FIDELITY
(REGISTERED TRADEMARK)
REAL ESTATE INVESTMENT
PORTFOLIO
ANNUAL REPORT
JANUARY 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 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 17 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 21 Notes to the financial statements.
REPORT OF INDEPENDENT 25 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 26
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND
MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
As 1997 begins, the stock and bond markets generally have continued on the
course they followed during the past year. Through January, stocks
maintained their unprecedented climb, with the large companies still
setting the pace. With low, stable interest rates, the bond market has
tended to mirror its historical returns in the mid-single digits.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories as bonds. If you have a short investment time
horizon, you might want to consider moving some of your investment into a
money market fund, which seeks income and a stable share price by investing
in high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will achieve
its goal of maintaining a stable net asset value of $1.00 per share, and
that these types of funds are neither insured nor guaranteed by any agency
of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. Total return
reflects the change in the value of an investment, assuming reinvestment of
the fund's dividend income and capital gains (the profits earned upon the
sale of securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Real Estate Investment 35.45% 97.90% 196.03%
S&P 500(registered trademark) 26.34% 119.87% 288.58%
Real Estate Funds Average 31.27% 80.86% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or 10 years. For
example, if you invested $1,000 in a fund that had a 5% return over the
past year, the value of your investment would be $1,050. You can compare
the fund's return to the performance of the Standard & Poor's 500 Index - a
widely recognized, unmanaged index of common stocks. To measure how the
fund's performance stacked up against its peers, you can compare it to the
real estate funds average, which reflects the performance of 50 mutual
funds with similar objectives tracked by Lipper Analytical Services, Inc.
over the past one year. Both benchmarks reflect reinvestment of dividends
and capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Real Estate Investment 35.45% 14.63% 11.46%
S&P 500 26.34% 17.06% 14.53%
Real Estate Funds Average 31.27% 12.24% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19970131 19970225 112624 S00000000000001
Real Estate SP Standard & Poor 500
00303 SP001
1987/01/31 10000.00 10000.00
1987/02/28 10163.78 10395.00
1987/03/31 10356.62 10695.42
1987/04/30 10017.53 10600.23
1987/05/31 9833.46 10692.45
1987/06/30 10163.70 11232.42
1987/07/31 10124.38 11801.90
1987/08/31 9927.79 12242.11
1987/09/30 9689.35 11974.01
1987/10/31 8382.14 9394.81
1987/11/30 8611.65 8620.68
1987/12/31 8840.88 9276.71
1988/01/31 9415.23 9667.26
1988/02/29 9722.92 10117.75
1988/03/31 9639.55 9805.11
1988/04/30 9649.97 9913.95
1988/05/31 9420.70 10000.20
1988/06/30 9735.23 10459.21
1988/07/31 9777.60 10419.47
1988/08/31 9682.27 10065.20
1988/09/30 9831.27 10493.98
1988/10/31 9745.13 10785.71
1988/11/30 9605.14 10631.48
1988/12/31 9757.09 10817.53
1989/01/31 9855.53 11609.37
1989/02/28 9888.35 11320.30
1989/03/31 9964.41 11584.06
1989/04/30 10231.01 12185.28
1989/05/31 10419.86 12678.78
1989/06/30 10777.14 12606.51
1989/07/31 11318.26 13744.88
1989/08/31 11476.08 14014.28
1989/09/30 11340.64 13956.82
1989/10/31 10917.66 13633.02
1989/11/30 11054.84 13911.13
1989/12/31 11101.00 14245.00
1990/01/31 10857.91 13289.16
1990/02/28 10788.46 13460.59
1990/03/31 10846.34 13817.30
1990/04/30 10705.63 13471.87
1990/05/31 10658.72 14785.37
1990/06/30 10823.35 14684.83
1990/07/31 10894.63 14637.84
1990/08/31 10122.39 13314.58
1990/09/30 9616.59 12666.16
1990/10/31 9339.42 12611.70
1990/11/30 9929.91 13426.41
1990/12/31 10135.66 13801.01
1991/01/31 11080.51 14402.73
1991/02/28 11424.09 15432.53
1991/03/31 12179.69 15805.99
1991/04/30 12515.25 15843.93
1991/05/31 12813.53 16528.39
1991/06/30 12401.17 15771.39
1991/07/31 12665.29 16506.33
1991/08/31 12728.17 16897.53
1991/09/30 13097.45 16615.34
1991/10/31 12881.06 16837.99
1991/11/30 12753.78 16159.42
1991/12/31 14107.64 18008.06
1992/01/31 14958.74 17673.11
1992/02/29 14636.35 17902.86
1992/03/31 14546.64 17553.75
1992/04/30 14338.09 18069.83
1992/05/31 14768.23 18158.37
1992/06/30 14598.31 17887.81
1992/07/31 15241.58 18619.43
1992/08/31 15280.97 18237.73
1992/09/30 15702.95 18452.93
1992/10/31 15874.79 18517.52
1992/11/30 16165.58 19148.96
1992/12/31 16859.92 19384.50
1993/01/31 17689.54 19547.33
1993/02/28 18117.73 19813.17
1993/03/31 19422.50 20231.23
1993/04/30 18546.40 19741.63
1993/05/31 18317.27 20270.71
1993/06/30 18794.08 20329.49
1993/07/31 18916.48 20248.18
1993/08/31 19215.66 21015.58
1993/09/30 20103.02 20853.76
1993/10/31 19773.91 21285.43
1993/11/30 18622.03 21083.22
1993/12/31 18969.37 21338.33
1994/01/31 19123.14 22063.83
1994/02/28 20059.73 21465.90
1994/03/31 19342.28 20529.99
1994/04/30 19610.14 20792.77
1994/05/31 20033.08 21133.77
1994/06/30 19434.50 20616.00
1994/07/31 19391.81 21292.20
1994/08/31 19306.45 22165.18
1994/09/30 19076.88 21622.14
1994/10/31 18315.53 22108.63
1994/11/30 17669.10 21303.44
1994/12/31 19356.02 21619.37
1995/01/31 18505.53 22179.96
1995/02/28 18798.80 23044.31
1995/03/31 18873.23 23724.35
1995/04/30 18576.25 24423.03
1995/05/31 19259.31 25399.22
1995/06/30 19661.70 25989.24
1995/07/31 20007.43 26851.05
1995/08/31 20413.29 26918.44
1995/09/30 20776.19 28054.40
1995/10/31 20198.23 27954.25
1995/11/30 20304.69 29181.44
1995/12/31 21468.87 29743.47
1996/01/31 21855.56 30755.94
1996/02/29 21932.90 31041.05
1996/03/31 21949.60 31339.97
1996/04/30 21918.31 31801.92
1996/05/31 22372.01 32622.09
1996/06/30 22736.84 32746.38
1996/07/31 22816.06 31299.65
1996/08/31 23814.26 31959.76
1996/09/30 24578.95 33758.45
1996/10/31 25332.51 34689.51
1996/11/30 26518.97 37311.69
1996/12/31 29245.98 36572.55
1997/01/31 29602.84 38857.60
IMATRL PRASUN SHR__CHT 19970131 19970225 112627 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Real Estate Investment Portfolio on January 31, 1987. As the
chart shows, by January 31, 1997, the value of the investment would have
grown to $29,603 - a 196.03% increase on the initial investment. For
comparison, look at how the S&P 500 did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
investment would have grown to $38,858 - a 288.58% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Paced by the robust performance
of blue chip stocks, the U.S. stock
market posted strong gains for
the 12 months that ended
January 31, 1997. The Standard
& Poor's 500 Index returned
26.34% during the period - well
above its long-term average of
about 12%. The stock market
spent much of the past 12
months breaking price and
trading volume records. Solid
corporate earnings reports, large
cash inflows into mutual funds,
widespread optimism and a
generally favorable interest rate
environment propelled share
prices higher. Large capitalization
stocks thrived as investors
sought their lower volatility and
higher degree of liquidity over
smaller cap stocks in an
environment where it was
sometimes difficult to discern the
health of the economy. While
short-term confusion over the
direction of interest rates created
a volatile backdrop in the summer
months, stocks rallied again
when the Federal Reserve
Board left short-term interest
rates unchanged and it appeared
inflation would not be an issue for
the foreseeable future. The Dow
Jones Industrial Average closed
above 6500 for the first time in
November. Stock markets
experienced some volatility
sparked by comments by Fed
Chairman Alan Greenspan in
December about the market's
exuberance, but rebounded well
and continued their upward track
through the end of January.
An interview with Barry Greenfield, Portfolio Manager of Fidelity Real
Estate Investment Portfolio
Q. BARRY, HOW DID THE FUND PERFORM?
A. The fund had an excellent year. For the 12 months that ended January 31,
1997, the fund provided a return of 35.45%. During that same period, the
real estate funds average, as tracked by Lipper Analytical Services, had a
return of 31.27%.
Q. WHAT FACTORS CONTRIBUTED TO THE STRONG SHOWING OF REAL ESTATE-RELATED
STOCKS?
A. It was really an extraordinary year for real estate investment trusts
(REITs). One of the main drivers behind this success was the surge in
demand. During July 1996, when the general market - particularly technology
stocks - stumbled, REITs performed quite admirably and people stood up and
took notice. All of a sudden, managers of aggressive diversified mutual
funds began buying REITs and, in addition, all sorts of money began flowing
into real estate funds. Pension-related investors turned over $2.7 billion
to REIT advisors and increased their direct purchases as well. This
increased attraction created an imbalance in the supply/demand
characteristics of the REIT market; the supply just couldn't keep up with
the demand. While the REIT segment of the market has been growing
dramatically over the past five years - from about $5 billion in assets to
approximately $100 billion - 1996 was really the coming-out party for
REITs.
Q. BESIDES DEMAND GROWTH, WERE THERE ANY OTHER FACTORS WITHIN THE REIT
MARKET THAT INFLUENCED OVERALL PERFORMANCE?
A. There were two underlying fundamental developments that proved
beneficial to the REIT market. First, we've seen a strong secondary
offering market and the ability of established companies to take advantage
of low interest rates to issue debt. Some of these companies have been able
to grow their assets through spread investing - that is, buying an existing
property that will give them a higher return than their total cost of
capital. The second factor I'd point to was the sharp increase in
merger/acquisition activity that took place during the year. This activity
has led to more consolidation and larger, more liquid REITs. It's much
easier for a pension fund or its advisor to buy 100,000 shares of a $2
billion REIT than it is to buy the same amount of shares from a $1 billion
REIT. The liquidity - that is, the ease with which you can sell the
securities - is better because there are more shares outstanding.
Q. DID THE SUCCESS OF THE REIT MARKET ALTER YOUR STRATEGY?
A. I did some things differently. With the significant cash inflows to the
fund, I have broadened the number of stocks in the portfolio from 60-70 to
around 100. If valuations were right, I also considered adding foreign
stocks to the portfolio. Lastly, I placed more emphasis on geographical
areas than sectors.
Q. WERE THERE ANY GEOGRAPHICAL AREAS THAT WERE MORE ATTRACTIVE THAN OTHERS?
A. California, specifically the southern regions of the state, continued to
be strong. Growth in the movie industry has helped tremendously. There's
been a trend toward the more action-oriented films and this requires more
set-up work and, correspondingly, more workers. These people need places to
stay when they're working on a set. The state of Washington is also a good
place to be. Two of the state's larger corporations - Boeing and Microsoft
- - have created thousands of jobs between them and the population should
continue to rise. On the other hand, the southeast region of the U.S. has
been slow. Atlanta was a hot spot during last summer's Olympics, but
opportunities there have temporarily faded.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, BARRY?
A. I think it's important to stress to our shareholders that we probably
won't see the explosive growth in REIT prices we witnessed throughout 1996.
Now, that doesn't mean REITs won't have a good year - it just means
performance may revert back to the historical 12-15% return range. In this
market, overbuilding can be a severe detriment, but I don't see that being
a problem going forward. I think we may see the REIT market take a breather
for a stretch in early 1997, but I'm confident the sector will rebound and
continue to reward investors.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: above-average
income and long-term capital
growth by investing mainly in
the equity securities of
companies in the real estate
industry
FUND NUMBER: 303
TRADING SYMBOL: FRESX
START DATE: November 17, 1986
SIZE: as of January 31,
1997, more than $2.1 billion
MANAGER: Barry Greenfield,
since 1986; manager,
Fidelity Fund, 1982-1993;
joined Fidelity in 1968
(checkmark)
BARRY GREENFIELD DISCUSSES THE
UNIQUE CHARACTERISTICS OF
REITS AND SPECIFIC SECTOR
PERFORMANCE:
"While REITs are typically
classified as common stocks,
they are very much their own
animal. They're almost
chameleon-like in that they
take on different characteristics
at different intervals. Pricing
on REITs is determined by
growth on the upside and
supported by yield on the
downside. When REITs are
declining in value, their
liquidating value or yield
becomes important. When
REITs are rising in value, the
earnings growth rate becomes
vital. I liken them to a
basketball player who goes in
for a slam dunk and then has
to immediately turn around
and play defense. REITs play
both offense and defense,
too.
