(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
EQUITY INCOME FUND -
CLASS A AND CLASS B
SEMIANNUAL REPORT
MAY 31, 1995
CONTENTS
PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.
PERFORMANCE 4 How the fund has done over time.
FUND TALK 8 The manager's review of fund
performance, strategy and outlook.
INVESTMENT CHANGES 11 A summary of major shifts in the
fund's investments over the past six
months.
INVESTMENTS 12 A complete list of the fund's
investments with their market
values.
FINANCIAL STATEMENTS 24 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 30 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE
YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although there have been positive market indications so far in 1995, no one
can predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term, as we witnessed last year. You also can help to manage some
of the risks of investing through diversification. A stock fund is already
diversified because it invests in many issues. You can diversify even
further by placing some of your money in several different types of stock
funds or in other investment categories, such 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, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR EQUITY INCOME FUND - CLASS A
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 includes
changes in share price, plus reinvestment of any dividends (or income) and
capital gains (the profits the fund earns when it sells investments that
have grown in value). You can also look at income to measure performance.
Initial offering of Class A shares took place on September 10, 1992. Class
A shares bear a .65% 12b-1 fee that is not reflected in returns prior to
that date. Returns prior to that date are those of Institutional Class, the
original class of the fund. Had Class A's 12b-1 fee been reflected, prior
returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 1995 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Equity Income Fund - Class A 14.77% 20.07% 90.92% 242.12%
Advisor Equity Income Fund - Class A
(incl. max. 4.75% sales charge) 9.32% 14.37% 81.85% 225.87%
S&P 500(registered trademark) 19.23% 20.19% 71.79% 290.51%
Average Equity Income Fund 13.83% 12.27% 62.28% 196.83%
CUMULATIVE TOTAL RETURNS show Class A'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 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 Class A's returns to the performance of the Standard & Poor's
Composite Index of 500 stocks - a common proxy for the U.S. stock market.
To measure how Class A's performance stacked up against its peers, you can
compare it to the average equity income fund, which reflects the
performance of 129 funds with similar objectives tracked by Lipper
Analytical Services over the past six months. Both benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1995 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Equity Income Fund - Class A 20.07% 13.81% 13.09%
Advisor Equity Income Fund - Class A
(incl. max. 4.75% sales charge) 14.37% 12.70% 12.54%
S&P 500(registered trademark) 20.19% 11.43% 14.59%
Average Equity Income Fund 12.27% 10.04% 11.18%
AVERAGE ANNUAL TOTAL RETURNS take Class A shares' actual (or cumulative)
return and show you what would have happened if Class A shares had
performed at a constant rate each year.
$10,000 OVER TEN YEARS
Fidelity AdvisorStandard & Poor's 5
05/31/85 9525.00 10000.00
06/30/85 9682.23 10157.00
07/31/85 9698.87 10141.76
08/31/85 9715.59 10055.56
09/30/85 9496.51 9740.82
10/31/85 9835.06 10190.85
11/30/85 10234.59 10889.94
12/31/85 10594.29 11417.01
01/31/86 10792.24 11480.95
02/28/86 11495.11 12339.72
03/31/86 12183.92 13028.28
04/30/86 12111.99 12881.06
05/31/86 12148.12 13566.33
06/30/86 12311.42 13795.60
07/31/86 11837.21 13024.43
08/31/86 12551.28 13990.84
09/30/86 11962.37 12833.80
10/31/86 12489.30 13574.31
11/30/86 12637.76 13904.16
12/31/86 12441.76 13549.61
01/31/87 13664.08 15374.74
02/28/87 14074.72 15982.04
03/31/87 14332.50 16443.92
04/30/87 14145.96 16297.57
05/31/87 14073.15 16439.36
06/30/87 14480.01 17269.55
07/31/87 14899.41 18145.11
08/31/87 15310.07 18821.93
09/30/87 14950.58 18409.73
10/31/87 12240.99 14444.27
11/30/87 11718.05 13254.06
12/31/87 12163.40 14262.70
01/31/88 12995.30 14863.16
02/29/88 13629.22 15555.78
03/31/88 13450.89 15075.11
04/30/88 13643.05 15242.44
05/31/88 13810.53 15375.05
06/30/88 14600.81 16080.76
07/31/88 14574.74 16019.66
08/31/88 14286.39 15474.99
09/30/88 14708.52 16134.22
10/31/88 14973.78 16582.76
11/30/88 14880.52 16345.62
12/31/88 14988.50 16631.67
01/31/89 15948.95 17849.11
02/28/89 15812.99 17404.67
03/31/89 16127.33 17810.19
04/30/89 16718.03 18734.54
05/31/89 17118.05 19493.29
06/30/89 17187.29 19382.18
07/31/89 18272.81 21132.39
08/31/89 18510.48 21546.59
09/30/89 18271.73 21458.25
10/31/89 17269.95 20960.41
11/30/89 17496.82 21388.01
12/31/89 17751.60 21901.32
01/31/90 16629.09 20431.74
02/28/90 16658.79 20695.31
03/31/90 16658.79 21243.74
04/30/90 16014.03 20712.64
05/31/90 17068.57 22732.13
06/30/90 16992.91 22577.55
07/31/90 16719.08 22505.30
08/31/90 15449.47 20470.82
09/30/90 14281.15 19473.89
10/31/90 13956.58 19390.15
11/30/90 14889.09 20642.76
12/31/90 15216.88 21218.69
01/31/91 15991.16 22143.82
02/28/91 17134.52 23727.11
03/31/91 17407.97 24301.30
04/30/91 17407.56 24359.63
05/31/91 18360.88 25411.96
06/30/91 17518.15 24248.10
07/31/91 18476.86 25378.06
08/31/91 18868.19 25979.52
09/30/91 18770.43 25545.66
10/31/91 19083.18 25887.97
11/30/91 18309.32 24844.69
12/31/91 19753.00 27686.92
01/31/92 19951.85 27171.94
02/29/92 20568.28 27525.18
03/31/92 20234.11 26988.43
04/30/92 20955.28 27781.89
05/31/92 21140.27 27918.03
06/30/92 20904.89 27502.05
07/31/92 21447.88 28626.88
08/31/92 20938.69 28040.03
09/30/92 21075.54 28370.90
10/31/92 21349.34 28470.20
11/30/92 22102.98 29441.03
12/31/92 22653.41 29803.16
01/31/93 23359.89 30053.51
02/28/93 23964.72 30462.23
03/31/93 24743.05 31104.99
04/30/93 24621.76 30352.25
05/31/93 25004.12 31165.69
06/30/93 25248.48 31256.07
07/31/93 25598.08 31131.04
08/31/93 26491.41 32310.91
09/30/93 26315.85 32062.11
10/31/93 26631.85 32725.80
11/30/93 26087.63 32414.91
12/31/93 26737.18 32807.13
01/31/94 27966.08 33922.57
02/28/94 27228.74 33003.27
03/31/94 26062.77 31564.32
04/30/94 26962.70 31968.35
05/31/94 27139.16 32492.63
06/30/94 26960.24 31696.56
07/31/94 27881.95 32736.21
08/31/94 29317.71 34078.39
09/30/94 28819.97 33243.47
10/31/94 29389.25 33991.45
11/30/94 28393.01 32753.48
12/31/94 28464.17 33239.21
01/31/95 28900.68 34101.11
02/28/95 29919.21 35430.03
03/31/95 30885.46 36475.57
04/30/95 31708.83 37549.77
05/31/95 32587.09 39050.64
$10,000 OVER TEN YEARS: Let's say you invested $10,000 in Fidelity Advisor
Equity Income Fund - Class A on May 31, 1985, and paid the maximum 4.75%
sales charge. As the chart shows, by May 31, 1995, the value of your
investment would have grown to $32,587 - a 225.87% increase on your initial
investment. For comparison, look at how the S&P 500 did over the same
period. With dividends reinvested, the same $10,000 investment would have
grown to $39,051 - a 290.51% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
ADVISOR EQUITY INCOME FUND - CLASS B
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate 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 includes
changes in share price, plus reinvestment of any dividends (or income) and
capital gains (the profits the fund earns when it sells investments that
have grown in value). You can also look at income to measure performance.
Initial offering of Class B shares took place on June 30, 1994. Class B
shares bear a 1.00% 12b-1/shareholder service fee. This fee is not
reflected in returns prior to that date. Returns between September 10, 1992
and June 30, 1994 are those of Class A, and reflect Class A's .65% 12b-1
fee. Returns prior to September 10, 1992 are those of Institutional Class,
the original class of the fund. Had Class B's 12b-1 fee been reflected,
prior returns would have been lower. Class B's contingent deferred sales
charges included in the past 6 months, past 1 year, past 5 years and past
10 years total return figures are 4%, 4%, 1% and 0%, respectively.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
PERIODS ENDED MAY 31, 1995 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Equity Income Fund - Class B 14.52% 19.74% 90.38% 241.16%
Advisor Equity Income Fund - Class B
(incl. contingent deferred sales charge) 10.52% 15.74% 89.38% 241.16%
S&P 500(registered trademark) 19.23% 20.19% 71.79% 290.51%
Average Equity Income Fund 13.83% 12.27% 62.28% 196.83%
</TABLE>
CUMULATIVE TOTAL RETURNS show Class B'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 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 Class B's returns to the performance of the Standard & Poor's
Composite Index of 500 stocks - a common proxy for the U.S. stock market.
To measure how Class B's performance stacked up against its peers, you can
compare it to the average equity income fund, which reflects the
performance of 129 funds with similar objectives tracked by Lipper
Analytical Services over the past six months. Both benchmarks include
reinvested dividends and capital gains, if any, and exclude the effects of
sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1995 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Equity Income Fund - Class B 19.74% 13.74% 13.06%
Advisor Equity Income Fund - Class B
(incl. contingent deferred sales charge) 15.74% 13.62% 13.06%
S&P 500(registered trademark) 20.19% 11.43% 14.59%
Average Equity Income Fund 12.27% 10.04% 11.18%
AVERAGE ANNUAL TOTAL RETURNS take Class B shares' actual (or cumulative)
return and show you what would have happened if Class B shares had
performed at a constant rate each year.
$10,000 OVER TEN YEARS
Fidelity Advisor EqStandard & Poor's 5
05/31/85 10000.00 10000.00
06/30/85 10165.07 10157.00
07/31/85 10182.54 10141.76
08/31/85 10200.10 10055.56
09/30/85 9970.08 9740.82
10/31/85 10325.52 10190.85
11/30/85 10744.97 10889.94
12/31/85 11122.62 11417.01
01/31/86 11330.43 11480.95
02/28/86 12068.36 12339.72
03/31/86 12791.52 13028.28
04/30/86 12716.00 12881.06
05/31/86 12753.93 13566.33
06/30/86 12925.38 13795.60
07/31/86 12427.51 13024.43
08/31/86 13177.20 13990.84
09/30/86 12558.92 12833.80
10/31/86 13112.13 13574.31
11/30/86 13267.99 13904.16
12/31/86 13062.22 13549.61
01/31/87 14345.49 15374.74
02/28/87 14776.61 15982.04
03/31/87 15047.24 16443.92
04/30/87 14851.40 16297.57
05/31/87 14774.96 16439.36
06/30/87 15202.11 17269.55
07/31/87 15642.43 18145.11
08/31/87 16073.56 18821.93
09/30/87 15696.15 18409.73
10/31/87 12851.43 14444.27
11/30/87 12302.41 13254.06
12/31/87 12769.98 14262.70
01/31/88 13643.36 14863.16
02/29/88 14308.89 15555.78
03/31/88 14121.67 15075.11
04/30/88 14323.41 15242.44
05/31/88 14499.24 15375.05
06/30/88 15328.94 16080.76
07/31/88 15301.56 16019.66
08/31/88 14998.83 15474.99
09/30/88 15442.01 16134.22
10/31/88 15720.50 16582.76
11/30/88 15622.60 16345.62
12/31/88 15735.96 16631.67
01/31/89 16744.31 17849.11
02/28/89 16601.56 17404.67
03/31/89 16931.58 17810.19
04/30/89 17551.73 18734.54
05/31/89 17971.70 19493.29
06/30/89 18044.40 19382.18
07/31/89 19184.05 21132.39
08/31/89 19433.57 21546.59
09/30/89 19182.91 21458.25
10/31/89 18131.19 20960.41
11/30/89 18369.36 21388.01
12/31/89 18636.85 21901.32
01/31/90 17458.36 20431.74
02/28/90 17489.54 20695.31
03/31/90 17489.54 21243.74
04/30/90 16812.63 20712.64
05/31/90 17919.76 22732.13
06/30/90 17840.33 22577.55
07/31/90 17552.84 22505.30
08/31/90 16219.92 20470.82
09/30/90 14993.34 19473.89
10/31/90 14652.58 19390.15
11/30/90 15631.59 20642.76
12/31/90 15975.73 21218.69
01/31/91 16788.61 22143.82
02/28/91 17988.99 23727.11
03/31/91 18276.08 24301.30
04/30/91 18275.65 24359.63
05/31/91 19276.51 25411.96
06/30/91 18391.76 24248.10
07/31/91 19398.28 25378.06
08/31/91 19809.12 25979.52
09/30/91 19706.49 25545.66
10/31/91 20034.83 25887.97
11/30/91 19222.38 24844.69
12/31/91 20738.05 27686.92
01/31/92 20946.83 27171.94
02/29/92 21594.00 27525.18
03/31/92 21243.16 26988.43
04/30/92 22000.30 27781.89
05/31/92 22194.51 27918.03
06/30/92 21947.40 27502.05
07/31/92 22517.46 28626.88
08/31/92 21982.88 28040.03
09/30/92 22126.55 28370.90
10/31/92 22414.00 28470.20
11/30/92 23205.23 29441.03
12/31/92 23783.11 29803.16
01/31/93 24524.82 30053.51
02/28/93 25159.81 30462.23
03/31/93 25976.96 31104.99
04/30/93 25849.62 30352.25
05/31/93 26251.04 31165.69
06/30/93 26507.59 31256.07
07/31/93 26874.62 31131.04
08/31/93 27812.50 32310.91
09/30/93 27628.19 32062.11
10/31/93 27959.95 32725.80
11/30/93 27388.59 32414.91
12/31/93 28070.54 32807.13
01/31/94 29360.71 33922.57
02/28/94 28586.61 33003.27
03/31/94 27362.49 31564.32
04/30/94 28307.30 31968.35
05/31/94 28492.56 32492.63
06/30/94 28304.71 31696.56
07/31/94 29272.39 32736.21
08/31/94 30798.35 34078.39
09/30/94 30275.63 33243.47
10/31/94 30836.29 33991.45
11/30/94 29789.72 32753.48
12/31/94 29864.88 33239.21
01/31/95 30284.98 34101.11
02/28/95 31335.21 35430.03
03/31/95 32368.62 36475.57
04/30/95 33213.36 37549.77
05/31/95 34134.88 39050.64
$10,000 OVER TEN YEARS: Let's say you invested $10,000 in Fidelity Advisor
Equity Income Fund - Class B on May 31, 1985. As the chart shows, by May
31, 1995, the value of your investment would have grown to $34,116 - a
241.16% increase on your initial investment. For comparison, look at how
the S&P 500 did over the same period. With dividends reinvested, the same
$10,000 investment would have grown to $39,051 - a 290.51% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Bettina Doulton, Portfolio Manager of Fidelity Advisor
