FIDELITY ADVISOR INSTITUTIONAL LIMITED TERM BOND FUND
ANNUAL REPORT
NOVEMBER 30, 1993
PERFORMANCE UPDATE
$100,000 OVER LIFE OF FUND
$279,150
$272,268
$100,000 OVER LIFE OF FUND: LET'S SAY THAT YOU INVESTED $100,000 IN
FIDELITY ADVISOR INSTITUTIONAL LIMITED TERM BOND FUND (INSTITUTIONAL
CLASS) ON FEBRUARY 29, 1984, SHORTLY AFTER THE FUND STARTED. BY NOVEMBER
30, 1993, THE VALUE OF YOUR INVESTMENT WOULD HAVE GROWN TO $279,150 - A
179.15% INCREASE ON YOUR INITIAL INVESTMENT. FOR COMPARISON, LOOK AT HOW A
$100,000 INVESTMENT IN THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT-CORPORATE BOND INDEX, AN UNMANAGED INDEX (WITH DIVIDENDS
REINVESTED) DID OVER THE SAME PERIOD. IT WOULD HAVE GROWN TO $272,268 - A
172.27% INCREASE.
AVERAGE ANNUAL TOTAL RETURNS
INSTITUTIONAL
LIMITED TERM
BOND FUND
LEHMAN
BROTHERS
INTERMEDIATE
GOVERNMENT-
CORPORATE
BOND INDEX
FOR THE PERIOD ENDED NOVEMBER 30, 1993
One-year total return* 13.17% 9.74%
Five-year average annual total return* 10.81% 10.39%
Life of fund average annual total return* 10.95% n/a
FOR THE PERIOD ENDED NOVEMBER 30, 1993
One-year total return* 13.17% 9.74%
Five-year cumulative total return* 67.09% 63.89%
Life of fund cumulative total return* 177.94% n/a
CUMULATIVE TOTAL RETURNS
PERFORMANCE UPDATE - CONTINUED
INSTITUTIONAL
LIMITED TERM
BOND FUND
FOR THE PERIOD ENDED NOVEMBER 30, 1993
30-day annualized net yield 5.20%
One-year dividends per share 84.27(cents)
One-year dividend rate** 7.63%
YIELD AND DIVIDENDS
* TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AND REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS, IF ANY. AVERAGE ANNUAL TOTAL RETURNS 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, FEBRUARY 2, 1984, TO
THE PERIODS LISTED ABOVE. THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT-CORPORATE BOND INDEX IS A BROAD MEASURE OF THE PERFORMANCE OF
INTERMEDIATE (ONE- TO TEN-YEAR) BONDS. IT INCLUDES REINVESTED DIVIDENDS AND
CAPITAL GAINS, IF ANY.
FOR THE PERIOD ENDED NOVEMBER 30, 1993 FIDELITY ADVISOR LIMITED TERM BOND
FUND (RETAIL CLASS) SHARES' CUMULATIVE TOTAL RETURNS WERE 12.50%, 65.84%
AND 175.87% FOR ONE YEAR, FIVE YEARS, AND LIFE OF FUND, RESPECTIVELY. FOR
THE PERIOD ENDED NOVEMBER 30, 1993, RETAIL CLASS SHARES' AVERAGE ANNUAL
TOTAL RETURNS (WHICH INCLUDE THE EFFECT OF THE RETAIL CLASS' 4.75% SALES
CHARGE) WERE 7.15%, 9.57%, AND 10.32% FOR ONE YEAR, FIVE YEARS, AND LIFE OF
FUND, RESPECTIVELY.
IF THE ADVISER HAD NOT REIMBURSED CERTAIN FUND EXPENSES DURING THE PERIODS
SHOWN, TOTAL RETURNS WOULD HAVE BEEN LOWER.
** THE DIVIDEND RATE REFLECTS ACTUAL DIVIDENDS PAID DURING THE PERIOD. IT
IS BASED ON AN AVERAGE SHARE PRICE OF $11.05.
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.
