(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 9 STATEMENTS OF ASSETS AND LIABILITIES, OPERATIONS, AND
CHANGES IN NET ASSETS, AS WELL AS FINANCIAL HIGHLIGHTS.
NOTES 11 NOTES TO THE FINANCIAL STATEMENTS.
PROXY VOTING RESULTS 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 MAY 31, 1998 PAST 6 PAST 1 LIFE OF
MONTHS YEAR FUND
FIDELITY REAL ESTATE HIGH INCOME 6.28% 19.40% 91.62%
ML HIGH YIELD MASTER 4.98% 12.54% 55.94%
HIGH CURRENT YIELD FUNDS AVERAGE 5.47% 13.29% 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 238 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, 1998 PAST 1 LIFE OF
YEAR FUND
FIDELITY REAL ESTATE HIGH INCOME 19.40% 21.06%
ML HIGH YIELD MASTER 12.54% 13.95%
HIGH CURRENT YIELD FUNDS AVERAGE 13.29% 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
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
1997/11/30 180300.26 148540.21
1997/12/31 182230.32 150025.34
1998/01/31 184570.38 152223.03
1998/02/28 185221.01 152888.03
1998/03/31 188396.33 154205.59
1998/04/30 190199.08 154938.05
1998/05/29 191620.34 155940.37
IMATRL PRASUN SHR__CHT 19980531 19980605 170316 R00000000000044
$100,000 OVER LIFE OF FUND: 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, 1998, the value
of the investment would have grown to $191,620 - a 91.62% 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 $155,940
- - a 55.94% 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 YEARS ENDED JANUARY 5, 1995
ENDED NOVEMBER 30, (COMMENCEMENT
MAY 31, OF OPERATIONS) TO
NOVEMBER 30,
1998 1997 1996 1995
DIVIDEND RETURN 5.61% 15.17% 9.59% 9.93%
CAPITAL RETURN 0.67% 11.05% 9.12% 10.40%
TOTAL RETURN 6.28% 26.22% 18.71% 20.33%
TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital 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, if
any, paid by the fund are reinvested.
DIVIDENDS
PERIODS ENDED MAY 31, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR
DIVIDENDS PER SHARE 8.26(CENTS) 60.33(CENTS) 116.94(CENTS)
ANNUALIZED DIVIDEND RATE 8.79% 10.82% 10.05%
30-DAY ANNUALIZED YIELD 10.17% - -
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
$11.07 over the past one month, $11.18 over the past six months and
$11.64 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. For the six months that ended May 31, 1998, the fund's return was
6.28%. During the same period, the Merrill Lynch High Yield Master
Index - a broad measure of the high-yield bond market - returned
4.98%, while the high current yield funds average tracked by Lipper
Analytical Services returned 5.47%. For the 12 months that ended May
31, 1998, the fund returned 19.40%. Over that same period, the index
and the average had returns of 12.54% and 13.29%, respectively.
Q. WHAT CONTRIBUTED TO THE FUND'S STRONG PERFORMANCE?
A. There were a number of factors. Supply and demand throughout the
real estate market were in balance, creating favorable credit quality.
Relative to the index and the average, the fund benefited from good
security selection resulting from the in-depth credit analysis I have
access to here at Fidelity. That analysis enabled me to buy bonds with
higher-than-average credit appreciation potential. The tightening
credit spread that helped performance so much in past periods was not
nearly as much of a factor during the period. After being as wide as
200 basis points during the previous period, the spread between
commercial mortgage-backed securities and comparably rated corporate
bonds narrowed to the range of 50 to 100 basis points by the beginning
of the period - a spread value considered to be fair under normal
market conditions.
Q. CAN YOU ELABORATE ON SOME OF THE UNDERLYING INFLUENCES ON THE
MARKET?
A. Conditions in the real estate market reflected an extension of a
long-term recovery from the extremely depressed levels of the early
1990s. Commercial property values continued to rise. Moreover, the
favorable interest-rate environment made capital readily available for
refinancing mortgages. Finally, the supply and demand situation for
the kind of securities in which the fund invests remained good. There
continued to be ample new supply mirrored by strong investor demand,
keeping returns healthy.