Equity Income Fund
Q. HOW DID THE FUND DO, BETTINA?
A. For the six months ended May 31, 1995, Fidelity Advisor Equity Income
Fund - Class A had a total return of 14.77%, while Fidelity Advisor Equity
Income Fund - Class B returned 14.52%. During the same period, the average
equity income fund rose 13.83%, according to Lipper Analytical Services.
For the 12 months ended May 31, Class A returned 20.07%, Class B rose
19.74%, and the average fund was up 12.27%.
Q. THE STOCK MARKET SHOWED A RENEWED VIGOR OVER THE PAST SIX MONTHS. WHAT
HELPED THE FUND OUTPACE ITS PEER GROUP AVERAGE?
A. The market's strength was driven by investors' belief that the Federal
Reserve Board would manage the economy to a soft landing - steady, albeit
slower, economic growth and continued low inflation. If achieved, those
conditions are ideal for Corporate America to sustain strong profit growth.
Excluding the consistently outstanding performance of the technology and
financial sectors, the market has been characterized by rapid industry
rotation. Investors have spent the past six months racing from one industry
to the next, trying to stay one step ahead of the crowd. Sometimes, the
fund was in the right place at the right time, and sometimes it wasn't.
What helped the fund most was strong performance by its largest
investments, which crossed a variety of sectors.
Q. CAN YOU GIVE US SOME EXAMPLES?
A. Sure. The fund's four largest stocks at the end of the period added
substantially to its total return. Philip Morris' stock has been rewarded
for the company's strong profit growth and free cash flow; both are
attributable to terrific results in the company's domestic and
international tobacco businesses, which more than offset mediocre results
in its food division. IBM was another strong performer. The company has
done an excellent job cutting costs and cleaning up its balance sheet. In
addition, global economic growth and wide acceptance of the company's new
products have contributed to accelerating revenue growth. Meanwhile,
American Express has continued to benefit from its massive restructuring
effort begun a few years ago. The company has a much better focus on its
core products and services, which has led to gradually stronger earnings
and stock performance. As for the Federal National Mortgage Association
(Fannie Mae), its stock price suffered a significant setback last fall, but
has since recovered as conditions in the secondary mortgage market have
turned more favorable. Fannie Mae's stock price has risen from roughly $72
a share to about $93 a share during the first five months of 1995.
Q. YOU MENTIONED HOW QUICKLY VARIOUS MARKET SECTORS FELL IN AND OUT OF
FAVOR. WERE THERE ANY THAT EXCELLED OVERALL?
A. Many of the fund's energy stocks - which made up roughly 10% of the fund
on May 31 - did well. More specifically, the energy service stocks.
Industry-wide cost cutting, as reflected by companies such as Schlumberger
and Halliburton, combined with what appears to be improving worldwide
supply/demand dynamics for oil, have lifted these stocks. However,
elsewhere in the energy sector, British Petroleum (BP) and Amerada Hess
have been somewhat disappointing in terms of stock performance. Both are
restructuring stories; BP's stock may just be taking a breather after
making significant gains over the past couple years, while Amerada Hess'
turnaround may be just taking a bit longer than investors had expected.
Q. YOU MORE THAN DOUBLED THE FUND'S STAKE IN FINANCIAL STOCKS; THEY WENT
FROM 7.4% OF THE FUND SIX MONTHS AGO TO 15.3% ON MAY 31 . . .
A. Recent purchases of bank stocks made up most of that increase. Along
with the diversified financial services companies such as American Express
and Fannie Mae, banks had a strong, if volatile, run. My only regret is not
owning more of them early in the period, when they began to outperform.
Prices did fall in the spring, however, which allowed me to buy stocks such
as Chemical Banking and BankAmerica off their highs. The banking group then
had another upward surge in May. In the coming months, I expect the market
to drive bank stock valuations - prices relative to earnings - higher.
That's because earnings are becoming more consistent, the industry is
consolidating, and companies are using excess capital to repurchase shares
of their own stocks.
Q. AS FAR AS THE ECONOMY IS CONCERNED, DO YOU BELIEVE THAT A SOFT LANDING
IS IMMINENT? IF SO, WHY HAVE YOU REDUCED THE FUND'S INVESTMENT IN BASIC
INDUSTRIES STOCKS - MOST OF WHICH ARE CYCLICAL AND DO WELL WHEN THE ECONOMY
DOES WELL - FROM 12% SIX MONTHS AGO TO ABOUT 8% ON MAY 31?
A. We've already seen solid evidence that the economy has slowed quite
dramatically. However, predicting whether this slowdown will end in a
recession or a soft landing is incredibly difficult. A lot will depend upon
the extent to which the Federal Reserve Board reacts to what's happening; a
lowering of short-term interest rates could help prolong the economic
recovery. In this environment, I'm even more focused on stock selection -
investing in companies that can show positive earnings growth despite a
slowdown. While my concern about the slowing economy did lead me to reduce
the fund's stake in commodity cyclicals - for example, paper and chemical
companies - its investments in banks and several industrial companies keep
it somewhat economically sensitive.
Q. WHAT DOES THIS ECONOMIC UNCERTAINTY MEAN FOR THE FUND OVER THE NEXT SIX
MONTHS?
A. When interest rates fall, as they've done over the past few months, the
market usually rewards stocks with higher valuations. However, we have to
keep in mind that the economy has slowed, which could negatively affect
corporate earnings going forward. The 64-thousand-dollar question then
becomes: Will the market's willingness to drive up valuations be enough to
offset the negative effects of potential earnings disappointments? I'm
afraid not. Companies that report less-than-expected earnings growth in the
coming months will most likely pay dearly with falling stock prices. These
are the bullets that will be critical to dodge. I have to focus intensely
on owning high-quality companies that are improving their balance sheets
while growing earnings.
FUND FACTS
GOAL: seeks to maintain a
yield which exceeds the
composite dividend yield of
the
S&P 500 stock index and
consider the potential for
achieving capital
appreciation
START DATE: April 25, 1983
SIZE: as of May 31, 1995,
more than $831 million
MANAGER: Bettina Doulton,
since July 1993; joined
Fidelity in 1985
(checkmark)
BETTINA DOULTON ON INVESTING
IN A RAPIDLY CHANGING MARKET:
"I read a quote the other day
that said `the really big money
is made when one identifies a
fundamental change in the
market and the point of
market recognition.' That
implies that I need to position
the fund for impending
changes in the market
before the rest of the world
recognizes those changes.
However, forecasting what
the economy, interest rates
and inflation will look like six
months from now is a very
tough call. That has made for
a difficult investing
environment. The stock
market is so concerned with
making the right call on the
economy and corporate
earnings that sectors are
flying in and out of favor as
investors try to figure out the
right place to be. Generally, I
have more of a bottom-up
focus. If I can successfully
find companies primed for
earnings growth whose
stocks are selling at
reasonable valuations, the
stock prices should eventually
take care of themselves."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF MAY 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS IN THESE
STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 3.8 3.5
International Business Machines Corp. 2.5 2.4
American Express Co. 2.3 2.4
Federal National Mortgage 2.1 1.8
Association
British Petroleum PLC ADR 1.9 2.5
TOP FIVE BONDS AS OF MAY 31, 1995
(BY ISSUER, WITH MATURITIES MORE THAN ONE % OF FUND'S % OF FUND'S
YEAR) INVESTMENTS INVESTMENTS
IN THESE BONDS
6 MONTHS AGO
U.S. Treasury Obligations 2.9 4.3
Viacom, Inc. 0.7 0.0
Roche Holdings, Inc. 0.5 0.0
Westpoint Stevens, Inc. 0.2 0.4
Stone Container Corp. 0.2 0.3
TOP FIVE MARKET SECTORS AS OF MAY 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 15.3 7.4
Energy 10.1 12.0
Nondurables 9.0 8.0
Basic Industries 8.0 12.0
Utilities 6.0 5.9
ASSET ALLOCATION
AS OF MAY 31, 1995* AS OF NOVEMBER 30, 1994**
Row: 1, Col: 1, Value: 12.1
Row: 1, Col: 2, Value: 2.0
Row: 1, Col: 3, Value: 4.2
Row: 1, Col: 4, Value: 41.6
Row: 1, Col: 5, Value: 40.0
Stocks 74.6%
Bonds 5.8%
Convertible
securities 2.4%
Short-term
investments 17.2%
FOREIGN
INVESTMENTS 9.1%
Stocks 81.6%
Bonds 4.2%
Convertible
securities 1.4%
Short-term
investments 12.8%
FOREIGN
INVESTMENTS 5.2%
Row: 1, Col: 1, Value: 17.2
Row: 1, Col: 2, Value: 2.4
Row: 1, Col: 3, Value: 5.8
Row: 1, Col: 4, Value: 74.59999999999999
*
**
INVESTMENTS MAY 31, 1995 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 81.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 5.2%
AEROSPACE & DEFENSE - 3.3%
Alliant Techsystems, Inc. (a) 86,700 $ 3,175,371
Boeing Co. 49,000 2,884,875
General Motors Corp. Class H 102,700 4,185,025
Lockheed Martin Corp. 98,533 5,862,714
McDonnell Douglas Corp. 31,600 2,283,100
Rockwell International Corp. 103,100 4,703,938
Sundstrand Corp. 44,100 2,447,550
Thiokol Corp. 44,900 1,408,738
26,951,311
DEFENSE ELECTRONICS - 1.4%
Litton Industries, Inc. 65,300 2,514,050
Loral Corp. 52,400 2,508,650
Raytheon Co. 82,500 6,393,750
11,416,450
SHIP BUILDING & REPAIR - 0.5%
General Dynamics Corp. 101,600 4,445,000
TOTAL AEROSPACE & DEFENSE 42,812,761
BASIC INDUSTRIES - 7.8%
CHEMICALS & PLASTICS - 4.9%
du Pont (E.I.) de Nemours & Co. 156,700 10,636,013
Geon Co. 34,500 853,875
Grace (W.R.) & Co. 81,100 5,210,675
Hercules, Inc. 226,100 11,870,250
Monsanto Co. 23,000 1,914,750
Nalco Chemical Co. 114,500 4,322,375
Potash Corp. of Saskatchewan 20,300 966,737
Union Carbide Corp. 165,800 4,849,650
40,624,325
METALS & MINING - 1.2%
Alcan Aluminium Ltd. 151,908 4,490,220
Aluminum Co. of America 124,500 5,789,250
10,279,470
PAPER & FOREST PRODUCTS - 1.7%
Scott Paper Co. 320,400 13,897,350
TOTAL BASIC INDUSTRIES 64,801,145
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONGLOMERATES - 3.2%
Allied-Signal, Inc. 111,000 $ 4,481,625
GenCorp, Inc. 80,800 1,040,300
Tyco International Ltd. 228,362 12,360,093
United Technologies Corp. 111,600 8,467,650
26,349,668
CONSTRUCTION & REAL ESTATE - 0.2%
CONSTRUCTION - 0.1%
American Homestar Corp. (a) 75,000 834,375
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Storage Equities, Inc. 59,500 944,563
TOTAL CONSTRUCTION & REAL ESTATE 1,778,938
DURABLES - 2.0%
AUTOS, TIRES, & ACCESSORIES - 1.0%
Chrysler Corp. 9,700 423,163
Dana Corp. 106,100 2,997,325
Johnson Controls, Inc. 13,300 761,425
PACCAR, Inc. 26,900 1,294,563
Snap-on Tools Corp. 84,800 3,010,400
SPX Corp. 8,200 107,625
8,594,501
CONSUMER ELECTRONICS - 0.7%
Black & Decker Corp. 83,000 2,739,000
Whirlpool Corp. 58,700 3,353,238
6,092,238
HOME FURNISHINGS - 0.1%
Heilig-Meyers Co. 23,300 556,288
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc. Class A (a) 69,900 1,266,938
TOTAL DURABLES 16,509,965
ENERGY - 9.7%
ENERGY SERVICES - 3.0%
Baker Hughes, Inc. 115,000 2,587,500
Halliburton Co. 223,200 8,704,800
Helmerich & Payne, Inc. 18,200 543,725
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
ENERGY SERVICES - CONTINUED
McDermott International, Inc. 151,300 $ 3,971,625
Schlumberger Ltd. 145,300 9,444,500
25,252,150
OIL & GAS - 6.7%
Amerada Hess Corp. 208,500 10,581,375
Atlantic Richfield Co. 30,500 3,541,813
British Petroleum PLC:
ADR 181,561 15,500,770
Ord. 160,404 1,130,786
Canada Occidental Petroleum Ltd. 40,000 1,262,636
Coastal Corp. (The) 98,200 3,081,025
Kerr-McGee Corp. 32,300 1,800,725
Mobil Corp. 62,200 6,243,325
Occidental Petroleum Corp. 253,000 5,819,000
Tosco Corp. 68,400 2,428,200
Total SA:
Class B 39,757 2,457,647
