SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-83672) UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 47 [X]
and
REGISTRATION STATEMENT (No. 811-3737) UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 47 [X]
Fidelity Advisor Series IV
(Exact Name of Registrant as Specified in Declaration of Trust)
82 Devonshire St., Boston, MA 02109
(Address Of Principal Executive Office)
Registrant's Telephone Number: (617) 570-7000
Arthur S. Loring, Esq.
82 Devonshire Street,
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On (July __, 1995) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] On ( ) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] On (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant intends to file a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and intends to file such notice required by
such Rule on or before January 31, 1996.
FIDELITY ADVISOR SERIES IV
FIDELITY REAL ESTATE HIGH INCOME FUND
CROSS-REFERENCE SHEET
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Form N-1A Item Number
Part A Prospectus Caption
1 Cover Page
2 Expenses
3 a,b *
c Performance
4 a(i) Charter; FMR and Its Affiliates; Investment Principles and Risks;
a(ii),b,c Investment Principles and Risks; Securities and Investment
Practices; Fundamental Investment Policies and Restrictions;
Appendix
5 a Charter
b,c,d,e,f FMR and Its Affiliates; Expenses; Breakdown of Expenses;
Management Fee; Other Expenses
g FMR and Its Affiliates
5A *
6 a Charter; FMR and Its Affiliates; How to Buy Shares; How to Sell
Shares; Shareholder and Account Policies
b *
c Charter; FMR and Its Affiliates; Fundamental Investment Policies
and Restrictions.
d Charter; FMR and Its Affiliates
e How to Buy Shares; How to Sell Shares; Shareholder and
Account Policies
f,g How to Sell Shares; Shareholder and Account Policies
7 a FMR and Its Affiliates
b Transaction Details; Expenses; Breakdown of Expenses;
Management Fee; How to Buy Shares; How to Sell Shares
c How to Buy Shares; How to Sell Shares; Shareholder and
Account Policies
d How to Buy Shares
e,f Other Expenses
8 How to Sell Shares; Transaction Details
9 *
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* Not Applicable
FIDELITY REAL ESTATE HIGH INCOME FUND
SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 30, 1994
FINANCIAL HIGHLIGHTS: The following information supplements the
information set forth in the Prospectus. The table reports selected data
for
a share outstanding throughout the period January 5, 1995
(commencement of operations) to May 31, 1995:
FIDELITY REAL ESTATE HIGH INCOME FUND
SUPPLEMENT TO THE PROSPECTUS DATED DECEMBER 30, 1994
FINANCIAL HIGHLIGHTS: The following information supplements the
information set forth in the Prospectus. The table reports selected data
for
a share outstanding throughout the period January 5, 1995
(commencement of operations) to May 31, 1995:
REHI-STK-0795-01 July 21, 1995
REHI-STK-0795-01 July 21, 1995
FINANCIAL HIGHLIGHTS
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JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
MAY 31, 1995
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.000
Income from Investment Operations .329
Net investment income
Net realized and unrealized gain (loss) .793
Total from investment operations 1.122
Less Distributions (.332)
From net investment income
Net asset value, end of period $ 10.790
TOTAL RETURN B 11.36%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 52,771
Ratio of expenses to average net assets 1.12% A
Ratio of net investment income to average net assets 8.55% A
Portfolio turnover rate 42% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
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FINANCIAL HIGHLIGHTS
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JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
MAY 31, 1995
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.000
Income from Investment Operations .329
Net investment income
Net realized and unrealized gain (loss) .793
Total from investment operations 1.122
Less Distributions (.332)
From net investment income
Net asset value, end of period $ 10.790
TOTAL RETURN B 11.36%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 52,771
Ratio of expenses to average net assets 1.12% A
Ratio of net investment income to average net assets 8.55% A
Portfolio turnover rate 42% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
</TABLE>
FIDELITY
REAL ESTATE HIGH INCOME
FUND
The fund seeks high current income by investing mainly in commercial
mortgage-backed securities, with an emphasis on lower-quality securities.
Shares of the fund are offered to banks and trust institutions investing
for their own accounts or for accounts of their customers; retirement plan
sponsors, and similar institutional customers.
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the fund
invests and the services available to shareholders.
To learn more about the fund and its investments, you can obtain a copy of
the Statement of Additional Information (SAI) dated December 30, 1994. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
incorporated herein by reference (legally forms a part of the prospectus).
For a free copy, call Fidelity Investments.
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.
THE FUND MAY INVEST WITHOUT LIMITATION IN LOWER-QUALITY DEBT SECURITIES,
SOMETIMES CALLED "JUNK BONDS." INVESTORS SHOULD CONSIDER THAT THESE
SECURITIES CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN OTHER
DEBT SECURITIES. REFER TO "SECURITIES AND INVESTMENT PRACTICES" ON PAGE
FOR FURTHER INFORMATION.
LIKE ALL MUTUAL FUNDS, THESE
SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
REHI-pro-1294
A Fund of Fidelity Advisor Series IV
PROSPECTUS
DECEMBER 30, 1994(FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE STREET, BOSTON, MA
02109
CONTENTS
KEY FACTS
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly
operating expenses.
PERFORMANCE
THE FUNDS IN DETAIL CHARTER How the fund is
organized.
FMR AND ITS AFFILIATES
INVESTMENT PRINCIPLES AND RISKS
The fund's overall approach to
investing.
SECURITIES AND INVESTMENT
PRACTICES
FUNDAMENTAL INVESTMENT
POLICIES AND RESTRICTIONS
BREAKDOWN OF EXPENSES How
operating costs are calculated and
what they include.
YOUR ACCOUNT TYPES OF ACCOUNTS Different
ways to set up your account.
HOW TO BUY SHARES Opening an
account and making additional
investments.
HOW TO SELL SHARES Taking money
out and closing your account.
INVESTOR SERVICES Services to
help you manage your account.
SHAREHOLDER AND DIVIDENDS, CAPITAL GAINS, AND
ACCOUNT POLICIES TAXES
TRANSACTION DETAILS Share price
calculations and the timing of
purchases and redemptions.
KEY FACTS
WHO MAY WANT TO INVEST
The fund is designed for those who seek high current income, with some
potential for capital growth, from a portfolio of lower-quality,
high-yielding commercial mortgage-backed and other mortgage-related
securities. Shares of the fund are offered to banks and trust institutions
investing for their own accounts or for accounts of their customers;
retirement plan sponsors; and similar institutional customers. The fund's
level of risk and potential reward depend on the quality and maturity of
its investments. Since the fund invests in commercial mortgage-backed
securities and other mortgage and real estate-related securities, including
lower-quality securities, the fund has the potential for higher yields, but
also carries a higher degree of risk. The fund may be appropriate for
aggressive institutional investors who understand the potential risks and
rewards of investing in commercial mortgage-backed securities, and other
mortgage and real estate-related securities, including lower-quality
securities and are willing to accept the greater price movements and credit
risks of these securities.
The value of the fund's investments and the income it generates varies from
day to day, and generally reflects interest rates, market conditions, and
other economic and political news. Some of the fund's investments may also
subject to prepayments, which can lower the fund's yield, particularly in
periods of declining interest rates. When you sell your shares, they may be
worth more or less than what you paid for them. By itself, the fund does
not constitute a balanced investment plan.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund.
Maximum sales charge on purchases and None
reinvested distributions
Maximum deferred sales None
charge on redemptions
Redemption fee None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES are paid out of the fund's assets. The fund
pays a management fee to FMR. It also incurs other expenses for services
such as maintaining shareholder records and furnishing shareholder
statements and financial reports.
The fund's expenses are factored into its share price or dividends and are
not charged directly to shareholder accounts (see "Breakdown of Expenses"
on page ).
The following are projections based on estimated expenses, and are
calculated as a percentage of average net assets.
Management fee .76%
12b-1 fee (Distribution Fee) None
Other expenses .28
Total fund operating expenses 1.04
%
EXPENSE TABLE EXAMPLE: You would pay the following expenses on a $1,000
investment in the fund assuming (1) a 5% annual return and (2) full
redemption at the end of each time period:
1 3
Year Years
$10 $32
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
PERFORMANCE
This section would normally show how the fund has performed over time.
Because the fund was new when this prospectus was printed, its performance
is not included. At least twice a year, you will receive a report detailing
the fund's recent strategies, performance, and holdings. For current
performance or a free annual report, call Fidelity Investments.
EXPLANATION OF TERMS
TOTAL RETURN is the change in value of an investment in the fund over a
given period, assuming reinvestment of any dividends and capital gains. A
CUMULATIVE TOTAL RETURN reflects actual performance over a stated period of
time. An AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that,
if achieved annually, would have produced the same cumulative total return
if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same
as actual year-by-year results.
Average annual total returns covering periods of less than one year assume
that performance will remain constant for the rest of the year.
YIELD refers to the income generated by an investment in the fund over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all stock and bond
funds. Because this differs from other accounting methods, the quoted yield
may not equal the income actually paid to shareholders.
This difference may be significant for a fund whose investments are
denominated in foreign currencies.
In calculating yield, the fund may from time to time use a security's
coupon rate instead of its yield to maturity in order to reflect the risk
premium on that security. This practice will have the effect of reducing
the fund's yield.
THE CONSUMER PRICE INDEX is a widely recognized measure of inflation
calculated by the U.S. government.
The fund may quote its adjusted net asset value (NAV), including all
distributions paid. This value may be averaged over specified periods and
may be used to calculate the fund's moving average.
The fund's recent strategies, performance, and holdings are detailed twice
a year in financial reports, which are sent to all shareholders.
For current performance call Fidelity Investments.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHARTER
REAL ESTATE HIGH INCOME FUND IS A MUTUAL FUND: an investment that pools
shareholders' money and invests it toward a specified goal. The fund is
currently a non-diversified fund of Fidelity Advisor Series IV, an open-end
management investment company organized as a Massachusetts business trust
on May 6, 1983.
THE FUND IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of shareholders. The trustees are experienced
executives who meet throughout the year to oversee the fund's activities,
review contractual arrangements with companies that provide services to the
fund, and review the fund's performance. The majority of trustees are not
otherwise affiliated with Fidelity.
THE FUND MAY HOLD SPECIAL MEETINGS AND MAIL PROXY MATERIALS. These meetings
may be called to elect or remove trustees, change fundamental policies,
approve a management contract, or for other purposes. Shareholders not
attending these meetings are encouraged to vote by proxy. Fidelity will
mail proxy materials in advance, including a voting card and information
about the proposals to be voted on. You are entitled to one vote for each
share you own.
FMR AND ITS AFFILIATES
Fidelity Investments is one of the largest investment management
organizations in the United States and has its principal business address
at 82 Devonshire Street, Boston, Massachusetts. It includes a number of
different subsidiaries and divisions which provide a variety of financial
services and products. The fund employs various Fidelity companies to
perform activities required for its operation.
The fund is managed by FMR, which chooses the fund's investments and
handles its business affairs.
As of November 30, 1994, FMR advised funds having approximately 20 million
shareholder accounts with a total value of more than $250 billion.
Mark P. Snyderman is manager of Real Estate High Income, which he has
managed since December of 1994. He joined Fidelity in May of 1994 as an
analyst of commercial mortgage-backed securities. Previously, he headed up
the fixed-income group for Aldrich, Eastman & Waltch, a real estate
investment advisory firm located in Boston, MA.
Fidelity investment personnel may invest in securities for their own
account pursuant to a code of ethics that establishes procedures for
personal investing and restricts certain transactions.
FDC distributes and markets Fidelity's funds and services. Fidelity
Investments Institutional Operations Company (FIIOC) performs transfer
agent servicing functions for the fund.
FMR Corp. is the ultimate parent company of FMR. Through ownership of
voting common stock, members of the Edward C. Johnson 3d family form a
controlling group with respect to FMR Corp. Changes may occur in the
Johnson family group, through death or disability, which would result in
changes in each individual family members' holding of stock. Such changes
could result in one or more family members becoming holders of over 25% of
the stock. FMR Corp. has received an opinion of counsel that changes in the
composition of the Johnson family group under these circumstances would not
result in the termination of the fund's management or distribution
contracts and, accordingly, would not require a shareholder vote to
continue operation under those contracts.
To carry out the fund's transactions, FMR may use its broker-dealer
affiliates and other firms that sell fund shares, provided that the fund
receives services and commission rates comparable to those of other
broker-dealers.
INVESTMENT PRINCIPLES AND RISKS
THE FUND seeks a high level of current income. The fund will normally
invest so that at least 65% of its total assets will be invested in
lower-quality real estate debt securities, primarily commercial
mortgage-backed securities and other mortgage-related securities. When
consistent with its goal, the fund may also consider the potential for
capital gain.
The fund's investments in real estate-related instruments generally are
sensitive to factors such as changes in real estate values and property
taxes, interest rates, cash flow of underlying real estate assets,
overbuilding, and the management skill and creditworthiness of the issuer.
Real estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to zoning and the environment. In
addition, commercial mortgage-backed securities are subject to risks
affecting the ability of mortgagors to meet their payment obligations, as
well as the unique interest rate and payment priority characteristics of a
particular investment. The market for commercial mortgage-backed securities
is relatively new.
The fund's yield and share price will change based on changes in interest
rates, market conditions, and other political and economic news. In
general, bond prices rise when interest rates fall, and vice versa. FMR may
use various investment techniques to hedge the fund's risks, but there is
no guarantee that these strategies will work as intended. It is important
to note that the fund is not guaranteed. When you sell your shares, they
may be worth more or less than what you paid for them.
FMR normally invests the fund's assets according to its investment
strategy. The fund also reserves the right to invest without limitation in
investment-grade money market or short-term debt instruments for temporary,
defensive purposes.
SECURITIES AND INVESTMENT PRACTICES
The following pages contain more detailed information about types of
instruments in which the fund may invest, and strategies FMR may employ in
pursuit of the fund's investment objective. A summary of risks and
restrictions associated with these instrument types and investment
practices is included as well. A complete listing of the fund's policies
and limitations and more detailed information about the fund's investments
is contained in the fund's SAI. Policies and limitations are considered at
the time of purchase; the sale of instruments is not required in the event
of a subsequent change in circumstances.
FMR may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the
fund achieve its goal. As a shareholder, you will receive financial reports
at least every six months detailing fund holdings and describing recent
investment activities.
Under normal market conditions, the fund will invest primarily in
mortgage-backed securities, including lower-quality commercial and
residential mortgage-backed securities. The fund may also invest in
collateralized mortgage obligations, regular interests in real estate
mortgage investment conduits ("REMICs"), adjustable rate mortgages, bank
debt, corporate debt securities, U.S. Treasury and agency securities and a
variety of money market instruments. The fund may invest without limitation
in lower-rated securities and non-rated securities of lower quality. Such
securities are commonly referred to as "junk bonds" and have a greater risk
of default of principal and interest.
In determining which mortgage-backed securities the fund will purchase, FMR
will consider, among other factors, the following: characteristics of the
underlying mortgage loans, including loan-to-value and debt service
coverage ratios, loan seasoning and refinancing risk; characteristics of
the underlying property, including diversity of the loan pool, tenant
occupancy and leasing, and competitiveness in the pertinent market;
economic, environmental and local considerations; deal structure, including
historical performance of the originator, subordination percentages and
other credit enhancement features; and structural participants such as
administrators and servicers.
In addition to examining the relative value of the investments, FMR may
interact with rating agencies, review due diligence by underwriters and
rating agencies, and confirm debt service coverage ratios and security cash
flows. FMR will select investments that vary by underlying property types,
geographic regions and industry exposure.
MORTGAGE-BACKED SECURITIES are a form of asset-backed security that are
interests in pools of commercial or residential mortgages, and may include
complex instruments such as collateralized mortgage obligations and
stripped mortgage-backed securities. These interests may also include
mortgage pass-through securities, regular interests in REMICs or other
kinds of mortgage-backed securities. Mortgage-backed securities may be
issued by the government or by private entities. These securities are
subject to credit risks associated with the performance of the underlying
mortgage properties. Factors such as changes in consumer spending habits,
local economic and competitive conditions, tenant occupancy rates and
regulatory or zoning restrictions, or the loss of a major tenant may
adversely affect the economic viability of a mortgaged property. In
addition, these securities are subject to prepayment risk, although
commercial mortgages tend to have shorter maturities than residential
mortgages as well as prepayment protection features. Some securities may
have a structure that makes their reaction to interest rates and other
factors difficult to predict, making their value highly volatile.
COMMERCIAL MORTGAGE-BACKED SECURITIES are generally multi-class debt or
pass-through securities backed by a mortgage loan or pool of mortgage loans
secured by commercial property, such as industrial and warehouse
properties, office buildings, retail space and shopping malls, multifamily
properties and cooperative apartments, hotels and motels, nursing homes,
hospitals, senior living centers and agricultural property. The commercial
mortgage loans that underlie commercial mortgage-backed securities often
have certain distinct characteristics. Commercial mortgage loans are
generally not fully amortizing. At their maturity date, repayment of the
remaining principal balance or "balloon" is due and the owners of the
underlying real estate must generally obtain a new loan or sell the real
estate to pay the remaining balance. Unlike most one to four family
residential mortgages, commercial real property loans often contain
provisions that substantially reduce the likelihood that such securities
will be prepaid. The provisions generally impose significant prepayment
penalties on loans and, in some cases there may be prohibitions on
principal prepayments for several years following origination. Assets
underlying commercial mortgage-backed securities may relate to only a few
properties or to a single property.
Commercial mortgage-backed securities have been issued in public and
private transactions by a variety of public and private issuers.
