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. 56 [X]
and
REGISTRATION STATEMENT (No. 811-3737)
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 56 [X]
Fidelity Advisor Series IV
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-570-7000
Arthur S. Loring, Secretary
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 ( ) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
( ) on ( ) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) 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 has filed a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940 and filed the Notice required by such Rule
on January 26, 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 Financial Highlights
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 FMR and Its Affiliates
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
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 September 27 ,
199 6 . 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-996
A Fund of Fidelity Advisor Series IV
PROSPECTUS
SEPTEMBER 27 , 199 6 (FIDELITY_LOGO_GRAPHIC) 82 DEVONSHIRE
STREET, BOSTON, MA 02109
CONTENTS
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KEY FACTS
WHO MAY WANT TO INVEST
EXPENSES The fund's yearly operating expenses.
FINANCIAL HIGHLIGHTS A summary of the fund's
financial data.
PERFORMANCE How the fund has done over time.
THE FUN D 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 ACCOUNT POLICIES DIVIDENDS, CAPITAL GAINS, AND TAXES
TRANSACTION DETAILS Share price calculations and
the timing of purchases and redemptions.
APPENDIX
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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 var y
from day to day, and generally reflect interest rates, market conditions,
and other economic and political news. Some of the fund's investments may
also be 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.
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Maximum sales charge on purchases and reinvested distributions None
Maximum deferred sales charge on redemptions None
Redemption fee None
Exchange fee None
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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 . The fund has entered
into arrangements with its custodian and transfer agent whereby interest
earned on uninvested cash balances may be used to offset a portion of the
fund's expenses.
Management fee .75 %
12b-1 fee (Distribution Fee) None
Other expense s .34 %
Total fund operating expense s 1.09
%
EXPENSE TABLE EXAMPLE: You would pay the following expenses on a $1,000
investment in the fund , assuming a 5% annual return and full
redemption at the end of each time period:
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1 3 5 10
Year Years Years Years
Real Estate High Income Fund $ 11 $ 35 $ 60 $ 13
3
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THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
FINANCIAL HIGHLIGHTS
The financial highlights table that follows and the fund's financial
statements are included in the fund's Semi-Annual Report. The annual
information has been audited by Coopers & Lybrand L.L.P., independent
accountants. Their report on the financial statements and financial
highlights is included in the Annual Report. The financial statements, the
financial highlights, the Annual Report, and the Semi-Annual Report are
incorporated by reference into the fund's SAI, which may be obtained free
of charge from FDC.
SELECTED PER-SHARE DATA
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1. 1996E 1995D,F
2.Net asset value, beginning of period $ 11.040 $ 10.000
3.Income from Investment Operations
.476 .922
Net investment income
4. Net realized and unrealized gain (loss) (.162) 1.045
5. Total from investment operations .314 1.967
6.Less Distributions
(.444) (.837)
From net investment income
7. In excess of net investment income -- (.090)
8. From net realized gain (.180) --
9. Total distributions (.624) (.927)
10.Net asset value, end of period $ 10.730 $ 11.040
11.Total returnB,C 2.93% 20.33%
12.RATIOS AND SUPPLEMENTAL DATA
13.Net assets, end of period (000 omitted) $ 75,953 $ 72,429
14.Ratio of expenses to average net assets .93%A 1.09%A
15.Ratio of expenses to average net assets after expense reductions .92%A 1.09%A
16.Ratio of net investment income to average net assets 8.77%A 9.14%A
,D
17.Portfolio turnover rate 43%A 49%A
</TABLE>
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURN(S) WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD(S) SHOWN.
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.
E SIX MONTHS ENDED MAY 31 (UNAUDITED)
F JANUARY 5, 1995 (COMMENCEMENT OF OPERATIONS) TO NOVEMBER 30
PERFORMANCE
Bond fund performance can be measured as TOTAL RETURN or YIELD. The
total returns that follow are based on historical fund results and do not
reflect the effect of taxes.
The fund's fiscal year runs from December 1 through November 30. The table
below shows the fund's performance over past periods.
REAL ESTATE HIGH INCOME FUND
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Periods ended
Past 6
Past 1
Life of
May 31, 1996[A] months year fund[B]
Average annual
n/a 11.22% 16.45%
total returns
Cumulative
2.93% 11.22% 23.86%
total returns
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[A] UNAUDITED
[B] FROM JANUARY 5, 1995
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 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 or a free annual report, call Fidelity Investments at
1-617-563-6414.
TOTAL RETURNS AND YIELDS ARE BASED ON PAST RESULTS AND ARE NOT AN
INDICATION OF FUTURE PERFORMANCE.
THE FUND IN DETAIL
CHART ER
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 July 31, 1996 , FMR advised funds having approximately
27 million shareholder accounts with a total value of more than
$ 385 billion.
Mark P. Snyderman is manager of Real Estate High Income, which he has
managed since January of 1995 . 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 an Appendix to this Prospectus.
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.
The table on page provides a summary of ratings assigned to debt
holdings (not including money market instruments) in the fund's portfolio.
These figures are dollar-weighted averages of month-end portfolio holdings
during the period ended May 31, 1996, and are presented as a percentage of
total security investments. These percentages are historical and do not
necessarily indicate the fund's current or future debt holdings.
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.
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 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 Federal Farm
Credit Banks Funding Corporation are supported only by the credit of
the entity that issued them.
PERIOD ENDED MAY 31, 1996 DEBT HOLDINGS, BY RATING*
MOODY'S
INVESTORS SERVICE STANDARD & POOR'S
(AS A % OF INVESTMENTS) (AS A % OF INVESTMENTS)
Rating Average Rating Average
INVESTMENT GRADE**
Highest quality Aaa .01% AAA .00%
High quality Aa .79% AA .00%
Upper-medium grade A .00% A .00%
Medium grade Baa .00% BBB .00%
LOWER QUALITY**
Moderately speculative Ba 29.69% BB 25.32%
Speculative B 9.76% B 16.40%
Highly speculative Caa .00% CCC .00%
Poor quality Ca .00% CC .00%
Lowest quality, no interest C C
D .00%
40.25% 41.72%
(AS A % OF INVESTMENTS)
SECURITIES NOT RATED BY MOODY'S OR S&P(dagger)
Investment Grade (double dagger) .00%
Lower Quality (double dagger) 23.16%
Total 23.16%
* UNAUDITED
** FOR SOME FOREIGN GOVERNMENT OBLIGATIONS, FMR ASSIGNS THE RATINGS OF THE
SOVEREIGN CREDIT OF THE ISSUING
GOVERNMENT.
(dagger) THE DOLLAR-WEIGHTED AVERAGE PERCENTAGES REFLECTED IN THE TABLE MAY
INCLUDE SECURITIES RATED BY OTHER
NATIONALLY RECOGNIZED RATING SERVICES, AS WELL AS UNRATED SECURITIES.
(double dagger) AS DETERMINED BY FMR
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.
EXPOSURE TO FOREIGN MARKETS. Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial foreign
operations may involve additional risks and considerations. These include
risks relating to political or economic conditions in foreign countries,
fluctuations in foreign currencies, withholding or other taxes, operational
risks, increased regulatory burdens, and the potentially less stringent
investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign debt securities may be
unwilling to pay interest and repay principal when due, and may require
that the conditions for payment be renegotiated. All of these factors can
make foreign investments, especially those in developing countries, more
volatile than U.S. investments.
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. The fund also pays OTHER EXPENSES,
which are explained below.
