FIDELITY
EQUITY-INCOME
FUND
SEMIANNUAL REPORT
JULY 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
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 31 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 35 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
In July, the steadily growing U.S. economy again sparked fears of
inflation and posed the threat of another Federal Reserve Board
interest-rate hike at its August policy meeting. Despite rising
profits and continued productivity gains at many U.S. corporations,
stock and bond markets sold off sharply toward the month's end.
Renewed jitters about inflation were sparked by a government report
that showed a larger-than-expected increase in the employment-cost
index.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888, or visit our
web site at www.fidelity.com. 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY EQUITY-INCOME 10.16% 13.86% 153.24% 287.47%
Russell 3000 Value 8.42% 13.71% 172.65% 327.95%
S&P 500 (registered trademark) 4.50% 20.20% 220.67% 396.75%
Equity Income Funds Average 6.48% 11.57% 129.78% 238.93%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Russell 3000 Value Index - a market capitalization-weighted
index of U.S. domiciled value oriented stocks - and the Standard &
Poor's 500 Index - a market capitalization-weighted 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 mutual funds with similar objectives
tracked by Lipper Inc. The past six months average represents a peer
group of 246 mutual funds. These benchmarks include reinvested
dividends and capital gains, if any, and exclude the effect of sales
charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY EQUITY-INCOME 13.86% 20.42% 14.50%
Russell 3000 Value 13.71% 22.22% 15.65%
S&P 500 20.20% 26.25% 17.38%
Equity Income Funds Average 11.57% 18.01% 12.85%
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER 10 YEARS
Equity-Income Russell 3000 Value
00023 RS008
1989/07/31 10000.00 10000.00
1989/08/31 10122.03 10243.85
1989/09/30 9998.93 10149.26
1989/10/31 9468.17 9766.58
1989/11/30 9594.87 9873.40
1989/12/31 9731.90 10073.91
1990/01/31 9134.96 9440.37
1990/02/28 9149.43 9677.92
1990/03/31 9155.68 9791.22
1990/04/30 8811.56 9411.78
1990/05/31 9378.99 10172.46
1990/06/30 9341.00 9955.76
1990/07/31 9207.66 9850.02
1990/08/31 8492.83 8965.26
1990/09/30 7878.32 8514.96
1990/10/31 7720.68 8375.77
1990/11/30 8204.86 8953.03
1990/12/31 8367.43 9182.85
1991/01/31 8775.21 9614.26
1991/02/28 9390.81 10273.88
1991/03/31 9527.46 10454.79
1991/04/30 9575.10 10532.30
1991/05/31 10075.29 10930.62
1991/06/30 9634.68 10467.56
1991/07/31 10148.96 10894.84
1991/08/31 10377.97 11101.64
1991/09/30 10327.23 11026.29
1991/10/31 10485.80 11205.04
1991/11/30 10071.08 10637.86
1991/12/31 10827.73 11516.15
1992/01/31 10934.73 11595.63
1992/02/29 11268.08 11898.47
1992/03/31 11116.18 11729.07
1992/04/30 11490.74 12186.38
1992/05/31 11603.11 12265.50
1992/06/30 11469.42 12166.77
1992/07/31 11755.10 12635.77
1992/08/31 11519.83 12260.11
1992/09/30 11612.62 12434.72
1992/10/31 11731.38 12467.99
1992/11/30 12117.33 12906.06
1992/12/31 12416.75 13232.09
1993/01/31 12784.84 13642.64
1993/02/28 13093.02 14087.18
1993/03/31 13523.65 14511.94
1993/04/30 13497.75 14312.69
1993/05/31 13739.48 14613.54
1993/06/30 13905.51 14920.52
1993/07/31 14118.77 15095.31
1993/08/31 14593.16 15644.33
1993/09/30 14572.23 15700.98
1993/10/31 14822.26 15724.18
1993/11/30 14585.39 15392.57
1993/12/31 15062.69 15700.08
1994/01/31 15663.59 16290.82
1994/02/28 15236.28 15782.08
1994/03/31 14573.74 15183.43
1994/04/30 14892.97 15460.55
1994/05/31 15082.66 15619.16
1994/06/30 14881.43 15242.05
1994/07/31 15300.37 15695.94
1994/08/31 15835.67 16164.22
1994/09/30 15466.55 15665.73
1994/10/31 15611.71 15830.10
1994/11/30 14970.20 15190.62
1994/12/31 15099.32 15394.73
1995/01/31 15192.77 15810.67
1995/02/28 15758.38 16431.81
1995/03/31 16154.80 16763.95
1995/04/30 16685.13 17290.50
1995/05/31 17230.46 17983.02
1995/06/30 17489.04 18262.84
1995/07/31 18109.14 18901.60
1995/08/31 18245.27 19198.14
1995/09/30 18811.24 19851.10
1995/10/31 18486.82 19594.66
1995/11/30 19368.83 20566.29
1995/12/31 19902.42 21094.81
1996/01/31 20542.58 21702.27
1996/02/29 20741.97 21882.82
1996/03/31 21130.34 22262.80
1996/04/30 21392.53 22397.14
1996/05/31 21660.07 22704.65
1996/06/30 21686.82 22695.66
1996/07/31 20949.03 21800.82
1996/08/31 21444.48 22458.10
1996/09/30 22226.18 23320.93
1996/10/31 22909.06 24156.24
1996/11/30 24334.44 25861.39
1996/12/31 24086.84 25650.09
1997/01/31 25009.15 26804.78
1997/02/28 25408.44 27184.40
1997/03/31 24627.14 26231.96
1997/04/30 25381.73 27261.45
1997/05/31 27073.85 28848.50
1997/06/30 28272.91 30108.54
1997/07/31 30313.34 32274.51
1997/08/31 29031.60 31284.01
1997/09/30 30627.65 33193.67
1997/10/31 29553.60 32268.44
1997/11/30 30546.81 33587.61
1997/12/31 31308.88 34583.64
1998/01/31 31183.43 34080.83
1998/02/28 33202.59 36352.32
1998/03/31 34875.89 38503.02
1998/04/30 34863.76 38754.16
1998/05/31 34421.06 38103.31
1998/06/30 34833.23 38525.33
1998/07/31 34029.39 37636.84
1998/08/31 28682.61 32011.13
1998/09/30 30328.03 33845.84
1998/10/31 32633.20 36332.58
1998/11/30 34106.80 37968.25
1998/12/31 35230.14 39252.63
1999/01/31 35173.07 39471.24
1999/02/28 34786.20 38750.85
1999/03/31 36075.60 39471.21
1999/04/30 39262.54 43151.96
1999/05/31 38152.92 42803.50
1999/06/30 39893.09 44068.48
1999/07/30 38747.37 42795.17
IMATRL PRASUN SHR__CHT 19990731 19990813 165644 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Equity-Income Fund on July 31, 1989. As the chart
shows, by July 31, 1999, the value of the investment would have grown
to $38,747 - a 287.47% increase on the initial investment. For
comparison, look at how the Russell 3000 Value Index did over the same
period. With dividends and capital gains, if any, reinvested, the same
$10,000 would have grown to $42,795 - a 327.95% 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
long-term growth and
short-term volatility. 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
Federal Reserve Board monetary
policy, the Internet craze and Y2K
concerns were but three factors
influencing the direction of the U.S.
stock market for the six months that
ended July 31, 1999. The Fed's
decision to cut interest rates last fall
resulted in a phase of broader market
participation as smaller companies -
which tend to rely on borrowed
money to fund growth - gained
some ground on their larger
counterparts. The Russell 2000 Index,
a gauge of small-stock performance,
easily outpaced the Standard &
Poor's 500 Index in the second
quarter of 1999. For the six-month
period, the Russell 2000 returned
4.89%, while the S&P 500 returned
4.50% and the Dow Jones Industrial
Average - an index of 30 blue-chip
stocks - returned 14.70%. Investors'
love affair with Internet stocks
continued through much of the
period, with many valuations reaching
record peaks around April.
Technology stocks benefited, as did
stocks of telecommunications
companies with Internet exposure.
As the period drew to a close,
however, Internet stocks appeared
to have cooled some and investor
concerns over Y2K - particularly
the spending freeze it could cause
within the technology sector -
took hold. The Fed's late June
decision to raise interest rates only
slightly was well-received by the
market, as was its switch to a neutral
stance regarding future rate hikes.
(photograph of Steve Petersen)
An interview with Steve Petersen, Portfolio Manager of Fidelity
Equity-Income Fund
Q. HOW DID THE FUND PERFORM, STEVE?
A. For the six-month period ending July 31, 1999, the fund returned
10.16%, outperforming the 6.48% return of the equity income funds
average, as tracked by Lipper Inc. By comparison, the Russell 3000
Value Index returned 8.42% during the same period. For the 12-month
period, the fund returned 13.86%, compared to the 11.57% and 13.71%
returns of the Lipper average and the Russell index, respectively.
Q. WHAT STRATEGY DID YOU USE TO HELP THE FUND OUTPERFORM ITS BENCHMARK
AND PEER GROUP DURING THE PERIOD?
A. I continued to follow a bottom-up strategy, selecting individual
stocks that I thought were either misperceived or mispriced, where the
company's fundamentals argued for a higher valuation. As a result,
retail stocks contributed significantly to the fund's performance, in
spite of their limited representation in the fund's portfolio. This
strategy also resulted in an overweighting in energy and finance
stocks, which helped the fund's performance tremendously during the
period.
Q. ENERGY STOCKS CAME BACK STRONGLY. WHAT WAS BEHIND THEIR RECOVERY?
A. Energy was the most important sector of the marketplace, in terms
of its contribution to overall fund performance. Oil companies, given
the low prices they received over the past year or so for oil, cut
back on exploration as well as their reinvestment in existing wells.
When world demand for oil began to rebound, particularly in Asia, oil
prices jumped. There was also a fair amount of consolidation activity
in the industry, with British Petroleum buying Amoco, Exxon buying
Mobil, and Total Fina attempting to buy Elf Aquitaine, which could
benefit these companies' stock prices. Toward the end of the period,
OPEC's move to limit oil production also helped push oil prices up.
Fund holdings BP Amoco, Total Fina and energy services company
Halliburton all performed well.
Q. MANY FINANCIAL STOCKS ALSO MADE A STRONG SHOWING . . .
A. Yes, they made a pretty dramatic recovery from last fall, when many
financial services firms suffered with the decline in U.S. and global
financial markets. Although there were some market jitters due to the
anticipation of an increase in interest rates, investors were relieved
when the Federal Reserve Board finally acted at the end of June -
raising rates by 0.25 percentage points, while shifting its stance to
neutral on future rate hikes. Fund holdings Chase Manhattan, American
Express and Bank One all performed well in this environment.
Citigroup, the fund's number two holding, also performed well. Its
merger with Travelers helped to broaden and diversify its operations.
Q. WERE THERE OTHER STRONG PERFORMERS?
A. There were a couple of note. AlliedSignal and Tyco International,
both multi-industry companies, did well. AlliedSignal acquired
Honeywell earlier this year, which was perceived very positively by
Wall Street. Tyco is a maker of plumbing-related and disposable
medical-related products, as well as electrical components,
transistors and connectors. Tyco developed a reputation for making
acquisitions that turned out to be very beneficial to the company's
earnings, reflected by its good stock performance.
Q. WHICH HOLDINGS DISAPPOINTED?
A. Philip Morris was a poor performer. Ongoing lawsuits and recent
declines in international tobacco volumes hurt the company's
performance. However, Philip Morris has very attractive valuations,
and the fund is still holding the stock. Fannie Mae suffered from
investors' perception that higher interest rates are not good for
mortgage-origination volumes. In addition, 1998 was a record year for
mortgage refinancing, and investors feared that those volumes would
slow during 1999. The fund is still holding the stock, and I believe
Fannie Mae is a solid company. AT&T pursued an aggressive strategy of
acquiring cable companies, including TCI and MediaOne, to gain access
into the home, and to offer local phone service over cable lines.
However, regional Bell operating companies have now developed the
technology to make them competitive with AT&T in delivering local
service, so what appeared to be a good strategy on AT&T's part is now
in question.
Q. STEVE, WHAT'S YOUR OUTLOOK?
A. I'm optimistic. The underlying business fundamentals for basic
industries look pretty good in that we're seeing better results coming
from many more companies than in recent years. Overall business trends
also look much better today than they did 12 months ago. The concern
now is that growth looks too strong, leaving open the possibility of
higher interest rates, which would be detrimental to stock prices
generally. My strategy will be to continue to look for companies with
excellent underlying financials and interesting business fundamentals,
which I believe can perform well over time.
(checkmark)FUND FACTS
GOAL: seeks reasonable
income
FUND NUMBER: 023
TRADING SYMBOL: FEQIX
START DATE: May 16, 1966
SIZE: as of July 31, 1999,
more than $24.4 billion
MANAGER: Stephen Petersen,
since 1993; manager, Fidelity
Balanced Fund, 1996-1997;
manager, various institutional
accounts, since 1987; joined
Fidelity in 1980
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
STEPHEN PETERSEN ON HIS
INVESTMENT PHILOSOPHY:
"Given the relatively conservative
nature of the fund, I follow a `steady
as she goes' strategy, focusing on
high current income while
attempting to limit exposure to the
market's volatile ups and downs.
Managing an equity-income fund
of this size, I'm most comfortable
maintaining a well-diversified
portfolio. I try not to limit the fund to
only the largest market-value
companies; I look across the
entire market spectrum to find what
I think are the most interesting or
attractively valued stocks.
Diversification across market
cap is just as important as the
number of holdings in the
portfolio. The fund is focused on
larger companies, but there are a
number of smaller- and mid-sized
companies as well. Given the
fund's size, I cannot do an about-face
to shift to smaller stocks, say, should
a move to small companies occur,
but I do have the flexibility to add
more holdings to take advantage
of emerging opportunities.