Non-governmental entities that have issued or sponsored commercial
mortgage-backed securities offerings include owners of commercial
properties, originators of and investors in mortgage loans, savings and
loan associations, mortgage banks, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. The
fund may from time to time purchase commercial mortgage-backed securities
directly from issuers in privately negotiated transactions or from a holder
of such commercial mortgage-backed securities in the secondary market.
Commercial mortgage-backed securities generally are structured to provide
protection to the senior class investors against potential losses on the
underlying mortgage loans. This protection is generally provided by having
the holders of the subordinated class of securities, which may include the
fund, take the first loss if there are defaults on the underlying
commercial mortgage loans. Other protection, which may benefit all of the
classes or particular classes may include issuer guarantees, reserve funds,
additional subordinated securities, cross-collateralization, and
over-collateralization.
By adjusting the priority of interest and principal payments on each class
of a given commercial mortgage-backed security, issuers are able to issue
senior investment grade securities and lower-rated or non-rated
subordinated securities tailored to meet the needs of sophisticated
institutional investors. In general, subordinated classes of commercial
mortgage-backed securities are entitled to receive repayment of principal
only after all required principal payments have been made to more senior
classes and have subordinate rights as to receipt of interest
distributions. Such subordinated classes are subject to a substantially
greater risk of nonpayment than are senior classes of commercial
mortgage-backed securities. Even within a class of subordinate securities,
most commercial mortgage-backed securities are structured with a hierarchy
of levels (or "loss positions"). Loss positions are the order in which
nonrecoverable losses of principal are applied to the securities within a
given structure. For instance, a first loss subordinate security will
absorb any principal losses before any higher loss position subordinate
security. This type of structure allows a number of classes of securities
to be created with varying degrees of credit exposure, prepayment exposure
and potential total return.
Subordinated classes of commercial mortgage-backed securities are
structured to absorb any credit-related losses prior to the senior class.
There are no limitations on the classes of commercial mortgage-backed
securities in which the fund may invest. Accordingly, in certain
circumstances, because the fund intends to invest in subordinated classes
of securities, if the underlying mortgage loan is not paid in full, the
fund will recover proportionally less of its investment in a commercial
mortgage-backed security than the holders of more senior classes of the
same commercial mortgage-backed security.
The rating assigned to a given issue and class of commercial
mortgage-backed securities is a product of many factors, including the
structure of the security, the level of subordination, the quality and
adequacy of the collateral, and the past performance of the originators and
servicing companies. The rating of any commercial mortgage-backed security
is determined to a substantial degree by the debt service coverage ratio
(i.e., the ratio of current net operating income from the commercial
properties, in the aggregate, to the current debt service obligations on
the properties) and the loan-to-value ratio of the pooled properties. The
amount of the securities issued in any one rating category is determined by
the rating agencies after a rigorous credit rating process which includes
analysis of the issuer, servicer and property manager, as well as
verification of the loan-to-value and debt service coverage ratios.
Loan-to-value ratios may be particularly important in the case of
commercial mortgages because most commercial mortgage loans provide that
the lender's sole remedy in the event of a default is against the mortgaged
property, and the lender is not permitted to pursue remedies with respect
to other assets of the borrower. Accordingly, loan-to-value ratios may, in
certain circumstances, determine the amount realized by the holder of the
commercial mortgage-backed security.
RESIDENTIAL MORTGAGE-BACKED SECURITIES are mortgage-backed securities
representing participation interests in pools of one to four family
residential mortgage loans originated by private mortgage originators.
Traditionally, residential mortgage-backed securities were issued by
governmental agencies such as Fannie Mae, Freddie Mac and Ginnie Mae. The
fund may invest in those securities issued by non-governmental agencies as
well as governmental agencies. Non-governmental entities that have issued
or sponsored residential mortgage-backed securities offerings include
savings and loan associations, mortgage banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. Similar
to commercial mortgage-backed securities, residential mortgage-backed
securities have been issued using a variety of structures, including
multi-class structures featuring senior and subordinated classes. The fund
intends to invest in the lower-rated or non-rated classes of residential
mortgage-backed securities, with credit qualities at the time of investment
rated or deemed by FMR to have similar credit and cash flow characteristics
as those discussed previously in relation to subordinated classes of
commercial mortgage-backed securities.
Although one to four family residential loans do not typically have
prepayment penalties or restrictions, as commercial mortgage loans often
do, residential mortgage-backed securities are often structured so that
subordinated classes may be locked out of prepayments for a period of time.
However, in a period of extremely rapid prepayments, during which senior
classes may be retired faster than expected, the subordinated classes may
receive unscheduled payments of principal and would have average lives
that, while longer than the average lives of the senior classes, would be
shorter than originally expected.
MORTGAGE-RELATED SECURITIES ISSUED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES include securities issued by GNMA, FNMA and FHLMC. The
U.S. government or the issuing agency guarantees the payment of interest
and principal on these securities. However, the guarantees do not extend to
the securities' yield or value, nor do the guarantees extend to the yield
or value of the fund's shares. These securities are in most cases
"pass-through" instruments, through which the holder receives a share of
all interest and principal payments from the mortgages underlying the
security, net of certain fees.
PRIVATE MORTGAGE PASS-THROUGH SECURITIES are structured similarly to GNMA,
FNMA and FHLMC mortgage pass-through securities and are issued by
originators of and investors in mortgage loans, including depository
institutions, mortgage banks, investment banks and special purpose
subsidiaries of the foregoing. These securities usually are backed either
by GNMA, FNMA or FHLMC certificates or by a pool of fixed rate or
adjustable rate mortgage loans. Securities that are backed by a pool of
fixed rate or adjustable rate mortgage loans generally are structured with
one or more types of credit enhancement.
ADJUSTABLE RATE MORTGAGE SECURITIES are pass-through mortgage securities
collateralized by mortgages with adjustable rather than fixed rates
("ARMs"). ARMs eligible for inclusion in a mortgage pool generally provide
for a fixed initial mortgage interest rate for either the first three, six,
twelve, thirteen, thirty-six or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes to a designated benchmark index.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES. Collateralized mortgage obligations or "CMOs" are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private
mortgage pass-through securities (collectively, "mortgage assets").
Multi-class pass-through securities are equity interests in a trust
composed of mortgage assets. Unless the context indicates otherwise, all
references herein to CMOs include multi-class pass-through certificates.
Payments of principal of and interest on the mortgage assets, and any
reinvestment income thereon, provide the funds to pay debt service on the
CMOs or make scheduled distributions on the multi-class pass-through
securities. CMOs may be issued by agencies or instrumentalities of the U.S.
Government, or by private originators of, or investors in, mortgage loans,
including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing. The issuer of CMOs or
multi-class pass-through securities may elect to be treated as a REMIC. The
fund will not invest in residual interests in REMICs.
STRIPPED MORTGAGE-BACKED SECURITIES. The fund may invest in mortgage
pass-through securities where all or a substantial portion of the interest
payments go to one class of holders ("interest-only securities" or "IOs")
and all or a substantial portion of the principal payments go to a second
class of holders ("principal-only securities" or "POs"). These securities
are commonly referred to as stripped mortgage-backed securities or SMBS.
The yields to maturity on IOs and POs are very sensitive to the rate of
principal payments (including prepayments) on the related underlying
mortgage assets, and such rate may have a material effect on yield to
maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the fund may not fully recoup its
initial investment in IOs. Conversely, if the underlying mortgage assets
experience less than anticipated prepayments of principal, the yield on POs
could be materially adversely affected. In addition to SMBS issued by
agencies or instrumentalities of the U.S. government, the fund may purchase
SMBS issued by private originators of, or investors in, mortgage loans,
including depository institutions, mortgage banks, investment banks and
special purpose subsidiaries of the foregoing.
LOWER-RATED AND NON-RATED LOWER-QUALITY DEBT SECURITIES
The mortgage-backed securities in which the fund will invest are expected
to be lower-rated (i.e., have a credit quality below investment grade) or
non-rated subordinated classes. Investments in such lower-rated securities
or non-rated securities of lower credit quality are subject to special
risks, including a greater risk of loss of principal and non-payment of
interest.
Generally, lower-rated or non-rated securities of lower credit quality
offer a higher return potential than higher-rated securities but involve
greater volatility of price and greater risk of loss of income and
principal, including the possibility of default or bankruptcy of the
issuers of such securities. Lower-rated securities and non-rated securities
of lower quality will likely have large uncertainties or major risk
exposure to adverse conditions and are predominantly speculative. The
occurrence of adverse conditions and uncertainties would likely reduce the
value of securities held by the fund, with a commensurate effect on the
value of the fund's shares. While the market values of lower-rated
securities and non-rated securities of lower quality tend to react less to
fluctuations in interest rate levels than do those of higher-rated
securities, the market values of certain of these securities also tend to
be more sensitive to changes in economic conditions than higher-rated
securities. In addition, lower-rated securities and non-rated securities of
lower quality generally present a higher degree of credit risk. The fund
may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its fund
holdings.
Securities which are rated BB by S&P, D&P and Fitch and Ba by Moody's have
speculative characteristics with respect to capacity to pay interest and
repay principal. Securities which are rated B generally lack
characteristics of a desirable investment and assurance of interest and
principal payments over any long period of time may be small. Securities
which are rated Caa or CCC or below are poor standing. Those issues may be
in default or present elements of danger with respect to principal or
interest. Securities rated C by Moody's, D by S&P, or the equivalent by D&P
or Fitch are the lowest rating class. Such ratings indicate that payments
are in default, or that a bankruptcy petition has been filed with respect
to the issuer or that the issuer is regarded as having extremely poor
prospects. A general description of the bond ratings of Moody's, S&P, D&P
and Fitch is set forth in the Statement of Additional Information.
In general, the ratings of nationally recognized statistical rating
organizations represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and
subjective, and are not absolute standards of quality and do not evaluate
the market value risk of the securities. It is possible that an agency
might not change its rating of a particular issue to reflect subsequent
events. These ratings will be used by the fund as initial criteria for the
selection of securities, but the fund also will rely upon the independent
advice of FMR to evaluate potential investments.
The lower-rated securities in which the fund will invest typically will be
subject to restrictions against transfer to the general public.
Accordingly, these securities are ordinarily traded only among
institutions.
At times a major portion of an issue of lower-rated securities or non-rated
securities of lower quality may be held by relatively few institutional
purchasers. These securities may be less liquid than higher-quality debt
securities, or in fact may be illiquid. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of
the issuer, the fund may find it more difficult to sell such securities
when FMR believes it advisable to do so or may be able to sell such
securities only at prices lower than if the securities were more widely
held. In such circumstances, the fund may also find it more difficult to
determine the fair value of such securities for purposes of computing the
fund's NAV.
DEBT SECURITIES. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. Debt
securities, loans, and other direct debt have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Longer-term
bonds are generally more sensitive to interest rate changes than short-term
bonds.
REAL ESTATE INVESTMENT TRUSTS. Equity trusts own real estate directly, and
their value depends upon that of the underlying properties. Mortgage trusts
make construction, development, or long-term mortgage loans, and are
sensitive to the credit quality of the borrower. The value of real estate
investment trusts is also affected by management skill, cash flow, and tax
and regulatory requirements.
DEBT RATINGS
MOODY'S STANDARD & POOR'S
INVESTORS SERVICE, INC. CORPORATION
Rating Rating
INVESTMENT GRADE
Highest quality Aaa AAA
High quality Aa AA
Upper-medium grade A A
Medium grade Baa BBB
LOWER-QUALITY
Moderately speculative Ba BB
Speculative B B
Highly speculative Caa CCC
Poor quality Ca CC
Lowest quality, no interest C C
In default, in arrears -- D
U.S. GOVERNMENT SECURITIES are high-quality debt securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
the U.S. government. Not all U.S. government securities are backed by the
full faith and credit of the United States. For example, securities issued
by the Federal Farm Credit Bank or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money
from the U.S. Treasury under certain circumstances. However, securities
issued by the Financing Corporation are supported only by the credit of the
entity that issued them.
STRIPPED SECURITIES are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile, and certain stripped
securities move in the same direction as interest rates.
MONEY MARKET INSTRUMENTS are high-quality instruments that present minimal
credit risk. They may include U.S. Government obligations, commercial paper
and other short-term corporate obligations, and certificates of deposit,
bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
FOREIGN SECURITIES and foreign currencies may involve additional risks.
These include currency fluctuations, risks relating to political or
economic conditions in the foreign country, and the potentially less
stringent investor protection and disclosure standards of foreign markets.
In addition to the political and economic factors that can affect foreign
securities, a governmental issuer may be unwilling to repay principal and
interest when due, and may require that the conditions for payment be
renegotiated. These factors could make foreign investments, especially
those in developing countries, more volatile.
ADJUSTING INVESTMENT EXPOSURE. The fund can use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and
futures contracts, entering into currency exchange contracts or swap
agreements, purchasing indexed securities, and selling securities short.
FMR can use these practices to adjust the risk and return characteristics
of the fund's portfolio of investments. If FMR judges market conditions
incorrectly or employs a strategy that does not correlate well with the
fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques
may increase the volatility of the fund and may involve a small investment
of cash relative to the magnitude of the risk assumed. In addition, these
techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
DIRECT DEBT. Loans and other direct debt instruments are interests in
amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they
may entail less legal protection for the fund, or there may be a
requirement that the fund supply additional cash to a borrower on demand.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the fund's yield.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
ILLIQUID AND RESTRICTED SECURITIES. Some investments may be determined by
FMR, under the supervision of the Board of Trustees, to be illiquid, which
means that they may be difficult to sell promptly at an acceptable price.
The sale of some securities, including illiquid securities, may be subject
to legal restrictions. Difficulty in selling securities may result in a
loss or may be costly to the fund.
RESTRICTIONS. The fund may not purchase a security if, as a result, more
than 15% of its net assets would be invested in illiquid securities.
OTHER INSTRUMENTS may include convertible securities and preferred stocks.
DIVERSIFICATION. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry. Since the
fund is not diversified, it may be more sensitive to changes in the market
value of a single issuer or industry.
RESTRICTIONS: The fund is considered non-diversified. Generally, to meet
federal tax requirements at the close of each quarter, the fund does not
invest more than 25% of its total assets in any one issuer and, with
respect to 50% of total assets, does not invest more than 5% of its total
assets in any one issuer. The fund may not invest more than 25% of its
total assets in any one industry, except for, under normal market
conditions, securities and instruments backed by real estate and real
estate mortgages, including interests in real estate investment trusts and
securities of companies engaged in the real-estate business. These
limitations do not apply to U.S. government securities.
BORROWING. The fund may borrow from banks or from other funds advised by
FMR, or through reverse repurchase agreements. If the fund borrows money,
its share price may be subject to greater fluctuation until the borrowing
is paid off. If the fund makes additional investments while borrowings are
outstanding, this may be considered a form of leverage.
RESTRICTIONS: The fund may borrow only for temporary or emergency purposes,
but not in an amount exceeding 33% of its total assets.
LENDING. Lending securities to broker-dealers and institutions, including
FBSI, an affiliate of FMR, is a means of earning income. This practice
could result in a loss or a delay in recovering the fund's securities. The
fund may also lend money to other funds advised by FMR and to issuers in
connection with certain direct debt transactions.
RESTRICTIONS: Loans, in the aggregate, may not exceed 33% of the fund's
total assets.
FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this prospectus, other than those identified in the
following paragraph, can be changed without shareholder approval.
The fund seeks a high level of current income by investing primarily in
commercial mortgage-backed securities. The fund may not invest more than
25% of its total assets in any one industry, except that it will, under
normal market conditions, invest more than 25% of its total assets in
securities and instruments backed by real estate and real estate mortgages
and securities of companies engaged in the real-estate business, including
interests in real estate investment trusts. The fund may borrow only for
temporary or emergency purposes, but not in an amount exceeding 33% of the
fund's total assets. Loans, in the aggregate, may not exceed 33% of the
fund's total assets.
BREAKDOWN OF EXPENSES
Like all mutual funds, the fund pays fees related to its daily operations.
Expenses paid out of the fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The fund pays a MANAGEMENT FEE to FMR for managing its investments and
business affairs, FMR in turn may pay fees to affiliates who provide
assistance with these services.
FMR may, from time to time, agree to reimburse the fund for management fees
and other expenses above a specified limit. FMR retains the ability to be
repaid by the fund if expenses fall below the specified limit prior to the
end of the fiscal year. Reimbursement arrangements, which may be terminated
at any time without notice, can decrease the fund's expenses and boost its
performance.
MANAGEMENT FEE
The MANAGEMENT FEE is calculated and paid to FMR every month. The fee is
calculated by adding a group fee rate to an individual fund fee rate and
multiplying the result by the fund's net assets. The group fee rate is
based on the average net assets of all the mutual funds advised by FMR.
This rate cannot rise above 0.37%, and it drops as total assets under
management increase. For November 30, 1994, the group fee rate was 0.1560%.
The individual fund fee rate is 0.60%.
Fidelity Investments Institutional Operations Co. (FIIOC) performs transfer
agency, dividend disbursing and shareholder servicing functions for the
fund. Fidelity Service Co. calculates the NAV and dividends for the fund,
maintains the fund's general accounting records and administers the fund's
securities lending program. FMR, and not the fund, pays for these services.
The fund has adopted a Distribution and Service Plan. This plan recognizes
that FMR may use its resources, including management fees, to pay expenses
associated with the sale of fund shares. This may include payments to third
parties, such as banks or broker-dealers, that provide shareholder support
services or engage in the sale of the fund's shares. The Board of Trustees
has not authorized such payments. The fund does not pay FMR any separate
fees for this service.
The fund's portfolio turnover rate is not expected to exceed 75% in the
first fiscal period, which ends on November 30, 1995. This rate will vary
from year to year.
