(2_FIDELITY_LOGOS)FIDELITY
REAL ESTATE HIGH INCOME
FUND
SEMIANNUAL REPORT
AUGUST 31, 1993
CONTENTS
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PERFORMANCE 3 HOW THE FUND HAS DONE OVER TIME.
FUND TALK 5 THE MANAGER'S REVIEW OF FUND PERFORMANCE,
STRATEGY AND OUTLOOK.
INVESTMENTS 6 A COMPLETE LIST OF THE FUND'S INVESTMENTS WITH
THEIR MARKET VALUES.
FINANCIAL STATEMENTS 8 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS,
AND CHANGES IN NET ASSETS, AS WELL AS FINANCIAL
HIGHLIGHTS.
NOTES 10 NOTES TO THE FINANCIAL STATEMENTS.
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THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED
BY THE FDIC, FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL AMOUNT INVESTED.
NEITHER THE FUND NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK.
FOR MORE INFORMATION ON THE FUND, INCLUDING CHARGES AND EXPENSES, CALL JEFF
GANDEL AT 617-563-6414 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
REAL ESTATE HIGH INCOME
PERFORMANCE: THE BOTTOM LINE
There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change or the growth of a hypothetical $100,000 investment. Total return
reflects the change in the value of an investment, assuming reinvestment of
the fund's dividend income and capital gains (the profits earned upon the
sale of securities that have grown in value).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 1997 PAST 6 PAST 1 LIFE OF
MONTH YEAR FUND
S
Fidelity Real Estate High Income 12.35% 29.57% 60.48%
Merrill Lynch High Yield Master Index 5.06% 13.26% 38.58%
High Current Yield Funds Average 5.47% 13.13% n/a
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 had 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 market capitalization
weighted index of all domestic and yankee high-yield bonds. Issues included
in the index have maturities of at least one year and have a credit rating
lower than BBB-/Baa3, but are not in default. To measure how the fund's
performance stacked up against its peers, you can compare it to the high
current yield funds average, which reflects the performance of mutual funds
with similar objectives tracked by Lipper Analytical Services, Inc. The
past six months average represents a peer group of 175 mutual funds. These
benchmarks include reinvested dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED MAY 31, 1997 PAST 1 LIFE OF
YEAR FUND
Fidelity Real Estate High Income 29.57% 21.74%
Merrill Lynch High Yield Master Index 13.26% 14.53%
High Current Yield Funds Average 13.13% n/a
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and show you
what would have happened if the fund had performed at a constant rate each
year. (Note: Lipper calculates average annual total returns by annualizing
each fund's total return, then taking an arithmetic average. This may
produce a slightly different figure than that obtained by averaging the
cumulative total returns and annualizing the result.)
$100,000 OVER LIFE OF FUND
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
1996/06/30 126275.58 123088.59
1996/07/31 127320.62 123924.26
1996/08/31 127913.11 125204.02
1996/09/30 132066.15 127890.35
1996/10/31 138261.78 129291.93
1996/11/30 142842.15 131905.85
1996/12/31 143581.99 132920.83
1997/01/31 147776.98 133942.35
1997/02/28 151913.15 135821.28
1997/03/31 152800.96 134312.79
1997/04/30 158792.49 135841.48
1997/05/30 160484.33 138579.08
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, 1997, the value of the investment would have grown to
$160,484 - a 60.48% 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 $138,579 - a 38.58% 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 YEAR ENDED JANUARY 5, 1995
ENDED NOVEMBER 30, (COMMENCEMENT
MAY 31, 1996 OF OPERATIONS) TO
1997 NOVEMBER 30,
1995
Dividend return 8.81% 9.59% 9.93%
Capital appreciation 3.54% 9.12% 10.40%
return
Total return 12.35% 18.71% 20.33%
TOTAL RETURN COMPONENTS include both dividend returns and capital
appreciation returns. 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 capital gains paid
by the fund are reinvested, if any.
DIVIDENDS
PERIODS ENDED MAY 31, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
Dividends per share 10.32(cents) 94.14(cents) 142.70(cents)
Annualized dividend rate 10.54% 16.65% 12.73%
30-day annualized yield 12.39% - -
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 $11.53 over
the past one month, $11.34 over the past six months and $11.21 over the
past one 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.