MARKET RECAP
By December 1, 1992, the bond market had gotten over the jitters tied to
the unknown plans of a newly-elected president, and begun a year of sharp
gains tied to low inflation, falling interest rates and slow growth in the
U.S. economy. Through December and into the new year, the market signaled
its approval of Mr. Clinton's plans to tackle the budget deficit and fight
inflation. The yield on the benchmark 30-year Treasury bond fell from 7.57%
on December 1 to 6.73% on March 8, 1993. After a brief inflation scare in
late spring, bond investors focused on continued high unemployment and slow
growth, and interest rates resumed their downward trend. The yield on the
30-year Treasury dropped below 6% in early September, and hit a three
decade low in mid-October, yielding 5.79%. Soon after, strengthening
economic numbers fueled more nervousness over inflation. Interest rates
rose in late October and into November, driving bond prices down and
dampening results for the year, overall. However, the Lehman Brothers
Government Treasury Long Term Index shows long-term Treasuries returned a
strong 20.08% for the 12 months ended November 30, 1993. Corporate junk
bonds - which benefited from a strengthening economy - rose 18.58%, as
measured by the Salomon Brothers Composite High Yield Index. Mortgage
securities continued to lag other fixed-income investments, reflecting the
impact of mortgage refinancing by millions of homeowners. The Salomon
Brothers Mortgage Index rose 7.53%. The Lehman Brothers Aggregate Bond
Index, a broad measure of bond performance, returned 10.89% for the year.
Globally, falling interest rates and low inflation fueled strong returns in
both developed countries and, more notably, in emerging markets. The
Salomon Brothers World Government Bond Index - which includes U.S. issues -
rose 12.99% for the year. The J.P. Morgan Emerging Market Bond Index was up
39.11%.
AN INTERVIEW WITH
MICHAEL GRAY,
PORTFOLIO MANAGER OF
FIDELITY ADVISOR INSTITUTIONAL LIMITED TERM BOND FUND
Q. MICHAEL, HOW DID THE FUND PERFORM?
A. Quite well. The fund's total return - which includes income and changes
in share price - was 13.17% for the year ended November 30, 1993. That
performance beat the number for the average intermediate investment grade
bond fund, which returned 10.74% for the year, according to Lipper
Analytical Services.
Q. TO WHAT DO YOU CREDIT THE STRONG RETURNS?
A. A few factors. First, over most of this year, I made sure the fund's
duration - which measures its sensitivity to interest rate changes -
remained on the long side. This meant buying bonds - in this case
Treasuries - with long maturities to take better advantage of the falling
interest rates we saw this year. These bonds gain more in price than
shorter issues when rates drop. For example, at the end of August the
fund's duration was quite long at 5.3 years, which means for every one
percentage point drop in interest rates, the share price of the fund would
have risen roughly 5.3%. Conversely, if interest rates had risen one
percentage point, the share price would have dropped about 5.3%. Because we
experienced falling interest rates this year, my plan worked.
Q. WHAT ELSE HELPED?
A. To help offset some of the risk of holding longer bonds, I also employed
what's called a "barbell strategy." As I gathered long-term bonds - those
with maturities of 10 years or more - I invested most of the remainder of
the fund's money in short-term issues - those with maturities of less than
three years - with very few in between. This strategy worked because the
yield curve flattened - that is, the difference between long- and
short-term interest rates narrowed. The fund made significant price gains
on the longer-term issues and reduced risk with the shorter-term bonds.
Finally, the fund had quite a large stake - 32.30% - in corporate bonds.
Generally, these issues offered higher yields than U.S. Treasury bonds of
similar maturities. About 7.5% of our corporates were in banks, which
returned high yields when credit quality improved in the banking sector.
Q. THE FUND'S AVERAGE DURATION ROSE FROM 4.8 YEARS IN MAY TO 5.3 YEARS IN
AUGUST. THEN, BY THE END OF NOVEMBER, YOU HAD SHORTENED THE DURATION TO 3.5
YEARS. CAN YOU EXPLAIN THE CHANGES?
A. I've been very optimistic about the bond market all year, but lately
I've turned a bit defensive. As I mentioned, when interest rates were
falling, I lengthened the duration to achieve more dramatic gains as bond
prices rose. Right now, I'm concerned about a short-term rise in inflation,
which could send rates up a little. I've shortened the duration, which
means if rates go up, the fund's share price won't drop as much as it would
if the duration were longer.
Q. OVERSEAS INVESTING HAS BEEN A NOTICEABLE TREND AMONG MUTUAL FUND
MANAGERS LATELY. HAVE YOU JOINED IN?
