FIDELITY(registered trademark)
REAL ESTATE HIGH INCOME
FUND
SEMIANNUAL REPORT
MAY 31, 2000
(2_FIDELITY_LOGOS)(registered trademark)
CONTENTS
PERFORMANCE 3 How the fund has done over
time.
FUND TALK 5 The managers' review of fund
performance, strategy and
outlook.
INVESTMENTS 6 A complete list of the fund's
investments with their
market values.
FINANCIAL STATEMENTS 10 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.
NOTES 12 Notes to the financial
statements.
Standard & Poor's, S&P and S&P 500 are registered service marks of The
McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity
Distributors Corporation.
Other third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.
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.
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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURNS
PERIODS ENDED MAY 31, 2000 PAST 6 MONTHS PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Fidelity Real Estate High 4.91% 7.97% 82.78% 103.55%
Income
ML High Yield Master -2.34% -3.21% 37.35% 53.46%
High Current Yield Funds -2.22% -2.59% 34.81% n/a
Average
</TABLE>
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 value-weighted index of all domestic and yankee high-yield
bonds. Issues included in the index have maturities of one year or
more 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 Inc. The past six months average represents a peer
group of 370 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, 2000 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
Fidelity Real Estate High 7.97% 12.82% 14.05%
Income
ML High Yield Master -3.21% 6.55% 8.25%
High Current Yield Funds -2.59% 6.09% n/a
Average
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 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
1998/05/31 191620.34 155940.37
1998/06/30 190723.90 156789.42
1998/07/31 190878.81 157683.54
1998/08/31 186214.13 150879.36
1998/09/30 183925.92 151180.30
1998/10/31 175782.23 148658.35
1998/11/30 177871.78 155469.06
1998/12/31 180387.76 155520.67
1999/01/31 183893.19 157058.34
1999/02/28 181524.24 155860.47
1999/03/31 183839.18 157203.53
1999/04/30 187907.82 159662.37
1999/05/31 188526.41 158554.97
1999/06/30 190631.61 158257.45
1999/07/31 191179.29 158490.62
1999/08/31 191294.58 156881.75
1999/09/30 192519.15 156279.24
1999/10/31 192776.90 155364.29
1999/11/30 194016.15 157142.28
1999/12/31 194380.45 157966.77
2000/01/31 195133.70 157182.38
2000/02/29 198807.45 157317.62
2000/03/31 202035.66 155117.75
2000/04/30 203791.29 155171.53
2000/05/31 203550.38 153462.87
IMATRL PRASUN SHR__CHT 20000531 20000621 142518 R00000000000068
$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, 2000, the value
of the investment would have grown to $203,550 - a 103.55% 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 $153,463
- a 53.46% increase.
(checkmark)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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TOTAL RETURN COMPONENTS
SIX MONTHS ENDED MAY 31, YEARS ENDED NOVEMBER 30, 1999,
2000 1999 1998 1997 1996
Dividend returns 5.34% 11.79% 9.74% 15.17% 9.59%
Capital returns -0.43% -2.71% -11.09% 11.05% 9.12%
Total returns 4.91% 9.08% -1.35% 26.22% 18.71%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TOTAL RETURN COMPONENTS
YEARS ENDED NOVEMBER 30, 1999,
1995
Dividend returns 9.93%
Capital returns 10.40%
Total returns 20.33%
</TABLE>
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, 2000 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 7.89(cents) 48.85(cents) 93.11(cents)
Annualized dividend rate 9.96% 10.45% 9.93%
30-day annualized yield 12.40% - -
DIVIDENDS per share show the income paid by the fund for a set period
and do not reflect any tax reclassifications. If you annualize this
number, based on an average share price of $9.33 over the past one
month, $9.32 over the past six months and $9.38 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 bond funds based
on the yields of the bonds in the fund, averaged over the past 30
days. This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis.
FUND TALK: THE MANAGER'S OVERVIEW
NOTE TO SHAREHOLDERS: On January 4, 2000, Stephen Rosen became
Portfolio Manager of Fidelity Real Estate High Income Fund.
Q. HOW DID THE FUND PERFORM, STEVE?
A. Pretty well. For the six months that ended May 31, 2000, the fund
had a total return of 4.91%. In comparison, the Merrill Lynch High
Yield Master Index, a broad measure of the high-yield bond market,
returned -2.34%, while the high current yield funds average tracked by
Lipper Inc. returned -2.22% during the same period. For the 12 months
that ended May 31, 2000, the fund returned 7.97%, while the Merrill
Lynch High Yield Master Index returned -3.21% and the peer group
returned -2.59%.
