(2_FIDELITY_LOGOS)FIDELITY
REAL ESTATE HIGH INCOME
FUND
SEMIANNUAL REPORT
AUGUST 31, 1993
CONTENTS
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PERFORMANCE 3 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 5 THE MANAGER'S REVIEW OF FUND PERFORMANCE,
STRATEGY AND OUTLOOK.
INVESTMENTS 6 A COMPLETE LIST OF THE FUND'S INVESTMENTS WITH
THEIR MARKET VALUES.
FINANCIAL STATEMENTS 8 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS,
AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL
HIGHLIGHTS.
NOTES 10 NOTES TO THE FINANCIAL STATEMENTS.
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THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED
BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON THE FUND, INCLUDING CHARGES AND EXPENSES, CALL JEFF
GANDEL AT 617-563-6414 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
REAL ESTATE HIGH INCOME
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $100,000 investment. Each
performance figure includes changes in a fund's share price, plus
reinvestment of any dividends (income) and capital gains (the profits the
fund earns when it sells securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 1996 PAST 6 PAST 1 LIFE OF
MONTH YEAR FUND
S
Real Estate High Income 2.93% 11.22% 23.86%
Merrill Lynch High Yield Master Index 3.88% 9.55% 22.35%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, six months, one year, or since the fund
started on January 5, 1995. For example, if you invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment would
be $1,050. You can compare the fund's return to the performance of the
Merrill Lynch High Yield Master Index, which is a market-capitalization
weighted index which includes all domestic and yankee high-yield bonds.
Issues included in the Index have maturities of at least one year and have
a credit rating of less than BBB-/Baa3, but are not in default. This
benchmark includes reinvested dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1996 PAST 1 LIFE OF
YEAR FUND
Real Estate High Income 11.22% 16.45%
Merrill Lynch High Yield Master Index 9.55% 15.44%
AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$100,000 OVER LIFE OF FUND
IMAHDR PRASUN SHR__CHT 19960531 19960624 141905 S00000000000001
Real Estate High Income ML High Yield Master
00671 ML002
1995/01/05 100000.00 100000.00
1995/01/31 100918.56 101216.68
1995/02/28 104093.12 104374.76
1995/03/31 105430.21 105827.31
1995/04/30 107058.44 108305.10
1995/05/31 111364.63 111688.80
1995/06/30 112854.47 112541.88
1995/07/31 113387.98 113828.48
1995/08/31 115807.97 114519.33
1995/09/30 117769.89 115829.55
1995/10/31 118684.60 116650.61
1995/11/30 120329.56 117789.28
1995/12/31 121432.24 119680.03
1996/01/31 122861.39 121570.15
1996/02/29 122234.55 121753.20
1996/03/31 122094.38 121422.53
1996/04/30 123181.86 121477.54
1996/05/31 123858.23 122353.61
IMATRL PRASUN SHR__CHT 19960531 19960624 141906 R00000000000020
Let's say hypothetically that $100,000 was invested in Fidelity Real Estate
High Income Fund on January 5, 1995, when the fund started. As the chart
shows, by May 31, 1996, the value of the investment would have grown to
$123,858 - a 23.86% increase on the initial investment. For comparison,
look at how the Merrill Lynch High Yield Master Index did over the same
period. With dividends reinvested, the same $100,000 investment would have
grown to $122,354 - a 22.35% increase.
UNDERSTANDING PERFORMANCE
How a fund did yesterday is no guarantee of
how it will do tomorrow. Bond prices, for
example, generally move in the opposite
direction of interest rates. In turn, the share
price, return, and yield of a fund that invests in
bonds will vary. That means if you sell your
shares during a market downturn, you might
lose money. But if you can ride out the
market's ups and downs, you may have a
gain.
(checkmark)
TOTAL RETURN COMPONENTS
SIX MONTHS JANUARY 5, 1995
ENDED (COMMENCEMENT
MAY 31, 1996 OF
OPERATIONS) TO
NOVEMBER 30,
1995
Dividend return 4.13% 9.93%
Capital appreciation return -1.20% 10.40%
Total return 2.93% 20.33%
DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested.