Q. DID YOU MAKE ANY CHANGES IN YOUR STRATEGY DURING THE PERIOD?
A. Yes, there were a few changes. By the end of the period, the fund's
credit rating mix was more similar to that of the high-yield market
than it was when the period began. That is, I continued to shift the
fund's holdings toward lower-quality B-rated bonds with attractive
potential returns. The opportunities in the higher-rated BB bonds had
diminished, and I felt that rigorous credit analysis would enable me
to compensate for the increased risk of the lower-quality issues. In
addition, I pursued the theme of diversification by increasing the
fund's holdings of real estate company high-yield bonds, while
trimming commercial mortgage-backed securities from roughly 78% to
about 66% of the portfolio.
Q. WHICH HOLDINGS PERFORMED WELL AND WHICH WERE DISAPPOINTING?
A. Bonds issued from the Penn Mutual Life portfolio did well. The
credit of the underlying mortgages continued to be better than the
market had anticipated. In addition, portions of some of the mortgages
were paid off at par, resulting in a debt structure with less
leverage. Commercial mortgage-backed securities from the Confederated
Life portfolio - listed as Structured Asset Securities Corp., Series
1996-CFL, Class G - also performed well. Here, too, the market had
underestimated the credit of the underlying mortgages. On the negative
side, General Motors Acceptance Corp. Commercial Mortgage Securities,
Inc., Series 1997-C2 did not perform well. That was a case of the
credit spread not tightening as I expected.
Q. WHAT'S YOUR OUTLOOK, MARK?
A. I expect the fund to continue to offer competitive returns relative
to its benchmarks, but not to outperform them by the wide margins of
the recent past. The contracting credit spread that made possible
those stellar returns has tightened as much as can be expected.
Performance in future periods - relative to the fund's benchmarks - is
more likely to approximate that of the period just ended.
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 REAL ESTATE-RELATED
INSTRUMENTS, WITH AN EMPHASIS ON LOWER-QUALITY
ISSUES
START DATE: JANUARY 5, 1995
SIZE: AS OF MAY 31, 1998, MORE THAN
$79 MILLION
MANAGER: MARK SNYDERMAN, SINCE INCEPTION;
JOINED FIDELITY IN 1994
(CHECKMARK)
NOTE TO SHAREHOLDERS:
As of June 1, 1998, the fund's investment objective and investment
policy changed. The fund now seeks a high level of current income by
investing primarily in real estate-related instruments. As a secondary
objective, the fund also seeks growth of capital.
Under normal market conditions, the fund manager will now invest at
least 90% of the fund's net assets in commercial and residential
mortgage-backed securities; debt securities of real estate entities;
equity securities of entities whose primary assets are mortgage loans
or commercial or residential mortgage-backed securities; preferred
stock of real estate investment trusts; U.S. Government securities;
cash equivalents; and related futures and options.
REAL ESTATE HIGH INCOME
INVESTMENTS MAY 31, 1998 (UNAUDITED)
Showing Percentage of Total Value of Investment in Securities
CORPORATE BONDS - 11.0%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
CONVERTIBLE BONDS - 4.3%
CONSTRUCTION & REAL ESTATE - 2.4%
REAL ESTATE INVESTMENT TRUSTS - 2.4%
Rockefeller Center Properties, Inc.
0%, 12/31/00 - $ 2,500,000 $ 1,931,250
MEDIA & LEISURE - 1.9%
LODGING & GAMING - 1.9%
Sholodge, Inc.
7 1/2%, 5/1/04 B2 1,760,000 1,487,200
TOTAL CONVERTIBLE BONDS 3,418,450
NONCONVERTIBLE BONDS - 6.7%
CONSTRUCTION & REAL ESTATE - 1.2%
REAL ESTATE - 1.2%
LNR Property Corp.
9 3/8%, 3/15/08 (c) B1 925,000 927,313
FINANCE - 5.5%
CREDIT & OTHER FINANCE - 5.5%
Cityscape Financial Corp.
12 3/4%, 6/1/04 Ca 3,260,000 1,255,100
Emergent Group, Inc.