Q. WHAT HELPED THE FUND OUTPERFORM THE INDEX AND PEER GROUP DURING THE
SIX-MONTH PERIOD?
A. Although the investment climate was primarily lukewarm in the face
of rising Treasury rates and malaise in many fixed-income markets, the
fund benefited from steady spreads for high-yield commercial
mortgage-backed securities (CMBS), several "credit wins" and a
favorable environment for real estate-related securities in general.
Though spreads for high-yield CMBS did not tighten during the period,
they performed better than the broader high-income benchmark because
of the weakness in high-yield corporate bonds. From a credit
perspective, the fund fared well as prices for several of its
positions rose either because of ratings upgrades or as a reflection
of their improved credit profiles. Additionally, the fund benefited by
having a shorter duration than the index during a period of rising
interest rates. Consistent with the strategy pursued in the past, I
continued to manage the fund's duration a little short of the index,
not because I had a view on the future direction of interest rates,
but because CMBS typically tend to offer better convexity - that is, a
higher likelihood of realizing greater price appreciation in a credit
or Treasury rally - than their corporate counterparts.
Q. WHAT WERE SOME OTHER COMPONENTS OF YOUR INVESTMENT STRATEGY?
A. My strategy was virtually the same as what we pursued in the past.
That is, I looked for securities that offered a total return advantage
over comparably rated high-yield corporate bonds, typically through a
combination of greater yield and price-appreciation potential. I
continued to favor bonds from older, seasoned CMBS deals over new
issue bonds because these securities play to our strengths: credit
analysis and property valuation. This is a time-consuming process, but
one that's led to good returns for the fund.
Q. WHAT SPECIFIC HOLDINGS WERE POSITIVE CONTRIBUTORS?
A. The fund's position in ACP MTGE-F was a top contributor. It was a
classic situation for us, where the market realized that the
underlying credit quality of the collateral was quite good and the
price of our securities rose to reflect that fact. We then sold the
bond at a price comparable to that of an investment-grade credit. The
fund also was rewarded for holding onto Walden Residential Properties
Pfd 9.2%, which had fallen out of favor in the prior period due to
reasons unrelated to credit. I chose to hold the security through the
turbulence, and then sold when the price rebounded.
Q. WHICH SECURITIES DISAPPOINTED?
A. The fund's holdings in FMAC 1997-C F, FMAC 1997-B F and LTC
Properties hampered performance. In the case of the FMAC bonds, some
of the collateral that we had identified as being risky turned out to
be even worse than expected, knocking down the prices of the bonds. In
the case of LTC Properties, the company's stock performed poorly based
on continued concerns about the nursing home industry.
Q. WHAT'S YOUR OUTLOOK?
A. I'm fairly optimistic about the high-yield real estate securities
market because real estate space markets are generally in balance and
the sector remains somewhat cheap relative to comparably rated
corporate bonds. In addition, supply technicals are favorable as new
issue volume is down considerably from the prior year. Though I
wouldn't be surprised by a rebound in the securities that make up the
index given its significant fall, I'm also confident about the credit
quality of the fund's positions. Regardless of the market's direction,
what won't change is my reliance on our fundamental research process
and in-depth credit analysis to select securities for the fund.
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 AND DO NOT NECESSARILY REPRESENT THE VIEWS OF FIDELITY OR
ANY OTHER PERSON IN THE FIDELITY ORGANIZATION. ANY SUCH VIEWS ARE
SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET OR OTHER CONDITIONS
AND FIDELITY DISCLAIMS ANY RESPONSIBILITY TO UPDATE SUCH VIEWS. THESE
VIEWS MAY NOT BE RELIED ON AS INVESTMENT ADVICE AND, BECAUSE
INVESTMENT DECISIONS FOR A FIDELITY FUND ARE BASED ON NUMEROUS
FACTORS, MAY NOT BE RELIED ON AS AN INDICATION OF TRADING INTENT ON
BEHALF OF ANY FIDELITY FUND.
