(2_FIDELITY_LOGOS)FIDELITY
REAL ESTATE HIGH INCOME
FUND
ANNUAL 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.
REPORT OF INDEPENDENT ACCOUNTANTS 12 THE AUDITORS' OPINION.
DISTRIBUTIONS 13
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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 NOVEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
FIDELITY REAL ESTATE HIGH INCOME 26.22% 80.30%
MERRILL LYNCH HIGH YIELD MASTER INDEX 12.62% 48.54%
HIGH CURRENT YIELD FUNDS AVERAGE 13.23% N/A
CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, 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 one year average
represents a peer group of 174 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 NOVEMBER 30, 1997 PAST 1 LIFE OF
YEAR FUND
FIDELITY REAL ESTATE HIGH INCOME 26.22% 22.50%
MERRILL LYNCH HIGH YIELD MASTER INDEX 12.62% 14.60%
HIGH CURRENT YIELD FUNDS AVERAGE 13.23% 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
IMAHDR PRASUN SHR__CHT 19971130 19971219 142652 S00000000000001
Real Estate High Inc ML High Yield Master
00671 ML002
1995/01/05 100000.00 100000.00
1995/01/31 100918.56 101255.38
1995/02/28 104093.12 104414.67
1995/03/31 105430.21 105867.78
1995/04/30 107058.44 108346.52
1995/05/31 111364.63 111731.51
1995/06/30 112854.47 112584.91
1995/07/31 113387.98 113872.01
1995/08/31 115807.97 114563.12
1995/09/30 117769.89 115873.84
1995/10/31 118684.60 116695.22
1995/11/30 120329.56 117834.33
1995/12/31 121432.24 119725.79
1996/01/31 122861.39 121616.64
1996/02/29 122234.55 121799.75
1996/03/31 122094.38 121468.97
1996/04/30 123181.86 121523.99
1996/05/31 123858.23 122400.40
1996/06/30 126275.58 123135.66
1996/07/31 127320.62 123971.65
1996/08/31 127913.11 125251.90
1996/09/30 132066.15 127939.25
1996/10/31 138261.78 129341.38
1996/11/30 142842.15 131956.29
1996/12/31 143581.99 132971.66
1997/01/31 147776.98 133993.56
1997/02/28 151913.15 135873.22
1997/03/31 152800.96 134364.15
1997/04/30 158792.49 135893.43
1997/05/31 160484.33 138597.25
1997/06/30 163908.63 140742.72
1997/07/31 170965.79 144120.25
1997/08/31 170997.49 143795.99
1997/09/30 176137.46 146251.11
1997/10/31 177153.54 147221.71
1997/11/28 180300.26 148540.21
IMATRL PRASUN SHR__CHT 19971130 19971219 142653 R00000000000038
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 November 30, 1997, the value of the investment
would have grown to $180,300 - an 80.30% 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 $148,540 - a 48.54%
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
YEARS ENDED NOVEMBER 30, JANUARY 5, 1995
(COMMENCEMENT
OF OPERATIONS) TO
NOVEMBER 30,
1997 1996 1995
DIVIDEND RETURN 15.17% 9.59% 9.93%
CAPITAL APPRECIATION RETURN 11.05% 9.12% 10.40%
TOTAL RETURN 26.22% 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 NOVEMBER 30, 1997 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 9.85(CENTS) 56.61(CENTS) 150.75(CENTS)
ANNUALIZED DIVIDEND RATE 9.66% 9.33% 12.86%
30-DAY ANNUALIZED YIELD 11.15% - -
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
$12.40 over the past one month, $12.10 over the past six months and
$11.72 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. The fund had a good year. For the 12 months that ended November 30,
1997, the fund returned 26.22%. The Merrill Lynch High Yield Master
Index - a broad measure of the high-yield bond market - returned
12.62% during this period. The high current yield funds average had a
12-month return of 13.23%, according to Lipper Analytical Services.