10 3/4%, 9/15/04 B3 1,200,000 972,000
Wilshire Financial Services
Group, Inc. 13%, 1/1/04 - 2,000,000 2,155,000
4,382,100
TOTAL NONCONVERTIBLE BONDS 5,309,413
TOTAL CORPORATE BONDS
(Cost $10,104,322) 8,727,863
COLLATERALIZED MORTGAGE OBLIGATIONS - 2.9%
Credit-Based Asset Servicing and
Securitization LLC
Series 1997-2 (c)(d)(f):
Class 2B, 7.2891%, 12/29/25 Ba3 1,000,000 500,313
Class 2C, 7.2891%, 12/29/25 B3 2,550,000 609,609
DLJ Mortgage Acceptance Corp.
Series 1996-TD (c)(d):
Class D, 6.6697%, 9/29/23 - 1,041,512 197,887
Class C, 6.8797%, 9/29/23 B3 669,050 554,897
GE Capital Mortgage Services, Inc.
Series 1998-7 (c):
Class B4, 6 1/2%, 4/25/13 - 343,919 286,313
Class B5, 6 1/2%, 4/25/13 - 257,942 110,915
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $2,424,628) 2,259,934
COMMERCIAL MORTGAGE SECURITIES - 65.8%
ACP Mortgage LP Series F,
7.3892%, 2/28/28 (c)(d) B 1,585,658 1,361,288
American Southwest Financial Securities
Series 1994-C2 Class B2,
8%, 12/25/01 (c)(d) - 2,000,000 2,053,125
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
Asset Securitization Corp.
Series 1997-D5 Class A-6,
7.1845%, 2/14/41 (d) BBB $ 2,000,000 $ 1,972,500
BKB Commercial Mortgage Trust
Series 1997-C1 (c)(d):
Class F, 8.9120%, 4/26/04 B 2,276,000 2,096,765
Class G, 8.9120%, 4/27/09 CCC 2,141,500 1,434,805
Class H, 8.7376%, 10/25/22 - 760,975 190,244
Bankers Trust Remic Trust 1988-1 (c)(d):
Series 1998-S1A Class G,
9.2681%, 11/28/02 Ba2 930,000 890,475
Series 1998-S1A Class H,
8.6575%, 11/28/02 B3 1,398,154 1,202,849
Blaylock Mortgage Capital Corp.
Series 1997-A (c):
Class B5, 6.425%, 10/15/03 B- 110,000 75,109
Class B6, 6.425%, 10/15/03 CCC 110,000 49,861
Class B7, 6.425%, 10/15/03 - 147,000 44,513
CBM Funding Corp. sequential pay
Series 1996-1 Class B,
7.48%, 2/1/08 A 1,000,000 1,072,656
CS First Boston Mortgage Securities
Corp. Series 1997-SPICE Class G,
7.768%, 8/20/36 (c) - 1,370,659 1,157,350
DLJ Mortgage Acceptance Corp. (c):
Series 1994-MF4 Class C,
8 1/2%, 4/18/01 - 460,000 345,431
Series 1994-MF11 Class B3,
8.10%, 6/18/04 B2 1,342,000 1,207,986
Federal Mortgage Acceptance Corp.
Series 1997-B Class F,
7.890%, 9/15/19 (c)(d) - 2,204,669 1,641,101
Franchise Mortgage Acceptance
Corp. Loan Receivables Trust (c)(d):
Series 1997-A Class F,
8.1046%, 4/15/19 - 1,408,457 1,084,512
Series 1997-B Class E,
7.8912%, 9/15/19 - 1,000,000 911,719
Series 1997-C Class F,
8.2652%, 12/15/19 - 1,137,595 786,718
First Chicago/Lennar Trust I
Series 1997-CHL1 Class E,
6.9294%, 2/28/11 (d) - 2,800,000 2,472,313
GAFCO Franchise Loan Trust
Series 1998-1 Class D, 14 1/2%,
6/1/16 (c)(d) - 2,700,000 2,140,172
General Motors Acceptance Corp.
Commercial Mortgage Securities,
Inc. Series 1997-C2 Class F,
6 3/4%, 4/16/29 Ba2 2,500,000 2,163,281
Kidder Peabody Acceptance
Corp. I (c)(d):
Series 1994-M1 Class D,
8.245%, 7/25/01 - 842,000 555,720
Series 1993-M3 Class F,
6 1/2%, 11/25/25 B2 2,000,000 1,860,000
COMMERCIAL MORTGAGE SECURITIES - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (NOTE 1)
LB Multi-Family Mortgage Trust
Series 1991-4 Class A1,
7.3368%, 4/25/21 (d) Caa $ 2,973,167 $ 1,850,797
Morgan Stanley Capital One, Inc.