REAL ESTATE HIGH INCOME
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. For the six- and 12-month periods ending May 31, 1997, the
fund returned 12.35% and 29.57%, respectively. Its benchmark, the Merrill
Lynch High Yield Master Index, returned 5.06% for the six-month and 13.26%
for the 12-month periods. The Merrill Lynch High Yield Master Index is a
market-capitalization weighted index that 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. The high current yield funds average, according to Lipper
Analytical Services, returned 5.47% for the six-month and 13.13% for the
12-month periods.
Q. WHAT ACCOUNTED FOR THE FUND'S GOOD PERFORMANCE DURING THE PAST SIX
MONTHS?
A. The real estate market was still recovering from the recession of the
early 1990s, and there was not a great deal of speculative building
activity, so the amount of new supply was limited. Coupled with growing
demand, the result was a favorable environment for real estate as property
values continued to rise. The fund's larger positions continued to
experience generally strong credit quality as the market recognized their
value. Also, the fixed-income market's participation in real estate
continued to broaden, with the fund benefiting from both credit spread
tightening within the sector and from the performance of its underlying
investments.
Q. YOU'VE MADE FEW CHANGES IN THE FUND'S TOP HOLDINGS . . .
A. Nearly all of the fund's holdings performed well during the period, and
I've maintained my positions in them. In particular, RTC bonds, issued by
the former Resolution Trust Corp., made a strong showing. However, I've
sold most of the bonds in the fund's portfolio issued by this U.S.
government agency created to merge or close insolvent savings and loan
institutions. They were a great ride and delivered superior returns. Now,
going forward, I don't believe the opportunity for such strong returns will
be there, so I've reduced the weighting in that category of bonds.
Q. HOW MUCH TRADING IS NORMAL FOR THIS FUND, GIVEN YOUR INVESTMENT STYLE?
A. On the whole, my investment style doesn't involve a lot of trading. I do
a great deal 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. HOW DO YOU SELECT BONDS FOR THE PORTFOLIO?
A. I usually look for advantageous credit situations, where the market
doesn't appreciate an issue's current or potential credit status. By
following a step-by-step credit research process, I try to find securities
that have superior credit potential unrecognized by the market. If the
research pays off, the fund should eventually realize some price
appreciation.
Q. HAS THE MARKET ENVIRONMENT CHANGED IN THE LAST SIX MONTHS?
A. I think so. The biggest change is that now credit spreads are normal,
relative to corporate bond credit spreads, which should reduce the extra
return potential for high-yield real estate debt securities. Previously,
investors used to get extra return for investing in these high-yield
securities; more recently, participation in this market increased
significantly as investors became aware of the extra return in this segment
of the market, and the spreads have narrowed. Historically, the fund's good
performance has resulted from a variety of factors, including being in the
right market at the right time, and Fidelity's credit analysis. Now that
the credit spreads are fair, future good performance is tied directly to
superior credit analysis and security selection.
Q. HOW DOES YOUR OUTLOOK REFLECT THIS NEW ENVIRONMENT?
A. My overall outlook is positive but, over time, I believe the fund's
performance will move closer to the high-yield market averages. However,
with Fidelity's depth and breadth of resources, I anticipate that we'll
continue to find the extra returns that are more difficult to find in this
market, and I am confident that we'll produce good relative returns over
time.
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.
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, 1997, more than $44 million
MANAGER: Mark Snyderman, since inception;
joined Fidelity in 1994
(checkmark)
REAL ESTATE HIGH INCOME
INVESTMENTS MAY 31, 1997 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
NONCONVERTIBLE BONDS - 0.6%
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
MEDIA & LEISURE - 0.6%
LODGING & GAMING - 0.6%
American Skiing Co.
12%, 7/15/06
(Cost $248,782) B3 $ 250,000 $ 259,457
U.S. TREASURY OBLIGATIONS - 0.2%
U.S. Treasury Bill, yield at date of purchase
5.1616%, 6/26/97 (f)
(Cost $104,626) - 105,000 104,626
COLLATERALIZED MORTGAGE OBLIGATIONS - 0.5%
PRIVATE SPONSOR - 0.5%
DLJ Mortgage Acceptance Corp.