Q. WHAT HELPED THE FUND POST SUCH STRONG GAINS?
A. Three factors worked in the fund's favor. First, there was a
considerable amount of credit-spread tightening in the real estate
debt market. When high-yield bond spreads tighten relative to U.S.
Treasuries, the fund earns significant capital gains. Most of this
tightening occurred in the commercial mortgage-backed segment of the
market - an area in which the fund was well-represented during the
period. Second, my process of security selection led me to buy bonds
that had higher-than-average credit appreciation potential. Most of
these choices performed well. Lastly, the real estate fundamentals
throughout our market were generally beneficial.
Q. WHY WAS THE ENVIRONMENT SO FAVORABLE?
A. Several developments were influential. We continued to see a rise
in underlying property values, as the real estate market continued to
rebound from its early-1990s recession. In addition, the availability
of capital to refinance mortgages became more plentiful. The final
factor I'd highlight was the securities' supply/demand condition.
There were a lot of new deals issued, but investor demand remained
quite strong. All of these factors helped boost the return to real
estate debt investors.
Q. THE FUND'S TOP THREE POSITIONS AT THE END OF THE PERIOD ACCOUNTED
FOR JUST OVER 18% OF ASSETS. HOW DID THESE BONDS PERFORM?
A. Quite well. One of the larger holdings - bonds issued by the former
Resolution Trust Corp. - continued to perform well. Resolution Trust
Corp. was a government agency created to assist insolvent savings and
loan institutions. Bonds from the Confederated Life mortgage
portfolio, listed as Structured Asset Securities Corp., also provided
a strong performance boost during the period, as did mortgage-backed
bonds from Oregon Commercial Mortgage. In both instances, the deals
required intensive credit research that eventually paid off. As I've
mentioned to shareholders before, I prefer to run a concentrated fund.
I find it more productive to spend more time analyzing a few bonds
than less time on more issues.
Q. DID YOU FOLLOW ANY SPECIFIC STRATEGIES DURING THE PERIOD?
A. One shift I made - probably around the halfway point of the period
- - was to emphasize lower-quality bonds. From the fund's inception
through the first half of the period, much of its focus has been on
BB-rated bonds. These issues helped the fund's performance immensely
in that time. The shift to lower-quality bonds in the springtime
marked the first significant credit move for the fund. I felt that the
higher-quality bond strategy had played itself out and I could find
higher returns in the B category through strong credit research. So
far, this move has worked out fairly well.
Q. WERE THERE OTHER POSITIONS THAT PERFORMED WELL? HOW ABOUT
DISAPPOINTMENTS?
A. Bonds issued by Schostak, listed as SML - a shopping mall entity in
the Detroit area - performed extremely well. The fund held these bonds
at discounted prices, and toward the end of the period we were
notified that the bonds would be called at par value. On a negative
note, the fund's position in Rockefeller Center Properties zero coupon
bonds didn't perform well.
Q. WHAT'S YOUR OUTLOOK FOR THE COMING MONTHS, MARK?
A. Since the fund will be more oriented toward lower-quality,
high-risk issues going forward, credit analysis will be crucial. I
don't think the fund will continue to top its benchmarks by such huge
margins, but I'm optimistic that we'll continue to 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 NOVEMBER 30, 1997, MORE THAN
$49 MILLION
MANAGER: MARK SNYDERMAN, SINCE INCEPTION;
JOINED FIDELITY IN 1994
(CHECKMARK)
FIDELITY REAL ESTATE HIGH INCOME
INVESTMENTS NOVEMBER 30, 1997
SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES
CORPORATE BONDS - 6.4%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 2.0%
CONSTRUCTION & REAL ESTATE - 2.0%
REAL ESTATE INVESTMENT TRUSTS - 2.0%
Rockefeller Center Properties, Inc.
0%, 12/31/00 - $ 1,500,000 $ 1,050,000
NONCONVERTIBLE BONDS - 4.4%
FINANCE - 3.9%
CREDIT & OTHER FINANCE - 3.9%
Cityscape Financial Corp.