A. Definitely. I had 26.7% of the fund's investments overseas at the end of
November. The fund's foreign investments break down about evenly between
dollar-denominated securities and non-dollar denominated securities. When a
foreign entity issues debt in the U.S. market in U.S. dollars, that
dollar-denominated debt is called a Yankee Bond. Obviously, there is no
currency risk - the risk that changes in the relationship of a foreign
country's currency to the U.S. dollar would adversely affect the prices of
the bonds I hold. Conversely, when I buy bonds issued by a foreign company
or country in that country's own currency, they're non-dollar denominated.
On that end, short-term issues from the Mexican government, called Cetes,
have produced double-digit returns for the fund. That more than offset
their currency risk. Lately, I've cut back on Cetes for two reasons. First,
their yields have dropped substantially and are no longer as attractive.
Second, I was concerned about the vote on the North American Free Trade
Agreement. Over the last few months I felt, if NAFTA failed, the Mexican
economy might stumble in the short term. Now that Congress has passed
NAFTA, I'm increasing my Mexican investments, as I believe the pact will
have positive long-term economic effects for Mexico.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. According to all forecasts, the fourth quarter should be strong
economically. This has already started to produce a slight inflation scare,
but I think inflation will remain low - in the 2 to 2 1/2% range - in the
coming months. I expect the economy may grow slowly in 1994. The Clinton
tax hike and health-care plan may put a heavier economic burden on some
families and businesses. Slow growth and low inflation are favorable for
bonds, but if interest rates stabilize at a low level, we won't see the
price gains we've experienced over the last six months. So it could be
tough to produce the returns the fund realized in '93.
FIDELITY ADVISOR LIMITED TERM BOND FUND
INVESTMENTS/NOVEMBER 30, 1993
(Showing Percentage of Total Value of Investment in Securities)
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - 32.3%
ENERGY - 4.1%
ENERGY SERVICES - 1.7%
Petroliam Nasional Berhad yankee
6 7/8%, 7/1/03 $ 4,100,000 $ 4,176,875 716708AA
OIL & GAS - 2.4%
B.P. America, Inc.:
9 3/8%, 6/1/97 100,000 102,579 055625AB
7 7/8%, 5/15/02 100,000 110,062 055625AN
Societe Nationale Elf Aquitaine
8%, 10/15/01 5,000,000 5,540,400 833658AB
5,753,041
TOTAL ENERGY 9,929,916
FINANCE - 19.9%
ASSET-BACKED SECURITIES - 2.5%
SCFC Recreational Vehicle Loan
Trust 7 1/4%, 9/15/06 1,155,588 1,181,589 783940AA
Standard Credit Card Master
Trust I, participation certificate,
5 1/2%, 9/7/98 5,000,000 4,915,000 85333JAX
6,096,589
BANKS - 7.5%
BankAmerica Corp.:
8 3/8%, 3/15/02 150,000 166,879 066050BQ
7 3/4%, 7/15/02 100,000 106,982 066050BS
7.20%, 9/15/02 100,000 103,499 066050BV
Chemical Bank New York Trust Co.
7 1/4%, 9/15/02 3,000,000 3,114,810 163717FH
First Hawaiian Bank secured 6.93%,
12/1/03 (b) 2,000,000 2,000,000 320500AA
Korea Development Bank 7%,
7/15/99 5,000,000 5,231,250 500630AE
National City Corp. 8 3/8%,
3/15/96 200,000 213,936 635405AF
Nationsbank Corp. 8 1/8%,
6/15/02 3,000,000 3,260,130 638585AA
Society Corporation 8 7/8%,
5/15/96 3,600,000 3,892,068 833663AC
18,089,554
CREDIT & OTHER FINANCE - 6.6%
American General Financial
Corporation 12 3/4%, 12/1/94 1,000,000 1,082,610 02635KAJ
Associates Corp. of North America
10%, 4/15/94 $ 3,500,000 $ 3,573,150 046003DA
Beneficial Corp.:
12.45%, 1/15/94 850,000 857,556 081721BE
12.60%, 3/15/94 1,000,000 1,023,490 081721BF
12%, 11/1/94 2,000,000 2,136,800 081721BJ
Deere (John) Capital Corp.