sponsored ADR 20,500 635,500
Unocal Corp. 25,151 745,098
55,227,900
TOTAL ENERGY 80,480,050
FINANCE - 15.3%
BANKS - 4.8%
Bank of Boston Corp. 18,600 678,900
BankAmerica Corp. 108,800 5,684,800
Bankers Trust New York Corp. 73,300 4,599,575
Chase Manhattan Corp. 120,241 5,561,146
Chemical Banking Corp. 153,100 7,061,738
Citicorp 165,100 8,832,850
Fleet Financial Group, Inc. 71,103 2,479,717
Mellon Bank Corp. 27,800 1,188,450
NationsBank Corp. 31,000 1,755,375
Shawmut National Corp. 53,300 1,545,700
39,388,251
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 3.3%
American Express Co. 526,625 $ 18,761,016
Bank of New York Co., Inc. 61,950 2,524,463
Countrywide Credit Industries,Inc. 204,000 3,799,500
Greenpoint Financial Corp. 57,100 1,281,181
Republic New York Corp. 10,000 511,250
26,877,410
FEDERAL SPONSORED CREDIT - 3.1%
Federal Home Loan Mortgage Corp. 121,200 8,256,750
Federal National Mortgage Association 189,500 17,623,500
25,880,250
INSURANCE - 3.2%
Allstate Corp. 34,800 1,048,350
American International Group, Inc. 48,400 5,505,500
General Re Corp. 38,200 5,171,325
Loews Corp. 66,600 7,917,075
Reliastar Financial Corp. 75,400 2,799,225
Travelers, Inc. (The) 94,233 3,981,358
26,422,833
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 98,800 2,247,700
Golden West Financial Corp. 6,600 324,225
2,571,925
SECURITIES INDUSTRY - 0.6%
Merrill Lynch & Co., Inc. 112,400 5,282,800
TOTAL FINANCE 126,423,469
HEALTH - 4.4%
DRUGS & PHARMACEUTICALS - 2.1%
Allergan, Inc. 130,100 3,463,913
American Home Products Corp. 90,000 6,626,250
Bristol-Myers Squibb Co. 60,000 3,982,500
Pfizer, Inc. 28,000 2,467,500
Rhone Poulenc Rorer, Inc. 15,000 618,750
17,158,913
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 1.7%
Baxter International, Inc. 194,800 $ 6,793,650
Beckman Instruments, Inc. 45,700 1,268,175
I-Stat Corp. 46,500 924,188
Pall Corp. 26,500 583,000
Puritan Bennett Corp. 49,000 1,794,625
St. Jude Medical, Inc. 56,600 2,561,150
13,924,788
MEDICAL FACILITIES MANAGEMENT - 0.6%
Columbia/HCA Healthcare Corp. 132,200 5,403,675
TOTAL HEALTH 36,487,376
HOLDING COMPANIES - 0.1%
PMI Group, Inc. 26,300 1,075,013
INDUSTRIAL MACHINERY & EQUIPMENT - 7.1%
ELECTRICAL EQUIPMENT - 1.3%
Emerson Electric Co. 72,900 5,011,875
General Electric Co. 61,300 3,555,400
Philips Electronics NV 10,800 429,545
Philips Electronics NV ADR 47,400 1,901,925
10,898,745
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
Caterpillar, Inc. 106,500 6,416,625
Cooper Industries, Inc. 81,900 3,030,300
Deere & Co. 116,400 10,068,600
Dover Corp. 33,800 2,218,125
Ingersoll-Rand Co. 140,400 5,229,900
Varity Corp. 14,900 642,563
27,606,113
POLLUTION CONTROL - 2.4%
Browning-Ferris Industries, Inc. 204,800 7,296,000
Safety Kleen Corp. 115,200 1,958,400
Wheelabrator Technologies, Inc. 108,500 1,654,625
WMX Technologies, Inc. 333,000 9,074,250
19,983,275
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 58,488,133
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 1.9%
BROADCASTING - 1.2%
Viacom, Inc. Class B (non-vtg.) (a) 217,407 $ 10,136,601
PUBLISHING - 0.7%
Meredith Corp. 27,200 714,000
News Corp. Ltd.:
ADR 108,700 2,350,638
(vtg.) pfd. sponsored ADR 18,300 359,138
Times Mirror Co. Class A 110,500 2,569,125
5,992,901
TOTAL MEDIA & LEISURE 16,129,502
NONDURABLES - 8.9%
BEVERAGES - 1.1%
PepsiCo, Inc. 180,800 8,859,200
FOODS - 0.6%
ConAgra, Inc. 119,600 3,991,650
Dole Food, Inc. 46,200 1,362,900
5,354,550
HOUSEHOLD PRODUCTS - 1.4%
Avon Products, Inc. 70,200 4,729,725
First Brands Corp. 85,400 3,522,750
Rubbermaid, Inc. 24,300 774,563
Tambrands, Inc. 61,400 2,632,525
11,659,563
TOBACCO - 5.8%
Imasco Ltd. 296,000 5,400,869
Philip Morris Companies, Inc. 433,000 31,554,875
RJR Nabisco Holdings Corp. 387,080 11,031,780
47,987,524
TOTAL NONDURABLES 73,860,837
RETAIL & WHOLESALE - 2.7%
APPAREL STORES - 0.4%
Limited, Inc. (The) 132,700 2,952,575
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 1.8%
Consolidated Stores Corp. (a) 52,300 $ 980,625
Dayton Hudson Corp. 51,800 3,671,325
May Department Stores Co. (The) 32,800 1,287,400
Price/Costco, Inc. (a) 29,600 418,100
Wal-Mart Stores, Inc. 299,300 7,482,500
Woolworth Corp. 77,800 1,196,175
15,036,125
GROCERY STORES - 0.5%
Fleming Companies, Inc. 50,689 1,311,578
Great Atlantic & Pacific Tea Co., Inc. 76,300 1,897,963
Vons Companies, Inc. 57,600 1,195,200
4,404,741
TOTAL RETAIL & WHOLESALE 22,393,441
SERVICES - 0.3%
PRINTING - 0.2%
Wallace Computer Services, Inc. 48,700 1,765,375
SERVICES - 0.1%
ADT Ltd. 87,900 999,863
TOTAL SERVICES 2,765,238
TECHNOLOGY - 4.9%
COMPUTERS & OFFICE EQUIPMENT - 3.8%
Hewlett-Packard Co. 61,900 4,093,138
International Business Machines Corp. 225,100 20,990,575
Pitney Bowes, Inc. 180,800 6,689,600
31,773,313
ELECTRONIC INSTRUMENTS - 0.3%
Measurex Corp. 4,600 120,750
Perkin-Elmer Corp. 59,800 2,078,050
2,198,800
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.7%
AMP, Inc. 92,900 $ 3,959,863
Thomas & Betts Corp. 23,000 1,549,625
5,509,488
PHOTOGRAPHIC EQUIPMENT - 0.1%
Polaroid Corp. 27,800 1,025,125
TOTAL TECHNOLOGY 40,506,726
TRANSPORTATION - 1.8%
RAILROADS - 1.8%
Burlington Northern, Inc. 127,800 7,811,775
CSX Corp. 46,700 3,560,875
Southern Pacific Rail Corp. 225,000 3,571,875
14,944,525
UTILITIES - 5.8%
ELECTRIC UTILITY - 0.0%
Entergy Corp. 1,400 34,650
GAS - 0.5%
Williams Companies, Inc. 111,600 3,794,400
TELEPHONE SERVICES - 5.3%
Ameritech Corp. 245,700 10,902,938
Bell Atlantic Corp. 33,600 1,873,200
BellSouth Corp. 95,100 5,836,763
NYNEX Corp. 303,100 12,654,425
Koninklijke PPT Nederland 34,400 1,242,222
Koninklijke PPT Nederland (a)(c) 15,500 559,722
SBC Communications, Inc. 209,700 9,436,500
Southern New England Telecommunications Corp. 39,500 1,328,188
43,833,958
TOTAL UTILITIES 47,663,008
TOTAL COMMON STOCKS
(Cost $596,624,065) 673,469,795
PREFERRED STOCKS - 1.0%
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS - 0.7%
ENERGY - 0.4%
ENERGY SERVICES - 0.1%
Noble Drilling Corp. $1.50 23,100 $ 539,963
OIL & GAS - 0.3%
Atlantic Richfield Co. exchangeable $0.5575 92,100 2,314,013
TOTAL ENERGY 2,853,976
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Westinghouse Electric Corp. $1.30 (c) 61,000 892,125
MEDIA & LEISURE - 0.0%
PUBLISHING - 0.0%
Taylor, J.N. Holdings Ltd. 9 1/2% (a) 50,000 1
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
MFS Communications, Inc. depository shares representing
1/100 share $2.68 35,300 1,098,713
Sprint Corp. $0.6573 6,400 212,800
1,311,513
TOTAL CONVERTIBLE PREFERRED STOCKS 5,057,615
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
MEDIA & LEISURE - 0.3%
PUBLISHING - 0.3%
News Corp. Ltd. sponsored ADR (ltd. vtg.) 510,681 2,456,171
TOTAL PREFERRED STOCKS
(Cost $7,211,795) 7,513,786
CORPORATE BONDS - 2.0%
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.7%
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Centerpoint Properties Corp. 8.22%, 1/15/04 - $ 305,000 $ 326,350
Liberty Property LP 8%, 7/1/01 - 115,000 112,844
439,194
HEALTH - 0.5%
DRUGS & PHARMACEUTICALS - 0.5%
Roche Holdings, Inc. liquid yield option note
0%, 4/20/10 (c) - 11,360,000 4,373,600
PRECIOUS METALS - 0.1%
Pegasus Gold, Inc. euro 6 1/4%,
4/30/02 (c) Baa3 860,000 862,150
UTILITIES - 0.0%
GAS - 0.0%
SFP Pipeline Holdings, Inc. exchangeable
0%, 8/15/10 (d) Baa3 120,000 158,400
TOTAL CONVERTIBLE BONDS 5,833,344
NONCONVERTIBLE BONDS - 1.3%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 10 7/8%, 8/15/01 B2 230,000 237,475
BASIC INDUSTRIES - 0.2%
PACKAGING & CONTAINERS - 0.0%
Owens Illinois, Inc. 10 1/4%, 4/1/99 B2 160,000 164,800
PAPER & FOREST PRODUCTS - 0.2%
Stone Container Corp. 9 7/8%, 2/1/01 B1 1,240,000 1,233,800
TOTAL BASIC INDUSTRIES 1,398,600
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
CONGLOMERATES - 0.1%
Coltec Industries, Inc. 10 1/4%, 4/1/02 B1 $ 440,000 $ 453,200
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 540,000 531,900
9 3/8%, 12/15/05 B3 1,250,000 1,221,875
1,753,775
FINANCE - 0.0%
BANKS - 0.0%
Signet Banking Corp. (d):
6 1/4%, 5/15/97 Baa2 180,000 178,038
6.4375%, 4/15/98 Baa2 100,000 98,540
276,578
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.7%
Viacom, Inc. 8%, 7/7/06 B1 5,770,000 5,618,538
LODGING & GAMING - 0.0%
Host Marriott Corp.:
9 1/8%, 12/1/00 B1 120,000 121,650
9 7/8%, 5/1/01 B1 45,000 45,000
10 1/2%, 5/1/06 B1 90,000 91,575
258,225
TOTAL MEDIA & LEISURE 5,876,763
NONDURABLES - 0.1%
BEVERAGES - 0.1%
Canandaigua Wine, Inc. 8 3/4%, 12/15/03 B1 1,000,000 990,000
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas Systems Inc. 9.91%, 5/28/20 (b) - $ 50,000 $ 73,650
TOTAL NONCONVERTIBLE BONDS 11,060,041
TOTAL CORPORATE BONDS
(Cost $15,905,462) 16,893,385
U.S. TREASURY OBLIGATIONS - 2.9%
6 1/4%, 2/15/03 Aaa 3,300,000 3,295,347
5 3/4%, 8/15/03 Aaa 14,960,000 14,452,706
7 1/4%, 5/15/04 Aaa 4,537,000 4,818,430
11 5/8%, 11/15/04 Aaa 1,300,000 1,781,403
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $22,013,303) 24,347,886
REPURCHASE AGREEMENTS - 12.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.13% dated
5/31/95 due 6/1/95 $ 106,220,084 106,202,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $747,956,625) $ 828,426,852
LEGEND
(a) Non-income producing
(b) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(c) 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 $6,687,597 or 0.8% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At May 31, 1995, the aggregate cost of investment securities for income tax
purposes was $748,244,936. Net unrealized appreciation aggregated
$80,181,916, of which $84,154,485 related to appreciated investment
securities and $3,972,569 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS MAY 31, 1995 (UNAUDITED)
Investment in securities, at value (including repurchase $ 828,426,852
agreements of $106,202,000) (cost $747,956,625) -
See accompanying schedule
Cash 11
Receivable for investments sold 12,716,165
Receivable for fund shares sold 13,099,706
Dividends receivable 1,859,863
Interest receivable 721,792
Other receivables 39,232
TOTAL ASSETS 856,863,621
LIABILITIES
Payable for investments purchased $ 23,294,427
Payable for fund shares redeemed 953,930
Accrued management fee 328,204
Distribution fees payable 301,086
Other payables and accrued expenses 197,083
TOTAL LIABILITIES 25,074,730
NET ASSETS $ 831,788,891
Net Assets consist of:
Paid in capital $ 743,190,695
Undistributed net investment income 1,723,904
Accumulated undistributed net realized gain (loss) on 6,404,445
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 80,469,847
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 831,788,891
CALCULATION OF MAXIMUM OFFERING PRICE $17.81
CLASS A:
NET ASSET VALUE and redemption price per share
($455,418,684 (divided by) 25,565,813 shares)
Maximum offering price per share (100/95.25 of $17.81) $18.70
CLASS B: $17.77
NET ASSET VALUE and offering price per share
($125,407,136 (divided by) 7,055,581 shares) A
INSTITUTIONAL CLASS: $17.93
NET ASSET VALUE, offering price and redemption price
per share ($250,963,071 (divided by) 13,997,641 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MAY 31, 1995 (UNAUDITED)
INVESTMENT INCOME $ 6,263,672
Dividends
Interest 4,166,118
TOTAL INCOME 10,429,790
EXPENSES
Management fee $ 1,467,950
Transfer agent fees 362,763
Class A
Class B 102,049
Institutional Class 172,894
Distribution fees 942,695
Class A
Class B 347,234
Accounting fees and expenses 159,064
Non-interested trustees' compensation 5,788
Custodian fees and expenses 22,163
Registration fees 67,023
Class A
Class B 13,920
Institutional Class 17,349
Audit 17,193
Legal 3,656
Interest 2,902
Miscellaneous 4,884
Total expenses before reductions 3,709,527
Expense reductions (39,592) 3,669,935
NET INVESTMENT INCOME 6,759,855
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 8,645,439
Foreign currency transactions (2,793) 8,642,646
Change in net unrealized appreciation (depreciation) on:
Investment securities 70,786,239