12 3/4%, 6/1/04 Caa 2,960,000 1,983,200
MEDIA & LEISURE - 0.5%
LODGING & GAMING - 0.5%
American Skiing Co.
12%, 7/15/06 B3 250,000 276,250
TOTAL NONCONVERTIBLE BONDS 2,259,450
TOTAL CORPORATE BONDS
(Cost $3,758,637) 3,309,450
COLLATERALIZED MORTGAGE OBLIGATIONS - 3.9%
PRIVATE SPONSOR - 3.9%
Credit-Based Asset Servicing and
Securitization LLC
Series 1997-2 (c)(e)(h):
Class 2B, 7.289%, 12/29/25 Ba3 1,000,000 510,625
Class 2C, 7.289%, 12/29/25 B3 2,550,000 685,313
DLJ Mortgage Acceptance Corp. (c):
Series 1996-TD Class C,
6.089%, 9/29/23 B3 704,281 588,348
Series 1996-TD Class D,
8.405%, 9/29/23 (e) - 1,077,791 231,725
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS (Cost $2,063,074) 2,016,011
COMMERCIAL MORTGAGE SECURITIES - 78.4%
ACP Mortgage LP Series F,
7.155%, 2/28/28 (c)(e) B 1,609,486 1,366,937
American Southwest Financial
Securities Series 1994-C2
Class B2, 11.429%,
12/25/01 (c)(e) - 2,000,000 2,030,312
BKB Commercial Mortgage Trust
Series 1997-C1 (c)(e):
Class F, 8.725%, 4/26/04 B 1,476,000 1,307,125
Class G, 8.725%, 4/27/09 CCC 1,141,500 513,675
Class H, 8.738%,10/25/22 - 760,975 190,244
Blaylock Mortgage Capital Corp.
Series 1997-A (c):
Class B5, 6.425%, 10/15/03 B- 110,000 72,230
Class B6, 6.425%, 10/15/03 CCC 110,000 46,812
Class B7, 6.425%, 10/15/03 - 147,000 41,617
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
CS First Boston Mortgage Securities
Corp. (c):
Series 1994-CFB1 Class F,
7.617%, 1/25/28 (e) - $ 1,319,819 $ 1,217,790
Series 1997-SPICE Class G,
7.768%, 8/20/36 - 1,400,000 1,159,813
Daiwa Series 1997-2 Class D,
6.00%, 12/1/24 (c)(g) - 2,250,000 1,411,425
DLJ Mortgage Acceptance Corp. (c):
Series 1994-MF4 Class C,
8.50%, 4/18/01 - 460,000 332,028
Series 1994-MF11 Class B3,
8.10%, 6/18/04 B2 1,342,000 1,198,676
Federal Mortgage Acceptance Corp.
Series 1997-B Class F, 7.89%,
9/15/19 (c)(e) - 2,217,779 1,616,206
Franchise Mortgage Acceptance
Corp. Loan Receivables Trust
Series 1997-A Class F,
8.104%, 4/15/19 (c)(e) - 1,420,659 1,065,494
First Chicago/Lennar Trust I
Series 1997-CHL1 Class E,
8.12%, 2/28/11 (e) - 2,800,000 2,367,750
Kidder Peabody Acceptance Corp. I
Series 1994-M1 Class D,
8.245%, 7/25/01 (c)(e) - 842,000 540,227
Merrill Lynch Mortgage
Investments, Inc. Series 1994
Class M1-E, 8.098%,
6/25/22 (c)(e) Ba2 1,500,000 1,535,625
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.495%, 5/25/21 (c)(e) - 1,205,012 1,133,088
Oregon Commercial Mortgage, Inc.
Series 1995 Class E,
9.805%, 6/25/26 (c)(e) BB 3,000,000 3,052,969
Penn Mutual Life Insurance Co.
(The) Series 1996-PML (c):
Class L, 7.90%, 11/15/26 - 2,500,000 1,206,750
Class M, 7.90%, 11/15/26 - 5,862,000 832,404
Resolution Trust Corp.