9 5/8%, 11/1/98 2,500,000 2,884,975 244217AN
Ford Capital BV yankee bonds
9 3/8%, 1/1/98 100,000 112,135 345220AD
Ford Motor Credit Co.:
8%, 6/15/02 100,000 108,884 345397GN
7 3/4%, 11/15/02 100,000 107,689 345397GQ
Grand Metropolitan Investment
Corp. 8 1/8%, 8/15/96 3,000,000 3,224,430 386088AA
PNC Funding Corp. 6 7/8%,
2/1/03 1,000,000 1,028,210 693476AF
16,139,929
INSURANCE - 1.2%
NYLIFE Funding, Inc. gtd. 9 1/4%,
5/15/95 700,000 746,634 629483AA
SAFECO Corp. 10 3/4%, 9/15/95 2,000,000 2,204,800 786429AC
2,951,434
SAVINGS & LOANS - 2.0%
Household Bank FSB Newport
Beach, Calif. 6 1/2%, 7/15/03 5,000,000 4,956,250 441800JD
SECURITIES INDUSTRY - 0.1%
TNE Funding Corp. gtd. 9%,
5/1/95 200,000 210,042 872910AA
TOTAL FINANCE 48,443,798
NONDURABLES - 0.1%
TOBACCO - 0.1%
Philip Morris Cos., Inc.:
9 3/4%, 5/1/97 100,000 112,714 718154BD
9.45%, 11/19/97 100,000 113,638 718156DB
226,352
RETAIL & WHOLESALE - 2.0%
GROCERY STORES - 2.0%
Secured Finance-Kroger, Inc. gtd.
secured 9.05%, 12/15/04 4,000,000 4,742,400 81371FAA
TECHNOLOGY - 2.1%
COMPUTER SERVICES & SOFTWARE - 2.1%
First Data Corp. 6 5/8%, 4/1/03 5,000,000 5,019,450 319963AA
PRINCIPAL VALUE PRINCIPAL VALUE
AMOUNT (A) (NOTE 1) AMOUNT (A) (NOTE 1)
NONCONVERTIBLE BONDS - CONTINUED
TRANSPORTATION - 0.7%
AIR TRANSPORTATION - 0.7%
Southwest Airlines Co. 8 3/4%,
10/15/03 $ 1,500,000 $ 1,717,065 844741AE
UTILITIES - 3.4%
ELECTRIC UTILITY - 3.4%
British Columbia Hydro & Power
Authority 15 1/2%, 11/15/11 6,000,000 8,055,960 110601BZ
Virginia Electric & Power Co.
1st & ref. mtg., 7 3/8%, 7/1/02 150,000 158,923 927804CD
8,214,883
TOTAL NONCONVERTIBLE BONDS
(Cost $76,233,540) 78,293,864
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS - 22.3%
U.S. TREASURY OBLIGATIONS - 17.4%
13 1/8%, 5/15/94 100,000 104,437 912827QU
8 5/8%, 1/15/95 (c) 5,000,000 5,263,300 912827VT
9 3/8%, 4/15/96 4,900,000 5,442,822 912827XK
8 7/8%, 2/15/99 3,000,000 3,494,520 912827XE
8 7/8%, 8/15/17 4,000,000 5,124,360 912810DZ
8%, 11/15/21 10,000,000 11,887,500 912810EL
7 1/8%, 2/15/23 3,000,000 3,256,860 912810EP
stripped principal payment 11/15/21 47,400,000 7,369,278 912803AY
41,943,077
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4.9%
Federal Home Loan Bank
Corporation 8.60%, 2/27/95 200,000 211,000 313388XB
Federal National Mortgage
Corporation 8 1/4%, 3/10/98 200,000 223,124 313586W2
Financing Corporation:
10.70%, 10/6/17 4,500,000 6,577,031 317705AA
9.80%, 4/6/18 3,500,000 4,754,531 317705AE
11,765,686
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS
(Cost $50,778,069) 53,708,763
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 6.9%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.2%
12 1/2%, 2/1/11 to 7/1/15 $ 340,652 $ 386,745 31360CBD
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 6.7%
8%, 6/15/23 4,668,866 4,886,249 36203SZY
8 1/2%, 10/15/20 to 5/15/23 1,706,753 1,799,549 36203LGE
9%, 9/15/08 to 10/15/18 8,966,850 9,566,855 362051XT
16,252,653
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Cost $15,811,583) 16,639,398
FOREIGN GOVERNMENT OBLIGATIONS - 13.6%
French Government OAT 8 1/2%,
4/25/03 FRF 20,000,000 3,962,534 351996AQ
Mexican Government Cetes 0%,
12/30/93 to 3/30/94 MXN 43,791,260 13,645,573 597998RT
Ontario Province:
15 1/8%, 5/1/11 5,000,000 6,372,750 683234GC
17%, 11/5/11 1,000,000 1,374,740 683234GE
Quebec Province 9 1/8%, 3/1/00 6,500,000 7,488,195 748148KM
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $32,296,072) 32,843,792
SUPRANATIONAL OBLIGATIONS - 2.2%
African Development Bank 8.70%,
5/1/01 (Cost $4,376,880) 4,500,000 5,283,810 00828JAB
MATURITY
AMOUNT
Repurchase Agreements - 22.7%
Investments in repurchase agreements,
(U.S. Treasury obligations), in a joint
trading account at 3.24% dated
11/30/93 due 12/1/93 $ 54,737,926 54,733,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $234,229,144) $ 241,502,627
Futures contracts
EXPIRATION UNDERLYING FACE UNREALIZED
SELL DATE AMOUNT AT VALUE GAIN/(LOSS)
250 U.S. Treasury
Bond Contracts Dec. 93 $ 28,875,000 $ 1,122,720
THE VALUE OF FUTURES CONTRACTS PURCHASED AS A PERCENTAGE OF TOTAL
INVESTMENT IN SECURITIES - 12.0%
Forward Foreign Currency Contracts