DIVIDENDS
PERIODS ENDED MAY 31, 1996 PAST PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 7.90(cents) 44.39(cents) 103.94(cents)
Annualized dividend rate 8.66% 8.16% 9.56%
30-day annualized yield 11.35% - -
DIVIDENDS per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $10.74 over
the past month, $10.85 over the past six months and $10.87 over the past
year, you can compare the fund's income over these three periods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments at the
end of the period. It also helps you compare funds from different companies
on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
An interview with Mark Snyderman, Portfolio Manager of Fidelity Real Estate
High Income Fund
Q. HOW DID THE FUND PERFORM, MARK?
A. For the six- and 12-month periods ending May 31, 1996, the fund returned
2.93% and 11.22%, respectively. Its benchmark index, the Merrill Lynch High
Yield Master Index returned 3.88% for the six-month and 9.55% for the
12-month periods. The Merrill Lynch High Yield Master Index is a
market-capitalization weighted index which includes all domestic and yankee
high-yield bonds. Issues included in the Index have maturities of at least
one year and have a credit rating of less than BBB-/Baa3, but are not in
default.
Q. HOW DO YOU EXPLAIN THE FUND'S PERFORMANCE DURING THE PAST SIX MONTHS?
A. Because interest rates moved up during the period, the fund's overall
return looks quite modest, but on a relative basis it performed fairly
well. Usually, a high-yield real estate fund would be expected to match or
outperform high-yield corporates. During the period, however, the credit
spreads between high-yield corporate bonds and U.S. Treasury bonds of
comparable maturities narrowed, causing significant capital gains in the
high-yield corporate market and underperformance of higher-yielding real
estate securities. It was tough to keep up, but the fund held its own.
Q. DID YOU TAKE MEASURES TO POSITION THE FUND MORE DEFENSIVELY WHILE
INTEREST RATES WERE RISING?
A. Not really, because this fund is more defensively positioned than its
peers anyway; it owns more shorter-duration instruments than the average in
this market. During the period, though, I did implement an interest rate
hedging program to dampen the fund's sensitivity to movements in interest
rates.
Q. THERE HAVEN'T BEEN MANY CHANGES TO THE FUND'S TOP 10 HOLDINGS . . .
A. That's right. My investment style doesn't involve a lot of trading. I do
a lot of work before making an investment and, once I do, I don't expect
the creditworthiness of a security to reveal itself to the market for one
to three years. It only becomes time to sell when the market fully
appreciates the fact that these are better securities than they were once
deemed to be.
Q. RTC BONDS MAKE UP A SIGNIFICANT PORTION OF THE FUND. WHY?
A. The fund has a significant holding in bonds issued by the former
Resolution Trust Corp. (RTC) - the U.S. government agency created to merge
or close insolvent savings and loan institutions. I believe the
creditworthiness of these securities is much better than their current
ratings indicate. I also like the feature of the RTC issues that gives the
holders of the bonds small amounts of principal paid back on a monthly
basis - it can increase return by reducing risk.
Q. WHY DOES THE FUND HOLD SUCH A SMALL NUMBER OF POSITIONS?
A. The primary reason the fund is so concentrated is that I prefer to have
a thorough understanding of each position rather than having many smaller
positions that I don't know as well. This way, I'm more confident about
each of the bonds that the fund owns. But there's another reason: the
high-yield real estate market isn't very big, and it would be difficult to
find 100 or more positions that I think would be appropriate for the fund
to own.
Q. SINCE YOU'RE SO CHOOSY, HOW DO YOU DECIDE WHAT THE FUND WILL OWN?
A. The first step is to look at the broad characteristics of new and
secondary bonds to determine which ones have potential. Some can be ruled
out right away because of their size or duration - I don't want to own
securities that are not liquid enough or have very long durations. For
those bonds that pass this preliminary screening, my team and I begin the
credit work. Most of the securities that the fund owns have properties
underlying them that have mortgages. The most important thing our
department does is conduct intensive credit analysis to try to determine
whether the mortgage will perform and whether it can be paid off without
losses. This is done by analyzing the properties and what they're worth
relative to their mortgages. This kind of bottom-up analysis of property
values and mortgage balances is very time-intensive, but is key to the
fund's performance.