Series 1996-MBL1 Class E,
8.4674%, 5/25/21 (c)(d) - 1,182,123 1,152,939
Nomura Depositor Trust
Series 1998-ST1A (c)(d):
Class B2, 9.875%,1/15/03 - 2,000,000 1,987,813
Class B2-A, 9.9063%, 1/15/03 - 200,000 198,781
Penn Mutual Life Insurance Co.
(The) Series 1996-PML (c):
Class L, 7.90%, 11/15/26 - 2,500,000 1,195,750
Class M, 7.90%, 11/15/26 - 5,862,000 766,163
Resolution Trust Corp.
Series 1991-M2 (d):
Class A1, 6.8992%, 9/25/20 Ba3 3,444,531 3,031,187
Class A2, 7.5062%, 9/25/20 Ba3 1,957,458 1,663,840
Class A3, 7.2498%, 9/25/20 Ba3 892,001 767,121
Structured Asset Securities Corp. (c):
Series 1993-C1 Class E, 6.60%,
10/25/24 B 3,250,268 1,625,134
Series 1995-C1 Class E, 7 3/8%,
9/25/24 BB 2,350,000 2,281,703
Series 1996-CFL:
Class G, 7 3/4%, 2/25/28 - 3,450,000 3,264,024
Class H, 7 3/4%, 2/25/28 - 2,500,000 2,053,200
Structured Mortgage Trust
Series 1997-2 (c):
Class C, 7.41%, 1/30/06 - 950,000 628,336
Class D, 7.41%, 1/30/06 - 1,200,000 773,813
TOTAL COMMERCIAL MORTGAGE SECURITIES
(Cost $49,335,574) 52,011,094
COMPLEX MORTGAGE SECURITIES - 0.1%
INTEREST ONLY STRIPS - 0.1%
BKB Commercial Mortgage Trust
Series 1997-C1 Class X-1,
1.4465%, 12/26/01 (c)(d)(e)
(Cost $220,880) BBB 21,744,986 89,152
COMMON STOCKS - 10.8%
SHARES
CONSTRUCTION & REAL ESTATE - 10.8%
REAL ESTATE - 2.2%
Boardwalk Equities, Inc. (a) 60,000 906,002
Boardwalk Equities, Inc. (a)(c) 3,800 57,380
LNR Property Corp. 30,000 776,250
1,739,632
REAL ESTATE INVESTMENT TRUSTS - 8.6%
AMRESCO Capital Trust, Inc. 90,000 1,158,750
Apex Mortgage Capital, Inc. 100,000 1,150,000
Clarion Commercial Holdings, Inc.
Class A 20,000 356,250
Corporate Office Properties Trust 30,000 307,500
SHARES VALUE
(NOTE 1)
Imperial Credit Commercial
Mortgage Investment Corp. 20,000 $ 276,875
LTC Properties, Inc. 58,500 1,173,656
Northstar Capital Investment
Corp. (a)(c) 40,000 800,000
Ocwen Asset Investment Corp. 40,000 680,000
Redwood Trust, Inc. 36,200 848,438
6,751,469
TOTAL COMMON STOCKS
(Cost $8,368,855) 8,491,101
MORTGAGE BACKED SECURITIES - 1.8%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
Saxon Asset Securities Trust (c):
8%, 12/25/27 BB $ 1,000,000 865,313
8.6%, 12/25/27 B 863,000 558,447
TOTAL MORTGAGE BACKED SECURITIES
(Cost $1,435,139) 1,423,760
NONCONVERTIBLE PREFERRED STOCKS - 4.8%
SHARES
CONSTRUCTION & REAL ESTATE - 4.8%
REAL ESTATE INVESTMENT TRUSTS - 4.8%
Crown America Realty Trust,
Series A 11% 40,300 2,161,088
Walden Residential Properties, Inc.