YOUR ACCOUNT
TYPES OF ACCOUNTS
The different ways to register your account with Fidelity are listed below.
The account guidelines that follow may not apply to certain retirement
accounts. If your employer offers the fund through a retirement program,
contact your employer for more information. Otherwise, call your
Institutional Representative directly.
WAYS TO SET UP YOUR ACCOUNT
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened.
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, OR OTHER
GROUPS
Contact your Institutional Representative.
HOW TO BUY SHARES
The fund's share price, called net asset value per share (NAV), is
calculated every business day. The fund's shares are sold without a sales
charge.
Shares are purchased at the next NAV calculated after your investment is
received and accepted. The NAV is normally calculated at 4:00 p.m. Eastern
time.
If you are placing your order through your Institutional Representative, it
is the responsibility of your Institutional Representative to transmit your
order to buy shares to the Transfer Agent before 4:00 p.m. Eastern time.
You may open your account by wire as described below. If there is no
account application accompanying this prospectus, call your Institutional
Representative.
If you already have money invested in the fund, you can wire money into
your account or contact your Institutional Representative.
Investments in the fund must be made by using the Federal Reserve Wire
System. Checks will not be accepted as a means of investment.
BY WIRE. For wiring information and instructions, you should call the
Financial Institution through which you trade or your Institutional
Representative. There is no fee imposed by the fund for wire purchases.
However, if you buy shares through a Financial Institution, the Financial
Institution may impose a fee for wire purchases.
For further information on opening an account, please consult your
Institutional Representative.
MINIMUM INVESTMENTS
TO OPEN AN ACCOUNT $10,000,000
MINIMUM BALANCE $5,000,000
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by
selling (redeeming) some or all of your shares.
Your shares will be sold at the next NAV calculated after your order is
received and accepted. NAV is normally calculated at 4:00 p.m. Eastern
time.
TO SELL SHARES BY BANK WIRE, you will need to sign up for these services in
advance.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. It is designed to
protect you and Fidelity from fraud. Your request must be made in writing
and include a signature guarantee if any of the following situations apply:
(small solid bullet) You wish to redeem more than $100,000 worth of shares,
(small solid bullet) Your account registration has changed within the last
30 days,
(small solid bullet) The check is being mailed to a different address than
the one on your account (record address),
(small solid bullet) The check is being made payable to someone other than
the account owner, or
(small solid bullet) The redemption proceeds are being transferred to a
Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker,
dealer, credit union (if authorized under state law), securities exchange
or association, clearing agency, or savings association. A notary public
cannot provide a signature guarantee.
BY WIRE. Redemptions made by contacting your Institutional Representative.
BY WIRE. You must apply for the wire feature on your account application
and you must designate on your account application the U.S. commercial bank
account(s) into which you wish the redemption proceeds to be deposited.
Your Instittuional Representative will then notify you that this feature
has been activated and that you may request wire redemptions.
You may change the bank account(s) designated to receive redemption
proceeds at any time prior to making a redemption request. You should
contact your Institutional Representative for further information.
There is no charge imposed by the fund for wiring of redemption proceeds.
However, if you sell shares through a Financial Institution, the Financial
Institution may impose a fee for wire redemptions.
Your redemption request must be received by the Transfer Agent before 4:00
p.m. Eastern time for money to be wired on the next business day.
INVESTOR SERVICES
Fidelity provides a variety of services to help you manage your account.
INFORMATION SERVICES
STATEMENTS AND REPORTS that Fidelity sends to you include the following:
(small solid bullet) Confirmation statements (after every transaction,
except a reinvestment, that affects your account balance or your account
registration)
(small solid bullet) Account statements (quarterly)
(small solid bullet) Financial reports (every six months)
To reduce expenses, only one copy of most financial reports will be mailed,
even if you have more than one account in the fund. Call your Institutional
Representative if you need copies of financial reports.
SUB-ACCOUNTING AND SPECIAL SERVICES. Special processing has been arranged
with FIIOC for banks, corporations and other institutions that wish to open
multiple accounts (a master account and sub-accounts). An investor wishing
to utilize FIIOC's sub-accounting facilities or other special services for
individual or multiple accounts may be required to enter into a separate
agreement with FIIOC. Charges for these services, if any, will be
determined on the basis of the level of services to be rendered.
SHAREHOLDER AND ACCOUNT POLICIES
DIVIDENDS, CAPITAL GAINS, AND TAXES
The fund distributes substantially all of its net investment income and
capital gains to shareholders each year. Income dividends are declared
daily and paid monthly. Capital gains are normally distributed in December
and January.
DISTRIBUTION OPTIONS
When you open an account, specify on your account application how you want
to receive your distributions. The fund offers three options:
1. REINVESTMENT OPTION. Your dividend and capital gain distributions will
be automatically reinvested in additional shares of the fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested in additional shares of the fund, but you will be
sent a check for each dividend distribution.
3. CASH OPTION. You will be sent a check for your dividend and capital gain
distributions.
Dividends will be reinvested at the fund's NAV on the last day of the
month. Capital gain distributions will be reinvested at the NAV as of the
date the fund deducts the distribution from its NAV. The mailing of
distribution checks will begin within seven days.
TAXES
As with any investment, you should consider how your investment in the fund
will be taxed.
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax,
and may also be subject to state or local taxes. If you live outside the
United States, your distributions could also be taxed by the country in
which you reside. Your distributions are taxable when they are paid,
whether you take them in cash or reinvest them. However, distributions
declared in December and paid in January are taxable as if they were paid
on December 31.
For federal tax purposes, the fund's income and short-term capital gain
distributions are taxed as dividends; long-term capital gain distributions
are taxed as long-term capital gains.
Every January, the Transfer Agent will send you and the IRS a statement
showing the taxable distributions paid to you in the previous year.
TAXES ON TRANSACTIONS. Your redemptions-including exchanges-are subject to
capital gains tax. A capital gain or loss is the difference between the
cost of your shares and the price you receive when you sell them.
Whenever you sell shares of the fund, the Transfer Agent will send you a
confirmation statement showing how many shares you sold and at what price.
You will also receive a consolidated transaction statement every January.
However, it is up to you or your tax preparer to determine whether this
sale resulted in a capital gain and, if so, the amount of tax to be paid.
BE SURE TO KEEP YOUR REGULAR ACCOUNT STATEMENTS; the information they
contain will be essential in calculating the amount of your capital gains.
"BUYING A DIVIDEND." If you buy shares just before the fund deducts a
distribution from its NAV, you will pay the full price for the shares and
then receive a portion of the price back in the form of a taxable
distribution.
There are tax requirements that all funds must follow in order to avoid
federal taxation. In its effort to adhere to these requirements, the fund
may have to limit its investment activity in some types of instruments.
TRANSACTION DETAILS
THE FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE)
is open. Fidelity normally calculates the fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time.
THE FUND'S NAV is the value of a single share. The NAV is computed by
adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The fund's assets are valued primarily on the basis of market quotations.
If quotations are not readily available, assets are valued by a method that
the Board of Trustees believes accurately reflects fair value.
THE FUND'S OFFERING PRICE (price to buy one share) and REDEMPTION PRICE
(price to sell one share) are its NAV.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that
you are not subject to 31% backup withholding for failing to report income
to the IRS. If you violate IRS regulations, the IRS can require a fund to
withhold 31% of your taxable distributions and redemptions.
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Note that Fidelity will
not be responsible for any losses resulting from unauthorized transactions
if it follows reasonable procedures designed to verify the accuracy of the
confirmation statements immediately after receipt. If an investor does not
want the ability to redeem by telephone, call your Institutional
Representative for instructions. Additional documentation may be required
from corporations, associations and certain fiduciaries.
THE FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period
of time. The fund also reserves the right to reject any specific purchase
order. Purchase orders may be refused if, in FMR's opinion, they would
disrupt management of a fund.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the
NAV calculated after your order is received and accepted. Purchases begin
to earn dividends as of the first business day following the day the fund
receives payment.
Net interest income for dividend purposes is determined by Fidelity Service
Co. on a daily basis and shall be payable to shareholders of record at the
time of its declaration (including, for this purpose, holders of shares
purchased, but excluding holders of shares redeemed, on that day).
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the
next NAV calculated after your request is received and accepted. Note the
following:
(small solid bullet) Normally, redemption proceeds will be mailed to you on
the next business day, but if making immediate payment could adversely
affect the fund, it may take up to seven days to pay you.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays), when
trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) The fund may withhold redemption proceeds until it is
reasonably assured that investments made in clearinghouse funds have been
collected.
IF YOUR ACCOUNT BALANCE FALLS BELOW $5,000,000, you will be given 30 days'
notice to reestablish the minimum balance. If you do not increase your
balance, Fidelity reserves the right to close your account and send the
proceeds to you. Your shares will be redeemed at the NAV on the day your
account is closed.
THE TRANSFER AGENT MAY CHARGE A FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest-rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
FIDELITY ADVISOR SERIES IV
FIDELITY REAL ESTATE HIGH INCOME FUND
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
<S> <C>
Form N-1A Item Number
Part B Statement of Additional Information
10 Cover Page
11 Table of Contents
12 FMR; Description of the Trust
13 a,b,c Investment Policies and Limitations
d Portfolio Transactions
14 a,b Trustees and Officers
c *
15 a *
b Description of the Trust
c *
16 a(i,ii) FMR; Management and Other Services; Trustees and Officers;
Distribution and Service Plan
a(iii),b,c,d Management and Other Services; Distribution and Service Plan
e Portfolio Transactions
f Distribution and Service Plan
g *
h Description of the Trust
i Management and Other Services
17 a,b,c,d Portfolio Transactions
e *
18 a Description of the Trust
b *
19 a Additional Purchase, Exchange and Redemption Information
b Valuation of Portfolio Securities
20 Distribution and Taxes
21 Distribution and Service Plan
22 a *
b Performance
23 *
</TABLE>
* Not Applicable
FIDELITY REAL ESTATE HIGH INCOME FUND
A FUND OF FIDELITY ADVISOR SERIES IV
SUPPLEMENT TO THE STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 30, 1994
The unaudited Financial Statements and Financial Highlights included in the
fund's Semi-Annual Report for the period January 5, 1995 (commencement of
operations) to May 31, 1995 are incorporated herein by reference.
Effective July 1, 1995, Kenneth A. Rathgeber became Treasurer of the
Fidelity funds. The following information replaces the biography of Gary L.
French on page 17:
KENNETH A. RATHGEBER (48), Treasurer (1995), is Treasurer of the Fidelity
funds and is an employee of FMR (1995). Before joining FMR, Mr. Rathgeber
was a Vice President of Goldman Sachs & Co. (1978-1995), where he served in
various positions, including Vice President of Proprietary Accounting
(1988-1992), Global Co-Controller (1992-1994), and Chief Operations Officer
of Goldman Sachs (Asia) LLC (1994-1995).
The following table sets forth information describing the compensation of
each current Trustee of the fund for his or her services as trustee for the
fiscal year ended November 30, 1995.
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
from Benefits Accrued Retirement from from the Fund
the Fund(dagger) as Part of Fund the Fund Complex*
Expenses from the Complex*
Fund Complex*
J. Gary Burkhead ** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox 10.00 5,200 52,000 125,000
Phyllis Burke Davis 10.00 5,200 52,000 122,000
Richard J. Flynn 12.00 0 52,000 154,500
Edward C. Johnson 3d ** 0 0 0 0
E. Bradley Jones 10.00 5,200 49,400 123,500
Donald J. Kirk 10.00 5,200 52,000 125,000
Peter S. Lynch ** 0 0 0 0
Gerald C. McDonough 10.00 5,200 52,000 125,000
Edward H. Malone 10.00 5,200 44,200 128,000
Marvin L. Mann 10.00 5,200 52,000 125,000
Thomas R. Williams 10.00 5,200 52,000 126,500
</TABLE>
* Information is as of December 31, 1994 for 206 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
(dagger) Estimated
Under a retirement program adopted in July 1988, the non-interested
Trustees, upon reaching age 72, become eligible to participate in a
retirement program under which they receive payments during their lifetime
from a fund based on their basic trustee fees and length of service. The
obligation of a fund to make such payments is not secured or funded.
Trustees become eligible if, at the time of retirement, they have served on
the Board for at least five years. Currently, Messrs. Ralph S. Saul,
William R. Spaulding, Bertram H. Witham, and David L. Yunich, all former
non-interested Trustees, receive retirement benefits under the program.
On June 30, 1995, the Trustees and officers of the fund owned, in the
aggregate, less than 1% of the fund's total outstanding shares.
REHI-STKPTB-0795-01 July 21, 1995
FIDELITY REAL ESTATE HIGH INCOME FUND
A FUND OF FIDELITY ADVISOR SERIES IV
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 30, 1994
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated December 30, 1994). Please retain this
document for future reference. To obtain additional copies of the
Prospectus or this Statement of Additional Information without charge,
please call Fidelity Distributors Corporation.
TABLE OF CONTENTS PAGE
Investment Policies and Limitations
Portfolio Transactions
Valuation of Portfolio Securities
Performance
Additional Purchase and Redemption Information
Distributions and Taxes
FMR
Trustees and Officers
Management Contract
Contracts With Companies Affiliated With FMR
Description of the Trust
Appendix
INVESTMENT ADVISER
Fidelity Management & Research Company (FMR)
DISTRIBUTOR
Fidelity Distributors Corporation (FDC)
TRANSFER AGENT
Fidelity Investments Institutional Operations Company (FIIOC)
CUSTODIAN
The Bank of New York
REHI-ptb-1294
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the fund's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be
determined immediately after and as a result of the fund's acquisition of
such security or other asset. Accordingly, any subsequent change in values,
net assets, or other circumstances will not be considered when determining
whether the investment complies with the fund's investment policies and
limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940) of the fund.
However, except for the fundamental investment limitations set forth below,
the investment policies and limitations described in this Statement of
Additional Information are not fundamental and may be changed without
shareholder approval.
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;
(2) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed
this amount will be reduced within three days (not including Sundays and
holidays) to the extent necessary to comply with the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that the
fund may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry, except that, under normal
market conditions, the fund will invest more than 25% of its total assets
in securities and instruments backed by real estate and real estate
mortgages and securities of companies engaged in the real estate business,
including interests in real estate investment trusts;
(5) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the fund
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business);
(6) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the fund from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical
commodities); or
(7) lend any security or make any other loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to repurchase
agreements.
(8) The fund may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same
fundamental investment objective, policies, and limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) To meet federal tax requirements for qualification as a "regulated
investment company." the fund limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of
total assets, no more than 5% of total assets are invested in the
securities of a single issuer, and (b) no more than 25% of total assets are
invested in the securities of a single issuer. Limitations (a) and (b) do
not apply to "Government securities" as defined for federal tax purposes.
(ii) The fund does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short.
(iii) The fund does not currently intend to purchase securities on margin,
except that the fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall
not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a registered
investment company or portfolio for which FMR or an affiliate serves as
investment adviser or (b) by engaging in reverse repurchase agreements with
any party (reverse repurchase agreements are treated as borrowings for
purposes of fundamental investment limitation (3)). The fund will not
purchase any security while borrowings representing more than 5% of its
total assets are outstanding. The fund will not borrow from other funds
advised by FMR or its affiliates if total outstanding borrowings
immediately after such borrowing would exceed 15% of the fund's total
assets.
(v) The fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5% of the
fund's net assets) to a registered investment company or portfolio for
which FMR or an affiliate serves as investment adviser or (b) acquiring
loans, loan participations, or other forms of direct debt instruments and,
in connection therewith, assuming any associated unfunded commitments of
the sellers. (This limitation does not apply to purchases of debt
securities or mortgage-related securities or direct mortgage investments;
or to repurchase agreements.)
(vii) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission
except the ordinary brokers commission is paid, or (b) purchase or retain
securities issued by other open-end investment companies. Limitations (a)
and (b) do not apply to securities received as dividends, through offers of
exchange, or as a result of a reorganization, consolidation, or merger.
(viii) The fund does not currently intend to invest all of its assets in
the securities of a single open-end management investment company with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions" on page
.
AFFILIATED BANK TRANSACTIONS. The fund may engage in transactions with
financial institutions that are, or may be considered to be, "affiliated
persons" of the fund under the Investment Company Act of 1940. These
transactions may include repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50 largest
U.S. banks (measured by deposits); municipal securities; U.S. government
securities with affiliated financial institutions that are primary dealers
in these securities; short-term currency transactions; and short-term
secured borrowings. In accordance with exemptive orders issued by the
Securities and Exchange Commission, the Board of Trustees has established
and periodically reviews procedures applicable to transactions involving
affiliated financial institutions.
DELAYED-DELIVERY TRANSACTIONS. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a
commitment by the fund to purchase or sell specific securities at a
predetermined price and/or yield, with payment and delivery taking place
after the customary settlement period for that type of security (and more
than seven days in the future). Typically, no interest accrues to the
purchaser until the security is delivered. The fund may receive fees for
entering into delayed-delivery transactions.
When purchasing securities on a delayed-delivery basis, the fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the fund is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with
the fund's other investments. If the fund remains substantially fully
invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, the fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When the fund has sold a security on a
delayed-delivery basis, the fund does not participate in further gains or
losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities,
the fund could miss a favorable price or yield opportunity, or could suffer
a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
REPURCHASE AGREEMENTS. In a repurchase agreement, the fund purchases a
security and simultaneously commits to resell that security to the seller
at an agreed upon price. The resale price reflects the purchase price plus
an agreed-upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed-upon resale price, which
obligation is in effect secured by the value (at least equal to the amount
of the agreed-upon resale price and marked to market daily) of the
underlying security. The fund may engage in repurchase agreements with
respect to any type of security in which it is authorized to invest. While
it does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value
of the underlying securities, as well as delays and costs to the fund in
connection with bankruptcy proceedings), it is the fund's current policy to
limit repurchase agreements to those parties whose creditworthiness has
been reviewed and found satisfactory by FMR.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the fund
sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument
at a particular price and time. While a reverse repurchase agreement is
outstanding, the fund will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement.