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 . 3700% , and it drops as total assets
under management increase. For July 199 6 , the group fee rate was
.1455 %. The individual fund fee rate is .60%.
The total management fee rate for the fiscal year ended November 30,
1995 was .75%. This rate was higher than that of most other mutual
funds.
OTHER EXPENSES
While the management fee is a significant component of the fund's annual
operating costs, the fund has other expenses as well.
FIIOC performs transfer agency, dividend disbursing and shareholder
servicing functions for the fund. Fidelity Service Co. (FSC)
calculates the NAV and dividends for the fund, maintains the fund's
general accounting records and administers the fund's securities lending
program .
For the fiscal year ended November 30, 1995, the fund paid FIIOC and
FSC fees equal to .15% and .09%, respectively, of the fund's average net
assets.
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 for the period ended May 31, 1996 was
43%. This rate varies 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 Institutional 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 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, c Trustees and Officers
15 a , b, c Trustees and Officers
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 Financial Statements
</TABLE>
* Not Applicable
FIDELITY REAL ESTATE HIGH INCOME FUND
A FUND OF FIDELITY ADVISOR SERIES IV
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 27 , 199 6
This Statement is not a prospectus but should be read in conjunction with
the fund's current Prospectus (dated September 27 , 199 6 ).
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 FMR Affiliates
Description of the Trust
Financial Statements
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- 996
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.
For the period (unaudited) ended May 31, 1996, the fund's portfolio
turnover rate was 43%.
For fiscal 1995, the fund paid brokerage commissions of $4,223. The fund
pays both commissions and spreads in connection with the placement of
portfolio transactions. FBSI and FBS are paid on a commission basis. During
fiscal 1995, the fund paid no brokerage commissions to FBSI or FBS.
During fiscal 1995, the fund paid $3,912 in commissions to brokerage firms
that provided research services involving approximately $831,060 of
transactions. The provision of research services was not necessarily a
factor in the placement of all this business with such firms.
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.
HISTORICAL FUND RESULTS. The following table shows the fund's yield and
total return for the period ended May 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Average Annual Total Cumulative Total Returns
Returns
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Day One Life of One Life of
Annualized Year Fund* Year Fund*
Yield
Real Estate High
Income Fund 11.35% 11.22% 16.45% 11.22% 23.86%
</TABLE>
* From January 5, 1995 (commencement of operations).
The following table shows the income and capital elements of the fund's
cumulative total return. The table compares the fund's return to the record
of the Standard & Poor's Composite Index of 500 Stocks (S&P 500), the Dow
Jones Industrial Average (DJIA), and the cost of living (measured by the
Consumer Price Index, or CPI) over the same period. The CPI information is
as of the month end closest to the initial investment date for the fund.
The S&P 500 and DJIA comparisons are provided to show how the fund's total
return compared to the record of a broad average of common stocks and a
narrower set of stocks of major industrial companies, respectively, over
the same period. Of course, since the fund invests in fixed-income
securities, common stocks represent a different type of investment from the
fund. Common stocks generally offer greater growth potential than the fund,
but generally experience greater price volatility, which means greater
potential for loss. In addition, common stocks generally provide lower
income than a fixed-income investment such as the fund. Figures for the S&P
500 and DJIA are based on the prices of unmanaged groups of stocks and,
unlike the fund's returns, do not include the effect of paying brokerage
commissions or other costs of investing.
During the period from January 5, 1995 (commencement of operations) to May
31, 1996, a hypothetical $10,000 investment in Real Estate High Income
would have grown to $12,386, assuming all distributions were reinvested.
This was a period of fluctuating interest rates and bond prices and the
figures below should not be considered representative of the dividend
income or capital gain or loss that could be realized from an investment in
the fund today.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY REAL ESTATE HIGH INCOME FUND INDICES
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Period Value of Value of Value of Total S&P 500 DJIA Cost of
Ended Initial Reinvested Reinvested Value Living**
$10,000 Dividend Capital Gain
Investment Distributions Distributions
5/31/96 $ 10,730 $ 1,462 $ 194 $ 12,386 $ 15,039 $ 15,117 $ 10,461
11/30/95* $ 11,040 $ 933 $ 0 $ 12,033 $ 13,453 $ 13,448 $ 10,261
</TABLE>
* From January 5, 1995 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 made on January
5, 1995, the net amount invested in fund shares was $10,000. The cost of
the initial investment ($10,000), together with the aggregate cost of
reinvested dividends and capital gain distributions for the period covered
(their cash value at the time they were reinvested), amounted to $11,661.
If distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash payments
for the period would have amounted to $1,371 for dividends and $180 for
capital gains distributions. Tax consequences of different investments have
not been factored into the above figures.
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/ Donoghue'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 July 31, 1996, FMR advised over $27 billion in tax-free fund
assets, $90 billion in money market fund assets, $263 billion in equity
fund assets, $54 billion in international fund assets, and $23 billion in
Spartan 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 199 6 : New
Year's Day , Washington's Birthday (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. 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 the 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, Members of the Advisory Board, 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 and Members of the Advisory Board also
serve in similar capacities for other funds advised by FMR. The business
address of each Trustee and officer who is an "interested person" (as
defined in the Investment Company Act of 1940) is 82 Devonshire Street,
Boston, Massachusetts 02109, which is also the address of FMR. The business
address of all the other Trustees and Members of the Advisory Board is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
Those Trustees who are "interested persons" by virtue of their affiliation
with either the trust or FMR are indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d (66), 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., Fidelity Management & Research (U.K.) Inc., and Fidelity
Management & Research (Far East) Inc.
*J. GARY BURKHEAD (55), Trustee and Senior Vice President, is President of
FMR; and President and a Director of FMR Texas Inc., Fidelity Management &
Research (U.K.) Inc., and Fidelity Management & Research (Far East) Inc.
RALPH F. COX (64), Trustee (1991), is a management consultant (1994). Prior
to February 1994, he was President of Greenhill Petroleum Corporation
(petroleum exploration and production). 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), CH2M Hill Companies (engineering), Rio Grande,
Inc. (oil and gas production), and Daniel Industries (petroleum measurement
equipment manufacturer). In addition, he is a member of advisory boards of
Texas A&M University and the University of Texas at Austin.
PHYLLIS BURKE DAVIS (64), 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), and previously served as a
Director of Hallmark Cards, Inc. (1985-1991) and Nabisco Brands, Inc. In
addition, she is a member of the President's Advisory Council of The
University of Vermont School of Business Administration.
RICHARD J. FLYNN (72), Trustee and Chairman of the non-interested Trustees,
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 Trustee of College of the Holy Cross and Old
Sturbridge Village, Inc., and he previously served as a Director of
Mechanics Bank (1971-1995).
E. BRADLEY JONES (68), Trustee. Prior to his retirement in 1984, Mr. Jones
was Chairman and Chief Executive Officer of LTV Steel Company. He is a
Director of TRW Inc. (original equipment and replacement products),
Cleveland-Cliffs Inc (mining), Consolidated Rail Corporation, Birmingham
Steel Corporation, and RPM, Inc. (manufacturer of chemical products), and
he previously served as a Director of NACCO Industries, Inc. (mining and
marketing, 1985-1995) and Hyster-Yale Materials Handling, Inc. (1985-1995).
In addition, he serves as a Trustee of First Union Real Estate Investments,
a Trustee and member of the Executive Committee of the Cleveland Clinic
Foundation, a Trustee and member of the Executive Committee of University
School (Cleveland), and a Trustee of Cleveland Clinic Florida.