9.20% 65,000 1,649,375
TOTAL NONCONVERTIBLE PREFERRED STOCKS
(Cost $3,684,205) 3,810,463
U.S. TREASURY OBLIGATIONS - 2.5%
MOODY'S PRINCIPAL
RATINGS (B) AMOUNT
6.125% 8/15/07 Aaa $ 700,000 722,308
6.375% 8/15/27 Aaa 1,145,000 1,227,119
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $1,940,233) 1,949,427
CASH EQUIVALENTS - 0.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations) in a joint
trading account at 5.54%, dated
5/29/98 due 6/1/98
(Cost $232,000) $ 232,107 232,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $77,745,836) $ 78,994,794
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) 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
$48,037,086 or 60.7% of net assets.
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Security represents right to receive monthly interest payments on
an underlying pool of mortgages. Principal shown is the par amount of
the mortgage pool.
(f) 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:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 2.5% AAA, AA, A 3.8%
Baa 0.0% BBB 2.6%
Ba 11.4% BB 4.0%
B 11.2% B 18.4%
Caa 2.3% CCC 3.5%
Ca, C 1.6% CC, C 0.0%
D 2.3%
The percentage not rated by Moody's or S&P amounted to 38.1%. FMR has
determined that unrated debt securities that are lower quality account
for 38.1% of the total value of investment in securities.
INCOME TAX INFORMATION
At May 31, 1998, the aggregate cost of investment securities for
income tax purposes was $77,745,836. Net unrealized appreciation
aggregated $1,248,958, of which $3,961,977 related to appreciated
investment securities and $2,713,019 related to depreciated investment
securities.
REAL ESTATE HIGH INCOME
FINANCIAL STATEMENTS
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TABLE WIDTH IS 133 CHARACTERS.
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STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
ASSETS
INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE AGREEMENTS
OF $232,000) (COST $77,745,836) - SEE $ 78,994,794
ACCOMPANYING SCHEDULE
CASH 140,770
DIVIDENDS RECEIVABLE 92,788
INTEREST RECEIVABLE 824,859
TOTAL ASSETS 80,053,211
LIABILITIES
PAYABLE FOR INVESTMENTS PURCHASED $ 800,538
ACCRUED MANAGEMENT FEE 48,104
OTHER PAYABLES AND 23,729
ACCRUED EXPENSES
TOTAL LIABILITIES 872,371
NET ASSETS $ 79,180,840
NET ASSETS CONSIST OF:
PAID IN CAPITAL $ 75,095,014
UNDISTRIBUTED NET INVESTMENT INCOME 536,754
ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 2,300,114
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 1,248,958
NET ASSETS, FOR 7,165,993 $ 79,180,840
SHARES OUTSTANDING
NET ASSET VALUE, OFFERING PRICE $11.05
AND REDEMPTION PRICE PER SHARE ($79,180,840 (DIVIDED BY) 7,165,993 SHARES)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
INVESTMENT INCOME $ 242,252
DIVIDENDS
INTEREST 3,481,537
TOTAL INCOME 3,723,789
EXPENSES
MANAGEMENT FEE $ 257,351
TRANSFER AGENT FEES 8,281
ACCOUNTING FEES AND EXPENSES 30,064
NON-INTERESTED TRUSTEES' COMPENSATION 120
CUSTODIAN FEES AND EXPENSES 2,500
REGISTRATION FEES 10,258
AUDIT 17,697
LEGAL 5,017
MISCELLANEOUS 151
TOTAL EXPENSES BEFORE REDUCTIONS 331,439
EXPENSE REDUCTIONS (8,918) 322,521
NET INVESTMENT INCOME 3,401,268
REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:
INVESTMENT SECURITIES 2,320,456
FOREIGN CURRENCY TRANSACTIONS (545) 2,319,911
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT SECURITIES (1,461,293)
NET GAIN (LOSS) 858,618
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,259,886
</TABLE>
<ERROR: WIDE TABLE>
ERROR: THE FOLLOWING TABLE: "ASSETS" IS TOO WIDE!