The fund will enter into reverse repurchase agreements only with parties
whose creditworthiness is deemed satisfactory by FMR. Such transactions may
increase fluctuations in the market value of the fund's assets and may be
viewed as a form of leverage.
INTERFUND BORROWING PROGRAM. The fund has received permissions from the SEC
to lend money to and borrow money from other fund advised by FMR or its
affiliates. Interfund loans and borrowings normally will extend overnight,
but can have a maximum duration of seven days. The fund will lend through
the program only when the returns are higher than those available at the
same time from other short-term instruments (such as repurchase
agreements), and will borrow through the program only when the costs are
equal to or lower than the cost of bank loans. Loans may be called on one
day's notice, and the fund may have to borrow from a bank at a higher
interest rate if an interfund loan is called or not renewed. Any delay in
repayment to a lending fund could result in a lost investment opportunity
or additional borrowing costs.
SECURITIES LENDING. The fund may lend securities to parties such as
broker-dealers or institutional investors, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange and
a subsidiary of FMR Corp.
Securities lending allows the fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be
made only to parties deemed by FMR to be of good standing. Furthermore,
they will only be made if, in FMR's judgment, the consideration to be
earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that the fund
may engage in loan transactions only under the following conditions: (1)
the fund must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of
the collateral; (3) after giving notice, the fund must be able to terminate
the loan at any time; (4) the fund must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to
any increase in market value; (5) the fund may pay only reasonable
custodian fees in connection with the loan; and (6) the Board of Trustees
must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with
the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
VARIABLE OR FLOATING RATE OBLIGATIONS bear variable or floating interest
rates and carry rights that permit holders to demand payment of the unpaid
principal balance plus accrued interest from the issuers or certain
financial intermediaries. Floating rate instruments have interest rates
that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value
for the instrument that approximates its par value.
ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued. Under the supervision of the Board of Trustees, FMR determines
the liquidity of the fund's investments and, through reports from FMR, the
Board monitors investments in illiquid instruments. In determining the
liquidity of the fund's investments, FMR may consider various factors
including (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for
trades (including the ability to assign or offset the fund's rights and
obligations relating to the investment).
Investments currently considered by the fund to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate
mortgage-backed securities, and over-the-counter options. Also, FMR may
determine some restricted securities, government-stripped fixed-rate
mortgage-backed securities, loans and other direct debt instruments,
emerging market securities, and swap agreements to be illiquid. However,
with respect to over-the-counter options the fund writes, all or a portion
of the value of the underlying instrument may be illiquid depending on the
assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration.
In the absence of market quotations, illiquid investments are priced at
fair value as determined in good faith by a committee appointed by the
Board of Trustees. If through a change in values, net assets or other
circumstances, the fund were in a position where more than 15% of its net
assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the
Securities Act of 1933, or in a registered public offering. Where
registration is required, the fund may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time it may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the fund might obtain
a less favorable price than prevailed when it decided to seek registration
of the security.
ASSET-BACKED SECURITIES may include pools of mortgages, loans, receivables
or other assets. Payment of principal and interest may be largely dependent
upon the cash flows generated by the assets backing the securities, and, in
certain cases, supported by letters of credit, surety bonds, or other
credit enhancements. The value of asset-backed securities may also be
affected by the creditworthiness of the servicing agent for the pool, the
originator of the loans or receivables, or the financial institution(s)
providing the credit support.
MORTGAGE-BACKED SECURITIES. The Fund may purchase mortgage-backed
securities, a type of asset-backed security issued by government entities
and non-government entities such as banks, mortgage lenders, or other
financial institutions. A mortgage-backed security may be an obligation of
the issuer backed by a mortgage or pool of mortgages or a direct interest
in an underlying pool of mortgages. Some mortgage-backed securities, such
as collateralized mortgage obligations or CMOs, make payments of both
principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity
(like a typical bond). Mortgage-backed securities are based on different
types of mortgages including those on commercial real estate or residential
properties. Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if FMR determines
they are consistent with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment and
credit risks. Prepayment, which occurs when unscheduled or early payments
are made on the underlying mortgages, may shorten the effective maturities
of these securities and may lower their total returns. Credit risks include
risks associated with the performance of the real estate properties
securing the mortgages such as bankruptcy, quality of management, changes
in taxes or operating expenses and environmental risks.
STRIPPED MORTGAGE-BACKED SECURITIES are created when a U.S. government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage-backed security, while
the holder of the "interest-only" security (IO) receives interest payments
from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
REAL ESTATE-RELATED INSTRUMENTS include real estate investment trusts,
commercial and residential mortgage-backed securities, and real estate
financings. Real estate-related instruments are sensitive to factors such
as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, overbuilding, and the management
skill and creditworthiness of the issuer. Real estate-related instruments
may also be affected by tax and regulatory requirements, such as those
relating to the environment.
SWAP AGREEMENTS. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap
agreements may increase or decrease the fund's exposure to long- or
short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. The fund is not limited to any
particular form of swap agreement if FMR determines it is consistent with
the fund's investment objective and policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate
falls below an agreed-upon level. An interest rate collar combines elements
of buying a cap and selling a floor.
Swap agreements will tend to shift the fund's investment exposure from one
type of investment to another. For example, if the fund agreed to exchange
payments in dollars for payments in foreign currency, the swap agreement
would tend to decrease the fund's exposure to U.S. interest rates and
increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on
how they are used, swap agreements may increase or decrease the overall
volatility of the fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from the fund. If a swap
agreement calls for payments by the fund, the fund must be prepared to make
such payments when due. In addition, if the counterparty's creditworthiness
declined, the value of a swap agreement would be likely to decline,
potentially resulting in losses. The fund expects to be able to eliminate
its exposure under swap agreements either by assignment or other
disposition, or by entering into an offsetting swap agreement with the same
party or a similarly creditworthy party.
The fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the fund
enters into a swap agreement on a net basis, it will segregate assets with
a daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If the fund enters into a swap
agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the fund's accrued obligations under the
agreement.
ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead, they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not
pay current income, their prices can be very volatile when interest rates
change. In calculating its daily dividend, the fund takes into account as
income a portion of the difference between a zero coupon bond's purchase
price and its face value.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation and the Financing Corporation can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued
by the U.S. government, a government agency, or a corporation in zero
coupon form.
INDEXED SECURITIES. The fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price
of gold, resulting in a security whose price tends to rise and fall
together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of a number of different foreign currencies
relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values
may decline substantially if the issuer's creditworthiness deteriorates.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. government agencies. Indexed securities may be more volatile
than the underlying instruments.
LOWER-QUALITY DEBT SECURITIES. While the market for high-yield,
lower-quality corporate debt securities has been in existence for many
years and has weathered previous economic downturns, the 1980s brought a
dramatic increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructuring. Past experience may not provide
an accurate indication of the future performance of the high-yield bond
market, especially during periods of economic recession. In fact, from 1989
to 1991, the percentage of lower-quality securities that defaulted rose
significantly above prior levels, although the default rate decreased in
1992 and 1993.
The market for lower-quality debt securities may be thinner and less active
than that for higher-quality debt securities, which can adversely affect
the prices at which the former are sold. If market quotations are not
available, lower-quality debt securities will be valued in accordance with
procedures established by the Board of Trustees, including the use of
outside pricing services. Judgment plays a greater role in valuing
high-yield corporate debt securities than is the case for securities for
which more external sources for quotations and last-sale information are
available. Adverse publicity and changing investor perceptions may affect
the ability of outside pricing services to value lower-quality debt
securities and the fund's ability to sell these securities.
Since the risk of default is higher for lower-quality debt securities,
FMR's research and credit analysis are an especially important part of
managing securities of this type held by the fund. In considering
investments for the fund, FMR will attempt to identify those issuers of
high-yielding securities whose financial condition is adequate to meet
future obligations, has improved, or is expected to improve in the future.
FMR's analysis focuses on relative values based on such factors as
interest, dividend or debt service coverage, asset coverage, earnings
prospects, and the experience and managerial strength of the issuer.
The fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the fund's shareholders.
FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and
interest from such securities, can change significantly when foreign
currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity
than U.S. markets, and prices on some foreign markets can be highly
volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those applicable to U.S. companies, and it may be
more difficult to obtain reliable information regarding an issuer's
financial condition and operations. In addition, the costs of foreign
investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be difficult
to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that FMR will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
The fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid
than foreign securities of the same class that are not subject to such
restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively,
ADRs and EDRs are alternatives to the purchase of the underlying securities
in their national markets and currencies.
FOREIGN CURRENCY TRANSACTIONS. The fund may conduct foreign currency
transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and
price. The fund will convert currency on a spot basis from time to time,
and investors should be aware of the costs of currency conversion. Although
foreign exchange dealers generally do not charge a fee for conversion, they
do realize a profit based on the difference between the prices at which
they are buying and selling various currencies. Thus, a dealer may offer to
sell a foreign currency to the fund at one rate, while offering a lesser
rate of exchange should the fund desire to resell that currency to the
dealer. Forward contracts are generally traded in an interbank market
conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before its maturity, or may hold the
contract to maturity and complete the contemplated currency exchange.
The fund may use currency forward contracts for any purpose consistent with
its investment objective. The following discussion summarizes the principal
currency management strategies involving forward contracts that could be
used by the fund. The fund may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign
currencies for the same purposes.
When the fund agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security.
By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the fund will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment is made or
received. This technique is sometimes referred to as a "settlement hedge"
or "transaction hedge." The fund may also enter into forward contracts to
purchase or sell a foreign currency in anticipation of future purchases or
sales of securities denominated in foreign currency, even if the specific
investments have not yet been selected by FMR.
The fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example,
if the fund owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge,
sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes
in security values caused by other factors. The fund could also hedge the
position by selling another currency expected to perform similarly to the
pound sterling - for example, by entering into a forward contract to sell
Deutschemarks or European Currency Units in return for U.S. dollars. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The fund may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from
U.S. dollars to a foreign currency, or from one foreign currency to another
foreign currency. For example, if the fund held investments denominated in
Deutschemarks, the fund could enter into forward contracts to sell
Deutschemarks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is
purchased, much as if the fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the hedged
currency, but will cause the fund to assume the risk of fluctuations in the
value of the currency it purchases.
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover
currency forward contracts. As required by SEC guidelines, the fund will
segregate assets to cover currency forward contracts, if any, whose purpose
is essentially speculative. The fund will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement
hedges, position hedges, and proxy hedges.
Successful use of currency management strategies will depend on FMR's skill
in analyzing and predicting currency values. Currency management strategies
may substantially change the fund's investment exposure to changes in
currency exchange rates, and could result in losses to the fund if
currencies do not perform as FMR anticipates. For example, if a currency's
value rose at a time when FMR had hedged the fund by selling that currency
in exchange for dollars, the fund would be unable to participate in the
currency's appreciation. If FMR hedges currency exposure through proxy
hedges, the fund could realize currency losses from the hedge and the
security position at the same time if the two currencies do not move in
tandem. Similarly, if FMR increases the fund's exposure to a foreign
currency, and that currency's value declines, the fund will realize a loss.
There is no assurance that FMR's use of currency management strategies will
be advantageous to the fund or that it will hedge at an appropriate time.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower
to lenders or lending syndicates (loans and loan participations), to
suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to the fund's policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If the fund does not receive scheduled interest
or principal payments on such indebtedness, the fund's share price and
yield could be adversely affected. Loans that are fully secured offer the
fund more protections than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the borrower's
obligation, or that the collateral could be liquidated. Indebtedness of
borrowers whose creditworthiness is poor involves substantially greater
risks and may be highly speculative. Borrowers that are in bankruptcy or
restructuring may never pay off their indebtedness, or may pay only a small
fraction of the amount owed. Direct indebtedness of developing countries
also involves a risk that the governmental entities responsible for the
repayment of the debt may be unable, or unwilling, to pay interest and
repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the fund.
For example, if a loan is foreclosed, the fund could become part owner of
any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the fund could be held
liable as a co-lender. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt
instruments that are not in the form of securities may offer less legal
protection to the fund in the event of fraud or misrepresentation. In the
absence of definitive regulatory guidance, the fund relies on FMR's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or
other indebtedness, the fund has direct recourse against the borrower, it
may have to rely on the agent to apply appropriate credit remedies against
a borrower. If assets held by the agent for the benefit of the fund were
determined to be subject to the claims of the agent's general creditors,
the fund might incur certain costs and delays in realizing payment on the
loan or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness purchased by the fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the fund to pay additional cash on demand. These commitments may
have the effect of requiring the fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
The fund will set aside appropriate liquid assets in a segregated custodial
account to cover its potential obligations under standby financing
commitments.
The fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations 1 and 5 for
the fund). For purposes of these limitations, the fund generally will treat
the borrower as the "issuer" of indebtedness held by the fund. In the case
of loan participations where a bank or other lending institution serves as
financial intermediary between the fund and the borrower, if the
participation does not shift to the fund the direct debtor-creditor
relationship with the borrower, SEC interpretations require the fund, in
appropriate circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating a
financial intermediary as an issuer of indebtedness may restrict the fund's
ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same industry,
even if the underlying borrowers represent many different companies and
industries.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The fund will file a
notice of eligibility for exclusion from the definition of the term
"commodity pool operator" with the Commodity Futures Trading Commission
(CFTC) and the National Futures Association, which regulate trading in the
futures markets. The fund intends to comply with Rule 4.5 under the
Commodity Exchange Act, which limits the extent to which the fund can
commit assets to initial margin deposits and options premiums.
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the fund's
total assets would be hedged with futures and options under normal
conditions; (b) purchase futures contracts or write put options if, as a
result, the fund's total obligations upon settlement or exercise of
purchased futures contracts and written put options would exceed 25% of its
total assets; (c) purchase call options if, as a result, the current value
of option premiums for call options purchased by the fund would exceed 5%
of the fund's total assets; or (d) write call options on securities if, as
a result, the aggregate value of the securities underlying the calls would
exceed 25% of the fund's net assets. These limitations do not apply to
options attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The fund's limitations on investments in futures contracts and options, and
the fund's policies regarding futures contracts and options discussed
elsewhere in this Statement of Additional Information may be changed as
regulatory agencies permit.
FUTURES CONTRACTS. When the fund purchases a futures contract, it agrees to
purchase a specified underlying instrument at a specified future date. When
the fund sells a futures contract, they agree to sell the underlying
instrument at a specified future date. The price at which the purchase and
sale will take place is fixed when the fund enters into the contract. Some
currently available futures contracts are based on specific securities,
such as U.S. Treasury bonds or notes, and some are based on indices of
securities prices, such as the Bond Buyer Municipal Bond Index. Futures can
be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the fund sells a futures
contract, by contrast, the value of its futures position will tend to move
in a direction contrary to the market. Selling futures contracts,
therefore, will tend to offset both positive and negative market price
changes, much as if the underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and
seller are required to deposit "initial margin" with a futures broker,
known as a futures commission merchant (FCM), when the contract is entered
into. Initial margin deposits are typically equal to a percentage of the
contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may
be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin
for purposes of the fund's investment limitations. In the event of the
bankruptcy of an FCM that holds margin on behalf of the fund, the fund may
be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to
the fund.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the fund pays
the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indices of securities prices, and futures contracts. The fund
may terminate its position in a put option it has purchased by allowing it
to expire or by exercising the option. If the option is allowed to expire,
the fund will lose the entire premium it paid. If the fund exercises the
option, it completes the sale of the underlying instrument at the strike
price. The fund may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price
does not fall enough to offset the cost of purchasing the option, a put
buyer can expect to suffer a loss (limited to the amount of the premium
paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's
strike price. A call buyer typically attempts to participate in potential
price increases of the underlying instrument with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can
expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option.
WRITING PUT AND CALL OPTIONS. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return
for receipt of the premium, the fund assumes the obligation to pay the
strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures
contract, the fund will be required to make margin payments to an FCM as
described above for futures contracts. The fund may seek to terminate its
position in a put option it writes before exercise by closing out the
option in the secondary market at its current price. If the secondary
market is not liquid for a put option the fund has written, however, the
fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it
received. If security prices remain the same over time, it is likely that
the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from
purchasing the underlying instrument directly, however, because the premium
received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security
price increases.
COMBINED POSITIONS. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to
adjust the risk and return characteristics of the overall position. For
example, the fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open
and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the fund's current or
anticipated investments exactly. The fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which they typically invest, which
involves a risk that the options or futures position will not track the
performance of the fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract
at any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts, and may halt
trading if a contract's price moves upward or downward more than the limit
in a given day. On volatile trading days when the price fluctuation limit
is reached or a trading halt is imposed, it may be impossible for the fund
to enter into new positions or close out existing positions. If the
secondary market for a contract is not liquid because of price fluctuation
limits or otherwise, it could prevent prompt liquidation of unfavorable
positions, and potentially could require the fund to continue to hold a
position until delivery or expiration regardless of changes in its value.
