(2_FIDELITY_LOGOS)
FIDELITY(registered trademark)
REAL ESTATE HIGH INCOME
FUND
ANNUAL REPORT
NOVEMBER 30, 1999
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.
REPORT OF INDEPENDENT 14 The auditors' opinion.
ACCOUNTANTS
DISTRIBUTIONS 15
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.
(recycle logo) 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).
CUMULATIVE TOTAL RETURNS
PERIODS ENDED NOVEMBER 30, PAST 1 YEAR LIFE OF FUND
1999
Fidelity Real Estate High 9.08% 94.02%
Income
ML High Yield Master 1.08% 57.14%
High Current Yield Funds 2.79% n/a
Average
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
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 one year average represents a peer group of 325
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, PAST 1 YEAR LIFE OF FUND
1999
Fidelity Real Estate High 9.08% 14.47%
Income
ML High Yield Master 1.08% 9.65%
High Current Yield Funds 2.79% 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 156983.41
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 158449.58
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
IMATRL PRASUN SHR__CHT 19991130 19991214 101806 R00000000000062
$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 November 30, 1999, the
value of the investment would have grown to $194,016 - a 94.02%
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
$157,142 - a 57.14% 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
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED NOVEMBER 30, JANUARY 5, 1995 (COMMENCEMENT
OF OPERATIONS) TO NOVEMBER 30,
1999 1998 1997 1996 1995
Dividend returns 11.79% 9.74% 15.17% 9.59% 9.93%
Capital returns -2.71% -11.09% 11.05% 9.12% 10.40%
Total returns 9.08% -1.35% 26.22% 18.71% 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 NOVEMBER 30, 1999 PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
Dividends per share 7.02(cents) 44.26(cents) 109.06(cents)
Annualized dividend rate 9.13% 9.35% 11.49%
30-day annualized yield 11.41% - -
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 $9.35 over the past one
month, $9.44 over the past six months and $9.49 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 MANAGERS' OVERVIEW
(photograph of Stephen Rosen and Mark Snyderman)
NOTE TO SHAREHOLDERS: On January 3, 2000, after the period covered by
this report, Stephen Rosen became Portfolio Manager of Fidelity Real
Estate High Income Fund. The following is an interview with Mark
Snyderman, who managed the fund during the period covered by this
report, with comments from Stephen Rosen on his outlook.
Q. HOW DID THE FUND PERFORM, MARK?
M.S. It fared well. For the 12-month period that ended November 30,
1999, the fund had a total return of 9.08%. In comparison, the Merrill
Lynch High Yield Master Index - a broad measure of the high-yield bond
market - returned 1.08%, while the high current yield funds average
tracked by Lipper Inc. returned 2.79% during the same period.
Q. WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE DURING THE PAST 12
MONTHS?
M.S. A modestly improved technical environment caused by strengthening
investor interest in the sector and a steady falloff in new issuance -
in response to sharply rising interest rates - helped paint the
backdrop for the period. Because the commercial mortgage-backed
securities (CMBS) market fell further than comparable corporate issues
last fall, its rebound over the past 12 months was even more
pronounced. Turning to the fund, in-depth credit analysis paved the
way for much of the strong performance, and the fund was rewarded for
holding some bonds whose credit improved appreciably during this time
frame. The fund benefited further from having a generally shorter
average duration - or, a measure of how sensitive the fund's share
price is to changing interest rates - than the Merrill Lynch index
during a rising interest-rate environment.
Q. DID YOU STAY THE COURSE IN TERMS OF YOUR OVERALL INVESTMENT
STRATEGIES?
M.S. Yes, I did. I remained focused on investing in the set of
securities that gave us a yield advantage over high-yield corporate
bonds. From there, I selected those issues whose credit was most
likely to improve over a two- to four-year period, in pursuit of the
price appreciation associated with the credit upgrade. Not
surprisingly then, our team spent most of its time on credit analysis,
because that's where I find the most value. All in all, we purchased
only those securities where we felt we had the biggest advantage in
terms of expertise that would allow us to pick the best credits. For
example, we continued to favor bonds from older, seasoned CMBS deals
over new issue bonds, feeling that seasoned deals played better to the
strength of our property-level credit analysis. That said, earlier in
the period when spreads were particularly wide, we added some
positions from newer deals that also met our credit criteria.
Q. DID YOU MAKE ANY NOTABLE CHANGES TO THE PORTFOLIO DURING THIS TIME
FRAME?
M.S. No big changes were made, although I did adjust the credit rating
profile of the fund somewhat. Early in the period, we began to
emphasize BB-rated bonds over their B-rated counterparts in the
aftermath of last fall's credit crunch, when the risk/return profile
of BBs turned favorable.
Q. SPECIFICALLY, WHICH HOLDINGS ADDED TO FUND RETURNS AND WHICH
DETRACTED?
M.S. The fund's holdings in LB Multifamily Mortgage 91-4 A1 and SASCO
93-C1 E involved credit-improvement stories, which boosted fund
returns. Other issues adding meaningfully to performance included
GAFCO 98-1 D and CBASS 97-2. On the downside, issues such as Atherton
98-A E&F, Walden Residential Properties Pfd and Crown American Realty
Pfd fell out of the market's favor for reasons not credit related,
dampening fund performance.
Q. TURNING TO YOU, STEVE, WHAT'S YOUR OUTLOOK?
S.R. Looking ahead, I'm generally optimistic about the fund's
prospects and the CMBS market. CMBS spreads remain wide relative to
comparably rated corporate bonds, so as long as we do our credit work
right, we'll have the opportunity to add bonds with higher yields
without incurring additional credit risk. Also, I feel that there's
still some opportunity for yield spread tightening relative to
Treasuries based on their comparative value. As long as property
values remain stable and mortgage financing for property owners
remains reasonably available, then these securities should do well. If
either of these things fall apart, then these securities may face some
turbulence. Regardless of market conditions, I will continue to rely
on our credit research process to help me select securities for the
fund.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS 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.
