FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO I
SEMIANNUAL REPORT
MAY 31, 1994
PERFORMANCE UPDATE
$100,000 OVER LIFE OF FUND
Inst'l Short-Int Gov't (662) LB 1-3 Year Gov't Index
11/30/86 100000.00 100000.00
12/31/86 100727.83 100220.00
01/31/87 101483.62 100921.54
02/28/87 101797.69 101375.69
03/31/87 102036.31 101588.58
04/30/87 101231.47 100877.46
05/31/87 101524.67 101018.68
06/30/87 102536.12 102139.99
07/31/87 103154.09 102701.76
08/31/87 103379.40 102855.81
09/30/87 103278.45 102475.25
10/31/87 104701.23 104555.50
11/30/87 105471.99 105235.11
12/31/87 106376.60 105940.18
01/31/88 108245.31 107518.69
02/29/88 109354.91 108443.35
03/31/88 109258.29 108671.08
04/30/88 109323.65 108790.62
05/31/88 109184.17 108736.22
06/30/88 110424.64 109823.59
07/31/88 110650.73 109878.50
08/31/88 110758.66 110142.21
09/30/88 112139.62 111419.86
10/31/88 113040.81 112545.20
11/30/88 113071.78 112263.83
12/31/88 113338.39 112510.81
01/31/89 114310.65 113399.65
02/28/89 114420.01 113410.99
03/31/89 114847.54 113887.32
04/30/89 116522.72 115743.68
05/31/89 118193.93 117375.67
06/30/89 120356.09 119558.85
07/31/89 121925.70 121316.37
08/31/89 121330.39 120600.60
09/30/89 122040.50 121300.08
10/31/89 124005.11 123180.24
11/30/89 125071.82 124288.86
12/31/89 125629.39 124761.16
01/31/90 125522.69 124910.87
02/28/90 126134.66 125572.90
03/31/90 126691.25 125949.62
04/30/90 126850.59 126251.89
05/31/90 128766.16 128196.17
06/30/90 130071.47 129542.23
07/31/90 131547.33 131109.69
08/31/90 132056.76 131581.69
09/30/90 132949.57 132608.03
10/31/90 134275.53 134079.98
11/30/90 135752.05 135380.55
12/31/90 137284.36 136978.04
01/31/91 138534.57 138279.33
02/28/91 139578.43 139164.32
03/31/91 140447.67 140096.72
04/30/91 141853.35 141441.65
05/31/91 142898.28 142290.30
06/30/91 143202.16 142816.77
07/31/91 144564.21 144045.00
08/31/91 146842.32 146004.01
09/30/91 148074.99 147551.65
10/31/91 149665.76 149145.21
11/30/91 151109.11 150681.41
12/31/91 154777.86 152971.76
01/31/92 153303.84 152772.90
02/29/92 153996.68 153231.22
03/31/92 153932.80 153185.25
04/30/92 155078.18 154579.24
05/31/92 157055.90 156016.82
06/30/92 158921.25 157592.59
07/31/92 160596.30 159404.91
08/31/92 162325.19 160696.09
09/30/92 164312.80 162206.63
10/31/92 162445.70 161282.05
11/30/92 162774.27 161040.13
12/31/92 164582.48 162537.80
01/31/93 166541.19 164244.45
02/28/93 168074.54 165558.41
03/31/93 168860.31 166071.64
04/30/93 169492.47 167084.67
05/31/93 169855.06 166683.67
06/30/93 171205.44 167933.80
07/31/93 171717.60 168303.25
08/31/93 172789.40 169700.17
09/30/93 173202.76 170243.21
10/31/93 173477.75 170617.74
11/30/93 173405.11 170651.87
12/31/93 174237.47 171334.48
01/31/94 175830.31 172396.75
02/28/94 174319.76 171345.13
03/31/94 171398.15 170471.27
04/30/94 170516.62 169823.48
05/31/94 170691.22 170061.23
$100,000 OVER LIFE OF FUND: LET'S SAY YOU INVESTED $100,000 IN FIDELITY
INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO I (CLASS I) ON
NOVEMBER 30, 1986, SHORTLY AFTER THE FUND STARTED. BY MAY 31, 1994, THE
VALUE OF YOUR INVESTMENT WOULD HAVE GROWN TO $169,852 - A 69.85% INCREASE
ON YOUR INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A $100,000
INVESTMENT IN THE LEHMAN BROTHERS 1-3 YEAR GOV'T. BOND INDEX, AN UNMANAGED
INDEX (WITH DIVIDENDS REINVESTED), DID OVER THE SAME PERIOD. IT WOULD HAVE
GROWN TO $170,061 - A 70.06% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
LEHMAN BROTHERS
1-3 YEAR GOV'T.