"Equity income funds can provide
income through a number of
mechanisms, including bonds or
convertible stocks. Some don't focus
on income at all, and have a
relatively low yield. I maintain the
fund's focus on dividends from
equities, and generally hold no more
than 5% in fixed-income securities. I
would rather earn less income while
capturing better total return
performance from stocks instead of
bonds. This keeps the fund's
strategies consistent with its
fundamental goals through
changing investing
environments."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP TEN STOCKS AS OF JULY 31,
1999
% OF FUND'S NET ASSETS % OF FUND'S NET ASSETS IN
THESE STOCKS 6 MONTHS AGO
General Electric Co. 3.7 4.1
Citigroup, Inc. 2.9 2.4
BP Amoco PLC sponsored ADR 2.7 2.1
American Express Co. 2.5 2.2
Fannie Mae 2.2 2.4
AT&T Corp. 1.8 2.3
Bank One Corp. 1.8 2.1
Bank of America Corp. 1.7 1.8
Bank of New York Co., Inc. 1.7 1.7
Exxon Corp. 1.6 0.6
TOP FIVE MARKET SECTORS AS OF
JULY 31, 1999
% OF FUND'S NET ASSETS % OF FUND'S NET ASSETS IN
THESE MARKET SECTORS 6
MONTHS AGO
FINANCE 24.3 25.2
ENERGY 12.8 9.6
UTILITIES 12.4 13.7
INDUSTRIAL MACHINERY & 8.7 8.8
EQUIPMENT
BASIC INDUSTRIES 7.5 5.9
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
NET ASSETS)
AS OF JULY 31, 1999 * AS OF JANUARY 31, 1999 **
Stocks 93.6% Stocks 93.4%
Bonds 0.4% Bonds 0.5%
Convertible Securities 5.1% Convertible Securities 5.8%
Short-term Investments and Short-term Investments and
Net Other Assets 0.9% Net Other Assets 0.3%
* FOREIGN INVESTMENTS 9.4% ** FOREIGN INVESTMENTS 9.6%
Row: 1, Col: 1, Value: 93.59999999999999 Row: 1, Col: 1, Value: 93.40000000000001
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.4 Row: 1, Col: 3, Value: 0.5
Row: 1, Col: 4, Value: 0.0 Row: 1, Col: 4, Value: 0.0
Row: 1, Col: 5, Value: 5.1 Row: 1, Col: 5, Value: 5.8
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0 Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 0.9 Row: 1, Col: 8, Value: 0.3
</TABLE>
PRIOR TO THIS REPORT, CERTAIN INFORMATION RELATED TO PORTFOLIO
HOLDINGS WAS STATED AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
INVESTMENTS JULY 31, 1999 (UNAUDITED)
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 93.6%
SHARES VALUE (NOTE 1) (000S)
AEROSPACE & DEFENSE - 4.4%
AEROSPACE & DEFENSE - 3.0%
AlliedSignal, Inc. 3,179,400 $ 205,667
Boeing Co. 1,599,600 72,582
Goodrich (B.F.) Co. 8,992 373
Harsco Corp. 1,172,600 33,712
Lockheed Martin Corp. 337,800 11,760
Northrop Grumman Corp. 396,100 28,569
Rockwell International Corp. 154,000 9,057
Textron, Inc. 2,305,400 189,619
United Technologies Corp. 2,805,600 187,098
738,437
DEFENSE ELECTRONICS - 1.1%
Litton Industries, Inc. (a) 275,200 18,800
Raytheon Co.:
Class A 112,556 7,823
Class B 3,292,600 231,511
258,134
SHIP BUILDING & REPAIR - 0.3%
General Dynamics Corp. 1,021,300 68,746
TOTAL AEROSPACE & DEFENSE 1,065,317
BASIC INDUSTRIES - 7.1%
CHEMICALS & PLASTICS - 3.3%
Arch Chemicals, Inc. 650,350 14,633
Dexter Corp. 1,027,800 40,341
Dow Chemical Co. 236,400 29,314
E.I. du Pont de Nemours and 1,656,800 119,393
Co.
Eastman Chemical Co. 856,700 44,281
Engelhard Corp. 577,800 12,892
Great Lakes Chemical Corp. 1,853,600 82,022
Hanna (M.A.) Co. 1,973,300 31,573
Hercules, Inc. 1,762,100 61,453
Hoechst AG 1,039,600 44,146
IMC Global, Inc. 3,281,500 59,887
Lyondell Chemical Co. 1,231,700 22,479
Millennium Chemicals, Inc. 1,541,857 36,234
Monsanto Co. 896,600 35,079
Praxair, Inc. 897,000 41,374
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
BASIC INDUSTRIES - CONTINUED
CHEMICALS & PLASTICS -
CONTINUED
Solutia, Inc. 2,330,100 $ 49,806
Union Carbide Corp. 1,014,000 48,672
Witco Corp. 1,391,500 25,482
799,061
IRON & STEEL - 0.6%
AK Steel Holding Corp. 420,700 9,492
Allegheny Teledyne, Inc. 1,628,200 34,905
Dofasco, Inc. 1,613,100 26,880
Nucor Corp. 1,198,700 58,137
USX-U.S. Steel Group 691,600 17,938
147,352
METALS & MINING - 1.5%
Alcan Aluminium Ltd. 1,725,900 52,019
Alcoa, Inc. 3,713,188 222,327
Kaiser Aluminum Corp. (a) 436,101 3,843
Olin Corp. 1,430,500 18,865
Phelps Dodge Corp. 721,400 42,788
Ryerson Tull, Inc. (f) 1,551,495 33,163
373,005
PACKAGING & CONTAINERS - 0.5%
American National Can Group, 1,262,500 21,068
Inc.
Ball Corp. 734,638 35,584
Crown Cork & Seal Co., Inc. 368,600 10,805
Owens-Illinois, Inc. (a) 830,900 20,721
Tupperware Corp. 1,163,500 27,488
115,666
PAPER & FOREST PRODUCTS - 1.2%
Bowater, Inc. 888,700 44,213
Champion International Corp. 1,723,400 89,186
Domtar, Inc. 2,284,800 23,283
Georgia-Pacific Corp. 1,620,800 72,835
Kimberly-Clark Corp. 619,300 37,777
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS -
CONTINUED
Smurfit-Stone Container Corp. 184,400 $ 4,126
(a)
Weyerhaeuser Co. 261,800 16,935
288,355
TOTAL BASIC INDUSTRIES 1,723,439
CONSTRUCTION & REAL ESTATE -
1.8%
BUILDING MATERIALS - 0.4%
Caradon PLC 2,475,700 6,829
Fortune Brands, Inc. 661,900 26,145
Masco Corp. 2,549,100 75,836
108,810
ENGINEERING - 0.2%
EG & G, Inc. 1,190,600 39,960
REAL ESTATE - 0.0%
Fastighets AB Tornet 528,030 7,336
Mandamus AB 57,815 303
7,639
REAL ESTATE INVESTMENT TRUSTS
- - 1.2%
Alexandria Real Estate 232,800 6,955
Equities, Inc.
Crescent Real Estate Equities 1,713,400 37,695
Co.
Duke Realty Investments, Inc. 1,005,696 22,000
Equity Office Properties Trust 1,053,200 26,462
Equity Residential Properties 1,154,300 47,687
Trust (SBI)
Macerich Co. 469,400 11,442
Public Storage, Inc. 1,026,900 26,378
Reckson Associates Realty 252,500 5,634
Corp.
Spieker Properties, Inc. 558,500 21,363
Starwood Hotels & Resorts 2,990,900 80,754
Worldwide, Inc.
286,370
TOTAL CONSTRUCTION & REAL 442,779
ESTATE
DURABLES - 2.6%
AUTOS, TIRES, & ACCESSORIES -
1.6%
DaimlerChrysler AG (Reg.) 173,005 12,510
Delphi Automotive Systems 596,900 10,744
Corp.
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
DURABLES - CONTINUED
AUTOS, TIRES, & ACCESSORIES -
CONTINUED
Eaton Corp. 1,026,400 $ 101,549
Federal-Mogul Corp. 135,500 6,572
Ford Motor Co. 1,818,200 88,410
Meritor Automotive, Inc. 1,338,400 32,456
Navistar International Corp. 491,400 21,837
(a)
Pep Boys-Manny, Moe & Jack 1,167,100 19,403
TRW, Inc. 1,728,100 92,345
385,826
CONSUMER DURABLES - 0.6%
Minnesota Mining & 709,200 62,365
Manufacturing Co.
Snap-On, Inc. 2,236,600 78,281
140,646
HOME FURNISHINGS - 0.2%
Newell Rubbermaid, Inc. 995,300 43,047
TEXTILES & APPAREL - 0.2%
Kellwood Co. 818,000 18,558
Liz Claiborne, Inc. 327,000 12,692
NIKE, Inc. Class B 599,800 31,190
62,440
TOTAL DURABLES 631,959
ENERGY - 12.6%
ENERGY SERVICES - 1.5%
Baker Hughes, Inc. 1,235,800 43,021
Halliburton Co. 4,841,000 223,291
Schlumberger Ltd. 1,846,300 111,817
378,129
OIL & GAS - 11.1%
Amerada Hess Corp. 1,536,700 90,953
Anadarko Petroleum Corp. 1,205,100 46,020
Apache Corp. 529,400 22,466
Atlantic Richfield Co. 369,500 33,278
BP Amoco PLC sponsored ADR 5,625,712 651,879
Burlington Resources, Inc. 1,895,000 83,735
Chevron Corp. 2,885,041 263,260
Conoco, Inc. Class A 1,478,200 38,526
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
ENERGY - CONTINUED
OIL & GAS - CONTINUED
Elf Aquitaine SA sponsored ADR 1,813,100 $ 155,133
Exxon Corp. 4,775,700 379,071
Kerr-McGee Corp. 153,500 7,905
Mobil Corp. 915,000 93,559
Occidental Petroleum Corp. 3,782,500 73,995
Royal Dutch Petroleum Co. (NY 4,496,400 274,280
Registry Gilder 1.25)
Santa Fe Snyder Corp. (a) 863,275 7,985
Texaco, Inc. 130,633 8,140
Tosco Corp. 366,700 9,672
Total Fina SA:
Class B (a) 1,315,943 167,595
sponsored ADR (a) 1,791,992 114,015
Ultramar Diamond Shamrock 993,700 23,476
Corp.
Union Pacific Resources 1,490,100 26,542
Group, Inc.
Unocal Corp. 986,455 39,150
USX-Marathon Group 3,318,900 100,812
2,711,447
TOTAL ENERGY 3,089,576
FINANCE - 23.6%
BANKS - 9.1%
Bank of America Corp. 6,235,417 413,876
Bank of New York Co., Inc. 11,057,034 408,419
Bank One Corp. 7,991,129 436,016
Chase Manhattan Corp. 2,763,600 212,452
Comerica, Inc. 2,590,539 143,775
Credit Suisse Group (Reg.) 350,600 66,328
Mellon Bank Corp. 1,461,000 49,309
National Bank of Canada 4,722,100 58,152
U.S. Bancorp 3,928,500 122,275
Wells Fargo & Co. 8,161,168 318,286
2,228,888
CREDIT & OTHER FINANCE - 7.9%
American Express Co. 4,718,500 621,662
Associates First Capital 6,867,004 263,092
Corp. Class A
Citigroup, Inc. 15,736,200 701,244
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE -
CONTINUED
Fleet Financial Group, Inc. 2,916,596 $ 118,122
Household International, Inc. 5,092,378 218,654
1,922,774
FEDERAL SPONSORED CREDIT - 2.5%
Fannie Mae 7,831,200 540,353
Freddie Mac 443,200 25,429
SLM Holding Corp. 853,900 38,852
604,634
INSURANCE - 2.5%
Aetna, Inc. 275,173 22,564
Allstate Corp. 1,580,770 56,117
Chubb Corp. (The) 105,800 6,328
Financial Security Assurance 680,534 35,771
Holdings Ltd.
Fremont General Corp. 2,883,056 49,012
Hartford Financial Services 3,407,200 183,989
Group, Inc.
Highlands Insurance Group, 787,590 8,024
Inc. (a)(f)
PMI Group, Inc. 883,900 56,514
Reliastar Financial Corp. 2,194,094 99,557
Torchmark Corp. 1,584,100 52,077
Travelers Property Casualty 1,267,700 50,074
Corp. Class A
620,027
SAVINGS & LOANS - 0.8%
Washington Mutual, Inc. 5,914,380 202,937
SECURITIES INDUSTRY - 0.8%
Cendant Corp. (a) 1,058,500 21,302
First Marathon, Inc. Class A 1,057,900 17,417
(non-vtg.)
Franklin Resources, Inc. 997,200 38,018
Lehman Brothers Holdings, 917,060 49,292
Inc.
Nomura Securities Co. Ltd. 3,138,000 44,050
Waddell & Reed Financial, Inc.:
Class A 794,335 20,156
Class B 387,946 9,699
199,934
TOTAL FINANCE 5,779,194
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
HEALTH - 4.9%
DRUGS & PHARMACEUTICALS - 3.4%
Bristol-Myers Squibb Co. 3,693,800 $ 245,638
Lilly (Eli) & Co. 2,150,200 141,107
Merck & Co., Inc. 3,270,800 221,392
Schering-Plough Corp. 4,704,000 230,496
838,633
MEDICAL EQUIPMENT & SUPPLIES
- - 1.0%
Baxter International, Inc. 756,400 51,955
Becton, Dickinson & Co. 1,858,000 50,979
Johnson & Johnson 1,343,100 123,733
Pall Corp. 887,500 18,693
245,360
MEDICAL FACILITIES MANAGEMENT
- - 0.5%
Columbia/HCA Healthcare Corp. 4,784,700 106,460
Tenet Healthcare Corp. (a) 921,500 16,529
122,989
TOTAL HEALTH 1,206,982
INDUSTRIAL MACHINERY &
EQUIPMENT - 8.4%
ELECTRICAL EQUIPMENT - 4.8%
Emerson Electric Co. 1,568,200 93,602
General Electric Co. 8,329,100 907,868
Honeywell, Inc. 496,400 59,475
Loral Space & Communications 634,300 11,972
Ltd. (a)
Siemens AG 1,348,700 110,604
1,183,521
INDUSTRIAL MACHINERY &
EQUIPMENT - 2.6%
Case Corp. 847,000 40,338
Caterpillar, Inc. 425,000 24,916
Deere & Co. 2,239,600 85,665
Ingersoll-Rand Co. 1,002,400 64,467
Kennametal, Inc. 978,200 23,599
Parker-Hannifin Corp. 1,213,300 57,253
Tyco International Ltd. 3,425,020 334,582
630,820
POLLUTION CONTROL - 1.0%
Allied Waste Industries, Inc. 1,211,000 21,722
(a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
POLLUTION CONTROL - CONTINUED
Browning-Ferris Industries, 2,029,282 $ 91,064
Inc.
Ogden Corp. 1,080,800 27,358
Republic Services, Inc. Class 1,194,800 24,120
A
Waste Management, Inc. 2,818,420 72,046
236,310
TOTAL INDUSTRIAL MACHINERY & 2,050,651
EQUIPMENT
MEDIA & LEISURE - 4.3%
BROADCASTING - 1.9%
CBS Corp. (a) 3,342,614 146,866
Infinity Broadcasting Corp. 937,200 25,832
Class A
Time Warner, Inc. 4,163,058 299,740
472,438
ENTERTAINMENT - 1.3%
Disney (Walt) Co. 2,554,500 70,568
King World Productions, Inc. 554,900 19,352
(a)
Mandalay Resort Group (a) 961,000 16,397
Viacom, Inc. Class B 4,658,000 195,345
(non-vtg.) (a)
301,662
LEISURE DURABLES & TOYS - 0.1%
Brunswick Corp. 1,155,600 31,635
LODGING & GAMING - 0.1%
Mirage Resorts, Inc. (a) 1,446,000 20,334
PUBLISHING - 0.4%
Harcourt General, Inc. 1,328,800 61,706
Reader's Digest Association, 1,134,800 39,505
Inc. Class A (non-vtg.)