TABLE WIDTH IS 133 CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
OPERATIONS $ 3,401,268 $ 4,413,401
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS) 2,319,911 8,027,505
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (1,461,293) (1,732,963)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 4,259,886 10,707,943
DISTRIBUTIONS TO SHAREHOLDERS (3,735,154) (6,037,275)
FROM NET INVESTMENT INCOME
FROM NET REALIZED GAIN (6,036,848) (2,664,180)
TOTAL DISTRIBUTIONS (9,772,002) (8,701,455)
SHARE TRANSACTIONS 25,000,000 6,243,135
NET PROCEEDS FROM SALES OF SHARES
REINVESTMENT OF DISTRIBUTIONS 9,772,002 2,983,250
COST OF SHARES REDEEMED - (19,008,500)
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM SHARE TRANSACTIONS 34,772,002 (9,782,115)
TOTAL INCREASE (DECREASE) IN NET ASSETS 29,259,886 (7,775,627)
NET ASSETS
BEGINNING OF PERIOD 49,920,954 57,696,581
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $536,754 AND $870,640, RESPECTIVELY) $ 79,180,840 $ 49,920,954
OTHER INFORMATION
SHARES
SOLD 2,262,960 557,115
ISSUED IN REINVESTMENT OF DISTRIBUTIONS 883,651 248,595
REDEEMED - (1,656,813)
NET INCREASE (DECREASE) 3,146,611 (851,103)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SEE ACCOMPANYING NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED NOVEMBER 30, JANUARY 5, 1995
MAY 31, 1998 (COMMENCEMENT
OF OPERATIONS) TO
NOVEMBER 30,
SELECTED PER-SHARE DATA (UNAUDITED) 1997 1996 1995
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.420 $ 11.850 $ 11.040 $ 10.000
INCOME FROM INVESTMENT OPERATIONS .538 D 1.124 D .950 D .922
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED GAIN (LOSS) .135 1.594 .970 1.045
TOTAL FROM INVESTMENT OPERATIONS .673 2.718 1.92 1.967
LESS DISTRIBUTIONS
FROM NET INVESTMENT INCOME (.603) (1.508) (.930) (.837)
IN EXCESS OF NET INVESTMENT INCOME - - - (.090)
FROM NET REALIZED GAIN (1.440) (.640) (.180) -
TOTAL DISTRIBUTIONS (2.043) (2.148) (1.110) (.927)
NET ASSET VALUE, END OF PERIOD $ 11.050 $ 12.420 $ 11.850 $ 11.040
TOTAL RETURN B, C 6.28% 26.22% 18.71% 20.33%
RATIOS AND SUPPLEMENTAL DATA
NET ASSETS, END OF PERIOD (000 OMITTED) $ 79,181 $ 49,921 $ 57,697 $ 72,429
RATIO OF EXPENSES TO AVERAGE NET ASSETS .95% A 1.02% .91% 1.09% A
RATIO OF EXPENSES TO AVERAGE NET ASSETS
AFTER EXPENSE REDUCTIONS .92% A, E .99% E .90% E 1.09% A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 9.75% A 9.58% 8.72% 9.14% A
PORTFOLIO TURNOVER RATE 70% A 80% 53% 49% A
</TABLE>
<ERROR: WIDE TABLE>
ERROR: THE FOLLOWING TABLE: "ASSETS" IS TOO WIDE!
TABLE WIDTH IS 196 CHARACTERS.
<TABLE>
<CAPTION>
<S> <C> <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 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 MAY 31, 1998 (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 require 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. 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 foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. 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. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain. 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
among 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 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 SEC), the fund, along with
other affiliated entities of Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading accounts. These balances are invested in one or more
repurchase agreements 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.
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
2. OPERATING POLICIES - CONTINUED
RESTRICTED SECURITIES - CONTINUED
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 the fund had no investments in restricted
securities (excluding 144A issues).
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $50,688,387 and $23,614,568, respectively, of which U.S.
government and government agency obligations aggregated $12,345,104
and $10,334,422, 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 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
$2,500 and $6,418, respectively, under these arrangements.
6. BENEFICIAL INTEREST.
At the end of the period, two shareholders were each record owners of
more than 10% of the total outstanding shares of the fund, totaling
100%.
PROXY VOTING RESULTS
A special meeting of the fund's shareholders was held on May 6, 1998.
The results of the vote taken among shareholders on the proposal
before them are listed below.
PROPOSAL
To amend the fundamental investment objective to allow investment in a
wider range of real estate-related instruments.
# OF % OF
SHARES VOTED SHARES VOTED
AFFIRMATIVE 7,058,200.534 100.000
AGAINST 0.000 0.000
ABSTAIN 0.000 0.000
TOTAL 7,058,200.534 100.000
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
Mark P. Snyderman, 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