Series 1991-M2 (e):
Class A1, 7.130%, 9/25/20 Ba3 3,561,726 3,134,318
Class A2, 7.376%, 9/25/20 Ba3 1,975,719 1,679,361 Class A3,
7.542%, 9/25/20 Ba 968,257 817,795
Structured Asset Securities Corp.:
Series 1993-C1 Class E, 6.60%,
10/25/24 (c) B 3,250,268 1,300,107
Series 1995-C1 Class E, 7 3/8%,
9/25/24 (c) BB 2,350,000 2,234,978 Series 1996-CFL:
Class G, 7 3/4%, 2/25/28 (c) - 3,450,000 3,143,138
Class H, 7 3/4%, 2/25/28 Aaa 2,500,000 2,009,850
SML, Inc. Series 1994-C1:
Class B3, 11.69%, 9/18/99 - 500,000 494,688
Class C, 9.20%, 9/18/99 (d) - 1,600,000 1,449,000
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $37,586,201) 40,502,432
COMPLEX MORTGAGE SECURITIES - 0.3%
MOODY'S RATINGS PRINCIPAL VALUE
(UNAUDITED) (B) AMOUNT (NOTE 1)
INTEREST ONLY STRIPS - 0.3%
BKB Commercial Mortgage Trust
Series 1997-C1 Class X1,
1.372%, 12/26/01 (c)(e)(f)
(Cost $216,974) BBB $ 21,612,073 $ 164,423
COMMON STOCKS - 4.1%
SHARES
CONSTRUCTION & REAL ESTATE - 2.6%
REAL ESTATE - 1.7%
Boardwalk Equities, Inc. (a) 31,800 368,456
Getty Realty Corp. 27,600 534,750
903,206
REAL ESTATE INVESTMENT TRUSTS - 0.9%
LTC Properties, Inc. 22,000 449,625
TOTAL CONSTRUCTION & REAL ESTATE 1,352,831
FINANCE - 1.5%
CREDIT & OTHER FINANCE - 1.5%
Insignia Financial Group, Inc.
Class A (a) 40,000 790,000
TOTAL COMMON STOCKS
(Cost $1,899,055) 2,142,831
PREFERRED STOCKS - 5.1%
CONSTRUCTION & REAL ESTATE - 5.1%
REAL ESTATE INVESTMENT TRUSTS - 5.1%
Crown America Realty Trust
Series A 11% 30,300 1,590,750
Walden Residential Properties, Inc. 9.20% 40,000 1,020,000
TOTAL PREFERRED STOCKS
(Cost $2,511,705) 2,610,750
CASH EQUIVALENTS - 1.8%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.70%, dated
11/28/97 due 12/1/97 $ 938,446 938,000
TOTAL INVESTMENT IN SECURITIES - 100%
(COST $48,973,646) $ 51,683,897
LEGEND
1. Non-income producing
2. Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
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 $30,730,104 or
61.6% of net assets.
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 12/6/95 $ 1,064,500
5. The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
6. Security represents right to receive monthly interest payments on
an underlying pool of mortgages. Principal shown is the par amount of
the mortgage pool.
7. Security purchased on a delayed delivery or when-issued basis (see
Note 2 of Notes to Financial Statements).
8. 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 3.9% AAA, AA, A 3.9%
Baa 0.0% BBB 0.3%
Ba 14.9% BB 10.2%
B 5.3% B 22.6%
Caa 3.8% CCC 1.6%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by Moody's or S&P amounted to 41.6%. FMR has
determined that unrated debt securities that are lower quality account
for 41.6% of the total value of investment in securities.
INCOME TAX INFORMATION
At November 30, 1997, the aggregate cost of investment securities for
income tax purposes was $48,973,646. Net unrealized appreciation
aggregated $2,710,251, of which $3,769,457 related to appreciated
investment securities and $1,059,206 related to depreciated investment
securities.