101,211
RESTAURANTS - 0.5%
McDonald's Corp. 2,613,900 108,967
TOTAL MEDIA & LEISURE 1,036,247
NONDURABLES - 3.5%
BEVERAGES - 0.3%
PepsiCo, Inc. 625,300 24,465
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
NONDURABLES - CONTINUED
BEVERAGES - CONTINUED
Seagram Co. Ltd. 666,300 $ 34,392
Whitman Corp. 1,179,200 22,479
81,336
FOODS - 0.8%
Corn Products International, 856,300 26,973
Inc.
Goodman Fielder Ltd. 9,401,959 9,177
Heinz (H.J.) Co. 1,002,200 47,229
Nabisco Group Holdings Corp. 1,945,500 36,478
Nabisco Holdings Corp. Class A 1,569,800 65,343
185,200
HOUSEHOLD PRODUCTS - 0.9%
Gillette Co. 737,700 32,320
Procter & Gamble Co. 630,400 57,051
Unilever NV 23,571 1,669
Unilever NV NY Shares 525,714 36,734
Unilever PLC 10,407,678 100,174
227,948
TOBACCO - 1.5%
Philip Morris Companies, Inc. 9,789,600 364,663
TOTAL NONDURABLES 859,147
PRECIOUS METALS - 0.1%
Newmont Mining Corp. 1,280,700 23,693
RETAIL & WHOLESALE - 3.5%
APPAREL STORES - 1.5%
Charming Shoppes, Inc. (a) 1,334,600 8,925
Footstar, Inc. (a)(f) 1,130,354 40,693
Limited, Inc. (The) 2,669,539 121,965
Payless ShoeSource, Inc. (a) 778,700 42,050
TJX Companies, Inc. 4,518,946 149,408
363,041
GENERAL MERCHANDISE STORES -
1.8%
Consolidated Stores Corp. (a) 1,678,200 26,222
Dayton Hudson Corp. 1,876,100 121,360
Federated Department Stores, 2,575,240 132,142
Inc. (a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES -
CONTINUED
Hudson's Bay Co. (g) 642,800 $ 7,681
Wal-Mart Stores, Inc. 3,825,900 161,644
449,049
GROCERY STORES - 0.2%
Albertson's, Inc. 1,013,400 50,353
TOTAL RETAIL & WHOLESALE 862,443
SERVICES - 1.5%
LEASING & RENTAL - 0.2%
Ryder Systems, Inc. 1,761,200 41,498
PRINTING - 0.3%
Donnelley (R.R.) & Sons Co. 1,302,600 45,591
New England Business Service, 587,800 16,863
Inc.
Wallace Computer Services, 513,100 12,475
Inc.
74,929
SERVICES - 1.0%
ACNielsen Corp. (a) 1,474,433 42,666
Block (H&R), Inc. 102,700 5,610
Dun & Bradstreet Corp. 327,000 10,382
Edperbrascan Corp. Class A 7,136,569 103,284
(ltd. vtg.)
Manpower, Inc. 609,500 14,095
Modis Professional Services, 1,003,500 14,551
Inc. (a)
Viad Corp. 1,966,500 65,017
255,605
TOTAL SERVICES 372,032
TECHNOLOGY - 2.5%
COMPUTER SERVICES & SOFTWARE
- - 1.9%
Electronic Data Systems Corp. 711,900 42,936
International Business 1,753,000 220,330
Machines Corp.
NCR Corp. (a) 337,900 15,839
Unisys Corp. (a) 4,529,771 184,871
463,976
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
TECHNOLOGY - CONTINUED
COMPUTERS & OFFICE EQUIPMENT
- - 0.2%
Compaq Computer Corp. 1,628,900 $ 39,094
Xerox Corp. 251,086 12,240
51,334
ELECTRONIC INSTRUMENTS - 0.1%
Thermo Electron Corp. (a) 1,236,100 21,245
ELECTRONICS - 0.3%
Motorola, Inc. 881,500 80,437
TOTAL TECHNOLOGY 616,992
TRANSPORTATION - 1.4%
AIR TRANSPORTATION - 0.2%
AMR Corp. (a) 680,000 44,115
RAILROADS - 1.2%
Burlington Northern Santa Fe 4,668,400 149,389
Corp.
CSX Corp. 2,186,000 105,884
Union Pacific Corp. 828,400 44,992
300,265
TOTAL TRANSPORTATION 344,380
UTILITIES - 11.4%
CELLULAR - 0.3%
ALLTEL Corp. 1,143,200 82,096
ELECTRIC UTILITY - 3.0%
Allegheny Energy, Inc. 2,456,600 82,910
American Electric Power Co., 2,031,100 71,850
Inc.
Avista Corp. 1,445,700 24,306
Central & South West Corp. 911,600 19,428
CILCORP, Inc. 255,700 16,365
Cinergy Corp. 1,083,198 32,428
CMS Energy Corp. 767,900 28,700
Consolidated Edison, Inc. 1,007,350 43,820
DPL, Inc. 2,145,975 41,176
Duke Energy Corp. 855,427 45,284
Entergy Corp. 5,499,600 166,707
Niagara Mohawk Holdings, Inc. 3,055,600 48,126
(a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
PG&E Corp. 3,118,898 $ 98,635
Pinnacle West Capital Corp. 485,200 19,378
739,113
GAS - 0.3%
Questar Corp. 1,429,300 26,889
Sempra Energy 1,945,851 43,174
70,063
TELEPHONE SERVICES - 7.8%
Ameritech Corp. 3,687,800 270,131
AT&T Corp. 8,587,550 446,016
Bell Atlantic Corp. 5,526,192 352,295
BellSouth Corp. 2,467,100 118,421
CenturyTel, Inc. 400,000 17,100
GTE Corp. 2,563,400 188,891
MCI WorldCom, Inc. (a) 2,763,693 228,005
Pathnet, Inc. warrants 1,040 10
4/15/08 (a)(g)
SBC Communications, Inc. 4,051,100 231,672
Sprint Corp. (FON Group) 1,030,800 53,279
1,905,820
TOTAL UTILITIES 2,797,092
TOTAL COMMON STOCKS 22,901,923
(Cost $14,499,769)
PREFERRED STOCKS - 3.8%
CONVERTIBLE PREFERRED STOCKS
- - 3.8%
BASIC INDUSTRIES - 0.4%
CHEMICALS & PLASTICS - 0.3%
Hercules Trust II $0.00 31,600 31,284
Monsanto Co. $1.625 ACES 939,300 38,511
69,795
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
BASIC INDUSTRIES - CONTINUED
PAPER & FOREST PRODUCTS - 0.1%
Georgia-Pacific Corp. $3.75 631,600 $ 29,962
(a)
TOTAL BASIC INDUSTRIES 99,757
DURABLES - 0.0%
AUTOS, TIRES, & ACCESSORIES -
0.0%
Automatic Common Exchangeable 465,300 7,096
Securities Trust II
(Republic Industries) $1.55
ACES
ENERGY - 0.2%
OIL & GAS - 0.2%
Apache Corp. $2.015 ACES 368,200 14,153
Coastal Corp. (The) $0.00 741,500 15,989
Tosco Financing Trust $2.875 76,600 3,706
(a)(g)
33,848
FINANCE - 0.7%
CREDIT & OTHER FINANCE - 0.6%
Federal-Mogul Financing Trust 990,000 55,069
$3.50
Union Pacific Capital Trust:
$3.125 823,100 40,435
$3.125 TIDES (g) 817,600 40,165
135,669
INSURANCE - 0.1%
Conseco, Inc. $3.50 PRIDES 600,500 22,669
SECURITIES INDUSTRY - 0.0%
Merrill Lynch & Co., Inc. 156,500 3,287
(IMC Global) $2.39 STRYPES
TOTAL FINANCE 161,625
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.3%
ELECTRICAL EQUIPMENT - 0.2%
Loral Space & Communications
Ltd. Series C:
$3.00 (g) 388,600 20,402
$3.00 418,500 21,971
42,373
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
INDUSTRIAL MACHINERY &
EQUIPMENT - CONTINUED
INDUSTRIAL MACHINERY &
EQUIPMENT - 0.1%
Ingersoll Rand Co./Ingersoll 1,126,900 $ 30,849
Rand Finance $0.195 Growth
PRIDES
TOTAL INDUSTRIAL MACHINERY & 73,222
EQUIPMENT
MEDIA & LEISURE - 1.1%
BROADCASTING - 0.7%
Evergreen Media Corp. $3.00 193,800 20,349
(g)
MediaOne Group, Inc.:
(Vodafone AirTouch PLC) $3.63 528,700 49,698
PIES
Class D $2.25 763,500 109,562
179,609
ENTERTAINMENT - 0.2%
Premier Parks, Inc. $4.05 PIES 581,100 40,677
PUBLISHING - 0.2%
Readers Digest Automatic 985,200 31,342
Common Exchange Trust $1.93
TRACES
Taylor (J.N.) Holdings Ltd. 956,400 0
9.5% (a)
Tribune Co. (The Learning 216,300 5,624
Co., Inc.) $1.75 DECS
36,966
TOTAL MEDIA & LEISURE 257,252
NONDURABLES - 0.3%
BEVERAGES - 0.2%
Seagram Co. Ltd. $3.76 950,900 47,902
FOODS - 0.1%
Chiquita Brands
International, Inc.:
Series A, $2.875 474,500 14,769
Series B, $3.75 178,500 7,095
21,864
TOTAL NONDURABLES 69,766
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
CONVERTIBLE PREFERRED STOCKS
- - CONTINUED
RETAIL & WHOLESALE - 0.1%
GENERAL MERCHANDISE STORES -
0.1%
K mart Financing I $3.875 607,400 $ 33,027
UTILITIES - 0.7%
ELECTRIC UTILITY - 0.6%
Houston Industries, Inc. 612,600 74,163
(Time Warner) $3.216 ACES
NiSource, Inc. $3.875 PIES 606,800 28,975
Texas Utilities Co. $1.6575 869,700 39,789
growth PRIDES
142,927
GAS - 0.1%
Enron Corp. Series J, $10.50 31,800 36,983
TOTAL UTILITIES 179,910
TOTAL CONVERTIBLE PREFERRED 915,503
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 0.0%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
California Federal Preferred 63,160 1,642
Capital Corp. $2.2812
MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
CSC Holdings, Inc. 11.125% 42,331 4,593
pay-in-kind
PUBLISHING - 0.0%
PRIMEDIA, Inc. 8.625% 12,245 1,102
TOTAL MEDIA & LEISURE 5,695
TOTAL NONCONVERTIBLE 7,337
PREFERRED STOCKS
TOTAL PREFERRED STOCKS 922,840
(Cost $746,374)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 1.7%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
CONVERTIBLE BONDS - 1.3%
CONSTRUCTION & REAL ESTATE -
0.0%
REAL ESTATE INVESTMENT TRUSTS
- - 0.0%
Liberty Property LP 8.3% Ba2 $ 1,358 $ 1,601
7/1/01
DURABLES - 0.1%
CONSUMER ELECTRONICS - 0.1%
Sunbeam Corp. 0% 3/25/18 (g) Caa2 128,730 21,080
FINANCE - 0.0%
INSURANCE - 0.0%
Loews Corp. 3.125% 9/15/07 A2 9,210 7,616
MEDIA & LEISURE - 0.4%
BROADCASTING - 0.1%
Jacor Communications, Inc. Ba3 18,492 20,341
liquid yield option notes:
0% 6/12/11
0% 2/9/18 Ba3 7,150 4,084
24,425
PUBLISHING - 0.3%
News America Holdings, Inc. Baa3 99,380 71,802
liquid yield option notes
0% 3/11/13
TOTAL MEDIA & LEISURE 96,227
NONDURABLES - 0.0%
FOODS - 0.0%
Chiquita Brands B3 1,680 1,588
International, Inc. 7%
3/28/01
RETAIL & WHOLESALE - 0.1%
APPAREL STORES - 0.1%
Baker (J.), Inc. 7% 6/1/02 B3 13,300 11,230
Charming Shoppes, Inc. 7.5% B2 5,338 5,685
7/15/06
16,915
DRUG STORES - 0.0%
Rite Aid Corp. 5.25% 9/15/02 Baa2 520 503
(g)
TOTAL RETAIL & WHOLESALE 17,418
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
CONVERTIBLE BONDS - CONTINUED
SERVICES - 0.2%
ADT Operations, Inc. liquid Baa1 $ 19,295 $ 51,224
yield option notes 0% 7/6/10
TECHNOLOGY - 0.4%
COMPUTER SERVICES & SOFTWARE
- - 0.1%
Softkey International, Inc. - 29,030 28,667
5.5% 11/1/00 (g)
COMPUTERS & OFFICE EQUIPMENT
- - 0.1%
Quantum Corp. 7% 8/1/04 B2 16,080 14,874
ELECTRONICS - 0.2%
Micron Technology, Inc. 7% B2 36,417 42,517
7/1/04
Solectron Corp. 0% 1/27/19 (g) Baa3 24,870 14,269
56,786
TOTAL TECHNOLOGY 100,327
UTILITIES - 0.1%
TELEPHONE SERVICES - 0.1%
Cam-Net Communications - 4,225 0
Network, Inc. 11.5% 4/4/00
(d)
Telefonos de Mexico SA de CV BB 19,710 20,351
4.25% 6/15/04
20,351
TOTAL CONVERTIBLE BONDS 317,432
NONCONVERTIBLE BONDS - 0.4%
BASIC INDUSTRIES - 0.0%
CHEMICALS & PLASTICS - 0.0%
Lyondell Chemical Co. 9.875% Ba3 2,660 2,687
5/1/07 (g)
ENERGY - 0.0%
ENERGY SERVICES - 0.0%
RBF Finance Co. 11.375% Ba3 3,030 3,136
3/15/09
FINANCE - 0.0%
CREDIT & OTHER FINANCE - 0.0%
Macsaver Financial Services, Ba2 2,000 1,590
Inc. 7.875% 8/1/03
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
NONCONVERTIBLE BONDS -
CONTINUED
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
Tenet Healthcare Corp. 8.125% Ba3 $ 4,440 $ 4,129
12/1/08
MEDIA & LEISURE - 0.2%
BROADCASTING - 0.2%
Adelphia Communications Corp.:
7.75% 1/15/09 B1 6,660 6,061
9.875% 3/1/07 B1 3,920 4,038
Century Communications Corp., Ba3 1,910 821
Series B, 0% 1/15/08
Charter Communications B2 3,330 3,164
Holdings LLC/Charter
Communications Holdings
Capital Corp. 8.625% 4/1/09
(g)
CSC Holdings, Inc. 7.875% Ba2 1,200 1,115
2/15/18
Falcon Holding Group B2 3,630 2,487
LP/Falcon Funding Corp. 0%
4/15/10 (e)
NTL Communications Corp. B3 12,950 13,921
11.5% 10/1/08
Telewest PLC 0% 10/1/07 (e) B1 3,640 3,240
34,847
ENTERTAINMENT - 0.0%
Regal Cinemas, Inc. 8.875% B3 4,330 3,778
12/15/10
LODGING & GAMING - 0.0%
HMH Properties, Inc. 7.875% Ba2 2,110 1,920
8/1/08
RESTAURANTS - 0.0%
Domino's, Inc. 10.375% 1/15/09 B3 2,220 2,253
TOTAL MEDIA & LEISURE 42,798
NONDURABLES - 0.0%
HOUSEHOLD PRODUCTS - 0.0%
Revlon Consumer Products B2 3,910 3,597
Corp. 9% 11/1/06
UTILITIES - 0.2%
CELLULAR - 0.1%
Nextel Communications, Inc.:
0% 10/31/07 (e) B2 9,230 6,553
12% 11/1/08 B2 4,160 4,659
11,212
CORPORATE BONDS - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)
NONCONVERTIBLE BONDS -
CONTINUED
UTILITIES - CONTINUED
TELEPHONE SERVICES - 0.1%
GST Network Funding, Inc. 0% - $ 3,190 $ 1,914
5/1/08 (e)(g)
ICG Services, Inc. 0% 5/1/08 B3 2,795 1,537
(e)
Intermedia Communications, B2 1,540 1,382
Inc. 8.6% 6/1/08
Level 3 Communications, Inc. B3 3,230 1,890
0% 12/1/08 (e)
McLeodUSA, Inc. 9.5% 11/1/08 B2 1,970 1,931
NEXTLINK Communications, Inc. B3 5,550 5,300
9.625% 10/1/07
Pathnet, Inc. 12.25% 4/15/08 - 1,040 551
Rhythms NetConnections, Inc. B3 3,330 3,080
12.75% 4/15/09 (g)
Teligent, Inc. 0% 3/1/08 (e) Caa1 6,110 3,467
WinStar Communications, Inc.:
0% 10/15/05 (e) Caa1 1,280 1,094
15% 3/1/07 CCC 1,660 2,040
24,186
TOTAL UTILITIES 35,398
TOTAL NONCONVERTIBLE BONDS 93,335
TOTAL CORPORATE BONDS 410,767
(Cost $355,745)
COMMERCIAL MORTGAGE
SECURITIES - 0.0%
Bardell Associates Note Trust - 2,454 2,608
12.5%, 11/1/08 (d) (Cost
$2,501)
INDEXED SECURITIES - 0.0%
OTHER SECURITIES - 0.0%
Merrill Lynch & Co. Inc. Aa3 5,000 5,575
Japan Index equity
participation securities 0%,
1/31/00 (Cost $4,188)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CASH EQUIVALENTS - 1.2%
SHARES VALUE (NOTE 1) (000S)
Central Cash Collateral Fund, 59,387,548 $ 59,388
5.06% (c)
Taxable Central Cash Fund, 233,477,559 233,478
5.06% (c)
TOTAL CASH EQUIVALENTS 292,866
(Cost $292,866)
TOTAL INVESTMENT PORTFOLIO - 24,536,579
100.3%
(Cost $15,901,443)
NET OTHER ASSETS - (0.3%) (75,905)
NET ASSETS - 100% $ 24,460,674
</TABLE>
SECURITY TYPE ABBREVIATIONS
ACES - Automatic Common Exchange
Securities
DECS - Dividend Enhanced Convertible
Stock/Debt Exchangeable for
Common Stock
PIES - Premium Income Equity
Securities
PRIDES - Preferred Redeemable
Increased Dividend Equity
Securities
STRYPES - Structured Yield Product
Exchangeable for Common Stock
TIDES - Term Income Deferred Equity
Securities
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) The rate quoted is the annualized seven-day yield of the fund at
period end.