(checkmark)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, 2000, more than $132
million
MANAGER: Stephen Rosen, since January 2000;
joined Fidelity in 1995
INVESTMENTS MAY 31, 2000 (UNAUDITED)
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 14.9%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 4.3%
CONSTRUCTION & REAL ESTATE -
3.1%
REAL ESTATE INVESTMENT TRUSTS
- 3.1%
Rockefeller Center - $ 4,865,000 $ 4,086,600
Properties, Inc. 0% 12/31/00
MEDIA & LEISURE - 1.2%
LODGING & GAMING - 1.2%
Capstar Hotel Co. 4.75% B1 2,284,000 1,690,160
10/15/04
TOTAL CONVERTIBLE BONDS 5,776,760
NONCONVERTIBLE BONDS - 10.6%
CONSTRUCTION & REAL ESTATE -
4.1%
CONSTRUCTION - 0.1%
Lennar Corp. 9.95% 5/1/10 (c) Ba1 180,000 171,000
REAL ESTATE - 3.1%
Crescent Real Estate Equities Ba3 1,850,000 1,495,448
LP 7.5% 9/15/07 (d)
LNR Property Corp.:
9.375% 3/15/08 B1 2,075,000 1,779,313
10.5% 1/15/09 B1 930,000 825,375
4,100,136
REAL ESTATE INVESTMENT TRUSTS
- 0.9%
Ocwen Asset Investment Corp. - 1,545,000 1,205,100
11.5% 7/1/05
TOTAL CONSTRUCTION & REAL 5,476,236
ESTATE
MEDIA & LEISURE - 6.5%
LODGING & GAMING - 6.5%
Courtyard by Marriott II B- 2,400,000 2,328,000
LP/Courtyard II Finance Co.
10.75% 2/1/08
Florida Panthers Holdings, B2 2,000,000 1,850,000
Inc. 9.875% 4/15/09
ITT Corp.:
6.75% 11/15/05 Ba1 2,080,000 1,830,400
7.375% 11/15/15 Ba1 2,750,000 2,131,250
ShoLodge, Inc.:
9.55% 9/1/07 Caa2 85,000 52,700
9.75% 11/1/06 Caa2 570,000 353,400
8,545,750
TOTAL NONCONVERTIBLE BONDS 14,021,986
TOTAL CORPORATE BONDS 19,798,746
(Cost $21,017,127)
ASSET-BACKED SECURITIES - 1.2%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Saxon Asset Securities Trust:
8% 12/25/27 (c) BB $ 1,000,000 $ 851,953
8.6% 12/25/27 (c) B 863,000 710,853
TOTAL ASSET-BACKED SECURITIES 1,562,806
(Cost $1,435,139)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 1.4%
PRIVATE SPONSOR - 1.4%
Credit-Based Asset Servicing
and Securitization LLC
Series 1997-2:
Class 2B, 7.1796% 12/29/25 Ba3 678,297 326,324
(c)(d)
Class 2C, 7.1796% 12/29/25 B3 2,550,000 700,453
(c)(d)
DLJ Mortgage Acceptance Corp.
Series 1996-TD:
Class C, 6.8799% 9/29/23 B3 528,400 408,107
(c)(d)
Class D, 6.6697% 9/29/23 - 796,012 175,123
(c)(d)
GE Capital Mortgage Services,
Inc. Series 1998-7:
Class B4, 6.5% 4/25/13 (c) - 314,592 214,316
Class B5, 6.5% 4/25/13 (c) - 235,946 36,572
TOTAL COLLATERALIZED 1,860,895
MORTGAGE OBLIGATIONS
(Cost $2,056,511)
COMMERCIAL MORTGAGE
SECURITIES - 64.5%
Asset Securitization Corp. BBB- 1,880,942 1,726,058
Series 1997-D5 Class A8,
10.115% 2/14/41
Atherton Franchisee Loan
Funding LLP Series 1998-A:
Class E, 8.25% 5/15/20 (c) BB 1,500,000 962,344
Class F, 7.44% 8/15/19 (c) B 2,000,000 878,750
Bankers Trust REMIC Trust