"In terms of sectors, the
downtown office building
market and hotels performed
well, primarily due to strong
earnings growth. The major
mall sector benefited from
some large-scale mergers,
but the rest of the retail sector
turned in a sub-par
performance."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
Starwood Lodging Trust combined certificate 3.1 2.9
(SBI)
Public Storage, Inc. 3.1 4.3
Duke Realty Investors, Inc. 3.1 5.8
Equity Residential Properties Trust (SBI) 2.9 3.5
Cali Realty Corp. 2.6 2.7
Bay Apartment Communities, Inc. 2.6 3.7
Crescent Real Estate Equities, Inc. 2.5 1.5
Beacon Properties Corp. 2.3 3.4
Patriot American Hospitality, Inc. 2.2 2.6
Developers Diversified Realty Corp. 1.9 2.0
TOP FIVE REIT SECTORS AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE REIT SECTORS
6 MONTHS AGO
Apartments 16.2 17.5
Industrial Buildings 14.8 23.2
Office Buildings 14.3 13.6
Hotels 10.4 10.1
Shopping Centers 9.8 6.6
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JANUARY 31, 1997 * AS OF JULY 31, 1996 **
1.3
Row: 1, Col: 1, Value: 9.199999999999999
Row: 1, Col: 2, Value: 1.8
Row: 1, Col: 3, Value: 40.0
Row: 1, Col: 4, Value: 49.0
Stocks 90.7%
Convertible
securities 0.1%
Short-term
investments 9.2%
FOREIGN
INVESTMENTS 1.7%
Row: 1, Col: 1, Value: 9.1
Row: 1, Col: 2, Value: 1.9
Row: 1, Col: 3, Value: 39.0
Row: 1, Col: 4, Value: 50.0
Stocks 90.6%
Convertible
securities 0.3%
Short-term
investments 9.1%
FOREIGN
INVESTMENTS 0.0%
*
**
INVESTMENTS JANUARY 31, 1997
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 90.4%
SHARES VALUE (NOTE 1)
(000S)
REAL ESTATE INVESTMENT TRUSTS (REITS) - 81.9%
REITS - APARTMENTS - 15.9%
Ambassador Apartments, Inc. (b) 592,500 $ 14,220
Amli Residential Properties Trust (SBI) 82,400 1,957
Apartment Investment & Management Co. Class A (b) 742,700 19,960
Associated Estates Realty Corp. 315,900 7,463
Avalon Properties, Inc. 580,700 16,042
BRE Properties, Inc. Class A 938,000 23,216
Bay Apartment Communities, Inc. (b) 1,586,220 57,104
Camden Property Trust (SBI) 274,200 7,403
Colonial Properties Trust (SBI) 391,700 11,408
Columbus Realty Trust (SBI) 202,100 4,446
Equity Residential Properties Trust (SBI) 1,480,000 63,640
Essex Property Trust, Inc. 552,400 16,158
Home Properties of NY, Inc. 176,200 4,229
Irvine Apartment Communities, Inc. 349,800 9,313
Oasis Residential, Inc. 165,000 3,919
Pacific Gulf Properties, Inc. (b) 588,800 13,174
Post Properties, Inc. 748,100 31,046
Security Capital Atlantic, Inc. 271,100 6,845
Security Capital Pacific Trust (SBI) 297,500 7,066
United Dominion Realty Trust, Inc. 1,000,000 15,500
Walden Residential Properties, Inc. 163,500 4,353
Wellsford Residential Property Trust 432,300 12,158
350,620
REITS - FACTORY OUTLETS - 1.3%
Chelsea GCA Realty, Inc. 165,100 5,675
Mills Corp. 711,009 17,160
Tanger Factory Outlet Centers, Inc. 200,000 5,150
27,985
REITS - HEALTHCARE FACILITIES - 2.6%
American Health Properties, Inc. 136,300 3,544
Capstone Capital Corp. 116,900 2,674
Health Care, Inc. 65,600 1,574
Health Care Property Investors, Inc. 194,300 6,801
Healthcare Realty Trust, Inc. 122,700 3,374
Health & Rehabilitation Properties Trust 252,800 4,803
LTC Properties, Inc. 870,500 15,778
Meditrust (SBI) 288,400 11,103
National Health Investors, Inc. 77,800 3,005
Nationwide Health Properties, Inc. 75,000 1,716
Omega Healthcare Investors, Inc. 131,200 4,133
58,505
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
REAL ESTATE INVESTMENT TRUSTS (REITS) - CONTINUED
REITS - HOTELS - 10.4%
American General Hospitality Corp. 267,900 $ 7,200
Equity Inns, Inc. 300,000 4,050
Felcor Suite Hotels, Inc. 1,066,270 37,853
Hospitality Properties Trust (SBI) 341,500 10,587
Innkeepers USA Trust (b) 2,003,824 26,551
Jameson Co. 244,800 3,274
Patriot American Hospitality, Inc. 1,050,600 49,378
RFS Hotel Investors, Inc. 328,000 6,150
Starwood Lodging Trust combined certificate (SBI) 1,694,983 69,282
Sunstone Hotel Investors, Inc. (b) 910,000 12,171
Winston Hotels, Inc. 173,800 2,346
228,842
REITS - INDUSTRIAL BUILDINGS - 14.8%
Bedford Property Investors, Inc. 261,200 4,506
CenterPoint Properties Corp. (b) 897,200 29,159
Duke Realty Investors, Inc. (b) 1,713,284 67,889
East Group Properties (SBI) 213,000 5,884
First Industrial Realty Trust, Inc. 1,243,500 36,062
Meridian Industrial Trust, Inc. 400,000 8,800
Public Storage, Inc. 2,335,400 68,310
Security Capital Industrial Trust, Inc. 153,164 3,255
Shurgard Storage Centers, Inc. 120,600 3,362
Sovran Self Storage, Inc. 495,200 15,599
Speiker Properties, Inc. 1,031,600 36,106
Storage USA, Inc. 422,078 15,986
Storage Trust Realty (SBI) 315,000 8,229
Weeks Corp. 632,500 22,849
325,996
REITS - LEISURE - 2.2%
Bay Meadows Operating Co. (b) 375,700 16,249
Franchise Finance Corp. of America 900,000 23,738
Santa Anita Realty Enterprises, Inc. combined certificate 299,300 8,792
48,779
REITS - MALLS - 4.2%
CBL & Associates Properties, Inc. 699,200 17,917
General Growth Properties, Inc. 274,200 8,637
Macerich Co. 503,000 13,833
Simon Debartolo Group, Inc. 573,100 16,763
Taubman Centers, Inc. 1,264,500 17,071
Urban Shopping Centers, Inc. 589,500 17,832
92,053
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
REAL ESTATE INVESTMENT TRUSTS (REITS) - CONTINUED
REITS - MANAGEMENT/INVESTMENT - 1.2%
Glenborough Realty Trust, Inc. (b) 560,000 $ 10,850
Liberty Property Trust (SBI) 576,800 14,853
25,703
REITS - MOBILE HOME PARKS - 2.1%
Manufactured Home Communities, Inc. 763,300 18,033
ROC Communities, Inc. 221,000 5,746
Sun Communities, Inc. 711,300 23,028
46,807
REITS - MORTGAGE - 3.1%
CWM Mortgage Holdings, Inc. 203,000 4,415
Capstead Mortgage Corp. 739,703 18,122
Criimi Mae, Inc. 652,500 10,114
Franklin Select Realty Trust, Series A 50,000 288
Realty Income Corp. 631,500 16,735
Resource Mortgage Capital, Inc. 388,600 10,735
Thornburg Mortgage Asset Corp. 368,300 7,734
68,143
REITS - OFFICE BUILDINGS - 14.3%
Arden Realty Group, Inc. (b) 1,118,100 29,909
Beacon Properties Corp. 1,430,000 51,123
Cali Realty Corp. 1,765,100 58,248
California Real Estate Investment Trust (SBI) (a) 120,000 675
Carr Realty Corp. 720,000 20,970
Cousins Properties, Inc. 105,300 2,922
Crescent Real Estate Equities, Inc. 1,045,700 56,075
Highwoods Properties, Inc. 170,200 5,957
Kilroy Realty Corp. 156,900 4,021
Koger Equity, Inc. 589,900 10,544
Parkway Properties, Inc. 257,500 7,146
Prentiss Properties Trust (SBI) 340,000 9,138
Reckson Associates Realty Corp. (b) 895,600 39,854
Trinet Corporate Realty Trust, Inc. 470,900 17,129
Washington Real Estate Investment Trust (SBI) 81,500 1,508
315,219
REITS - SHOPPING CENTERS - 9.8%
Bradley Real Estate Trust (SBI) 500,000 9,250
Burnham Pacific Properties, Inc. 386,700 5,704
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
REAL ESTATE INVESTMENT TRUSTS (REITS) - CONTINUED
REITS - SHOPPING CENTERS - CONTINUED
Commercial Net Lease Realty, Inc. 200,000 $ 3,175
Developers Diversified Realty Corp. 1,154,900 41,288
Excel Realty Trust, Inc. (b) 1,066,700 25,867
Federal Realty Investment Trust (SBI) 582,300 16,450
First Washington Realty Trust, Inc. 155,700 3,620
HRE Properties 34,900 611
Haagen Alexander Properties, Inc. (b) 896,600 13,897
IRT Property Co. 1,020,500 12,246
JDN Realty Corp. 191,500 5,266
JP Realty, Inc. 538,800 14,480
Kimco Realty Corp. 557,800 18,268
Kranzco Realty Trust (SBI) 202,200 3,286
Lexington Corporate Properties, Inc. 314,600 4,640
Mid-America Realty Investments, Inc. 97,700 1,050
Mid Atlantic Realty Trust (b) 455,800 4,843
New Plan Realty Trust (SBI) 178,040 4,251
Price, Inc. Class B 150,900 5,546
Ramco-Gershenson Properties Trust (SBI) 213,300 3,733
Regency Realty Group 194,200 5,073
Sizeler Property Investors, Inc. 55,000 564
Vornado Realty Trust 62,900 3,452
Weingarten Realty Investors (SBI) 150,900 6,489
Western Investment Real Estate Trust (SBI) 222,000 2,886
215,935
TOTAL Real estate investment trusts 1,804,587
CONSTRUCTION & REAL ESTATE - 4.0%
CONSTRUCTION - 0.5%
Centex Corp. 227,500 8,873
Lennar Corp. 120,000 3,195
12,068
REAL ESTATE - 3.5%
Catellus Development Corp. (a) 1,879,000 25,836
Concord Land Development Co. Ltd. (a)(c) 7,794,000 3,495
Rouse Co. (The) 1,027,300 31,846
Sophia SA 22,621 863
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONSTRUCTION & REAL ESTATE- CONTINUED
REAL ESTATE - CONTINUED
Trizec Hahn Corp. (sub-vtg.) 459,800 $ 10,803
U.S. Restaurant Properties Master LP unit depositary receipt 800 24
Unibail 50,000 4,609
77,476
TOTAL CONSTRUCTION & Real Estate 89,544
CREDIT & OTHER FINANCE - 0.8%
TRUSTS - 0.8%
Security Capital US Realty (a):
Class A (Reg.) 800,000 10,720
Class A 510,000 6,783
17,503
FEDERAL SPONSORED CREDIT - 0.2%
FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 0.2%
Federal National Mortgage Association 95,100 3,756
INSURANCE - 0.1%
SURETY INSURANCE - 0.1%
CMAC Investments Corp. 80,000 2,780
LODGING & GAMING - 1.4%
HOTELS, MOTELS, & TOURIST COURTS - 1.4%
Boykin Lodging Co. 251,100 5,964
Four Seasons Hotels, Inc. 7,000 146
HFS, Inc. (a) 78,000 5,460
Host Marriott Corp. (a) 352,300 5,989
Prime Hospitality Corp. (a) 210,000 3,595
Red Lion Inns LP (b) 399,000 9,277
30,431
MEDICAL FACILITIES MANAGEMENT - 0.2%
HOME HEALTH CARE AGENCIES - 0.2%
Sunrise Assisted Living, Inc. (a) 208,000 5,382
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SAVINGS & LOANS - 1.8%
SAVINGS BANKS & SAVINGS & LOANS - 1.5%
Bay View Capital, Inc. 203,400 $ 10,373
Glendale Federal Bank FSB (a) 585,000 14,113
Great Western Financial Corp. 275,000 8,697
33,183
SAVINGS BANKS, FEDERAL CHARTER - 0.3%
Ahmanson (H.F.) & Co. 150,600 5,648
TOTAL SAVINGS & LOANS 38,831
TOTAL COMMON STOCKS
(Cost $1,628,434) 1,992,814
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
REAL ESTATE INVESTMENT TRUSTS (REITS) - 0.3%
REITS - APARTMENTS - 0.3%
Walden Residential Properties, Inc.
9.20% (a) (Cost $7,261) 302,000 7,663
CONVERTIBLE BONDS - 0.1%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT (000S)
REAL ESTATE INVESTMENT TRUSTS (REITS) - 0.1%
REITS - HEALTH CARE FACILITIES - 0.1%
Omega Healthcare Investors, Inc.
8 1/2%, 2/1/01 (Cost $1,050) B1 $ 1,000 1,100
CASH EQUIVALENTS - 9.2%
MATURITY
AMOUNT (000S)
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.55%, dated
1/31/97 due 2/3/97 $ 202,725 202,631
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $1,839,376) $ 2,204,208
LEGEND
1. Non-income producing
2. Affiliated company (see Note 7 of Notes to Financial Statements).
3. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,495,000 or 0.2% of net
assets.
INCOME TAX INFORMATION
At January 31, 1997, the aggregate cost of investment securities for income
tax purposes was $1,840,580,000. Net unrealized appreciation aggregated
$363,628,000, of which $369,795,000 related to appreciated investment
securities and $6,167,000 related to depreciated investment securities.
The fund hereby designates approximately $743,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT PER-SHARE AMOUNT) JANUARY 31, 1997
ASSETS
Investment in securities, at value (including repurchase $ 2,204,208
agreements of $202,631) (cost $1,839,376) -
See accompanying schedule
Cash 1
Receivable for investments sold 11,950
Receivable for fund shares sold 15,542
Dividends receivable 3,130
Interest receivable 42
Redemption fees receivable 6
TOTAL ASSETS 2,234,879
LIABILITIES
Payable for investments purchased $ 30,809
Payable for fund shares redeemed 6,473
Accrued management fee 994
Other payables and accrued expenses 760
TOTAL LIABILITIES 39,036
NET ASSETS $ 2,195,843
Net Assets consist of:
Paid in capital $ 1,823,246
Undistributed net investment income 7,973
Accumulated undistributed net realized gain (loss) on (208)
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 364,832
investments
NET ASSETS, for 120,289 shares outstanding $ 2,195,843
NET ASSET VALUE, offering price and redemption price per $18.25
share ($2,195,843 (divided by) 120,289 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JANUARY 31, 1997
INVESTMENT INCOME $ 62,282
Dividends (including $9,716 received from
affiliated issuers)
Interest 4,397
TOTAL INCOME 66,679
EXPENSES
Management fee $ 6,154
Transfer agent fees 2,369
Accounting fees and expenses 458
Non-interested trustees' compensation 5
Custodian fees and expenses 46
Registration fees 464
Audit 55
Legal 5
Miscellaneous 17
Total expenses before reductions 9,573
Expense reductions (376) 9,197
NET INVESTMENT INCOME 57,482
REALIZED AND UNREALIZED GAIN (LOSS) 13,773
Net realized gain (loss) on investment securities
(including realized gain (loss) of $634 on sales of
investments in affiliated issuers)
Change in net unrealized appreciation (depreciation) on 297,293
investment securities
NET GAIN (LOSS) 311,066
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 368,548
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 57,482 $ 35,168
Net investment income
Net realized gain (loss) 13,773 (12,678)
Change in net unrealized appreciation (depreciation) 297,293 73,887
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 368,548 96,377
FROM OPERATIONS
Distributions to shareholders from net investment income (46,819) (29,753)
Share transactions 1,406,864 901,491
Net proceeds from sales of shares
Reinvestment of distributions 43,072 27,135
Cost of shares redeemed (307,589) (754,026)
Redemption fees 460 -
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 1,142,807 174,600
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,464,536 241,224
NET ASSETS
Beginning of period 731,307 490,083
End of period (including undistributed net investment $ 2,195,843 $ 731,307
income of $7,973 and $3,933, respectively)
OTHER INFORMATION
Shares
Sold 85,737 67,716
Issued in reinvestment of distributions 2,808 2,050
Redeemed (20,000) (56,842)
Net increase (decrease) 68,545 12,924
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED JANUARY 31,
1997 1996 1995 1994 C 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 14.13 $ 12.62 $ 13.68 $ 13.22 $ 11.60
of period
Income from Investment
Operations
Net investment income .86 B .72 .67 .54 .68 B
Net realized and unrealized 3.97 1.50 (1.10) .52 1.37
gain (loss)
Total from investment 4.83 2.22 (.43) 1.06 2.05
operations
Less Distributions
From net investment income (.72) (.71) (.63) (.60) (.43)
Redemption fees added to .01 - - - -
paid in capital
Net asset value, end of period $ 18.25 $ 14.13 $ 12.62 $ 13.68 $ 13.22
TOTAL RETURN A 35.45% 18.10% (3.23)% 8.10% 18.26%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 2,196 $ 731 $ 490 $ 431 $ 247
(in millions)
Ratio of expenses to average .94% .99% 1.06% 1.17% 1.16%
net assets
Ratio of expenses to average .90% .95% 1.03% 1.13% 1.16%
net assets after expense D D D D
reductions
Ratio of net investment income 5.63% 6.28% 5.67% 4.34% 5.81%
to average net assets
Portfolio turnover rate 55% 85% 75% 110% 82%
Average commission rate E $ .0420
</TABLE>
A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C EFFECTIVE FEBRUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 6 OF
NOTES TO FINANCIAL STATEMENTS).
E FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Real Estate Investment Portfolio (the fund) is a fund of Fidelity
Devonshire Trust (the trust) and is authorized to issue an unlimited number
of shares. The trust is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-end management investment
company organized as a Massachusetts business trust. The financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange) are valued primarily using
dealer-supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees. Short-term securities with remaining maturities
of sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both of
which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts , disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date.
Non-cash dividends included in dividend income, if any, are recorded at the
fair market value of the securities received. Interest income is accrued as
earned. Investment income is recorded net of foreign taxes withheld where
recovery of such taxes is uncertain.
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for
partnerships, non-taxable dividends, capital loss carryforwards and losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
REDEMPTION FEES. Shares held in the fund less than 90 days are subject to a
redemption fee equal to .75% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the
SEC, the fund, along with other registered investment companies having
management contracts with FMR, may participate in an interfund lending
program. This program
2. OPERATING POLICIES -
CONTINUED
INTERFUND LENDING PROGRAM -
CONTINUED
provides an alternative credit facility allowing the fund to borrow from,
or lend money to, other participating funds.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period, the
fund had no investments in restricted securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $1,555,137,000 and $540,139,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .30%. For
the period, the management fee was equivalent to an annual rate of .60% of
average net assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, is the fund's transfer, dividend disbursing and shareholder servicing
agent. FSC receives account fees and asset-based fees that vary according
to account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annual rate of .23%
of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee is
based on the level of average net assets for the month plus out-of-pocket
expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $754,000 for the period.
5. INTERFUND LENDING PROGRAM.
The fund participated in the interfund lending program as a lender. The
maximum loan and the average daily loan balance during the period for which
loans were outstanding amounted to
5. INTERFUND LENDING
PROGRAM - CONTINUED
$39,981,000 and $30,117,000, respectively. The weighted average interest
rate was 5.8%. Interest earned from the interfund lending program amounted
to $34,000 and is included in interest income on the Statement of
Operations.
6. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$340,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $8,000 and $28,000,
respectively, under these arrangements.
7. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Ambassador Apartments, Inc. $ 2,302 $ - $ - $ 14,220
Apartment Investment & Management
Co. Class A 2,306 - - 19,960
Arden Realty Group, Inc. 536 - - 29,909
Bay Apartment Communities, Inc. 11,136 - 1,162 57,104
Bay Meadows Operating Co. 3,938 370 - 16,249
Bedford Property Investors, Inc. - - - -
Cali Realty Corp. 16,417 - 1,309 -
CenterPoint Properties Corp. 8,652 7,730 807 29,159
Duke Realty Investors, Inc. 14,599 5,980 2,464 67,889
Excel Realty Trust, Inc. 1,288 - 490 25,867
Glenborough Realty Trust, Inc. 1,666 - - 10,850
Haagen Alexander Properties, Inc. 4,371 - 525 13,897
Innkeepers USA Trust 14,656 461 1,009 26,551
Malan Realty Investors, Inc. - 865 - -
Mid Atlantic Realty Trust 1,460 - - 4,843
Pacific Gulf Properties, Inc. - - - 13,174
Reckson Associates Realty Corp. 11,961 683 844 39,854
Red Lion Inns LP 4,298 - 640 9,277
Sun Communities, Inc. - - 239 -
Sunstone Hotel Investors, Inc. 1,557 - 227 12,171
Weeks Corp. 1,071 5,008 - -
TOTALS $ 102,214 $ 21,097 $ 9,716 $ 390,974
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Devonshire Trust and the Shareholders of
Fidelity Real Estate Investment Portfolio:
We have audited the accompanying statement of assets and liabilities of
Fidelity Devonshire Trust: Fidelity Real Estate Investment Portfolio,
including the schedule of portfolio investments, as of January 31, 1997,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are
the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Devonshire Trust: Fidelity Real Estate Investment Portfolio as
of January 31, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 10, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Real Estate Investment Portfolio voted to
pay on March 10, 1997, to shareholders of record at the opening of business
on March 7, 1997, a distribution of $.01 per share derived from capital
gains realized from sales of portfolio securities and a dividend of $.16
per share from net investment income.
A total of .71% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate shareholders.
The fund notified shareholders in January 1997 of the applicable percentage
for use in preparing 1996 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT
IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the
Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
2701 Drexel Drive
Houston, TX
1010 Lamar Street
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
215 South State Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and send
you written confirmation upon completion of your request.
(LETTER_GRAPHIC)(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc. London, England
Fidelity Management & Research
(Far East) Inc. Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
Barry Greenfield, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S GROWTH AND INCOME FUNDS
Balanced Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Fidelity Fund
Global Balanced Fund
Growth & Income Portfolio
Market Index Fund
Puritan Fund
Real Estate Investment Portfolio
Utilities Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
FIDELITY
(REGISTERED TRADEMARK)
EQUITY-INCOME
FUND
ANNUAL REPORT
JANUARY 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 11 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 35 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 39 Notes to the financial statements.