(d) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding
is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST (000S)
Bardell Associates Note Trust 4/19/94 $ 2,494
12.5%, 11/1/08
Cam-Net Communications 4/12/96 $ 3,413
Network, Inc. 11.5% 4/4/00
(e) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(f) Affiliated company
(g) 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 $167,677,000 or 0.7% of net assets.
INCOME TAX INFORMATION
At July 31, 1999, the aggregate cost of investment securities for
income tax purposes was $15,910,358,000. Net unrealized appreciation
aggregated $8,626,221,000, of which $9,362,450,000 related to
appreciated investment securities and $736,229,000 related to
depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 24,536,579
value (cost $15,901,443) -
See accompanying schedule
Receivable for investments 117,803
sold
Receivable for fund shares 21,224
sold
Dividends receivable 34,133
Interest receivable 4,006
Other receivables 249
TOTAL ASSETS 24,713,994
LIABILITIES
Payable for investments $ 144,881
purchased
Payable for fund shares 35,045
redeemed
Accrued management fee 10,170
Other payables and accrued 3,836
expenses
Collateral on securities 59,388
loaned, at value
TOTAL LIABILITIES 253,320
NET ASSETS $ 24,460,674
Net Assets consist of:
Paid in capital $ 14,407,836
Undistributed net investment 41,457
income
Accumulated undistributed net 1,376,220
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 8,635,161
(depreciation) on
investments and assets and
liabilities in foreign
currencies
NET ASSETS, for 408,625 $ 24,460,674
shares outstanding
NET ASSET VALUE, offering $59.86
price and redemption price
per share ($24,460,674
(divided by) 408,625 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JULY 31, 1999
(UNAUDITED)
INVESTMENT INCOME $ 249,826
Dividends (including $155
received from affiliated
issuers)
Interest 14,910
Security lending 279
265,015
Less foreign taxes withheld (7,002)
TOTAL INCOME 258,013
EXPENSES
Management fee $ 58,456
Transfer agent fees 23,138
Accounting and security 573
lending fees
Non-interested trustees' 65
compensation
Custodian fees and expenses 429
Registration fees 46
Audit 74
Legal 5
Miscellaneous 370
Total expenses before 83,156
reductions
Expense reductions (2,087) 81,069
NET INVESTMENT INCOME 176,944
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 1,379,927
(including realized gain
(loss) of $625 on sales of
investments in affiliated
issuers)
Foreign currency transactions (349) 1,379,578
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 740,650
Assets and liabilities in (128) 740,522
foreign currencies
NET GAIN (LOSS) 2,120,100
NET INCREASE (DECREASE) IN $ 2,297,044
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JULY 31, YEAR ENDED JANUARY 31, 1999
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 176,944 $ 360,230
income
Net realized gain (loss) 1,379,578 1,218,566
Change in net unrealized 740,522 1,066,198
appreciation (depreciation)
NET INCREASE (DECREASE) IN 2,297,044 2,644,994
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (156,096) (359,850)
From net investment income
From net realized gain (321,283) (993,948)
TOTAL DISTRIBUTIONS (477,379) (1,353,798)
Share transactions Net 2,355,391 6,654,024
proceeds from sales of shares
Reinvestment of distributions 463,339 1,317,537
Cost of shares redeemed (3,444,306) (7,268,343)
NET INCREASE (DECREASE) IN (625,576) 703,218
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 1,194,089 1,994,414
IN NET ASSETS
NET ASSETS
Beginning of period 23,266,585 21,272,171
End of period (including $ 24,460,674 $ 23,266,585
undistributed net investment
income of $41,457 and
$20,609, respectively)
OTHER INFORMATION
Shares
Sold 40,005 120,581
Issued in reinvestment of 8,225 24,642
distributions
Redeemed (59,101) (133,223)
Net increase (decrease) (10,871) 12,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JULY 31, 1999 YEARS ENDED JANUARY 31,
(UNAUDITED) 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 55.46 $ 52.20 $ 44.47 $ 39.15 $ 30.89 $ 35.19
period
Income from Investment
Operations
Net investment income .43 D .85 D .94 D 1.01 D .93 1.02
Net realized and unrealized 5.13 5.65 9.79 7.17 9.65 (2.12)
gain (loss)
Total from investment 5.56 6.50 10.73 8.18 10.58 (1.10)
operations
Less Distributions
From net investment income (.38) (.85) (.96) (1.02) (.96) (.98)
From net realized gain (.78) (2.39) (2.04) (1.84) (1.36) (2.22)
Total distributions (1.16) (3.24) (3.00) (2.86) (2.32) (3.20)
Net asset value, end of $ 59.86 $ 55.46 $ 52.20 $ 44.47 $ 39.15 $ 30.89
period
TOTAL RETURN B, C 10.16% 12.79% 24.69% 21.74% 35.21% (3.01)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 24,461 $ 23,267 $ 21,272 $ 15,024 $ 11,010 $ 7,439
(in millions)
Ratio of expenses to average .69% A .67% .67% .68% .68% .70%
net assets
Ratio of expenses to average .67% A, E .66% E .65% E .66% E .67% E .69% E
net assets after expense
reductions
Ratio of net investment 1.47% A 1.54% 1.90% 2.46% 2.86% 3.37%
income to average net assets
Portfolio turnover rate 26% A 30% 23% 30% 39% 50%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1999 (Unaudited)
1. 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, 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 require 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts and foreign currency options, disposition of
foreign currencies, the difference between the amount of net
investment income accrued and the U.S. dollar amount actually
received, and gains and losses between trade and settlement date on
purchases and sales of securities. The effects of changes in foreign
currency exchange rates on investments in securities are included with
the net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. Foreign
governments may also impose taxes on other payments or transactions
with respect to foreign securities. The fund accrues such taxes as
applicable. The schedule of investments includes information
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES - CONTINUED
regarding income taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or are invested in a
cross-section of other Fidelity funds. Deferred amounts remain in the
fund until distributed in accordance with the Plan.
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, foreign currency transactions,
passive foreign investment companies (PFIC), market discount,
non-taxable dividends, and losses deferred due to wash sales. The fund
also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar
2. OPERATING POLICIES - CONTINUED
FOREIGN CURRENCY CONTRACTS - CONTINUED
value of foreign currency contracts is determined using contractual
currency exchange rates established at the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
CENTRAL CASH FUNDS. Pursuant to an Exemptive Order issued by the SEC,
the fund may invest in the Taxable Central Cash Fund and the Central
Cash Collateral Fund (the Cash Funds) managed by Fidelity Investments
Money Management, Inc. (FIMM), an affiliate of FMR. The Cash Funds are
open-end money market funds available only to investment companies and
other accounts managed by FMR and its affiliates. The Cash Funds seek
preservation of capital, liquidity, and current income. Income
distributions from the Cash Funds are declared daily and paid monthly
from net interest income. Income distributions earned by the fund are
recorded as either interest income or security lending income in the
accompanying financial statements.
INDEXED SECURITIES. The fund may invest in indexed securities whose
values are linked either directly or inversely to changes in foreign
currencies, interest rates, commodities, indices, or other underlying
instruments. The fund uses these securities to increase or decrease
its exposure to different underlying instruments and to gain exposure
to markets that might be difficult to invest in through conventional
securities. Indexed securities may be more volatile than their
underlying instruments, but any loss is limited to the amount of the
original investment. Gains (losses) realized upon the sale of indexed
securities are included in realized gains (losses) on investment
securities.
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
2. OPERATING POLICIES - CONTINUED
RESTRICTED SECURITIES - CONTINUED
period, restricted securities (excluding 144A issues) amounted to
$2,608,000 or .01% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $3,081,310,000 and $4,152,183,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .20%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .47% of average net
assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .19% 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 $431,000 for the
period.
5. SECURITY LENDING.
The fund lends portfolio securities from time to time in order to earn
additional income. The fund receives collateral in the form of U.S.
Treasury obligations, letters of credit, and/or cash against the
loaned securities, and maintains collateral in an amount at not less
than 100% of the market value of the loaned securities during the
period of the loan. The market value of the loaned securities is
determined at the close of business of the fund and any additional
required collateral is delivered to the fund on the next business day.
If the borrower defaults on its obligation to return the securities
loaned because of insolvency or other reasons, the fund could
experience delays and costs in recovering the securities loaned or in
gaining access to the collateral.
5. SECURITY LENDING - CONTINUED
At period end, the value of the securities loaned amounted to
$73,327,000. The fund received cash collateral of $59,388,000, which
was invested in the Central Cash Collateral Fund, and U.S. Treasury
obligations valued at $16,372,000.
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 $1,341,000 under this arrangement.
In addition, the fund has entered into an arrangement with its
transfer agent whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the fund's expenses. During
the period, the fund's transfer agent fees were reduced by $746,000
under this arrangement.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF TRANSACTIONS WITH
AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE COST SALES COST DIVIDEND INCOME VALUE
AFFILIATE
Footstar Inc. $ - $ - $ - $ 40,693
Fremont General Corp. - 1,602 - -
Highlands Insurance Group - - - 8,024
Inland Steel Industries Inc. - 9,301 - -
Ryerson Tull Inc. 5,411 - 155 33,163
TOTALS $ 5,411 $ 10,903 $ 155 $ 81,880
</TABLE>
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISER
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Stephen R. Petersen, Vice President
Richard A. Spillane, Jr., Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
* INDEPENDENT TRUSTEES
EQU-SANN-0999 83809
1.536123.102
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
FIDELITY'S GROWTH AND INCOME FUNDS
Balanced Fund
Convertible Securities Fund
Equity-Income Fund
Equity-Income II Fund
Fidelity(registered trademark) Fund
Global Balanced Fund
Growth & Income Portfolio
Growth & Income II Portfolio
Puritan(registered trademark) Fund
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Utilities Fund
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FIDELITY
UTILITIES
FUND
SEMIANNUAL REPORT
JULY 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
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 13 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 17 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
In July, the steadily growing U.S. economy again sparked fears of
inflation and posed the threat of another Federal Reserve Board
interest-rate hike at its August policy meeting. Despite rising
profits and continued productivity gains at many U.S. corporations,
stock and bond markets sold off sharply toward the month's end.