Assets and liabilities in foreign currencies (84) 70,786,155
NET GAIN (LOSS) 79,428,801
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 86,188,656
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 1994
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 6,759,855 $ 6,374,715
Net investment income
Net realized gain (loss) 8,642,646 27,731,225
Change in net unrealized appreciation (depreciation) 70,786,155 (12,716,890)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 86,188,656 21,389,050
FROM OPERATIONS
Distributions to shareholders (2,655,887) (1,149,252)
From net investment income
Class A
Class B (549,146) (65,384)
Institutional Class (3,177,850) (3,608,807)
From net realized gain (3,299,906) -
Class A
Class B (681,133) -
Institutional Class (3,529,087) -
TOTAL DISTRIBUTIONS (13,893,009) (4,823,443)
Share transactions - net increase (decrease) 347,086,143 162,377,185
TOTAL INCREASE (DECREASE) IN NET ASSETS 419,381,790 178,942,792
NET ASSETS
Beginning of period 412,407,101 233,464,309
End of period (including undistributed net investment $ 831,788,891 $ 412,407,101
income of $1,723,904 and $1,346,932, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED PERIOD ENDED
ENDED MAY 31, NOVEMBER 30, NOVEMBER
1995 30,
(UNAUDITED) 1994 E 1993 1992 F
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.96 $ 14.86 $ 12.86 $ 12.37
Income from Investment Operations
Net investment income .16 .28 D .33 .13
Net realized and unrealized gain 2.14 1.03 1.97 .47
(loss) on investments
Total from investment operations 2.30 1.31 2.30 .60
Less Distributions
From net investment income (.17) (.21) (.30) (.11)
From net realized gain (.28) - - -
Total distributions (.45) (.21) (.30) (.11)
Net asset value, end of period $ 17.81 $ 15.96 $ 14.86 $ 12.86
TOTAL RETURN B, C 14.77% 8.84% 18.03% 4.88%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 $ 455,419 $ 179,501 $ 42,326 $ 1,462
omitted)
Ratio of expenses to average net 1.51% A 1.64% 1.77% 1.55%
assets A
Ratio of expenses to average net 1.53% A 1.67% 1.77% 1.55%
assets before expense reductions A
Ratio of net investment income to 2.08% A 1.69% 2.02% 3.39%
average net assets A
Portfolio turnover 85% A 140% 120% 51%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E EFFECTIVE DECEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
``DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES.'' AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F FOR THE PERIOD SEPTEMBER 10, 1992 (COMMENCEMENT OF SALES OF CLASS A
SHARES) TO NOVEMBER 30, 1992.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS PERIOD ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 1994 E
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.94 $ 15.21
Income from Investment Operations
Net investment income .13 .08 D
Net realized and unrealized gain (loss) on investments 2.13 .72
Total from investment operations 2.26 .80
Less Distributions
From net investment income (.15) (.07)
From net realized gain (.28) -
Total distributions (.43) (.07)
Net asset value, end of period $ 17.77 $ 15.94
TOTAL RETURN B, C 14.52% 5.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 125,407 $ 35,373
Ratio of expenses to average net assets 1.89% 2.18%
A A
Ratio of expenses to average net assets before 1.90% 2.24%
expense reductions A A
Ratio of net investment income to average net assets 1.70% 1.15%
A A
Portfolio turnover 85% 140%
A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALES OF CLASS B SHARES) TO
NOVEMBER 30, 1994.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED NOVEMBER 30,
ENDED MAY 31,
1995
(UNAUDITED) 1994 E 1993 1992 1991 1990
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 16.07 $ 14.93 $ 12.88 $ 11.08 $ 9.52 $ 12.27
beginning of period
Income from
Investment
Operations
Net investment .23 .41 D .39 .49 .63 G .69
income
Net realized and 2.15 1.05 2.02 1.79 1.52 (2.42)
unrealized gain
(loss) on
investments
Total from investment 2.38 1.46 2.41 2.28 2.15 (1.73)
operations
Less Distributions
From net investment (.24) (.32) (.36) (.48) (.59) (.72)
income
From net realized (.28) - - - - (.30)
gain
Total distributions (.52) (.32) (.36) (.48) (.59) (1.02)
Net asset value, end of $ 17.93 $ 16.07 $ 14.93 $ 12.88 $ 11.08 $ 9.52
period
TOTAL RETURN B, C 15.23% 9.82% 18.90% 20.91% 22.97% (14.90)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 250,963 $ 197,533 $ 191,138 $ 139,391 $ 168,590 $ 253,049
period (000 omitted)
Ratio of expenses to .74% A .71% .79% .71% .67% .61%
average net assets
Ratio of expenses to .75% A .73% .80% .79% .77% .71%
average net assets F F F
before expense
reductions
Ratio of net investment 2.85% A 2.62% 3.00% 3.77% 5.66% 6.11%
income to average
net assets
Portfolio turnover 85% A 140% 120% 51% 91% 103%
</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 EFFECTIVE DECEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
``DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES.'' AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F THE INVESTMENT ADVISER REDUCED THE ANNUAL MANAGEMENT FEE OF 0.50% BY
0.10% THROUGH SEPTEMBER 10, 1992.
G INCLUDES $0.04 PER SHARE FROM FOREIGN TAXES RECOVERED.
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1995 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Equity Income Fund (the fund) (formerly Fidelity Advisor
Equity Portfolio Income Fund) is a fund of Fidelity Advisor Series III (the
trust) and is authorized to issue an unlimited number of shares. The trust
is registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. The fund
commenced sale of Class B shares on June 30, 1994. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 maturing within sixty days of their purchase date 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 forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INCOME TAXES - CONTINUED
schedule of investments includes information regarding income taxes under
the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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 between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS.
Distributions are recorded on the ex-dividend date. Income dividends are
declared separately for each class, while capital gain distributions are
declared at the fund level and allocated to each class on a prorata basis
based on the number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for foreign
currency transactions, partnerships, 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 and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). 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.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
2. OPERATING POLICIES - CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. FMR, the fund's
investment adviser, is responsible for determining that the value of these
underlying securities remains at least equal to the resale price.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $515,971,856 and $210,915,056, respectively, of which U.S.
government and government agency obligations aggregated $19,540,485 and
$15,139,845, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a fee that
is computed daily at an annual rate of .50% of the fund's average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares ("Class A Plan") and Class B shares ("Class B
Plan"), pursuant to which the fund pays Fidelity Distributors Corporation
(FDC), an affiliate of FMR, a distribution and service fee. This fee is
based on annual rates of .65% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively. For the
period, the fund paid FDC $942,695 and $347,234 under the Class A Plan and
Class B Plan, respectively, of which $718,768 and $86,808 were paid to
securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, and providing shareholder
support services.
In addition, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plans
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
also authorize payments to third parties that assist in the sale of the
fund's shares or render shareholder support services. No payments were made
under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $3,870,683 on sales of Class A shares of the fund, of which
$3,233,140 was paid to securities dealers, banks, and other financial
institutions. FDC also receives the proceeds of a contingent deferred sales
charge levied on Class B share redemptions occurring within five years of
purchase. The charge is based on declining rates which range from 4% to 1%
of the lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested dividends
and capital gains. For the period, FDC received contingent deferred sales
charges of $33,535 on Class B share redemptions from the fund. When Class B
shares are sold, FDC pays commissions from its own resources to dealers
through which the sales are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. During the period December 1, 1994
to December 31, 1994, the Transfer Agents received fees based on the type,
size, number of accounts and the number of transactions made by
shareholders of the respective classes of the fund. Effective January 1,
1995, the Board of Trustees approved a revised transfer agent contract
pursuant to which the Transfer Agents receive account fees and asset-based
fees that vary according to the account size and type of account of the
shareholders of the respective classes of the fund. With respect to the
Class A shares, State Street has delegated certain transfer, dividend
paying, and shareholder services to FIIOC for which FIIOC receives its
allocable share of all such fees. FIIOC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements.
ACCOUNTING FEES. FSC, an affiliate of FMR, 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 $253,828 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions.
5. BANK BORROWINGS - CONTINUED
The fund has established borrowing arrangements with certain banks. Under
the most restrictive arrangement, the fund must pledge to the bank
securities having a market value in excess of 220% of the total bank
borrowings. The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the periods for which loans were outstanding amounted to
$5,410,000. The weighted average interest rate was 6.44%.
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
$39,592 under this arrangement.
7. SHARE TRANSACTIONS.
Share transactions for three classes were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30, MAY 31, NOVEMBER 30,
1995 1994 A 1995 1994 A
CLASS A
Shares sold 16,215,380 11,106,459 $ 270,202,631 $ 175,898,673
Reinvestment of distributions 350,899 65,530 5,595,364 1,041,516
Shares redeemed (2,245,176) (2,775,183) (37,219,621) (43,121,793)
Net increase (decrease) 14,321,103 8,396,806 $ 238,578,374 $ 133,818,396
CLASS B
Shares sold 4,974,519 2,285,793 $ 83,057,738 $ 36,859,022
Reinvestment of distributions 71,610 3,660 1,141,365 60,066
Shares redeemed (209,315) (70,686) (3,457,114) (1,147,207)
Net increase (decrease) 4,836,814 2,218,767 $ 80,741,989 $ 35,771,881
INSTITUTIONAL CLASS
Shares sold 3,229,148 6,423,156 $ 53,244,057 $ 103,045,500
Reinvestment of distributions 268,609 77,502 4,270,520 1,232,865
Shares redeemed (1,790,750) (7,012,674) (29,748,797) (111,491,457)
Net increase (decrease) 1,707,007 (512,016) $ 27,765,780 $ (7,213,092)
A SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO NOVEMBER 30, 1994.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
Arthur S. Loring, Secretary
Stephen P. Jonas, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
State Street Bank and Trust Company
Boston, MA - Class A
Fidelity Investments Institutional
Operations Company
Boston, MA - Class B
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(registered trademark)
(2_FIDELITY_LOGOS)FIDELITY ADVISOR
(registered trademark)
EQUITY INCOME FUND -
INSTITUTIONAL CLASS
SEMIANNUAL REPORT
MAY 31, 1995
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 22 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.