Q. WHAT'S YOUR OUTLOOK GOING FORWARD, MARK?
A. My overall outlook is positive. The past six months were tough for all
fixed-income funds. Even though we nearly matched the index, absolute
returns were not terribly impressive. The next six months look different. I
think this fund has the potential to get a lot more return relative to its
benchmark. I don't think that corporates have that much more room to
tighten. On the other hand, I believe the credit spreads of real estate
debt securities have plenty of room to tighten, and our credit work should
also help us generate additional return.
FUND FACTS
GOAL: to provide high current income by
investing primarily in commercial
mortgage-backed securities, with an emphasis
on lower-quality securities
START DATE: January 5, 1995
SIZE: as of May 31, 1996, more than $75 million
MANAGER: Mark Snyderman, since January
1995; joined Fidelity in May 1994
(checkmark)
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGER
ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER.
THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
INVESTMENTS MAY 31, 1996 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 3.7%
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 2.4%
CONSTRUCTION & REAL ESTATE - 2.4%
REAL ESTATE INVESTMENT TRUSTS - 2.4%
Malan Realty Investors 9 1/2%,
7/15/04 B3 $ 2,000,000 $ 1,800,000
NONCONVERTIBLE BONDS - 1.3%
CONSTRUCTION & REAL ESTATE - 1.3%
CONSTRUCTION - 1.3%
WCI Communities LP 17%,
7/24/98 (d) - 1,000,000 1,000,000
TOTAL CORPORATE BONDS
(Cost $2,672,445) 2,800,000
U.S. TREASURY OBLIGATIONS - 0.1%
U.S. Treasury Bill, Yield at date of purchase
4.96% to 5.03%, 7/18/96 (h)
(Cost $109,320) Aaa 110,000 109,320
COMMERCIAL MORTGAGE SECURITIES - 92.3%
ACP Mortgage LP commercial floater (e)(f):
Series E, 7.54%, 2/28/28 BB 2,661,397 1,943,678
Series F, 7.54%, 2/28/28 B 2,190,053 1,828,694
American Southwest Financial
Securities commercial Series
1994-C2 Class B2, 13.34%,
12/25/01 (e)(f) - 3,000,000 2,808,750
CBA Mortgage Corp. commercial
Series 1993-C1 Class E, 7.15%,
12/25/03 (e)(f) Ba2 3,000,000 2,377,969
CS First Boston Mortgage
Securities Corp.:
commercial floater (e)(f):
1994-CFB1 Class E, 7.86%,
1/25/28 Ba2 3,374,576 2,635,333
Series 1995-AEWI Class E,
10.33%, 11/25/97 - 2,500,000 2,075,781
commercial Series:
1994-M1 Class E, 12.60%,
2/15/02 (e) - 2,500,000 2,493,750
DLJ Mortgage Acceptance Corp.
commercial Series 1994-MF11
Class B-2, 8.10%, 6/18/04 (e) Ba2 2,750,000 2,170,781
Kearny Street Mortgage commercial
floater Series 1995-1 Class F,
7.77%, 2/20/30 (e)(f) B 4,150,000 2,806,438
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (b)(e) - 12,919,000 2,325,420
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
Merrill Lynch Mortgage
Investments, Inc. (e)(f):
commercial Series 1995-C2
Class E, 8.26%, 6/15/21 Ba3 $ 3,386,095 $ 3,003,127
commercial Series 1994-M1
Class E, 8.06%, 6/25/22 Ba2 3,500,000 2,974,300
Morgan Stanley Capital One, Inc. (e):
commercial Series 1996 MBL1
Class E, 8.661% 5/25/21 - 1,300,000 1,109,469
commercial Series 1995-TNE
Class D-2, 8.24%, 12/15/23 Ba3 4,000,641 3,465,555
Nomura Asset Securities Corp.
commercial Series 1993-1
Class B-3, 6.68%, 12/15/03 (e) B 3,300,000 2,493,047
Oregon Commercial Mortgage, Inc.