REPORT OF INDEPENDENT 44 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 45
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
As 1997 begins, the stock and bond markets generally have continued on the
course they followed during the past year. Through January, stocks
maintained their unprecedented climb, with the large companies still
setting the pace. With low, stable interest rates, the bond market has
tended to mirror its historical returns in the mid-single digits.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories as bonds. If you have a short investment time
horizon, you might want to consider moving some of your investment into a
money market fund, which seeks income and a stable share price by investing
in high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will achieve
its goal of maintaining a stable net asset value of $1.00 per share, and
that these types of funds are neither insured nor guaranteed by any agency
of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. Total return
reflects the change in the value of an investment, assuming reinvestment of
the fund's dividend income and capital gains (the profits earned upon the
sale of securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Equity-Income 21.74% 128.71% 235.02%
S&P 500(registered trademark) 26.34% 119.87% 288.58%
Equity Income Funds Average 20.41% 97.10% 198.23%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one, five, or 10 years. For example, if
you invested $1,000 in a fund that had a 5% return over the past year, the
value of your investment would be $1,050. You can compare the fund's return
to the performance of the Standard & Poor's 500 Index - a widely
recognized, unmanaged index of common stocks. To measure how the fund's
performance stacked up against its peers, you can compare it to the equity
income funds average, which reflects the performance of 165 mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc. over
the past one year. These benchmarks reflect reinvestment of dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Fidelity Equity-Income 21.74% 17.99% 12.85%
S&P 500 26.34% 17.06% 14.53%
Equity Income Funds Average 20.41% 14.44% 11.31%
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER 10 YEARS
IMAHDR PRASUN SHR__CHT 19970131 19970212 115402 S00000000000001
Equity Income SP Standard & Poor 500
00023 SP001
1987/01/31 10000.00 10000.00
1987/02/28 10294.02 10395.00
1987/03/31 10475.04 10695.42
1987/04/30 10342.31 10600.23
1987/05/31 10281.32 10692.45
1987/06/30 10568.11 11232.42
1987/07/31 10883.63 11801.90
1987/08/31 11191.90 12242.11
1987/09/30 10943.16 11974.01
1987/10/31 9022.15 9394.81
1987/11/30 8622.55 8620.68
1987/12/31 8968.66 9276.71
1988/01/31 9567.94 9667.26
1988/02/29 10015.35 10117.75
1988/03/31 9894.53 9805.11
1988/04/30 10031.66 9913.95
1988/05/31 10148.02 10000.20
1988/06/30 10723.13 10459.21
1988/07/31 10702.11 10419.47
1988/08/31 10487.64 10065.20
1988/09/30 10796.59 10493.98
1988/10/31 10988.09 10785.71
1988/11/30 10881.70 10631.48
1988/12/31 10985.81 10817.53
1989/01/31 11687.68 11609.37
1989/02/28 11583.05 11320.30
1989/03/31 11807.79 11584.06
1989/04/30 12248.11 12185.28
1989/05/31 12540.16 12678.78
1989/06/30 12578.68 12606.51
1989/07/31 13396.07 13744.88
1989/08/31 13559.55 14014.28
1989/09/30 13394.64 13956.82
1989/10/31 12683.62 13633.02
1989/11/30 12853.35 13911.13
1989/12/31 13036.91 14245.00
1990/01/31 12237.25 13289.16
1990/02/28 12256.64 13460.59
1990/03/31 12265.01 13817.30
1990/04/30 11804.03 13471.87
1990/05/31 12564.15 14785.37
1990/06/30 12513.27 14684.83
1990/07/31 12334.65 14637.84
1990/08/31 11377.05 13314.58
1990/09/30 10553.85 12666.16
1990/10/31 10342.67 12611.70
1990/11/30 10991.29 13426.41
1990/12/31 11209.06 13801.01
1991/01/31 11755.34 14402.73
1991/02/28 12580.00 15432.53
1991/03/31 12763.05 15805.99
1991/04/30 12826.87 15843.93
1991/05/31 13496.93 16528.39
1991/06/30 12906.68 15771.39
1991/07/31 13595.61 16506.33
1991/08/31 13902.40 16897.53
1991/09/30 13834.43 16615.34
1991/10/31 14046.84 16837.99
1991/11/30 13491.29 16159.42
1991/12/31 14504.90 18008.06
1992/01/31 14648.24 17673.11
1992/02/29 15094.79 17902.86
1992/03/31 14891.31 17553.75
1992/04/30 15393.07 18069.83
1992/05/31 15543.60 18158.37
1992/06/30 15364.51 17887.81
1992/07/31 15747.22 18619.43
1992/08/31 15432.05 18237.73
1992/09/30 15556.35 18452.93
1992/10/31 15715.43 18517.52
1992/11/30 16232.46 19148.96
1992/12/31 16633.56 19384.50
1993/01/31 17126.66 19547.33
1993/02/28 17539.49 19813.17
1993/03/31 18116.37 20231.23
1993/04/30 18081.68 19741.63
1993/05/31 18405.50 20270.71
1993/06/30 18627.91 20329.49
1993/07/31 18913.60 20248.18
1993/08/31 19549.10 21015.58
1993/09/30 19521.05 20853.76
1993/10/31 19856.00 21285.43
1993/11/30 19538.68 21083.22
1993/12/31 20178.08 21338.33
1994/01/31 20983.06 22063.83
1994/02/28 20410.63 21465.90
1994/03/31 19523.08 20529.99
1994/04/30 19950.73 20792.77
1994/05/31 20204.84 21133.77
1994/06/30 19935.27 20616.00
1994/07/31 20496.48 21292.20
1994/08/31 21213.57 22165.18
1994/09/30 20719.10 21622.14
1994/10/31 20913.56 22108.63
1994/11/30 20054.18 21303.44
1994/12/31 20227.15 21619.37
1995/01/31 20352.34 22179.96
1995/02/28 21110.03 23044.31
1995/03/31 21641.09 23724.35
1995/04/30 22351.51 24423.03
1995/05/31 23082.04 25399.22
1995/06/30 23428.43 25989.24
1995/07/31 24259.13 26851.05
1995/08/31 24441.48 26918.44
1995/09/30 25199.66 28054.40
1995/10/31 24765.07 27954.25
1995/11/30 25946.62 29181.44
1995/12/31 26661.42 29743.47
1996/01/31 27518.97 30755.94
1996/02/29 27786.08 31041.05
1996/03/31 28306.34 31339.97
1996/04/30 28657.57 31801.92
1996/05/31 29015.97 32622.09
1996/06/30 29051.81 32746.38
1996/07/31 28063.46 31299.65
1996/08/31 28727.17 31959.76
1996/09/30 29774.34 33758.45
1996/10/31 30689.13 34689.51
1996/11/30 32598.58 37311.69
1996/12/31 32266.89 36572.55
1997/01/31 33502.42 38857.60
IMATRL PRASUN SHR__CHT 19970131 19970212 115405 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was invested
in Fidelity Equity-Income Fund on January 31, 1987. As the chart shows, by
January 31, 1997, the value of the investment would have grown to $33,502 -
a 235.02% increase on the initial investment. For comparison, look at how
the S&P 500 did over the same period. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to $38,858 -
a 288.58% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will
do tomorrow. The stock
market, for example, has a
history of growth in the long
run and volatility in the short
run. In turn, the share price
and return of a fund that
invests in stocks will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Paced by the robust performance
of blue chip stocks, the U.S. stock
market posted strong gains for
the 12 months that ended
January 31, 1997. The Standard
& Poor's 500 Index returned
26.34% during the period - well
above its long-term average of
about 12%. The stock market
spent much of the past 12
months breaking price and
trading volume records. Solid
corporate earnings reports, large
cash inflows into mutual funds,
widespread optimism and a
generally favorable interest rate
environment propelled share
prices higher. Large capitalization
stocks thrived as investors
sought their lower volatility and
higher degree of liquidity over
smaller cap stocks in an
environment where it was
sometimes difficult to discern the
health of the economy. While
short-term confusion over the
direction of interest rates created
a volatile backdrop in the summer
months, stocks rallied again
when the Federal Reserve
Board left short-term interest
rates unchanged and it appeared
inflation would not be an issue for
the foreseeable future. The Dow
Jones Industrial Average closed
above 6500 for the first time in
November. Stock markets
experienced some volatility
sparked by comments by Fed
Chairman Alan Greenspan in
December about the market's
exuberance, but rebounded well
and continued their upward track
through the end of January.
An interview with Stephen Petersen, Portfolio Manager of Fidelity
Equity-Income Fund
Q. HOW DID THE FUND PERFORM, STEVE?
A. Quite well against its peer group, while lagging its index. For the
12-month period that ended January 31, 1997, the fund had a total return of
21.74%, while the equity income funds average, as tracked by Lipper
Analytical Services, returned 20.41%. The fund's benchmark, the Standard &
Poor's 500 Index, gained 26.34% for the period.
Q. WHY DID THE FUND BEAT THE EQUITY-INCOME FUNDS AVERAGE?
A. I think the biggest reason is that the fund owned more stock in
large-capitalization companies, such as General Electric and General
Motors, than most of its peers. These investments paid off because
large-cap stocks outperformed the rest of the U.S. stock market throughout
1996.
Q. STILL, THE FUND UNDERPERFORMED THE S&P 500 . . .
A. Remember that this fund invests primarily in companies that pay
attractive dividends in the marketplace. As part of that philosophy, its
guidelines dictate that the fund seek a yield that exceeds that of the S&P
500, which is currently 2%. As a result, the fund was limited in its
ability to buy many technology stocks - which proved to be the market
leaders over the period - since they tend to be no or low-paying dividend
companies. So, I missed out on some big market winners, such as Intel and
Microsoft, which are included in this index.
Q. THERE HAS BEEN LITTLE CHANGE IN THE ORDER AND WEIGHTING OF YOUR TOP
SECTORS AND EVEN IN YOUR TOP 10 STOCKS OVER THE PAST YEAR. WHY WAS THAT?
A. As a general trend, the fund has stayed with its proven winners. Most of
the same sectors - finance and energy - have continued to perform well and
remain the most attractive. Likewise, the fund's top stocks, such as Philip
Morris and British Petroleum, continued to turn in solid performances. In
fact, my attempts to more fullly diversify the fund with some smaller
holdings may have actually hindered it somewhat. Still, I consider
diversification to be important to the fund's long-term performance.
Q. FINANCE REMAINED THE FUND'S LARGEST SECTOR - MAKING UP ALMOST 22% OF THE
FUND. WHY WAS IT SO ATTRACTIVE?
A. The underlying fundamentals of the finance sector - especially banks,
consumer finance businesses and insurance companies - continued to look
good. These industries have gone through a fair amount of restructuring
over the past few years. They have focused on their top-performing
businesses, sold unprofitable ones and consolidated operations. An example
of a bank that benefited from restructuring is one of my top 10 holdings,
Bank of New York, which has concentrated on fee-oriented businesses, such
as processing stock transactions. The banking industry also was
characterized by many mergers and acquisitions, which was positive news
both for acquiring companies and for those that were acquired.
Q. AND INSURANCE COMPANIES . . . WHY DID THEY CONTINUE TO LOOK GOOD?
A. Consumer-oriented insurance companies - those selling personal,
automobile and homeowners coverage, such as Allstate and ITT Hartford -
also have undergone notable restructuring and, as a result, turned in a
strong performance. Going forward, the outlook for both banks and insurance
companies remains good, with some forecasts predicting that they could
outperform the overall market next year.
Q. HOW ABOUT THE FUND'S HOLDINGS IN THE ENERGY SECTOR?
A. Energy stocks made up about 12% of the fund at the end of the period, up
slightly from a year ago. The fund's exposure was mostly in large,
multi-national energy companies, such as British Petroleum, Mobil and Royal
Dutch Petroleum. These companies all have undergone significant
restructuring programs over the past five years. They've streamlined
operations, rid themselves of unprofitable businesses and concentrated on
the energy businesses they know best, which has resulted in better
performance. In 1996, the sector outlook further improved as energy prices
rose because global energy demand increased.
Q. WERE THERE OTHER REASONS ENERGY LOOKED GOOD?
A. Yes. As these energy companies have become more efficient, they've also
become more prudent about not holding large inventories. This way they were
better positioned to profit from rising energy demand and energy prices.
Finally, theprice of natural gas, especially in the United States, rallied
during the period. It was this confluence of factors that caused energy
prices to move up quite dramatically over the period, especially the past
six months.
Q. WERE THERE ANY SECTORS THAT HAD DISAPPOINTING PERFORMANCE?
A. Yes. Utilities underperformed the market. The sector, which includes
electric, telephone and gas utilities, was disappointing largely because
telephone and electric utilities were negatively affected by concerns about
deregulation, which is expected to take place in the next couple of years.
To the market, deregulation or open competition usually means lower prices.
And lower prices can mean smaller profits for utilities because of their
large fixed costs, such as copper telephone wires and huge electric power
plants. I still think that in the interim, before deregulation of the
telephone and electric industries becomes a reality, these utilities will
show good earnings, but the market remains cautious. As a result, the
fund's holdings in this sector dropped over the past year due mostly to
poor performance, relative to the fund's other investments. That is, as the
rest of the fund appreciated, utilities dropped in proportion to the other
sectors.
Q. COULD YOU DESCRIBE THE FUND'S FOREIGN HOLDINGS?
A. Sure. I invested about 14% of the fund in a variety of stocks that
performed well, including automobile companies, such as Volvo and Toyota,
and such energy companies as British Petroleum. I also had a fairly good
size exposure in Canadian banks, such as Royal Bank of Canada and National
Bank of Canada. This investment paid off because the Toronto Stock Exchange
index was up by about 26% last year, and Canadian banks outperformed the
overall Canadian market.
Q. HOW DOES THE INVESTING ENVIRONMENT LOOK GOING FORWARD?
A. It looks like it's going to be pretty much more of the same. That is,
the overall economic environment appears to be reasonably good. I
anticipate relatively slow but steady earnings growth. Inflation doesn't
look like a major issue, and I don't sense that interest rates will
increase all that significantly. Basically, the environment is similar to
what it was at the beginning of last year and the beginning of 1995 as
well. The bad news is that when most people agree on a trend in the market,
as they do right now, it's usually a sign that the trend is about to end.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: above-average
income and long-term capital
growth by investing mainly in
the equity securities of
companies in the real estate
industry
FUND NUMBER: 303
TRADING SYMBOL: FRESX
START DATE: November 17, 1986
SIZE: as of January 31,
1997, more than $2.1 billion
MANAGER: Barry Greenfield,
since 1986; manager,
Fidelity Fund, 1982-1993;
joined Fidelity in 1968
(checkmark)
BARRY GREENFIELD DISCUSSES THE
UNIQUE CHARACTERISTICS OF
REITS AND SPECIFIC SECTOR
PERFORMANCE:
"While REITs are typically
classified as common stocks,
they are very much their own
animal. They're almost
chameleon-like in that they
take on different characteristics
at different intervals. Pricing
on REITs is determined by
growth on the upside and
supported by yield on the
downside. When REITs are
declining in value, their
liquidating value or yield
becomes important. When
REITs are rising in value, the
earnings growth rate becomes
vital. I liken them to a
basketball player who goes in
for a slam dunk and then has
to immediately turn around
and play defense. REITs play
both offense and defense,
too.