NOTES 28 Notes to the financial statements.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON ANY FIDELITY ADVISOR FUND, INCLUDING CHARGES AND
EXPENSES,
CONTACT YOUR INVESTMENT PROFESSIONAL FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE
YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Although there have been positive market indications so far in 1995, no one
can predict what lies ahead for investors. Last year, stocks posted
below-average returns and bonds had one of the worst years in history. This
downturn followed a period in which the investing environment was generally
very positive.
These market ups and downs are a normal part of investing, and there are
some basic principles that are helpful for investors to remember in
different types of markets.
If you can leave your money invested over the long term, you can avoid the
results of the volatility that generally accompanies the stock market in
the short term, as we witnessed last year. You also can help to manage some
of the risks of investing through diversification. A stock fund is already
diversified because it invests in many issues. You can diversify even
further by placing some of your money in several different types of stock
funds or in other investment categories, such 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, there is no assurance that a money market fund will
achieve its goal, and it is important to remember that money market funds
are not insured or guaranteed by any agency of the U.S. government.
Finally, no matter what your investment horizon or portfolio diversity, it
makes good sense to follow a regular investment plan - investing a certain
amount of money at the same time each month or quarter - and to review your
portfolio periodically. A periodic investment plan will not, of course,
assure a profit or protect against a loss.
Remember to contact your investment professional if you need help with your
investments.
Best regards,
Edward C. Johnson 3d
ADVISOR EQUITY INCOME FUND - INSTITUTIONAL CLASS
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate historical performance. You can look at
the total percentage change in value, the average annual percentage change,
or the growth of a hypothetical $100,000 investment. Total return includes
changes in share price, plus reinvestment of any dividends (or income) and
capital gains (the profits the fund earns when it sells investments that
have grown in value). You can also look at income to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 1995 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS
Advisor Equity Income Fund -
Institutional Class 15.23% 21.12% 95.14% 249.69%
S&P 500(registered trademark) 19.23% 20.19% 71.79% 290.51%
Average Equity Income Fund 13.83% 12.27% 62.28% 196.83%
CUMULATIVE TOTAL RETURNS show Institutional Class' performance in
percentage terms over a set period - in this case, six months, one, five,
or 10 years. For example, if you invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be $1,050.
You can compare the Institutional Class' returns to the performance of the
Standard & Poor's Composite Index of 500 stocks - a common proxy for the
U.S. stock market. To measure how Institutional Class' performance stacked
up against its peers, you can compare it to the average equity income fund,
which reflects the performance of 129 funds with similar objectives tracked
by Lipper Analytical Services over the past six months. Both benchmarks
include reinvested dividends and capital gains, if any, and exclude the
effects of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1995 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS
Advisor Equity Income Fund -
Institutional Class 21.12% 14.31% 13.34%
S&P 500(registered trademark) 20.19% 11.43% 14.59%
Average Equity Income Fund 12.27% 10.04% 11.18%
AVERAGE ANNUAL TOTAL RETURNS take Institutional Class' actual (or
cumulative) return and show you what would have happened if Institutional
Class had performed at a constant rate
each year.
$100,000 OVER TEN YEARS
Fidelity AdvisorStandard & Poor's 5
05/31/85 100000.00 100000.00
06/30/85 101650.74 101570.00
07/31/85 101825.40 101417.65
08/31/85 102000.96 100555.60
09/30/85 99700.85 97408.20
10/31/85 103255.25 101908.46
11/30/85 107449.71 108899.38
12/31/85 111226.19 114170.11
01/31/86 113304.34 114809.47
02/28/86 120683.60 123397.22
03/31/86 127915.22 130282.78
04/30/86 127160.00 128810.58
05/31/86 127539.30 135663.31
06/30/86 129253.79 137956.02
07/31/86 124275.13 130244.28
08/31/86 131772.01 139908.40
09/30/86 125589.16 128337.98
10/31/86 131121.29 135743.08
11/30/86 132679.94 139041.63
12/31/86 130622.20 135496.07
01/31/87 143454.89 153747.39
02/28/87 147766.09 159820.42
03/31/87 150472.42 164439.23
04/30/87 148514.00 162975.72
05/31/87 147749.59 164393.61
06/30/87 152021.07 172695.48
07/31/87 156424.29 181451.14
08/31/87 160735.63 188219.27
09/30/87 156961.45 184097.27
10/31/87 128514.28 144442.72
11/30/87 123024.13 132540.64
12/31/87 127699.76 142626.98
01/31/88 136433.63 148631.58
02/29/88 143088.93 155557.81
03/31/88 141216.74 150751.07
04/30/88 143234.12 152424.41
05/31/88 144992.43 153750.50
06/30/88 153289.37 160807.65
07/31/88 153015.64 160196.58
08/31/88 149988.35 154749.90
09/30/88 154420.14 161342.24
10/31/88 157204.99 165827.56
11/30/88 156225.96 163456.22
12/31/88 157359.57 166316.71
01/31/89 167443.08 178491.09
02/28/89 166015.60 174046.66
03/31/89 169315.83 178101.95
04/30/89 175517.35 187345.44
05/31/89 179717.02 194932.93
06/30/89 180444.03 193821.81
07/31/89 191840.49 211323.92
08/31/89 194335.74 215465.87
09/30/89 191829.13 214582.46
10/31/89 181311.86 209604.15
11/30/89 183693.63 213880.07
12/31/89 186368.48 219013.19
01/31/90 174583.64 204317.41
02/28/90 174895.40 206953.10
03/31/90 174895.40 212437.36
04/30/90 168126.27 207126.43
05/31/90 179197.61 227321.25
06/30/90 178403.30 225775.47
07/31/90 175528.40 225052.99
08/31/90 162199.16 204708.20
09/30/90 149933.36 194738.91
10/31/90 146525.78 193901.53
11/30/90 156315.92 206427.57
12/31/90 159757.27 212186.90
01/31/91 167886.15 221438.25
02/28/91 179889.92 237271.08
03/31/91 182760.84 243013.04
04/30/91 182756.49 243596.27
05/31/91 192765.14 254119.63
06/30/91 183917.62 242480.95
07/31/91 193982.81 253780.56
08/31/91 198091.24 259795.16
09/30/91 197064.93 255456.58
10/31/91 200348.31 258879.70
11/30/91 192223.79 248446.85
12/31/91 207380.53 276869.17
01/31/92 209468.29 271719.40
02/29/92 215939.96 275251.76
03/31/92 212431.59 269884.35
04/30/92 220002.99 277818.95
05/31/92 221945.08 279180.26
06/30/92 219473.96 275020.47
07/31/92 225174.58 286268.81
08/31/92 219828.80 280400.30
09/30/92 221623.63 283709.02
10/31/92 224319.34 284702.01
11/30/92 232411.98 294410.34
12/31/92 238373.28 298031.59
01/31/93 245615.04 300535.06
02/28/93 251972.66 304622.33
03/31/93 260337.69 311049.86
04/30/93 259427.17 303522.46
05/31/93 263635.44 311656.86
06/30/93 266393.80 312560.66
07/31/93 270077.31 311310.42
08/31/93 279860.22 323109.09
09/30/93 278194.38 320621.15
10/31/93 281526.05 327258.00
11/30/93 276343.46 324149.05
12/31/93 283191.89 328071.26
01/31/94 296518.56 339225.68
02/28/94 289114.86 330032.66
03/31/94 276793.42 315643.24
04/30/94 286485.85 319683.47
05/31/94 288722.57 324926.28
06/30/94 287004.29 316965.59
07/31/94 296952.77 327362.06
08/31/94 312720.17 340783.90
09/30/94 307628.19 332434.70
10/31/94 313671.22 339914.48
11/30/94 303473.60 327534.79
12/31/94 304422.51 332392.14
01/31/95 309260.76 341011.06
02/28/95 320291.96 354300.26
03/31/95 330969.15 364755.67
04/30/95 339940.62 375497.72
05/31/95 349692.21 390506.36
$100,000 OVER TEN YEARS: Let's say you invested $100,000 in Fidelity
Advisor Equity Income Fund - Institutional Class on May 31, 1985. As the
chart shows, by May 31, 1995, the value of your investment would have grown
to $349,692 - a 249.69% increase on your initial investment. For
comparison, look at how the S&P 500 did over the same period. With
dividends reinvested, the same $100,000 investment would have grown to
$390,506 - a 290.51% increase.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. The stock market,
for example, has a history of
growth in the long run and
volatility in the short run. In
turn, the share price and
return of a fund that invests in
stocks will vary. That means if
you sell your shares during a
market downturn, you might
lose money. But if you can
ride out the market's ups and
downs, you may have a gain.
(checkmark)
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Bettina Doulton, Portfolio Manager of Fidelity Advisor
Equity-Income Fund
Q. HOW DID THE FUND DO, BETTINA?
A. For the six months ended May 31, 1995, Fidelity Advisor Equity Income
Fund -Institutional Class had a total return of 15.23%. During the same
period, the average equity income fund rose 13.83%, according to Lipper
Analytical Services. For the 12 months ended May 31, Institutional Class
returned 21.12%, and the average fund was up 12.27%.
Q. THE STOCK MARKET SHOWED A RENEWED VIGOR OVER THE PAST SIX MONTHS. WHAT
HELPED THE FUND OUTPACE ITS PEER GROUP AVERAGE?
A. The market's strength was driven by investors' belief that the Federal
Reserve Board would manage the economy to a soft landing - steady, albeit
slower, economic growth and continued low inflation. If achieved, those
conditions are ideal for Corporate America to sustain strong profit growth.
Excluding the consistently outstanding performance of the technology and
financial sectors, the market has been characterized by rapid industry
rotation. Investors have spent the past six months racing from one industry
to the next, trying to stay one step ahead of the crowd. Sometimes, the
fund was in the right place at the right time, and sometimes it wasn't.
What helped the fund most was strong performance by its largest
investments, which crossed a variety of sectors.
Q. CAN YOU GIVE US SOME EXAMPLES?
A. Sure. The fund's four largest stocks at the end of the period added
substantially to its total return. Philip Morris' stock has been rewarded
for the company's strong profit growth and free cash flow; both are
attributable to terrific results in the company's domestic and
international tobacco businesses, which more than offset mediocre results
in its food division. IBM was another strong performer. The company has
done an excellent job cutting costs and cleaning up its balance sheet. In
addition, global economic growth and wide acceptance of the company's new
products have contributed to accelerating revenue growth. Meanwhile,
American Express has continued to benefit from its massive restructuring
effort begun a few years ago. The company has a much better focus on its
core products and services, which has led to gradually stronger earnings
and stock performance. As for the Federal National Mortgage Association
(Fannie Mae), its stock price suffered a significant setback last fall, but
has since recovered as conditions in the secondary mortgage market have
turned more favorable. Fannie Mae's stock price has risen from roughly $72
a share to about $93 a share during the first five months of 1995.
Q. YOU MENTIONED HOW QUICKLY VARIOUS MARKET SECTORS FELL IN AND OUT OF
FAVOR. WERE THERE ANY THAT EXCELLED OVERALL?
A. Many of the fund's energy stocks - which made up roughly 10% of the fund
on May 31 - did well. More specifically, the energy service stocks.
Industry-wide cost cutting, as reflected by companies such as Schlumberger
and Halliburton, combined with what appears to be improving worldwide
supply/demand dynamics for oil, have lifted these stocks. However,
elsewhere in the energy sector, British Petroleum (BP) and Amerada Hess
have been somewhat disappointing in terms of stock performance. Both are
restructuring stories; BP's stock may just be taking a breather after
making significant gains over the past couple years, while Amerada Hess'
turnaround may be just taking a bit longer than investors had expected.
Q. YOU MORE THAN DOUBLED THE FUND'S STAKE IN FINANCIAL STOCKS; THEY WENT
FROM 7.4% OF THE FUND SIX MONTHS AGO TO 15.3% ON MAY 31 . . .
A. Recent purchases of bank stocks made up most of that increase. Along
with the diversified financial services companies such as American Express
and Fannie Mae, banks had a strong, if volatile, run. My only regret is not
owning more of them early in the period, when they began to outperform.
Prices did fall in the spring, however, which allowed me to buy stocks such
as Chemical Banking and BankAmerica off their highs. The banking group then
had another upward surge in May. In the coming months, I expect the market
to drive bank stock valuations - prices relative to earnings - higher.
That's because earnings are becoming more consistent, the industry is
consolidating, and companies are using excess capital to repurchase shares
of their own stocks.
Q. AS FAR AS THE ECONOMY IS CONCERNED, DO YOU BELIEVE THAT A SOFT LANDING
IS IMMINENT? IF SO, WHY HAVE YOU REDUCED THE FUND'S INVESTMENT IN BASIC
INDUSTRIES STOCKS - MOST OF WHICH ARE CYCLICAL AND DO WELL WHEN THE ECONOMY
DOES WELL - FROM 12% SIX MONTHS AGO TO ABOUT 8% ON MAY 31?