1998-1 Series 1998-S1A:
Class G, 8.5632% 11/28/02 Baa3 930,000 893,381
(c)(d)
Class H, 8.5632% 11/28/02 B3 1,398,154 1,309,896
(c)(d)
Berkeley Federal Bank & Trust - 1,400,000 954,625
FSB Series 1994-1 Class B,
7.5003% 8/1/24 (c)(d)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
BKB Commercial Mortgage Trust
Series 1997-C1:
Class F, 8.1384% 4/26/04 B $ 2,731,000 $ 2,648,857
(c)(d)
Class G, 8.1384% 4/27/09 CCC 2,141,500 1,370,560
(c)(d)
Class H, 3.3388% 10/25/22 - 758,023 151,605
(c)(d)
Blaylock Mortgage Capital
Corp. Series 1997-A:
Class B5, 6.425% 10/15/03 (c) B- 110,000 77,000
Class B6, 6.425% 10/15/03 (c) CCC 110,000 59,709
Class B7, 6.425% 10/15/03 (c) - 147,000 59,076
CBA Mortgage Corp. Series
1993-C1:
Class G, 6.72% 12/25/03 - 1,852,837 1,525,768
Class H, 6.72% 12/25/03 - 1,852,837 1,343,596
Commercial Mortgage
Acceptance Corp.:
pass through certificates BB+ 2,200,000 1,367,094
Series 1998-C2 Class F,
5.44% 5/15/13 (c)(d)
Series 1998-C2 Class G, 5.44% BB 2,500,000 1,449,610
7/15/13 (c)(d)
Commercial Mortgage Asset
Trust:
pass through certificates Ba1 4,000,000 2,480,000
Series 1999-C1 Class F,
6.25% 11/17/13 (c)
sequential pay Series 1999-C1 Aaa 6,000,000 5,522,104
Class A3, 6.64% 9/17/10
Series 1999-C2, Class G 6% Ba1 1,750,000 1,066,406
11/17/32
CS First Boston Mortgage
Securities Corp.:
Series 1995-AEW1 Class G2, - 1,968,502 1,171,259
7.493% 11/25/27 (c)(d)
Series 1997-SPICE Class E - 4,149,000 3,660,196
7.482% 4/20/36
Series 1997-SPICE Class G, - 1,330,770 956,491
7.4361% 4/20/38 (c)(d)
Danmall Finance, Inc. Series - 1,491,424 1,509,135
1 Class D, 13.12% 10/21/24
DLJ Mortgage Acceptance Corp.:
Series 1994-MF11:
Class B2, 8.1% 6/18/04 (c) Ba2 1,201,000 1,049,186
Class B3, 8.1% 6/18/04 (c) B2 1,342,000 1,101,069
Series 1994-MF4 Class C, 8.5% - 460,000 406,741
4/18/01 (c)
Series 1997-CF1 Class B3, Aaa 1,465,000 906,469
7.74% 1/15/12
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Enterprise Mortgage - $ 2,110,000 $ 1,267,319
Acceptance Co. Series 1998-1
Class E, 8.18% 6/15/16 (c)
First Chicago/Lennar Trust I - 2,800,000 2,017,750
Series 1997-CHL1 Class E,
8.1256% 4/1/39 (d)
FMAC Loan Receivables Trust:
Series 1997-A Class F, - 1,382,881 878,562
8.1103% 4/15/19 (c)(d)
Series 1997-B:
Class E, 7.8912% 9/15/19 - 1,000,000 380,000
(c)(d)
Class F, 7.89% 9/15/19 (c)(d) - 2,172,754 640,962
Series 1997-C Class F, - 1,108,149 221,630
8.2652% 12/15/19 (c)(d)
Series 1998-A Class E, BB 1,500,000 615,000
7.9308% 9/15/20 (c)(d)
GAFCO Franchisee Loan Trust - 2,700,000 2,161,688
Series 1998-1 Class D, 14%
6/1/16 (c)(d)
General Motors Acceptance Ba3 1,646,000 1,301,497
Corp. Commercial Mortgage
Securities, Inc. Series
1996-C1 Class F, 7.86%
10/15/28 (c)
Kidder Peabody Acceptance