commercial Series 1995-1
Class E, 9.92%, 6/25/26 (e)(f) BB 3,000,000 2,520,000
Phoenix Real Estate Securities, Inc.
commercial Series 1993
Class D-1, 8 1/4%, 11/25/23 (e) Ba2 3,500,000 2,975,000
Resolution Trust Corp.:
commercial floater Series
1991-M2 Class A-1, 6.84%,
9/25/20 (f) Ba3 4,384,456 3,069,119
commercial Series:
1994-C2 Class F, 8%,
4/25/25 BB 1,725,812 1,483,120
1994-C2 Class G, 8%,
4/25/25 B 4,399,237 3,508,391
1994-C1 Class E, 8%,
6/25/26 BB 4,538,137 3,812,035
1995-C1 Class F, 6.90%,
2/25/27 B1 46,791 40,982
1995-C2 Class E, 7%,
5/25/27 Ba2 3,401,892 2,772,542
1995-C2 Class F, 7%,
5/25/27 B1 3,374,962 2,784,344
sequential pay
Series 1994-C1 Class F,
8%, 6/25/26 B 5,509,312 4,491,811
Structured Asset Securities Corp.
commercial Series:
1992-M1 Class C, 7.05%
11/25/02 B2 3,200,000 2,510,500
1995-C1, Class E,
7 3/8%, 9/25/24 (e) BB 3,500,000 2,557,188
SML, Inc. commercial Series
1994-C1 Class C, 9.20%,
9/18/99 (d) - 1,600,000 1,056,000
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $69,335,877) 70,093,124
COMPLEX MORTGAGE SECURITIES - 0.1%
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
INTEREST ONLY STRIPS - 0.1%
Mortgage Capital Funding, Inc.
commercial Series (f)(g):
1993-C1 Class 2, 3.61%,
5/25/15 Aaa $ 17,629,224 $ 102,426
1993-C1 Class 2, 1.31%,
5/25/15 Aaa 33,278 84
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $171,310) 102,510
COMMON STOCKS - 1.1%
SHARES
CONSTRUCTION & REAL ESTATE - 1.1%
REAL ESTATE - 1.1%
Trizec Ltd. (a) (Cost $851,883) 115,000 852,848
REPURCHASE AGREEMENTS - 2.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.32%, dated
5/31/96 due 6/3/96 $ 2,013,892 2,013,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $75,153,835) $ 75,970,802
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
SOLD
80 U.S. Treasury Note
Futures Contracts June 96 $ 8,640,524 $ 120,524
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 11.4%
LEGEND
1. Non-income producing
2. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
3. Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
4. Restricted securities - Investment in securities not registered under
the Securities Act of 1933 (see Note 2 of Notes to Financial Statements).
Additional information on each holding is as follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
WCI Communities LP 17%, 7/24/98 7/24/95 $ 987,446
SML, Inc. commericial Series
1994-C1 Class C, 9.20%, 9/18/99 12/6/95 $ 1,064,500
5. 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 $44,564,280 or 58.7% of net
assets.
6. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
7. Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
8. Security pledged to cover margin requirements for futures contracts. At
the period end, the value of securities pledged amounted to $109,320.
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 0.1% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 33.4% BB 23.4%
B 9.4% B 19.9%
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 16.9%. FMR
has determined that unrated debt securities that are lower quality account
for 16.9% of the total value of investment in securities.