BOND INDEX
CLASS I
FOR THE PERIOD ENDED MAY 31, 1994
One-year total return* 0.49% 2.03%
Five-year average annual total return* 7.63% 7.70%
Life of fund average annual total return* 7.33% n/a
FOR THE PERIOD ENDED MAY 31, 1994
Six-month cumulative total return* -1.57% -0.34%
One-year total return* 0.49% 2.03%
Five-year cumulative total return* 44.42% 44.89%
Life of fund cumulative total return* 70.69% n/a
CUMULATIVE TOTAL RETURNS
CLASS I
FOR THE PERIOD ENDED MAY 31, 1994
30-day annualized net yield 5.28%
Six-month dividends per share 26.86(cents)
Six-month annualized dividend rate** 5.54%
YIELD AND DIVIDENDS
* TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY. FIGURES FOR MORE THAN ONE YEAR ASSUME
A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR
RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. LIFE OF FUND FIGURES ARE
FROM COMMENCEMENT OF OPERATIONS, NOVEMBER 10, 1986, TO THE PERIODS LISTED
ABOVE. THE LEHMAN BROTHERS 1-3 YEAR GOVERNMENT BOND INDEX, AN UNMANAGED
INDEX, IS A BROAD MEASURE OF THE PERFORMANCE OF SHORT-TERM GOVERNMENT BONDS
(THE LEHMAN BROTHERS RETURNS BEGIN ON THE MONTH END CLOSEST TO THE FUNDS
START DATE.) IT INCLUDES REINVESTED DIVIDENDS AND CAPITAL GAINS, IF ANY.
FOR THE PERIOD ENDED MAY 31, 1994, FIDELITY INSTITUTIONAL
SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO II (CLASS II) CUMULATIVE TOTAL
RETURN WAS -2.14% FOR THE LIFE OF THE FUND. CLASS II'S 12B-1 FEE IS NOT
REFLECTED IN RETURNS PRIOR TO DECEMBER 31, 1993, THE COMMENCEMENT OF SALES
OF CLASS II SHARES. CLASS II'S 30-DAY ANNUALIZED NET YIELD WAS 5.03%.
** THE DIVIDEND RATE REFLECTS ACTUAL DIVIDENDS PAID DURING THE PERIOD. IT
IS BASED ON AN AVERAGE SHARE PRICE OF $9.72 OVER THE PREVIOUS SIX MONTHS.
ALL PERFORMANCE NUMBERS ARE HISTORICAL; THE FUND'S SHARE PRICE, YIELD AND
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.
AN INTERVIEW WITH
CURT HOLLINGSWORTH,
PORTFOLIO MANAGER OF
FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE
GOVERNMENT PORTFOLIO I
Q. CURT, HOW DID THE FUND PERFORM?
A. About average. The best way to measure the fund's performance is by its
total return. This reflects interest payments, plus capital gains - which
occur when the fund profits from selling bonds that have grown in value -
and changes in share price. For the six months and year ended May 31, 1994,
the fund had total returns of -1.57% and 0.49%, respectively. According to
Lipper Analytical Services, the average short-term government bond fund had
returns of -1.74% and 0.53%, respectively.
Q. IT SOUNDS LIKE THE BOND MARKET HAD A TOUGH YEAR AND AN ESPECIALLY WEAK
SIX MONTHS. WHAT HAPPENED?
A. Bond prices fell during this time for several reasons. First, the
economy started growing more quickly and commodity prices began rising.
This situation was bad news for bond investors because the improving
economy increased concerns about inflation - which eats away at a bond's
fixed interest payment. Another reason bond prices dropped was that the
Federal Reserve Board raised short-term interest rates in February, March,
April and May of 1994. In response, yields on intermediate and long-term
Treasuries also rose. During the past six months, the yield on the
five-year Treasury note increased from 5.2% to 6.8%. Keep in mind, bond
yields and prices move in opposite directions. So the rise in yields meant
the prices of bonds fell.
Q. AND THE FUND'S PERFORMANCE PRETTY CLOSELY MIRRORED THAT OF ITS
COMPETITORS . . .
A. That's right, but I should note there were some ups and downs in
performance. In general, the fund's duration was somewhat longer than the
duration of those funds, which caused the fund to slightly underperform the
average fund. Duration is a way to measure how sensitive a bond is to
changes in interest rates. It looks at a bond's maturity, or how much time
remains until the issuer is scheduled to pay off the principal, as well as
the frequency and amount of interest payments. However, we improved the
fund's performance, relative to other funds, by making good sector bets and
securities selection.
Q. DOES THIS INDICATE A SHIFT AWAY FROM THE FUND'S DURATION AVERAGING
STRATEGY?
A. Yes. The fund stopped focusing on duration averaging - a disciplined
approach to managing the fund's duration. Going forward, I plan to keep the
fund's duration at a neutral length - about 2.4 years. I'm now
concentrating on sector weights and securities selection. By sectors, I
mean Treasuries, federal agency bonds, and mortgage securities, such as
those issued by the Government National Mortgage Association (Ginnie Mae)
and the Federal National Mortgage Association (Fannie Mae). My job is to
determine the right mix among these sectors and adjust the mix as market
conditions change. Securities selection refers to our attempt to purchase
the most attractive securities in each of these sectors. While I still
think duration averaging can be valuable, I think the fund's new approach
has a higher probability of success.
Q. THINKING BACK OVER THE PAST SIX MONTHS, WOULD YOU CHANGE SOME OF YOUR
INVESTMENT DECISIONS?
A. Yes. I wish I'd owned more mortgage securities because over the past six
months these securities have outperformed Treasuries. At the end of the
period, the fund had about 41% in mortgage securities. Ideally, I would
have preferred to be 50% to 60% invested in them.
Q. LET'S SWITCH DIRECTION A BIT AND TALK ABOUT DERIVATIVES . . .
A. While the fund has the authority to use futures contracts or other
derivatives, I haven't used them in the past six months because I've been
able to implement my strategies without them. However, I might use them in
the future, either for hedging or investment purposes.
Q. HOW DOES THE FUND LOOK GOING FORWARD?
A. Forecasting interest rates is extraordinarily difficult. However, I'm
feeling fairly optimistic because I think that inflation will remain under
control. Over the long haul, inflation is the single most important
variable affecting bond market performance.
FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO
INVESTMENTS MAY 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1)
U.S. Government and Government Agency Obligations - 34.1%
U.S. TREASURY OBLIGATIONS - 31.8%
9 1/4%, 1/15/96 $ 122,100,000 $ 128,452,863
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.3%
FEDERAL AGRICULTURE MORTGAGE CORPORATION - 0.8%
6.44%, 5/28/96 3,500,000 3,515,400
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.5%
0%, 11/30/99 610,000 410,896
9.40%, 8/10/98 600,000 654,186
euro:
0%, 11/30/94 1,826,000 1,780,843
8.45%, 11/4/96 3,000,000 3,135,000
5,980,925
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATions 9,496,325
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $139,913,272) 137,949,188
U.S. Government Agency Mortgage-
Backed Securities - 41.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.1%
5 1/2%, 5/1/98 96,828 92,773
6%, 2/1/98 to 5/1/98 522,161 507,637
6 1/2%, 4/1/98 431,799 426,942
7%, 2/1/97 to 12/1/97 529,648 531,138
7 1/2%, 12/1/96 276,606 280,321
8%, 9/1/96 160,945 164,095
8 1/2%, 3/1/96 to 8/1/07 1,073,243 1,101,003
9%, 11/1/21 to 3/1/22 205,922 212,823
10 1/2%, 9/1/16 to 9/1/20 558,843 609,896
12%, 9/1/11 to 10/1/13 114,959 129,310
12 1/4%, 11/1/14 281,649 315,414
12 1/2%, 8/1/10 to 11/1/14 3,680,994 4,219,347
8,590,699
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 26.6%
6%, 7/1/00 91,207 86,732
6 1/2%, 7/1/00 to 4/1/24 46,169,846 42,278,939
7%, 6/1/00 to 6/1/23 13,744,358 13,119,930
7 1/2%, 3/1/99 to 6/1/08 3,898,122 3,872,697
8%, 5/1/99 to 6/1/08 2,835,640 2,872,926
8 1/2%, 10/1/98 to 9/1/23 $ 4,660,027 $ 4,730,119
9%, 11/1/97 to 1/1/23 35,512,885 36,825,283
9 1/2%, 5/1/09 to 11/1/21 837,096 886,066
10%, 7/1/04 to 1/1/17 2,210,631 2,366,014
12 1/2%, 3/1/16 399,791 455,762
107,494,468
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 12.3%
6 1/2%, 11/15/23 301,423 271,657
7%, 1/15/23 to 9/15/23 3,655,254 3,417,667
7 1/2%, 1/15/23 to 3/15/24 16,283,625 15,708,848
8%, 12/15/16 to 6/15/23 9,303,223 9,257,897
8 1/2%, 5/15/16 to 4/15/17 790,012 804,659
9%, 1/15/05 to 7/15/22 5,136,041 5,322,823
9 1/2%, 9/15/20 2,755,706 2,905,534
10%, 12/15/09 to 9/15/21 2,877,012 3,078,877
10 1/2%, 1/15/18 to 12/15/20 364,661 399,305
11%, 10/15/13 108,637 120,112
11 1/2%, 3/15/13 to 8/15/13 281,750 322,962
12 1/2%, 4/15/10 to 6/15/15 6,780,559 7,898,355
13%, 8/15/14 336,455 390,490
49,899,186
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $171,412,739) 165,984,353
MATURITY
AMOUNT
Repurchase Agreements - 24.9%
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 4.26% dated
5/31/94 due 6/1/94 (Note 3) $ 100,551,897 100,540,000
TOTAL INVESTMENT in securities - 100%
(Cost $411,866,011) $ 404,473,541
INCOME TAX INFORMATION:
At May 31, 1994, the aggregate cost of investment securities for income tax
purposes was $411,866,011. Net unrealized depreciation aggregated
$7,392,470, of which $327,775 related to appreciated investment securities
and $7,720,245 related to depreciated investment securities.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
May 31, 1994 (Unaudited)
ASSETS
Investment in securities, at value (including repurchase agreements of $100,540,000) (cost $411,866,011) $ 404,473,541
(Notes 1, 2 and 3) - See accompanying schedule
Cash 190,443
Receivable for investments sold 170,690
Interest receivable 5,526,092
Total assets 410,360,766
LIABILITIES
Payable for investments purchased $ 21,769,622
Dividends payable 147,643
Accrued management fee 143,532
Distribution fees payable 63
Total liabilities 22,060,860
NET ASSETS $ 388,299,906
Net Assets consist of (Note 1):
Paid in capital $ 405,843,996
Undistributed net investment income 2,322,331
Accumulated undistributed net realized gain (loss) on investments (12,473,951)
Net unrealized appreciation (depreciation) on investment securities (7,392,470)
NET ASSETS $ 388,299,906
CLASS I: $9.46
NET ASSET VALUE, offering price and redemption price per share ($388,202,057 (divided by) 41,026,154 shares)
CLASS II: $9.46
NET ASSET VALUE, offering price and redemption price per share ($97,849 (divided by) 10,341 shares)
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended May 31, 1994 (Unaudited)
INVESTMENT INCOME $ 12,539,633
Interest
EXPENSES
Management fee (Note 5) $ 793,463
Distribution fee - Class II (Note 5) 104
Non-interested trustees' compensation 1,102
Interest (Note 6) 531
Total expenses 795,200
Net investment income 11,744,433
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 4) (12,423,646)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities (4,678,278)
Net gain (loss) (17,101,924)
Net increase (decrease) in net assets resulting from operations $ (5,357,491)
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1994 1993
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 11,744,433 $ 18,211,433
Net investment income
Net realized gain (loss) on investments (12,423,646) (2,769,737)
Change in net unrealized appreciation (depreciation) on investments (4,678,278) (955,551)
Net increase (decrease) in net assets resulting from operations (5,357,491) 14,486,145
Distributions to shareholders from:
Net investment income
Class I (9,811,633) (14,931,133)
Class II (2,124) -
In excess of net realized gain - Class I (347,212) -
Share transactions - net increase (decrease) (Note 7) 58,883,123 156,461,810
Total increase (decrease) in net assets 43,364,663 156,016,822
NET ASSETS