Corp. I:
Series 1993-M3 Class F, 6.5% B2 1,450,678 1,352,757
11/25/25 (c)
Series 1994-M1 Class D, - 842,000 679,126
8.1284% 7/25/01 (c)(d)
LB Multifamily Mortgage Trust Caa1 5,819,006 4,655,205
Series 1991-4 Class A1,
7.8613% 4/25/21 (d)
LTC Commercial Mortgage pass BB 800,000 591,500
through certificates Series
1998-1 Class E, 7.792%
5/28/30 (c)
Morgan Stanley Capital I, - 1,147,614 1,140,621
Inc. Series 1996-MBL1 Class
E, 8.3885% 5/25/21 (c)(d)
Mortgage Capital Funding, Inc.:
Series 1996-MCI, Class G BB 2,000,000 1,641,250
7.15% 7/15/28 (c)
Series 1998-MC3 Class F, Ba1 1,300,000 1,023,230
7.5024% 11/18/31 (c)(d)
Nationslink Funding Corp. BB 4,000,000 2,925,625
Commercial Mortgage pass
through certificates Series
1998-2 Class F, 7.105%
8/20/30
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Nomura Asset Securities Corp.:
Series 1998-D6 Class B1, 6% BB+ $ 3,500,000 $ 2,148,672
3/15/30
8.6065% 3/15/18 (c)(d) - 3,125,000 2,460,449
Nomura Depositor Trust
floater Series 1998-ST1A:
Class B2, 10.38% 1/15/03 - 2,000,000 1,847,813
(c)(d)
Class B2-A, 10.38% 2/15/34 - 1,850,000 1,709,227
(c)(d)
Penn Mutual Life Insurance
Co. (The)/Penn Insurance &
Annuity Co. Series 1996-PML:
Class L, 7.9% 11/15/26 (c) - 2,500,000 1,292,188
Class M, 7.9% 11/15/26 (c) - 5,862,000 896,886
Resolution Trust Corp.:
floater Series 1991-M2 Class Baa3 1,123,336 966,069
A1, 7.627% 9/25/20 (d)
Series 1991-M2:
Class A2, 7.132% 9/25/20 (d) Baa3 1,200,744 1,008,625
Class A3, 7.4076% 9/25/20 (d) Baa3 630,871 511,005
Structured Asset Securities
Corp.:
Series 1994-C1 Class F, 6.87% B 3,250,000 2,598,603
8/25/26
Series 1995-C1:
Class E, 7.375% 9/25/24 (c) BB 2,350,000 2,148,689
Class F, 7.375% 9/25/24 (c) - 2,000,000 1,563,984
Series 1996-CFL:
Class G, 7.75% 2/25/28 (c) B+ 3,450,000 3,013,359
Class H, 7.75% 2/25/28 (c) B- 2,500,000 1,604,297
Structured Mortgage Trust
weighted average coupon
Series 1997-2:
Class C, 7.41% 1/30/06 (c) - 950,000 692,016
Class D, 7.41% 1/30/06 (c) - 1,200,000 750,000
TOTAL COMMERCIAL MORTGAGE 85,312,589
SECURITIES
(Cost $87,637,469)
COMPLEX MORTGAGE SECURITIES -
0.0%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
INTEREST ONLY - 0.0%
BKB Commercial Mortgage Trust BBB $ 5,146,886 $ 2,413
Series 1997-C1 Class X1,
4.3502% 12/26/01 (c)(d)(e)
(Cost $68)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 5.1%
SHARES
CONSTRUCTION & REAL ESTATE -
4.8%
REAL ESTATE - 1.1%
Boardwalk Equities, Inc. (a) 70,600 592,068
Boardwalk Equities, Inc. 3,800 31,868
(a)(c)
LNR Property Corp. 45,000 871,875
1,495,811
REAL ESTATE INVESTMENT TRUSTS
- 3.7%
AMRESCO Capital Trust, Inc. 140,000 1,426,250
Clarion Commercial Holdings, 16,200 76,950
Inc. Class A
Crescent Real Estate Equities 40,000 817,500
Co.