Series 1996-T-D Class D,
6.8716%, 9/29/23 (a)(e)
(Cost $236,824) - 1,127,658 225,532
COMMERCIAL MORTGAGE SECURITIES - 88.4%
ACP Mortgage LP floater Series F,
7.3861%, 2/28/28 (a)(e) B 2,046,811 1,700,105
American Southwest Financial Securities
Series 1994-C2 Class B2,
12.79%, 12/25/01 (a)(e) - 2,000,000 1,972,500
BKB Commercial Mortgage Trust
Series 1997-C1 (a)(e):
Class E, 8.9778%, 8/26/02 BB 1,173,600 1,117,121
Class F, 8.9778%, 4/26/04 B 1,476,000 1,222,774
Class G, 8.9778%, 4/27/09 CCC 1,141,500 513,675
Class H, 8.9778%, 10/25/22 - 760,975 190,244
CBA Mortgage Corp.
Series 1993-C1 Class E, 7.76%,
12/25/03 (a)(e) Ba2 2,000,000 1,916,250
CS First Boston Mortgage Securities
Corp. Series 1994-CFB1
Class F, 6.48%, 1/25/28 (e) - 1,332,244 1,150,309
First Chicago /Lennar Trust I
Series 1997-CHL1 Class E,
8.106%, 4/1/39 (a) - 2,800,000 2,095,625
Merrill Lynch Mortgage
Investments, Inc. Series 1994
Class M1-E, 8.1549%,
6/25/22 (a)(e) Ba2 1,500,000 1,466,250
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.661%, 5/25/21 (e) - 1,239,517 1,120,050
Nomura Asset Securities Corp.
Series 1993-1 Class B3,
6.68%, 12/15/03 (e) BB 3,300,000 2,607,516
Oregon Commercial Mortgage, Inc.
Series 1995 Class E,
9.9127%, 6/25/26 (a)(e) BB 3,000,000 2,943,750
MOODY'S PRINCIPAL VALUE
RATINGS (C) AMOUNT (NOTE 1)
Penn Mutual Life Insurance Co. (The)
Series 1996-PML (e):
Class L, 7.90%, 11/15/26 - $ 2,500,000 $ 1,071,250
Class M, 7.90%, 11/15/26 - 5,862,000 1,028,195
Phoenix Real Estate Securities, Inc.
Series 1993, Class D-1,
8 1/4%, 11/25/23 (e) Ba2 2,000,000 1,935,580
Resolution Trust Corp.:
floater Series 1991-M2 Class A1,
7.0825%, 9/25/20 (a) Ba3 3,815,316 2,679,798
Series 1995-C2 Class F,
7%, 5/25/27 B1 1,928,880 1,778,767
SML, Inc. Series 1994-C1:
Class B-3, 11.69%, 9/18/99 - 500,000 480,000
Class C, 9.20%, 9/18/99 (d) - 1,600,000 1,200,000
Structured Asset Securities Corp.:
Series 1992-M1 Class C,
7.05%, 11/25/02 B2 2,200,000 1,979,656
Series 1993-C1 Class E,
6.60%, 10/25/24 (e) B 3,250,000 1,137,500
Series 1995-C1 Class E,
7 3/8%, 9/25/24 (e) BB 2,350,000 2,076,445
Series 1996-CFL:
Class G, 7 3/4%, 2/25/28 (e) - 3,450,000 2,927,649
Class H, 7 3/4%, 2/25/28 Aaa 1,500,000 1,162,031
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $37,054,712) 39,473,040
COMPLEX MORTGAGE SECURITIES - 0.8%
INTEREST ONLY STRIPS - 0.8%
BKB Commercial Mortgage Trust
Series 1997-C1 Class X-1,
1.4692%, 12/26/01 (a)(b)(e)
(Cost $362,139) BBB 27,034,345 363,274
COMMON STOCKS - 2.9%
SHARES
CONSTRUCTION & REAL ESTATE - 2.2%
REAL ESTATE - 1.9%
Echelon International Corp. 29,800 577,375
Trizec Hahn Corp. (sub-vtg.) 12,400 268,538
845,913
REAL ESTATE INVESTMENT TRUSTS - 0.3%
Ocwen Asset Investment Corp. 7,900 143,188
TOTAL CONSTRUCTION & REAL ESTATE 989,101
ENERGY - 0.7%
OIL & GAS - 0.7%
Getty Petroleum Corp. 17,600 294,800
TOTAL COMMON STOCKS
(Cost $1,035,838) 1,283,901
NONCONVERTIBLE PREFERRED STOCKS - 2.3%
SHARES VALUE (NOTE 1)
CONSTRUCTION & REAL ESTATE - 2.3%
REAL ESTATE INVESTMENT TRUSTS - 2.3%
Walden Residential Properties, Inc.