As a result, the fund's access to other assets held to cover its options or
futures positions could also be impaired.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of over-the-counter options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
fund greater flexibility to tailor an option to their needs, OTC options
generally involve greater credit risk than exchange-traded options, which
are guaranteed by the clearing organization of the exchanges where they are
traded.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that
they are traded on exchanges (and have margin requirements) and are
standardized as to contract size and delivery date. Most currency futures
contracts call for payment or delivery in U.S. dollars. The underlying
instrument of a currency option may be a foreign currency, which generally
is purchased or delivered in exchange for U.S. dollars, or may be a futures
contract. The purchaser of a currency call obtains the right to purchase
the underlying currency, and the purchaser of a currency put obtains the
right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The fund
may purchase and sell currency futures and may purchase and write currency
options to increase or decrease their exposure to different foreign
currencies. The fund may also purchase and write currency options in
conjunction with each other or with currency futures or forward contracts.
Currency futures and options values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of
the fund's investments. A currency hedge, for example, should protect a
Yen-denominated security from a decline in the Yen, but will not protect
the fund against a price decline resulting from deterioration in the
issuer's creditworthiness. Because the value of the fund's
foreign-denominated investments changes in response to many factors other
than exchange rates, it may not be possible to match the amount of currency
options and futures to the value of the fund's investments exactly over
time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to coverage of options and futures strategies by mutual funds, and
if the guidelines so require will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or options strategy is
outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of
the fund's assets could impede portfolio management or the fund's ability
to meet redemption requests or other current obligations.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed on
behalf of the fund by FMR pursuant to authority contained in the fund's
management contract. If FMR grants investment management authority to the
sub-advisers (see the section entitled "Management Contracts") the
sub-advisers are authorized to place orders for the purchase and sale of
portfolio securities, and will do so in accordance with the policies
described below. FMR is also responsible for the placement of transaction
orders for other investment companies and accounts for which it or its
affiliates act as investment adviser. In selecting broker-dealers, subject
to applicable limitations of the federal securities laws, FMR considers
various relevant factors, including, but not limited to, the size and type
of the transaction; the nature and character of the markets for the
security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; and the
reasonableness of any commissions. Generally, commissions for foreign
investments traded will be higher than for U.S. investments and may not be
subject to negotiation.
The fund may execute portfolio transactions with broker-dealers who provide
research and execution services to the fund or other accounts over which
FMR or its affiliates exercise investment discretion. Such services may
include advice concerning the value of securities; the advisability of
investing in, purchasing, or selling securities; the availability of
securities or the purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors
and trends, portfolio strategy, and performance of accounts; and effecting
securities transactions and performing functions incidental thereto (such
as clearance and settlement). The selection of such broker-dealers
generally is made by FMR (to the extent possible consistent with execution
considerations) based upon the quality of research and execution services
provided.
The receipt of research from broker-dealers that execute transactions on
behalf of the fund may be useful to FMR in rendering investment management
services to the fund or its other clients, and, conversely, such research
provided by brokers-dealers who have executed transaction orders on behalf
of other FMR clients may be useful to FMR in carrying out its obligations
to the fund. The receipt of such research has not reduced FMR's normal
independent research activities; however, it enables FMR to avoid the
additional expenses that could be incurred if FMR tried to develop
comparable information through its own efforts.
Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
fund to pay such higher commissions, FMR must determine in good faith that
such commissions are reasonable in relation to the value of the brokerage
and research services provided by such executing broker-dealers, viewed in
terms of a particular transaction or FMR's overall responsibilities to the
fund and its other clients. In reaching this determination, FMR will not
attempt to place a specific dollar value on the brokerage and research
services provided, or to determine what portion of the compensation should
be related to those services.
FMR is authorized to use research services provided by and to place
portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the fund or shares of other Fidelity funds
to the extent permitted by law. FMR may use research services provided by
and place agency transactions with Fidelity Brokerage Services, Inc. (FBSI)
and Fidelity Brokerage Services, Ltd. (FBSL), subsidiaries of FMR Corp., if
the commissions are fair, reasonable, and comparable to commissions charged
by non-affiliated, qualified brokerage firms for similar services.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members of
national securities exchanges from executing exchange transactions for
accounts which they or their affiliates manage, unless certain requirements
are satisfied. Pursuant to such requirements, the Board of Trustees has
authorized FBSI to execute portfolio transactions on national securities
exchanges in accordance with approved procedures and applicable SEC rules.
The fund's Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the fund and review the commissions paid by the fund over
representative periods of time to determine if they are reasonable in
relation to the benefits to the fund.
The fund's portfolio turnover rate is expected to be 75% in the first
fiscal period ending November 30. 1995.
The investment activities described herein are likely to result in the fund
engaging in a considerable amount of trading of securities held for less
than one year. Accordingly, it can be expected that the fund will have a
higher turnover rate, and thus a higher incidence of short-term capital
gains taxable as ordinary income, than might be expected from investment
companies that invest substantially all of their funds on a long-term
basis.
From time to time the Trustees will review whether the recapture for the
benefit of the fund of some portion of the brokerage commissions or similar
fees paid by the fund on portfolio transactions is legally permissible and
advisable. The fund seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review
whether recapture opportunities are available and are legally permissible
and, if so, to determine in the exercise of their business judgment whether
it would be advisable for the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the same
as those of other funds managed by FMR, investment decisions for the fund
are made independently from those of other funds managed by FMR or accounts
managed by FMR affiliates. It sometimes happens that the same security is
held in the portfolio of more than one of these funds or accounts.
Simultaneous transactions are inevitable when several funds and accounts
are managed by the same investment adviser, particularly when the same
security is suitable for the investment objective of more than one fund or
account.
When two or more funds are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance
with procedures believed to be appropriate and equitable for the fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as the fund is concerned. In other cases,
however, the ability of the fund to participate in volume transactions will
produce better executions and prices for the fund. It is the current
opinion of the Trustees that the desirability of retaining FMR as
investment adviser to the fund outweighs any disadvantages that may be said
to exist from exposure to simultaneous transactions.
VALUATION OF PORTFOLIO SECURITIES
Securities and other assets for which market quotations are readily
available are valued at market values determined by their most recent bid
prices (sales prices if the principal market is an exchange) in the
principal market in which such securities normally are traded. Securities
and other assets for which market quotations are not readily available
(including restricted securities, if any) are appraised at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
Securities may also be valued on the basis of valuations furnished by a
pricing service that uses both dealer-supplied valuations and evaluations
based on expert analysis of market data and other factors if such
valuations are believed to reflect more accurately the fair value of such
securities. Use of a pricing service has been approved by the Board of
Trustees. There are a number of pricing services available, and the
Trustees, or officers acting on behalf of the Trustees, on the basis of
ongoing evaluation of these pricing services, may use other pricing
services or may discontinue the use of any pricing service in whole or in
part.
Securities not valued by the pricing service, and for which quotations are
readily available, are valued at market values determined on the basis of
their latest available bid prices as furnished by recognized dealers in
such securities. Futures contracts and options are valued on the basis of
market quotations, if available.
PERFORMANCE
The fund may quote its performance in various ways. All performance
information supplied by the fund's advertising is historical and is not
intended to indicate future returns. The fund's share price, yield, and
total return fluctuate in response to market conditions and other factors,
and the value of fund shares when redeemed may be more or less than their
original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the fund's
interest income for a given 30-day or one month period, net of expenses, by
the average number of shares entitled to receive dividends during the
period, dividing this figure by the fund's net asset value per share (NAV)
at the end of the period, and annualizing the result (assuming compounding
of income) in order to arrive at an annual percentage rate. Income is
calculated for purposes of yield quotations in accordance with standardized
methods applicable to all stock and bond funds. In general, interest income
is reduced with respect to bonds trading at a premium over their par value
by subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For the fund's investments
denominated in foreign currencies, income and expenses are calculated first
in their respective currencies, and are then converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or one
month period, whichever is earlier. Income is adjusted to reflect gains and
losses from principal repayments received by the funds with respect to
mortgage-related securities and other asset-backed securities. Other
capital gains and losses generally are excluded from the calculation as are
gains and losses currently from exchange rate fluctuations.
Income calculated for the purposes of calculating the fund's yield differs
from income as determined for other accounting purposes. Because of the
different accounting methods used, and because of the compounding of income
assumed in yield calculations, the fund's yield may not equal its
distribution rate, the income paid to your account, or the income reported
in the fund's financial statements.
Yield information may be useful in reviewing the fund's performance and in
providing a basis for comparison with other investment alternatives.
However, the fund's yield fluctuates, unlike investments that pay a fixed
interest rate over a stated period of time. When comparing investment
alternatives, investors should also note the quality and maturity of the
portfolio securities of respective investment companies they have chosen to
consider.
Investors should recognize that in periods of declining interest rates the
fund's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates the fund's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net
new money to the fund from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
fund's holdings, thereby reducing the fund's current yield. In periods of
rising interest rates, the opposite can be expected to occur.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the fund's returns, including the effect of reinvesting
dividends and capital gain distributions, and any change in the fund's NAV
over a stated period. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in
the fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of
growth or decline in value had been constant over the period. For example,
a cumulative return of 100% over ten years would produce an average annual
return of 7.18%, which is the steady annual rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are
a convenient means of comparing investment alternatives, investors should
realize that the funds' performance is not constant over time, but changes
from year to year, and that average annual returns represent averaged
figures as opposed to the actual year-to-year performance of the fund.
In addition to average annual returns, the fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total
returns may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a series of
redemptions, over any time period. Total returns may be broken down into
their components of income and capital (including capital gains and changes
in share price) in order to illustrate the relationship of these factors
and their contributions to total return. Total returns may be quoted on a
before or after tax basis. Total returns, yields, and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using the fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the fund
and reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as
mutual fund rankings prepared by Lipper Analytical Services, Inc. (Lipper),
an independent service located in Summit, New Jersey that monitors the
performance of mutual funds. Lipper generally ranks funds on the basis of
total return, assuming reinvestment of distributions, but does not take
sales charges or redemption fees into consideration, and is prepared
without regard to tax consequences. Lipper may also rank funds based on
yield. In addition to the mutual fund rankings, the fund's performance may
be compared to mutual fund performance indices prepared by Lipper or other
organizations. When comparing these indices, it is important to remember
the risk and return characteristics of each type of investment. For
example, while stock mutual funds may offer higher potential returns, they
also carry the highest degree of share price volatility. Likewise, money
market funds may offer greater stability of principal, but generally do not
offer the higher potential returns from stock mutual funds.
From time to time, the fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals.
For example, the fund may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance. Rankings that
compare the performance of Fidelity funds to one another in appropriate
categories over specific periods of time may also be quoted in advertising.
The fund may be compared in advertising to Certificates of Deposits (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For example,
the fund may offer greater liquidity or higher potential returns than CDs,
and the fund does not guarantee your principal or your return and fund
shares are not FDIC insured.
Fidelity may provide information designed to help individuals understand
their investment goals and explore various financial strategies. Such
information may include information about current economic, market, and
political conditions, materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance, and
goal setting; questionnaires designed to help create a personal financial
profile; worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return; and action plans offering
investment alternatives. Materials may also include discussions of
Fidelity's asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common
stocks, small capitalization stocks, long-term corporate bonds,
intermediate-term government bonds, long-term government bonds, Treasury
bills, the U.S. rate of inflation (based on the CPI), and combinations of
various capital markets. The performance of these capital markets is based
on the returns of different indices.
Fidelity funds may use the performance of these capital markets in order to
demonstrate general risk-versus-reward investment scenarios. Performance
comparisons may also include the value of a hypothetical investment in any
of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
funds. Ibbotson calculates total returns in the same method as the funds.
The funds may also compare performance to that of other compilations or
indices that may be developed and made available in the future.
The fund may compare its performance or the performance of securities in
which they may invest to averages published by IBC USA (Publications), Inc.
of Ashland, Massachusetts. These averages assume reinvestment of
distributions. The IBC/Donaghue's MONEY FUND AVERAGES(trademark)/All
Taxable, which is reported in the MONEY FUND REPORT(registered trademark)
covers over 381 taxable money market funds. The BOND FUND REPORT
AVERAGES(trademark)/ Government Mortgages which is reported in the BOND
FUND REPORT,(Registered trademark) covers over 64 bond funds. When
evaluating comparisons to money market funds, investors should consider the
relevant differences in investment objectives and policies. Specifically,
money market funds invest in short-term, high-quality instruments and seek
to maintain a stable $1.00 share price. The funds, however, invest in
longer-term instruments and their share price changes daily in response to
a variety of factors.
In advertising materials, Fidelity may reference or discuss its products
and services, which may include: other Fidelity funds; retirement
investing; brokerage products and services; the effects of periodic
investment plans and dollar-cost averaging and saving for college or other
goals; charitable giving; and the Fidelity credit card. In addition,
Fidelity may quote financial or business publications and periodicals,
including model portfolios or allocations, as they relate to current
economic and political conditions, fund management, portfolio composition,
investment philosophy, investment techniques the desirability of owning a
particular mutual fund and Fidelity services and products. Fidelity may
also reprint, and use as advertising and sales literature, articles from
Fidelity Focus,a quarterly magazine provided free of charge to Fidelity
fund shareholders.
The fund may present its fund number, Quotron(trademark) number, and CUSIP
number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the fund may compare these
measures to those of other funds. Measures of volatility seek to compare
the fund's historical share price fluctuations or total returns to those of
a benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. All measures of volatility and correlation
are calculated using averages of historical data. In advertising, the fund
may also discuss or illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the fund's
percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
an investor invests a fixed dollar amount in the fund at periodic
intervals, thereby purchasing fewer shares when prices are high and more
shares when prices are low. While such a strategy does not assure a profit
or guard against loss in a declining market, the investor's average cost
per share can be lower than if fixed numbers of shares are purchased at the
same intervals. In evaluating such a plan, investors should consider their
ability to continue purchasing shares through periods of low price levels.
The fund may be available for purchase through retirement plans or other
programs offering deferral of or exemption from income taxes, which may
produce superior after-tax returns over time. For example, a $1,000
investment earning a taxable return of 10% annually would have an after-tax
value of $1,949 after ten years, assuming tax was deducted from the return
each year at a 31% rate. An equivalent tax-deferred investment would have
an after-tax value of $2,100 after ten years, assuming tax was deducted at
a 31% rate from the tax-deferred earnings at the end of the ten-year
period.
As of November 30, 1994, FMR advised over $25 billion in tax-free fund
assets, $70 billion in money market fund assets, $165 billion in equity
fund assets, and $35 billion in international fund assets. The fund may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity funds
under management figure represents the largest amount of equity fund assets
under management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, the fund may compare its total expense
ratio to the average total expense ratio of similar funds tracked by
Lipper. The fund's total expense ratio is a significant factor in comparing
bond and money market investments because of its effect on yield.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The fund is open for business and its net asset value per share (NAV) is
calculated each day the New York Stock Exchange (NYSE) is open for trading.
The NYSE has designated the following holiday closings for 1995: New Year's
Day (observed) Washington's Birthday (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day, and Christmas
Day (observed). Although FMR expects the same holiday schedule to be
observed in the future, the NYSE may modify its holiday schedule at any
time.
FSC normally determines the fund's NAV as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier
if trading on the NYSE is restricted or as permitted by the SEC. To the
extent that portfolio securities are traded in other markets on days when
the NYSE is closed, the fund's NAV may be affected on days when investors
do not have access to the fund to purchase or redeem shares. In addition,
trading in some of the fund's portfolio securities may not occur on days
when the fund is open for business.
If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the fund's NAV. Shareholders receiving securities or other
property on redemption may realize either a gain or loss for tax purposes,
and will incur any costs of sale, as well as the associated inconveniences.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, Fidelity may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested
until you provide Fidelity with alternate instructions.
DIVIDENDS. Because the fund's income is primarily derived from interest,
dividends from the fund generally will not qualify for the
dividends-received deduction available to corporate shareholders.
Short-term capital gains are distributed as dividend income, but do not
qualify for the dividends received deduction. A portion of the fund's
dividends derived from certain U.S. government obligations may be exempt
from state and local taxation. Mortgage security paydown gains (losses) are
taxable as ordinary income and, therefore, increase (decrease) taxable
dividend income. Gains (losses) attributable to foreign currency
fluctuations are generally taxable as ordinary income and therefore will
increase (decrease) dividend distributions. The fund will send each
shareholder a notice in January describing the tax status of dividend and
capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the fund on
the sale of securities and distributed to shareholders are federally
taxable as long-term capital gains, regardless of the length of time
shareholders have held their shares. If a shareholder receives a long-term
capital gain distribution on shares of the fund, and such shares are held
for six months or less and are sold at a loss, the portion of the loss
equal to the amount of the long-term capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by the fund are taxable to shareholders as dividends, not as
capital gains.
TAX STATUS OF THE FUND. The fund intends to qualify as a "regulated
investment company" for tax purposes so that it will not be liable for
federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject
to federal income or excise taxes at the fund level, the fund intends to
distribute substantially all of its net investment income and net realized
capital gains within each calendar year as well as on a fiscal year basis.
The fund intends to comply with other tax rules applicable to regulated
investment companies, including a requirement that capital gains from the
sale of securities held less than three months constitute less than 30% of
the fund's gross income for each fiscal year. Gains from some forward
currency contracts, futures contracts, and options are included in this 30%
calculation, which may limit the fund's investments in such instruments.
The fund is treated as a separate entity from the other portfolios of
Fidelity Advisor Series IV for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the fund and its shareholders, and
no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders may be subject to state and
local taxes on distributions received from the fund. Investors should
consult their tax advisers to determine whether either fund is suitable to
their particular tax situation.
FMR
All of the stock of FMR is owned by its parent company, FMR Corp. which was
organized in 1972. Through ownership of voting common stock and the
execution of a shareholders' voting agreement, Edward C. Johnson 3d,
Johnson family members, and various trusts for the benefit of the Johnson
family form a controlling group with respect to FMR Corp. At present, the
principal operating activities of FMR Corp. are those conducted by three of
its divisions as follows: FSC, which is the transfer and shareholder
servicing agent for certain of the funds advised by FMR; Fidelity
Investments Institutional Operations Company, which performs shareholder
servicing functions for certain institutional customers; and Fidelity
Investments Retail Marketing Company, which provides marketing services to
various companies within the Fidelity organization.