Beginning of period 344,935,243 188,918,421
End of period (including undistributed net investment income of $2,322,331 and $4,620,905, $ 388,299,906 $ 344,935,243
respectively)
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS II CLASS I
SIX MONTHS YEARS ENDED NOVEMBER 30,
ENDED
MAY 31, 1994
1994 ((dagger)) (UNAUDITED) 1993 1992 1991 1990 1989
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.880 $ 9.890 $ 9.850 $ 9.770 $ 9.480 $ 9.520 $ 9.440
Income from Investment Operations .268 .314 .654 .721 .747 .813 .875
Net investment income
Net realized and unrealized gain (loss) on (.477) (.465) (.022) .014 .286 (.040) .080
investments
Total from investment operations (.209) (.151) .632 .735 1.033 .773 .955
Less Distributions (.211) (.269) (.592) (.655) (.743) (.813) (.875)
From net investment income
In excess of net realized gain - (.010) - - - - -
Total distributions (.211) (.279) (.592) (.655) (.743) (.813) (.875)
Net asset value, end of period $ 9.460 $ 9.460 $ 9.890 $ 9.850 $ 9.770 $ 9.480 $ 9.520
TOTAL RETURN** (2.14)% (1.57)% 6.53% 7.72% 11.31% 8.54% 10.61%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 98 $ 388,202 $ 344,935 $ 188,918 $ 171,228 $ 142,211 $ 151,574
Ratio of expenses to average net assets .70%* .45%* .45% .45% .45% .45% .45%
Ratio of net investment income to average 6.41%* 6.67%* 7.14% 7.29% 7.77% 8.65% 9.26%
net assets
Portfolio turnover rate 390%* 390%* 351% 355% 192% 252% 689%
</TABLE>
* ANNUALIZED
** TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
(dagger) FOR THE PERIOD DECEMBER 31, 1993 (COMMENCEMENT OF SALE OF CLASS II
SHARES) TO MAY 31, 1994.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MAY 31, 1994 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Institutional Short-Intermediate Government Portfolio (the fund)
is a fund of Fidelity Advisor Series IV (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.
On November 10, 1993, the creation of a second class of shares, Fidelity
Institutional Short-Intermediate Government Portfolio II (Class II), was
approved by the Board of Trustees. Offering of these shares commenced on
December 31, 1993. Both classes of shares have equal rights as to earnings,
assets and voting privileges except that Class II bears a distribution
expense. Each class has exclusive voting rights with respect to its
distribution plans.
The following summarizes the significant accounting policies of the fund:
ALLOCATED EARNINGS AND EXPENSES. Investment income, expenses (other than
expenses incurred under Class II's Distribution and Service Plan) and
realized and unrealized gains or losses on investments are allocated to
each class of shares based upon their relative net assets.
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
Securities for which market quotations are not readily available are valued
at their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
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 all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
paydown gains/losses on certain securities and losses deferred due to wash
sales. The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income 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.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. 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,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of November 30, 1993 have been reclassified to
reflect an increase in paid in capital of $1,331,924, a decrease in
undistributed net investment income of $4,229,250 and an a decrease in
accumulated net realized loss on investments of $2,897,326.
2. OPERATING POLICIES.
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. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
3. JOINT TRADING ACCOUNT.
At the end of the period, the fund had 20% or more of its total investments
in repurchase agreements through a joint trading account. These repurchase
agreements were with entities whose creditworthiness has been reviewed and
found satisfactory by FMR. The repurchase agreements were dated May 31,
1994 and due June 1, 1994. The maturity values of the joint trading account
investments were $100,551,897 at 4.26%. The investments in repurchase
agreements through the joint trading account are summarized as follows:
Maximum
Amount Aggregate Aggregate Aggregate
No. of With One Principal Maturity Market Coupon Maturity
Dealers Dealer Amount of Amount of Value of Rates of Dates of
or Banks or Bank Agreements Agreements Collateral Collateral Collateral
3.0% - 6/2/94 -
26 13% $15,332,130,000 $15,333,944,181 $15,650,461,423 15.75% 8/15/23
4. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $609,677,949 and $634,029,976, respectively.
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and extraordinary
expenses and effective December 31, 1993, 12b-1 fees for Class II. FMR
receives a fee that is computed daily at an annual rate of .45% of the
fund's average net assets.
DISTRIBUTION AND SERVICE PLAN. Effective December 31, 1993 (commencement of
operations), Pursuant to the Distribution and Service Plan (the Plan), and
in accordance with Rule 12b-1 of the 1940 Act, Class II pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee that is based on an annual rate of .25% of its average net
assets. For the period, Class II paid FDC $104.
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 Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services.
6. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the periods for
which loans were outstanding amounted to $3,316,000 and $2,719,000,
respectively. The weighted average interest rate was 3.5%.
7. SHARE TRANSACTIONS.
Share transactions for both classes were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, 1994 (A) NOVEMBER 30, 1993 MAY 31, 1994 (A) NOVEMBER 30, 1993
CLASS I
Shares sold 14,317,549 41,264,034 $ 138,563,425 $ 411,321,789
Reinvestment of distributions 955,862 1,290,945 9,256,945 12,868,380
Shares redeemed (9,134,015) (26,852,251) (89,039,377) (267,728,359)
Net increase (decrease) 6,139,396 15,702,728 $ 58,780,993 $ 156,461,810
CLASS II
Shares sold 10,121 $ 100,000
Reinvestment of distributions 220 2,130
Net increase (decrease) 10,341 $ 102,130
(a) Share transactions for Class II are for the period December 31, 1993
(commencement of sale of shares) to May 31, 1994.
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. NEITHER THE FUND NOR
FIDELITY DISTRIBUTORS CORPORATION IS A
BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY
THE FDIC.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Curtis Hollingsworth, VICE PRESIDENT
Gary L. French, TREASURER
John H. Costello, ASSISTANT TREASURER
Arthur S. Loring, SECRETARY
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
The Bank of New York
New York, NY
FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO II
SEMIANNUAL REPORT
MAY 31, 1994
PERFORMANCE UPDATE
$100,000 OVER LIFE OF FUND
Inst'l Short-Int Gov't II (663) LB 1-3 Year Gov't Index
12/31/93 100000.00 100000.00
01/31/94 100893.26 100620.00
02/28/94 100005.66 100006.22
03/31/94 98308.97 99496.19
04/30/94 97782.29 99118.10
05/31/94 97862.08 99256.87
$100,000 OVER LIFE OF FUND: LET'S SAY YOU INVESTED $100,000 IN FIDELITY
INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO II (CLASS II) ON
DECEMBER 31, 1993, WHEN THE FUND STARTED. BY MAY 31, 1994, THE VALUE OF
YOUR INVESTMENT WOULD BE VALUED AT $97,862 - A -2.14% LOSS ON YOUR INITIAL
INVESTMENT. FOR COMPARISON, LOOK AT HOW A $100,000 INVESTMENT IN THE LEHMAN
BROTHERS 1-3 YEAR GOV'T. BOND INDEX, AN UNMANAGED INDEX (WITH DIVIDENDS
REINVESTED), DID OVER THE SAME PERIOD. IT WOULD BE VALUED AT $99,257 - A
0.74% LOSS.
CUMULATIVE TOTAL RETURNS
CLASS II
LEHMAN BROTHERS
1-3 YEAR GOV'T.
BOND INDEX
FOR THE PERIOD ENDED MAY 31, 1994
Life of fund cumulative total return* -2.14% n/a
CLASS II
FOR THE PERIOD ENDED MAY 31, 1994
30-day annualized net yield 5.03%
Life of fund dividends per share 21.10(cents)
Six-month annualized dividend rate** 5.26%
YIELD AND DIVIDENDS
ON DECEMBER 31, 1993, THE FUND COMMENCED SALES OF CLASS II SHARES, AT
WHICH TIME A .25% 12B-1 FEE WAS IMPOSED, WHICH IS NOT REFLECTED IN RETURNS
PRIOR TO THAT DATE.
* TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY. FIGURES FOR MORE THAN ONE YEAR ASSUME
A STEADY COMPOUNDED RATE OF RETURN AND ARE NOT THE FUND'S YEAR-BY-YEAR
RESULTS, WHICH FLUCTUATED OVER THE PERIODS SHOWN. LIFE OF FUND FIGURES ARE
FROM COMMENCEMENT OF OPERATIONS, DECEMBER 31, 1993, TO THE PERIODS LISTED
ABOVE. THE LEHMAN BROTHERS 1-3 YEAR GOVERNMENT BOND INDEX, AN UNMANAGED
INDEX, IS A BROAD MEASURE OF THE PERFORMANCE OF SHORT-TERM GOVERNMENT
BONDS. IT INCLUDES REINVESTED DIVIDENDS AND CAPITAL GAINS, IF ANY.
FOR THE PERIOD ENDED MAY 31, 1994, FIDELITY INSTITUTIONAL
SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO (CLASS I) AVERAGE ANNUAL TOTAL
RETURNS WERE .49%, 7.63%, AND 7.33% FOR ONE YEAR, FIVE YEARS, AND LIFE OF
FUND, RESPECTIVELY. FOR THE PERIOD ENDED MAY 31, 1994, CLASS I CUMULATIVE
TOTAL RETURNS WERE -1.57%, .49%, 44.42%, AND 70.69% FOR SIX MONTHS, ONE
YEAR, FIVE YEARS, AND LIFE OF FUND, RESPECTIVELY. CLASS I'S 30-DAY
ANNUALIZED NET YIELD WAS 5.28%.
** THE DIVIDEND RATE REFLECTS ACTUAL DIVIDENDS PAID DURING THE PERIOD. IT
IS BASED ON AN AVERAGE SHARE PRICE OF $9.69, OVER THE LIFE OF THE FUND.
ALL PERFORMANCE NUMBERS ARE HISTORICAL; THE FUND'S SHARE PRICE, YIELD AND
RETURN WILL VARY AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES.