"In terms of sectors, the
downtown office building
market and hotels performed
well, primarily due to strong
earnings growth. The major
mall sector benefited from
some large-scale mergers,
but the rest of the retail sector
turned in a sub-par
performance."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
General Electric Co. 2.7 2.4
Philip Morris Companies, Inc. 2.7 2.9
British Petroleum PLC ADR 2.4 2.2
American Express Co. 2.0 1.7
Federal National Mortgage Association 1.9 1.9
Allstate Corp. 1.5 1.2
Schlumberger Ltd. 1.3 0.9
Bank of New York Co., Inc. 1.2 0.9
General Motors Corp. 1.1 1.5
Chrysler Corp. 1.0 1.1
TOP FIVE MARKET SECTORS AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET SECTORS
6 MONTHS AGO
Finance 21.8 19.7
Energy 12.4 12.2
Utilities 8.8 8.3
Basic Industries 7.7 7.6
Durables 7.0 8.3
ASSET ALLOCATION
AS OF JANUARY 31, 1997 * AS OF JULY 31, 1996 **
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 6.1
Row: 1, Col: 3, Value: 8.300000000000001
Row: 1, Col: 4, Value: 2.4
Row: 1, Col: 5, Value: 40.0
Row: 1, Col: 6, Value: 41.2
Stocks 83.3%
Bonds 0.9%
Convertible
securities 8.7%
Short-term
investments 7.0%
Other investments 0.1%
FOREIGN
INVESTMENTS 14.0%
Stocks 85.2%
Bonds 0.3%
Convertible
securities 8.3%
Short-term
investments 6.1%
Other investments 0.1%
FOREIGN
INVESTMENTS 14.2%
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 7.0
Row: 1, Col: 3, Value: 8.699999999999999
Row: 1, Col: 4, Value: 2.9
Row: 1, Col: 5, Value: 40.0
Row: 1, Col: 6, Value: 39.4
*
**
INVESTMENTS JANUARY 31, 1997
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 85.0%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 2.1%
AEROSPACE & DEFENSE - 1.8%
Boeing Co. 184,289 $ 19,742
Gulfstream Aerospace Corp. (a) 427,800 9,893
Harsco Corp. 561,200 39,354
Lockheed Martin Corp. 1,107,500 101,890
Northrop Grumman Corp. 594,300 46,430
Rockwell International Corp. 570,800 37,530
Thiokol Corp. 230,900 12,930
267,769
DEFENSE ELECTRONICS - 0.2%
Raytheon Co. 885,400 40,618
SHIP BUILDING & REPAIR - 0.1%
Newport News Shipbuilding, Inc. 690,880 11,054
TOTAL AEROSPACE & DEFENSE 319,441
BASIC INDUSTRIES - 7.1%
CHEMICALS & PLASTICS - 3.2%
Air Products & Chemicals, Inc. 199,500 14,239
AKZO Nobel NV 143,200 20,115
American Azide (warrants) (a)(g) 360 -
American Pacific Corp. (warrants) (a)(g) 214,286 54
DSM NV 68,500 6,410
Dow Chemical Co. 323,100 24,919
du Pont (E.I.) de Nemours & Co. 1,081,700 118,581
Ethyl Corp. 1,084,900 9,493
Great Lakes Chemical Corp. 709,800 30,610
Hoechst AG Ord. 385,000 16,154
IMC Global, Inc. 306,900 11,701
ICI (Imperial Chemical Industries) PLC Class L 1,335,300 16,172
ICI (Imperial Chemical Industries) PLC ADR Class L (New) 165,100 8,111
Lyondell Petrochemical Co. 397,300 9,337
Millenium Chemicals, Inc. 1,097,257 21,808
Nalco Chemical Co. 954,200 33,874
Union Carbide Corp. 1,959,800 88,926
Witco Corp. 1,506,600 44,820
475,324
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
BASIC INDUSTRIES - CONTINUED
IRON & STEEL - 0.2%
Allegheny Teledyne, Inc. 316,200 $ 7,510
Armco, Inc. (a) 991,600 4,462
Inland Steel Industries, Inc. 403,200 7,711
Lukens, Inc. 520,100 10,012
29,695
METALS & MINING - 2.4%
Alcan Aluminium Ltd. 965,700 34,124
Alumax, Inc. (a) 1,819,484 63,682
Aluminum Co. of America 1,493,348 103,041
Inco Ltd. 1,209,500 41,123
Kaiser Aluminum Corp. (a) 980,200 12,620
Metallgesellschaft AG Ord. (a) 288,600 5,811
Noranda, Inc. 621,200 14,826
Pechiney SA Class A 682,322 27,589
Phelps Dodge Corp. 169,100 11,816
Reynolds Metals Co. 775,242 46,806
361,438
PACKAGING & CONTAINERS - 0.1%
Tupperware Corp. 488,300 22,889
PAPER & FOREST PRODUCTS - 1.2%
Boise Cascade Corp. 486,100 16,770
Champion International Corp. 990,400 41,473
Fort Howard Corp. (a) 297,200 9,436
Georgia-Pacific Corp. 264,300 19,459
International Paper Co. 500,530 20,459
Weyerhaeuser Co. 1,530,700 69,647
177,244
TOTAL BASIC INDUSTRIES 1,066,590
CONGLOMERATES - 3.0%
AlliedSignal, Inc. 1,323,600 92,983
American Standard Companies, Inc. (a) 1,111,700 45,163
Brascan Ltd. Class A 2,608,100 59,634
GenCorp, Inc. 822,700 16,043
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONGLOMERATES - CONTINUED
Textron, Inc. 519,100 $ 50,547
Tyco International Ltd. 1,500,600 85,722
United Technologies Corp. 1,500,600 104,666
454,758
CONSTRUCTION & REAL ESTATE - 1.2%
BUILDING MATERIALS - 0.3%
Armstrong World Industries, Inc. 27,700 1,967
Dexter Corp. 587,700 17,778
Masco Corp. 751,800 25,937
45,682
CONSTRUCTION - 0.2%
Kaufman & Broad Home Corp. 283,000 3,997
Lennar Corp. 467,100 12,437
Ryland Group, Inc. 512,600 6,664
23,098
ENGINEERING - 0.1%
EG&G, Inc. 444,800 9,452
REAL ESTATE - 0.0%
Fastighets AB Tornet 528,030 6,627
REAL ESTATE INVESTMENT TRUSTS - 0.6%
Arden Realty Group, Inc. 86,200 2,306
Cali Realty Corp. 49,000 1,617
Equity Residential Properties Trust (SBI) 873,500 37,561
First Industrial Realty Trust, Inc. 239,400 6,943
Liberty Property Trust (SBI) 135,500 3,489
Macerich Co. 469,400 12,909
Patriot American Hospitality, Inc. 218,900 10,288
Public Storage, Inc. 328,700 9,614
Weeks Corp. 180,100 6,505
91,232
TOTAL CONSTRUCTION & REAL ESTATE 176,091
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
DURABLES - 6.4%
AUTOS, TIRES, & ACCESSORIES - 5.2%
Bayerische Motoren Werke (BMW) AG 39,700 $ 25,417
Chrysler Corp. 4,446,700 155,079
Cummins Engine Co., Inc. 189,500 9,972
Dana Corp. 400,900 13,079
Eaton Corp. 756,300 52,941
General Motors Corp. 2,684,035 158,358
Genuine Parts Co. 48,400 2,136
Goodyear Tire & Rubber Co. 460,600 25,103
Honda Motor Co. Ltd. 749,000 20,047
Johnson Controls, Inc. 585,100 50,319
Michelin SA (Compagnie Generale des Etablissements) Class B 337,900
19,367
Modine Manufacturing Co. 772,900 22,028
Scania AB, Series B sponsored ADR 54,800 1,384
Snap-on Tools Corp. 1,263,500 47,065
Standard Products Co. 209,800 4,694
TRW, Inc. 491,200 24,928
Toyota Motor Corp. 1,801,000 46,423
Volkswagen AG 60,700 28,362
Volvo AB:
Class B 2,485,100 59,298
Class B ADR 396,900 9,475
775,475
CONSUMER DURABLES - 0.1%
Swedish Match Co. 2,042,400 6,901
Swedish Match Co. ADR 39,690 1,330
8,231
CONSUMER ELECTRONICS - 0.6%
Matsushita Electric Industrial Co. Ltd. 1,176,000 17,723
Maytag Co. 1,723,600 35,334
Whirlpool Corp. 819,300 41,681
94,738
TEXTILES & APPAREL - 0.5%
Burlington Industries, Inc. (a) 828,500 9,942
Kellwood Co. (f) 1,255,400 27,933
Stride Rite Corp. 744,200 8,930
Unifi, Inc. 1,142,000 34,831
81,636
TOTAL DURABLES 960,080
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
ENERGY - 11.2%
ENERGY SERVICES - 2.3%
Baker Hughes, Inc. 479,700 $ 18,708
Dresser Industries, Inc. 1,719,700 58,255
Halliburton Co. 837,400 60,607
McDermott International, Inc. 591,300 10,791
Schlumberger Ltd. 1,794,800 199,447
347,808
OIL & GAS - 8.9%
Amerada Hess Corp. 547,500 32,303
Amoco Corp. 885,400 77,030
Atlantic Richfield Co. 915,400 121,062
British Petroleum PLC:
ADR 2,498,836 353,898
Ord. 7,151,182 84,203
Burlington Resources, Inc. 494,700 24,611
Exxon Corp. 276,300 28,632
Kerr-McGee Corp. 384,100 26,407
Mobil Corp. 534,200 70,114
Occidental Petroleum Corp. 1,518,600 38,724
Phillips Petroleum Co. 714,600 31,532
Royal Dutch Petroleum Co. ADR 816,300 141,628
Santa Fe Energy Resources, Inc. (a) 751,600 11,180
Total SA:
Class B 997,243 85,800
sponsored ADR 1,376,692 59,370
USX-Marathon Group 2,665,100 70,958
Union Pacific Resources Group, Inc. 331,200 9,397
Unocal Corp. 1,678,662 70,713
1,337,562
TOTAL ENERGY 1,685,370
FINANCE - 20.2%
BANKS - 8.3%
Bank of Boston Corp. 930,372 66,289
Bank of New York Co., Inc. 4,904,917 179,643
BankAmerica Corp. 1,129,500 126,080
Canadian Imperial Bank of Commerce 1,077,500 48,314
Chase Manhattan Corp. 879,000 81,308
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
BANKS - CONTINUED
Citicorp 522,500 $ 60,806
Comerica, Inc. 1,038,826 59,343
Credit Communal Holding Dexia (h) 116,800 11,119
Credit Local de France SA 92,304 8,259
Den Danske Bank Group AS 268,000 22,175
Den Norske Bank AS (h) 7,723,100 31,792
Den Norske Bank AS Class A Free shares 508,100 2,092
First Bank System, Inc. 1,119,500 85,082
First Tennessee National Corp. 467,000 18,914
Fleet Financial Group, Inc. 1,053,998 56,916
Fuji International Trust unit sponsored ADR (h) 332 6,964
HSBC Holdings PLC 780,069 18,170
National Bank of Canada 4,246,800 44,926
NationsBank Corp. 1,411,979 152,494
Norwest Corp. 1,159,734 55,232
Nordbanken AB (h) 234,000 7,584
Royal Bank of Canada 1,776,800 65,688
Sparbanken Sverige AB Class A (h) 1,156,300 18,340
Sparebanken Norway primary shares certificates 385,100 12,231
1,239,761
CREDIT & OTHER FINANCE - 3.9%
American Express Co. 4,759,800 296,893
Beneficial Corp. 588,300 39,563
Edper Group Ltd. (The) Class A (ltd. vtg.) 1,961,600 30,945
First Chicago NBD Corp. 2,467,053 140,930
Household International, Inc. 570,278 56,529
Sakura Finance Bermuda Trust sponsored ADR (h) 362 15,404
Trilon Financial Corp. Class A 1,317,700 7,336
587,600
FEDERAL SPONSORED CREDIT - 1.9%
Federal National Mortgage Association 7,200,000 284,400
INSURANCE - 5.0%
Aetna, Inc. 991,800 78,352
Allstate Corp. 3,397,485 223,385
American Bankers Insurance Group, Inc. 936,220 51,960
American Financial Group, Inc. 1,374,000 49,636
CIGNA Corp. 309,100 46,867
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
FINANCE - CONTINUED
INSURANCE - CONTINUED
General Re Corp. 330,100 $ 53,311
Highlands Insurance Group, Inc. (a)(f) 747,690 17,103
ITT Hartford Group, Inc. 1,536,700 112,755
MBIA, Inc. 133,100 12,794
Provident Companies, Inc. 490,400 24,091
Providian Corp. 345,000 18,587
Reliastar Financial Corp. 1,125,483 62,465
751,306
SAVINGS & LOANS - 0.6%
Washington Mutual, Inc. 1,695,640 92,094
SECURITIES INDUSTRY - 0.5%
Bear Stearns Companies, Inc. 590,609 17,718
First Marathon Inc. Class A (non-vtg.) 1,105,300 14,523
Lehman Brothers Holdings, Inc. 888,760 28,107
Nomura Securities Co. Ltd. 898,000 11,463
71,811
TOTAL FINANCE 3,026,972
HEALTH - 3.1%
DRUGS & PHARMACEUTICALS - 2.2%
American Home Products Corp. 475,600 30,141
Bristol-Myers Squibb Co. 858,400 109,017
Pharmacia & Upjohn, Inc. 1,755,700 65,400
Pfizer, Inc. 396,500 36,825
Schering-Plough Corp. 942,400 71,269
Takeda Chemical Industries Ltd. 1,199,000 23,599
336,251
MEDICAL EQUIPMENT & SUPPLIES - 0.7%
Allegiance Corp. 981,620 25,154
Bausch & Lomb, Inc. 516,600 17,500
Baxter International, Inc. 237,900 10,973
Johnson & Johnson 762,800 43,956
97,583
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - CONTINUED
MEDICAL FACILITIES MANAGEMENT - 0.2%
Foundation Health Corp. (a) 381,000 $ 12,668
Health Systems International, Inc. (a) 662,200 17,135
29,803
TOTAL HEALTH 463,637
HOLDING COMPANIES - 0.4%
CINergy Corp. 1,039,198 35,852
U.S. Industries, Inc. (a) 850,680 28,817
64,669
INDUSTRIAL MACHINERY & EQUIPMENT - 6.5%
ELECTRICAL EQUIPMENT - 3.5%
Alcatel Alsthom Compagnie Generale d'Electricite SA 308,765 30,584
Emerson Electric Co. 248,700 24,559
General Electric Co. 3,985,700 410,527
Omron Corp. 1,018,000 16,515
Westinghouse Electric Corp. 1,884,800 34,633
516,818
INDUSTRIAL MACHINERY & EQUIPMENT - 1.6%
Caterpillar, Inc. 556,400 43,191
Cooper Industries, Inc. 907,772 39,148
Goulds Pumps, Inc. 159,700 3,733
Harnischfeger Industries, Inc. 173,500 7,699
Ingersoll-Rand Co. 849,400 38,754
Keystone International, Inc. 1,457,200 28,598
Parker-Hannifin Corp. 819,600 35,345
Regal-Beloit Corp. 268,800 5,107
Stewart & Stevenson Services, Inc. 536,500 13,345
Tenneco, Inc. 503,400 20,136
TRINOVA Corp. 247,200 9,517
244,573
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
INDUSTRIAL MACHINERY & EQUIPMENT - CONTINUED
POLLUTION CONTROL - 1.4%
Browning-Ferris Industries, Inc. 2,299,000 $ 74,717
Safety Kleen Corp. 1,016,300 16,388
WMX Technologies, Inc. 2,722,200 99,701
Zurn Industries, Inc. (f) 760,800 18,354
209,160
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 970,551
MEDIA & LEISURE - 1.8%
BROADCASTING - 0.0%
Evergreen Media Corp. Class A (a) 210,625 6,529
ENTERTAINMENT - 0.3%
Viacom, Inc. (a):
Class A 19,900 677
Class B (non-vtg.) 1,221,500 41,836
42,513
LEISURE DURABLES & TOYS - 0.3%
Brunswick Corp. 112,400 2,824
Hasbro, Inc. 692,500 27,354
Outboard Marine Corp. 980,200 16,296
46,474
LODGING & GAMING - 0.4%
ITT Corp. (a) 1,014,400 57,948
PUBLISHING - 0.7%
ACNielsen Corp. (a) 1,319,433 21,607
Cognizant Corp. 496,000 15,934
Dow Jones & Co., Inc. 163,900 6,495
Dun & Bradstreet Corp. 712,100 17,090
Harcourt General, Inc. 337,600 15,276
Hollinger International, Inc. Class A 536,900 6,174
Houghton Mifflin Co. 109,200 5,910
McGraw-Hill, Inc. 147,200 7,323
Mondadori Arnoldo Editore Spa 892,600 7,625
103,434
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
RESTAURANTS - 0.1%
Brinker International, Inc. (a) 666,400 $ 7,247
Darden Restaurants, Inc. 1,603,200 11,623
18,870
TOTAL MEDIA & LEISURE 275,768
NONDURABLES - 5.7%
BEVERAGES - 0.2%
PepsiCo, Inc. 823,700 28,727
Stroh Brewery Co. (warrants) (a) 6,266 22
28,749
FOODS - 1.2%
General Mills, Inc. 900,400 61,002
Goodman Fielder Ltd. Ord. 23,567,239 28,747
Grand Metropolitan PLC 1,060,123 7,846
Kellogg Co. 293,500 20,435
RalCorp Holdings, Inc. (a) 670,300 15,417
Ralston Purina Co. 534,200 42,001
175,448
HOUSEHOLD PRODUCTS - 0.7%
Dial Corp. 253,800 3,491
Premark International, Inc. 882,200 20,291
Rubbermaid, Inc. 1,914,800 44,280
Tambrands, Inc. 645,900 26,481
Unilever PLC Ord. 795,500 17,802
112,345
TOBACCO - 3.6%
BAT Industries PLC:
Ord. 2,249,561 17,424
sponsored ADR 163,900 2,602
Dimon, Inc. 458,450 10,888
Philip Morris Companies, Inc. 3,418,500 406,374
RJR Nabisco Holdings Corp. 2,297,760 75,252
Universal Corp. 740,500 22,956
535,496
TOTAL NONDURABLES 852,038
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 531,100 $ 21,178
RETAIL & WHOLESALE - 4.0%
APPAREL STORES - 0.9%
Charming Shoppes, Inc. (a) 674,600 3,204
Footstar, Inc. (a) 272,754 6,171
Limited, Inc. (The) 2,356,139 40,349
Payless ShoeSource, Inc. (a) 811,328 30,425
TJX Companies, Inc. 1,310,732 52,102
132,251
DRUG STORES - 0.2%