The fund hereby designates approximately $195,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
ASSETS
INVESTMENT IN SECURITIES, AT VALUE $ 51,683,897
(INCLUDING REPURCHASE AGREEMENTS
OF $938,000) (COST $48,973,646) -
SEE ACCOMPANYING SCHEDULE
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CASH 782,896
DIVIDENDS RECEIVABLE 64,663
INTEREST RECEIVABLE 650,946
OTHER RECEIVABLES 3,707
TOTAL ASSETS 53,186,109
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 1,796,825
REGULAR DELIVERY
DELAYED DELIVERY 1,411,425
ACCRUED MANAGEMENT FEE 30,365
OTHER PAYABLES AND ACCRUED EXPENSES 26,540
TOTAL LIABILITIES 3,265,155
NET ASSETS $ 49,920,954
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 40,128,172
UNDISTRIBUTED NET INVESTMENT INCOME 870,640
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON INVESTMENTS 6,211,891
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 2,710,251
NET ASSETS, FOR 4,019,382 SHARES OUTSTANDING $ 49,920,954
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE ($49,920,954 (DIVIDED BY) 4,019,382 SHARES) $12.42
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STATEMENT OF OPERATIONS
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YEAR ENDED NOVEMBER 30, 1997
INVESTMENT INCOME $ 159,143
DIVIDENDS
INTEREST 4,709,551
TOTAL INCOME 4,868,694
EXPENSES
MANAGEMENT FEE $ 340,782
TRANSFER AGENT FEES 10,294
ACCOUNTING FEES AND EXPENSES 60,238
NON-INTERESTED TRUSTEES' COMPENSATION 204
CUSTODIAN FEES AND EXPENSES 15,754
AUDIT 40,778
LEGAL 2,825
MISCELLANEOUS 327
TOTAL EXPENSES BEFORE REDUCTIONS 471,202
EXPENSE REDUCTIONS (15,909) 455,293
NET INVESTMENT INCOME 4,413,401
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 7,829,042
FUTURES CONTRACTS 198,463 8,027,505
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:
INVESTMENT SECURITIES (1,752,393)
FUTURES CONTRACTS 19,430 (1,732,963)
NET GAIN (LOSS) 6,294,542
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 10,707,943
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STATEMENT OF CHANGES IN NET ASSETS
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INCREASE (DECREASE) IN NET ASSETS YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30,
1997 1996
OPERATIONS $ 4,413,401 $ 6,658,628
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 8,027,505 4,273,403
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (1,732,963) 1,294,036
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 10,707,943 12,226,067
DISTRIBUTIONS TO SHAREHOLDERS (6,037,275) (6,461,049)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (2,664,180) (1,264,154)
TOTAL DISTRIBUTIONS (8,701,455) (7,725,203)
SHARE TRANSACTIONS 6,243,135 17,100,001
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 2,983,250 2,766,715
COST OF SHARES REDEEMED (19,008,500) (39,100,000)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (9,782,115) (19,233,284)
TOTAL INCREASE (DECREASE) IN NET ASSETS (7,775,627) (14,732,420)
NET ASSETS
BEGINNING OF PERIOD 57,696,581 72,429,001
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $870,640 AND $1,737,396,
RESPECTIVELY) $ 49,920,954 $ 57,696,581
OTHER INFORMATION
SHARES
SOLD 557,115 1,569,711
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 248,595 254,411
REDEEMED (1,656,813) (3,513,383)
NET INCREASE (DECREASE) (851,103) (1,689,261)
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED YEAR ENDED JANUARY 5, 1995
NOVEMBER 30, NOVEMBER 30, (COMMENCEMENT
OF OPERATIONS) TO
NOVEMBER 30,
SELECTED PER-SHARE DATA 1997 1996 1995
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.850 $ 11.040 $ 10.000
INCOME FROM INVESTMENT OPERATIONS 1.124 D .950 D .922
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED GAIN (LOSS) 1.594 .970 1.045
TOTAL FROM INVESTMENT OPERATIONS 2.718 1.92 1.967
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (1.508) (.930) (.837)
IN EXCESS OF NET INVESTMENT INCOME - - (.090)
FROM NET REALIZED GAIN (.640) (.180) -
TOTAL DISTRIBUTIONS (2.148) (1.110) (.927)
NET ASSET VALUE, END OF PERIOD $ 12.420 $ 11.850 $ 11.040
TOTAL RETURN B, C 26.22% 18.71% 20.33%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 49,921 $ 57,697 $ 72,429
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.02% .91% 1.09% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS AFTER EXPENSE REDUCTIONS .99% E .90% E 1.09% A
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 9.58% 8.72% 9.14% A
PORTFOLIO TURNOVER RATE 80% 53% 49% A
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).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDED NOVEMBER 30, 1997
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 foreign