Fortress Investment Corp. (c) 25,000 321,875
iStar Financial, Inc. 40,000 785,000
LTC Properties, Inc. 89,000 550,688
Northstar Capital Investment 40,000 565,000
Corp. (c)
Redwood Trust, Inc. 27,151 368,235
4,911,498
TOTAL CONSTRUCTION & REAL 6,407,309
ESTATE
FINANCE - 0.3%
SAVINGS & LOANS - 0.3%
Wilshire Financial Services 209,127 339,831
Group, Inc. (a)
TOTAL COMMON STOCKS 6,747,140
(Cost $10,243,918)
PREFERRED STOCKS - 5.3%
CONVERTIBLE PREFERRED STOCKS
- 4.2%
CONSTRUCTION & REAL ESTATE -
3.4%
REAL ESTATE INVESTMENT TRUSTS
- 3.4%
Glenborough Realty Trust, 66,700 1,117,225
Inc. Class A, $1.9375
Innkeepers USA Trust Series 146,500 2,398,938
A, $2.16
Reckson Associates Realty 50,000 1,037,500
Corp. $1.9064
4,553,663
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
CONVERTIBLE PREFERRED STOCKS
- CONTINUED
FINANCE - 0.8%
CREDIT & OTHER FINANCE - 0.8%
Host Marriott Financial Trust 30,000 $ 993,750
$3.375 QUIPS
TOTAL CONVERTIBLE PREFERRED 5,547,413
STOCKS
NONCONVERTIBLE PREFERRED
STOCKS - 1.1%
CONSTRUCTION & REAL ESTATE -
1.1%
REAL ESTATE INVESTMENT TRUSTS
- 1.1%
Crown American Realty Trust 40,300 1,450,800
Series A, $5.50
TOTAL PREFERRED STOCKS 6,998,213
(Cost $8,062,744)
CASH EQUIVALENTS - 4.6%
MATURITY AMOUNT
Investments in repurchase $ 6,070,078 6,069,000
agreements (U.S. Government
Obligations), in a joint
trading account at 6.39%,
dated 5/31/00 due 6/1/00
(Cost $6,069,000)
TOTAL INVESTMENT PORTFOLIO - 128,351,802
97.0%
(Cost $136,521,976)
NET OTHER ASSETS - 3.0% 3,938,758
NET ASSETS - 100% $ 132,290,560
</TABLE>
SECURITY TYPE ABBREVIATIONS
QUIPS - Quarterly Income Preferred Security
LEGEND
(a) Non-income producing
(b) S&P 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 $55,737,160 or 42.1% 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.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 5.0% AAA, AA, A 5.0%
Baa 2.6% BBB 1.3%
Ba 10.0% BB 19.2%
B 8.6% B 18.7%
Caa 3.9% CCC 1.4%
Ca, C 0.0% CC, C 0.0%
D 3.6%
The percentage not rated by Moody's or S&P amounted to 29.7%. FMR has
determined that unrated debt securities that are lower quality account
for 29.7% of the total value of investment in securities.
INCOME TAX INFORMATION
At May 31, 2000, the aggregate cost of investment securities for
income tax purposes was $136,535,414. Net unrealized depreciation
aggregated $8,183,612, of which $3,738,996 related to appreciated
investment securities and $11,922,608 related to depreciated
investment securities.
At November 30, 1999, the fund had a capital loss carryforward of
approximately $1,185,000 all of which will expire on November 30,
2007.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2000 (UNAUDITED)
ASSETS
Investment in securities, at $ 128,351,802
value (including repurchase
agreements of $6,069,000)
(cost $136,521,976) - See
accompanying schedule
Cash 31,342
Receivable for investments 2,813,849
sold
Dividends receivable 25,313
Interest receivable 1,176,575
TOTAL ASSETS 132,398,881
LIABILITIES
Accrued management fee $ 79,602
Other payables and accrued 28,719
expenses
TOTAL LIABILITIES 108,321
NET ASSETS $ 132,290,560
Net Assets consist of:
Paid in capital $ 142,153,165
Undistributed net investment 384,528
income
Accumulated undistributed net (2,076,959)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (8,170,174)
(depreciation) on investments
NET ASSETS, for 14,217,046 $ 132,290,560
shares outstanding
NET ASSET VALUE, offering $9.31
price and redemption price
per share ($132,290,560
(divided by) 14,217,046
shares)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31,
2000 (UNAUDITED)
INVESTMENT INCOME $ 741,860
Dividends
Interest 5,730,696
TOTAL INCOME 6,472,556
EXPENSES
Management fee $ 431,239
Transfer agent fees 13,802
Accounting fees and expenses 31,479
Non-interested trustees' 174
compensation
Custodian fees and expenses 3,187
Registration fees 7,768
Audit 20,280
Legal 22,309
Miscellaneous 67
Total expenses before 530,305
reductions
Expense reductions (9,958) 520,347
NET INVESTMENT INCOME 5,952,209
REALIZED AND UNREALIZED GAIN
(LOSS)
Net realized gain (loss) on:
Investment securities (857,294)
Foreign currency transactions 15 (857,279)
Change in net unrealized 576,685
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (280,594)
NET INCREASE (DECREASE) IN $ 5,671,615
NET ASSETS RESULTING FROM
OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED MAY 31, 2000 YEAR ENDED NOVEMBER 30,
(UNAUDITED) 1999
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 5,952,209 $ 9,687,853
income
Net realized gain (loss) (857,279) (264,963)
Change in net unrealized 576,685 (1,333,320)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 5,671,615 8,089,570
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (6,172,660) (10,796,658)