9.20% (Cost $996,025) 40,000 $ 1,020,000
CASH EQUIVALENTS - 4.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.54%, dated
5/30/97 due 6/2/97 $ 1,938,895 1,938,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $41,976,946) $ 44,667,830
FUTURES CONTRACTS
EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
SOLD
70 U.S. Treasury Note
Futures Contracts June 97 $ 7,527,187 $ 14,678
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 16.9%
LEGEND
1. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
2. Security represents right to receive monthly interest payments on an
underlying pool of mortgages. Principal shown is the par amount of the
mortgage pool.
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
SML, Inc. Series 1994-C1
Class C, 9.20%, 9/18/99 12/06/95 $ 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 $28,685,969 or 64.5% of net
assets.
6. Security was pledged to cover margin requirements for futures contracts.
At the period end, the value of securities pledged amounted to $104,626.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 2.6% AAA, AA, A 2.6%
Baa 0.0% BBB 0.8%
Ba 18.0% BB 23.9%
B 9.0% B 15.3%
Caa 0.0% CCC 1.7%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by both S&P and Moody's amounted to 30.2%. FMR has
determined that unrated debt securities that are lower quality account for
30.2% of the total value of investment in securities.
INCOME TAX INFORMATION
At May 31, 1997, the aggregate cost of investment securities for income tax
purposes was $41,976,946. Net unrealized appreciation aggregated
$2,690,884, of which $3,182,811 related to appreciated investment
securities and $491,927 related to depreciated investment securities.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
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MAY 31, 1997 (UNAUDITED)
ASSETS
Investment in securities, at value (including repurchase agreements of $1,938,000) (cost $41,976,946) - See $ 44,667,830
accompanying schedule
Cash 1,172,469
Dividends receivable 2,875
Interest receivable 389,400
TOTAL ASSETS 46,232,574
LIABILITIES
Payable for investments purchased $ 1,707,704
Accrued management fee 27,068
Payable for daily variation on 37,188
futures contracts
Other payables and accrued expenses 18,177
TOTAL LIABILITIES 1,790,137
NET ASSETS $ 44,442,437
Net Assets consist of:
Paid in capital $ 37,913,080
Undistributed net investment income 81,067
Accumulated undistributed net 3,742,728
realized gain (loss) on investments
Net unrealized appreciation (depreciation) on investments 2,705,562
NET ASSETS, for 3,837,178 shares outstanding $ 44,442,437
NET ASSET VALUE, offering price $11.58
and redemption price per share ($44,442,437 (divided by) 3,837,178 shares)
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STATEMENT OF OPERATIONS
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SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
INVESTMENT INCOME $ 21,795
Dividends
Interest 2,370,906
TOTAL INCOME 2,392,701
EXPENSES
Management fee $ 166,114
Transfer agent fees 4,793
Accounting fees and expenses 30,194
Non-interested trustees' compensation 252
Custodian fees and expenses 2,635
Audit 24,811
Legal 869
Miscellaneous 142
Total expenses before reductions 229,810
Expense reductions (2,962 226,848
)
NET INVESTMENT INCOME 2,165,853
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 4,597,117
Futures contracts 204,108 4,801,225
Change in net unrealized appreciation (depreciation) on:
Investment securities (1,771,760
)
Futures contracts 34,108 (1,737,652
)
NET GAIN (LOSS) 3,063,573
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 5,229,426
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STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
(UNAUDITED)
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Operations $ 2,165,853 $ 6,658,628
Net investment income
Net realized gain (loss) 4,801,225 4,273,403
Change in net unrealized appreciation (depreciation) (1,737,652 1,294,036
)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 5,229,426 12,226,067
Distributions to shareholders (3,822,182 (6,461,049
From net investment income ) )
From net realized gain (2,664,180 (1,264,154
) )
TOTAL DISTRIBUTIONS (6,486,362 (7,725,203
) )
Share transactions 6,243,127 17,100,001
Net proceeds from sales of shares
Reinvestment of distributions 768,165 2,766,715
Cost of shares redeemed (19,008,500 (39,100,000
) )
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (11,997,208 (19,233,284
) )
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,254,144 (14,732,420
) )