DONALD J. KIRK (63), Trustee, is Executive-in-Residence (1995) at Columbia
University Graduate School of Business and a financial consultant. From
1987 to January 1995, Mr. Kirk was a Professor at Columbia University
Graduate School of Business. Prior to 1987, he was Chairman of the
Financial Accounting Standards Board. Mr. Kirk is a Director of General Re
Corporation (reinsurance), and he previously served as a Director of
Valuation Research Corp. (appraisals and valuations, 1993-1995). In
addition, he serves as Chairman of the Board of Directors of the National
Arts Stabilization Fund, Vice Chairman of the Board of Trustees of the
Greenwich Hospital Association, a Member of the Public Oversight Board of
the American Institute of Certified Public Accountants' SEC Practice
Section (1995), and as a Public Governor of the National Association of
Securities Dealers, Inc. (1996).
*PETER S. LYNCH (53), Trustee, is Vice Chairman and Director of FMR (1992).
Prior to May 31, 1990, he was a Director of FMR 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) 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.
GERALD C. McDONOUGH (67), Trustee and Vice-Chairman of the non-interested
Trustees, 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), Commercial Intertech Corp. (water treatment equipment,
1992), and Associated Estates Realty Corporation (a real estate investment
trust, 1993).
EDWARD H. MALONE (71), 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 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 (63), 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.
THOMAS R. WILLIAMS (67), 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., and AppleSouth,
Inc. (restaurants, 1992).
WILLIAM O. McCOY (62), Member of the Advisory Board (1996), is the Vice
President of Finance for the University of North Carolina (16-school
system, 1995). Prior to his retirement in December 1994, Mr. McCoy was Vice
Chairman of the Board of BellSouth Corporation (telecommunications) and
President of BellSouth Enterprises. He is currently a Director of Liberty
Corporation (holding company), Weeks Corporation of Atlanta (real estate,
1994), and Carolina Power and Light Company (electric utility, 1996).
Previously, he was a Director of First American Corporation (bank holding
company, 1979-1996). In addition, Mr. McCoy serves as a member of the Board
of Visitors for the University of North Carolina at Chapel Hill (1994) and
for the Kenan Flager Business School (University of North Carolina at
Chapel Hill).
ROBERT A. LAWRENCE (43), Vice President (1994), is Vice President of
Fidelity's high income funds and Senior Vice President of FMR (1993). Prior
to joining FMR, Mr. Lawrence was Managing Director of the High Yield
Department for Citicorp (1984-1991).
FRED L. HENNING, JR. (57), Vice President, is Vice President of Fidelity's
money market (1994) and fixed-income (1995) funds and Senior Vice President
of FMR Texas Inc.
ARTHUR S. LORING (48), Secretary, is Senior Vice President (1993) and
General Counsel of FMR, Vice President-Legal of FMR Corp., and Vice
President and Clerk of FDC.
KENNETH A. RATHGEBER (49), 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).
JOHN H. COSTELLO (50), Assistant Treasurer, is an employee of FMR.
LEONARD M. RUSH (50), 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) and Chief
Financial Officer of Fidelity Brokerage Services, Inc. (1990-1993).
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, 199 5 .
COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Trustees Aggregate Pension or Estimated Annual Total
Compensation Retirement Benefits Upon Compensation
from the Benefits Accrued Retirement from the Fund
Fund as Part of Fund from the Complex*
Expenses from the Fund Complex*
Fund Complex*
J. Gary Burkhead ** $ 0 $ 0 $ 0 $ 0
Ralph F. Cox 12 5,200 52,000 12 8, 000
Phyllis Burke Davis 12 5,200 52,000 12 5 ,000
Richard J. Flynn 15 0 52,000 1 60 ,500
Edward C. Johnson 3d ** 0 0 0 0
E. Bradley Jones 12 5,200 49,400 12 8 , 0 00
Donald J. Kirk 12 5,200 52,000 12 9 , 5 00
Peter S. Lynch ** 0 0 0 0
Gerald C. McDonough 12 5,200 52,000 12 8 ,000
Edward H. Malone 12 5,200 44,200 128,000
Marvin L. Mann 12 5,200 52,000 12 8 ,000
Thomas R. Williams 12 5,200 52,000 12 5 , 0 00
</TABLE>
* Information is as of December 31, 1995 for 219 funds in the complex.
** Interested trustees of the fund are compensated by FMR.
The non-interested Trustees may elect to defer receipt of all or a
percentage of their annual fees in accordance with the terms of a Deferred
Compensation Plan (the Plan). Under the Plan, compensation deferred by a
Trustee is periodically adjusted as though an equivalent amount had been
invested and reinvested in shares of one or more funds in the complex
designated by such Trustee (designated securities). The amount paid to the
Trustee under the Plan will be determined based upon the performance of
such investments. Deferral of Trustees' fees in accordance with the Plan
will have a negligible effect on the fund's assets, liabilities, and net
income per share, and will not obligate the fund to retain the services of
any Trustee or to pay any particular level of compensation to the Trustee.
The fund may invest in such designated securities under the Plan without
shareholder approval. Only non-interested Trustees are eligible to
participate in the Plan.
Under a retirement program adopted in July 1988 and modified in November
1995, each non-interested Trustee may receive payments from a Fidelity fund
during his or her lifetime based on his or her basic trustee fees and
length of service. The obligation of a fund to make such payments is
neither secured nor funded. A Trustee becomes eligible to participate in
the program at the end of the calender year in which he or she reaches age
72, provided that, at the time of retirement, he or she has served as a
Fidelity fund Trustee 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 August 31, 1996 , the Trustees and officers of the fund owned, in
the aggregate, less than 1% of the fund's total outstanding shares.
As of August 31, 1996, the following owned of record or beneficially 5%
or more of outstanding shares of the fund: GTE Service Corporation, 1
Stamford Forum, Stamford, CT, 06904 (100%).
A shareholder owning of record or beneficially more than 25% of the fund's
outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders of
the fund.
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 $ 405 billion of group net
assets - the approximate level for July 31 , 199 6 - was
0. 1455 %, 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
On January 1, 1996, FMR voluntarily added new breakpoints to the
schedule for average group assets in excess of $372 billion, pending
shareholder approval of a new management contract reflecting the additional
breakpoints. The group fee rate schedule and its extensions provide for
lower management fee rates as FMR's assets under management increase. The
group fee rate schedule for average group assets in excess of $120 billion
and up to $372 billion with additional breakpoints voluntarily adopted by
FMR for average group assets in excess of $372 billion is as follows:
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Group
Annualized
Group Net
Effective Annual
Assets Rate Assets Fee Rate
120 - $156 billion .1450% $ 150 billion .1736%
156 - 192 .1400 175 .1690
192 - 228 .1350 200 .1652
228 - 264 .1300 225 .1618
264 - 300 .1275 250 .1587
300 - 336 .1250 275 .1560
336 - 372 .1225 300 .1536
372 - 408 .1200 325 .1514
408 - 444 .1175 350 .1494
444 - 480 .1150 375 .1476
480 - 516 .1125 400 .1459
Over 516 .1100 425 .1443
450 .1427
475 .1413
500 .1399
525 .1385
550 .1372
</TABLE>
The individual fund fee rate is 0.60%. Based on the average group net
assets of the funds advised by FMR for July 31 , 199 6 , the
annual basic fee rate would be calculated as follows:
Group Fee Rate Individual Fund Fee Rate Basic Fee Rate
0. 1455 % + .60% = 0. 7455 %
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 reimbursements by FMR will increase the
fund's total returns and reimbursement 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 FMR AFFILIATES
FIIOC, an affiliate of FMR, is the transfer, dividend disbursing, and
shareholder servicing agent for the fund. Under the trust's contract with
FIIOC, the fund pays a per account fee of $125 and an annual asset-based
fee of .02% of fund net assets. 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. Also, FIIOC pays out-of-pocket expenses
associated with transfer agent services.