From net investment income
From net realized gain - (1,176,123)
TOTAL DISTRIBUTIONS (6,172,660) (11,972,781)
Share transactions Net 20,000,000 25,000,000
proceeds from sales of shares
Reinvestment of distributions 6,172,660 11,972,781
NET INCREASE (DECREASE) IN 26,172,660 36,972,781
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 25,671,615 33,089,570
IN NET ASSETS
NET ASSETS
Beginning of period 106,618,945 73,529,375
End of period (including $ 132,290,560 $ 106,618,945
undistributed net investment
income of $384,528 and
$604,979, respectively)
OTHER INFORMATION
Shares
Sold 2,148,228 2,613,030
Issued in reinvestment of 663,035 1,261,702
distributions
Net increase (decrease) 2,811,263 3,874,732
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED MAY 31, 2000 YEARS ENDED NOVEMBER 30,
(UNAUDITED) 1999 1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.350 $ 9.760 $ 12.420 $ 11.850 $ 11.040 $ 10.000
period
Income from Investment
Operations
Net investment income .466 D .931 D 1.033 D 1.124 D .950 D .922
Net realized and unrealized (.018) (.100) (1.136) 1.594 .970 1.045
gain (loss)
Total from investment .448 .831 (.103) 2.718 1.920 1.967
operations
Less Distributions
From net investment income (.488) (1.085) G (1.117) (1.508) (.930) (.837)
In excess of net investment - - - - - (.090)
income
From net realized gain - (.156) G (1.440) (.640) (.180) -
Total distributions (.488) (1.241) (2.557) (2.148) (1.110) (.927)
Net asset value, end of period $ 9.310 $ 9.350 $ 9.760 $ 12.420 $ 11.850 $ 11.040
TOTAL RETURN B, C 4.91% 9.08% (1.35)% 26.22% 18.71% 20.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 132,291 $ 106,619 $ 73,529 $ 49,921 $ 57,697 $ 72,429
(000 omitted)
Ratio of expenses to average .89% A .91% .91% 1.02% .91% 1.09% A
net assets
Ratio of expenses to average .88% A, F .89% F .89% F .99% F .90% F 1.09% A
net assets after expense
reductions
Ratio of net investment 10.02% A 9.84% 9.65% 9.58% 8.72% 9.14% A
income to average net assets
Portfolio turnover rate 41% A 16% 53% 80% 53% 49% A
</TABLE>
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.
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD JANUARY 5, 1995 (COMMENCEMENT OF OPERATIONS) TO
NOVEMBER 30, 1995.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES.
G THE AMOUNTS SHOWN REFLECT CERTAIN RECLASSIFICATIONS RELATED TO BOOK
TO TAX DIFFERENCES.
NOTES TO FINANCIAL STATEMENTS
For the period ended May 31, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Real Estate High Income Fund (the fund) is a fund of 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, 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
and settlement date 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, market
discount, non-taxable dividends, capital loss carryforwards and losses
deferred due to wash sales.
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 and foreign currency transactions
may include temporary book and tax basis differences that will reverse
in a subsequent period. Any taxable 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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
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.
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS. The underlying U.S. Treasury, Federal Agency,
or other obligations found to be satisfactory by FMR 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 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 $44,236,829 and $23,045,329, respectively, of which U.S.
government and government agency obligations aggregated $11,652,188
and $11,705,820, 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 .0920% 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 .73% 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.
BROKERAGE COMMISSIONS. The fund placed a portion of its portfolio
transactions with brokerage firms which are affiliates of FMR. The
commissions paid to these affiliated firms were $850 for the period.
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 $2,288 under this arrangement.
In addition, through arrangements with the fund's custodian and
transfer agent, 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 $2,930, and $4,740, respectively, under these arrangements.
6. BENEFICIAL INTEREST.
At the end of the period, 3 shareholders were each record owners of
more than 10% of the total outstanding shares of the fund, totaling
100%.
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
Robert A. Dwight, Treasurer
John H. Costello, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
Donald J. Kirk *
Ned C. Lautenbach *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Michael Cook
Abigail P. Johnson
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