AN INTERVIEW WITH
CURT HOLLINGSWORTH,
PORTFOLIO MANAGER OF
FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE
GOVERNMENT PORTFOLIO II
Q. CURT, HOW DID THE FUND PERFORM?
A. About average. The best way to measure the fund's performance is by its
total return. This reflects interest payments, plus capital gains - which
occur when the fund profits from selling bonds that have grown in value -
and changes in share price. For the five months ended May 31, 1994, the
fund had a cumulative total return of -2.14%. According to Lipper
Analytical Services, the average short-term government bond fund had a
return of -2.08% over the same period.
Q. IT SOUNDS LIKE THE BOND MARKET HAD A TOUGH FIVE MONTHS.
WHAT HAPPENED?
A. Bond prices fell during this time for several reasons. First, the
economy started growing more quickly and commodity prices began rising.
This situation was bad news for bond investors because the improving
economy increased concerns about inflation - which eats away at a bond's
fixed interest payment. Another reason bond prices dropped was that the
Federal Reserve Board raised short-term interest rates in February, March,
April and May of 1994. In response, yields on intermediate and long-term
Treasuries also rose. During the past five months, the yield on the
five-year Treasury note increased from 5.2% to 6.8%. Keep in mind, bond
yields and prices move in opposite directions. So the rise in yields meant
the prices of bonds fell.
Q. AND THE FUND'S PERFORMANCE PRETTY CLOSELY MIRRORED THAT OF ITS
COMPETITORS . . .
A. That's right, but I should note there were some ups and downs in
performance. In general, the fund's duration was somewhat longer than the
duration of those funds, which caused the fund to slightly underperform the
average fund. Duration is a way to measure how sensitive a bond is to
changes in interest rates. It looks at a bond's maturity, or how much time
remains until the issuer is scheduled to pay off the principal, as well as
the frequency and amount of interest payments. However, we improved the
fund's performance, relative to other funds, by making good sector bets and
securities selection.
Q. WHAT IS THE FUND'S STRATEGY GOING FORWARD?
A. I will be concentrating on sector weights and securities selection. By
sectors, I mean Treasuries, federal agency bonds, and mortgage securities,
such as those issued by the Government National Mortgage Association
(Ginnie Mae) and the Federal National Mortgage Association (Fannie Mae). My
job is to determine the right mix among these sectors and adjust the mix as
market conditions change. Securities selection refers to our attempt to
purchase the most attractive securities in each of these sectors.
Q. THINKING BACK, WOULD YOU CHANGE SOME OF YOUR INVESTMENT DECISIONS?
A. Yes. I wish I'd owned more mortgage securities because over the past
five months these securities have outperformed Treasuries. At the end of
the period, the fund had about 41% in mortgage securities. Ideally, I would
have preferred to be 50% to 60% invested in them.
Q. LET'S SWITCH DIRECTION A BIT AND TALK ABOUT DERIVATIVES . . .
A. While the fund has the authority to use futures contracts or other
derivatives, I haven't used them because I've been able to implement my
strategies without them. However, I might use them in the future, either
for hedging or investment purposes.
Q. HOW DOES THE FUND LOOK GOING FORWARD?
A. Forecasting interest rates is extraordinarily difficult. However, I'm
feeling fairly optimistic because I think that inflation will remain under
control. Over the long haul, inflation is the single most important
variable affecting bond market performance.
FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO
INVESTMENTS MAY 31, 1994 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (NOTE 1) AMOUNT (NOTE 1)
U.S. Government and Government Agency Obligations - 34.1%
U.S. TREASURY OBLIGATIONS - 31.8%
9 1/4%, 1/15/96 $ 122,100,000 $ 128,452,863
U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.3%
FEDERAL AGRICULTURE MORTGAGE CORPORATION - 0.8%
6.44%, 5/28/96 3,500,000 3,515,400
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 1.5%
0%, 11/30/99 610,000 410,896
9.40%, 8/10/98 600,000 654,186
euro:
0%, 11/30/94 1,826,000 1,780,843
8.45%, 11/4/96 3,000,000 3,135,000
5,980,925
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATions 9,496,325
TOTAL U.S. GOVERNMENT AND
GOVERNMENT AGENCY OBLIGATIONS
(Cost $139,913,272) 137,949,188
U.S. Government Agency Mortgage-
Backed Securities - 41.0%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.1%
5 1/2%, 5/1/98 96,828 92,773
6%, 2/1/98 to 5/1/98 522,161 507,637
6 1/2%, 4/1/98 431,799 426,942
7%, 2/1/97 to 12/1/97 529,648 531,138
7 1/2%, 12/1/96 276,606 280,321
8%, 9/1/96 160,945 164,095
8 1/2%, 3/1/96 to 8/1/07 1,073,243 1,101,003
9%, 11/1/21 to 3/1/22 205,922 212,823
10 1/2%, 9/1/16 to 9/1/20 558,843 609,896
12%, 9/1/11 to 10/1/13 114,959 129,310
12 1/4%, 11/1/14 281,649 315,414
12 1/2%, 8/1/10 to 11/1/14 3,680,994 4,219,347
8,590,699
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 26.6%
6%, 7/1/00 91,207 86,732
6 1/2%, 7/1/00 to 4/1/24 46,169,846 42,278,939
7%, 6/1/00 to 6/1/23 13,744,358 13,119,930
7 1/2%, 3/1/99 to 6/1/08 3,898,122 3,872,697
8%, 5/1/99 to 6/1/08 2,835,640 2,872,926
8 1/2%, 10/1/98 to 9/1/23 $ 4,660,027 $ 4,730,119
9%, 11/1/97 to 1/1/23 35,512,885 36,825,283
9 1/2%, 5/1/09 to 11/1/21 837,096 886,066
10%, 7/1/04 to 1/1/17 2,210,631 2,366,014
12 1/2%, 3/1/16 399,791 455,762
107,494,468
