancho Bernardo, CA 1740 Arden Way Sacramento, CA 7676 Hazard Center Drive San Diego, CA 8 Montgomery Street San Francisco, CA 3793 State Street Santa Barbara, CA 21701 Hawthorne Boulevard Torrance, CA 2001 North Main Street Walnut Creek, CA 6300 Canoga Avenue Woodland Hills, CA |
| Colorado 1625 Broadway Denver, CO 9185 East Westview Road Littleton, 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. Federal Highway Boca Raton, FL 121 Alhambra Plaza Coral Gables, FL 2948 N. Federal Highway Ft. Lauderdale, FL 1907 West State Road 434 Longwood, FL 8880 Tamiami Trail, North Naples, FL 3550 Tamiami Trail, South Sarasota, FL 1502 N. Westshore Blvd. Tampa, FL 2465 State Road 7 Wellington, FL 3501 PGA Boulevard West Palm Beach, FL Georgia 3445 Peachtree Road, N.E. Atlanta, GA 1000 Abernathy Road Atlanta, GA Illinois One North LaSalle Street Chicago, IL 875 North Michigan Ave. 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 Kansas 5400 College Boulevard Overland Park, KS Maine Three Canal Plaza Portland, ME Maryland 7315 Wisconsin Avenue Bethesda, MD One W. Pennsylvania Ave. Towson, MD Massachusetts 801 Boylston Street Boston, MA 155 Congress Street Boston, MA 300 Granite Street Braintree, MA 44 Mall Road Burlington, MA 405 Cochituate Road Framingham, MA 416 Belmont Street Worcester, MA Michigan 500 E. Eisenhower Pkwy. Ann Arbor, MI 280 Old N. Woodward Ave. Birmingham, MI 43420 Grand River Avenue Novi, MI 29155 Northwestern Hwy. Southfield, MI Minnesota 7600 France Avenue South Edina, MN Missouri 8885 Ladue Road Ladue, MO |
Annual Report 54
| Nevada 2225 Village Walk Drive Henderson, NV New Jersey 150 Essex Street Millburn, NJ 56 South Street Morristown, NJ 396 Route 17, North Paramus, NJ 3518 Route 1 North Princeton, NJ 530 Highway 35 Shrewsbury, NJ New York 1055 Franklin Avenue Garden City, NY 37 West Jericho Turnpike Huntington Station, NY 1271 Avenue of the Americas New York, NY 61 Broadway New York, NY 350 Park Avenue New York, NY 200 Fifth Avenue New York, NY 733 Third Avenue New York, NY 11 Penn Plaza New York, NY 2070 Broadway New York, NY 1075 Northern Blvd. Roslyn, NY North Carolina 4611 Sharon Road Charlotte, NC Ohio 3805 Edwards Road Cincinnati, OH 1324 Polaris Parkway Columbus, OH 28699 Chagrin Boulevard Woodmere Village, OH Oregon 16850 SW 72nd Avenue Tigard, OR |
| Pennsylvania 600 West DeKalb Pike King of Prussia, PA 1735 Market Street Philadelphia, PA 12001 Perry Highway Wexford, PA Rhode Island 47 Providence Place Providence, RI Tennessee 6150 Poplar Avenue Memphis, TN Texas 10000 Research Boulevard Austin, TX 4001 Northwest Parkway Dallas, TX 12532 Memorial Drive Houston, TX 2701 Drexel Drive Houston, TX 6500 N. MacArthur Blvd. Irving, TX 6005 West Park Boulevard Plano, TX 14100 San Pedro San Antonio, TX 1576 East Southlake Blvd. Southlake, TX 19740 IH 45 North Spring, TX Utah 215 South State Street Salt Lake City, UT Virginia 1861 International Drive McLean, VA Washington 411 108th Avenue, N.E. Bellevue, WA 1518 6th Avenue Seattle, WA Washington, DC 1900 K Street, N.W. Washington, DC Wisconsin 595 North Barker Road Brookfield, WI |
Fidelity Brokerage Services, Inc., 100 Summer St., Boston, MA 02110 Member NYSE/SIPC
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55
| Investment Adviser Fidelity Management & Research Company Boston, MA Investment Sub Advisers FMR Co., Inc. Fidelity Management & Research (U.K.) Inc. Fidelity Management & Research (Far East) Inc. Fidelity Investments Japan Limited Fidelity International Investment Advisors Fidelity International Investment Advisors (U.K.) Limited General Distributor Fidelity Distributors Corporation Boston, MA Transfer and Service Agent Fidelity Service Company, Inc. Boston, MA Custodian Mellon Bank, N.A. Pittsburgh, PA |