FSC, an affiliate of FMR, performs the calculations necessary to determine
NAV and dividends for the fund, maintains the fund's accounting records,
and administers the fund's securities lending program. The annual fee rates
for these pricing and bookkeeping services are based on the fund's average
net assets, specifically, .0750% of the first $500 million of average net
assets and .0375% of average net assets in excess of $500 million. The fee
is limited to a minimum of $60,000 and a maximum of $800,000 per year. The
pricing and bookkeeping fee, including reimbursement for out-of-pocket
expenses, paid to FSC for fiscal year ended 1995 was $40,672.
FSC also receives fees for administering the fund's securities lending
program. For fiscal 1995, the fund did not incur any securities lending
fees.
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.
FINANCIAL STATEMENTS
The fund's financial statements and financial highlights for the fiscal
period ended November 30, 1995, and the report of the auditor thereon, are
included in the fund's Annual Report, which is a separate report supplied
with this Statement of Additional Information, and are incorporated herein
by reference. The unaudited financial statements and financial highlights
included in the fund's Semi-Annual Report for the period ended May 31, 1996
are incorporated herein by reference.
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.
PART C. OTHER INFORMATION
Item 24.
(a) Financial Statements and Financial Highlights for Real Estate High
Income Fund, included in the Annual Report for the fiscal year ended
November 30, 1995, and included in the SemiAnnual Report for the
semi-annual period ended May 31, 1996, are incorporated by reference into
the Fund's SAI and are electronically filed herein as Exhibit (a)(1).
(b) Exhibits:
(1) (a) Amended and Restated Declaration of Trust, dated October 26,
1984, is incorporated herein by reference to Exhibit 1(c) to Post-Effective
Amendment No. 2.
(b) Supplement to Declaration of Trust dated September 30, 1987 is
incorporated herein by reference to Exhibit 1(d) to Post-Effective
Amendment No. 11.
(c) Supplement to Declaration of Trust dated March 3, 1987 is
incorporated herein by reference to Exhibit 1(e) to Post-Effective
Amendment No. 13.
(d) Supplement to Declaration of Trust dated January 17, 1989 is
incorporated herein by reference to Exhibit 1(f) to Post-Effective
Amendment No. 15.
(e) Supplement to Declaration of Trust dated December 20, 1991 is
incorporated herein by reference to Exhibit 1(g) to Post-Effective
Amendment No. 25.
(2) By-Laws of the Trust are incorporated herein by reference to Exhibit
2 to Registration Statement No. 2-83672.
(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 Income Portfolios: Limited Term Series
and Fidelity Management & Research Company dated January 29, 1989, is
incorporated herein by reference to Exhibit 5(l) to Post-Effective
Amendment No. 15.
(c) Sub-Advisory Agreement between Fidelity Management & Research Company,
on behalf of Limited Term Series, and Fidelity Management & Research (U.K.)
Inc. is incorporated herein by reference to Exhibit 5(h) of Post-Effective
Amendment No. 22.
(d) Sub-Advisory Agreement between Fidelity Management & Research Company,
on behalf of Limited Term Series, and Fidelity Management & Research (Far
East) Inc. is incorporated herein by reference to Exhibit 5(i) of
Post-Effective Amendment No. 22.
(e) Management Contract between Fidelity Real Estate High Income Fund and
Fidelity Management & Research Company is incorporated herein by
reference to Exhibit 5(e) of 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) is
incorporated herein by reference to Exhibit 6(a) to Post-Effective
Amendment No. 13.
(b) 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,
1986) is incorporated herein by reference to Exhibit 6(b) to Post-Effective
Amendment No. 13.
(c) General Distribution Agreement between Fidelity Real Estate High
Income Fund and Fidelity Distributors Corporation is incorporated herein
by reference to Exhibit 6(c) of Post-Effective Amendment No. 41.
(7) (a) Retirement Plan for Non-Interested Person Trustees'
Retirement Plan, Directors or General Partners, effective November 1, 1989,
is incorporated herein by reference to Exhibit 7 to Post-Effective
Amendment No. 25.
(b) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of December 1, 1995 is
incorporated herein by reference to Exhibit 7(b) to Fidelity School Street
Trust's (File No. 2-57167) Post-Effective Amendment No. 47.
(8) (a) Custodian Contract between Registrant and State Street Bank
and Trust Company, dated January 11, 1984, is incorporated herein by
reference to Exhibit 8 to Post-Effective Amendment No. 1.
(b) Form of Custodian Contract between Registrant and The Bank of
New York was electronically filed and is incorporated herein by reference
as Exhibit 8(b) to Post-Effective Amendment No. 39.
(9) Not applicable.
(10) Not applicable.
(11) Consent of Coopers & Lybrand LLP, the fund's accountant, is filed
herewith. .
(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) Form for Fidelity Advisor Funds Individual Retirement Account
Custodial Agreement Disclosure Statement in effect as of January 1,
1994 is incorporated by reference as Exhibit 14(f) to Post-Effective
Amendment No. 36.
(g) Form for Fidelity Institutional Individual Retirement Account
Custodial
Agreement in effect as of January 1, 1994 is incorporated herein by
reference as Exhibit 14(g).
(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 Limited Term
Series is incorporated herein by reference to Exhibit 15(b) to
Post-Effective Amendment No. 6.
(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) Form of 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) of Post-Effective Amendment No. 38.
(e) Distribution and Service Plan for Fidelity Real Estate High Income
Fund is incorporated herein by reference to Exhibit 15(e) of
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 Schedules are filed herewith.
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
August 31, 1996
Title of Class: Shares of Beneficial Interest
Name of Series Number of Record Holders
Fidelity Advisor Intermediate Bond Fund: Class A 0
Fidelity Advisor Intermediate Bond Fund: Class B 1224
Fidelity Advisor Intermediate Bond Fund: Class I 1260
Fidelity Advisor Intermediate Bond Fund: Class T 7965
Fidelity Institutional Short-Intermediate Government Fund 713
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>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR Corp.;
Chairman of the Board and Director of FMR, FMR
Corp., FMR Texas Inc., FMR (U.K.) Inc., and FMR
(Far East) Inc.; Chairman of the Board and
Representative Director of Fidelity Investments Japan
Limited; President and Trustee of funds advised by
FMR.
J. Gary Burkhead President and Director of FMR, FMR Texas Inc., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Managing
Director of FMR Corp.; Senior Vice President and
Trustee of funds advised by FMR.
Peter S. Lynch Vice Chairman of the Board and Director of FMR.
Marta Amieva Vice President of FMR.
Dwight D. Churchill Vice President of FMR.
John D. Crumrine Assistant Treasurer of FMR, FMR (U.K.) Inc., FMR
(Far East) Inc., and FMR Texas Inc.; Vice President
and Treasurer of FMR Corp.
William Danoff Vice President of FMR and of a fund advised by FMR.
Scott E. DeSano Vice President of FMR.