Several affiliates of FMR are also engaged in the investment advisory
business. Fidelity Management Trust Company provides trustee, investment
advisory, and administrative services to retirement plans and corporate
employee benefit accounts. Fidelity Management & Research (U.K.) Inc. (FMR
U.K.) and Fidelity Management & Research (Far East) Inc., (FMR Far East),
both wholly owned subsidiaries of FMR formed in 1986, supply investment
research, and may supply portfolio management services, to FMR in
connection with certain funds advised by FMR. Analysts employed by FMR, FMR
U.K., and FMR Far East research and visit thousands of domestic and foreign
companies each year. FMR Texas Inc., a wholly owned subsidiary of FMR
formed in 1989, supplies portfolio management and research services in
connection with certain money market funds advised by FMR.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the trust are listed below. Except
as indicated, each individual has held the office shown or other offices in
the same company for the last five years. All persons named as Trustees
also serve in similar capacities for other funds advised by FMR. Unless
otherwise noted, the business address of each Trustee and officer is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the address
of FMR. Those Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) by virtue of their affiliation with either
the trust or FMR, are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d, Trustee and President, is Chairman, Chief Executive
Officer and a Director of FMR Corp.; a Director and Chairman of the Board
and of the Executive Committee of FMR; Chairman and a Director of FMR Texas
Inc. (1989), Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD, Trustee and Senior Vice President, is President of FMR;
and President and a Director of FMR Texas Inc. (1989), Fidelity Management
& Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX, 200 Rivercrest Drive, Fort Worth, TX, Trustee (1991), is a
consultant to Western Mining Corporation (1994). Prior to February 1994, he
was President of Greenhill Petroleum Corporation (petroleum exploration and
production, 1990). Until March 1990, Mr. Cox was President and Chief
Operating Officer of Union Pacific Resources Company (exploration and
production). He is a Director of Sanifill Corporation (non-hazardous waste,
1993) and CH2M Hill Companies (engineering). In addition, he served on the
Board of Directors of the Norton Company (manufacturer of industrial
devices, 1983-1990) and continues to serve on the Board of Directors of the
Texas State Chamber of Commerce, and is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS, P.O. Box 264, Bridgehampton, NY, Trustee (1992). Prior
to her retirement in September 1991, Mrs. Davis was the Senior Vice
President of Corporate Affairs of Avon Products, Inc. She is currently a
Director of BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores, 1990),
and previously served as a Director of Hallmark Cards, Inc. (1985-1991) and
Nabisco Brands, Inc. In addition, she serves as a Director of the New York
City Chapter of the National Multiple Sclerosis Society, and is a member of
the Advisory Council of the International Executive Service Corps. and the
President's Advisory Council of The University of Vermont School of
Business Administration.
RICHARD J. FLYNN, 77 Fiske Hill, Sturbridge, MA, Trustee, is a financial
consultant. Prior to September 1986, Mr. Flynn was Vice Chairman and a
Director of the Norton Company (manufacturer of industrial devices). He is
currently a Director of Mechanics Bank and a Trustee of College of the Holy
Cross and Old Sturbridge Village, Inc.
E. BRADLEY JONES, 3881-2 Lander Road, Chagrin Falls, OH, Trustee (1990).
Prior to his retirement in 1984, Mr. Jones was Chairman and Chief Executive
Officer of LTV Steel Company. Prior to May 1990, he was Director of
National City Corporation (a bank holding company) and National City Bank
of Cleveland. He is a Director of TRW Inc. (original equipment and
replacement products), Cleveland-Cliffs Inc (mining), NACCO Industries,
Inc. (mining and marketing), Consolidated Rail Corporation, Birmingham
Steel Corporation, Hyster-Yale Materials Handling, Inc. (1989), and RPM,
Inc. (manufacturer of chemical products, 1990). In addition, he serves as a
Trustee of First Union Real Estate Investments, Chairman of the Board of
Trustees and a member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and a member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK, 680 Steamboat Road, Apartment #1-North, Greenwich, CT,
Trustee, is a Professor at Columbia University Graduate School of Business
and a financial consultant. Prior to 1987, he was Chairman of the Financial
Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance) and Valuation Research Corp. (appraisals and
valuations, 1993). In addition, he serves as Vice Chairman of the Board of
Directors of the National Arts Stabilization Fund and Vice Chairman of the
Board of Trustees of the Greenwich Hospital Association.
*PETER S. LYNCH, Trustee (1990) is Vice Chairman of FMR (1992). Prior to
his retirement on May 31, 1990, he was a Director of FMR (1989) and
Executive Vice President of FMR (a position he held until March 31, 1991);
Vice President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). He is a Director of
W.R. Grace & Co. (chemicals, 1989) and Morrison Knudsen Corporation
(engineering and construction). In addition, he serves as a Trustee of
Boston College, Massachusetts Eye & Ear Infirmary, Historic Deerfield
(1989) and Society for the Preservation of New England Antiquities, and as
an Overseer of the Museum of Fine Arts of Boston (1990).
GERALD C. McDONOUGH, 135 Aspenwood Drive, Cleveland, OH, Trustee (1989), is
Chairman of G.M. Management Group (strategic advisory services). Prior to
his retirement in July 1988, he was Chairman and Chief Executive Officer of
Leaseway Transportation Corp. (physical distribution services). Mr.
McDonough is a Director of ACME-Cleveland Corp. (metal working,
telecommunications and electronic products), Brush-Wellman Inc. (metal
refining), York International Corp. (air conditioning and refrigeration,
1989), Commercial Intertech Corp. (water treatment equipment, 1992), and
Associated Estates Realty Corporation (a real estate investment trust,
1993).
EDWARD H. MALONE, 5601 Turtle Bay Drive #2104, Naples, FL, Trustee. Prior
to his retirement in 1985, Mr. Malone was Chairman, General Electric
Investment Corporation and a Vice President of General Electric Company. He
is a Director of Allegheny Power Systems, Inc. (electric utility), General
Re Corporation (reinsurance) and Mattel Inc. (toy manufacturer). In
addition, he serves as a Trustee of Corporate Property Investors, the EPS
Foundation at Trinity College, the Naples Philharmonic Center for the Arts,
and Rensselaer Polytechnic Institute, and he is a member of the Advisory
Boards of Butler Capital Corporation Funds and Warburg, Pincus Partnership
Funds.
MARVIN L. MANN, 55 Railroad Avenue, Greenwich, CT, Trustee (1993) is
Chairman of the Board, President, and Chief Executive Officer of Lexmark
International, Inc. (office machines, 1991). Prior to 1991, he held the
positions of Vice President of International Business Machines Corporation
("IBM") and President and General Manager of various IBM divisions and
subsidiaries. Mr. Mann is a Director of M.A. Hanna Company (chemicals,
1993) and Infomart (marketing services, 1991), a Trammell Crow Co. In
addition, he serves as the Campaign Vice Chairman of the Tri-State United
Way (1993) and is a member of the University of Alabama President's Cabinet
(1990).
THOMAS R. WILLIAMS, 21st Floor, 191 Peachtree Street, N.E., Atlanta, GA,
Trustee, is President of The Wales Group, Inc. (management and financial
advisory services). Prior to retiring in 1987, Mr. Williams served as
Chairman of the Board of First Wachovia Corporation (bank holding company),
and Chairman and Chief Executive Officer of The First National Bank of
Atlanta and First Atlanta Corporation (bank holding company). He is
currently a Director of BellSouth Corporation (telecommunications),
ConAgra, Inc. (agricultural products), Fisher Business Systems, Inc.
(computer software), Georgia Power Company (electric utility), Gerber Alley
& Associates, Inc. (computer software), National Life Insurance Company of
Vermont, American Software, Inc. (1989), and AppleSouth, Inc. (restaurants,
1992).
GARY L. FRENCH, Treasurer (1991). Prior to becoming Treasurer of the
Fidelity funds, Mr. French was Senior Vice President, Fund Accounting -
Fidelity Accounting & Custody Services Co. (1991); Vice President, Fund
Accounting - Fidelity Accounting & Custody Services Co. (1990); and Senior
Vice President, Chief Financial and Operations Officer - Huntington
Advisers, Inc. (1985-1990).
JOHN H. COSTELLO, Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH, Assistant Treasurer (1994), is an employee of FMR (1994).
Prior to becoming Assistant Treasurer of the Fidelity funds, Mr. Rush was
Chief Compliance Officer of FMR Corp. (1993-1994); Chief Financial Officer
of Fidelity Brokerage Services, Inc. (1990-1993); and Vice President,
Assistant Controller, and Director of the Accounting Department - First
Boston Corp. (1986-1990).
ARTHUR S. LORING, Secretary, is Senior Vice President (1993) and General
Counsel of FMR, Vice President-Legal of FMR Corp., and Vice President and
Clerk of FDC.
Under a retirement program that became effective on November 1, 1989,
Trustees, upon reaching age 72, become eligible to participate in a defined
benefit retirement program under which they receive payments during their
lifetime from the fund based on their basic trustee fees and length of
service. Currently, Messrs. Robert L. Johnson, William R. Spaulding,
Bertram H. Witham, and David L. Yunich participate in the program.
MANAGEMENT CONTRACT
The fund employs FMR to furnish investment advisory and other services.
Under its management contract with the fund, FMR acts as investment adviser
and, subject to the supervision of the Board of Trustees, directs the
investments of the fund in accordance with its investment objective,
policies and limitations. FMR also provides the fund with all necessary
office facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are "interested
persons" of the Trust or of FMR, and all personnel of the fund or FMR
performing services relating to research, statistical, and investment
activities.
In addition, FMR or its affiliates, subject to the supervision of the Board
of Trustees, provide the management and administrative services necessary
for the operation of the fund. These services include providing facilities
for maintaining the fund's organization; supervising relations with
custodians, transfer and pricing agents, accountants, underwriters and
other persons dealing with the fund; preparing all general shareholder
communications and conducting shareholder relations; maintaining the fund's
records and the registration of the fund's shares under federal and state
laws; developing management and shareholder services for the fund; and
furnishing reports, evaluations, and analyses on a variety of subjects to
the Trustees.
In addition to the management fee payable to FMR and the fees payable to
FIIOC, the fund pays all of its expenses, without limitation, that are not
assumed by those parties. The fund pays for the typesetting, printing, and
mailing of its proxy materials to shareholders, legal expenses, and the
fees of the custodian, auditor and non-interested Trustees. Although the
fund's current management contract provides that the fund will pay for
typesetting, printing, and mailing prospectuses, statements of additional
information, notices and reports to shareholders, the Trust, on behalf of
the fund has entered into a revised transfer agent agreement with FIIOC,
pursuant to which FIIOC bears the costs of providing these services to
existing shareholders. Other expenses paid by the fund include interest,
taxes, brokerage commissions, the fund's proportionate share of insurance
premiums and Investment Company Institute dues, and the costs of
registering shares under federal and state securities laws. The fund is
also liable for such non-recurring expenses as may arise, including costs
of any litigation to which the fund may be a party, and any obligation it
may have to indemnify its officers and Trustees with respect to litigation.
FMR is the fund's manager pursuant to a management contract dated December
15, 1994, which was approved by shareholders on December 27, 1994. The
management fee paid to FMR is reduced by an amount equal to the fees and
expenses of the non-interested Trustees.
For the services of FMR under the contract, the fund pays FMR a monthly
management fee composed of a basic fee.
COMPUTING THE BASIC FEE. The fund's basic fee rate is composed of two
elements: a group fee rate and an individual fund fee rate. The group fee
rate is based on the monthly average net assets of all of the registered
investment companies with which FMR has management contracts and is
calculated on a cumulative basis pursuant to the graduated fee rate
schedule shown below on the left. Also shown below on the right is the
effective annual group fee rate schedule which is the result of
cumulatively applying the annualized rates at varying asset levels. For
example, the effective annual fee rate at $250 billion of group net assets
- - the approximate level for November 30, 1994 - was 0.1560%, which is the
weighted average of the respective fee rates for each level of group net
assets up to that level.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
Average Group Annualized Group Net Effective Annual Fee
Assets Rate Assets Rate
0 - $ 3 billion .3700% $ 0.5 billion .3700%
3 - 6 .3400 25 .2664
6 - 9 .3100 50 .2188
9 - 12 .2800 75 .1986
12 - 15 .2500 100 .1869
15 - 18 .2200 125 .1793
18 - 21 .2000 150 .1736
21 - 24 .1900 175 .1690
24 - 30 .1800 200 .1652
30 - 36 .1750 225 .1618
36 - 42 .1700 250 .1587
42 - 48 .1650 275 .1560
48 - 66 .1600 300 .1536
66 - 84 .1550 325 .1514
84 - 120 .1500 350 .1494
120 - 156 .1450 375 .1476
156 - 192 .1400 400 .1459
192 - 228 .1350
228 - 264 .1300
264 - 300 .1275
300 - 336 .1250
336 - 372 .1225
Over 372 .1200
The individual fund fee rate is 0.60%. Based on the average group net
assets of the funds advised by FMR for November 30, 1994, the annual basic
fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
0.1560% + .60% = 0.7560%
One-twelfth of this annual basic fee rate is applied to the fund's net
assets averaged for the most recent month, giving a dollar amount, which is
the fee for that month.
FMR may, from time to time, voluntarily reimburse all or a portion of the
fund's operation expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses) above a specified percentage of
average net assets. FMR retains the ability to be repaid for these expense
reimbursements in the amount that expenses fall below the limit prior to
the end of the fiscal year. Expense reimbursments by FMR will increase the
fund's total returns and reimbursment by the fund will lower its total
returns.
DISTRIBUTION AND SERVICE PLANS
The fund has adopted a Distribution and Service Plan (the plan) under Rule
12b-1 of the Investment Company Act of 1940 (the Rule). The Rule provides
in substance that a mutual fund may not engage directly or indirectly in
financing any activity that is primarily intended to result in the sale of
shares of the fund except pursuant to a plan adopted by the fund under the
Rule. The Board of Trustees has adopted the plan to allow the fund and FMR
to incur certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses. Under the plans, if the
payment by the fund to FMR of management fees should be deemed to be
indirect financing by the fund of the distribution of its shares, such
payment is authorized by the plan.
The plan also specifically recognizes that FMR, either directly or through
FDC, may use its management fee revenue, past profits, or other resources,
without limitation, to pay promotional and administrative expenses in
connection with the offer and sale of shares of the fund. In addition, the
plan provides that FMR may use its resources, including its management fee
revenues, to make payments to third parties that provide assistance selling
shares of the fund, or to third parties, including banks, that render
shareholder support services.
The fund's plan has been approved by the Trustees. As required by the Rule,
the Trustees carefully considered all pertinent factors relating to the
implementation of the plan prior to their approval, and have determined
that there is a reasonable likelihood that the plan will benefit the fund
and its shareholders. In particular, the Trustees noted that the plan does
not authorize payments by the fund other than those made to FMR under its
management contract with the fund. To the extent that the plan gives FMR
and FDC greater flexibility in connection with the distribution of shares
of the fund, additional sales of the fund's shares may result.
Additionally, certain shareholder support services may be provided more
effectively under the plan by local entities with whom shareholders have
other relationships.
The Glass-Steagall Act generally prohibits federally and state chartered or
supervised banks from engaging in the business of underwriting, selling, or
distributing securities. Although the scope of this prohibition under the
Glass-Steagall Act has not been clearly defined by the courts or
appropriate regulatory agencies, FDC believes that the Glass-Steagall Act
should not preclude a bank from performing shareholder support services,
and servicing and recordkeeping functions. FDC intends to engage banks only
to perform such functions. However, changes in federal or state statutes
and regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions, if
any, would be necessary to continue to provide efficient and effective
shareholder services. In such event, changes in the operation of the fund
might occur, including possible termination of any automatic investment or
redemption or other services then provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these occurrences.
The fund may execute portfolio transactions with and purchase securities
issued by depository institutions that receive payments under the plan. No
preference will be shown in the selection of investments for the
instruments of such depository institutions. In addition, state securities
laws on this issue may differ from the interpretations of federal law
expressed herein, and banks and other financial institutions may be
required to register as dealers pursuant to state law.
CONTRACTS WITH COMPANIES AFFILIATED WITH FMR
FIIOC is transfer, dividend disbursing, and shareholders' servicing agent
for the fund. Under the trust's contract with FIIOC, the fund pays a per
account fee of $95 and a monetary transaction fee of $20 or $17.50
depending on the nature of services provided. Fees for certain
institutional retirement plan accounts are based on the net assets of all
such accounts in the fund. Under the contract, FIIOC pays out-of-pocket
expenses associated with providing transfer agent services. In addition,
FIIOC bears the expense of typesetting, printing, and mailing prospectuses,
statements of additional information, and all other reports, notices, and
statements to shareholders, with the exception of proxy statements.
The trust has a contract with Service which provides that Service will
perform the calculations necessary to determine the fund's net asset value
per share and dividends, maintains the fund's accounting records, and
administers the fund's securities lending program. The fee rates are based
on the fund's average net assets, specifically, .04% for the first $500
million of average net assets and .02% for average net assets in excess of
$500 million. The fee is limited to a minimum of $45,000 and a maximum of
$750,000 per year.
The fund has a distribution agreement with FDC, a Massachusetts corporation
organized on July 18, 1960. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The distribution agreement calls for FDC to use
all reasonable efforts, consistent with its other business, to secure
purchasers for shares of the fund, which are continuously offered.