A. We've already seen solid evidence that the economy has slowed quite
dramatically. However, predicting whether this slowdown will end in a
recession or a soft landing is incredibly difficult. A lot will depend upon
the extent to which the Federal Reserve Board reacts to what's happening; a
lowering of short-term interest rates could help prolong the economic
recovery. In this environment, I'm even more focused on stock selection -
investing in companies that can show positive earnings growth despite a
slowdown. While my concern about the slowing economy did lead me to reduce
the fund's stake in commodity cyclicals - for example, paper and chemical
companies - its investments in banks and several industrial companies keep
it somewhat economically sensitive.
Q. WHAT DOES THIS ECONOMIC UNCERTAINTY MEAN FOR THE FUND OVER THE NEXT SIX
MONTHS?
A. When interest rates fall, as they've done over the past few months, the
market usually rewards stocks with higher valuations. However, we have to
keep in mind that the economy has slowed, which could negatively affect
corporate earnings going forward. The 64-thousand-dollar question then
becomes: Will the market's willingness to drive up valuations be enough to
offset the negative effects of potential earnings disappointments? I'm
afraid not. Companies that report less-than-expected earnings growth in the
coming months will most likely pay dearly with falling stock prices. These
are the bullets that will be critical to dodge. I have to focus intensely
on owning high-quality companies that are improving their balance sheets
while growing earnings.
FUND FACTS
GOAL: seeks to maintain a
yield which exceeds the
composite dividend yield of
the
S&P 500 stock index and
consider the potential for
achieving capital
appreciation
START DATE: April 25, 1983
SIZE: as of May 31, 1995,
more than $831 million
MANAGER: Bettina Doulton,
since July 1993; joined
Fidelity in 1985
(checkmark)
BETTINA DOULTON ON INVESTING
IN A RAPIDLY CHANGING MARKET:
"I read a quote the other day
that said `the really big money
is made when one identifies a
fundamental change in the
market and the point of
market recognition.' That
implies that I need to position
the fund for impending
changes in the market
before the rest of the world
recognizes those changes.
However, forecasting what
the economy, interest rates
and inflation will look like six
months from now is a very
tough call. That has made for
a difficult investing
environment. The stock
market is so concerned with
making the right call on the
economy and corporate
earnings that sectors are
flying in and out of favor as
investors try to figure out the
right place to be. Generally, I
have more of a bottom-up
focus. If I can successfully
find companies primed for
earnings growth whose
stocks are selling at
reasonable valuations, the
stock prices should eventually
take care of themselves."
INVESTMENT CHANGES
TOP FIVE STOCKS AS OF MAY 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS IN THESE
STOCKS
6 MONTHS AGO
Philip Morris Companies, Inc. 3.8 3.5
International Business Machines Corp. 2.5 2.4
American Express Co. 2.3 2.4
Federal National Mortgage 2.1 1.8
Association
British Petroleum PLC ADR 1.9 2.5
TOP FIVE BONDS AS OF MAY 31, 1995
(BY ISSUER, WITH MATURITIES MORE THAN ONE % OF FUND'S % OF FUND'S
YEAR) INVESTMENTS INVESTMENTS
IN THESE BONDS
6 MONTHS AGO
U.S. Treasury Obligations 2.9 4.3
Viacom, Inc. 0.7 0.0
Roche Holdings, Inc. 0.5 0.0
Westpoint Stevens, Inc. 0.2 0.4
Stone Container Corp. 0.2 0.3
TOP FIVE MARKET SECTORS AS OF MAY 31, 1995
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
IN THESE MARKET
SECTORS
6 MONTHS AGO
Finance 15.3 7.4
Energy 10.1 12.0
Nondurables 9.0 8.0
Basic Industries 8.0 12.0
Utilities 6.0 5.9
ASSET ALLOCATION
AS OF MAY 31, 1995* AS OF NOVEMBER 30, 1994**
Row: 1, Col: 1, Value: 12.1
Row: 1, Col: 2, Value: 2.0
Row: 1, Col: 3, Value: 4.2
Row: 1, Col: 4, Value: 41.6
Row: 1, Col: 5, Value: 40.0
Stocks 74.6%
Bonds 5.8%
Convertible
securities 2.4%
Short-term
investments 17.2%
FOREIGN
INVESTMENTS 9.1%
Stocks 81.6%
Bonds 4.2%
Convertible
securities 1.4%
Short-term
investments 12.8%
FOREIGN
INVESTMENTS 5.2%
Row: 1, Col: 1, Value: 17.2
Row: 1, Col: 2, Value: 2.4
Row: 1, Col: 3, Value: 5.8
Row: 1, Col: 4, Value: 74.59999999999999
*
**
INVESTMENTS MAY 31, 1995 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMON STOCKS - 81.3%
SHARES VALUE (NOTE 1)
AEROSPACE & DEFENSE - 5.2%
AEROSPACE & DEFENSE - 3.3%
Alliant Techsystems, Inc. (a) 86,700 $ 3,175,371
Boeing Co. 49,000 2,884,875
General Motors Corp. Class H 102,700 4,185,025
Lockheed Martin Corp. 98,533 5,862,714
McDonnell Douglas Corp. 31,600 2,283,100
Rockwell International Corp. 103,100 4,703,938
Sundstrand Corp. 44,100 2,447,550
Thiokol Corp. 44,900 1,408,738
26,951,311
DEFENSE ELECTRONICS - 1.4%
Litton Industries, Inc. 65,300 2,514,050
Loral Corp. 52,400 2,508,650
Raytheon Co. 82,500 6,393,750
11,416,450
SHIP BUILDING & REPAIR - 0.5%
General Dynamics Corp. 101,600 4,445,000
TOTAL AEROSPACE & DEFENSE 42,812,761
BASIC INDUSTRIES - 7.8%
CHEMICALS & PLASTICS - 4.9%
du Pont (E.I.) de Nemours & Co. 156,700 10,636,013
Geon Co. 34,500 853,875
Grace (W.R.) & Co. 81,100 5,210,675
Hercules, Inc. 226,100 11,870,250
Monsanto Co. 23,000 1,914,750
Nalco Chemical Co. 114,500 4,322,375
Potash Corp. of Saskatchewan 20,300 966,737
Union Carbide Corp. 165,800 4,849,650
40,624,325
METALS & MINING - 1.2%
Alcan Aluminium Ltd. 151,908 4,490,220
Aluminum Co. of America 124,500 5,789,250
10,279,470
PAPER & FOREST PRODUCTS - 1.7%
Scott Paper Co. 320,400 13,897,350
TOTAL BASIC INDUSTRIES 64,801,145
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONGLOMERATES - 3.2%
Allied-Signal, Inc. 111,000 $ 4,481,625
GenCorp, Inc. 80,800 1,040,300
Tyco International Ltd. 228,362 12,360,093
United Technologies Corp. 111,600 8,467,650
26,349,668
CONSTRUCTION & REAL ESTATE - 0.2%
CONSTRUCTION - 0.1%
American Homestar Corp. (a) 75,000 834,375
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Storage Equities, Inc. 59,500 944,563
TOTAL CONSTRUCTION & REAL ESTATE 1,778,938
DURABLES - 2.0%
AUTOS, TIRES, & ACCESSORIES - 1.0%
Chrysler Corp. 9,700 423,163
Dana Corp. 106,100 2,997,325
Johnson Controls, Inc. 13,300 761,425
PACCAR, Inc. 26,900 1,294,563
Snap-on Tools Corp. 84,800 3,010,400
SPX Corp. 8,200 107,625
8,594,501
CONSUMER ELECTRONICS - 0.7%
Black & Decker Corp. 83,000 2,739,000
Whirlpool Corp. 58,700 3,353,238
6,092,238
HOME FURNISHINGS - 0.1%
Heilig-Meyers Co. 23,300 556,288
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc. Class A (a) 69,900 1,266,938
TOTAL DURABLES 16,509,965
ENERGY - 9.7%
ENERGY SERVICES - 3.0%
Baker Hughes, Inc. 115,000 2,587,500
Halliburton Co. 223,200 8,704,800
Helmerich & Payne, Inc. 18,200 543,725
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
ENERGY - CONTINUED
ENERGY SERVICES - CONTINUED
McDermott International, Inc. 151,300 $ 3,971,625
Schlumberger Ltd. 145,300 9,444,500
25,252,150
OIL & GAS - 6.7%
Amerada Hess Corp. 208,500 10,581,375
Atlantic Richfield Co. 30,500 3,541,813
British Petroleum PLC:
ADR 181,561 15,500,770
Ord. 160,404 1,130,786
Canada Occidental Petroleum Ltd. 40,000 1,262,636
Coastal Corp. (The) 98,200 3,081,025
Kerr-McGee Corp. 32,300 1,800,725
Mobil Corp. 62,200 6,243,325
Occidental Petroleum Corp. 253,000 5,819,000
Tosco Corp. 68,400 2,428,200
Total SA:
Class B 39,757 2,457,647
sponsored ADR 20,500 635,500
Unocal Corp. 25,151 745,098
55,227,900
TOTAL ENERGY 80,480,050
FINANCE - 15.3%
BANKS - 4.8%
Bank of Boston Corp. 18,600 678,900
BankAmerica Corp. 108,800 5,684,800
Bankers Trust New York Corp. 73,300 4,599,575
Chase Manhattan Corp. 120,241 5,561,146
Chemical Banking Corp. 153,100 7,061,738
Citicorp 165,100 8,832,850
Fleet Financial Group, Inc. 71,103 2,479,717
Mellon Bank Corp. 27,800 1,188,450
NationsBank Corp. 31,000 1,755,375
Shawmut National Corp. 53,300 1,545,700
39,388,251
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
FINANCE - CONTINUED
CREDIT & OTHER FINANCE - 3.3%
American Express Co. 526,625 $ 18,761,016
Bank of New York Co., Inc. 61,950 2,524,463
Countrywide Credit Industries,Inc. 204,000 3,799,500
Greenpoint Financial Corp. 57,100 1,281,181
Republic New York Corp. 10,000 511,250
26,877,410
FEDERAL SPONSORED CREDIT - 3.1%
Federal Home Loan Mortgage Corp. 121,200 8,256,750
Federal National Mortgage Association 189,500 17,623,500
25,880,250
INSURANCE - 3.2%
Allstate Corp. 34,800 1,048,350
American International Group, Inc. 48,400 5,505,500
General Re Corp. 38,200 5,171,325
Loews Corp. 66,600 7,917,075
Reliastar Financial Corp. 75,400 2,799,225
Travelers, Inc. (The) 94,233 3,981,358
26,422,833
SAVINGS & LOANS - 0.3%
Ahmanson (H.F.) & Co. 98,800 2,247,700
Golden West Financial Corp. 6,600 324,225
2,571,925
SECURITIES INDUSTRY - 0.6%
Merrill Lynch & Co., Inc. 112,400 5,282,800
TOTAL FINANCE 126,423,469
HEALTH - 4.4%
DRUGS & PHARMACEUTICALS - 2.1%
Allergan, Inc. 130,100 3,463,913
American Home Products Corp. 90,000 6,626,250
Bristol-Myers Squibb Co. 60,000 3,982,500
Pfizer, Inc. 28,000 2,467,500
Rhone Poulenc Rorer, Inc. 15,000 618,750
17,158,913
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
HEALTH - CONTINUED
MEDICAL EQUIPMENT & SUPPLIES - 1.7%
Baxter International, Inc. 194,800 $ 6,793,650
Beckman Instruments, Inc. 45,700 1,268,175
I-Stat Corp. 46,500 924,188
Pall Corp. 26,500 583,000
Puritan Bennett Corp. 49,000 1,794,625
St. Jude Medical, Inc. 56,600 2,561,150
13,924,788
MEDICAL FACILITIES MANAGEMENT - 0.6%
Columbia/HCA Healthcare Corp. 132,200 5,403,675
TOTAL HEALTH 36,487,376
HOLDING COMPANIES - 0.1%
PMI Group, Inc. 26,300 1,075,013
INDUSTRIAL MACHINERY & EQUIPMENT - 7.1%
ELECTRICAL EQUIPMENT - 1.3%
Emerson Electric Co. 72,900 5,011,875
General Electric Co. 61,300 3,555,400
Philips Electronics NV 10,800 429,545
Philips Electronics NV ADR 47,400 1,901,925
10,898,745
INDUSTRIAL MACHINERY & EQUIPMENT - 3.4%
Caterpillar, Inc. 106,500 6,416,625
Cooper Industries, Inc. 81,900 3,030,300
Deere & Co. 116,400 10,068,600
Dover Corp. 33,800 2,218,125
Ingersoll-Rand Co. 140,400 5,229,900
Varity Corp. 14,900 642,563
27,606,113
POLLUTION CONTROL - 2.4%
Browning-Ferris Industries, Inc. 204,800 7,296,000
Safety Kleen Corp. 115,200 1,958,400
Wheelabrator Technologies, Inc. 108,500 1,654,625
WMX Technologies, Inc. 333,000 9,074,250
19,983,275
TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 58,488,133
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
MEDIA & LEISURE - 1.9%
BROADCASTING - 1.2%
Viacom, Inc. Class B (non-vtg.) (a) 217,407 $ 10,136,601
PUBLISHING - 0.7%
Meredith Corp. 27,200 714,000
News Corp. Ltd.:
ADR 108,700 2,350,638
(vtg.) pfd. sponsored ADR 18,300 359,138
Times Mirror Co. Class A 110,500 2,569,125
5,992,901
TOTAL MEDIA & LEISURE 16,129,502
NONDURABLES - 8.9%
BEVERAGES - 1.1%
PepsiCo, Inc. 180,800 8,859,200
FOODS - 0.6%
ConAgra, Inc. 119,600 3,991,650
Dole Food, Inc. 46,200 1,362,900
5,354,550
HOUSEHOLD PRODUCTS - 1.4%
Avon Products, Inc. 70,200 4,729,725
First Brands Corp. 85,400 3,522,750
Rubbermaid, Inc. 24,300 774,563
Tambrands, Inc. 61,400 2,632,525
11,659,563
TOBACCO - 5.8%
Imasco Ltd. 296,000 5,400,869
Philip Morris Companies, Inc. 433,000 31,554,875
RJR Nabisco Holdings Corp. 387,080 11,031,780