NET ASSETS
Beginning of period 57,696,581 72,429,001
End of period (including undistributed net investment income of $81,067 and $1,737,396, respectively)$ 44,442,437 $ 57,696,581
OTHER INFORMATION
Shares
Sold 557,115 1,569,711
Issued in reinvestment of distributions 66,392 254,411
Redeemed (1,656,814 (3,513,383
) )
Net increase (decrease) (1,033,307 (1,689,261
) )
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SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
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FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED JANUARY 5, 1995
ENDED NOVEMBER 30, (COMMENCEMENT
MAY 31, 1997 OF OPERATIONS) TO
NOVEMBER 30,
SELECTED PER-SHARE DATA (UNAUDITED) 1996 1995
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Net asset value, beginning of period $ 11.850 $ 11.040 $ 10.000
Income from Investment Operations .550 D .950 D .922
Net investment income
Net realized and unrealized gain (loss) .761 .970 1.045
Total from investment operations 1.311 1.920 1.967
Less Distributions
From net investment income (.941) (.930) (.837)
In excess of net investment income - - (.090)
From net realized gain (.640) (.180) -
Total distributions (1.581) (1.110) (.927)
Net asset value, end of period $ 11.580 $ 11.850 $ 11.040
TOTAL RETURN B, C 12.35% 18.71% 20.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 44,442 $ 57,697 $ 72,429
Ratio of expenses to average net assets 1.03% A .91% 1.09% A
Ratio of expenses to average net assets after expense reductions 1.02% A, .90% E 1.09% A
E
Ratio of net investment income to average net assets 9.69% A 8.72% 9.14% A
Portfolio turnover rate 70% A 53% 49% A
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A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E 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 5 OF
NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 1997 (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. Securities (including
restricted securities) for which market quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the Board
of Trustees. Short-term securities with remaining maturities of sixty days
or less for which quotations are not readily available are valued at
amortized cost or original cost plus accrued interest, both of which
approximate current value.
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. Income receipts
and expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
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, 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 and futures and options transactions.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
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 for 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. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates. Buying
futures tends to increase the fund's exposure to the underlying instrument,
while selling futures tends 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 of any open futures contracts at period end
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 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.
2. OPERATING POLICIES - CONTINUED
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 $1,200,000 or
2.7% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $15,248,253 and $25,323,262, respectively.
The market value of futures contracts opened and closed during the period
amounted to $7,541,865 and $8,141,306, 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. The annual individual
fund fee rate is .60%. 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.
For the period, the management fee was equivalent to an annualized rate of
.74% of average net assets.
TRANSFER AGENT FEES. Fidelity Investments Institutional Operations Company,
Inc. (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 .02% of average net assets.
ACCOUNTING FEES. Fidelity Service Company, Inc. (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.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances were
used to reduce a portion of the fund's expenses. During the period, the
fund's custodian and transfer agent fees were reduced by $2,627 and $335,
respectively, under these arrangements.
6. BENEFICIAL INTEREST.
At the end of the period, one shareholder was record owner 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
Richard A. Silver, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER SERVICING AGENT
Fidelity Investments Institutional Operations Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
* INDEPENDENT TRUSTEES