| The Fidelity Telephone Connection | ||
| Mutual Fund 24-Hour Service | ||
| Exchanges/Redemptions | ||
| and Account Assistance | 1-800-544-6666 | |
| Product Information | 1-800-544-6666 | |
| 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) | ||
| Fidelity Automated Service | ||
| Telephone (FAST®) (automated phone logo) | 1-800-544-5555 | |
| (automated phone logo) Automated line for quickest service | ||
| VAL-UANN-1205 1.784783.102 |
Item 2. Code of Ethics
As of the end of the period, October 31, 2005, Fidelity Capital Trust (the trust) has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its President and Treasurer and its Chief Financial Officer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
Item 3. Audit Committee Financial Expert
The Board of Trustees of the trust has determined that Marie L. Knowles is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Ms. Knowles is independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees.
For the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Audit Fees billed by PricewaterhouseCoopers LLP (PwC) for professional services rendered for the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years, for Fidelity Capital Appreciation Fund, Fidelity Disciplined Equity Fund, Fidelity Focused Stock Fund and Fidelity Value Fund (the funds) and for all funds in the Fidelity Group of Funds are shown in the table below.
Fund | 2005A | 2004A |
Fidelity Capital Appreciation Fund | $75,000 | $68,000 |
Fidelity Disciplined Equity Fund | $65,000 | $54,000 |
Fidelity Focused Stock Fund | $35,000 | $32,000 |
Fidelity Value Fund | $86,000 | $65,000 |
All funds in the Fidelity Group of Funds audited by PwC | $11,900,000 | $10,600,000 |
A | Aggregate amounts may reflect rounding. |
For the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Audit Fees billed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte Entities") for professional services rendered for the audits of the financial statements, or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years, for Fidelity Small Cap Independence Fund and Fidelity Stock Selector (the funds) and for all funds in the Fidelity Group of Funds are shown in the table below.
Fund | 2005A | 2004A |
Fidelity Small Cap Independence Fund | $34,000 | $33,000 |
Fidelity Stock Selector | $39,000 | $35,000 |
All funds in the Fidelity Group of Funds audited by Deloitte Entities | $5,400,000 | $4,300,000 |
A | Aggregate amounts may reflect rounding. |
(b) Audit-Related Fees.
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Audit-Related Fees billed by PwC for services rendered for assurance and related services to each fund that are reasonably related to the performance of the audit or review of the fund's financial statements, but not reported as Audit Fees, are shown in the table below.
Fund | 2005A | 2004 A |
Fidelity Capital Appreciation Fund | $0 | $0 |
Fidelity Disciplined Equity Fund | $0 | $0 |
Fidelity Focused Stock Fund | $0 | $0 |
Fidelity Value Fund | $0 | $0 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Audit-Related Fees billed by Deloitte Entities for services rendered for assurance and related services to each fund that are reasonably related to the performance of the audit or review of the fund's financial statements, but not reported as Audit Fees, are shown in the table below.