CVS Corp. 874,800 37,835
GENERAL MERCHANDISE STORES - 2.3%
Coles Myer Ltd. 1,574,377 5,953
Dayton Hudson Corp. 709,900 26,710
Dillard Department Stores, Inc. Class A 481,700 14,391
Federated Department Stores, Inc. (a) 1,672,267 54,976
May Department Stores Co. (The) 666,100 29,641
Sears, Roebuck & Co. 1,428,600 68,573
Wal-Mart Stores, Inc. 5,795,500 137,643
Woolworth Corp. (a) 315,500 6,428
344,315
RETAIL & WHOLESALE, MISCELLANEOUS - 0.6%
Fingerhut Companies, Inc. 776,400 11,548
Tandy Corp. 832,500 37,671
Toys "R" Us, Inc. (a) 1,749,700 43,743
92,962
TOTAL RETAIL & WHOLESALE 607,363
SERVICES - 1.1%
LEASING & RENTAL - 0.3%
GATX Corp. 804,000 39,295
PRINTING - 0.6%
Deluxe Corp. 986,100 30,322
Donnelley (R.R.) & Sons Co. 1,087,100 33,972
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
SERVICES - CONTINUED
PRINTING - CONTINUED
Ennis Business Forms, Inc. 340,000 $ 3,698
Moore Corporation Ltd. 542,000 11,387
New England Business Service, Inc. 577,800 11,989
91,368
SERVICES - 0.2%
Block (H&R), Inc. 713,040 21,124
Jostens, Inc. 534,400 11,022
32,146
TOTAL SERVICES 162,809
TECHNOLOGY - 2.3%
COMMUNICATIONS EQUIPMENT - 0.1%
Lucent Technologies, Inc. 351,760 19,083
COMPUTER SERVICES & SOFTWARE - 0.1%
Learning Co., Inc. (a) 423,100 5,341
NCR Corp. (a) 44,987 1,704
Sabre Group Holdings, Inc. Class A (a) 82,300 2,212
9,257
COMPUTERS & OFFICE EQUIPMENT - 0.9%
Digital Equipment Corp. (a) 499,400 18,727
International Business Machines Corp. 525,200 82,588
Unisys Corp. (a) 734,400 5,049
Xerox Corp. 557,543 32,686
139,050
ELECTRONICS - 0.5%
AMP, Inc. 837,400 34,125
Nitto Denko Corp. 860,000 11,898
Thomas & Betts Corp. 447,600 20,981
67,004
PHOTOGRAPHIC EQUIPMENT - 0.7%
Eastman Kodak Co. 669,900 58,113
Fuji Photo Film Co. Ltd. 1,112,000 33,700
Polaroid Corp. 413,700 18,203
110,016
TOTAL TECHNOLOGY 344,410
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
TRANSPORTATION - 0.9%
AIR TRANSPORTATION - 0.2%
Viad Corp. 1,946,500 $ 30,658
RAILROADS - 0.7%
Burlington Northern Santa Fe Corp. 489,200 42,805
CSX Corp. 1,110,500 53,859
96,664
TOTAL TRANSPORTATION 127,322
UTILITIES - 7.9%
ELECTRIC UTILITY - 2.8%
Allegheny Power System, Inc. 647,100 19,817
American Electric Power Co., Inc. 1,447,000 59,870
Central Maine Power Co. 488,300 5,432
CILCORP, Inc. 157,200 6,052
DQE, Inc. 235,700 6,747
DPL, Inc. 1,018,650 24,957
El Paso Electric Co. (a) 17,600 128
Entergy Corp. 1,779,800 47,832
Illinova Corp. 1,096,300 28,915
National Grid Co. PLC 3,989,600 13,294
Northeast Utilities 1,179,200 15,477
PECO Energy Co. 462,400 10,635
PG&E Corp. 1,190,300 27,079
PacifiCorp. 663,300 14,095
Pinnacle West Capital Corp. 914,800 28,931
Portland General Corp. 308,900 12,124
Unicom Corp. 247,600 5,850
Veba AG Ord. 1,533,700 84,571
411,806
GAS - 1.4%
Consolidated Natural Gas Co. 117,400 6,530
El Paso Natural Gas Co. 46,816 2,522
Enron Corp. 351,600 14,504
MCN Corp. 893,000 28,911
Nova Corp. 2,749,200 26,124
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
GAS - CONTINUED
Pacific Enterprises 1,731,700 $ 52,167
PanEnergy Corp. 784,400 36,180
Questar Corp. 1,131,500 44,270
211,208
TELEPHONE SERVICES - 3.7%
AT&T Corp. 399,100 15,715
ALLTEL Corp. 406,900 13,072
Ameritech Corp. 1,668,700 99,705
BCE, Inc. 849,400 42,784
Bell Atlantic Corp. 1,050,400 70,639
BellSouth Corp. 1,825,200 80,993
Cam-Net Communications Network, Inc. (a)(g) 1,626,737 325
Frontier Corp. 933,900 20,429
MCI Communications Corp. 496,700 17,447
Manitoba Telecom Services, Inc. (a) 522,400 5,449
NYNEX Corp. 2,091,000 105,857
SBC Communications, Inc. 1,260,500 69,170
Telus Corp. 1,175,900 16,891
WorldCom, Inc. (a) 10,827 272
558,748
TOTAL UTILITIES 1,181,762
TOTAL COMMON STOCKS
(Cost $8,743,577) 12,760,809
PREFERRED STOCKS - 4.7%
CONVERTIBLE PREFERRED STOCKS - 4.5%
BASIC INDUSTRIES - 0.3%
IRON & STEEL - 0.1%
Armco, Inc. Class A $3.625 276,200 11,877
METALS & MINING - 0.1%
Kaiser Aluminum Corp. $0.97 954,400 11,334
PACKAGING & CONTAINERS - 0.0%
Crown Cork & Seal, Inc. $1.88 110,400 5,934
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.1%
International Paper Co. $2.625 (h) 302,600 $ 14,070
TOTAL BASIC INDUSTRIES 43,215
DURABLES - 0.1%
AUTOS, TIRES, & ACCESSORIES - 0.1%
Federal Mogul Corp. $1.9375 (h) 242,200 16,015
ENERGY - 0.5%
OIL & GAS - 0.5%
Atlantic Richfield Co. $2.23 579,200 13,321
Occidental Petroleum Corp. $3.00 684,900 45,974
Santa Fe Energy Resources, Inc. $0.732 332,400 4,238
Tosco Financing Trust $2.875 (h) 76,600 4,213
Unocal Capital Trust $3.125 238,600 13,869
81,615
FINANCE - 0.8%
BANKS - 0.1%
NationBank Corp. 7%, depositary shares 321,100 19,507
INSURANCE - 0.5%
Aetna, Inc. Class C 6.25% 335,700 26,268
American Bankers Insurance Group, Inc., Series B, $3.125 37,900 2,492
Conseco, Inc. $4.27875 233,900 30,436
St. Paul Capital LLC $3.00 162,900 9,367
68,563
SECURITIES INDUSTRY - 0.2%
Merrill Lynch & Co, Inc. $2.3906 329,100 12,999
Salomon, Inc. $2.03 490,100 15,806
Salomon, Inc. $3.484 63,800 3,908
32,713
TOTAL FINANCE 120,783
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
INDUSTRIAL MACHINERY & EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.3%
Loral Space & Communications Ltd. $3.00 (h) 301,200 $ 16,377
Westinghouse Electric Corp. $1.30 (h) 2,056,400 33,931
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 50,308
MEDIA & LEISURE - 0.5%
ENTERTAINMENT - 0.2%
Time Warner Financing Trust $1.24 801,500 31,459
LEISURE DURABLES & TOYS - 0.0%
Tyco Toys, Inc. $0.4125 depositary shares 341,300 3,413
LODGING & GAMING - 0.2%
Hilton Hotels Corp. $0.89 602,400 16,190
Host Marriott Financial Trust $3.375 (h) 94,300 5,269
21,459
PUBLISHING - 0.1%
Hollinger International, Inc. $0.95 1,329,800 14,960
Taylor, J.N. Holdings Ltd. 9 1/2% (a) 956,400 -
14,960
TOTAL MEDIA & LEISURE 71,291
NONDURABLES - 0.8%
FOODS - 0.3%
Chiquita Brands International, Inc.:
Series A, $2.875 497,300 23,124
Series B, $3.75 200,100 11,556
Dole Food Automatic Common Exchange Security Trust 283,900 11,001
45,681
TOBACCO - 0.5%
RJR Nabisco Holdings Corp. depositary shares 10,785,300 71,453
TOTAL NONDURABLES 117,134
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
RETAIL & WHOLESALE - 0.3%
APPAREL STORES - 0.1%
TJX Companies, Inc., Series E, $7.00 47,800 $ 10,277
GENERAL MERCHANDISE STORES - 0.2%
K mart Financing I $3.875 597,400 30,467
TOTAL RETAIL & WHOLESALE 40,744
TECHNOLOGY - 0.1%
COMPUTERS & OFFICE EQUIPMENT - 0.1%
Wang Labs, Inc. $3.25 (h) 177,700 9,463
TRANSPORTATION - 0.0%
AIR TRANSPORTATION - 0.0%
Trans World Airlines, Inc. $4.00 (h) 175,500 3,642
UTILITIES - 0.8%
CELLULAR - 0.3%
AirTouch Communications, Inc. Class B $1.74 1,328,700 36,872
GAS - 0.2%
Enron Corp. Series J, $10.50 31,800 17,903
Williams Companies, Inc. $3.50 166,600 15,765
33,668
TELEPHONE SERVICES - 0.3%
Enhance Financial Services Group, Inc. $7.625 378,300 12,389
WorldCom, Inc. 8%, depositary shares 350,500 31,063
43,452
TOTAL UTILITIES 113,992
TOTAL CONVERTIBLE PREFERRED STOCKS 668,202
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
NONCONVERTIBLE PREFERRED STOCKS - 0.2%
DURABLES - 0.2%
AUTOS, TIRES, & ACCESSORIES - 0.2%
Volkswagen AG 84,600 $ 30,954
TOTAL PREFERRED STOCKS
(Cost $595,749) 699,156
CORPORATE BONDS - 4.1%
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) (E) AMOUNT (D) (000S)
CONVERTIBLE BONDS - 3.8%
BASIC INDUSTRIES - 0.3%
IRON & STEEL - 0.1%
Hexcel Corp. 7%, 8/1/03 B2 $ 6,758 9,225
METALS & MINING - 0.2%
Inco Ltd. 5 3/4%, 7/1/04 Baa 20,000 25,200
TOTAL BASIC INDUSTRIES 34,425
CONGLOMERATES - 0.0%
GenCorp, Inc. 8%, 8/1/02 B1 3,415 4,166
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Liberty Property Trust 8%, 7/1/01 B1 1,358 1,738
DURABLES - 0.0%
CONSUMER ELECTRONICS - 0.0%
Matsushita Electric Industrial Co. Ltd.
1.30%, 3/29/02 Aa2 JPY 155,000 1,477
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - CONTINUED
ENERGY - 0.7%
ENERGY SERVICES - 0.1%
Baker Hughes, Inc. 0%, 5/5/08 A2 $ 18,959 $ 15,001
OIL & GAS - 0.6%
Pennzoil Co.:
6 1/2%, 1/15/03 Baa 43,742 69,112
4 3/4%, 10/1/03 Baa 22,210 25,764
94,876
TOTAL ENERGY 109,877
FINANCE - 0.8%
CREDIT & OTHER FINANCE - 0.4%
Edper Group Ltd. (The) Class A
7%, 5/31/06 (Installment receipts) (h)(j) - CAD 14,000 9,873
MBL International Finance of Bermuda
3%, 11/30/02 Aa2 28,340 27,844
Volkswagen International Finance NV gtd.
3%, 1/24/02 (h) - 18,750 19,078
56,795
INSURANCE - 0.4%
Fremont General Corp. liquid yield option notes
0%, 10/12/13 Ba2 93,910 54,703
TOTAL FINANCE 111,498
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
POLLUTION CONTROL - 0.1%
WMX Technologies, Inc. 2%, 1/24/05 A2 22,111 21,890
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.1%
Jacor Communications, Inc. liquid yield
option notes 0%, 6/12/11 B3 18,322 8,153
Home Shopping Network, Inc.
5 7/8%, 3/1/06 (h) B- 3,350 3,275
11,428
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - CONTINUED
MEDIA & LEISURE - CONTINUED
LODGING & GAMING - 0.0%
Hilton Hotels Corp. 5%, 5/15/06 Baa $ 6,610 $ 7,139
PUBLISHING - 0.1%
News America Holdings, Inc. liquid yield
option notes 0%, 3/11/13 Baa 19,220 8,649
TOTAL MEDIA & LEISURE 27,216
RETAIL & WHOLESALE - 0.5%
APPAREL STORES - 0.1%
Baker (J.), Inc. 7%, 6/1/02 B3 13,170 10,602
Charming Shoppes, Inc. 7 1/2%, 7/15/06 B2 5,338 5,111
15,713
GENERAL MERCHANDISE STORES - 0.2%
Federated Department Stores, Inc. 5%, 10/1/03 Ba3 25,720 29,064
RETAIL & WHOLESALE, MISCELLANEOUS - 0.2%
Comcast Corp. 1 1/8%, 4/15/07 B1 25,390 13,076
Home Depot, Inc. 3 1/4%, 10/1/01 A1 24,060 23,338
36,414
TOTAL RETAIL & WHOLESALE 81,191
SERVICES - 0.1%
ADT Operations, Inc. liquid yield
option notes 0%, 7/6/10 Ba3 19,295 12,518
TECHNOLOGY - 0.9%
COMPUTER SERVICES & SOFTWARE - 0.3%
Automatic Data Processing, Inc. 0%, 2/20/12 Aa3 23,800 13,001
National Data Corp. 5%, 11/1/03 - 1,840 1,865
Softkey International, Inc.
5 1/2%, 11/1/00 (h) - 28,760 23,655
38,521
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT (000S)
CONVERTIBLE BONDS - CONTINUED
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Apple Computer, Inc. 6%, 6/1/01 (h) CCC $ 17,780 $ 15,046
Silicon Graphics, Inc. 0%, 11/2/13 (h) B1 37,400 20,383
Unisys Corp. 8 1/4%, 3/15/06 B3 25,009 30,386
65,815
ELECTRONICS - 0.2%
Cirrus Logic, Inc. 6%, 12/15/03 (h) B3 13,090 11,814
National Semiconductor Corp.
6 1/2%, 10/1/02 (h) Ba2 19,270 19,487
31,301
TOTAL TECHNOLOGY 135,637
TRANSPORTATION - 0.1%
AIR TRANSPORTATION - 0.1%
Continental Airlines, Inc.
6 3/4%, 4/15/06 (h) B2 9,150 10,225
UTILITIES - 0.1%
GAS - 0.0%
SFP Pipeline Holdings, Inc. 0%, 8/15/10 Baa 3,690 4,576
TELEPHONE SERVICES - 0.1%
Cam-Net Communications Network, Inc.
11 1/2%, 4/4/98 (c)(g) - 4,225 1,479
MIDCOM Communications, Inc.
8 1/4%, 8/15/03 (h) - 12,810 11,977
13,456
TOTAL UTILITIES 18,032
TOTAL CONVERTIBLE BONDS 569,890
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS PRINCIPAL
(UNAUDITED) AMOUNT (000S)
NONCONVERTIBLE BONDS - 0.3%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
American Pacific Corp. 11%, 2/21/02 (h) - $ 2,625 $ 2,494
CONSTRUCTION & REAL ESTATE - 0.0%
CONSTRUCTION - 0.0%
WCI Communities LP 17%, 7/24/98 (g) - 1,280 1,280
DURABLES - 0.3%
AUTOS, TIRES, & ACCESSORIES - 0.3%
Daimler-Benz Capital AG unit 4 1/8%, 7/5/03 A1 DEM 51,030 40,331
MEDIA & LEISURE - 0.0%
PUBLISHING - 0.0%
American Media, Inc. unit 0%, 5/15/97 B1 8,230 7,819
TOTAL NONCONVERTIBLE BONDS 51,924
TOTAL CORPORATE BONDS
(Cost $579,896) 621,814
COMMERCIAL MORTGAGE SECURITIES - 0.0%
Bardell Associates Note Trust 12 1/2%, 11/1/08 (g)
(Cost $2,810) - 2,758 2,930
INDEXED SECURITIES - 0.0%
Merrill Lynch & Co. Inc. Japan Index equity
participation securities 0%, 1/31/00
(Cost $4,187) Aa3 5,000 4,950
PURCHASED BANK DEBT - 0.0%
GPA Group PLC term loan 6.40%, 11/19/98
(Cost $341) - 450 419
CASH EQUIVALENTS - 6.1%
SHARES VALUE (NOTE 1)
(000S)
Taxable Central Cash Fund (b)
(Cost $916,702) 916,702,191 $ 916,702
PURCHASED OPTIONS - 0.1%
EXPIRATION DATE UNDERLYING FACE
STRIKE PRICE AMOUNT AT VALUE (000S)
Swiss Bank Corp. OTC Put Option
on 3,472,000,000 Japanese Yen July 97/124 $ 28,623 409
Bank of America OTC Put Option
on 11,760,000,000 Japanese Yen Mar. 97/112 96,950 7,571
TOTAL PURCHASED OPTIONS
(Cost $1,034) 7,980
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $10,844,296) $ 15,014,760
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
DEM - German deutsche mark
JPY - Japanese yen
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.39%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
3. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
4. Principal amount is stated in United States dollars unless otherwise
noted.
5. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
6. Affiliated company (see Note 7 of Notes to Financial Statements).
7. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST (000S)
American Azide
(warrants) 8/25/96 $ -
American Pacific Corp.
(warrants) 8/26/96 $ 54
Bardell Associates Note
Trust 12 1/2%,
11/1/08 4/19/94 $ 2,810
Cam-Net Communications
Network, Inc. 4/12/96 $ 1,271
Cam-Net Communications
Network, Inc. 11 1/2%,
4/4/98 4/12/96 $ 3,381
WCI Communities LP
17%, 7/24/98 7/24/95 $ 1,264
8. Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $341,490,000 or 2.3% of net
assets.
9. Purchased on an installment basis. Market value reflects only those
payments made through 1/31/97. The remaining installment aggregating CAD
7,000,000 is due 6/12/97.
OTHER INFORMATION
Distribution of investments by country of issue, as a percentage of total
value of investment in securities, is as follows:
United States 85.8%
United Kingdom 3.5
Canada 3.3
France 1.5
Germany 1.3
Netherlands 1.3
Japan 1.2
Others (individually less than 1%) 2.1
TOTAL 100.0%
INCOME TAX INFORMATION
At January 31, 1997, the aggregate cost of investment securities for income
tax purposes was $10,849,414,000. Net unrealized appreciation aggregated
$4,165,346,000, of which $4,336,451,000, related to appreciated investment
securities and $171,105,000 related to depreciated investment securities.