INCOME TAX INFORMATION
At May 31, 1996, the aggregate cost of investment securities for income tax
purposes was $75,153,835. Net unrealized appreciation aggregated $816,967,
of which $2,086,751 related to appreciated investment securities and
$1,269,784 related to depreciated investment securities.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
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MAY 31, 1996 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase agreements of $ 75,970,802
$2,013,000) (cost $75,153,835)
- - See accompanying schedule
Cash 266,921
Interest receivable 506,087
Receivable for daily variation on futures contracts 40,000
TOTAL ASSETS 76,783,810
LIABILITIES
Payable for investments purchased $ 171,001
Distributions payable 587,381
Accrued management fee 49,772
Other payables and accrued expenses 22,975
TOTAL LIABILITIES 831,129
NET ASSETS $ 75,952,681
Net Assets consist of:
Paid in capital $ 73,849,072
Undistributed net investment income 189,915
Accumulated undistributed net realized gain (loss) on investments 976,203
Net unrealized appreciation (depreciation) on investments 937,491
NET ASSETS, for 7,076,242 shares outstanding $ 75,952,681
NET ASSET VALUE, offering price and redemption price per share ($75,952,681 (divided by) 7,076,242 $10.73
shares)
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STATEMENT OF OPERATIONS
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SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED)
INVESTMENT INCOME $ 74,156
Dividends
Interest 3,836,670
TOTAL INCOME 3,910,826
EXPENSES
Management fee $ 301,635
Transfer agent fees 5,228
Accounting fees and expenses 29,530
Non-interested trustees' compensation 156
Custodian fees and expenses 4,488
Audit 29,987
Legal 950
Interest 2,803
Miscellaneous 346
Total expenses before reductions 375,123
Expense reductions (4,446 370,677
)
NET INVESTMENT INCOME 3,540,149
REALIZED AND UNREALIZED GAIN (LOSS) 1,011,329
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on:
Investment securities (2,332,211
)
Futures contracts 120,524 (2,211,687
)
NET GAIN (LOSS) (1,200,358
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 2,339,791
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STATEMENT OF CHANGES IN NET ASSETS
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INCREASE (DECREASE) IN NET ASSETS SIX MONTHS ENDED JANUARY 5, 1995
MAY 31, 1996 (COMMENCEMENT OF
(UNAUDITED) OPERATIONS) TO
NOVEMBER 30, 1995
Operations $ 3,540,149 $ 4,225,415
Net investment income
Net realized gain (loss) 1,011,329 1,654,410
Change in net unrealized appreciation (depreciation) (2,211,687) 3,149,178
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,339,791 9,029,003
Distributions to shareholders (3,318,671) (4,225,415)
From net investment income
In excess of net investment income - (454,831)
From net realized gain (1,264,154) -
TOTAL DISTRIBUTIONS (4,582,825) (4,680,246)
Share transactions 15,099,999 64,899,998
Net proceeds from sales of shares
Reinvestment of distributions 2,766,715 4,680,246
Cost of shares redeemed (12,100,000) (1,500,000)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 5,766,714 68,080,244
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,523,680 72,429,001
NET ASSETS
Beginning of period 72,429,001 -
End of period (including under (over) distribution of net investment income of $189,915
and $(31,563), $ 75,952,681 $ 72,429,001
respectively)
OTHER INFORMATION
Shares
Sold 1,386,729 6,269,408
Issued in reinvestment of distributions 254,411 434,154
Redeemed (1,124,644) (143,816)
Net increase (decrease) 516,496 6,559,746
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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FINANCIAL HIGHLIGHTS
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SELECTED PER-SHARE DATA SIX MONTHS ENDED JANUARY 5, 1995
MAY 31, 1996 (COMMENCEMENT OF
(UNAUDITED) OPERATIONS) TO
NOVEMBER 30, 1995
Net asset value, beginning of period $ 11.040 $ 10.000
Income from Investment Operations .476 .922
Net investment income
Net realized and unrealized gain (loss) (.162) 1.045
Total from investment operations .314 1.967
Less Distributions (.444) (.837)
From net investment income
In excess of net investment income - (.090)
From net realized gain (.180) -
Total distributions (.624) (.927)
Net asset value, end of period $ 10.730 $ 11.040
TOTAL RETURN B, C 2.93% 20.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 75,953 $ 72,429
Ratio of expenses to average net assets .93% A 1.09% A
Ratio of expenses to average net assets after expense reductions .92% A 1.09% A
, D
Ratio of net investment income to average net assets 8.77% A 9.14% A
Portfolio turnover rate 43% A 49% A
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A ANNUALIZED B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT
ANNUALIZED. C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN
EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS). D FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS
WITH THIRD PARTIES
WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES (SEE NOTE 6
OF NOTES TO FINANCIAL STATEMENTS).