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 12.3%
6 1/2%, 11/15/23 301,423 271,657
7%, 1/15/23 to 9/15/23 3,655,254 3,417,667
7 1/2%, 1/15/23 to 3/15/24 16,283,625 15,708,848
8%, 12/15/16 to 6/15/23 9,303,223 9,257,897
8 1/2%, 5/15/16 to 4/15/17 790,012 804,659
9%, 1/15/05 to 7/15/22 5,136,041 5,322,823
9 1/2%, 9/15/20 2,755,706 2,905,534
10%, 12/15/09 to 9/15/21 2,877,012 3,078,877
10 1/2%, 1/15/18 to 12/15/20 364,661 399,305
11%, 10/15/13 108,637 120,112
11 1/2%, 3/15/13 to 8/15/13 281,750 322,962
12 1/2%, 4/15/10 to 6/15/15 6,780,559 7,898,355
13%, 8/15/14 336,455 390,490
49,899,186
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $171,412,739) 165,984,353
MATURITY
AMOUNT
Repurchase Agreements - 24.9%
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 4.26% dated
5/31/94 due 6/1/94 (Note 3) $ 100,551,897 100,540,000
TOTAL INVESTMENT in securities - 100%
(Cost $411,866,011) $ 404,473,541
INCOME TAX INFORMATION:
At May 31, 1994, the aggregate cost of investment securities for income tax
purposes was $411,866,011. Net unrealized depreciation aggregated
$7,392,470, of which $327,775 related to appreciated investment securities
and $7,720,245 related to depreciated investment securities.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
May 31, 1994 (Unaudited)
ASSETS
Investment in securities, at value (including repurchase agreements of $100,540,000) (cost $411,866,011) $ 404,473,541
(Notes 1, 2 and 3) - See accompanying schedule
Cash 190,443
Receivable for investments sold 170,690
Interest receivable 5,526,092
Total assets 410,360,766
LIABILITIES
Payable for investments purchased $ 21,769,622
Dividends payable 147,643
Accrued management fee 143,532
Distribution fees payable 63
Total liabilities 22,060,860
NET ASSETS $ 388,299,906
Net Assets consist of (Note 1):
Paid in capital $ 405,843,996
Undistributed net investment income 2,322,331
Accumulated undistributed net realized gain (loss) on investments (12,473,951)
Net unrealized appreciation (depreciation) on investment securities (7,392,470)
NET ASSETS $ 388,299,906
CLASS I: $9.46
NET ASSET VALUE, offering price and redemption price per share ($388,202,057 (divided by) 41,026,154 shares)
CLASS II: $9.46
NET ASSET VALUE, offering price and redemption price per share ($97,849 (divided by) 10,341 shares)
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended May 31, 1994 (Unaudited)
INVESTMENT INCOME $ 12,539,633
Interest
EXPENSES
Management fee (Note 5) $ 793,463
Distribution fee - Class II (Note 5) 104
Non-interested trustees' compensation 1,102
Interest (Note 6) 531
Total expenses 795,200
Net investment income 11,744,433
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 4) (12,423,646)
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities (4,678,278)
Net gain (loss) (17,101,924)
Net increase (decrease) in net assets resulting from operations $ (5,357,491)
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1994 1993
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
Operations $ 11,744,433 $ 18,211,433
Net investment income
Net realized gain (loss) on investments (12,423,646) (2,769,737)
Change in net unrealized appreciation (depreciation) on investments (4,678,278) (955,551)
Net increase (decrease) in net assets resulting from operations (5,357,491) 14,486,145
Distributions to shareholders from:
Net investment income
Class I (9,811,633) (14,931,133)
Class II (2,124) -
In excess of net realized gain - Class I (347,212) -
Share transactions - net increase (decrease) (Note 7) 58,883,123 156,461,810
Total increase (decrease) in net assets 43,364,663 156,016,822
NET ASSETS
Beginning of period 344,935,243 188,918,421
End of period (including undistributed net investment income of $2,322,331 and $4,620,905, $ 388,299,906 $ 344,935,243
respectively)
</TABLE>
Financial Highlights
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS II CLASS I
SIX MONTHS YEARS ENDED NOVEMBER 30,
ENDED
MAY 31, 1994
1994 ((dagger)) (UNAUDITED) 1993 1992 1991 1990 1989
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.880 $ 9.890 $ 9.850 $ 9.770 $ 9.480 $ 9.520 $ 9.440
Income from Investment Operations .268 .314 .654 .721 .747 .813 .875
Net investment income
Net realized and unrealized gain (loss) on (.477) (.465) (.022) .014 .286 (.040) .080
investments
Total from investment operations (.209) (.151) .632 .735 1.033 .773 .955
Less Distributions (.211) (.269) (.592) (.655) (.743) (.813) (.875)
From net investment income
In excess of net realized gain - (.010) - - - - -
Total distributions (.211) (.279) (.592) (.655) (.743) (.813) (.875)
Net asset value, end of period $ 9.460 $ 9.460 $ 9.890 $ 9.850 $ 9.770 $ 9.480 $ 9.520
TOTAL RETURN** (2.14)% (1.57)% 6.53% 7.72% 11.31% 8.54% 10.61%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 98 $ 388,202 $ 344,935 $ 188,918 $ 171,228 $ 142,211 $ 151,574
Ratio of expenses to average net assets .70%* .45%* .45% .45% .45% .45% .45%
Ratio of net investment income to average 6.41%* 6.67%* 7.14% 7.29% 7.77% 8.65% 9.26%
net assets
Portfolio turnover rate 390%* 390%* 351% 355% 192% 252% 689%
</TABLE>
* ANNUALIZED
** TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
(dagger) FOR THE PERIOD DECEMBER 31, 1993 (COMMENCEMENT OF SALE OF CLASS II
SHARES) TO MAY 31, 1994.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MAY 31, 1994 (UNAUDITED)
8. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Institutional Short-Intermediate Government Portfolio (the fund)
is a fund of Fidelity Advisor Series IV (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.