47,987,524
TOTAL NONDURABLES 73,860,837
RETAIL & WHOLESALE - 2.7%
APPAREL STORES - 0.4%
Limited, Inc. (The) 132,700 2,952,575
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
RETAIL & WHOLESALE - CONTINUED
GENERAL MERCHANDISE STORES - 1.8%
Consolidated Stores Corp. (a) 52,300 $ 980,625
Dayton Hudson Corp. 51,800 3,671,325
May Department Stores Co. (The) 32,800 1,287,400
Price/Costco, Inc. (a) 29,600 418,100
Wal-Mart Stores, Inc. 299,300 7,482,500
Woolworth Corp. 77,800 1,196,175
15,036,125
GROCERY STORES - 0.5%
Fleming Companies, Inc. 50,689 1,311,578
Great Atlantic & Pacific Tea Co., Inc. 76,300 1,897,963
Vons Companies, Inc. 57,600 1,195,200
4,404,741
TOTAL RETAIL & WHOLESALE 22,393,441
SERVICES - 0.3%
PRINTING - 0.2%
Wallace Computer Services, Inc. 48,700 1,765,375
SERVICES - 0.1%
ADT Ltd. 87,900 999,863
TOTAL SERVICES 2,765,238
TECHNOLOGY - 4.9%
COMPUTERS & OFFICE EQUIPMENT - 3.8%
Hewlett-Packard Co. 61,900 4,093,138
International Business Machines Corp. 225,100 20,990,575
Pitney Bowes, Inc. 180,800 6,689,600
31,773,313
ELECTRONIC INSTRUMENTS - 0.3%
Measurex Corp. 4,600 120,750
Perkin-Elmer Corp. 59,800 2,078,050
2,198,800
COMMON STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
TECHNOLOGY - CONTINUED
ELECTRONICS - 0.7%
AMP, Inc. 92,900 $ 3,959,863
Thomas & Betts Corp. 23,000 1,549,625
5,509,488
PHOTOGRAPHIC EQUIPMENT - 0.1%
Polaroid Corp. 27,800 1,025,125
TOTAL TECHNOLOGY 40,506,726
TRANSPORTATION - 1.8%
RAILROADS - 1.8%
Burlington Northern, Inc. 127,800 7,811,775
CSX Corp. 46,700 3,560,875
Southern Pacific Rail Corp. 225,000 3,571,875
14,944,525
UTILITIES - 5.8%
ELECTRIC UTILITY - 0.0%
Entergy Corp. 1,400 34,650
GAS - 0.5%
Williams Companies, Inc. 111,600 3,794,400
TELEPHONE SERVICES - 5.3%
Ameritech Corp. 245,700 10,902,938
Bell Atlantic Corp. 33,600 1,873,200
BellSouth Corp. 95,100 5,836,763
NYNEX Corp. 303,100 12,654,425
Koninklijke PPT Nederland 34,400 1,242,222
Koninklijke PPT Nederland (a)(c) 15,500 559,722
SBC Communications, Inc. 209,700 9,436,500
Southern New England Telecommunications Corp. 39,500 1,328,188
43,833,958
TOTAL UTILITIES 47,663,008
TOTAL COMMON STOCKS
(Cost $596,624,065) 673,469,795
PREFERRED STOCKS - 1.0%
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS - 0.7%
ENERGY - 0.4%
ENERGY SERVICES - 0.1%
Noble Drilling Corp. $1.50 23,100 $ 539,963
OIL & GAS - 0.3%
Atlantic Richfield Co. exchangeable $0.5575 92,100 2,314,013
TOTAL ENERGY 2,853,976
INDUSTRIAL MACHINERY & EQUIPMENT - 0.1%
ELECTRICAL EQUIPMENT - 0.1%
Westinghouse Electric Corp. $1.30 (c) 61,000 892,125
MEDIA & LEISURE - 0.0%
PUBLISHING - 0.0%
Taylor, J.N. Holdings Ltd. 9 1/2% (a) 50,000 1
UTILITIES - 0.2%
TELEPHONE SERVICES - 0.2%
MFS Communications, Inc. depository shares representing
1/100 share $2.68 35,300 1,098,713
Sprint Corp. $0.6573 6,400 212,800
1,311,513
TOTAL CONVERTIBLE PREFERRED STOCKS 5,057,615
NONCONVERTIBLE PREFERRED STOCKS - 0.3%
MEDIA & LEISURE - 0.3%
PUBLISHING - 0.3%
News Corp. Ltd. sponsored ADR (ltd. vtg.) 510,681 2,456,171
TOTAL PREFERRED STOCKS
(Cost $7,211,795) 7,513,786
CORPORATE BONDS - 2.0%
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 0.7%
CONSTRUCTION & REAL ESTATE - 0.1%
REAL ESTATE INVESTMENT TRUSTS - 0.1%
Centerpoint Properties Corp. 8.22%, 1/15/04 - $ 305,000 $ 326,350
Liberty Property LP 8%, 7/1/01 - 115,000 112,844
439,194
HEALTH - 0.5%
DRUGS & PHARMACEUTICALS - 0.5%
Roche Holdings, Inc. liquid yield option note
0%, 4/20/10 (c) - 11,360,000 4,373,600
PRECIOUS METALS - 0.1%
Pegasus Gold, Inc. euro 6 1/4%,
4/30/02 (c) Baa3 860,000 862,150
UTILITIES - 0.0%
GAS - 0.0%
SFP Pipeline Holdings, Inc. exchangeable
0%, 8/15/10 (d) Baa3 120,000 158,400
TOTAL CONVERTIBLE BONDS 5,833,344
NONCONVERTIBLE BONDS - 1.3%
AEROSPACE & DEFENSE - 0.0%
DEFENSE ELECTRONICS - 0.0%
Tracor, Inc. 10 7/8%, 8/15/01 B2 230,000 237,475
BASIC INDUSTRIES - 0.2%
PACKAGING & CONTAINERS - 0.0%
Owens Illinois, Inc. 10 1/4%, 4/1/99 B2 160,000 164,800
PAPER & FOREST PRODUCTS - 0.2%
Stone Container Corp. 9 7/8%, 2/1/01 B1 1,240,000 1,233,800
TOTAL BASIC INDUSTRIES 1,398,600
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
CONGLOMERATES - 0.1%
Coltec Industries, Inc. 10 1/4%, 4/1/02 B1 $ 440,000 $ 453,200
DURABLES - 0.2%
TEXTILES & APPAREL - 0.2%
Westpoint Stevens, Inc.:
8 3/4%, 12/15/01 B1 540,000 531,900
9 3/8%, 12/15/05 B3 1,250,000 1,221,875
1,753,775
FINANCE - 0.0%
BANKS - 0.0%
Signet Banking Corp. (d):
6 1/4%, 5/15/97 Baa2 180,000 178,038
6.4375%, 4/15/98 Baa2 100,000 98,540
276,578
MEDIA & LEISURE - 0.7%
BROADCASTING - 0.7%
Viacom, Inc. 8%, 7/7/06 B1 5,770,000 5,618,538
LODGING & GAMING - 0.0%
Host Marriott Corp.:
9 1/8%, 12/1/00 B1 120,000 121,650
9 7/8%, 5/1/01 B1 45,000 45,000
10 1/2%, 5/1/06 B1 90,000 91,575
258,225
TOTAL MEDIA & LEISURE 5,876,763
NONDURABLES - 0.1%
BEVERAGES - 0.1%
Canandaigua Wine, Inc. 8 3/4%, 12/15/03 B1 1,000,000 990,000
CORPORATE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS AMOUNT (NOTE 1)
UTILITIES - 0.0%
GAS - 0.0%
Columbia Gas Systems Inc. 9.91%, 5/28/20 (b) - $ 50,000 $ 73,650
TOTAL NONCONVERTIBLE BONDS 11,060,041
TOTAL CORPORATE BONDS
(Cost $15,905,462) 16,893,385
U.S. TREASURY OBLIGATIONS - 2.9%
6 1/4%, 2/15/03 Aaa 3,300,000 3,295,347
5 3/4%, 8/15/03 Aaa 14,960,000 14,452,706
7 1/4%, 5/15/04 Aaa 4,537,000 4,818,430
11 5/8%, 11/15/04 Aaa 1,300,000 1,781,403
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $22,013,303) 24,347,886
REPURCHASE AGREEMENTS - 12.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 6.13% dated
5/31/95 due 6/1/95 $ 106,220,084 106,202,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $747,956,625) $ 828,426,852
LEGEND
(a) Non-income producing
(b) Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(c) 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 $6,687,597 or 0.8% of net
assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
INCOME TAX INFORMATION
At May 31, 1995, the aggregate cost of investment securities for income tax
purposes was $748,244,936. Net unrealized appreciation aggregated
$80,181,916, of which $84,154,485 related to appreciated investment
securities and $3,972,569 related to depreciated investment securities.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS MAY 31, 1995 (UNAUDITED)
Investment in securities, at value (including repurchase $ 828,426,852
agreements of $106,202,000) (cost $747,956,625) -
See accompanying schedule
Cash 11
Receivable for investments sold 12,716,165
Receivable for fund shares sold 13,099,706
Dividends receivable 1,859,863
Interest receivable 721,792
Other receivables 39,232
TOTAL ASSETS 856,863,621
LIABILITIES
Payable for investments purchased $ 23,294,427
Payable for fund shares redeemed 953,930
Accrued management fee 328,204
Distribution fees payable 301,086
Other payables and accrued expenses 197,083
TOTAL LIABILITIES 25,074,730
NET ASSETS $ 831,788,891
Net Assets consist of:
Paid in capital $ 743,190,695
Undistributed net investment income 1,723,904
Accumulated undistributed net realized gain (loss) on 6,404,445
investments and foreign currency transactions
Net unrealized appreciation (depreciation) on 80,469,847
investments and assets and liabilities in foreign
currencies
NET ASSETS $ 831,788,891
CALCULATION OF MAXIMUM OFFERING PRICE $17.81
CLASS A:
NET ASSET VALUE and redemption price per share
($455,418,684 (divided by) 25,565,813 shares)
Maximum offering price per share (100/95.25 of $17.81) $18.70
CLASS B: $17.77
NET ASSET VALUE and offering price per share
($125,407,136 (divided by) 7,055,581 shares) A
INSTITUTIONAL CLASS: $17.93
NET ASSET VALUE, offering price and redemption price
per share ($250,963,071 (divided by) 13,997,641 shares)
</TABLE>
A REDEMPTION PRICE PER SHARE IS EQUAL TO NET ASSET VALUE LESS ANY
APPLICABLE CONTINGENT DEFERRED SALES CHARGE.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED MAY 31, 1995 (UNAUDITED)
INVESTMENT INCOME $ 6,263,672
Dividends
Interest 4,166,118
TOTAL INCOME 10,429,790
EXPENSES
Management fee $ 1,467,950
Transfer agent fees 362,763
Class A
Class B 102,049
Institutional Class 172,894
Distribution fees 942,695
Class A
Class B 347,234
Accounting fees and expenses 159,064
Non-interested trustees' compensation 5,788
Custodian fees and expenses 22,163
Registration fees 67,023
Class A
Class B 13,920
Institutional Class 17,349
Audit 17,193
Legal 3,656
Interest 2,902
Miscellaneous 4,884
Total expenses before reductions 3,709,527
Expense reductions (39,592) 3,669,935
NET INVESTMENT INCOME 6,759,855
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 8,645,439
Foreign currency transactions (2,793) 8,642,646
Change in net unrealized appreciation (depreciation) on:
Investment securities 70,786,239
Assets and liabilities in foreign currencies (84) 70,786,155
NET GAIN (LOSS) 79,428,801
NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 86,188,656
FROM OPERATIONS
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 1994
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 6,759,855 $ 6,374,715
Net investment income
Net realized gain (loss) 8,642,646 27,731,225
Change in net unrealized appreciation (depreciation) 70,786,155 (12,716,890)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING 86,188,656 21,389,050
FROM OPERATIONS
Distributions to shareholders (2,655,887) (1,149,252)
From net investment income
Class A
Class B (549,146) (65,384)
Institutional Class (3,177,850) (3,608,807)
From net realized gain (3,299,906) -
Class A
Class B (681,133) -
Institutional Class (3,529,087) -
TOTAL DISTRIBUTIONS (13,893,009) (4,823,443)
Share transactions - net increase (decrease) 347,086,143 162,377,185
TOTAL INCREASE (DECREASE) IN NET ASSETS 419,381,790 178,942,792
NET ASSETS
Beginning of period 412,407,101 233,464,309
End of period (including undistributed net investment $ 831,788,891 $ 412,407,101
income of $1,723,904 and $1,346,932, respectively)
</TABLE>
FINANCIAL HIGHLIGHTS - CLASS A
SIX MONTHS YEARS ENDED PERIOD ENDED
ENDED MAY 31, NOVEMBER 30, NOVEMBER
1995 30,
(UNAUDITED) 1994 E 1993 1992 F
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.96 $ 14.86 $ 12.86 $ 12.37
Income from Investment Operations
Net investment income .16 .28 D .33 .13
Net realized and unrealized gain 2.14 1.03 1.97 .47
(loss) on investments
Total from investment operations 2.30 1.31 2.30 .60
Less Distributions
From net investment income (.17) (.21) (.30) (.11)
From net realized gain (.28) - - -
Total distributions (.45) (.21) (.30) (.11)
Net asset value, end of period $ 17.81 $ 15.96 $ 14.86 $ 12.86
TOTAL RETURN B, C 14.77% 8.84% 18.03% 4.88%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 $ 455,419 $ 179,501 $ 42,326 $ 1,462
omitted)
Ratio of expenses to average net 1.51% A 1.64% 1.77% 1.55%
assets A
Ratio of expenses to average net 1.53% A 1.67% 1.77% 1.55%
assets before expense reductions A
Ratio of net investment income to 2.08% A 1.69% 2.02% 3.39%
average net assets A
Portfolio turnover 85% A 140% 120% 51%
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E EFFECTIVE DECEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
``DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES.'' AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F FOR THE PERIOD SEPTEMBER 10, 1992 (COMMENCEMENT OF SALES OF CLASS A
SHARES) TO NOVEMBER 30, 1992.