Renewed jitters about inflation were sparked by a government report
that showed a larger-than-expected increase in the employment-cost
index.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888, or visit our
web site at www.fidelity.com. 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY UTILITIES 10.25% 31.57% 169.59% 355.92%
S&P 500 (registered trademark) 4.50% 20.20% 220.67% 396.75%
Russell 3000 Utilities 10.46% 41.88% 194.41% 342.99%
Utility Funds Average 6.82% 17.82% 114.76% 242.41%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Standard & Poor's 500 Index - a market capitalization-weighted
index of common stocks - and the Russell 3000 Utilities Index - a
market capitalization-weighted index comprised of over 200 utility
stocks that are included in the Russell 3000 Index. 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 mutual
funds with similar objectives tracked by Lipper Inc. The past six
months average represents a peer group of 104 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY UTILITIES 31.57% 21.94% 16.38%
S&P 500 20.20% 26.25% 17.38%
Russell 3000 Utilities 41.88% 24.11% 16.05%
Utility Funds Average 17.82% 16.39% 12.88%
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER 10 YEARS
Utilities S&P 500
Russell 3000 Utilities
00311 SP001
RS018
1989/07/31 10000.00 10000.00
10000.00
1989/08/31 9895.33 10196.00
9981.00
1989/09/30 9944.24 10154.20
10258.47
1989/10/31 9976.92 9918.62
10246.16
1989/11/30 10295.59 10120.96
10518.71
1989/12/31 10773.87 10363.86
11135.11
1990/01/31 10226.63 9668.45
10057.23
1990/02/28 10252.28 9793.17
10060.24
1990/03/31 10243.25 10052.69
10285.59
1990/04/30 9830.00 9801.37
9808.34
1990/05/31 10304.80 10757.01
10494.93
1990/06/30 10348.62 10683.86
10204.22
1990/07/31 10357.55 10649.67
10074.62
1990/08/31 9830.74 9686.94
9216.27
1990/09/30 9982.54 9215.19
9363.73
1990/10/31 10590.56 9175.56
9959.26
1990/11/30 10826.51 9768.30
10089.73
1990/12/31 10972.87 10040.84
10212.82
1991/01/31 10926.34 10478.62
10150.52
1991/02/28 11317.23 11227.84
10540.30
1991/03/31 11451.32 11499.55
10779.57
1991/04/30 11451.32 11527.15
10801.13
1991/05/31 11451.32 12025.12
10690.95
1991/06/30 11365.79 11474.37
10616.12
1991/07/31 11721.88 12009.08
10979.19
1991/08/31 12010.59 12293.69
11208.65
1991/09/30 12390.70 12088.39
11441.79
1991/10/31 12546.80 12250.37
11628.30
1991/11/30 12644.37 11756.68
11516.66
1991/12/31 13297.19 13101.65
12380.41
1992/01/31 12859.92 12857.96
11893.86
1992/02/29 12810.22 13025.11
11675.02
1992/03/31 12661.34 12771.12
11628.32
1992/04/30 13076.64 13146.59
12237.64
1992/05/31 13339.99 13211.01
12172.78
1992/06/30 13472.54 13014.17
12317.64
1992/07/31 14200.51 13546.45
13115.82
1992/08/31 14221.01 13268.74
12989.91
1992/09/30 14262.14 13425.32
13156.18
1992/10/31 14241.40 13472.30
13093.03
1992/11/30 14376.24 13931.71
13320.85
1992/12/31 14746.67 14103.07
13890.98
1993/01/31 14907.07 14221.54
14114.62
1993/02/28 15698.41 14414.95
14996.79
1993/03/31 16120.81 14719.10
15331.22
1993/04/30 15968.83 14362.90
15141.11
1993/05/31 16012.25 14747.83
15374.28
1993/06/30 16765.87 14790.60
16029.23
1993/07/31 16973.94 14731.43
16373.86
1993/08/31 17751.45 15289.75
17009.16
1993/09/30 17762.14 15172.02
16859.48
1993/10/31 17618.63 15486.08
16817.33
1993/11/30 16890.04 15338.97
15828.47
1993/12/31 17048.23 15524.57
15883.87
1994/01/31 17789.45 16052.40
15996.65
1994/02/28 17059.46 15617.38
15134.43
1994/03/31 16413.99 14936.47
14633.48
1994/04/30 16829.54 15127.65
14971.51
1994/05/31 16529.42 15375.75
14719.99
1994/06/30 16399.09 14999.04
14515.38
1994/07/31 16911.20 15491.01
15046.65
1994/08/31 17039.23 16126.14
15168.52
1994/09/30 16584.14 15731.05
14845.43
1994/10/31 16572.40 16085.00
14976.07
1994/11/30 16044.24 15499.18
14484.86
1994/12/31 16146.91 15729.04
14593.50
1995/01/31 16653.82 16136.89
15404.89
1995/02/28 16888.73 16765.74
15512.73
1995/03/31 16977.27 17260.50
15424.31
1995/04/30 17488.70 17768.82
15779.06
1995/05/31 17887.88 18479.04
16189.32
1995/06/30 18004.02 18908.31
16509.87
1995/07/31 18533.17 19535.31
16953.98
1995/08/31 18936.34 19584.34
17450.74
1995/09/30 19811.65 20410.80
18605.97
1995/10/31 19900.66 20337.94
18788.31
1995/11/30 20409.30 21230.77
19165.96
1995/12/31 21091.65 21639.68
20034.18
1996/01/31 21417.94 22376.29
20462.59
1996/02/29 20856.71 22583.72
19941.61
1996/03/31 20692.52 22801.20
19666.61
1996/04/30 21341.65 23137.29
19823.34
1996/05/31 21301.90 23734.00
19952.13
1996/06/30 21796.56 23824.43
20367.05
1996/07/31 20835.54 22771.86
18588.40
1996/08/31 21142.53 23252.12
18584.50
1996/09/30 21381.09 24560.75
18738.39
1996/10/31 22201.38 25238.14
19152.77
1996/11/30 23384.73 27145.89
19998.12
1996/12/31 23504.19 26608.13
20302.37
1997/01/31 24143.58 28270.60
20690.15
1997/02/28 24213.07 28492.25
21019.12
1997/03/31 23197.26 27321.50
19797.91
1997/04/30 23790.62 28952.59
20039.44
1997/05/31 25033.83 30715.23
21075.48
1997/06/30 25639.91 32091.27
21747.79
1997/07/31 26450.49 34644.77
22213.19
1997/08/31 25725.24 32703.97
21615.66
1997/09/30 27551.36 34495.17
23308.17
1997/10/31 27622.92 33343.03
23860.57
1997/11/30 29598.03 34886.48
26299.12
1997/12/31 30930.44 35485.48
27735.05
1998/01/31 31184.75 35877.95
28189.91
1998/02/28 32345.04 38465.47
28674.77
1998/03/31 34844.96 40435.28
31289.91
1998/04/30 34149.68 40842.06
30197.89
1998/05/31 34036.49 40139.99
29865.72
1998/06/30 34570.91 41770.47
30791.55
1998/07/31 34652.10 41325.62
31222.64
1998/08/31 30657.53 35350.76
29130.72
1998/09/30 33553.09 37615.33
32043.79
1998/10/31 34922.61 40674.96
33415.27
1998/11/30 36080.17 43140.27
34444.46
1998/12/31 39757.11 45626.01
38169.97
1999/01/31 41352.20 47534.09
40102.63
1999/02/28 40683.29 46056.73
38845.41
1999/03/31 41179.61 47899.46
39605.97
1999/04/30 43841.06 49754.61
42163.44
1999/05/31 45007.72 48579.90
43788.50
1999/06/30 45865.71 51276.09
44972.76
1999/07/30 45591.72 49675.25
44298.62
IMATRL PRASUN SHR__CHT 19990731 19990811 142253 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Utilities Fund on July 31, 1989. As the chart
shows, by July 31, 1999, the value of the investment would have grown
to $45,592 - a 355.92% increase on the initial investment. For
comparison, look at how both the Standard & Poor's 500 Index and the
Russell 3000 Utilities Index did over the same period. With dividends
and capital gains, if any, reinvested, the same $10,000 in the S&P 500
Index would have grown to $49,675 - a 396.75% increase. If $10,000 was
put in the Russell 3000 Utilities Index, it would have grown to
$44,299 - a 342.99% 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
long-term growth and
short-term volatility. 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
Federal Reserve Board monetary
policy, the Internet craze and Y2K
concerns were but three factors
influencing the direction of the U.S.
stock market for the six months that
ended July 31, 1999. The Fed's
decision to cut interest rates last
fall resulted in a phase of broader
market participation as smaller
companies - which tend to rely
on borrowed money to fund growth
- - gained some ground on their
larger counterparts. The Russell
2000 Index, a gauge of small-stock
performance, easily outpaced the
Standard & Poor's 500 Index in
the second quarter of 1999. For the
six-month period, however, the
Russell 2000 returned 4.89%, while
the S&P 500 returned 4.50% and the
Dow Jones Industrial Average - an
index of 30 blue-chip stocks -
returned 14.70%. Investors' love
affair with Internet stocks continued
through much of the period, with
many valuations reaching record
peaks around April. Technology
stocks benefited, as did stocks of
telecommunications companies with
Internet exposure. As the period
drew to a close, however, Internet
stocks appeared to have cooled
some and investor concerns over Y2K
- - particularly the spending freeze
it could cause within the technology
sector - took hold. The Fed's late
June decision to raise interest rates
only slightly was well-received by
the market, as was its switch to a
neutral stance regarding future rate
hikes.
(photograph of Peter Saperstone)
An interview with Peter Saperstone, Portfolio Manager of Fidelity
Utilities Fund
Q. HOW DID THE FUND PERFORM, PETER?
A. For the six-month period that ended July 31, 1999, the fund had a
total return of 10.25%, which slightly underperformed the 10.46%
return for the Russell 3000 Utilities Index. During the same period,
the fund outpaced the utility funds average, tracked by Lipper Inc.,
which returned 6.82%. For the 12 months that ended July 31, 1999, the
fund posted a total return of 31.57%, while the Russell 3000 Utilities
Index and the utility funds average returned 41.88% and 17.82%,
respectively.
Q. WHAT FACTORS CAUSED THE FUND TO OUTPERFORM THE LIPPER AVERAGE, YET
LAG THE RUSSELL INDEX?
A. The fund is essentially a combination of telecommunications stocks
and electric utilities. While it's impossible to tell with certainty
what my competitors were investing in, the majority of the fund's
strong performance came from its large concentration of
telecommunications holdings. These holdings included telephone
services and cellular companies, which accounted for approximately 57%
of the fund's investments, with 19% of the fund's investments in
electric utilities. The fund underperformed the Russell 3000 Utilities
Index because I underweighted the top-performing telephone services
stocks relative to this benchmark, which maintains approximately 80%
of its holdings in telecommunications.
Q. TELECOMMUNICATIONS STOCKS CONTINUED TO OUTPERFORM OTHER SECTORS OF
THE INDUSTRY. ARE YOU AT ALL CONCERNED ABOUT HIGH VALUATIONS?
A. I tend to look at price/earnings ratios - the price of a stock
divided by its earnings per share - to growth rates of the companies
that I invest in. On that basis, I still favor telecommunications
stocks over electric utilities. In fact, I think valuations are quite
attractive today, as the stocks have been hurt on concerns about
increased competition. Competition is occurring, yet the demand for
telecommunications services continues to grow at an impressive rate.
The strong growth of the Internet and data services for both
businesses and residential use should benefit the industry over the
long-term.
Q. WHICH STOCKS PROVIDED THE BIGGEST BOOST TO THE FUND'S TOTAL RETURN?
A. While shares of MCI WorldCom dropped late in the period, it was a
top contributor overall as the company benefited from continued demand
for Internet, data, local and international services and from cost
synergies from the MCI deal. In addition, shares of AES and Calpine,
two independent power producers, added nicely to performance.
Q. WHICH HOLDINGS TURNED OUT TO BE DISAPPOINTMENTS?
A. The fund's holdings in TALK.com hurt performance as there were
concerns about the potential termination of the company's exclusive
agreement to provide long-distance services to America Online
subscribers. Duke Energy and CMS Energy were two electric utility
stocks that detracted from performance. Shares of Duke Energy were
sold off by investors due to negative reaction to recent acquisitions,
which had the potential to dilute earnings. CMS Energy suffered along
with the majority of the utility sector late in the period as
investors worried about the growth prospects for the group.
Q. WHAT'S YOUR OUTLOOK?
A. As I alluded to earlier, I think the telecommunications sector over
the next six months could be a bit volatile. This is due to the RBOCs
moving closer to entering the long-distance market which will add to
this competitive environment. At the same time, I think much of the
concern about increased competition in the long-distance arena has
been priced into the stocks. Longer-term, I remain optimistic about
the fundamental business outlook for utilities, especially in the
telecommunications sector.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)FUND FACTS
GOAL: high total return through
a combination of current
income and capital
appreciation
FUND NUMBER: 311
TRADING SYMBOL: FIUIX
START DATE: November 27,
1987
SIZE: as of July 31, 1999,
more than $2.6 billion
MANAGER: Peter Saperstone,
since 1998; manager, several
Fidelity Select Portfolios,
1996-
1998; joined Fidelity in
1995
PETER SAPERSTONE ON
CONSOLIDATION IN THE
TELECOMMUNICATIONS INDUSTRY:
"Consolidation is being driven
primarily by deregulation,
competition and new technology.
On the deregulation side,
long-distance companies are now
operating in the local markets,
while regional Bell companies are
moving closer to entering the
long-distance market. As these
regional barriers break down,
companies have chosen to buy
versus build operations in order to
accelerate time to market.
Examples of this are, AT&T buying
Tele-Communications (TCI Group),
MCI WorldCom buying MFS
Communications and Quest's
takeover bid for US West to enter
the local markets.