The fund hereby designates approximately $63,764,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS(EXCEPT PER-SHARE AMOUNT) JANUARY 31, 1997
ASSETS
Investment in securities, at value (cost $10,844,296) - $ 15,014,760
See accompanying schedule
Receivable for investments sold 56,712
Receivable for fund shares sold 56,646
Dividends receivable 27,685
Interest receivable 9,566
Other receivables 2,179
TOTAL ASSETS 15,167,548
LIABILITIES
Payable for investments purchased $ 40,930
Payable for fund shares redeemed 26,947
Accrued management fee 5,615
Other payables and accrued expenses 3,628
Collateral on securities loaned, at value 66,533
TOTAL LIABILITIES 143,653
NET ASSETS $ 15,023,895
Net Assets consist of:
Paid in capital $ 10,602,586
Undistributed net investment income 22,089
Accumulated undistributed net realized gain (loss) on 228,852
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 4,170,368
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 337,852 shares outstanding $ 15,023,895
NET ASSET VALUE, offering price and redemption price per $44.47
share ($15,023,895 (divided by) 337,852 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED JANUARY 31, 1997
INVESTMENT INCOME $ 322,030
Dividends (including $883 received from affiliated
issuers)
Interest (including income on securities loaned of $374) 77,685
399,715
Less foreign taxes withheld (4,903)
TOTAL INCOME 394,812
EXPENSES
Management fee $ 56,664
Transfer agent fees 25,849
Accounting and security lending fees 908
Non-interested trustees' compensation 60
Custodian fees and expenses 597
Registration fees 903
Audit 138
Legal 105
Miscellaneous 111
Total expenses before reductions 85,335
Expense reductions (1,788) 83,547
NET INVESTMENT INCOME 311,265
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 640,957
Foreign currency transactions 17,293 658,250
Change in net unrealized appreciation (depreciation) on:
Investment securities 1,609,415
Assets and liabilities in foreign currencies (11,778) 1,597,637
NET GAIN (LOSS) 2,255,887
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 2,567,152
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 311,265 $ 259,285
Net investment income
Net realized gain (loss) 658,250 434,135
Change in net unrealized appreciation (depreciation) 1,597,637 2,025,512
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,567,152 2,718,932
FROM OPERATIONS
Distributions to shareholders (311,393) (243,784)
From net investment income
From net realized gain (571,846) (355,672)
TOTAL DISTRIBUTIONS (883,239) (599,456)
Share transactions 4,405,850 2,872,809
Net proceeds from sales of shares
Reinvestment of distributions 858,753 580,343
Cost of shares redeemed (2,934,221) (2,002,485)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 2,330,382 1,450,667
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,014,295 3,570,143
NET ASSETS
Beginning of period 11,009,600 7,439,457
End of period (including undistributed net investment $ 15,023,895 $ 11,009,600
income of $22,089 and $17,860, respectively)
OTHER INFORMATION
Shares
Sold 107,111 80,515
Issued in reinvestment of distributions 21,056 16,332
Redeemed (71,564) (56,429)
Net increase (decrease) 56,603 40,418
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED JANUARY 31,
1997 1996 1995 1994 C, E 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 39.15 $ 30.89 $ 35.19 $ 29.87 $ 26.57
of period
Income from Investment
Operations
Net investment income 1.01 D .93 1.02 1.11 1.11 D
Net realized and 7.17 9.65 (2.12) 5.48 3.27
unrealized gain (loss)
Total from investment 8.18 10.58 (1.10) 6.59 4.38
operations
Less Distributions
From net investment income (1.02) (.96) (.98) (1.15) (1.08)
From net realized gain (1.84) (1.36) (2.22) (.12) -
Total distributions (2.86) (2.32) (3.20) (1.27) (1.08)
Net asset value, end of period $ 44.47 $ 39.15 $ 30.89 $ 35.19 $ 29.87
TOTAL RETURN A 21.74% 35.21% (3.01)% 22.52% 16.92%
B B
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 15,024 $ 11,010 $ 7,439 $ 6,943 $ 5,123
(in millions)
Ratio of expenses to average .68% .68% .70% .66% .67%
net assets
Ratio of expenses to average .66% .67% .69% F .66% .67%
net assets after F F
expense reductions
Ratio of net investment 2.46% 2.86% 3.37% 3.55% 4.02%
income to average net
assets
Portfolio turnover rate 30% 39% 50% 70% 84%
Average commission rate G $ .0331
</TABLE>
F THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS).
G TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE.
H AS OF FEBRUARY 1, 1993, THE FUND DISCONTINUED THE USE OF EQUALIZATION
ACCOUNTING.
I NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
J EFFECTIVE FEBRUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
K FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 6 OF
NOTES TO FINANCIAL STATEMENTS).
L FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1997
8. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Equity-Income Fund (the fund) is a fund of Fidelity Devonshire
Trust (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The financial statements have
been prepared in conformity with generally accepted accounting principles
which permit management to make certain estimates and assumptions at the
date of the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange) are valued primarily using
dealer-supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees. Short-term securities with remaining maturities
of sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both of
which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts and foreign currency options, disposition of foreign currencies,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if any,
are recorded at the fair market value of the securities received. Interest
income, which includes accretion of original issue discount, is accrued as
earned. Investment income is recorded net of foreign taxes withheld where
recovery of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for litigation
proceeds, paydown gains/losses on certain securities, foreign currency
transactions, passive foreign investment companies (PFIC) market discount,
non-taxable dividends and losses deferred due to wash sales. The
fund also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for income
tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
9. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated securities.
Losses may arise from changes in the value of the foreign currency or if
the counterparties do not perform under the contracts' terms. The U.S.
dollar value of foreign currency contracts is determined using contractual
currency exchange rates established at the time of each trade. The cost of
the foreign currency contracts is included in the cost basis of the
associated investment.
2. OPERATING POLICIES - CONTINUED
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the
SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund)
managed by FMR Texas, an affiliate of FMR. The Cash Fund is an open-end
money market fund available only to investment companies and other accounts
managed by FMR and its affiliates. The Cash Fund seeks preservation of
capital, liquidity, and current income by investing in U.S. Treasury
securities and repurchase agreements for these securities, and may be
utilized by the fund as an additional cash management option. Dividends
from the Cash Fund are declared daily and paid monthly from net interest
income. Income distributions received by the fund are recorded as interest
income.
OPTIONS. The fund may use options to manage its exposure to the stock and
bond markets and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to the
underlying instrument. Buying puts and writing calls tend to decrease the
fund's exposure to the underlying instrument, or hedge other fund
investments. The underlying face amount at value of any open options at
period end is shown in the schedule of investments under the caption
"Purchased Options." This amount reflects each contract's exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparties do not perform under the
contracts' terms.
Exchange-traded options are valued using the last sale price or, in the
absence of a sale, the last offering price. Options traded over-the-counter
are valued using dealer-supplied valuations.
INDEXED SECURITIES. The fund may invest in indexed securities whose values
are linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other underlying instruments. The
fund uses
2. OPERATING POLICIES - CONTINUED
INDEXED SECURITIES - CONTINUED
these securities to increase or decrease its exposure to different
underlying instruments and to gain exposure to markets that might be
difficult to invest in through conventional securities. Indexed securities
may be more volatile than their underlying instruments, but any loss is
limited to the amount of the original investment.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $6,068,000 or
0.04% of net assets.
10. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $5,085,044,000 and $3,494,431,000, respectively.
11. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of the
fund. The group fee rate is the weighted average of a series of rates and
is based on the monthly average net assets of all the mutual funds advised
by FMR. The rates ranged from .2500% to .5200% for the period. In the event
that these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted in
the same or a lower management fee. The annual individual fund fee rate is
.16% (.14% prior to December 1, 1996). For the period, the management fee
was equivalent to an annual rate of .45% of average net assets.
In accordance with the management contract currently in effect, the annual
individual fund fee rate is scheduled to increase to .18% and .20% on
December 1, 1997 and December 1, 1998, respectively.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, is the fund's transfer, dividend disbursing and shareholder servicing
agent. FSC receives account fees and asset-based fees that vary according
to account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annual rate of .20%
of average net assets.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's accounting
records and administers the security lending program. The security lending
fee is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the month
plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $1,580,000 for the period.
12. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund negotiated
lenders' fees. These fees are included in interest income. The fund
receives U.S. Treasury obligations and/or cash as collateral against the
loaned securities, in an amount at least equal to 102% of the market value
of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. At period end, the value of the
securities loaned and the value of collateral amounted to $63,974,000 and
$66,533,000, respectively.
13. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$781,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian and
transfer agent whereby interest earned on uninvested cash balances was used
to offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $10,000 and $997,000,
respectively, under these arrangements.
14. TRANSACTIONS WITH AFFILIATED COMPANIES.
An affiliated company is a company in which the fund has ownership of at
least 5% of the voting securities. Transactions during the period with
companies which are or were affiliates are as follows:
SUMMARY OF TRANSACTIONS WITH AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS
PURCHASE SALES DIVIDEND VALUE
AFFILIATE COST COST INCOME
Highlands Insurance Group, Inc. $ 2,582 $ - $ - $ 17,103
Kellwood Co. 2,149 - 731 27,933
Zurn Industries, Inc. 2,121 - 152 18,354
TOTALS $ 6,852 $ - $ 883 $ 63,390
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Devonshire Trust and the Shareholders of
Fidelity Equity-Income Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Devonshire Trust: Fidelity Equity-Income Fund, including the
schedule of portfolio investments, as of January 31, 1997, and the related
statement of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility
of the fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Devonshire Trust: Fidelity Equity-Income Fund as of January 31,
1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 10, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Equity-Income Fund voted to pay on March
10, 1997, to shareholders of record at the opening of business on March 7,
1997, a distribution of $0.49 per share derived from capital gains realized
from sales of portfolio securities and a dividend of $0.26 per share from
net investment income.
A total of 0.61% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government securities which is generally
exempt from state income tax.
A total of 59% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate shareholders.
The fund will notify shareholders in January 1998 of the applicable
percentages for use in preparing 1997 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT
IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and send
you written confirmation upon completion of your request.
(LETTER_GRAPHIC)(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
(LETTER_GRAPHIC)(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
Stephen Petersen, Vice President
Arthur S. Loring, Secretary
Kenneth A. Rathgeber, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
The Chase Manhattan Bank, N.A.
New York, NY
FIDELITY'S GROWTH AND INCOME FUNDS
Balanced Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Fidelity Fund
Global Balanced Fund
Growth & Income Portfolio
Market Index Fund
Puritan Fund
Real Estate Investment Portfolio
Utilities Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE
FIDELITY
(REGISTERED TRADEMARK)
UTILITIES
FUND
ANNUAL REPORT
JANUARY 31, 1997
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 6 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 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 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 27 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 28
To reduce expenses and demonstrate respect for our environment, we have
initiated a project through which we will begin eliminating duplicate
copies of most financial reports and prospectuses to most households, even
if they have more than one account in the fund. If additional copies of
financial reports, prospectuses or historical account information are
needed, please call 1-800-544-6666.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND EXPENSES,
CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
PRESIDENT'S MESSAGE
(photo_of_Edward_C_Johnson_3d)
DEAR SHAREHOLDER:
As 1997 begins, the stock and bond markets generally have continued on the
course they followed during the past year. Through January, stocks
maintained their unprecedented climb, with the large companies still
setting the pace. With low, stable interest rates, the bond market has
tended to mirror its historical returns in the mid-single digits.
While it's impossible to predict the future direction of the markets with
any degree of certainty, there are certain basic principles that can help
investors plan for their future needs.
First, investors are encouraged to take a long-term view of their
portfolios. If you can afford to leave your money invested through the
inevitable up and down cycles of the financial markets, you will greatly
reduce your vulnerability to any single decline. We know from experience,
for example, that stock prices have gone up over longer periods of time,
have significantly outperformed other types of investments and have stayed
ahead of inflation.
Second, you can further manage your investing risk through diversification.
A stock mutual fund, for instance, is already diversified, because it
invests in many different companies. You can increase your diversification
further by investing in a number of different stock funds, or in such other
investment categories as bonds. If you have a short investment time
horizon, you might want to consider moving some of your investment into a
money market fund, which seeks income and a stable share price by investing
in high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will achieve
its goal of maintaining a stable net asset value of $1.00 per share, and
that these types of funds are neither insured nor guaranteed by any agency
of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it makes
good sense to follow a regular investment plan, investing a certain amount
of money in a fund at the same time each month or quarter and periodically
reviewing your overall portfolio. By doing so, you won't get caught up in
the excitement of a rapidly rising market, nor will you buy all your shares
at market highs. While this strategy - known as dollar cost averaging -
won't assure a profit or protect you from a loss in a declining market, it
should help you lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are available
24 hours a day, seven days a week to provide you the information you need
to make the investments that are right for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. Total return
reflects
the change in the value of an investment, assuming reinvestment of the
fund's dividend income and capital gains (the profits earned upon the sale
of securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Fidelity Utilities Fund 12.73% 87.74% 225.78%
S&P 500(registered trademark) 26.34% 119.87% 325.45%
S&P Utilities Index 2.27% 76.87% 216.41%
Utility Funds Average 9.98% 69.68% n/a
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, one year, five years, or since the fund
started on November 27, 1987. For example, if you invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment would
be $1,050. You can compare the fund's returns to the performance of the
Standard & Poor's Utilities Index, an unmanaged index of 40 gas, electric,
and telephone stocks that are included in the Standard & Poor's 500 Index,
a widely recognized, unmanaged index of common stocks. To measure how the
fund's performance stacked up against its peers, you can compare it to the
utility funds average, which reflects the performance of 90 mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc. over
the past one year. All three benchmarks reflect reinvestment of dividends
and capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JANUARY 31, 1997 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND
Fidelity Utilities Fund 12.73% 13.43% 13.72%
S&P 500 26.34% 17.06% 17.07%
S&P Utilities Index 2.27% 12.08% 13.35%
Utility Funds Average 9.98% 11.10% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$10,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19970131 19970213 144350 S00000000000001
Utilities SP Standard & Poor 500 SP
Utilities
00311 SP001 SP002
1987/11/27 10000.00 10000.00
10000.00
1987/11/30 10000.00 9438.71
9671.16
1987/12/31 10059.80 10157.00
9776.58
1988/01/31 10983.46 10584.61
10908.71
1988/02/29 10873.02 11077.85
10721.08
1988/03/31 10500.30 10735.55
10156.08
1988/04/30 10510.44 10854.71
10170.29
1988/05/31 10946.26 10949.15
10635.08
1988/06/30 11087.51 11451.71
10969.02
1988/07/31 10954.05 11408.20
10985.47
1988/08/31 10902.71 11020.32
10830.58
1988/09/30 11295.53 11489.78
11275.71
1988/10/31 11534.75 11809.20
11568.88
1988/11/30 11451.54 11640.33
11476.33
1988/12/31 11545.15 11844.03
11547.48
1989/01/31 11724.72 12711.02
12203.38
1989/02/28 11502.90 12394.51
11934.91
1989/03/31 11631.17 12683.30
12248.79
1989/04/30 11984.27 13341.57
13014.34
1989/05/31 12562.09 13881.90
13761.37
1989/06/30 12820.04 13802.77
13974.67
1989/07/31 13493.64 15049.17
15089.85
1989/08/31 13352.40 15344.13
14996.29
1989/09/30 13418.39 15281.22
15243.73
1989/10/31 13462.50 14926.69
15300.13
1989/11/30 13892.50 15231.20
15803.50
1989/12/31 14537.88 15596.75
16954.00
1990/01/31 13799.44 14550.21
15582.42
1990/02/28 13834.06 14737.90
15411.01
1990/03/31 13821.87 15128.46
15697.66
1990/04/30 13264.25 14750.25
15088.59
1990/05/31 13904.92 16188.40
16117.63
1990/06/30 13964.05 16078.31
15777.55
1990/07/31 13976.10 16026.86
15728.64
1990/08/31 13265.25 14578.03
14478.21
1990/09/30 13470.07 13868.08
15071.82
1990/10/31 14290.52 13808.45
16054.50
1990/11/30 14608.90 14700.48
16364.35
1990/12/31 14806.40 15110.62
16506.72
1991/01/31 14743.61 15769.44
16003.27
1991/02/28 15271.06 16896.96
16560.18
1991/03/31 15451.99 17305.87
16886.42
1991/04/30 15451.99 17347.40
16616.24
1991/05/31 15451.99 18096.81
16401.89
1991/06/30 15336.59 17267.97
16172.26
1991/07/31 15817.08 18072.66
16667.13
1991/08/31 16206.66 18500.98
17097.14
1991/09/30 16719.56 18192.02
17442.51
1991/10/31 16930.20 18435.79
17786.12
1991/11/30 17061.85 17692.83
17606.48
1991/12/31 17942.75 19716.89
18897.04
1992/01/31 17352.70 19350.15
17889.83
1992/02/29 17285.65 19601.71
17405.01
1992/03/31 17084.76 19219.47
17154.38
1992/04/30 17645.14 19784.52
18259.12
1992/05/31 18000.50 19881.47
18231.73
1992/06/30 18179.36 19585.23
18488.80
1992/07/31 19161.65 20386.27
19949.42
1992/08/31 19189.32 19968.35
19799.80
1992/09/30 19244.82 20203.98
19944.33
1992/10/31 19216.83 20274.69
19754.86
1992/11/30 19398.78 20966.06
19723.25
1992/12/31 19898.62 21223.94
20429.35
1993/01/31 20115.06 21402.22
20743.96
1993/02/28 21182.87 21693.29
22237.52
1993/03/31 21752.84 22151.02
22640.02
1993/04/30 21547.76 21614.97
22162.32
1993/05/31 21606.36 22194.25
22142.37
1993/06/30 22623.26 22258.61
23167.56
1993/07/31 22904.02 22169.58
23686.52
1993/08/31 23953.17 23009.80
24830.58
1993/09/30 23967.59 22832.63
24778.43
1993/10/31 23773.94 23305.26
24733.83
1993/11/30 22790.81 23083.86
23482.30
1993/12/31 23004.26 23363.18
23357.84
1994/01/31 24004.45 24157.53
23537.70
1994/02/28 23019.41 23502.86
22207.82
1994/03/31 22148.45 22478.13
21454.97
1994/04/30 22709.17 22765.85
21984.91
1994/05/31 22304.20 23139.21
21395.72
1994/06/30 22128.34 22572.30
21440.65
1994/07/31 22819.36 23312.67
22167.48
1994/08/31 22992.12 24268.49
22107.63
1994/09/30 22378.03 23673.92
21546.10
1994/10/31 22362.20 24206.58
21733.55
1994/11/30 21649.52 23324.98
21416.24
1994/12/31 21788.06 23670.88
21525.46
1995/01/31 22472.06 24284.67
23204.45
1995/02/28 22789.04 25231.04
23171.96
1995/03/31 22908.51 25975.61
23032.93
1995/04/30 23598.62 26740.59
23869.03
1995/05/31 24137.25 27809.42
24623.29
1995/06/30 24293.97 28455.43
24736.55
1995/07/31 25007.99 29399.01
25354.97
1995/08/31 25552.02 29472.80
25857.00
1995/09/30 26733.12 30716.55
27504.09
1995/10/31 26853.23 30606.90
28147.68
1995/11/30 27539.57 31950.54
28522.05
1995/12/31 28460.30 32565.91
30538.56
1996/01/31 28900.59 33674.45
30938.61
1996/02/29 28143.29 33986.61
29713.44
1996/03/31 27921.74 34313.90
29107.29
1996/04/30 28797.64 34819.69
29421.65
1996/05/31 28744.02 35717.69
29342.21
1996/06/30 29411.49 35853.77
30556.98
1996/07/31 28114.72 34269.75
28622.72
1996/08/31 28528.97 34992.50
29220.93
1996/09/30 28850.88 36961.88
29580.35
1996/10/31 29957.73 37981.29
30982.46
1996/11/30 31554.51 40852.30
31629.99
1996/12/31 31715.71 40043.01
31433.89
1997/01/31 32578.47 42544.90
31641.35
IMATRL PRASUN SHR__CHT 19970131 19970213 144353 R00000000000114
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Utilities Fund on November 27, 1987, when the fund
started. As the chart shows, by January 31, 1997, the value of the
investment would have grown to $32,578 - a 225.78% increase on the initial
investment. For comparison, look at how both the S&P 500 and the S&P
Utilities Index did over the same period. With dividends and capital gains,
if any, reinvested, the same $10,000 investment in the S&P 500 would have
grown to $42,545 - a 325.45% increase, and the S&P Utilities Index would
have grown to $31,641 - a 216.41% increase.