Fund | 2005A | 2004 A |
Fidelity Small Cap Independence Fund | $0 | $0 |
Fidelity Stock Selector | $0 | $0 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Audit-Related Fees that were billed by PwC and Deloitte Entities that were required to be approved by the Audit Committee for services rendered on behalf of Fidelity Management & Research Company (FMR) and entities controlling, controlled by, or under common control with FMR (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the funds ("Fund Service Providers") for assurance and related services that relate directly to the operations and financial reporting of each fund that are reasonably related to the performance of the audit or review of the fund's financial statements, but not reported as Audit Fees, are shown in the table below.
Billed By | 2005 A | 2004A |
PwC | $0 | $0 |
Deloitte Entities | $0 | $0 |
A | Aggregate amounts may reflect rounding. |
Fees included in the audit-related category comprise assurance and related services (e.g., due diligence services) that are traditionally performed by the independent registered public accounting firm. These audit-related services include due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control reviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards.
(c) Tax Fees.
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Tax Fees billed by PwC for professional services rendered for tax compliance, tax advice, and tax planning for each fund is shown in the table below.
Fund | 2005A | 2004A |
Fidelity Capital Appreciation Fund | $3,400 | $3,200 |
Fidelity Disciplined Equity Fund | $2,500 | $2,400 |
Fidelity Focused Stock Fund | $2,500 | $2,400 |
Fidelity Value Fund | $3,400 | $3,200 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Tax Fees billed by Deloitte Entities for professional services rendered for tax compliance, tax advice, and tax planning for each fund is shown in the table below.
Fund | 2005A | 2004A |
Fidelity Small Cap Independence Fund | $3,900 | $3,800 |
Fidelity Stock Selector | $3,800 | $3,700 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Tax Fees billed by PwC and Deloitte Entities that were required to be approved by the Audit Committee for professional services rendered on behalf of the Fund Service Providers for tax compliance, tax advice, and tax planning that relate directly to the operations and financial reporting of each fund is shown in the table below.
Billed By | 2005A | 2004A |
PwC | $0 | $0 |
Deloitte Entities | $0 | $0 |
A | Aggregate amounts may reflect rounding. |
Fees included in the Tax Fees category comprise all services performed by professional staff in the independent registered public accounting firm's tax division except those services related to the audit. Typically, this category would include fees for tax compliance, tax planning, and tax advice. Tax compliance, tax advice, and tax planning services include preparation of original and amended tax returns, claims for refund and tax payment-planning services, assistance with tax audits and appeals, tax advice related to mergers and acquisitions and requests for rulings or technical advice from taxing authorities.
(d) All Other Fees.
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Other Fees billed by PwC for all other non-audit services rendered to the funds is shown in the table below.
Fund | 2005A | 2004A |
Fidelity Capital Appreciation Fund | $7,100 | $5,600 |
Fidelity Disciplined Equity Fund | $5,900 | $4,800 |
Fidelity Focused Stock Fund | $1,400 | $1,300 |
Fidelity Value Fund | $11,100 | $7,700 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Other Fees billed by Deloitte Entities for all other non-audit services rendered to the funds is shown in the table below.
Fund | 2005A | 2004A |
Fidelity Small Cap Independence Fund | $0 | $0 |
Fidelity Stock Selector | $0 | $0 |
A | Aggregate amounts may reflect rounding. |
In each of the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate Other Fees billed by PwC and Deloitte Entities that were required to be approved by the Audit Committee for all other non-audit services rendered on behalf of the Fund Service Providers that relate directly to the operations and financial reporting of each fund is shown in the table below.
Billed By | 2005A | 2004A |
PwC | $420,000 | $300,000 |
Deloitte Entities | $210,000 | $720,000 |
A | Aggregate amounts may reflect rounding. |
Fees included in the All Other Fees category include services related to internal control reviews, strategy and other consulting, financial information systems design and implementation, consulting on other information systems, and other tax services unrelated to the fund.