"In addition to regional
deregulation, the need to bundle
services such as data, voice, wireless
and Internet services under one roof
is another factor driving
consolidation. Companies such as
MCI WorldCom may need to expand
their wireless offerings to provide
complete bundled service to their
customers. Likewise, AT&T may look
to expand its data and Internet
services further. In summary, the
combination of geographical,
product and technological needs
have created a fertile
environment for further
consolidation in the industry."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP TEN STOCKS AS OF JULY 31,
1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE STOCKS 6 MONTHS AGO
MCI WorldCom, Inc. 13.4 15.2
AT&T Corp. 7.2 5.8
Ameritech Corp. 5.5 2.0
SBC Communications, Inc. 5.4 2.4
Vodafone AirTouch PLC 5.2 0.0
sponsored ADR
MediaOne Group, Inc. 4.8 0.0
AES Corp. 4.5 0.0
Sprint Corp. (FON Group) 3.6 2.3
BellSouth Corp. 3.1 2.8
Bell Atlantic Corp. 2.7 3.5
TOP UTILITY INDUSTRIES AS OF
JULY 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE UTILITY INDUSTRIES 6
MONTHS AGO
Telephone Services 48.8 55.1
Electric Utility 19.0 13.2
Cellular 8.0 0.6
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF JULY 31, 1999 * AS OF JANUARY 31, 1999 **
Stocks 92.4% Stocks 82.0%
Convertible Securities 0.3% Convertible Securities 3.7%
Short-term Investments 7.3% Short-Term Investments 14.3%
* FOREIGN INVESTMENTS 7.1% ** FOREIGN INVESTMENTS 3.2%
Row: 1, Col: 1, Value: 92.40000000000001 Row: 1, Col: 1, Value: 82.0
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0 Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.3 Row: 1, Col: 4, Value: 3.7
Row: 1, Col: 5, Value: 0.0 Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0 Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 7.3 Row: 1, Col: 8, Value: 14.3
</TABLE>
INVESTMENTS JULY 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 92.4%
SHARES VALUE (NOTE 1) (000S)
AEROSPACE & DEFENSE - 3.8%
Cordant Technologies, Inc. 978,500 $ 43,849
Howmet International, Inc. (a) 3,034,700 56,521
100,370
ENERGY - 1.4%
OIL & GAS - 1.4%
Coastal Corp. (The) 907,000 35,883
MEDIA & LEISURE - 6.3%
BROADCASTING - 6.3%
AT&T Corp. (Liberty Media 1,105,906 40,919
Group) Class A (a)
MediaOne Group, Inc. 1,744,300 126,244
167,163
SERVICES - 0.2%
Streamline.com, Inc. 750,000 6,797
TECHNOLOGY - 0.7%
COMPUTER SERVICES & SOFTWARE
- - 0.7%
Equant NV (Reg.) 200,000 17,788
UTILITIES - 80.0%
CELLULAR - 8.0%
ALLTEL Corp. 886,000 63,626
Nextel Communications, Inc. 200,000 10,713
Class A (a)
Vodafone AirTouch PLC 647,900 136,383
sponsored ADR
210,722
ELECTRIC UTILITY - 18.7%
AES Corp. (a) 2,000,000 120,000
Calpine Corp. (a) 834,900 62,774
Citizens Utilities Co. Class B 458,331 5,443
CMS Energy Corp. 1,100,000 41,113
Consolidated Edison, Inc. 520,000 22,620
Duke Energy Corp. 925,593 48,999
Entergy Corp. 800,000 24,250
Illinova Corp. 66,000 2,170
IPALCO Enterprises, Inc. 1,000,000 21,438
Montana Power Co. 200,000 13,538
Niagara Mohawk Holdings, Inc. 3,322,300 52,326
(a)
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
ELECTRIC UTILITY - CONTINUED
Northeast Utilities (a) 1,336,800 $ 25,065
PG&E Corp. 1,006,800 31,840
Unicom Corp. 530,300 20,814
492,390
GAS - 4.5%
Columbia Gas System, Inc. 100,000 5,950
Consolidated Natural Gas Co. 82,800 5,185
Dynegy, Inc. 255,100 6,122
Enron Corp. 378,223 32,220
K N Energy, Inc. 2,192,100 42,746
KeySpan Corp. 309,800 8,597
Williams Companies, Inc. 451,440 18,989
119,809
TELEPHONE SERVICES - 48.8%
Ameritech Corp. 1,980,300 145,057
AT&T Corp. 3,653,280 189,742
BCE, Inc. 341,000 16,990
Bell Atlantic Corp. 1,095,700 69,851
BellSouth Corp. 1,729,000 82,992
Cincinnati Bell, Inc. 784,500 16,671
Frontier Corp. 300,000 16,631
GST Telecommunications, Inc. 250,000 3,750
(a)
GTE Corp. 640,300 47,182
Level 3 Communications, Inc. 150,000 7,950
(a)
MCI WorldCom, Inc. (a) 4,304,797 355,142
McLeodUSA, Inc. Class A (a) 608,600 18,144
Qwest Communications 1,288,950 38,024
International, Inc. (a)
SBC Communications, Inc. 2,479,160 141,777
Sprint Corp. (FON Group) 1,819,200 94,030
TALK.com, Inc. (a) 2,562,100 27,222
TALK.com, Inc. rights 2/28/00 46,605 0
(a)
Telebras sponsored:
ADR 160,000 10
ADR (PFD) 160,000 12,220
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
UTILITIES - CONTINUED
TELEPHONE SERVICES - CONTINUED
U.S. WEST, Inc. 50,000 $ 2,866
WinStar Communications, Inc. 73,100 3,838
(a)
1,290,089
TOTAL UTILITIES 2,113,010
TOTAL COMMON STOCKS 2,441,011
(Cost $1,672,390)
CONVERTIBLE PREFERRED STOCKS
- - 0.3%
UTILITIES - 0.3%
ELECTRIC UTILITY - 0.3%
Citizens Utilities Trust 141,300 7,171
$2.50 EPPICS (Cost $7,065)
CASH EQUIVALENTS - 7.3%
Taxable Central Cash Fund (b) 194,215,146 194,215
(Cost $194,215)
TOTAL INVESTMENT IN $ 2,642,397
SECURITIES - 100%
(Cost $1,873,670)
</TABLE>
SECURITY TYPE ABBREVIATIONS
EPPICS - Equity Providing Preferred
Income Convertible Securities
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.06%. 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 July 31, 1999, the aggregate cost of investment securities for
income tax purposes was $1,877,591,000. Net unrealized appreciation
aggregated $764,806,000, of which $811,917,000 related to appreciated
investment securities and $47,111,000 related to depreciated
investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 2,642,397
value (cost $1,873,670) -
See accompanying schedule
Receivable for fund shares 4,786
sold
Dividends receivable 3,903
Interest receivable 738
Other receivables 57
TOTAL ASSETS 2,651,881
LIABILITIES
Payable for investments $ 574
purchased
Payable for fund shares 3,801
redeemed
Accrued management fee 1,281
Other payables and accrued 474
expenses
TOTAL LIABILITIES 6,130
NET ASSETS $ 2,645,751
Net Assets consist of:
Paid in capital $ 1,730,553
Undistributed net investment 305
income
Accumulated undistributed net 146,164
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 768,729
(depreciation) on investments
NET ASSETS, for 106,018 $ 2,645,751
shares outstanding
NET ASSET VALUE, offering $24.96
price and redemption price
per share ($2,645,751
(divided by) 106,018 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JULY 31, 1999
(UNAUDITED)
INVESTMENT INCOME $ 15,435
Dividends
Interest (including income on 4,194
securities loaned of $64)
TOTAL INCOME 19,629
EXPENSES
Management fee Basic fee $ 5,899
Performance adjustment 1,186
Transfer agent fees 2,097
Accounting and security 376
lending fees
Non-interested trustees' 8
compensation
Custodian fees and expenses 33
Registration fees 136
Audit 20
Legal 1
Miscellaneous 27
Total expenses before 9,783
reductions
Expense reductions (176) 9,607
NET INVESTMENT INCOME 10,022
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities 150,018
Foreign currency transactions (94) 149,924
Change in net unrealized
appreciation (depreciation)
on:
Investment securities 72,218
Assets and liabilities in (233) 71,985
foreign currencies
NET GAIN (LOSS) 221,909
NET INCREASE (DECREASE) IN $ 231,931
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JULY 31, YEAR ENDED JANUARY 31, 1999
1999 (UNAUDITED)
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 10,022 $ 29,740
income
Net realized gain (loss) 149,924 247,638
Change in net unrealized 71,985 259,674
appreciation (depreciation)
NET INCREASE (DECREASE) IN 231,931 537,052
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (11,768) (29,380)
From net investment income
From net realized gain (127,189) (111,326)
TOTAL DISTRIBUTIONS (138,957) (140,706)
Share transactions Net 525,649 835,843
proceeds from sales of shares
Reinvestment of distributions 125,692 126,670
Cost of shares redeemed (343,617) (852,099)
NET INCREASE (DECREASE) IN 307,724 110,414
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 400,698 506,760
IN NET ASSETS
NET ASSETS
Beginning of period 2,245,053 1,738,293
End of period (including $ 2,645,751 $ 2,245,053
undistributed net investment
income of $305 and $2,051,
respectively)
OTHER INFORMATION
Shares
Sold 21,518 39,125
Issued in reinvestment of 5,544 5,990
distributions
Redeemed (14,161) (40,585)
Net increase (decrease) 12,901 4,530
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JULY 31, 1999 YEARS ENDED JANUARY 31,
(UNAUDITED) 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 24.11 $ 19.62 $ 17.37 $ 16.41 $ 13.47 $ 15.84
period
Income from Investment
Operations
Net investment income .10 D .35 D .43 D .48 D .54 .55
Net realized and unrealized 2.22 5.78 4.46 1.50 3.22 (1.58)
gain (loss)
Total from investment 2.32 6.13 4.89 1.98 3.76 (1.03)
operations
Less Distributions
From net investment income (.12) (.35) (.44) (.48) (.54) (.54)
From net realized gain (1.35) (1.29) (2.20) (.54) (.28) (.68)
In excess of net realized gain - - - - - (.12)
Total distributions (1.47) (1.64) (2.64) (1.02) (.82) (1.34)
Net asset value, end of $ 24.96 $ 24.11 $ 19.62 $ 17.37 $ 16.41 $ 13.47
period
TOTAL RETURN B, C 10.25% 32.60% 29.16% 12.73% 28.61% (6.38)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in $ 2,646 $ 2,245 $ 1,738 $ 1,280 $ 1,546 $ 1,171
millions)
Ratio of expenses to average .80% A .85% .87% .84% .80% .88%
net assets
Ratio of expenses to average .79% A, E .83% E .85% E .81% E .77% E .87% E
net assets after expense
reductions
Ratio of net investment .82% A 1.63% 2.34% 2.96% 3.69% 3.87%
income to average net assets
Portfolio turnover rate 58% A 55% 57% 56% 98% 98%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1999 (Unaudited)
1. 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, 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 require 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 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. 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 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
among the funds in the trust.
DEFERRED TRUSTEE COMPENSATION. Under a Deferred Compensation Plan (the
Plan) non-interested Trustees must defer receipt of a portion of, and
may elect to defer receipt of an additional portion of, their annual
compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the fund or a cross-section of
other Fidelity funds. Deferred amounts remain in the fund until
distributed in accordance with the Plan.
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, foreign currency transactions,
non-taxable dividends and losses deferred due to wash sales. The fund
also utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.
2. OPERATING POLICIES.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
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 Fidelity Investments Money Management, Inc., 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. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the fund are recorded
as interest income in the accompanying financial statements.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $941,654,000 and $651,392,000, respectively.
4. 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. The annual individual fund fee rate is .20%. 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 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 annualized rate of .58% of average
net assets after the performance adjustment.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .17% 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 $28,000 for the
period.
5. SECURITY LENDING.
The fund loaned securities to certain brokers who paid the fund
negotiated lenders' fees. These fees are included in interest income.
The fund receives U.S. Treasury obligations and/or cash as collateral
against the loaned securities, in an amount at least equal to 102% of
the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan.
The market value of the loaned securities is determined at the close
of business of the fund and any additional required collateral is
delivered to the fund on the next business day. At period end there
were no loans outstanding.
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 $159,000 under this arrangement.
In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $2,000 and $15,000, 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF TRANSACTIONS WITH
AFFILIATED COMPANIES
AMOUNTS IN THOUSANDS PURCHASE COST SALES COST DIVIDEND INCOME VALUE
AFFILIATE
TALK.com, Inc. $ - $ - $ - $ -
</TABLE>
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity Automated Service Telephone provides a single toll-free
number to access account balances, positions, quotes and trading. It's
easy to navigate the service, and on your first call, the system will
help you create a personal identification number (PIN) for security.
(PHONE_GRAPHIC)FIDELITY AUTOMATED
SERVICE TELEPHONE (FASTSM)
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
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.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT
MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE
PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF
ANY SALES CHARGES.
TO VISIT FIDELITY
For directions and hours,
please call 1-800-544-9797.
ARIZONA
7373 N. Scottsdale Road
Scottsdale, AZ
CALIFORNIA
815 East Birch Street
Brea, CA
851 East Hamilton Avenue
Campbell, CA
527 North Brand Boulevard
Glendale, CA
19200 Von Karman Avenue
Irvine, CA
10100 Santa Monica Blvd.
Los Angeles, CA
251 University Avenue
Palo Alto, CA
1760 Challenge Way
Sacramento, CA
7676 Hazard Center Drive
San Diego, CA
455 Market Street
San Francisco, CA
950 Northgate Drive
San Rafael, CA
1400 Civic Drive
Walnut Creek, CA
6300 Canoga Avenue
Woodland Hills, CA
COLORADO
1625 Broadway
Denver, CO
CONNECTICUT
48 West Putnam Avenue
Greenwich, CT
265 Church Street
New Haven, CT
300 Atlantic Street
Stamford, CT
29 South Main Street
West Hartford, CT
DELAWARE
222 Delaware Avenue
Wilmington, DE
FLORIDA
4400 N. Federal Highway
Boca Raton, FL
90 Alhambra Plaza
Coral Gables, FL
4090 N. Ocean Boulevard
Ft. Lauderdale, FL
1907 West State Road 434
Longwood, FL
8880 Tamiami Trail, North
Naples, FL
2401 PGA Boulevard
Palm Beach Gardens, FL
8065 Beneva Road
Sarasota, FL
1502 N. Westshore Blvd.
Tampa, FL
GEORGIA
3445 Peachtree Road, N.E.
Atlanta, GA
1000 Abernathy Road
Atlanta, GA
ILLINOIS
One North Franklin Street
Chicago, IL
1415 West 22nd Street
Oak Brook, IL
1700 East Golf Road
Schaumburg, IL
3232 Lake Avenue
Wilmette, IL
INDIANA
4729 East 82nd Street
Indianapolis, IN
MAINE
3 Canal Plaza
Portland, ME
MARYLAND
7401 Wisconsin Avenue
Bethesda, MD
1 West Pennsylvania Ave.
Towson, MD
MASSACHUSETTS
470 Boylston Street
Boston, MA
155 Congress Street
Boston, MA
25 State Street
Boston, MA
300 Granite Street
Braintree, MA
44 Mall Road
Burlington, MA
416 Belmont Street
Worcester, MA
MICHIGAN
280 North Woodward Ave.
Birmingham, MI
29155 Northwestern Hwy.
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
1055 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
NORTH CAROLINA
4611 Sharon Road
Charlotte, NC
OHIO
600 Vine Street
Cincinnati, OH
28699 Chagrin Boulevard
Woodmere Village, OH
OREGON
16850 SW 72 Avenue
Tigard, OR
PENNSYLVANIA
1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
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
Robert C. Pozen, Senior Vice President
Robert A. Lawrence, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
UIF-SANN-0999 83652
1.706447.101
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 (registered trademark) Fund
Global Balanced Fund
Growth & Income Portfolio
Growth & Income II Portfolio
Puritan(registered trademark) Fund
Real Estate Investment Portfolio
Utilities Fund
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www.fidelity.com
FIDELITY
REAL ESTATE INVESTMENT
PORTFOLIO
SEMIANNUAL REPORT
JULY 31, 1999
(2_FIDELITY_LOGOS)(registered trademark)
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 14 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 18 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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:
In July, the steadily growing U.S. economy again sparked fears of
inflation and posed the threat of another Federal Reserve Board
interest-rate hike at its August policy meeting. Despite rising
profits and continued productivity gains at many U.S. corporations,
stock and bond markets sold off sharply toward the month's end.
Renewed jitters about inflation were sparked by a government report
that showed a larger-than-expected increase in the employment-cost
index.
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 an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.