On November 10, 1993, the creation of a second class of shares, Fidelity
Institutional Short-Intermediate Government Portfolio II (Class II), was
approved by the Board of Trustees. Offering of these shares commenced on
December 31, 1993. Both classes of shares have equal rights as to earnings,
assets and voting privileges except that Class II bears a distribution
expense. Each class has exclusive voting rights with respect to its
distribution plans.
The following summarizes the significant accounting policies of the fund:
ALLOCATED EARNINGS AND EXPENSES. Investment income, expenses (other than
expenses incurred under Class II's Distribution and Service Plan) and
realized and unrealized gains or losses on investments are allocated to
each class of shares based upon their relative net assets.
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days are valued either at amortized cost or original
cost plus accrued interest, both of which approximate current value.
Securities for which market quotations are not readily available are valued
at their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
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 all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
paydown gains/losses on certain securities and losses deferred due to wash
sales. The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income 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.
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. 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,
the fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, amounts as of November 30, 1993 have been reclassified to
reflect an increase in paid in capital of $1,331,924, a decrease in
undistributed net investment income of $4,229,250 and an a decrease in
accumulated net realized loss on investments of $2,897,326.
9. OPERATING POLICIES.
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. The fund's investment
adviser, Fidelity Management & Research Company (FMR), is responsible
for determining that the value of these underlying securities remains at
least equal to the resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other registered
investment companies having management contracts with FMR, may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are collateralized by
U.S. Treasury or Federal Agency obligations.
10. JOINT TRADING ACCOUNT.
At the end of the period, the fund had 20% or more of its total investments
in repurchase agreements through a joint trading account. These repurchase
agreements were with entities whose creditworthiness has been reviewed and
found satisfactory by FMR. The repurchase agreements were dated May 31,
1994 and due June 1, 1994. The maturity values of the joint trading account
investments were $100,551,897 at 4.26%. The investments in repurchase
agreements through the joint trading account are summarized as follows:
Maximum
Amount Aggregate Aggregate Aggregate
No. of With One Principal Maturity Market Coupon Maturity
Dealers Dealer Amount of Amount of Value of Rates of Dates of
or Banks or Bank Agreements Agreements Collateral Collateral Collateral
3.0% - 6/2/94 -
26 13% $15,332,130,000 $15,333,944,181 $15,650,461,423 15.75% 8/15/23
11. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of long-term U.S. government and government agency
obligations aggregated $609,677,949 and $634,029,976, respectively.
12. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR pays all expenses
except the compensation of the non-interested Trustees and certain
exceptions such as interest, taxes, brokerage commissions and extraordinary
expenses and effective December 31, 1993, 12b-1 fees for Class II. FMR
receives a fee that is computed daily at an annual rate of .45% of the
fund's average net assets.
DISTRIBUTION AND SERVICE PLAN. Effective December 31, 1993 (commencement of
operations), Pursuant to the Distribution and Service Plan (the Plan), and
in accordance with Rule 12b-1 of the 1940 Act, Class II pays Fidelity
Distributors Corporation (FDC), an affiliate of FMR, a distribution and
service fee that is based on an annual rate of .25% of its average net
assets. For the period, Class II paid FDC $104.
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 Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services.
13. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the periods for
which loans were outstanding amounted to $3,316,000 and $2,719,000,
respectively. The weighted average interest rate was 3.5%.
14. SHARE TRANSACTIONS.
Share transactions for both classes were as follows:
SHARES DOLLARS
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, 1994 (A) NOVEMBER 30, 1993 MAY 31, 1994 (A) NOVEMBER 30, 1993
CLASS I
Shares sold 14,317,549 41,264,034 $ 138,563,425 $ 411,321,789
Reinvestment of distributions 955,862 1,290,945 9,256,945 12,868,380
Shares redeemed (9,134,015) (26,852,251) (89,039,377) (267,728,359)
Net increase (decrease) 6,139,396 15,702,728 $ 58,780,993 $ 156,461,810
CLASS II
Shares sold 10,121 $ 100,000
Reinvestment of distributions 220 2,130
Net increase (decrease) 10,341 $ 102,130
(a) Share transactions for Class II are for the period December 31, 1993
(commencement of sale of shares) to May 31, 1994.
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. NEITHER THE FUND NOR
FIDELITY DISTRIBUTORS CORPORATION IS A
BANK AND FUND SHARES ARE NOT BACKED OR GUARANTEED BY ANY BANK OR INSURED BY
THE FDIC.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Curtis Hollingsworth, VICE PRESIDENT
Gary L. French, TREASURER
John H. Costello, ASSISTANT TREASURER
Arthur S. Loring, SECRETARY
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
The Bank of New York
New York, NY