Craig P. Dinsell Vice President of FMR.
Penelope Dobkin Vice President of FMR and of a fund advised by FMR.
George C. Domolky Vice President of FMR.
Larry A. Domash Vice President of FMR.
Bettina Doulton Vice President of FMR and of funds advised by FMR.
Margaret L. Eagle Vice President of FMR and a fund advised by FMR.
Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.
Gregory Fraser Vice President of FMR and of a fund advised by FMR.
Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
(U.K.) Inc., and FMR (Far East) Inc.; Secretary of
FMR Texas Inc.
Robert Gervis Vice President of FMR.
David L. Glancy Vice President of FMR and of a fund advised by FMR.
Kevin E. Grant 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 and of funds advised by FMR.
Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.
Boyce I. Greer Vice President of FMR.
Bart Grenier Vice President of FMR.
Robert Haber Vice President of FMR.
Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.
William J. Hayes Senior Vice President of FMR; Vice President of
Equity funds advised by FMR.
Richard Hazlewood Vice President of FMR and of a fund advised by FMR.
Fred L. Henning Jr. Senior Vice President of FMR; Vice President of
Fixed-Income funds advised by FMR.
John R. Hickling Vice President of FMR and of a fund advised by FMR.
Robert F. Hill Vice President of FMR; Director of Technical
Research.
Curt Hollingsworth Vice President of FMR and of funds advised by FMR.
Abigail P. Johnson Vice President of FMR and of a fund advised by FMR.
Stephen P. Jonas Vice President of FMR; Treasurer of FMR, FMR
(U.K.) Inc., FMR (Far East) Inc., and FMR Texas Inc.
David B. Jones Vice President of FMR.
Steven Kaye Vice President of FMR and of a fund advised by FMR.
Francis V. Knox Vice President of FMR; Compliance Officer of FMR
(U.K.) Inc.
David P. Kurrasch Vice President of FMR.
Robert A. Lawrence Senior Vice President of FMR; Vice President of High
Income funds advised by FMR.
Alan Leifer Vice President of FMR.
Harris Leviton Vice President of FMR and of a fund advised by FMR.
Bradford E. Lewis Vice President of FMR and of funds advised by FMR.
Arthur S. Loring Senior Vice President, Clerk, and General Counsel of
FMR; Vice President/Legal, and Assistant Clerk of
FMR Corp.; Secretary of funds advised by FMR.
Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.
Malcolm W. MacNaught II Vice President of FMR and of a fund advised by FMR.
Robert H. Morrison Vice President of FMR; Director of Equity Trading.
David L. Murphy Vice President of FMR and of funds advised by FMR.
Andrew S. Offit Vice President of FMR and of a fund advised by FMR.
Jacques Perold Vice President of FMR.
Brian S. Posner Vice President of FMR and of a fund advised by FMR.
Anne Punzak Vice President of FMR.
Kenneth A. Rathgeber Vice President of FMR; Treasurer of funds advised by
FMR.
Lee H. Sandwen Vice President of FMR.
Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.
Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.
Richard Spillane Vice President of FMR; Senior Vice President and
Director of Operations and Compliance of FMR (U.K.)
Inc.
Robert E. Stansky Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Thomas Sweeney Vice President of FMR and of a fund advised by FMR.
Beth F. Terrana Senior Vice President of FMR; Vice President of a
fund advised by FMR.
Yoko Tilley Vice President of FMR.
Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.
Robert Tuckett Vice President of FMR.
Jennifer Uhrig Vice President of FMR and of a fund advised by FMR.
George A. Vanderheiden Senior Vice President of FMR; Vice President of funds
advised by FMR.
</TABLE>
(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
Pembroke Hall, 42 Crow Lane, Pembroke, Bermuda
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 of the Board and Director of FMR U.K.,
FMR, FMR Corp., FMR Texas Inc., and FMR (Far
East) Inc.; Chairman of the Executive Committee of
FMR; President and Chief Executive Officer of FMR
Corp.; Chairman of the Board and Representative
Director of Fidelity Investments Japan Limited;
President and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR U.K., FMR, FMR (Far
East) Inc., and FMR Texas Inc.; Managing Director of
FMR Corp.; Senior Vice President and Trustee of
funds advised by FMR.
Richard Spillane Senior Vice President and Director of Operations and
Compliance of FMR U.K.; Vice President of FMR.
Stephen P. Jonas Treasurer of FMR U.K., FMR, FMR (Far East) Inc.,
and FMR Texas Inc.; Vice President of FMR.
John D. Crumrine Assistant Treasurer of FMR U.K., FMR, FMR (Far
East) Inc., and FMR Texas Inc.; Vice President and
Treasurer of FMR Corp.
Francis V. Knox Compliance Officer of FMR U.K.; Vice President of
FMR.
Jay Freedman Clerk of FMR U.K., FMR (Far East) Inc., and FMR
Corp.; Assistant Clerk of FMR; Secretary of FMR
Texas Inc.
</TABLE>
(3) FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) LIMITED (FMR FAR
EAST)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105, Japan
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 of the Board and Director of FMR Far
East, FMR, FMR Corp., FMR Texas Inc., and
FMR (U.K.) Inc.; Chairman of the Executive
Committee of FMR; President and Chief
Executive Officer of FMR Corp.; Chairman of
the Board and Representative Director of
Fidelity Investments Japan Limited; President
and Trustee of funds advised by FMR.
J. Gary Burkhead President and Director of FMR Far East, FMR
Texas Inc., FMR, and FMR (U.K.) Inc.;
Managing Director of FMR Corp.; Senior Vice
President and Trustee of funds advised by FMR.
William R. Ebsworth Vice President of FMR Far East; Director of
FIIA.
Bill Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.
Stephen P. Jonas Treasurer of FMR Far East, FMR, FMR (U.K.)
Inc., and FMR Texas Inc.; Vice President of
FMR.
John D. Crumrine Assistant Treasurer of FMR Far East, FMR,
FMR (U.K.) Inc., and FMR Texas Inc.; Vice
President and Treasurer of FMR Corp.
Jay Freedman Clerk of FMR Far East, FMR (U.K.) Inc., and
FMR Corp.; Assistant Clerk of FMR; Secretary
of FMR Texas Inc.
</TABLE>
Item 29. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for most
funds advised by FMR.
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Edward C. Johnson 3d Director Trustee and President
Michael Mlinac Director None
Mark Peterson Director None
Neal Litvak President None
Arthur S. Loring Vice President and Clerk Secretary
Caron Ketchum Treasurer and Controller None
Gary Greenstein Assistant Treasurer None
Jay Freedman Assistant Clerk None
Linda Holland Compliance Officer None
</TABLE>
* 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 31(a) 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 fund's 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 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 .
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. 56 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, and Commonwealth of Massachusetts, on the 27th day
of September 1996.
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 September 27, 1996
Edward C. Johnson 3d (Principal Executive Officer)
</TABLE>
/s/Kenneth A. Rathgeber Treasurer September 27, 1996
Kenneth A. Rathgeber
/s/J. Gary Burkhead Trustee September 27, 1996
J. Gary Burkhead
/s/Ralph F. Cox * Trustee September 27, 1996
Ralph F. Cox
/s/Phyllis Burke Davis * Trustee September 27, 1996
Phyllis Burke Davis
/s/Richard J. Flynn * Trustee September 27, 1996
Richard J. Flynn
/s/E. Bradley Jones * Trustee September 27, 1996
E. Bradley Jones
/s/Donald J. Kirk * Trustee September 27, 1996
Donald J. Kirk
/s/Peter S. Lynch * Trustee September 27, 1996
Peter S. Lynch
/s/Edward H. Malone * Trustee September 27, 1996
Edward H. Malone
/s/Marvin L. Mann_____* Trustee September 27, 1996
Marvin L. Mann
/s/Gerald C. McDonough* Trustee September 27, 1996
Gerald C. McDonough
/s/Thomas R. Williams * Trustee September 27, 1996
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.