If you have questions, please call us at 1-800-544-8888, or visit our
web site at www.fidelity.com. 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY REAL ESTATE 4.39% -4.65% 52.25% 160.86%
S&P 500 (registered trademark) 4.50% 20.20% 220.67% 396.75%
Wilshire Real Estate Securities 4.96% -3.76% 58.90% 50.43%
Real Estate Funds Average 5.07% -2.90% 58.42% 95.05%
</TABLE>
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's returns to the performance
of the Wilshire Real Estate Securities Index - a market
capitalization-weighted index of publicly traded real estate
securities such as real estate investment trusts (REITs) and real
estate operating companies (REOCs) - and the performance of the S&P
500 Index - a market capitalization-weighted 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 mutual funds with similar objectives tracked by
Lipper Inc. The past six months average represents a peer group of 132
mutual funds. These benchmarks include reinvested dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JULY 31, 1999 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
FIDELITY REAL ESTATE -4.65% 8.77% 10.06%
S&P 500 20.20% 26.25% 17.38%
Wilshire Real Estate Securities -3.76% 9.70% 4.17%
Real Estate Funds Average -2.90% 9.49% 6.73%
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 different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)
$10,000 OVER 10 YEARS
Real Estate S&P 500
Wilshire Real Estate
00303 SP001
WA005
1989/07/31 10000.00 10000.00
10000.00
1989/08/31 10139.44 10196.00
9894.00
1989/09/30 10019.78 10154.20
9872.23
1989/10/31 9646.06 9918.62
9378.62
1989/11/30 9767.27 10120.96
9238.88
1989/12/31 9808.05 10363.86
9235.18
1990/01/31 9593.27 9668.45
8800.21
1990/02/28 9531.91 9793.17
8796.69
1990/03/31 9583.05 10052.69
8776.45
1990/04/30 9458.73 9801.37
8606.19
1990/05/31 9417.29 10757.01
8568.32
1990/06/30 9562.74 10683.86
8584.60
1990/07/31 9625.72 10649.67
8255.81
1990/08/31 8943.42 9686.94
7291.53
1990/09/30 8496.53 9215.19
6446.45
1990/10/31 8251.64 9175.56
5982.30
1990/11/30 8773.36 9768.30
6225.78
1990/12/31 8955.14 10040.84
6145.47
1991/01/31 9789.94 10478.62
6743.42
1991/02/28 10093.51 11227.84
7139.94
1991/03/31 10761.10 11499.55
7776.10
1991/04/30 11057.58 11527.15
7713.12
1991/05/31 11321.12 12025.12
7832.67
1991/06/30 10956.78 11474.37
7446.52
1991/07/31 11190.14 12009.08
7415.25
1991/08/31 11245.70 12293.69
7325.52
1991/09/30 11571.97 12088.39
7242.01
1991/10/31 11380.79 12250.37
7079.06
1991/11/30 11268.33 11756.68
6844.04
1991/12/31 12464.50 13101.65
7376.51
1992/01/31 13216.47 12857.96
7723.94
1992/02/29 12931.63 13025.11
7704.63
1992/03/31 12852.37 12771.12
7538.21
1992/04/30 12668.11 13146.59
7413.08
1992/05/31 13048.15 13211.01
7442.73
1992/06/30 12898.02 13014.17
7218.70
1992/07/31 13466.37 13546.45
7245.41
1992/08/31 13501.17 13268.74
7136.01
1992/09/30 13874.00 13425.32
7407.17
1992/10/31 14025.82 13472.30
7486.43
1992/11/30 14282.75 13931.71
7550.81
1992/12/31 14896.22 14103.07
7922.31
1993/01/31 15629.21 14221.54
8472.91
1993/02/28 16007.52 14414.95
8883.00
1993/03/31 17160.33 14719.10
9479.05
1993/04/30 16386.27 14362.90
8941.59
1993/05/31 16183.83 14747.83
8801.21
1993/06/30 16605.11 14790.60
9031.80
1993/07/31 16713.24 14731.43
9215.14
1993/08/31 16977.58 15289.75
9406.82
1993/09/30 17761.59 15172.02
9832.95
1993/10/31 17470.81 15486.08
9556.64
1993/11/30 16453.09 15338.97
9139.97
1993/12/31 16759.98 15524.57
9129.01
1994/01/31 16895.84 16052.40
9402.88
1994/02/28 17723.34 15617.38
9787.45
1994/03/31 17089.46 14936.47
9334.29
1994/04/30 17326.12 15127.65
9438.84
1994/05/31 17699.79 15375.75
9635.17
1994/06/30 17170.93 14999.04
9445.35
1994/07/31 17133.22 15491.01
9467.08
1994/08/31 17057.80 16126.14
9460.45
1994/09/30 16854.97 15731.05
9302.46
1994/10/31 16182.29 16085.00
8961.99
1994/11/30 15611.15 15499.18
8611.58
1994/12/31 17101.59 15729.04
9278.97
1995/01/31 16350.16 16136.89
8979.26
1995/02/28 16609.27 16765.74
9260.31
1995/03/31 16675.04 17260.50
9314.02
1995/04/30 16412.64 17768.82
9246.96
1995/05/31 17016.15 18479.04
9553.04
1995/06/30 17371.67 18908.31
9719.26
1995/07/31 17677.13 19535.31
9875.74
1995/08/31 18035.72 19584.34
9996.22
1995/09/30 18356.35 20410.80
10180.16
1995/10/31 17845.71 20337.94
9864.57
1995/11/30 17939.77 21230.77
9967.16
1995/12/31 18968.36 21639.68
10545.26
1996/01/31 19310.01 22376.29
10690.78
1996/02/29 19378.34 22583.72
10902.46
1996/03/31 19393.10 22801.20
10990.77
1996/04/30 19365.45 23137.29
11040.23
1996/05/31 19766.31 23734.00
11286.42
1996/06/30 20088.64 23824.43
11512.15
1996/07/31 20158.63 22771.86
11409.69
1996/08/31 21040.58 23252.12
11894.61
1996/09/30 21716.20 24560.75
12191.97
1996/10/31 22381.99 25238.14
12522.37
1996/11/30 23430.26 27145.89
13042.05
1996/12/31 25839.66 26608.13
14433.64
1997/01/31 26154.95 28270.60
14640.04
1997/02/28 26240.94 28492.25
14660.54
1997/03/31 26247.35 27321.50
14710.38
1997/04/30 25423.05 28952.59
14235.24
1997/05/31 26146.12 30715.23
14659.45
1997/06/30 27554.50 32091.27
15386.56
1997/07/31 28605.87 34644.77
15892.77
1997/08/31 28430.64 32703.97
15775.17
1997/09/30 31293.41 34495.17
17767.57
1997/10/31 30379.95 33343.03
17012.45
1997/11/30 30586.21 34886.48
17354.40
1997/12/31 31367.27 35485.48
17741.40
1998/01/31 30845.76 35877.95
17491.25
1998/02/28 30278.23 38465.47
17267.36
1998/03/31 31080.73 40435.28
17607.53
1998/04/30 29983.03 40842.06
17052.89
1998/05/31 29590.99 40139.99
16889.18
1998/06/30 29434.50 41770.47
16799.67
1998/07/31 27359.19 41325.62
15630.41
1998/08/31 24776.94 35350.76
14006.41
1998/09/30 26038.53 37615.33
14790.77
1998/10/31 25606.43 40674.96
14588.14
1998/11/30 25878.49 43140.27
14862.40
1998/12/31 25531.94 45626.01
14649.86
1999/01/31 24989.76 47534.09
14331.96
1999/02/28 25137.63 46056.73
14218.74
1999/03/31 24717.51 47899.46
14141.96
1999/04/30 27378.88 49754.61
15649.49
1999/05/31 27977.69 48579.90
15912.40
1999/06/30 27193.21 51276.09
15641.89
1999/07/30 26086.03 49675.25
15042.81
IMATRL PRASUN SHR__CHT 19990731 19990831 092241 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity Real Estate Investment Portfolio on July 31,
1989. As the chart shows, by July 31, 1999, the value of the
investment would have grown to $26,086 - a 160.86% increase on the
initial investment. For comparison, look at how both the Wilshire Real
Estate Securities Index and Standard & Poor's 500 Index did over the
same period. With dividends and capital gains, if any, reinvested, the
same $10,000 investment in the Wilshire Real Estate Securities Index
would have grown to $15,043 - a 50.43% increase. If $10,000 was
invested in the S&P 500 Index, it would have grown to $49,675 - a
396.75% 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
long-term growth and
short-term volatility. 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
Federal Reserve Board monetary
policy, the Internet craze and Y2K
concerns were but three factors
influencing the direction of the U.S.
stock market for the six months that
ended July 31, 1999. The Fed's
decision to cut interest rates last
fall resulted in a phase of broader
market participation as smaller
companies - which tend to rely
on borrowed money to fund growth
- - gained some ground on their
larger counterparts. The Russell
2000 Index, a gauge of small-stock
performance, easily outpaced the
Standard & Poor's 500 Index in the
second quarter of 1999. For the
six-month period, however, the
Russell 2000 returned 4.89%, while
the S&P 500 returned 4.50% and the
Dow Jones Industrial Average - an
index of 30 blue-chip stocks -
returned 14.70%. Investors' love
affair with Internet stocks continued
through much of the period, with
many valuations reaching record
peaks around April. Technology
stocks benefited, as did stocks of
telecommunications companies with
Internet exposure. As the period
drew to a close, however, Internet
stocks appeared to have cooled
some and investor concerns over Y2K
- - particularly the spending freeze
it could cause within the technology
sector - took hold. The Fed's late
June decision to raise interest rates
only slightly was well-received by the
market, as was its switch to a
neutral stance regarding future rate
hikes.
(photograph of Steve Buller)
An interview with Steve Buller, Portfolio Manager of Fidelity Real
Estate Investment Portfolio
Q. HOW DID THE FUND PERFORM, STEVE?
A. It was a volatile period for the fund. For the six months that
ended July 31, 1999, the fund returned 4.39%. In comparison, the
Wilshire Real Estate Securities Index returned 4.96%. During the same
period, the real estate funds average, tracked by Lipper Inc.,
returned 5.07%, while the Standard & Poor's 500 Index returned 4.50%.
For the 12-month period that ended July 31, 1999, the fund returned
- -4.65%, lagging the Wilshire index, Lipper average and S&P 500, which
returned -3.76%, -2.90% and 20.20%, respectively.
Q. WHAT FACTORS CAUSED THE FUND TO LAG THE WILSHIRE INDEX AND THE
LIPPER AVERAGE?
A. The fund's underperformance was due primarily to its bias toward
larger-capitalization real estate investment trusts (REITs) compared
to the Wilshire Real Estate Securities Index and the Lipper average.
These larger-cap and more liquid REITs - meaning those with enough
units or shares outstanding to allow large transactions - suffered
disproportionately compared to smaller REITs as the market, and most
notably diversified equity fund managers, became nervous about the
short-term returns of these investments after their sharp rally in the
second quarter. As a result, larger REITs, which were the main
beneficiaries of the rally in the second quarter, became easy targets
for institutional investors anxious to lock in short-term profits
toward the end of the period, and suffered as a result.
Q. THERE DOESN'T SEEM TO BE ANY FUNDAMENTAL REASON FOR THE SELL-OFF
THAT OCCURRED IN JUNE. WHAT HAPPENED?
A. Despite some positive business fundamentals, such as strong
occupancy rates, rising rents, healthy revenues and solid earnings in
many property sectors, it seemed investors decided that after a strong
start to the second quarter, more lucrative returns could be realized
in other sectors of the market. Consequently, money rotated back into
the hot growth sectors of the equity market and out of the more
value-oriented REITs.
Q. WHILE THE REIT MARKET STAGGERED LATE IN THE PERIOD, YOU CAN'T
IGNORE THE STRONG RALLY AT THE ONSET OF THE SECOND QUARTER. WHAT
SPURRED THE RECOVERY?
A. There were a number of factors. After more than a year of weakness
in real estate equities, investors began to recognize the compelling
value in this sector of the market. On a valuation basis, the average
real estate security had been trading at a discount to its average net
asset value. Further support for real estate securities came in the
form of significant REIT investments by noted investor Warren Buffet.
In addition, the real estate market continued to exhibit positive
business fundamentals.
Q. WHICH HOLDINGS POSTED STRONG RESULTS FOR THE FUND? WHICH WERE
DISAPPOINTMENTS?
A. Starwood Hotels & Resorts was one of the biggest contributors
during the period. It benefited from disposing its higher-risk casino
operations and positive investor reaction to a deeply discounted
valuation. Apartment Investment & Management Co. also provided a boost
to total return. This diversified operator of apartment communities
produced reliable cash flow and earnings, combined with a strong
business outlook. On the negative side, Public Storage Inc., the
fund's largest holding, was a disappointment for the fund. Despite
strong fundamentals, its stock declined due to general market weakness
in the real estate market. Two REITs that hurt fund performance were
Glenborough Realty Trust, Inc. and New Plan Excel Realty Trust.
Glenborough suffered as investors believed the company's reliance on
new capital and acquisitions had dried up and its growth outlook
weakened. Shares of New Plan declined as a result of a senior
management shake-up.
Q. WHAT'S YOUR OUTLOOK?
A. After giving back much of the gains made in the beginning of the
second quarter, real estate securities on a valuation basis are below
where they were at the beginning of the year. Returns are only
slightly positive because of dividends. As a result, REIT valuations
remain compelling and the fundamental business environment continues
to be good. I think the market will remain in a healthy equilibrium,
meaning a stable supply-and-demand environment. If this setting
continues, it is reasonable to expect moderate returns in line with
the group's historical averages.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)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 July 31, 1999,
more than $919 million
MANAGER: Steve Buller, since
1998; associate portfolio
manager, Fidelity Real Estate
Investment Portfolio,
1997-1998; manager,
Fidelity Select Environmental
Services Portfolio,
1997-1998; analyst, high
income group; 1992-1995;
joined Fidelity in 1992
STEVE BULLER ON THE BENEFITS
OF OWNING REAL ESTATE
SECURITIES DESPITE RECENT
HISTORICAL RETURNS THAT HAVE
LAGGED THE BROADER EQUITY
MARKET:
"Adding diversification to a portfolio
is probably the biggest benefit of
owning real estate securities. Real
estate securities typically have a low
correlation to the overall
performance of the U.S. stock
market. Of course, this argument
offers little consolation when the
market continues to barrel ahead.
But that's the whole point of creating
diversification in a portfolio: to
hedge against the risks of weakness
in certain segments of the market. As
I mentioned in my market outlook,
REITs and real estate securities have
provided historical long-term total
returns in the area of 10% to 15%
with a beta - a standard measure
of a stock's relative volatility - of
.5, or roughly half the beta or relative
volatility of the S&P 500 index.
"In addition to the benefits of
diversification, real estate
securities offer above-average
income and the potential for capital
appreciation. Over the long term,
REITs and real estate securities
have provided more attractive
returns than bonds. While they do
carry more short-term risk than
bonds, real estate investments also
tend to act as a hedge against
inflation in an uncertain
interest-rate and inflation
environment. During inflationary
times, rents tend to rise and that is
generally good news for REIT
investors."
INVESTMENT CHANGES
<TABLE>
<CAPTION>
<S> <C> <C>
TOP TEN STOCKS AS OF JULY 31,
1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE STOCKS 6 MONTHS AGO
Public Storage, Inc. 7.9 7.1
Equity Office Properties Trust 7.0 5.9
Apartment Investment & 6.1 6.1
Management Co. Class A
Duke Realty Investments, Inc. 5.3 5.1
Starwood Hotels & Resorts 5.3 7.0
Worldwide, Inc.
Equity Residential Properties 4.7 4.1
Trust (SBI)
Reckson Associates Realty Corp. 4.0 4.0
Simon Property Group, Inc. 3.6 3.8
Crescent Real Estate Equities 3.4 3.0
Co.