Promotional and administrative expenses in connection with the offer and
sale of shares are paid by FMR.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Real Estate High Income Fund is a series of
Fidelity Advisor Series IV, an open-end management investment company
organized as a Massachusetts business trust by Declaration of Trust dated
May 6, 1983. On January 29, 1992 the name of the Trust was changed from
Income Portfolios to Fidelity Income Trust, and on April 15, 1993, the
Board of Trustees voted to change the Trust's name to Fidelity Advisor
Series IV. In the event that FMR ceases to be the investment advisor to the
Trust or Fund, the right of the Trust or Fund to use the identifying name
"Fidelity" may be withdrawn. The Declaration of Trust permits the Trustees
to create additional portfolios.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts
law, shareholders of such a Trust may, under certain circumstances, be held
personally liable for the obligations of the Trust. The Declaration of
Trust provides that the Trust shall not have any claim against shareholders
except for the payment of the purchase price of shares and requires that
each agreement, obligation, or instrument entered into or executed by the
Trust or the Trustees include a provision limiting the obligations created
thereby to the Trust and its assets. The Declaration of Trust provides for
indemnification out of the fund's property of any shareholder held
personally liable for the obligations of the fund. The Declaration of Trust
also provides that the fund shall, upon request, assume the defense of any
claim made against any shareholder for any act or obligation of the fund
and satisfy any judgment thereon. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to
circumstances in which the fund itself would be unable to meet its
obligations. FMR believes that, in view of the above, the risk of personal
liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or
wrongdoing, but nothing in the Declaration of Trust protects a Trustee
against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
VOTING RIGHTS. The fund's capital currently consists of shares of
beneficial interest. The shares have no preemptive or conversion rights;
the voting and dividend rights, the right of redemption, and the privilege
of exchange are described in each prospectus. Shares are fully paid and
nonassessable, except as set forth under the heading "Shareholder and
Trustee Liability" above. Shareholders representing 10% or more of the
Trust may, as set forth in the Declaration of Trust, call meetings for any
purpose, including the purpose of voting on removal of one or more
Trustees. The Trust or the Fund may be terminated upon the sale of its
assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the
holders of a majority of the outstanding shares of the Fund. If not so
terminated, the Fund will continue indefinitely.
CUSTODIAN. Bank of New York, 48 Wall Street, New York, New York 10286, is
custodian of the assets of the Fund. The custodian is responsible for the
safekeeping of the Fund's assets and the appointment of subcustodian banks
and clearing agencies. The custodian takes no part in determining the
investment policies of the Fund or in deciding which securities are
purchased or sold by the Fund. The Fund may, however, invest in obligations
of the custodian and may purchase securities from or sell securities to the
custodian.
FMR, its officers and directors, its affiliated companies, and the Trust's
Trustees may from time to time have transactions with various banks,
including the Fund's custodian bank, and custodian banks for certain of the
funds advised by FMR. Transactions that have occurred to date have included
mortgages and personal and general business loans. In the judgment of FMR,
the terms and conditions of those transactions were not influenced by
existing or potential custodial or other Fund relationships.
AUDITOR. Coopers & Lybrand LLP, One Post Office Square, Boston,
Massachusetts, serves as the Trust's independent accountant. The auditor
examines financial statements for the Fund and provides other audit, tax,
and related services.
APPENDIX
DOLLAR-WEIGHTED AVERAGE MATURITY is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities, such as collateralized mortgage obligations, are determined on
a weighted average life basis, which is the average time for principal to
be repaid. For a mortgage security, this average time is calculated by
assuming a constant prepayment rate for the life of the mortgage. The
weighted average life of these securities is likely to be substantially
shorter than their stated final maturity.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to
be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA - Bonds rated Ba are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payment of or maintenance
of other terms of the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked
short-comings.
C - Bonds rated C are the lowest rated class of bonds and issued so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned on actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed but
debt service payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. The D rating will also
be used upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) (1) Financial Statements and Financial Highlights, included in the
Semi-Annual Report for Fidelity Real Estate High Income Fund for the
semi-annual period ended May 31, 1995 are electronically filed herein as
Exhibit (a)(1).
(b) Exhibits:
(1) Amended and Restated Declaration of Trust, dated March 23, 1995 was
electonically filed and is incorporated by reference to Exhibit 1(a) to
Post-Effective Amendment No. 45.
(2) By-Laws of the Trust were electronically filed and are included
herein by reference to Exhibit 2(a) to Union Street Trust's Post-Effective
Amendment No. 87.
(3) Not applicable.
(4) Not applicable.
(5) (a) Management Contract between Fixed-Income Portfolios: Short-Term
Government Series and Fidelity Management & Research Company dated July 29,
1986 is incorporated herein by reference to Exhibit 5(b) to Post-Effective
Amendment No. 7.
(b) Management Contract between Advisor Series IV: Fidelity Advisor
Limited Term Bond Fund and Fidelity Management & Research Company dated
January 1, 1995 was electronically filed and is incorporated herein by
reference to Exhibit 5(b) to Post-Effective Amendment No. 43.
(c) Sub-Advisory Agreement between Fidelity Management & Research Company,
on behalf of Fidelity Advisor Limited Term Bond Fund, and Fidelity
Management & Research (U.K.) Inc. was electronically filed and is
incorporated herein by reference to Exhibit 5(c) to Post-Effective
Amendment No. 43.
(d) Sub-Advisory Agreement between Fidelity Management & Research Company,
on behalf of Fidelity Advisor Limited Term Bond Fund, and Fidelity
Management & Research (Far East) Inc. was electronically filed and is
incorporated herein by reference to Exhibit 5(d) to Post-Effective
Amendment No. 43.
(e) Management Contract between Fidelity Real Estate High Income Fund and
Fidelity Management & Research Company was electronically filed and is
incorporated herein by reference to Exhibit 5(e) to Post-Effective
Amendment No. 41.
(6) (a) General Distribution Agreement between Income Portfolios: Limited
Term Series and Fidelity Distributors Corporations dated April 1, 1987
(amending in its entirety the Distribution Agreement dated June 1, 1986)
was electronically filed and is incorporated herein by reference to Exhibit
6(a) to Post-Effective Amendment No. 46.
(b) Amendment to the General Distribution Agreements was electronically
filed and is incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 46.
(c) General Distribution Agreement between Income Portfolios: Short
Government Series and Fidelity Distributors Corporations dated April 1,
1987 (amending in its entirety the Distribution Agreement dated July 29,
1987) was electronically filed and is incorporated herein by reference to
Exhibit 6(c) to Post-Effective Amendment No. 45.
(d) General Distribution Agreement between Fidelity Real Estate High
Income Fund and Fidelity Distributors Corporation was electronically filed
and is incorporated herein by reference to Exhibit 6(c) to Post-Effective
Amendment No. 41.
(e) Form of Bank Agency Agreement (most recently revised May 1994) was
electronically filed and is incorporated herein by reference to Exhibit
6(d) to Post-Effective Amendment No. 45.
(f) Form of Selling Dealer Agreement (most recently revised May 1994)
was electronically filed and is incorporated herein by reference to Exhibit
6(e) to Post-Effective Amendment No. 45 .
(g) Form of Selling Dealer Agreement for Bank Related Transactions (most
recently revised June 1994) was electronically filed and is incorporated
herein by reference to Exhibit 6(f) to Post-Effective Amendment No. 45.
(7) Retirement Plan for Non-Interested Person Trustees, Directors or
General Partners, effective November 1, 1989, is incorporated herein by
reference to Exhibit 7 to Union Street Trust's Post-Effective Amendment No.
87.
(8) (a) Custodian Agreement, Appendix A, and Appendix C, dated
December 1, 1994, between The Bank if New York and the Registrant is
incorporated herein by reference to Exhibit 8(a) to Fidelity Hereford
Street Trust's Post-Effective Amendment No. 4 (File No. 33-52577) .
(b) Appendix B, dated April 20, 1995, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and the Registrant is
incorporated herein by reference to Exhibit 8(b) to Fidelity Hereford
Street Trust's Post-Effective Amendment No. 5 (File No. 33-52577).
(9) Not applicable.
(10) Opinion of Kirkpatrick & Lockhart is electroincally filed here in as
Exhibit 10.
(11) Not applicable.
(12) None.
(13) None.
(14) (a) Defined Contribution Retirement Plan and Trust Agreement is
incorporated herein by reference to Exhibit 14(b) to Post-Effective
Amendment No. 24.
(b) Defined Benefit Pension Plan and Trust is incorporated herein by
reference to Exhibit 14(c) to Post-Effective Amendment No. 24.
(c) IRA Custodial Agreement and Disclosure Statement (Group) is
incorporated herein by reference to Exhibit 14(d) to Post-Effective
Amendment No. 24.
(d) Master Plan for Savings and Investments is incorporated herein by
reference to Exhibit 14(e) to Post-Effective Amendment No. 24.
(e) 401(a) Prototype Plan for Tax-Exempt Employers is incorporated
herein by reference to Exhibit 14(f) to Post-Effective Amendment No. 24.
(f) Fidelity Advisor Funds Individual Retirement Account Custodial
Agreement Disclosure Statement in effect as of January 1, 1994 was filed
electronically and is incorporated herein by reference to Exhibit 14(b) to
Advisor Series I Post-Effective Amendment No. 22.
(g) Fidelity Institutional Individual Retirement Account Custodian
Agreement and Disclosure Statement, as currently in effect, was
electronically filed and is incorporated herein by reference to Exhibit
14(d) to Union Street Trust's Post-Effective Amendment No. 87.
(h) Fidelity Investments Section 403(b)(7) Individual Custodial Account
Agreement and Disclosure Statement, as currently in effect, is incorporated
herein by reference to Exhibit 14(f) to Fidelity Commonwealth Trust's (File
No. 2-52322) Post Effective Amendment No. 57.
(i) Plymouth Investments Defined Contribution Retirement Plan and Trust
Agreement, as currently in effect, is incorporated herein by reference to
Exhibit 14(o) to Fidelity Commonwealth Trust's (File No. 2-52322) Post
Effective Amendment No. 57.
(15) (a) Distribution and Service Plan pursuant to Rule 12b-1 for
Short-Term Government Series is incorporated herein by reference to Exhibit
15(a) to Post-Effective Amendment No. 5.
(b) Distribution and Service Plan pursuant to Rule 12b-1 for Fidelity
Advisor Limited Term Bond Fund-Class A was electronically filed and is
incorporated herein by reference to Exhibit 15(b) to Post-Effective
Amendment No. 43.
(c) Distribution and Service Plan pursuant to Rule 12b-1 for Institutional
Short-Intermediate Government Portfolio II was electronically filed and is
incorporated herein by reference to Exhibit 15 (c) of Post-Effective
Amendment No. 35.
(d) Distribution and Service Plan for Fidelity Advisor Limited Term Bond
Fund-Class B was electronically filed and is incorporated herein by
reference to Exhibit 15(d) to Post-Effective Amendment No. 43.
(e) Distribution and Service Plan for Fidelity Real Estate High Income
Fund was electronically filed and is incorporated herein by reference to
Exhibit 15(e) to Post-Effective Amendment No. 41.
(16) A schedule for computation of performance quotations for each
Series/Portfolio is incorporated herein by reference to Exhibit 16 to
Post-Effective Amendment No. 15.
(17) Financial Data Schedule for Fidelity Real Estate High Income Fund is
electronically filed herein as Exhibit 17.
Item 25. Persons Controlled by or under Common Control with Registrant
The Board of Trustees of the Registrant is the same as the Boards of other
Fidelity funds offered primarily to institutional investors, each of which
has Fidelity Management & Research Company as its investment adviser.
Nonetheless, Registrant takes the position that is not under common control
with these other funds since the power residing in the respective Boards
and officers arises as the result of an official position with the
respective funds.
Item 26. Number of Holders of Securities
April 30, 1995
Title of Class Number of Record Holders
Fidelity Advisor Limited Term Bond Fund: Class A 6,105
Fidelity Advisor Limited Term Bond Fund: Class B 503
Fidelity Advisor Limited Term Bond Fund: Institutional Class 794
Fidelity Institutional Short-Intermediate Government Portfolio I 584
Fidelity Institutional Short-Intermediate Government Portfolio II 1
Fidelity Real Estate High Income Fund 1
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present Trustee or officer. It states that the
Registrant shall indemnify any present or past Trustee, or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless disregard
of the duties involved in the conduct of the particular office involved.
Item 28. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held, during the
past two fiscal years, the following positions of a substantial nature.
<TABLE>
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Edward C. Johnson 3d Chairman of the Executive Committee of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman of
the Board and a Director of FMR, FMR Corp., FMR Texas
Inc., Fidelity Management & Research (U.K.) Inc., and
Fidelity Management & Research (Far East) Inc.; President
and Trustee of funds advised by FMR.
J. Gary Burkhead President of FMR; Managing Director of FMR Corp.;
President and a Director of FMR Texas Inc., Fidelity
Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.; Senior Vice
President and Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman and Director of FMR.
Robert Beckwitt Vice President of FMR and of funds advised by FMR.
David Breazzano Vice President of FMR (1993) and of a fund advised by
FMR.
Stephan Campbell Vice President of FMR (1993).
Dwight Churchill Vice President of FMR (1993).
William Danoff Vice President of FMR (1993) and of a fund advised by
FMR.
Scott DeSano Vice President of FMR (1993).
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
Larry Domash Vice President of FMR (1993).
George Domolky Vice President of FMR (1993) and of a fund advised by
FMR.
Robert K. Duby Vice President of FMR.
Margaret L. Eagle Vice President of FMR and of a fund advised by FMR.
Kathryn L. Eklund Vice President of FMR.
Richard B. Fentin Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Daniel R. Frank Vice President of FMR and of funds advised by FMR.
Michael S. Gray Vice President of FMR and of funds advised by FMR.
Lawrence Greenberg Vice President of FMR (1993).
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
William J. Hayes Senior Vice President of FMR; Equity Division Leader.
Robert Haber Vice President of FMR and of funds advised by FMR.
Richard Haberman Senior Vice President of FMR (1993).
Daniel Harmetz Vice President of FMR and of a fund advised by FMR.
Ellen S. Heller Vice President of FMR.
</TABLE>
John Hickling Vice President of FMR (1993) and of funds advised by
FMR.
<TABLE>
<CAPTION>
<S> <C>
Robert F. Hill Vice President of FMR; and Director of Technical
Research.
Stephen P. Jonas Treasurer and Vice President of FMR (1993)); Treasurer of
FMR Texas Inc. (1993), Fidelity Management & Research
(U.K.) Inc. (1993), and Fidelity Management & Research
(Far East) Inc. (1993).
David B. Jones Vice President of FMR (1993).
Steven Kaye Vice President of FMR (1993) and of a fund advised by
FMR.
Frank Knox Vice President of FMR (1993).
Robert A. Lawrence Senior Vice President of FMR (1993); and High Income
Division Leader.
Alan Leifer Vice President of FMR and of a fund advised by FMR.
Harris Leviton Vice President of FMR (1993) and of a fund advised by
FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught III Vice President of FMR (1993).
Robert H. Morrison Vice President of FMR and Director of Equity Trading.
David Murphy Vice President of FMR and of funds advised by FMR.
Andrew Offit Vice President of FMR (1993).
Judy Pagliuca Vice President of FMR (1993).
Jacques Perold Vice President of FMR.
Anne Punzak Vice President of FMR and of funds advised by FMR.
Lee Sandwen Vice President of FMR (1993).
Patricia A. Satterthwaite Vice President of FMR (1993) and of a fund advised by
FMR.
Thomas T. Soviero Vice President of FMR (1993).
Robert E. Stansky Senior Vice President of FMR (1993) and of funds advised
by FMR.
Gary L. Swayze Vice President of FMR and of funds advised by FMR; and
Tax-Free Fixed-Income Group Leader.
Thomas Sweeney Vice President of FMR (1993).
Donald Taylor Vice President of FMR (1993) and of funds advised by
FMR.
Beth F. Terrana Senior Vice President of FMR (1993) and of funds advised
by FMR.
Joel Tillinghast Vice President of FMR (1993) and of a fund advised by
FMR.
Robert Tucket Vice President of FMR (1993).
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR; and Growth Group Leader.
Jeffrey Vinik Senior Vice President of FMR (1993) and of a fund advised
by FMR.
Guy E. Wickwire Vice President of FMR and of a fund advised by FMR.
Arthur S. Loring Senior Vice President (1993), Clerk and General Counsel of
FMR; Vice President, Legal of FMR Corp.; and Secretary
of funds advised by FMR.
</TABLE>
David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management &
Research (U.K.) Inc.; Secretary of FMR Texas Inc.
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
FMR U.K. provides investment advisory services to Fidelity Management &
Research Company and Fidelity Management Trust Company. The directors and
officers of the Sub-Adviser have held the following positions of a
substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR U.K.; Chairman of the
Executive Committee of FMR; Chief Executive Officer of FMR
Corp.; Chairman of the Board and a Director of FMR, FMR
Corp., FMR Texas Inc., and Fidelity Management & Research
(Far East) Inc.; President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR U.K.; President of FMR;
Managing Director of FMR Corp.; President and a Director of
FMR Texas Inc. and Fidelity Management & Research (Far
East) Inc.; Senior Vice President and Trustee of funds advised
by FMR.
Richard C. Habermann Senior Vice President of FMR U.K.; Senior Vice President of
Fidelity Management & Research (Far East) Inc.; Director of
Worldwide Research of FMR.
Rick Spillane Senior Vice President and Director of Operations and
Compliance of FMR U.K. (1993).