(checkmark)
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is no guarantee of how it will do tomorrow. The
stock market, for example, has a history of growth in the long run and
volatility in the short run. In turn, the share price and return of a fund
that invests in stocks will vary. That means if you sell your shares during
a market downturn, you might lose money. But if you can ride out the
market's ups and downs, you may have a gain.
FUND TALK: THE MANAGER'S OVERVIEW
MARKET RECAP
Paced by the robust performance
of blue chip stocks, the U.S. stock
market posted strong gains for the
12 months that ended January 31,
1997. The Standard & Poor's 500
Index returned 26.34% during the
period - well above its long-term
average of about 12%. The stock
market spent much of the past 12
months breaking price and trading
volume records. Solid corporate
earnings reports, large cash
inflows into mutual funds,
widespread optimism and a
generally favorable interest rate
environment propelled share
prices higher. Large capitalization
stocks thrived as investors sought
their lower volatility and higher
degree of liquidity over smaller
cap stocks in an environment
where it was sometimes difficult to
discern the health of the economy.
While short-term confusion over
the direction of interest rates
created a volatile backdrop in the
summer months, stocks rallied
again when the Federal Reserve
Board left short-term interest rates
unchanged and it appeared
inflation would not be an issue for
the foreseeable future. The Dow
Jones Industrial Average closed
above 6500 for the first time in
November. Stock markets
experienced some volatility
sparked by comments by Fed
Chairman Alan Greenspan in
December about the market's
exuberance, but rebounded well
and continued their upward track
through the end of January.
An interview with John Muresianu, Portfolio Manager of Fidelity
Utilities Fund
Q. JOHN, HOW DID THE FUND PERFORM?
A. For the 12 months that ended January 31, 1997, the fund had a total
return of 12.73%. That beat both the Standard & Poor's Utilities Index,
which returned 2.27% during the same period, and the 9.98% return of the
utility funds average, according to Lipper Analytical Services.
Q. WHAT HELPED THE FUND POST SUCH STRONG RETURNS?
A. The stocks that I picked simply performed better than the ones that make
up the index and, on average, the ones that my competitors chose. Compared
to the S&P Utilities Index, the fund also was helped because I overweighted
it in natural gas stocks versus the index, and that industry performed very
well. But it was my stock selection within the electric utility and
telephone utility industries that really helped.
Q. CAN YOU GIVE US AN OVERVIEW OF THE RECENT INVESTING ENVIRONMENT FOR THE
THREE UTILITY INDUSTRIES?
A. Gas stocks performed the best because gas prices spiked upward as a
result of very cold weather throughout most of the country. In addition,
there was a significant amount of consolidation that helped stocks in the
group, because the market views consolidation favorably. Further, the
supply and demand dynamic improved, partially due to a slowdown of Canadian
imports that resulted from restricted pipeline capacity. On the telephone
side, there continued to be broad concern over the impact of increasing
competition in the cellular and local telephone service areas. At the same
time, telephone companies have reported steady revenue and earnings growth;
over the near term, business prospects for telephone companies look fine.
This helped the telephone utility industry post modest gains.
Q. WHAT ABOUT ELECTRIC UTILITY STOCKS?
A. Electrics struggled. While all utility stocks are sensitive to what
happens in the bond market, this is even more true for electrics. That's
because they have the highest yields, are the most income-oriented and have
less prospects for earnings growth. The bond market has had its ups and
downs, and utility stocks have, as a result, bounced around to some extent.
Electric utility stocks moved with the bond market; they also were
negatively affected by continued evidence that the Nuclear Regulatory
Commission has been getting tougher on nuclear operations. While
deregulation has been a concern among all utility industries - especially
telephones - it hasn't affected electrics as negatively thus far.
Regulators in the electric industry appear more likely to create a
transition to competition that is friendlier to utility companies than was
feared a few years ago.
Q. WHICH STOCKS TURNED IN STRONG PERFORMANCES FOR THE FUND?
A. CINergy has done very well over the past year. It is a low-cost electric
producer and appears to be a winner under deregulation over the long term.
It also has a very growth-oriented management. I also established a
position in Niagara Mohawk after its stock price collapsed, and it has
rebounded well. On the gas side, Sonat - the fund's largest gas position -
has been a very strong performer. And in the telephone arena, Pacific
Telesis has done very well.
Q. AT THE SAME TIME, THERE MUST HAVE BEEN SOME DISAPPOINTMENTS . . .
A. AirTouch Communications was one. This stock lagged because of concern
about slowing cellular subscriber growth and increased price competition.
Enron Corp. was another disappointment. Even though it saw some stock price
appreciation, Enron lagged the gas group because of contract litigation in
the United Kingdom and a slowdown in earnings growth related to heavy
spending in anticipation of a fully competitive retail electricity market.
Q. WHAT'S YOUR OUTLOOK?
A. It's important for me to reiterate that my strategy will continue to be
based on individual stock picking. That's because it's nearly impossible to
predict the direction of the economy and interest rates. I will continue to
look for those companies that I believe will show the best earnings growth.
For some time, most of these prospects have been in gas and telephone
companies. As a result, I'll probably continue to favor them over electric
utility stocks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
FUND FACTS
GOAL: above-average
income and long-term capital
growth by investing mainly in
the equity securities of
companies in the real estate
industry
FUND NUMBER: 303
TRADING SYMBOL: FRESX
START DATE: November 17, 1986
SIZE: as of January 31,
1997, more than $2.1 billion
MANAGER: Barry Greenfield,
since 1986; manager,
Fidelity Fund, 1982-1993;
joined Fidelity in 1968
(checkmark)
BARRY GREENFIELD DISCUSSES THE
UNIQUE CHARACTERISTICS OF
REITS AND SPECIFIC SECTOR
PERFORMANCE:
"While REITs are typically
classified as common stocks,
they are very much their own
animal. They're almost
chameleon-like in that they
take on different characteristics
at different intervals. Pricing
on REITs is determined by
growth on the upside and
supported by yield on the
downside. When REITs are
declining in value, their
liquidating value or yield
becomes important. When
REITs are rising in value, the
earnings growth rate becomes
vital. I liken them to a
basketball player who goes in
for a slam dunk and then has
to immediately turn around
and play defense. REITs play
both offense and defense,
too.
"In terms of sectors, the
downtown office building
market and hotels performed
well, primarily due to strong
earnings growth. The major
mall sector benefited from
some large-scale mergers,
but the rest of the retail sector
turned in a sub-par
performance."
INVESTMENT CHANGES
TOP TEN STOCKS AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE STOCKS
6 MONTHS AGO
GTE Corp. 4.5 4.8
Ameritech Corp. 4.2 4.7
BellSouth Corp. 3.9 4.5
Pacific Telesis Group 3.8 4.1
SBC Communications, Inc. 3.8 4.1
NYNEX Corp. 3.5 4.0
AirTouch Communications, Inc. 3.2 3.7
MCI Communications Corp. 3.1 0.1
Bell Atlantic Corp. 3.1 3.9
U S WEST Communications 2.8 3.7
Group
TOP UTILITY INDUSTRIES AS OF JANUARY 31, 1997
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE UTILITY
INDUSTRIES
6 MONTHS AGO
Telephone Services 42.8 42.0
Gas 26.6 27.5
Electric Utility 18.1 15.7
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JANUARY 31, 1997 * AS OF JULY 31, 1996 **
Row: 1, Col: 1, Value: 2.0
Row: 1, Col: 2, Value: 49.0
Row: 1, Col: 3, Value: 49.0
Stocks 95.3%
Short-term
investments 4.7%
FOREIGN
INVESTMENTS 2.7%
Stocks 99.0%
Short-term
investments 1.0%
FOREIGN
INVESTMENTS 1.5%
Row: 1, Col: 1, Value: 4.7
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 45.3
Row: 1, Col: 4, Value: 50.0
*
**
INVESTMENTS JANUARY 31, 1997
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 98.3%
SHARES VALUE (NOTE 1)
(000S)
AEROSPACE & DEFENSE - 0.0%
Harsco Corp. 6,700 $ 470
CONSTRUCTION & REAL ESTATE - 0.0%
REAL ESTATE - 0.0%
Echelon International Corp. (a) 1,279 23
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Developers Diversified Realty Corp. 12,800 458
TOTAL CONSTRUCTION & REAL ESTATE 481
DURABLES - 1.2%
AUTOS, TIRES, & ACCESSORIES - 1.2%
AutoZone, Inc. (a) 1,000 22
NGC Corp. 680,450 14,630
14,652
ENERGY - 2.9%
COAL - 0.2%
MAPCO, Inc. 58,700 1,922
INDEPENDENT POWER - 0.0%
Trigen Energy Corp. 21,600 602
OIL & GAS - 2.7%
Coastal Corp. (The) 603,700 29,204
Nuevo Energy Corp. (a) 11,000 567
Occidental Petroleum Corp. 34,000 867
Pennzoil Co. 6,500 405
Petroleum Heat & Power, Inc. Class A 125,100 688
Royal Dutch Petroleum Co. ADR 8,000 1,388
Texaco, Inc. 6,500 688
Total SA Class B 4,100 353
34,160
TOTAL ENERGY 36,684
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
HEALTH - 0.0%
DRUGS & PHARMACEUTICALS - 0.0%
World Heart Corp. (a) 1,000 $ 5
MEDICAL EQUIPMENT & SUPPLIES - 0.0%
Arterial Vascular Engineering, Inc. (a) 10,000 131
CardioThoracic Systems, Inc. 1,000 25
Heartport, Inc. 1,000 32
InControl, Inc. (a) 9,300 69
OEC Medical Systems, Inc. (a) 1,000 17
St. Jude Medical, Inc. 1,000 38
Ventritex, Inc. 1,000 19
331
MEDICAL FACILITIES MANAGEMENT - 0.0%
Cambridge Heart, Inc. (a) 1,000 12
TOTAL HEALTH 348
HOLDING COMPANIES - 1.2%
CINergy Corp. 373,979 12,902
Citicorp Equity Investments SA Class B 151,904 714
Iven SA (a) 3,200,000 1,561
15,177
INDUSTRIAL MACHINERY & EQUIPMENT - 0.2%
ELECTRICAL EQUIPMENT - 0.2%
American Superconductor Corp. (a) 8,300 89
Roper Industries, Inc. 1,000 41
Westinghouse Electric Corp. 112,500 2,067
2,197
MEDIA & LEISURE - 0.6%
BROADCASTING - 0.6%
TCI Satellite Entertainment, Inc. Class A (a) 52,600 428
TCI Group Class A 526,000 7,002
7,430
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
MEDIA & LEISURE - CONTINUED
ENTERTAINMENT - 0.0%
Disney (Walt) Co. 8,700 $ 637
TOTAL MEDIA & LEISURE 8,067
PRECIOUS METALS - 0.0%
Barrick Gold Corp. 20,400 551
SERVICES - 0.1%
Chemed Corp. 35,100 1,250
TECHNOLOGY - 1.2%
COMMUNICATIONS EQUIPMENT - 0.7%
Lucent Technologies, Inc. 159,983 8,679
COMPUTER SERVICES & SOFTWARE - 0.1%
NCR Corp. (a) 31,250 1,184
COMPUTERS & OFFICE EQUIPMENT - 0.4%
Itron, Inc. (a) 227,000 5,278
TOTAL TECHNOLOGY 15,141
UTILITIES - 90.9%
CELLULAR - 3.4%
AirTouch Communications, Inc. (a) 1,567,900 40,570
Cellnet Data Systems, Inc. (a) 47,500 629
McLeod, Inc. (a) 4,000 92
Mobile Telecommunications Technologies, Inc. (a) 14,000 109
360 Degrees Communications Co. (a) 92,300 1,823
43,223
ELECTRIC UTILITY - 17.6%
AES China Generating Co. Class A (a) 13,700 229
AES Corp. (a) 256,884 15,252
Allegheny Power System, Inc. 488,500 14,960
American Electric Power Co., Inc. 357,100 14,775
Baltimore Gas & Electric Co. 9,500 261
Boston Edison Co. 123,100 3,339
CIPSCO, Inc. 95,100 3,435
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
CMS Energy Corp. 46,000 $ 1,541
CMS Energy Corp. Class G 37,000 726
Calenergy, Inc. (a) 23,500 902
Centerior Energy Corp. 20,000 215
Central & South West Corp. 54,200 1,369
Central Hudson Gas & Electric Corp. 49,600 1,556
Central Louisiana Electric Co., Inc. 95,200 2,582
Central Maine Power Co. 100,000 1,113
CILCORP, Inc. 193,200 7,438
Citizens Utilities Co. Class B 2,856 33
DQE, Inc. 218,850 6,265
DPL, Inc. 432,300 10,591
DTE Energy Co. 41,100 1,290
Dominion Resources, Inc. 25,300 1,003
Eastern Utilities Associates 10,000 189
Edison International 462,600 9,888
Electricidad de Caracas 624,633 640
Electricity Generating PCL (For. Reg.) 28,200 71
Enova Corp. 80,000 1,790
Entergy Corp. 160,461 4,312
Florida Progress Corp. 19,200 595
Hawaiian Electric Industries, Inc. 16,900 598
Houston Industries, Inc. 117,000 2,647
IES Industries, Inc. 53,400 1,635
Idaho Power Co. 122,400 3,810
Interstate Power Co. 6,900 204
KU Energy Corp. 59,300 1,779
Kansas City Power & Light Co. 29,900 863
Korea Electric Power Corp. sponsored ADR 96,800 2,142
LG&E Energy Corp. 76,600 1,858
Montana Power Co. 49,000 1,078
NIPSCO Industries, Inc. 132,900 5,183
National Grid Co. PLC 578,100 1,926
New England Electric System 41,400 1,418
New York State Electric & Gas Corp. 80,500 1,831
Niagara Mohawk Power Corp. (a) 803,800 8,138
Northeast Utilities 500,000 6,563
Northern States Power Co. 6,600 304
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
OGE Energy Corp. 17,500 $ 746
Ohio Edison Co. 15,000 347
PECO Energy Co. 134,200 3,087
PG&E Corp. 670,700 15,258
PP&L Resources, Inc. 30,800 697
PacifiCorp. 287,600 6,112
Pinnacle West Capital Corp. 198,300 6,271
Portland General Corp. 204,500 8,027
Public Service Co. of Colorado 251,175 9,796
Public Service Co. of New Mexico 437,200 8,744
Rochester Gas & Electric Corp. 19,500 378
SCANA Corp. 6,600 172
Sierra Pacific Resources 8,300 236
Southern Co. 148,900 3,257
TECO Energy, Inc. 6,600 160
Tucson Electric Power Co. (a) 226,720 3,684
Unicom Corp. 140,000 3,308
Union Electric Co. 54,300 2,063
United Illuminating Co. 41,500 1,224
Utilicorp United, Inc. 92,046 2,543
Wisconsin Energy Corp. 23,600 611
225,058
GAS - 26.6%
AGL Resources, Inc. 32,500 678
Aquila Gas Pipeline Corp. 39,200 583
Bay State Gas Co. 4,700 122
Brooklyn Union Gas Co. (The) 326,500 9,673
Colonial Gas Co. 8,900 191
Columbia Gas System, Inc. (The) 292,200 19,030
Connecticut Energy Corp. 400 9
Consolidated Natural Gas Co. 423,200 23,540
Eastern Enterprises Co. 419,300 13,784
El Paso Natural Gas Co. 329,600 17,757
Energen Corp. 274,000 8,425
Enron Global Power & Pipelines 72,100 2,163
Enron Corp. 380,000 15,675
ENSERCH Corp. 461,500 10,499
Equitable Resources, Inc. 40,100 1,303
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
GAS - CONTINUED
K N Energy, Inc. 323,500 $ 12,576
MCN Corp. 672,600 21,775
MDU Resources Group, Inc. 50,650 1,121
National Fuel Gas Co. 73,200 3,093
New Jersey Resources Corp. 500 15
NICOR, Inc. 236,200 8,533
Noram Energy Corp. 1,348,722 21,074
Northwest Natural Gas Co. 6,700 168
ONEOK, Inc. 257,100 7,617
Pacific Enterprises 598,300 18,024
PanEnergy Corp. 616,300 28,427
Peoples Energy Corp. 87,800 2,919
Public Service Co. of North Carolina, Inc. 1,500 28
Questar Corp. 356,500 13,948
Sonat, Inc. 622,100 33,127
Southern Union Co. 35,869 821
TPC Corp. (a) 295,400 3,212
Tejas Gas Corp. (a) 155,495 6,842
UGI Corp. 163,883 3,769
USX-Delhi Group 205,300 3,336
WICOR, Inc. 85,600 2,996
Washington Gas Light Co. 123,800 2,739
Western Resources, Inc. 9,000 276
Williams Companies, Inc. 479,850 19,254
Yankee Energy System, Inc. 50,500 1,136
340,258
TELEPHONE SERVICES - 42.7%
AT&T Corp. 500,000 19,688
ALLTEL Corp. 196,100 6,300
Ameritech Corp. 896,800 53,584
BCE, Inc. 99,000 4,987
Bell Atlantic Corp. 589,700 39,657
BellSouth Corp. 1,121,400 49,762
Brooks Fiber Properties, Inc. (a) 63,900 1,638
Cincinnati Bell, Inc. 26,500 1,640
Frontier Corp. 204,600 4,476
GTE Corp. 1,224,600 57,556
Indosat (Indonesia Satellite) sponsored ADR 11,500 324
LCI International, Inc. (a) 138,300 3,112
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
MCI Communications Corp. 1,133,900 $ 39,828
NYNEX Corp. 889,200 45,016
Pacific Telesis Group 1,251,900 49,137
SBC Communications, Inc. 874,900 48,010
Smartalk Teleservices, Inc. (a) 7,700 136
Sprint Corp. 693,200 28,248
Telekomunikasiindo (Persero) PT, Series B sponsored ADR 10,600 384
Teleport Communications Group, Inc. Class A (a) 268,800 8,366
Telesp PN (Pfd. Reg.) 1,600,000 375
Telepar PN 271,200 161
Telecom Italia Mobile Spa 297,300 883
U S WEST Communications Group 1,096,924 36,061
U S WEST Media Group (a) 677,124 12,611
Winstar Communications, Inc. (a) 77,100 1,291
WorldCom, Inc. (a) 1,307,480 32,850
546,081
WATER - 0.6%
American Water Works, Inc. 177,714 4,132
E Town Corp. 16,000 498
Severn Trent PLC Ord. 100,000 1,126
Yorkshire Water PLC Ord. 100,000 1,182
6,938
TOTAL UTILITIES 1,161,558
TOTAL COMMON STOCKS
(Cost $921,126) 1,256,576
PREFERRED STOCKS - 0.7%
CONVERTIBLE PREFERRED STOCKS - 0.6%
BASIC INDUSTRIES - 0.1%
METALS & MINING - 0.1%
Cyprus Amax Minerals Co., Series A, $4.00 17,833 950
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
(000S)
CONVERTIBLE PREFERRED STOCKS - CONTINUED
UTILITIES - 0.5%
ELECTRIC UTILITY - 0.5%
Citizens Utilities Trust $2.50 148,900 $ 7,184
Kenetech Corp. 8 1/4% (a) 44,000 72
7,256
TOTAL CONVERTIBLE PREFERRED STOCKS 8,206
NONCONVERTIBLE PREFERRED STOCKS - 0.1%
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
GTE North, Inc. $7.60 6,800 690
TOTAL PREFERRED STOCKS
(Cost $9,713) 8,896
CASH EQUIVALENTS - 1.0%
Taxable Central Cash Fund (b)
(Cost $12,432) 12,432,360 12,432
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $943,271) $ 1,277,904
LEGEND
1. Non-income producing
2. At period end, the seven-day yield on the Taxable Central Cash Fund was
5.39%. The yield refers to the income earned by investing in the fund over
the seven-day period, expressed as an annual percentage.