(e) (1) | Audit Committee Pre-Approval Policies and Procedures: |
The trust's Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
The trust's Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee's consideration of non-audit services by the audit firms that audit the Fidelity funds. The policies and procedures require that any non-audit service provided by a fund audit firm to a Fidelity Fund and any non-audit service provided by a fund auditor to a Fund Service Provider that relates directly to the operations and financial reporting of a Fidelity fund (Covered Service) are subject to approval by the Audit Committee before such service is provided. Non-audit services provided by a fund audit firm for a Fund Service Provider that do not relate directly to the operations and financial reporting of a Fidelity fund (Non-Covered Service) but that are expected to exceed $50,000 are also subject to pre-approval by the Audit Committee.
All Covered Services, as well as Non-Covered Services that are expected to exceed $50,000, must be approved in advance of provision of the service either: (i) by formal resolution of the Audit Committee, or (ii) by oral or written approval of the service by the Chair of the Audit Committee (or if the Chair is unavailable, such other member of the Audit Committee as may be designated by the Chair to act in the Chair's absence). The approval contemplated by (ii) above is permitted where the Treasurer determines that action on such an engagement is necessary before the next meeting of the Audit Committee. Neither pre-approval nor advance notice of Non-Covered Service engagements for which fees are not expected to exceed $50,000 is required; such engagements are to be reported to the Audit Committee monthly.
(e) (2) | Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X: |
Audit-Related Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of each fund.
There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of the Fund Service Providers that relate directly to the operations and financial reporting of each fund.
Tax Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of each fund.
There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of the Fund Service Providers that relate directly to the operations and financial reporting of each fund.
All Other Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of each fund.
There were no amounts that were required to be approved by the Audit Committee pursuant to the de minimis exception for the fiscal years ended October 31, 2005 and October 31, 2004 on behalf of the Fund Service Providers that relate directly to the operations and financial reporting of each fund.
(f) Not applicable.
(g) For the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate fees billed by PwC of $4,050,000A and $2,250,000A for non-audit services rendered on behalf of the funds, FMR (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and Fund Service Providers relating to Covered Services and Non-Covered Services are shown in the table below.
2005A | 2004A | |
Covered Services | $450,000 | $300,000 |
Non-Covered Services | $3,600,000 | $1,950,000 |
A | Aggregate amounts may reflect rounding. |
For the fiscal years ended October 31, 2005 and October 31, 2004, the aggregate fees billed by Deloitte Entities of $650,000A and $1,600,000A for non-audit services rendered on behalf of the fund, FMR (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and Fund Service Providers relating to Covered Services and Non-Covered Services are shown in the table below.
2005A | 2004A | |
Covered Services | $250,000 | $700,000 |
Non-Covered Services | $400,000 | $900,000 |
A | Aggregate amounts may reflect rounding. |
(h) The trust's Audit Committee has considered Non-Covered Services that were not pre-approved that were provided by PwC and Deloitte Entities to Fund Service Providers to be compatible with maintaining the independence of PwC and Deloitte Entities in their audit of the funds, taking into account representations from PwC and Deloitte Entities, in accordance with Independence Standards Board Standard No.1, regarding their independence from the funds and their related entities.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
There were no material changes to the procedures by which shareholders may recommend nominees to the trust's Board of Trustees.
Item 11. Controls and Procedures
(a)(i) The President and Treasurer and the Chief Financial Officer have concluded that the trust's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act) provide reasonable assurances that material information relating to the trust is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.
(a)(ii) There was no change in the trust's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the trust's internal control over financial reporting.
Item 12. Exhibits
(a) | (1) | Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
(a) | (2) | Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
(a) | (3) | Not applicable. |
(b) | Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Fidelity Capital Trust
By: | /s/Christine Reynolds |
Christine Reynolds | |
President and Treasurer | |
Date: | December 21, 2005 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/Christine Reynolds |
Christine Reynolds | |
President and Treasurer | |
Date: | December 21, 2005 |
By: | /s/Paul M. Murphy |
Paul M. Murphy | |
Chief Financial Officer | |
Date: | December 21, 2005 |