Stephen P. Jonas Treasurer of FMR U.K. (1993), Fidelity Management &
Research (Far East) Inc. (1993), and FMR Texas Inc. (1993);
and Treasurer and Vice President of FMR (1993).
David Weinstein Clerk of FMR U.K.; Clerk of Fidelity Management & Research
(Far East) Inc.; Secretary of FMR Texas Inc.
</TABLE>
(3) FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC. (FMR Far East)
FMR Far East provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The directors
and officers of the Sub-Adviser have held the following positions of a
substantial nature during the past two fiscal years.
<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman and Director of FMR Far East; Chairman of the
Executive Committee of FMR; Chief Executive Officer of
FMR Corp.; Chairman of the Board and a Director of
FMR, FMR Corp., FMR Texas Inc. and Fidelity
Management & Research (U.K.) Inc.; President and
Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Far East; President of
FMR; Managing Director of FMR Corp.; President and a
Director of FMR Texas Inc. and Fidelity Management &
Research (U.K.) Inc.; Senior Vice President and Trustee
of funds advised by FMR.
Richard C. Habermann Senior Vice President of FMR Far East; Senior Vice
President of Fidelity Management & Research (U.K.)
Inc.; Director of Worldwide Research of FMR.
William R. Ebsworth Vice President of FMR Far East.
Bill Wilder Vice President of FMR Far East (1993).
Stephen P. Jonas Treasurer of FMR Far East (1993), Fidelity Management
& Research (U.K.) Inc. (1993), and FMR Texas Inc.
(1993); and Treasurer and Vice President of FMR
(1993).
David C. Weinstein Clerk of FMR Far East; Clerk of Fidelity Management &
Research (U.K.) Inc.; Secretary of FMR Texas Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR and the following other funds:
ARK Funds
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
Edward C. Johnson 3d Director Trustee and President
Nita B. Kincaid Director None
W. Humphrey Bogart Director None
Kurt A. Lange President and Treasurer None
William L. Adair Senior Vice President None
Thomas W. Littauer Senior Vice President None
Arthur S. Loring Vice President and Clerk Secretary
* 82 Devonshire Street, Boston, MA
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity Service
Co., 82 Devonshire Street, Boston, MA 02109, or the funds' respective
custodian: The Bank of New York, 110 Washington Street, New York, N.Y.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant, on behalf of Fidelity Advisor Limited Term Bond Fund,
Fidelity Institutional Short-Intermediate Government Portfolio and Real
Estate High Income Fund, undertakes to deliver to each person who has
received the prospectus or annual or semiannual financial report for a fund
in an electronic format, upon his or her request and without charge, a
paper copy of the prospectus or annual or semiannual report for the fund.
The Registrant, on behalf of Fidelity Advisor Limited Term Bond Fund and
Fidelity Institutional Short-Intermediate Government Portfolio, undertakes,
provided the information required by Item 5A is contained in the annual
report, to furnish each person to whom a prospectus has been delivered,
upon their request and without charge, a copy of the Registrant's latest
annual report to shareholders.
The Registrant undertakes for Fidelity Real Estate High Income Fund: (1)
to call a meeting of shareholders for the purpose of voting upon the
questions of removal of a trustee or trustees, when requested to do so by
record holders of not less than 10% of its outstanding shares; and (2) to
assist in communications with other shareholders pursuant to Section
16(c)(1) and (2), whenever shareholders meeting the qualifications set
forth in Section 16(c) seek the opportunity to communicate with other
shareholders with a view toward requesting a meeting.
POWER OF ATTORNEY
We, the undersigned Directors, Trustees or General Partners, as the case
may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Income Fund
Fidelity Advisor Series I Fidelity Institutional Trust
Fidelity Advisor Series II Fidelity Investment Trust
Fidelity Advisor Series III Fidelity Magellan Fund
Fidelity Advisor Series IV Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Deutsche Mark Performance Fund, L.P.
Portfolio, L.P. Fidelity Union Street Trust
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Spartan U.S. Treasury Money Market
Fidelity Financial Trust Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Fidelity Government Securities Fund Variable Insurance Products Fund II
Fidelity Hastings Street Trust
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned
individuals serve as Board Members (collectively, the "Funds"), hereby
severally constitute and appoint Arthur J. Brown, Arthur C. Delibert,
Robert C. Hacker, Richard M. Phillips, Dana L. Platt and Stephanie A.
Djinis, each of them singly, our true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to sign
for us and in our names in the appropriate capacities, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
our names and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact or their substitutes may do
or cause to be done by virtue hereof.
WITNESS our hands on this fifteenth day of December, 1994.
/s/Edward C. Johnson 3d /s/Donald J. Kirk
Edward C. Johnson 3d Donald J. Kirk
/s/J. Gary Burkhead /s/Peter S. Lynch
J. Gary Burkhead Peter S. Lynch
/s/Ralph F. Cox /s/Marvin L. Mann
Ralph F. Cox Marvin L. Mann
/s/Phyllis Burke Davis /s/Edward H. Malone
Phyllis Burke Davis Edward H. Malone
/s/Richard J. Flynn /s/Gerald C. McDonough
Richard J. Flynn Gerald C. McDonough
/s/E. Bradley Jones /s/Thomas R. Williams
E. Bradley Jones Thomas R. Williams
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee or General Partner, as
the case may be, of the following investment companies:
<TABLE>
<CAPTION>
<S> <C>
Fidelity Advisor Annuity Fund Fidelity Institutional Trust
Fidelity Advisor Series I Fidelity Investment Trust
Fidelity Advisor Series II Fidelity Magellan Fund
Fidelity Advisor Series III Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series IV Fidelity Money Market Trust
Fidelity Advisor Series V Fidelity Mt. Vernon Street Trust
Fidelity Advisor Series VI Fidelity Municipal Trust
Fidelity Advisor Series VII Fidelity New York Municipal Trust
Fidelity Advisor Series VIII Fidelity Puritan Trust
Fidelity California Municipal Trust Fidelity School Street Trust
Fidelity Capital Trust Fidelity Securities Fund
Fidelity Charles Street Trust Fidelity Select Portfolios
Fidelity Commonwealth Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Congress Street Fund Fidelity Summer Street Trust
Fidelity Contrafund Fidelity Trend Fund
Fidelity Corporate Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Court Street Trust Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Yen Performance Portfolio, L.P.
Fidelity Devonshire Trust Spartan U.S. Treasury Money Market
Fidelity Exchange Fund Fund
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund
Fidelity Hastings Street Trust
Fidelity Income Fund
</TABLE>
plus any other investment company for which Fidelity Management & Research
Company acts as investment adviser and for which the undersigned individual
serves as President and Board Member (collectively, the "Funds"), hereby
severally constitute and appoint J. Gary Burkhead, my true and lawful
attorney-in-fact, with full power of substitution, and with full power to
sign for me and in my name in the appropriate capacity, all Pre-Effective
Amendments to any Registration Statements of the Funds, any and all
subsequent Post-Effective Amendments to said Registration Statements, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such things in
my name and behalf in connection therewith as said attorney-in-fact deem
necessary or appropriate, to comply with the provisions of the Securities
Act of 1933 and Investment Company Act of 1940, and all related
requirements of the Securities and Exchange Commission. I hereby ratify
and confirm all that said attorneys-in-fact or their substitutes may do or
cause to be done by virtue hereof.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d December 15, 1994
Edward C. Johnson 3d
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for the effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 47 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and MA, on the 21st day of July 1995.
Fidelity Advisor Series IV
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
(Signature) (Title) (Date)
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Edward C. Johnson 3d(dagger) President and Trustee July 21, 1995
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Kenneth A. Rathgeber Treasurer July 21, 1995
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee July 21, 1995
J. Gary Burkhead
/s/Ralph F. Cox * Trustee July 21, 1995
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee July 21, 1995
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee July 21, 1995
Richard J. Flynn
/s/E. Bradley Jones * Trustee July 21, 1995
E. Bradley Jones
/s/Donald J. Kirk * Trustee July 21, 1995
Donald J. Kirk
/s/Peter S. Lynch * Trustee July 21, 1995
Peter S. Lynch
/s/Edward H. Malone * Trustee July 21, 1995
Edward H. Malone
/s/Marvin L. Mann_____* Trustee July 21, 1995
Marvin L. Mann
/s/Gerald C. McDonough* Trustee July 21, 1995
Gerald C. McDonough
/s/Thomas R. Williams * Trustee July 21, 1995
Thomas R. Williams
(dagger) Signatures affixed by J. Gary Burkhead pursuant to a power of
attorney dated December 15, 1994 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of attorney
dated December 15, 1994 and filed herewith.
FIDELITY REAL ESTATE HIGH INCOME FUND
SEMIANNUAL REPORT
MAY 31, 1995
INVESTMENTS MAY 31, 1995 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
COMMERCIAL MORTGAGE SECURITIES - 95.8%
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
ACP Mortgage LP
commercial floater Class D,
8 5/8%, 2/25/28 (b)(c) BBB $ 2,000,000 $ 1,868,750 00087R9A
American Southwest Financial
Securities commercial Series
1994-C2 Class B2,
14.2179%,12/25/01 (b) - 3,000,000 3,012,188 02970K9A
CBA Mortgage Corp.
commercial Series 1993-C1
Class E, 7.1545%,
12/25/03 (b) Ba2 3,000,000 2,534,531 12478L9A
CS First Boston Mortgage
Securities Corp. commercial
Series (b):
1994-M1 Class E,
12.60%, 2/15/02 - 1,000,000 1,002,500 126342AN
1994-CFB1 Class E,
7.7893%, 1/25/28 Ba2 2,309,946 1,842,182 126342AZ
Lennar Central Partners LP
commercial Series 1995-1
Class F, 11.70%,
5/15/05 (b) - 2,500,000 2,501,563 52605PAF
Merrill Lynch Mortgage
Investments, Inc. commercial
Series 8.1397%,
6/25/22 (b) Ba2 2,000,000 1,757,320 589929GZ
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (b) - 12,919,000 2,603,088 5899319A
New England Mutual Life
Insurance Co. commercial
Series 1993-1 Class D,
8%,12/15/23 (b) Ba2 5,001,934 4,126,595 644162AD
Phoenix Real Estate Securities, Inc.
commercial Series 1993,
Class D-1, 8 1/4%,
11/25/23 (b) Ba2 3,500,000 2,896,250 71912PAF
Resolution Trust Corp.:
commercial Series:
1992-C8 Class E,
8.835%, 12/25/23 Ba3 1,441,591 1,297,432 76116N9M
1994-C2 Class E,
8%, 4/25/25 BB+ 1,966,720 1,797,092 76116NWE
1994-C2 Class F,
8%, 4/25/25 BB 1,942,949 1,687,633 76116NWF
1994-C2 Class G,
8%, 4/25/25 B 4,836,335 3,949,047 76116NWG
1994-C1 Class E,
8%, 6/25/26 BB 3,868,542 3,206,053 76116NVV
sequential pay Series 1994-C1
Class F, 8%, 6/25/26 B 4,728,870 3,783,095 76116NVW
SKW Real Estate commercial
Series Class F, 12.80%,
4/15/05 (b) - 2,310,750 2,330,969 783912AR
SML, Inc. commercial Series
1994-C1, Class B
10.30% 9/20/99 - 3,000,000 2,894,064
MOODY'S PRINCIPAL VALUE
RATINGS (A) AMOUNT (NOTE 1)
Structured Asset Securities
Corp. commercial Series:
1992-M1 Class C,
7.05% 11/25/02 B2 $ 3,200,000 $ 2,494,500 863572DW
1995-C1 Class E,
7 3/8%, 9/25/24 (b) BB 3,500,000 2,560,469 8635729B
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $47,526,143) 50,145,321
COMPLEX MORTGAGE SECURITIES - 2.1%
INTEREST ONLY STRIPS - 2.1%
Mortgage Capital Funding, Inc.
commercial Series (d):
1993-C1 Class 2,
3.6298%, 5/25/15 Aa2 42,582,853 1,024,635 61910DAE
1993-C1 Class 2,
1.4611%, 5/25/15 Aa2 8,791,177 83,104 61910DAF
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $1,118,128) 1,107,739
CONVERTIBLE PREFERRED STOCKS - 1.6%
SHARES
REAL ESTATE INVESTMENT TRUSTS (REITS) - 1.6%
Catellus Development Corp., exchangeable,
Series B, $3.625 (b) (Cost $700,000) 20,000 830,000 14911130
REPURCHASE AGREEMENTS - 0.5%
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 $ 275,047 275,000 82699HDN
TOTAL INVESTMENT IN SECURITIES - 100.0%
(Cost $49,619,271) $ 52,358,060
LEGEND
1. Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
2. 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 $29,866,405 or 56.6% of net
assets.
3. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
4. Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
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 RATINGS S&P RATINGS
Aaa, Aa, A 2.1% AAA, AA, A 0.0%
Baa 0.0% BBB 3.6%
Ba 27.6% BB 25.0%
B 4.8% B 14.8%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 27.4%. FMR
has determined that unrated debt securities that are lower quality account
for 27.4% of the total value of investment in securities.
INCOME TAX INFORMATION
At May 31, 1995, the aggregate cost of investment securities for income tax
purposes was $49,619,271. Net unrealized appreciation (depreciation)
aggregated $2,738,789, of which $2,788,419 related to appreciated
investment securities and $49,630 related to depreciated investment
securities.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
MAY 31, 1995 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase agreements of $275,000) (cost $49,619,271) - See $ 52,358,060
accompanying schedule
Cash 775,645
Interest receivable 511,312
TOTAL ASSETS 53,645,017
LIABILITIES
Payable for investments purchased $ 804,503
Accrued management fee 32,313
Other payables and accrued expenses 36,898
TOTAL LIABILITIES 873,714
NET ASSETS $ 52,771,303
Net Assets consist of:
Paid in capital $ 49,933,069
Distributions in excess of net investment income (13,867
)
Accumulated undistributed net realized gain (loss) on investments 113,312
Net unrealized appreciation (depreciation) on investments 2,738,789
NET ASSETS, for 4,890,934 shares outstanding $ 52,771,303
NET ASSET VALUE, offering price $10.79
and redemption price per share ($52,771,303 (divided by) 4,890,934 shares)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
JANUARY 5, 1995
(COMMENCEMENT OF OPERATIONS)
TO MAY 31, 1995 (UNAUDITED)
INVESTMENT INCOME $ 18,125
Dividends
Interest 1,360,774
TOTAL INCOME 1,378,899
EXPENSES
Management fee $ 107,955
Transfer agent fees 23,798
Accounting fees and expenses 18,197
Non-interested trustees' compensation 20
Custodian fees and expenses 420
Audit 9,300
Legal 6
TOTAL EXPENSES 159,696
NET INVESTMENT INCOME 1,219,203
REALIZED AND UNREALIZED GAIN (LOSS) 113,312
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities 2,738,789
NET GAIN (LOSS) 2,852,101
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,071,304
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
MAY 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Operations $ 1,219,203
Net investment income
Net realized gain (loss) 113,312
Change in net unrealized appreciation (depreciation) 2,738,789
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 4,071,304
Distributions to shareholders from net investment income (1,233,070)
Share transactions 50,199,999
Net proceeds from sales of shares
Reinvestment of distributions 1,233,070
Cost of shares redeemed (1,500,000)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 49,933,069
TOTAL INCREASE (DECREASE) IN NET ASSETS 52,771,303
NET ASSETS
Beginning of period -
End of period (including distributions in excess of net investment income of $(13,867)) $ 52,771,303
OTHER INFORMATION
Shares
Sold 4,917,536
Issued in reinvestment of distributions 117,214
Redeemed (143,816)
Net increase (decrease) 4,890,934
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
MAY 31, 1995
(UNAUDITED)
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.000
Income from Investment Operations .329
Net investment income
Net realized and unrealized gain (loss) .793
Total from investment operations 1.122
Less Distributions (.332)
From net investment income
Net asset value, end of period $ 10.790
TOTAL RETURN B 11.36%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 52,771
Ratio of expenses to average net assets 1.12% A
Ratio of net investment income to average net assets 8.55% A
Portfolio turnover rate 42% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1995 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Real Estate High Income Fund (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. The following
summarizes the significant accounting policies of the fund:
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 of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities (including restricted 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. The fund intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, the fund
will not be subject to income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The schedule
of investments includes information regarding income taxes under the
caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of original
issue discount, is accrued as earned and dividend income is recorded on the
ex-dividend date.
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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences may result in distribution reclassifications.
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 (loss) and
accumulated undistributed net realized gain (loss) on investments may
include temporary book and tax basis differences which will reverse in a
subsequent period. Accumulated net realized gain (loss) on investments may
include temporary book and tax basis differences that 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.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission (SEC), the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR), may
transfer uninvested cash balances into one or more joint trading accounts.
These balances are invested in one or more repurchase agreements that
mature in 60 days or less from the date of purchase, 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 $53,481,077 and $4,250,118, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) receives a monthly fee that is calculated on the
basis of a group fee rate plus a fixed individual fund fee rate applied to
the average net assets of the fund. The group fee rate is the weighted
average of a series of rates and is based on the monthly average net assets
of all the mutual funds advised by FMR. The rates ranged from .1200% to
.3700% for the period. The annual individual fund fee rate is .60%. For the
period, the management fee was equivalent to an annualized rate of .75% of
average net assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company
(FIIOC), an affiliate of FMR, is the fund's transfer, dividend disbursing
and shareholder servicing agent. Effective January 1, 1995, the Board of
Trustees approved a revised transfer agent contract pursuant to which FIIOC
receives account fees and asset-based fees that vary according to account
size and type of account. FIIOC pays for typesetting, printing and mailing
of all shareholder reports, except proxy statements.
ACCOUNTING FEES. Fidelity Service Co., 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.
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