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
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
(2_FIDELITY_LOGOS)FIDELITY
REAL ESTATE HIGH INCOME
FUND
ANNUAL REPORT
NOVEMBER 30, 1995
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
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.
REPORT OF INDEPENDENT ACCOUNTANTS 12 THE AUDITORS' OPINION.
DISTRIBUTIONS 13
</TABLE>
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 THE 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
PERIOD ENDED LIFE OF
NOVEMBER 30, 1995 FUND
Real Estate High Income 20.33%
Merrill Lynch High Yield Master Index 17.79%
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a set period - in this case, 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 - a broad measure of the high yield bond market. This
benchmark includes reinvested dividends and capital gains, if any.
AVERAGE ANNUAL TOTAL RETURNS
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. In the fund's next report we'll report these
numbers for the fund and the benchmark.
$100,000 OVER LIFE OF FUND
Real Estate HighHigh Yield Maste
01/05/95 100000.00 100000.00
01/31/95 100918.56 101216.68
02/28/95 104093.12 104374.76
03/31/95 105430.21 105827.31
04/30/95 107058.44 108305.10
05/31/95 111364.63 111688.80
06/30/95 112854.47 112541.88
07/31/95 113387.98 113828.48
08/31/95 115807.97 114519.33
09/30/95 117769.89 115829.55
10/31/95 118684.60 116650.61
11/30/95 120329.56 117789.28
Let's say you invested $100,000 in Fidelity Real Estate High Income Fund on
January 5, 1995, when the fund started. By November 30, 1995, the value of
your investment would have grown to $120,330 - a 20.33% increase on your
initial investment. That compares to $100,000 invested in the Merrill Lynch
High Yield Master Index, which would have grown to $117,789 over the same
period - a 17.79% 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
JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
NOVEMBER 30,
1995
Dividend return 9.93%
Capital appreciation return 10.40%
Total return 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 NOVEMBER 30, 1995 PAST PAST 6 LIFE OF
MONTH MONTHS FUND
Dividends per share 7.19(cents) 59.54(cents) 92.71(cents)
Annualized dividend rate 7.95% 10.90% 8.71%
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 $11.00 over
the past month, $10.89 over the past six months and $10.64 over the life of
fund, you can compare the fund's income over these three periods.
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. Very well. The fund commenced operations on January 5, 1995. Fidelity
generally looks at performance for six- and 12-month periods. For this
report, we will look at performance since the fund's commencement of
operations. For the period ended November 30, 1995 the fund returned
20.33%, while its benchmark index, the Merrill Lynch High Yield Master
Index, returned 17.79%.
Q. WHY DID THE FUND DO WELL?
A. I think there were two major factors. First, the credit spreads on many
of the securities owned by the fund narrowed, thus resulting in price
appreciation for the fund. The credit spread is the difference in yield
between a given bond and that of a U.S. Treasury bond of comparable
maturity. Second, the fund benefited from this year's bond market rally.
Q. WERE PREPAYMENTS A BIG CONCERN?
A. The commercial mortgage bonds I bought were often at a 10% to 20%
discount from par, so prepayments were generally good. In other words,
because the bonds would be paid off at par, the investor would receive the
difference between the bonds' discount price and their par value. However,
the creditworthiness of the collateral is more important. If the
creditworthiness of the collateral securing the bonds the fund owns
improves, their bond prices should go up and vice versa.
Q. WHAT WERE SOME SECURITIES THAT PERFORMED WELL?
A. The fund owned bonds secured by a group of mortgages originated by an
insurance company called The New England. The creditworthiness of these
bonds improved during the period and the fund enjoyed a substantial capital
gain. Additionally, some bonds issued by the former Resolution Trust Corp.
(RTC) - the U.S. government agency created to merge or close insolvent
savings and loan institutions - did well during the period.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. The fund's positions in liquidating trust bonds - pooled nonperforming
loans - underperformed when compared to other commercial mortgage
securities because they tend not to appreciate in bond market rallies like
we had in 1995. These bonds are issued close to par and are therefore
considered "defensive." I've used these bonds to keep down the fund's
duration - or the fund's price sensitivity to interest rates.
Q. ARE THERE ANY OTHER WAYS YOU MANAGED THE FUND'S INTEREST-RATE
SENSITIVITY?
A. Yes. I emphasize bonds with shorter maturities relative to the overall
market. In other words, if you compared my portfolio to a "market basket"
of high yield commercial mortgage-backed bonds, my duration was shorter
than that of the market.
Q. WHAT'S YOUR OUTLOOK?
A. I don't think fixed-income investors can expect the same amount of price
appreciation in 1996 as they enjoyed in 1995. For commercial mortgage
securities in particular, investors should keep in mind that this is an
immature market and that periods of volatility can occur at any time. That
said, however, I believe the high yield commercial mortgage-backed
securities market offers the potential to provide better returns than other
high yield debt markets in the coming year.
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 November 30, 1995, more than
$72 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 NOVEMBER 30, 1995
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 2.6%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 1.2%
CONSTRUCTION & REAL ESTATE - 1.2%
REAL ESTATE INVESTMENT TRUSTS - 1.2%
Haagen Alexander Properties, Inc.,
Series A, 0%, 1/1/03 - $ 1,000,000 $ 820,000 40443EAA
NONCONVERTIBLE BONDS - 1.4%
CONSTRUCTION & REAL ESTATE - 1.4%
CONSTRUCTION - 1.4%
WCI Communities LP 17%,
7/24/98 (e) - 1,000,000 1,000,000 94799FAA
TOTAL CORPORATE BONDS
(Cost $1,827,446) 1,820,000
COMMERCIAL MORTGAGE SECURITIES - 93.7%
ACP Mortgage LP commercial
floater Series E 7.6448%,
2/28/28 (b)(c) BB 2,806,912 2,173,602 00087RAE
American Southwest Financial
Securities commercial Series
1994-C2 Class B2, 14.1884%,
12/25/01 (b)(c) - 3,000,000 2,970,000 02970K9A
CBA Mortgage Corp. commercial
Series 1993-C1 Class E,
7.154%, 12/25/03 (b)(c) Ba2 3,000,000 2,626,875 12478L9A
CS First Boston Mortgage Securities
Corp. commercial Series:
1994-M1 Class E, 12.60%,
2/15/02 (b) - 1,000,000 998,750 126342AN
1995-AEWI Class E,
9.187%, 11/25/97 (b)(c) - 2,500,000 2,207,813 126342CE
1994-CFB1 Class E,
8.0145%, 1/25/28 (b)(c) Ba2 3,187,016 2,603,891 126342AZ
Kearny Street Mortgage
commercial floater Series 1995-1
Class F, 7.7899%,
2/20/30 (b)(c) B 2,080,000 1,492,401 48268QAH
Lennar U.S. Partners LP
commercial Series 1995-1
Class F, 11.70%, 5/15/05 (b) - 2,500,000 2,515,625 52605PAF
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (b)(g) - 12,919,000 2,325,420 5899319A
Merrill Lynch Mortgage
Investments, Inc. commercial Series:
1994-M1 Class E, 8.1706%,
6/25/22 (b)(c) Ba2 3,000,000 2,626,406 589929GZ
1995-C2 Class E, 8.15%,
6/15/21 (b) Ba3 3,492,295 3,173,623 589929KT
Morgan Stanley Capital
commercial Series 1995-TNE
Class D2, 8.24%,
12/15/23 (b) Ba3 2,000,084 1,745,073 617445BD
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (A) AMOUNT (NOTE 1)
Nomura Asset Securities Corp.