SETTLEMENT UNREALIZED
CONTRACTS TO SELL DATE VALUE GAIN/(LOSS)
23,560,600 FRF
(Receivable amount $4,097,282) 1/20/94 $ 3,956,337 $ 140,945
THE VALUE OF CONTRACTS TO SELL AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.6%
CURRENCY TYPE ABBREVIATIONS:
FRF - French franc
MXN - Mexican peso
(a) Principal amount is stated in United States dollars unless otherwise
noted.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,000,000 or .8% of net
assets.
(c) A portion of the security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $1,052,660.
OTHER INFORMATION:
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S S&P
RATINGS RATINGS
Aaa, Aa, A 69.6% AAA, AA, A 71.6%
Baa 2.0% BBB 0.0%
Ba 0.0% BB 0.0%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
Distribution of investments by country, as a percentage of total value of
investment in securities, is as follows:
United States 73.3%
Canada 9.6
Mexico 5.7
France 3.9
Supranational 2.2
Korea 2.2
Malaysia 1.7
United Kingdom 1.3
Others (individually less than 1%) 0.1
TOTAL 100.0%
INCOME TAX INFORMATION:
At November 30, 1993, the aggregate cost of investment securities for
income tax purposes was $234,229,535. Net unrealized appreciation
aggregated $7,273,092, of which $10,144,144 related to appreciated
investment securities and $2,871,052 related to depreciated investment
securities.
At November 30, 1993, the fund had a capital loss carryforward of
approximately $6,707,000 of which $5,673,000 and $1,034,000 will expire on
November 30, 1998 and 1999, respectively.
At November 30, 1993, the fund was required to defer $69,000 of losses on
options.
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C> <C>
November 30, 1993
ASSETS
Investment in securities, at value (including repurchase agreements of $54,733,000)
(cost $234,229,144) $ 241,502,627
(Notes 1 and 2) - See accompanying schedule
Short foreign currency contracts (Note 2) $ (3,956,337)
Contracts held, at value
Receivable for contracts held 4,097,282 140,945
Cash 1,587,458
Interest receivable 2,605,046
Receivable for daily variation on futures contracts 171,875
Total assets 246,007,951
LIABILITIES
Payable for investments purchased 2,000,000
Dividends payable 802,154
Accrued management fee 81,822
Distribution fees payable (Note 5) 11,294
Other payables and accrued expenses 138,210
Total liabilities 3,033,480
NET ASSETS $ 242,974,471
Net Assets consist of:
Paid in capital $ 242,647,124
Distributions in excess of net investment income (Note 1) (517,821)
Accumulated undistributed net realized gain (loss) on investments (7,691,980)
Net unrealized appreciation (depreciation) on:
Investment securities 7,273,483
Foreign currency contracts 140,945
Futures contracts 1,122,720
NET ASSETS $ 242,974,471
CALCULATION OF MAXIMUM OFFERING PRICE $11.16
INSTITUTIONAL CLASS
NET ASSET VALUE, offering price and redemption price per share ($183,790,491 (divided by) 16,474,535 shares)
RETAIL CLASS $11.14
NET ASSET VALUE, and redemption price per share ($59,183,980 (divided by) 5,311,117 shares)
Maximum offering price per share (100/95.25 of $11.14) $11.70
</TABLE>
Statement of Operations
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended November 30, 1993
INVESTMENT INCOME $ 15,837,151
Interest
EXPENSES
Management fee (Note 5) $ 818,426
Transfer agent fees (Note 5) 180,350
Institutional Class
Retail Class 60,467
Distribution fees - Retail Class (Note 5) 56,220
Accounting fees and expenses (Note 5) 81,106
Non-interested trustees' compensation 1,285
Custodian fees and expenses 54,863
Registration fees 41,912
Institutional Class
Retail Class 46,390
Audit 31,337
Legal 14,015
Miscellaneous 3,118
Total expenses 1,389,489
Net investment income 14,447,662
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTES 1, 2 AND 4)
Net realized gain (loss) on:
Investment securities 4,493,509
Foreign currency contracts (253,153)
Futures contracts 415,926 4,656,282
Change in net unrealized appreciation (depreciation) on:
Investment securities 2,563,302
Foreign currency contracts 140,945
Futures contracts 1,122,720 3,826,967
Net gain (loss) 8,483,249
Net increase (decrease) in net assets resulting from operations $ 22,930,911