INCOME TAX INFORMATION
At January 31, 1997 the aggregate cost of investment securities for income
tax purposes was $946,939,000. Net unrealized appreciation aggregated
$330,965,000, of which $344,867,000 related to appreciated investment
securities and $13,902,000 related to depreciated investment securities.
The fund hereby designates approximately $15,426,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
On December 31, 1991, the fund acquired substantially all of the assets of
the Fidelity Corporate Trust: Adjustable Rate Preferred Portfolio. At the
time of the merger, Fidelity Corporate Trust: Adjustable Rate Preferred
Portfolio had a capital loss carryforward, of which approximately
$6,518,000 is still available to offset future gains of the fund, to the
extent provided by regulations.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS(EXCEPT PER-SHARE AMOUNT) JANUARY 31, 1997
ASSETS
Investment in securities, at value (cost $943,271) - $ 1,277,904
See accompanying schedule
Receivable for investments sold 12,206
Receivable for fund shares sold 1,652
Dividends receivable 5,109
Interest receivable 82
Other receivables 2
TOTAL ASSETS 1,296,955
LIABILITIES
Payable for investments purchased $ 11,964
Payable for fund shares redeemed 4,219
Accrued management fee 555
Other payables and accrued expenses 311
TOTAL LIABILITIES 17,049
NET ASSETS $ 1,279,906
Net Assets consist of:
Paid in capital $ 917,139
Undistributed net investment income 3,209
Accumulated undistributed net realized gain (loss) on 24,931
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 334,627
investments and assets and liabilities in foreign
currencies
NET ASSETS, for 73,676 shares outstanding $ 1,279,906
NET ASSET VALUE, offering price and redemption price per $17.37
share ($1,279,906 (divided by) 73,676 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR ENDED JANUARY 31, 1997
INVESTMENT INCOME $ 48,634
Dividends
Interest (including income on securities loaned of $47) 1,541
50,175
Less foreign taxes withheld (654)
TOTAL INCOME 49,521
EXPENSES
Management fee $ 6,635
Basic fee
Performance adjustment 502
Transfer agent fees 3,046
Accounting and security lending fees 552
Non-interested trustees' compensation 6
Custodian fees and expenses 130
Registration fees 69
Audit 47
Legal 9
Miscellaneous 23
Total expenses before reductions 11,019
Expense reductions (350) 10,669
NET INVESTMENT INCOME 38,852
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 61,851
Foreign currency transactions (226) 61,625
Change in net unrealized appreciation (depreciation) on:
Investment securities 44,011
Assets and liabilities in foreign currencies 25 44,036
NET GAIN (LOSS) 105,661
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 144,513
FROM OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1997 1996
INCREASE (DECREASE) IN NET ASSETS
Operations $ 38,852 $ 48,708
Net investment income
Net realized gain (loss) 61,625 47,352
Change in net unrealized appreciation (depreciation) 44,036 236,747
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 144,513 332,807
FROM OPERATIONS
Distributions to shareholders (38,660) (47,222)
From net investment income
From net realized gain (41,320) (25,123)
TOTAL DISTRIBUTIONS (79,980) (72,345)
Share transactions 542,924 1,087,869
Net proceeds from sales of shares
Reinvestment of distributions 71,648 64,451
Cost of shares redeemed (945,410) (1,037,753)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING (330,838) 114,567
FROM SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) IN NET ASSETS (266,305) 375,029
NET ASSETS
Beginning of period 1,546,211 1,171,182
End of period (including undistributed net investment $ 1,279,906 $ 1,546,211
income of $3,209 and $3,753, respectively)
OTHER INFORMATION
Shares
Sold 33,232 73,284
Issued in reinvestment of distributions 4,482 4,287
Redeemed (58,288) (70,298)
Net increase (decrease) (20,574) 7,273
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED JANUARY 31,
1997 1996 1995 1994 B 1993
SELECTED PER-SHARE DATA
Net asset value, beginning $ 16.41 $ 13.47 $ 15.84 $ 13.94 $ 12.94
of period
Income from Investment
Operations
Net investment income .48 E .54 .55 .50 .61
Net realized and unrealized 1.50 3.22 (1.58) 2.14 1.37
gain (loss)
Total from investment 1.98 3.76 (1.03) 2.64 1.98
operations
Less Distributions
From net investment income (.48) (.54) (.54) (.52) (.60)
From net realized gain (.54) (.28) (.68) (.22) (.38)
In excess of net realized gain - - (.12) - -
Total distributions (1.02) (.82) (1.34) (.74) (.98)
Net asset value, end of period $ 17.37 $ 16.41 $ 13.47 $ 15.84 $ 13.94
TOTAL RETURN A 12.73% 28.61% (6.38)% 19.34% 15.92%
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of period $ 1,280 $ 1,546 $ 1,171 $ 1,456 $ 1,002
(in millions)
Ratio of expenses to average .84% .80% .88% .87% .87%
net assets
Ratio of expenses to average .81% .77% .87% .86% .87%
net assets after expense C C C C
reductions
Ratio of net investment income 2.96% 3.69% 3.87% 3.39% 4.57%
to average net assets
Portfolio turnover rate 56% 98% 98% 47% 73%
Average commission rate D $ .0048
</TABLE>
M THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS).
N EFFECTIVE FEBRUARY 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
"DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION OF INCOME,
CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT COMPANIES."
AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT CERTAIN
RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
O FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 6 OF
NOTES TO FINANCIAL STATEMENTS).
P FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1, 1995, A FUND IS
REQUIRED TO DISCLOSE ITS AVERAGE COMMISSION RATE PER SHARE FOR SECURITY
TRADES ON WHICH COMMISSIONS ARE CHARGED. THIS AMOUNT MAY VARY FROM PERIOD
TO PERIOD AND FUND TO FUND DEPENDING ON THE MIX OF TRADES EXECUTED IN
VARIOUS MARKETS WHERE TRADING PRACTICES AND COMMISSION RATE STRUCTURES MAY
DIFFER.
Q NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended January 31, 1997
15. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Utilities Fund (the fund) is a fund of Fidelity Devonshire Trust
(the trust) and is authorized to issue an unlimited number of shares. The
trust is registered under the Investment Company Act of 1940, as amended
(the 1940 Act), as an open-end management investment company organized as a
Massachusetts business trust. The financial statements have been prepared
in conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions at the date of the
financial statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which exchange quotations are readily
available are valued at the last sale price, or if no sale price, at the
closing bid price. Securities (including restricted securities) for which
exchange quotations are not readily available (and in certain cases debt
securities which trade on an exchange) are valued primarily using
dealer-supplied valuations or at their fair value as determined in good
faith under consistently applied procedures under the general supervision
of the Board of Trustees. Short-term securities with remaining maturities
of sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both of
which approximate current value.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included with the net realized and
unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The schedule of investments includes information regarding
income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if any,
are recorded at the fair market value of the securities received. Interest
income,
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
which includes accretion of original issue discount, is accrued as earned.
Investment income is recorded net of foreign taxes withheld where recovery
of such taxes is uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS.
Distributions are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for foreign
currency transactions, partnerships, market discount, non-taxable dividends
and losses deferred due to wash sales. The fund also utilized earnings and
profits distributed to shareholders on redemption of shares as a part of
the dividends paid deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
16. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated securities.
Losses may arise from changes in the value of the foreign currency or if
the counterparties do not perform under the contracts' terms. The U.S.
dollar value of foreign currency contracts is determined using contractual
currency exchange rates established at the time of each trade. The cost of
the foreign currency contracts is included in the cost basis of the
associated investment.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at
2. OPERATING POLICIES -
CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
least equal to the principal amount of the repurchase agreement (including
accrued interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
TAXABLE CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by the
SEC, the fund may invest in the Taxable Central Cash Fund (the Cash Fund)
managed by FMR Texas, an affiliate of FMR. The Cash Fund is an open-end
money market fund available only to investment companies and other accounts
managed by FMR and its affiliates. The Cash Fund seeks preservation of
capital, liquidity, and current income by investing in U.S. Treasury
securities and repurchase agreements for these securities, and may be
utilized by the fund as an additional cash management option. Dividends
from the Cash Fund are declared daily and paid monthly from net interest
income. Income distributions received by the fund are recorded as interest
income.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period, the
fund had no investments in restricted securities (excluding 144A issues).
17. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $720,969,000 and $1,072,390,000, respectively, of which U.S.
government and government agency obligations aggregated $0 and $23,928,000,
respectively.
18. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
basic fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .2500% to .5200% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The annual individual fund fee rate is .20%. The
basic fee is subject to a performance adjustment (up to a maximum of
(plus/minus) .15% of the fund's average net assets over the performance
period) based on the fund's investment performance as compared to the
appropriate index over a specified period of time. For the period, the
management fee was equivalent to an annual rate of .54% of average net
assets after the performance adjustment.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES -
CONTINUED
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an affiliate of
FMR, is the fund's transfer, dividend disbursing and shareholder servicing
agent. FSC receives account fees and asset-based fees that vary according
to account size and type of account. FSC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements. For the
period, the transfer agent fees were equivalent to an annual rate of .23%
of average net assets.
ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the fund's accounting
records and administers the security lending program. The security lending
fee is based on the number and duration of lending transactions. The
accounting fee is based on the level of average net assets for the month
plus out-of-pocket expenses.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $294,000 for the period.
19. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund negotiated
lenders' fees. These fees are included in interest income. The fund
receives U.S. Treasury obligations and/or cash as collateral against the
loaned securities, in an amount at least equal to 102% of the market value
of the loaned securities at the inception of each loan. This collateral
must be maintained at not less than 100% of the market value of the loaned
securities during the period of the loan. At period end, there were no
loans outstanding.
20. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a portion of
the fund's expenses. For the period, the fund's expenses were reduced by
$335,000 under this arrangement.
In addition, the fund has entered into an arrangement with its transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the fund's expenses. During the period, the fund's
transfer agent fees were reduced by $15,000 under this arrangement.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Devonshire Trust and the Shareholders of
Fidelity Utilities Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Devonshire Trust: Fidelity Utilities Fund, including the schedule
of portfolio investments, as of January 31, 1997, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 1997 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Devonshire Trust: Fidelity Utilities Fund as of January 31,
1997, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended,
in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 10, 1997
DISTRIBUTIONS
The Board of Trustees of Fidelity Utilities Fund voted to pay on March 10,
1997, to shareholders of record at the opening of business on March 7,
1997, a distribution of $.18 per share derived from capital gains realized
from sales of portfolio securities and a dividend of $.10 per share from
net investment income.
A total of 100% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate shareholders.
A total of .37% of the dividends distributed during the fiscal year was
derived from interest on U.S. Government Securities which is generally
exempt from state income tax.
The fund notified shareholders in January 1997 of the applicable percentage
for use in preparing 1996 income tax returns.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a day.
BY PHONE
Fidelity TouchTone Xpressprovides a single toll-free number to access
account balances, positions, quotes and trading. It's easy to navigate the
service, and on your first call, the system will help you create a personal
identification number (PIN) for security.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.
1
For quotes.*
2
For account balances and holdings.
3
To review orders and mutual
fund activity.
4
To change your PIN.
5
To speak to a Fidelity representative.
*
0
BY PC
Fidelity's Web site on the Internet provides a wide range of information,
including daily financial news, fund performance, interactive planning
tools and news about Fidelity products and services.
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at 1-800-544-7272
for significant savings on Web access from internetMCI.
SM
(PHONE_GRAPHIC)(PHONE_GRAPHIC)(PHONE_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity at
1-800-544-7272 or visit our Web site for more information on how to manage
your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND
RETURN WILL
VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS
MEANS THAT
YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO
ASSURANCE THAT
MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN
INVESTMENT
IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT.
TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF
DIVIDENDS
AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19100 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
811 Wilshire Boulevard
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
4001 Tamiami Trail, North
Naples, FL
1907 West State Road 434
Orlando, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3525 Piedmont Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
HAWAII
700 Bishop Street
Honolulu, HI
ILLINOIS
215 East Erie Street
Chicago, IL
One North Franklin
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
LOUISIANA
201 St. Charles Avenue
New Orleans, LA
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
21 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
Southfield, MI
MINNESOTA
7600 France Avenue South
Edina, MN
MISSOURI
700 West 47th Street
Kansas City, MO
8885 Ladue Road
Ladue, MO
200 North Broadway
St. Louis, MO
NEW JERSEY
150 Essex Street
Millburn, NJ
56 South Street
Morristown, NJ
501 Route 17, South
Paramus, NJ
NEW YORK
1050 Franklin Avenue
Garden City, NY
999 Walt Whitman Road
Melville, L.I., NY
1271 Avenue of the
Americas
New York, NY
71 Broadway
New York, NY
350 Park Avenue
New York, NY
10 Bank Street
White Plains, NY
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
2200 West Main Street
Durham, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
1903 East Ninth Street
Cleveland, OH
OREGON
121 S.W. Morrison Street
Portland, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
5100 Poplar Avenue
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
7001 Preston Road
Dallas, TX
1155 Dairy Ashford
Houston, TX
2701 Drexel Drive
Houston, TX
1010 Lamar Street
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
UTAH
215 South State Street
Salt Lake City, UT
VERMONT
199 Main Street
Burlington, VT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Arthur S. Loring, Secretary
William J. Hayes, Vice President
John M. Muresianu, Vice President
Kenneth A. Rathgeber, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Robert H. Morrison, Manager,
Security Transactions
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
FIDELITY'S GROWTH AND INCOME FUNDS
Balanced Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Fidelity Fund
Global Balanced Fund
Growth & Income Portfolio
Market Index Fund
Puritan Fund
Real Estate Investment Portfolio
Utilities Fund
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress 1-800-544-5555
SM
AUTOMATED LINE FOR QUICKEST SERVICE