CenterPoint Properties Trust 3.1 2.6
TOP FIVE REIT SECTORS AS OF
JULY 31, 1999
% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE REIT SECTORS 6 MONTHS
AGO
REITs - Office Buildings 23.4 26.8
REITs - Industrial Buildings 22.7 20.1
REITs - Apartments 16.8 17.1
REITs - Shopping Centers 7.9 9.6
REITs - Hotels 6.4 9.5
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION (% OF FUND'S
INVESTMENTS)
AS OF JULY 31, 1999 * AS OF JANUARY 31, 1999 **
Stocks 90.8% Stocks 97.4%
Convertible Securities 0.0% Convertible Securities 0.1%
Short-term Investments 9.2% Short-term Investments 2.5%
* FOREIGN INVESTMENTS 4.4% ** FOREIGN INVESTMENTS 3.1%
Row: 1, Col: 1, Value: 90.8 Row: 1, Col: 1, Value: 97.40000000000001
Row: 1, Col: 2, Value: 0.0 Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 0.0 Row: 1, Col: 3, Value: 0.0
Row: 1, Col: 4, Value: 0.0 Row: 1, Col: 4, Value: 0.1
Row: 1, Col: 5, Value: 0.0 Row: 1, Col: 5, Value: 0.0
Row: 1, Col: 6, Value: 0.0 Row: 1, Col: 6, Value: 0.0
Row: 1, Col: 7, Value: 0.0 Row: 1, Col: 7, Value: 0.0
Row: 1, Col: 8, Value: 9.199999999999999 Row: 1, Col: 8, Value: 2.5
</TABLE>
INVESTMENTS JULY 31, 1999 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 90.8%
SHARES VALUE (NOTE 1) (000S)
REAL ESTATE - 5.0%
OPERATORS, NON-RESIDENTIAL -
2.4%
Brookfield Properties Corp. 200,000 $ 2,357
Cadillac Fairvew Corp. (a) 90,000 1,613
CR Leasing & Development, Inc.:
Class A (c) 46 0
Class B (c) 216 2
Trizec Hahn Corp. (sub-vtg.) 980,700 18,295
22,267
REAL ESTATE, GENERAL - 2.0%
Boardwalk Equities, Inc. (a) 1,640,500 15,465
Boardwalk Equities, Inc. 254,100 2,395
(a)(d)
17,860
SUBDIVIDED REAL ESTATE
DEVELOPMENT - 0.6%
Catellus Development Corp. (a) 354,000 5,620
Newhall Land & Farming Co. 1,000 24
5,644
TOTAL REAL ESTATE 45,771
REAL ESTATE INVESTMENT TRUSTS
- - 85.3%
REITS - APARTMENTS - 16.8%
Apartment Investment & 1,373,400 56,052
Management Co. Class A
Avalonbay Communities, Inc. 820,404 27,842
BRE Properties, Inc. Class A 493,800 12,407
Colonial Properties Trust 322,000 8,734
(SBI)
Equity Residential Properties 1,043,362 43,104
Trust (SBI)
Essex Property Trust, Inc. 35,200 1,188
Post Properties, Inc. 110,000 4,400
Summit Properties, Inc. 51,600 1,058
154,785
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
REAL ESTATE INVESTMENT TRUSTS
- - CONTINUED
REITS - HEALTH CARE
FACILITIES - 0.1%
LTC Properties, Inc. 65,000 $ 800
REITS - HOTELS - 6.4%
Host Marriott Corp. 290,000 2,991
Innkeepers USA Trust 368,124 3,267
MeriStar Hospitality Corp. 10,000 191
Starwood Hotels & Resorts 1,821,783 49,188
Worldwide, Inc.
Sunstone Hotel Investors, 204,900 1,870
Inc.
Wyndham International, Inc. 403,500 1,715
(a)
59,222
REITS - INDUSTRIAL BUILDINGS
- - 22.7%
AMB Property Corp. 718,400 16,164
CenterPoint Properties Trust 791,500 28,296
Duke Realty Investments, Inc. 2,253,534 49,296
Liberty Property Trust (SBI) 699,700 16,530
ProLogis Trust 125,000 2,430
Public Storage, Inc. 2,830,200 72,702
Spieker Properties, Inc. 627,900 24,017
209,435
REITS - MALLS - 5.8%
CBL & Associates Properties, 299,800 7,532
Inc.
Crown America Realty Trust 88,800 638
General Growth Properties, 181,800 6,011
Inc.
Macerich Co. 60,000 1,463
Simon Property Group, Inc. 1,236,500 32,845
Taubman Centers, Inc. 60,000 795
Urban Shopping Centers, Inc. 153,000 4,686
53,970
REITS - MOBILE HOME PARKS -
2.1%
Manufactured Home 245,500 5,953
Communities, Inc.
Sun Communities, Inc. 384,000 13,104
19,057
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
REAL ESTATE INVESTMENT TRUSTS
- - CONTINUED
REITS - OFFICE BUILDINGS -
23.4%
Arden Realty Group, Inc. 10,400 $ 246
Boston Properties, Inc. 569,100 19,492
CarrAmerica Realty Corp. 33,100 799
Cornerstone Properties, Inc. 92,500 1,474
Crescent Real Estate Equities 1,417,700 31,189
Co.
Crocker Realty, Inc.:
Class A (c) 1,497 15
Class B (c) 1,521,600 15,307
Equity Office Properties Trust 2,581,610 64,863
Glenborough Realty Trust, 400,900 7,016
Inc.
Mack-Cali Realty Corp. 743,500 20,818
PS Business Parks, Inc. 228,160 5,561
PS Business Parks, Inc. (c) 292,934 7,140
Reckson Associates Realty 1,663,800 37,124
Corp.
SL Green Realty Corp. 153,500 3,176
Trinet Corporate Realty 61,900 1,602
Trust, Inc.
215,822
REITS - PRISON - 0.1%
Correctional Properties Trust 57,400 915
REITS - SHOPPING CENTERS - 7.9%
Bradley Real Estate, Inc. 435,600 8,440
(SBI)
Developers Diversified Realty 211,300 3,196
Corp.
Federal Realty Investment 173,700 3,930
Trust (SBI)
Kimco Realty Corp. 500,700 18,776
New Plan Excel Realty Trust 869,800 16,200
Realty Income Corp. 215,600 5,201
Vornado Realty Trust 475,000 16,803
72,546
TOTAL REAL ESTATE INVESTMENT 786,552
TRUSTS
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1) (000S)
SERVICES - 0.5%
BUSINESS SERVICES - 0.5%
Cendant Corp. (a) 234,956 $ 4,728
TOTAL COMMON STOCKS 837,051
(Cost $702,265)
CASH EQUIVALENTS - 9.2%
Taxable Central Cash Fund (b) 84,957,422 84,957
(Cost $84,957)
TOTAL INVESTMENT IN $ 922,008
SECURITIES - 100%
(Cost $787,222)
</TABLE>
LEGEND
(a) Non-income producing
(b) At period end, the seven-day yield on the Taxable Central Cash
Fund was 5.06%. The yield refers to the income earned by investing in
the fund over the seven-day period, expressed as an annual percentage.
(c) Restricted securities - Investment in securities not registered
under the Securities Act of 1933.
Additional information on each holding
is as follows:
SECURITY ACQUISITION DATE ACQUISITION COST (000S)
CR Leasing & Development, 11/19/97 $ 0
Inc. Class A
CR Leasing & Development, 11/19/97 $ 2
Inc. Class B
Crocker Realty, Inc. Class A 11/19/97 $ 15
Crocker Realty, Inc. Class B 11/19/97- 12/28/98 $ 15,215
PS Business Parks, Inc. 5/6/98 $ 6,703
(d) 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 $2,395,000 or 0.3% of net assets.
INCOME TAX INFORMATION
At July 31, 1999, the aggregate cost of investment securities for
income tax purposes was $788,752,000. Net unrealized appreciation
aggregated $133,256,000, of which $154,838,000 related to appreciated
investment securities and $21,582,000 related to depreciated
investment securities.
The fund intends to elect to defer to its fiscal year ending January
31, 2000 approximately $29,495,000 of losses recognized during the
period November 1, 1998 to January 31, 1999.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) JULY 31, 1999 (UNAUDITED)
ASSETS
Investment in securities, at $ 922,008
value (cost $787,222) - See
accompanying schedule
Cash 297
Receivable for investments 3,477
sold
Receivable for fund shares 601
sold
Dividends receivable 1,412
Interest receivable 283
Redemption fees receivable 2
Other receivables 162
TOTAL ASSETS 928,242
LIABILITIES
Payable for investments $ 5,588
purchased
Payable for fund shares 2,873
redeemed
Accrued management fee 462
Other payables and accrued 217
expenses
TOTAL LIABILITIES 9,140
NET ASSETS $ 919,102
Net Assets consist of:
Paid in capital $ 837,637
Undistributed net investment 4,867
income
Accumulated undistributed net (58,188)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation 134,786
(depreciation) on investments
NET ASSETS, for 59,094 shares $ 919,102
outstanding
NET ASSET VALUE, offering $15.55
price and redemption price
per share ($919,102 (divided
by) 59,094 shares)
STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS SIX
MONTHS ENDED JULY 31, 1999
(UNAUDITED)
INVESTMENT INCOME $ 24,565
Dividends
Interest 910
TOTAL INCOME 25,475
EXPENSES
Management fee $ 2,931
Transfer agent fees 1,278
Accounting fees and expenses 181
Non-interested trustees' 2
compensation
Custodian fees and expenses 14
Registration fees 20
Audit 20
Legal 1
Miscellaneous 32
Total expenses before 4,479
reductions
Expense reductions (82) 4,397
NET INVESTMENT INCOME 21,078
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (25,248)
Foreign currency transactions 43 (25,205)
Change in net unrealized 44,908
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) 19,703
NET INCREASE (DECREASE) IN $ 40,781
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS SIX MONTHS ENDED JULY 31, 1999 YEAR ENDED JANUARY 31,
(UNAUDITED) 1999
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 21,078 $ 72,172
income
Net realized gain (loss) (25,205) (4,110)
Change in net unrealized 44,908 (429,372)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 40,781 (361,310)
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (21,328) (74,648)
From net investment income
From net realized gain - (27,019)
In excess of net realized - (13,599)
gain
TOTAL DISTRIBUTIONS (21,328) (115,266)
Share transactions Net 107,392 321,876
proceeds from sales of shares
Reinvestment of distributions 19,215 107,713
Cost of shares redeemed (311,508) (1,349,682)
NET INCREASE (DECREASE) IN (184,901) (920,093)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
Redemption fees 176 566
TOTAL INCREASE (DECREASE) (165,272) (1,396,103)
IN NET ASSETS
NET ASSETS
Beginning of period 1,084,374 2,480,477
End of period (including $ 919,102 $ 1,084,374
undistributed net investment
income of $4,867 and $4,446,
respectively)
OTHER INFORMATION
Shares
Sold 6,660 17,819
Issued in reinvestment of 1,221 6,222
distributions
Redeemed (20,077) (76,071)
Net increase (decrease) (12,196) (52,030)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED JULY 31, YEARS ENDED JANUARY 31,
1999
(UNAUDITED) 1999 1998 1997 1996 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 15.21 $ 20.11 $ 18.25 $ 14.13 $ 12.62 $ 13.68
period
Income from Investment
Operations
Net investment income .33 D .75 D .79 D .86 D .72 .67
Net realized and unrealized .34 (4.48) 2.41 3.97 1.50 (1.10)
gain (loss)
Total from investment .67 (3.73) 3.20 4.83 2.22 (.43)
operations
Less Distributions
From net investment income (.33) (.78) (.79) (.72) (.71) (.63)
From net realized gain - (.27) (.56) - - -
In excess of net realized gain - (.13) - - - -
Total distributions (.33) (1.18) (1.35) (.72) (.71) (.63)
Redemption fees added to paid - .01 .01 .01 - -
in capital
Net asset value, end of period $ 15.55 $ 15.21 $ 20.11 $ 18.25 $ 14.13 $ 12.62
TOTAL RETURN B, C 4.39% (18.98)% 17.93% 35.45% 18.10% (3.23)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 919 $ 1,084 $ 2,480 $ 2,196 $ 731 $ 490
(in millions)
Ratio of expenses to average .90% A .89% .86% .94% .99% 1.06%
net assets
Ratio of expenses to average .88% A, E .86% E .84% E .90% E .95% E 1.03% E
net assets after expense
reductions
Ratio of net investment 4.21% A 4.23% 4.06% 5.63% 6.28% 5.67%
income to average net assets
Portfolio turnover rate 26% A 28% 76% 55% 85% 75%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
NOTES TO FINANCIAL STATEMENTS
For the period ended July 31, 1999 (Unaudited)
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, 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 require 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. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. 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
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
received. Interest income 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
among 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, passive foreign investment
companies (PFIC), partnerships, non-taxable dividends, and losses
deferred due to wash sales and excise tax regulations. The fund also
utilized earnings and profits distributed to shareholders on
redemption of shares as a part of the dividends paid deduction for
income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.
SHORT-TERM TRADING (REDEMPTION) FEES. Shares held in the fund less
than 90 days are subject to a short-term trading 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.
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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (the SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements for U.S. Treasury or Federal Agency obligations.
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
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 Fidelity Investments Money Management, Inc., 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. Income distributions
from the Cash Fund are declared daily and paid monthly from net
interest income. Income distributions earned by the fund are recorded
as interest income in the accompanying financial statements.
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 $22,464,000 or 2.4% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $125,749,000 and $356,904,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus
a fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .2500% to .5200% for the
period. The annual individual fund fee rate is .30%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .59% of average net
assets.
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 annualized rate of .26% 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 $60,000 for the
period.
5. EXPENSE REDUCTIONS.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $74,000 under this arrangement.
In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the fund's expenses. During
the period, the fund's custodian fees were reduced by $8,000 under
this arrangement.
MANAGING YOUR INVESTMENTS
Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity Automated Service Telephone provides a single toll-free
number to access account balances, positions, quotes and trading. It's
easy to navigate the service, and on your first call, the system will
help you create a personal identification number (PIN) for security.
(PHONE_GRAPHIC)FIDELITY AUTOMATED
SERVICE TELEPHONE (FASTSM)
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.
2 For quotes.*
3 For account balances and holdings.
4 To review orders and mutual
fund activity.
5 To change your PIN.
*0 To speak to a Fidelity representative.
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.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A
GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT
MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED
OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE
PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF
ANY SALES CHARGES.
TO WRITE FIDELITY
If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.
(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75039-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc. London, England
Fidelity Management & Research
(Far East) Inc. Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Robert A. Lawrence, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
REA-SANN-0999 83810
1.706448.101
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(registered trademark) Fund
Global Balanced Fund
Growth & Income Portfolio
Growth & Income II Portfolio
Puritan(registered trademark) 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)
Fidelity Automated Service
Telephone (FASTSM) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
(2_FIDELITY_LOGOS)(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com