commercial Series 1993-1
Class B3, 6.68%,
12/15/03 (b) B $ 3,000,000 $ 2,349,375 655356AF
Oregon pass thru certificates
commercial Series 1995
Class 1-E, 9.9621%,
6/25/26 (b)(c) BB 3,000,000 2,668,125 685837AJ
Phoenix Real Estate Securities, Inc.
commercial Series 1993
Class D-1, 8 1/4%,
11/25/23 (b) Ba2 3,500,000 3,049,375 71912PAF
Resolution Trust Corp.:
commercial Series:
1991-M2 Class A1,
7.5056%, 9/25/20(c) Ba3 4,306,320 3,186,676 76116NBH
1994-C1 Class E, 8%,
6/25/26 BB 4,696,913 4,124,477 76116NVV
1994-C2 Class F, 8%,
4/25/25 BB 1,832,811 1,632,633 76116NWF
1994-C2 Class G, 8%,
4/25/25 B 4,608,158 3,882,373 76116NWG
1995-C1 Class F, 6.90%,
2/25/27 B1 2,947,027 2,568,978 76116NZA
Series 1994-C1 Class F, 8%,
6/25/26 B 5,849,884 4,909,332 76116NVW
SKW Real Estate
commercial Series Class F,
12.80%, 4/15/05 (b) - 2,310,750 2,339,634 783912AR
Structured Asset Securities Corp.
commercial Series:
1992-M1 Class C,
7.05%, 11/25/02 B2 3,200,000 2,611,000 863572DW
1995-C1 Class E, 7 3/8%,
9/25/24 (b) BB 3,500,000 2,641,406 8635729B
Whitehall Partners commercial
Series 1995-C1 Class E, 8.01%,
7/20/25 (b) - 2,500,000 2,346,875 929240AF
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $62,523,236) 65,769,738
COMPLEX MORTGAGE SECURITIES - 0.5%
INTEREST ONLY STRIPS - 0.5%
Mortgage Capital Funding, Inc.
commercial Series (c)(d):
1993-C1 Class 2, 1.4606%,
5/25/15 Aa2 2,593,993 16,861 61910DAF
1993-C1 Class 2, 3.6502%,
5/25/15 Aa2 22,968,829 344,532 61910DAE
TOTAL COMPLEX MORTGAGE SECURITIES
(Cost $448,010) 361,393
COMMON STOCKS - 1.2%
SHARES VALUE
(NOTE 1)
CONSTRUCTION & REAL ESTATE - 1.2%
REAL ESTATE - 1.2%
Trizec Ltd. (f) (Cost $895,584) 120,000 $ 859,823 89693310
CONVERTIBLE PREFERRED STOCKS - 0.6%
CONSTRUCTION & REAL ESTATE - 0.6%
REAL ESTATE - 0.6%
Catellus Development Corp., exchangeable,
Series B, $3.625 (b) (Cost $350,000) 10,000 382,500 14911130
REPURCHASE AGREEMENTS - 1.4%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.90%, dated
11/30/95 due 12/1/95 $ 976,160 976,000 74199SEG
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $67,020,276) $ 70,169,454
LEGEND
1.1. Standard & Poor's Corporation credit ratings are used in the absence
of a rating by Moody's Investors Service, Inc.
2.3. 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 $43,236,769 or 59.7% of net
assets.
4.5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
6.7. Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
8.9. 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 term
loan 17%, 7/24/98 7/24/95 $ 987,446
10.11. Non-income producing
12.13. Non-income producing - issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
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 0.5% AAA, AA, A 0.0%
Baa 0.0% BBB 0.0%
Ba 27.1% BB 27.2%
B 7.4% B 18.0%
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 25.0%. FMR
has determined that unrated debt securities that are lower quality account
for 25.0% of the total value of investment in securities.
INCOME TAX INFORMATION
At November 30, 1995, the aggregate cost of investment securities for
income tax purposes was $67,020,276. Net unrealized appreciation aggregated
$3,149,178, of which $3,814,221 related to appreciated investment
securities and $665,043 related to depreciated investment securities.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
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NOVEMBER 30, 1995
ASSETS
Investment in securities, at value (including repurchase agreements of $976,000) (cost $67,020,276) - See $ 70,169,454
accompanying schedule
Receivable for investments sold 1,782,730
Interest receivable 582,560
TOTAL ASSETS 72,534,744
LIABILITIES
Payable to custodian bank $ 11,690
Accrued management fee 44,227
Other payables and accrued expenses 49,826
TOTAL LIABILITIES 105,743
NET ASSETS $ 72,429,001
Net Assets consist of:
Paid in capital $ 68,082,358
Distributions in excess of net investment income (31,563
)
Accumulated undistributed net realized gain (loss) on investments 1,229,028
Net unrealized appreciation (depreciation) on investments 3,149,178
NET ASSETS, for 6,559,746 shares outstanding $ 72,429,001
NET ASSET VALUE, offering price and redemption price per share ($72,429,001 (divided by) 6,559,746 shares) $11.04
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STATEMENT OF OPERATIONS
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JANUARY 5, 1995
(COMMENCEMENT OF OPERATIONS)
TO NOVEMBER 30, 1995
INVESTMENT INCOME $ 54,375
Dividends
Interest 4,673,366
TOTAL INCOME 4,727,741
EXPENSES
Management fee $ 347,146
Transfer agent fees 69,351
Accounting fees and expenses 40,672
Non-interested trustees' compensation 131
Custodian fees and expenses 3,899
Registration fees 23,476
Audit 17,377
Miscellaneous 274
TOTAL EXPENSES 502,326
NET INVESTMENT INCOME 4,225,415
REALIZED AND UNREALIZED GAIN (LOSS) 1,654,410
Net realized gain (loss) on investment securities
Change in net unrealized appreciation (depreciation) on investment securities 3,149,178
NET GAIN (LOSS) 4,803,588
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 9,029,003
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STATEMENT OF CHANGES IN NET ASSETS
JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
NOVEMBER 30, 1995
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INCREASE (DECREASE) IN NET ASSETS
Operations $ 4,225,415
Net investment income
Net realized gain (loss) 1,654,410
Change in net unrealized appreciation (depreciation) 3,149,178
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 9,029,003
Distributions to shareholders (4,225,415)
From net investment income
In excess of net investment income (454,831)
TOTAL DISTRIBUTIONS (4,680,246)
Share transactions 64,899,998
Net proceeds from sales of shares
Reinvestment of distributions 4,680,246
Cost of shares redeemed (1,500,000)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 68,080,244
TOTAL INCREASE (DECREASE) IN NET ASSETS 72,429,001
NET ASSETS
Beginning of period -
End of period (including distributions in excess of net investment income of $31,563) $ 72,429,001
OTHER INFORMATION
Shares
Sold 6,269,408
Issued in reinvestment of distributions 434,154
Redeemed (143,816)
Net increase (decrease) 6,559,746
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SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
JANUARY 5, 1995
(COMMENCEMENT
OF
OPERATIONS) TO
NOVEMBER 30, 1995
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 10.000
Income from Investment Operations .922
Net investment income
Net realized and unrealized gain (loss) 1.045
Total from investment operations 1.967
Less Distributions (.837)
From net investment income
In excess of net investment income (.090)
TOTAL DISTRIBUTIONS (.927)
Net asset value, end of period $ 11.040
TOTAL RETURN B 20.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 72,429
Ratio of expenses to average net assets 1.09% A
Ratio of net investment income to average net assets 9.14% A
Portfolio turnover rate 49% A
A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
NOTES TO FINANCIAL STATEMENTS
For the period ended November 30, 1995
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 quotations are not readily available through the pricing service are
valued at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes 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). Distributions in excess of net investment
income and accumulated undistributed 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. 3. 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 fund, through its custodian, receives delivery
of the underlying U.S. Treasury or Federal Agency Securities, the market
value of which is required to be at least equal to the repurchase price.