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. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. The fund may place a debt obligation on
non-accrual status and reduce related interest income by ceasing
current accruals and writing off interest receivables when the
collection of all or a portion of interest has become doubtful based
on consistently applied procedures, under the general supervision of
the Board of Trustees of the fund. A debt obligation is removed from
non-accrual status when the issuer resumes interest payments or when
collectibility of interest is reasonably assured.
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, futures and
options transactions and market discount. The fund also utilized
earnings and profits distributed to shareholders on redemption of
shares as a part of the dividends paid deduction for income tax
purposes.
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.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying
securities is fixed at the time the transaction is negotiated. The
market values of the securities purchased on a when-issued or forward
commitment basis are identified as such in the fund's schedule of
investments. The fund may receive compensation for interest forgone
2. OPERATING POLICIES - CONTINUED
WHEN-ISSUED SECURITIES - CONTINUED
in the purchase of a when-issued security. With respect to purchase
commitments, the fund identifies securities as segregated in its
custodial records with a value at least equal to the amount of the
commitment. The payables and receivables associated with the purchases
and sales of when-issued securities having the same settlement date
and broker are offset. When-issued securities that have been purchased
from and sold to different brokers are reflected as both payables and
receivables in the statement of assets and liabilities under the
caption "Delayed delivery." Losses may arise due to changes in the
market value of the underlying securities, if the counterparty does
not perform under the contract, or if the issuer does not issue the
securities due to political, economic, or other factors.
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.
Losses may arise from changes in the value of the underlying
instruments or if the counterparties do not perform under the
contracts' terms. Gains (losses) are realized upon the expiration or
closing of the futures contracts. Futures contracts are valued at the
settlement price established each day by the board of trade or
exchange on which they are traded.
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 $1,449,000 or 2.9% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $36,368,669 and $41,600,478, respectively.
The market value of futures contracts opened and closed during the
period amounted to $7,541,865 and $15,688,815, 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 annual 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 annual rate of .02% of
average net assets.
ACCOUNTING FEES. Fidelity Service Company, Inc., 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.
FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $574 under this arrangement.
In addition, 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 $15,171 and $164, 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.
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,
1997, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the
two years in the period then ended and 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of November 30, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Fidelity Advisor Series IV: Fidelity Real Estate
High Income Fund as of November 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial
highlights for each of the two years in the period then ended and for
the period January 5, 1995 (commencement of operations) to November
30, 1995, in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 9, 1998
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
12/22/97 12/19/97 - $1.31
1/5/98 1/2/98 - $.13
A total of .07% of the dividends distributed during the fiscal year
was derived from interest on U.S. Government securities which is
generally exempt from state income tax.
The fund will notify shareholders in January 1998 of the applicable
percentage for use in preparing 1997 income tax returns.
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, PRESIDENT
Robert C. Pozen, SENIOR VICE PRESIDENT
Robert A. Lawrence, VICE PRESIDENT
Eric D. Roiter, SECRETARY
Richard A. Silver, TREASURER
John H. Costello, ASSISTANT TREASURER
Leonard M. Rush, ASSISTANT TREASURER
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
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