FINANCIAL HIGHLIGHTS - CLASS B
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS PERIOD ENDED
ENDED NOVEMBER 30,
MAY 31, 1995 1994 E
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.94 $ 15.21
Income from Investment Operations
Net investment income .13 .08 D
Net realized and unrealized gain (loss) on investments 2.13 .72
Total from investment operations 2.26 .80
Less Distributions
From net investment income (.15) (.07)
From net realized gain (.28) -
Total distributions (.43) (.07)
Net asset value, end of period $ 17.77 $ 15.94
TOTAL RETURN B, C 14.52% 5.25%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 125,407 $ 35,373
Ratio of expenses to average net assets 1.89% 2.18%
A A
Ratio of expenses to average net assets before 1.90% 2.24%
expense reductions A A
Ratio of net investment income to average net assets 1.70% 1.15%
A A
Portfolio turnover 85% 140%
A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JUNE 30, 1994 (COMMENCEMENT OF SALES OF CLASS B SHARES) TO
NOVEMBER 30, 1994.
FINANCIAL HIGHLIGHTS - INSTITUTIONAL CLASS
SIX MONTHS YEARS ENDED NOVEMBER 30,
ENDED MAY 31,
1995
(UNAUDITED) 1994 E 1993 1992 1991 1990
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, $ 16.07 $ 14.93 $ 12.88 $ 11.08 $ 9.52 $ 12.27
beginning of period
Income from
Investment
Operations
Net investment .23 .41 D .39 .49 .63 G .69
income
Net realized and 2.15 1.05 2.02 1.79 1.52 (2.42)
unrealized gain
(loss) on
investments
Total from investment 2.38 1.46 2.41 2.28 2.15 (1.73)
operations
Less Distributions
From net investment (.24) (.32) (.36) (.48) (.59) (.72)
income
From net realized (.28) - - - - (.30)
gain
Total distributions (.52) (.32) (.36) (.48) (.59) (1.02)
Net asset value, end of $ 17.93 $ 16.07 $ 14.93 $ 12.88 $ 11.08 $ 9.52
period
TOTAL RETURN B, C 15.23% 9.82% 18.90% 20.91% 22.97% (14.90)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of $ 250,963 $ 197,533 $ 191,138 $ 139,391 $ 168,590 $ 253,049
period (000 omitted)
Ratio of expenses to .74% A .71% .79% .71% .67% .61%
average net assets
Ratio of expenses to .75% A .73% .80% .79% .77% .71%
average net assets F F F
before expense
reductions
Ratio of net investment 2.85% A 2.62% 3.00% 3.77% 5.66% 6.11%
income to average
net assets
Portfolio turnover 85% A 140% 120% 51% 91% 103%
</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 EFFECTIVE DECEMBER 1, 1993, THE FUND ADOPTED STATEMENT OF POSITION 93-2,
``DETERMINATION, DISCLOSURE, AND FINANCIAL STATEMENT PRESENTATION
OF INCOME, CAPITAL GAIN, AND RETURN OF CAPITAL DISTRIBUTIONS BY INVESTMENT
COMPANIES.'' AS A RESULT, NET INVESTMENT INCOME PER SHARE MAY REFLECT
CERTAIN RECLASSIFICATIONS RELATED TO BOOK TO TAX DIFFERENCES.
F THE INVESTMENT ADVISER REDUCED THE ANNUAL MANAGEMENT FEE OF 0.50% BY
0.10% THROUGH SEPTEMBER 10, 1992.
G INCLUDES $0.04 PER SHARE FROM FOREIGN TAXES RECOVERED.
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1995 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Equity Income Fund (the fund) (formerly Fidelity Advisor
Equity Portfolio Income Fund) is a fund of Fidelity Advisor Series III (the
trust) and is authorized to issue an unlimited number of shares. The trust
is registered under the Investment Company Act of 1940, as amended (the
1940 Act), as an open-end management investment company organized as a
Massachusetts business trust.
The fund offers Class A, Class B, and Institutional Class shares, each of
which has equal rights as to assets and voting privileges. Each class has
exclusive voting rights with respect to its distribution plan. The fund
commenced sale of Class B shares on June 30, 1994. Investment income,
realized and unrealized capital gains and losses, and the common expenses
of the fund are allocated on a pro rata basis to each class based on the
relative net assets of each class to the total net assets of the fund. Each
class of shares differs in its respective distribution, transfer agent,
registration, and certain other class-specific fees and expenses.
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 maturing within sixty days of their purchase date 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 forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INCOME TAXES - CONTINUED
schedule of investments includes information regarding income taxes under
the caption "Income Tax Information."
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date
may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. 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 between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS.
Distributions are recorded on the ex-dividend date. Income dividends are
declared separately for each class, while capital gain distributions are
declared at the fund level and allocated to each class on a prorata basis
based on the number of shares held by each class on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences, which may result in distribution
reclassifications, are primarily due to differing treatments for foreign
currency transactions, partnerships, 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 and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). 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.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
2. OPERATING POLICIES - CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS - CONTINUED
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. FMR, the fund's
investment adviser, is responsible for determining that the value of these
underlying securities remains at least equal to the resale price.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $515,971,856 and $210,915,056, respectively, of which U.S.
government and government agency obligations aggregated $19,540,485 and
$15,139,845, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a fee that
is computed daily at an annual rate of .50% of the fund's average net
assets.
DISTRIBUTION AND SERVICE PLAN. In accordance with Rule 12b-1 of the 1940
Act, the Trustees have adopted separate distribution plans with respect to
the fund's Class A shares ("Class A Plan") and Class B shares ("Class B
Plan"), pursuant to which the fund pays Fidelity Distributors Corporation
(FDC), an affiliate of FMR, a distribution and service fee. This fee is
based on annual rates of .65% and 1.00% (of which .75% represents a
distribution fee and .25% represents a shareholder service fee) of the
average net assets of the Class A and Class B shares, respectively. For the
period, the fund paid FDC $942,695 and $347,234 under the Class A Plan and
Class B Plan, respectively, of which $718,768 and $86,808 were paid to
securities dealers, banks and other financial institutions for the
distribution of Class A and Class B shares, and providing shareholder
support services.
In addition, FMR or FDC may use its resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plans
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN - CONTINUED
also authorize payments to third parties that assist in the sale of the
fund's shares or render shareholder support services. No payments were made
under the Plans during the period.
SALES LOAD. FDC receives a front-end sales charge of up to 4.75% for
selling Class A shares of the fund. For the period, FDC received sales
charges of $3,870,683 on sales of Class A shares of the fund, of which
$3,233,140 was paid to securities dealers, banks, and other financial
institutions. FDC also receives the proceeds of a contingent deferred sales
charge levied on Class B share redemptions occurring within five years of
purchase. The charge is based on declining rates which range from 4% to 1%
of the lesser of the cost of shares at the initial date of purchase or the
net asset value of the redeemed shares, excluding any reinvested dividends
and capital gains. For the period, FDC received contingent deferred sales
charges of $33,535 on Class B share redemptions from the fund. When Class B
shares are sold, FDC pays commissions from its own resources to dealers
through which the sales are made.
TRANSFER AGENT FEES. State Street Bank and Trust Company (State Street) is
the transfer, dividend disbursing, and shareholder servicing agent for the
fund's Class A shares, while Fidelity Investments Institutional Operations
Company (FIIOC), an affiliate of FMR (collectively, with State Street,
referred to as the Transfer Agents) acts in that capacity for the fund's
Class B and Institutional Class shares. During the period December 1, 1994
to December 31, 1994, the Transfer Agents received fees based on the type,
size, number of accounts and the number of transactions made by
shareholders of the respective classes of the fund. Effective January 1,
1995, the Board of Trustees approved a revised transfer agent contract
pursuant to which the Transfer Agents receive account fees and asset-based
fees that vary according to the account size and type of account of the
shareholders of the respective classes of the fund. With respect to the
Class A shares, State Street has delegated certain transfer, dividend
paying, and shareholder services to FIIOC for which FIIOC receives its
allocable share of all such fees. FIIOC pays for typesetting, printing and
mailing of all shareholder reports, except proxy statements.
ACCOUNTING FEES. FSC, an affiliate of FMR, 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 $253,828 for the period.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions.
5. BANK BORROWINGS - CONTINUED
The fund has established borrowing arrangements with certain banks. Under
the most restrictive arrangement, the fund must pledge to the bank
securities having a market value in excess of 220% of the total bank
borrowings. The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the periods for which loans were outstanding amounted to
$5,410,000. The weighted average interest rate was 6.44%.
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
$39,592 under this arrangement.
7. SHARE TRANSACTIONS.
Share transactions for three classes were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30, MAY 31, NOVEMBER 30,
1995 1994 A 1995 1994 A
CLASS A
Shares sold 16,215,380 11,106,459 $ 270,202,631 $ 175,898,673
Reinvestment of distributions 350,899 65,530 5,595,364 1,041,516
Shares redeemed (2,245,176) (2,775,183) (37,219,621) (43,121,793)
Net increase (decrease) 14,321,103 8,396,806 $ 238,578,374 $ 133,818,396
CLASS B
Shares sold 4,974,519 2,285,793 $ 83,057,738 $ 36,859,022
Reinvestment of distributions 71,610 3,660 1,141,365 60,066
Shares redeemed (209,315) (70,686) (3,457,114) (1,147,207)
Net increase (decrease) 4,836,814 2,218,767 $ 80,741,989 $ 35,771,881
INSTITUTIONAL CLASS
Shares sold 3,229,148 6,423,156 $ 53,244,057 $ 103,045,500
Reinvestment of distributions 268,609 77,502 4,270,520 1,232,865
Shares redeemed (1,790,750) (7,012,674) (29,748,797) (111,491,457)
Net increase (decrease) 1,707,007 (512,016) $ 27,765,780 $ (7,213,092)
A SHARE TRANSACTIONS FOR CLASS B ARE FOR THE PERIOD JUNE 30, 1994
(COMMENCEMENT OF SALE OF SHARES) TO NOVEMBER 30, 1994.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
William J. Hayes, Vice President
Arthur S. Loring, Secretary
Stephen P. Jonas, Treasurer
Robert H. Morrison, Manager,
Security Transactions
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Investments Institutional Operations Company
Boston, MA
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, NY
* INDEPENDENT TRUSTEES
GROWTH FUNDS
Fidelity Advisor Overseas Fund
Fidelity Advisor Equity Portfolio Growth
Fidelity Advisor Global Resources Fund
Fidelity Advisor Growth
Opportunities Fund
Fidelity Advisor Strategic
Opportunities Fund
GROWTH AND INCOME FUNDS
Fidelity Advisor Equity Income Fund
Fidelity Advisor Income & Growth Fund
INCOME FUNDS
Fidelity Advisor Emerging Markets Income Fund
Fidelity Advisor High Yield Fund
Fidelity Advisor Strategic Income Fund
Fidelity Advisor Government Investment Fund
Fidelity Advisor Limited Term Bond Fund
Fidelity Advisor Short Fixed-Income Fund
TAX-EXEMPT FUNDS
Fidelity Advisor High Income
Municipal Fund
Fidelity Advisor Limited Term Tax-Exempt Fund
Fidelity Advisor Short-Intermediate Tax-Exempt Fund
MONEY MARKET FUNDS
Daily Money Fund: Money Market Portfolio
Daily Money Fund: U.S. Treasury Portfolio
Daily Tax-Exempt Money Fund
(REGISTERED TRADEMARK)
(registered trademark)