For term repurchase agreement transactions, the underlying securities are
marked-to-market daily and maintained at a value at least equal to the
repurchase price. 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.
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 $1,000,000 or
1.4% of net assets.
4. 5. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $85,037,170 and $20,647,304, respectively.
6. 7. 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 .1200% 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.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
MANAGEMENT FEE - CONTINUED
The Board of Trustees has approved a new group fee rate schedule with rates
ranging from .1100% to .3700%. Effective January 1, 1996, FMR voluntarily
agreed to implement this new group fee rate schedule as it results in the
same or a lower management fee.
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 .15% of average net assets
ACCOUNTING FEES. Fidelity Service Co. (FSC), an affiliate of FMR, maintains
the fund's accounting records. The fee is based on the level of average net
assets for the month plus out-of-pocket expenses.
8. 9. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner of the total
outstanding shares of the fund.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series IV and the Shareholder of
Fidelity Real Estate High Income Fund:
We have audited the accompanying statement of assets and liabilities of
Fidelity Advisor Series IV: Fidelity Real Estate High Income Fund,
including the schedule of portfolio investments, as of November 30, 1995,
and the related statement of operations, the statement of changes in net
assets and the financial highlights for the period January 5, 1995
(commencement of operations) to November 30, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of November 30, 1995 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity Advisor Series IV: Fidelity Real Estate High Income Fund as of
November 30, 1995, the results of its operations, the changes in its net
assets, and the financial highlights for the period January 5, 1995
(commencement of operations) to November 30, 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 22, 1996
DISTRIBUTIONS
The Board of Trustees of Fidelity Real Estate High Income Fund voted to pay
to shareholders of record at the opening of business on record date, the
following distributions derived from capital gains realized from sales of
portfolio securities :
PAY DATE RECORD DATE DIVIDENDS CAPITAL GAINS
12/26/95 12/22/95 - $.17
1/8/96 1/5/96 - $.01
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 *
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
(2_FIDELITY_LOGOS)FIDELITY
REAL ESTATE HIGH INCOME
FUND
SEMIANNUAL REPORT
MAY 31, 1996
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.
</TABLE>
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 561063AA
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 94799FAA
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 9127943A
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 00087RAE
Series F, 7.54%, 2/28/28 B 2,190,053 1,828,694 00087RAF
American Southwest Financial
Securities commercial Series
1994-C2 Class B2, 13.34%,
12/25/01 (e)(f) - 3,000,000 2,808,750 02970K9A
CBA Mortgage Corp. commercial
Series 1993-C1 Class E, 7.15%,
12/25/03 (e)(f) Ba2 3,000,000 2,377,969 12478L9A
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 126342AZ
Series 1995-AEWI Class E,
10.33%, 11/25/97 - 2,500,000 2,075,781 126342CE
commercial Series:
1994-M1 Class E, 12.60%,
2/15/02 (e) - 2,500,000 2,493,750 126342AN
DLJ Mortgage Acceptance Corp.
commercial Series 1994-MF11
Class B-2, 8.10%, 6/18/04 (e) Ba2 2,750,000 2,170,781 23321PLY
Kearny Street Mortgage commercial
floater Series 1995-1 Class F,
7.77%, 2/20/30 (e)(f) B 4,150,000 2,806,438 48268QAH
Meritor Mortgage Security Corp.
commercial Series 1987-1
Class B, 9.40%, 2/1/00 (b)(e) - 12,919,000 2,325,420 5899319A
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 589929KT
commercial Series 1994-M1
Class E, 8.06%, 6/25/22 Ba2 3,500,000 2,974,300 589929GZ
Morgan Stanley Capital One, Inc. (e):
commercial Series 1996 MBL1
Class E, 8.661% 5/25/21 - 1,300,000 1,109,469 617445DV
commercial Series 1995-TNE
Class D-2, 8.24%, 12/15/23 Ba3 4,000,641 3,465,555 617445BD
Nomura Asset Securities Corp.
commercial Series 1993-1
Class B-3, 6.68%, 12/15/03 (e) B 3,300,000 2,493,047 655356AF
Oregon Commercial Mortgage, Inc.
commercial Series 1995-1
Class E, 9.92%, 6/25/26 (e)(f) BB 3,000,000 2,520,000 685837AJ
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 71912PAF
Resolution Trust Corp.:
commercial floater Series
1991-M2 Class A-1, 6.84%,
9/25/20 (f) Ba3 4,384,456 3,069,119 76116NBH
commercial Series:
1994-C2 Class F, 8%,
4/25/25 BB 1,725,812 1,483,120 76116NWF
1994-C2 Class G, 8%,
4/25/25 B 4,399,237 3,508,391 76116NWG
1994-C1 Class E, 8%,
6/25/26 BB 4,538,137 3,812,035 76116NVV
1995-C1 Class F, 6.90%,
2/25/27 B1 46,791 40,982 76116NZA
1995-C2 Class E, 7%,
5/25/27 Ba2 3,401,892 2,772,542 76116NB7
1995-C2 Class F, 7%,
5/25/27 B1 3,374,962 2,784,344 76116NB8
sequential pay
Series 1994-C1 Class F,
8%, 6/25/26 B 5,509,312 4,491,811 76116NVW
Structured Asset Securities Corp.
commercial Series:
1992-M1 Class C, 7.05%
11/25/02 B2 3,200,000 2,510,500 863572DW
1995-C1, Class E,
7 3/8%, 9/25/24 (e) BB 3,500,000 2,557,188 8635729B
SML, Inc. commercial Series
1994-C1 Class C, 9.20%,
9/18/99 (d) - 1,600,000 1,056,000 784563AH
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 61910DAE
1993-C1 Class 2, 1.31%,
5/25/15 Aaa 33,278 84 61910DAF
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 89693310
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 69899TEU
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
<TABLE>
<CAPTION>
<S> <C> <C>
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)
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
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.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
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).
</TABLE>
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
Exhibit 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference, into the Prospectus
and Statement of Additional Information in Post-Effective Amendment No. 56
to the Registration Statement on Form N-1A of Fidelity Advisor Series IV:
Fidelity Real Estate High Income Fund, of our report dated January 22, 1996
on the financial statements and financial highlights included in the
November 30, 1995 Annual Report to Shareholders of Fidelity Real Estate
High Income Fund.
We further consent to the references to our Firm under the headings
"Financial Highlights" in the Prospectus and "Auditor" in the Statement of
Additional Information.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 24, 1996
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