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
YEARS ENDED NOVEMBER 30,
1993 1992
INCREASE (DECREASE) IN NET ASSETS
Operations $ 14,447,662 $ 18,114,232
Net investment income
Net realized gain (loss) on investments 4,656,282 3,843,118
Change in net unrealized appreciation (depreciation) on investments 3,826,967 (2,678,399)
Net increase (decrease) in net assets resulting from operations 22,930,911 19,278,951
Distributions to shareholders from:
Net investment income
Institutional Class (13,259,775) (18,265,040)
Retail Class (1,503,763) (15,512)
Share transactions - net increase (decrease) (Note 6) 72,068,562 (166,016,202)
Total increase (decrease) in net assets 80,235,935 (165,017,803)
NET ASSETS
Beginning of period 162,738,536 327,756,339
End of period (including distributions in excess of net investment income of
$517,821 and $201,945, $ 242,974,471 $ 162,738,536
respectively)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 1993
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Advisor Limited Term Bond Fund (the fund) is a fund of Fidelity
Advisor Series IV (the trust) (formerly Fidelity Income 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 both Institutional Class and Retail Class shares which have
equal rights as to earnings, assets and voting privileges except that each
class bears different distribution and transfer agent expenses and certain
registration fees. 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 each class's Distribution and Service Plans,
Transfer Agent Agreements and certain registration fees) 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities, other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the current exchange rate. Purchases and sales of securities,
income receipts and expense payments are translated into U.S. dollars at
the exchange rate on the dates of the transactions.
It is not practical to identify the portion of each amount shown in the
fund's Statement of Operations under the caption "Realized and Unrealized
Gain (Loss) on Investments" that arises from changes in foreign currency
exchange rates. Investment income includes net realized and unrealized
currency gains and losses recognized between accrual and payment dates.
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.
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 declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date. Mortgage security paydown gains
(losses) are taxable as ordinary income and, therefore, increase (decrease)
taxable ordinary income available for distribution.
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
mortgage-backed securities, foreign currency transactions and market
discount.
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 enter into forward foreign
currency contracts. These contracts involve market risk in excess of the
amount reflected in the fund's Statement of Assets and Liabilities. The
face or contract amount in U.S. dollars reflects the total exposure the
fund has in that particular currency contract. The U.S. dollar value of
forward foreign currency contracts is determined using forward currency
exchange rates supplied by a quotation service. Losses may arise due to
changes in the value of the foreign currency or if the counterparty does
not perform under the contract.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and presented net on the Statement of
Assets and Liabilities. Gain (loss) on the purchase or sale of forward
foreign currency contracts having the same settlement date and broker is
recognized on the date of offset, otherwise gain (loss) is recognized on
settlement date.
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 SEC), 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.
FUTURES CONTRACTS AND OPTIONS. The fund may invest in futures contracts and
write options. These investments involve, to varying degrees, elements of
market risk and risks in excess of the amount recognized in the Statement
of Assets and Liabilities. The face or contract amounts reflect the extent
of the involvement the fund has in the particular classes of instruments.