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NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1996 (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 financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities 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 quotations are not readily available are valued at their fair value
as determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases and
sales of securities, income receipts, and expense payments are translated
into U.S. dollars at the prevailing exchange rate on the respective dates
of the transactions.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses
realized between the trade and settlement dates on securities transactions,
and the difference between the amount of net investment income accrued and
the U.S. dollar amount actually received. The effects of changes in foreign
currency exchange rates on investments in securities are included with the
net realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes substantially all of its taxable income for
its fiscal year. The 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, which may result in distribution
reclassifications, are primarily due to differing treatments for paydown
gains/losses on certain securities.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect the per-share allocation between net investment income and realized
and unrealized gain (loss). Undistributed net investment income and
accumulated undistributed net realized gain (loss) on investments may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other affiliated
entities of Fidelity Management & Research Company (FMR), may transfer
uninvested cash balances into one or more joint trading accounts. These
balances are invested in one or more repurchase agreements that mature in
60 days or less from the date of purchase, and are collateralized by U.S.
Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
Securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are marked-to-market
daily and maintained at a value at least equal to the principal amount of
the repurchase agreement (including accrued interest). FMR, the fund's
investment adviser, is responsible for determining that the value of the
underlying securities remains in accordance with the market value
requirements stated above.
FUTURES CONTRACTS AND OPTIONS. The fund may use futures and options
contracts to manage its exposure to the bond market and to fluctuations in
interest rates. Buying futures, writing puts, and buying calls tend to
increase the fund's exposure to the underlying instrument. Selling futures,
buying puts, and writing calls tend to decrease the fund's exposure to the
underlying instrument, or hedge other fund investments. Futures contracts
involve, to varying degrees, risk of loss in excess of the futures
variation margin reflected in the Statement of Assets and Liabilities. The
underlying face amount at value $8,640,524, is shown in the schedule of
investments under the caption "Futures Contracts." This amount reflects
each contract's exposure to the underlying instrument at period end. Losses
may arise from changes in
2. OPERATING POLICIES - CONTINUED
FUTURES CONTRACTS AND OPTIONS - CONTINUED
the value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparties do not perform under the
contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
RESTRICTED SECURITIES. The fund is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from registration
or to the public if the securities are registered. Disposal of these
securities may involve time-consuming negotiations and expense, and prompt
sale at an acceptable price may be difficult. At the end of the period,
restricted securities (excluding 144A issues) amounted to $2,056,000 or
2.7% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $22,740,985 and $16,765,030, respectively, of which U.S.
government and government agency obligations aggregated $6,394,517 and
$5,848,556, respectively.
The market value of futures contracts opened and closed during the period
amounted to $8,640,524 and $0, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a monthly
fee that is calculated on the basis of a group fee rate plus a fixed
individual fund fee rate applied to the average net assets of the fund. The
group fee rate is the weighted average of a series of rates and is based on
the monthly average net assets of all the mutual funds advised by FMR. The
rates ranged from .1100% to .3700% for the period. In the event that these
rates were lower than the contractual rates in effect during the period,
FMR voluntarily implemented the above rates, as they resulted in the same
or a lower management fee. The 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. 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. For the period, the transfer agent fees
were equivalent to an annualized rate of .01% of average net assets.
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.
5. BANK BORROWINGS.
The fund is permitted to have bank borrowings for temporary or emergency
purposes to fund shareholder redemptions. The fund has established
borrowing arrangements with certain banks. Under the most restrictive
arrangement, the fund must pledge to the bank securities having a market
value in excess of 220% of the total bank borrowings. The interest rate on
the borrowings is the bank's base rate, as revised from time to time. The
maximum loan and the average daily loan balances during the period for
which loans were outstanding amounted to $4,312,000 and $4,248,750,
respectively. The weighted average interest rate was 5.94%.
6. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby interest earned on uninvested cash balances was used to
offset a portion of the fund's expenses. During the period, the fund's
custodian and transfer agent fees were reduced by $2,521 and $1,925,
respectively, under these arrangements.
7. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of approximately
100% of the total outstanding shares of the fund.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
J. Gary Burkhead, SENIOR VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Arthur S. Loring, SECRETARY
Kenneth A. Rathgeber, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
ADVISORY BOARD
William O. McCoy
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