Risks may be caused by an imperfect correlation between movements in the
price of the instruments and the price of the underlying securities and
interest rates. Risks also may arise if there is an illiquid secondary
market for the instruments, or due to the inability of counterparties to
perform.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Options traded
on an exchange are valued using the last sale price or, in the absence of a
sale, the last offering price. Options traded over-the-counter are valued
using dealer-supplied valuations.
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 November
30, 1993 and due December 1, 1993. The maturity values of the joint trading
account investments were $54,737,926 at 3.24%. 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
25 13.4% $14,955,921,000 $14,957,267,126 $15,258,997,365 3 7/8%-15 3/4%
12/30/93 to 11/15/22
4. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $113,738,403 and $93,664,762, respectively, of which U.S.
government and government agency obligations aggregated $84,069,711 and
$65,920,236, respectively.
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates ranging from
.15% to .37% and is based on the monthly average net assets of all the
mutual funds advised by FMR. The annual individual fund fee rate is .25%.
For the period, the management fee was equivalent to an annual rate of .42%
of average net assets.
The Board of Trustees approved a new group fee rate schedule with rates
ranging from .1325% to .3700%. Effective November 1, 1993, FMR has
voluntarily agreed to implement this new group fee rate schedule as it
results in the same or a lower management fee.
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, the
Retail Class 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, the Retail Class paid FDC
$56,220 all of which was paid to securities dealers, banks and other
financial institutions for selling shares of the Retail Class 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 Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $3,011 for the
period.
SALES LOAD. FDC received sales charges for selling shares of the Retail
Class. The sales charge rates ranged from 2.00% to 4.75% based on purchase
amounts of less than $1,000,000. Purchase amounts of $1,000,000 or more are
not charged a sales load. For the period, FDC received $1,436,859 of which
$1,226,146 was paid to securities dealers, banks and other financial
institutions.
TRANSFER AGENT FEE. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, and State Street Bank and Trust Company
(State Street) are the transfer, dividend disbursing and shareholder
servicing agents for the Institutional Class and Retail Class,
respectively. Under revised fee schedules which became effective January 1,
1993, FIIOC and State Street receive fees based on the type, size, number
of accounts and the number of transactions made by shareholders. FIIOC, on
behalf of State Street, also collects fees from the fund and pays State
Street for its services. FIIOC pays for typesetting, printing and mailing
of all shareholder reports, except proxy statements.
ACCOUNTING FEE. Fidelity Service Co. (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.
6. SHARE TRANSACTIONS.
Share transactions for both classes were as follows:
SHARES DOLLARS
YEARS ENDED NOVEMBER 30, YEARS ENDED NOVEMBER 30,
1993 1992 (A) 1993 1992 (A)
INSTITUTIONAL CLASS
Shares sold 7,097,429 6,793,907 $ 78,489,883 $ 72,864,265
Reinvestment of distributions from net investment income 298,266 351,335
3,295,101 3,743,294
Shares redeemed (5,977,104) (23,147,799) (66,104,395) (245,228,290)
Net increase (decrease) 1,418,591 (16,002,557) $ 15,680,589 $
(168,620,731)
RETAIL CLASS
Shares sold 5,818,646 260,833 $ 64,747,544 $ 2,797,920
Reinvestment of distributions from net investment income 103,874 1,221
1,150,638 13,000
Shares redeemed (854,187) (19,270) (9,510,209) (206,391)
Net increase (decrease) 5,068,333 242,784 $ 56,387,973 $ 2,604,529
(a) Share transactions for the Retail Class are for the period September
10, 1992 (commencement of sale of shares) to November 30, 1992.
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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series IV (formerly Fidelity Income
Trust) and the Shareholders of Fidelity Advisor Limited Term Bond Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series IV: Fidelity Advisor Limited Term Bond Fund,
including the schedule of portfolio investments, as of November 30, 1993,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the
period then ended (Institutional Class) and for the year ended November 30,
1993 and for the period September 10, 1992 (commencement of sale of Retail
Class shares) to November 30, 1992 (Retail Class). These financial
statements and financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1993 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Advisor Series IV: Fidelity Advisor Limited Term Bond Fund as
of November 30, 1993, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended (Institutional Class) and for the year ended
November 30, 1993 and for the period September 10, 1992 (commencement of
sale of Retail Class shares) to November 30, 1992 (Retail Class), in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
January 4, 1994
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Michael Gray, 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
Bank of New York
New York, NY