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 November 30, 1999, more than
$106 million
MANAGER: Stephen Rosen, since January
2000; joined Fidelity in 1995
(checkmark)
INVESTMENTS NOVEMBER 30, 1999
Showing Percentage of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS - 15.3%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
CONVERTIBLE BONDS - 5.1%
CONSTRUCTION & REAL ESTATE -
3.5%
REAL ESTATE INVESTMENT TRUSTS
- - 3.5%
Rockefeller Center - $ 4,500,000 $ 3,757,500
Properties, Inc. 0% 12/31/00
MEDIA & LEISURE - 1.6%
LODGING & GAMING - 1.6%
Capstar Hotel Co. 4.75% B1 2,250,000 1,642,500
10/15/04
TOTAL CONVERTIBLE BONDS 5,400,000
NONCONVERTIBLE BONDS - 10.2%
CONSTRUCTION & REAL ESTATE -
4.9%
REAL ESTATE - 3.6%
Crescent Real Estate Equities Ba1 1,850,000 1,489,898
LP 7.5% 9/15/07 (d)
LNR Property Corp.:
9.375% 3/15/08 B1 2,075,000 1,919,375
10.5% 1/15/09 B1 430,000 417,100
3,826,373
REAL ESTATE INVESTMENT TRUSTS
- - 1.3%
Ocwen Asset Investment Corp. - 1,545,000 1,359,600
11.5% 7/1/05
TOTAL CONSTRUCTION & REAL 5,185,973
ESTATE
MEDIA & LEISURE - 5.3%
LODGING & GAMING - 5.3%
Courtyard by Marriott II B- 1,700,000 1,657,500
LP/Courtyard II Finance Co.
10.75% 2/1/08
ITT Corp.:
6.75% 11/15/05 Ba1 4,080,000 3,585,300
7.375% 11/15/15 Ba1 50,000 37,775
ShoLodge, Inc.:
9.55% 9/1/07 Caa2 85,000 56,100
9.75% 11/1/06 Caa2 570,000 376,200
5,712,875
TOTAL NONCONVERTIBLE BONDS 10,898,848
TOTAL CORPORATE BONDS 16,298,848
(Cost $16,968,324)
ASSET-BACKED SECURITIES - 1.3%
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Saxon Asset Securities Trust:
8% 12/25/27 (c) BB $ 1,000,000 $ 872,148
8.6% 12/25/27 (c) B 863,000 512,018
TOTAL ASSET-BACKED SECURITIES 1,384,166
(Cost $1,435,139)
COLLATERALIZED MORTGAGE
OBLIGATIONS - 4.2%
PRIVATE SPONSOR - 4.2%
Credit-Based Asset Servicing
and Securitization LLC
Series 1997-2:
Class 2B, 7.1805% 12/29/25 Ba3 711,424 339,705
(c)(d)
Class 2C, 7.1805% 12/29/25 B3 2,550,000 701,250
(c)(d)
DLJ Mortgage Acceptance Corp.
Series 1996-TD:
Class C, 6.8799% 9/29/23 B3 564,899 431,177
(c)(d)
Class D, 6.6697% 9/29/23 - 843,220 168,644
(c)(d)
G3 Mortgage Reinsurance Ltd. B2 2,800,000 2,528,750
Series 1 Class D, 11.91%
5/25/08 (c)(d)
GE Capital Mortgage Services,
Inc. Series 1998-7:
Class B4, 6.5% 4/25/13 (c) - 322,515 214,574
Class B5, 6.5% 4/25/13 (c) - 241,889 55,332
TOTAL COLLATERALIZED 4,439,432
MORTGAGE OBLIGATIONS
(Cost $4,636,659)
COMMERCIAL MORTGAGE
SECURITIES - 61.6%
ACP Mortgage LP floater B 1,546,543 1,214,655
Series F, 6.7622% 2/28/28
(c)(d)
Asset Securitization Corp. BBB- 1,788,557 1,600,759
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 1,500,000 957,656
Class F, 7.44% 8/15/19 (c) B 2,000,000 866,250
Bankers Trust REMIC Trust
Series 1998-S1A:
Class G, 8.0415% 11/28/02 Ba2 930,000 861,122
(c)(d)
Class H, 8.9814% 11/28/02 B3 1,398,154 1,215,521
(c)(d)
Berkeley Federal Bank & Trust - 1,400,000 963,813
FSB Series 1994 Class 1B
7.3368% 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, 8.4914% 4/26/04 B $ 2,731,000 $ 2,515,080
(c)(d)
Class G, 8.4914% 4/27/09 CCC 2,141,500 1,370,560
(c)(d)
Class H, 8.94% 10/25/22 (c)(d) - 758,022 151,605
Blaylock Mortgage Capital
Corp. Series 1997-A:
Class B5, 6.425% 10/15/03 (c) B- 110,000 75,402
Class B6, 6.425% 10/15/03 (c) CCC 110,000 55,584
Class B7, 6.425% 10/15/03 (c) - 147,000 53,379
Commercial Mortgage
Acceptance Corp.:
pass through certificates BB+ 2,200,000 1,335,125
Series 1998-C2 Class F,
5.44% 5/15/13 (c)(d)
Series 1998-C2 Class G, 5.44% BB 2,500,000 1,424,219
7/15/13 (c)(d)
Commercial Mortgage Asset Ba1 4,000,000 2,428,750
Trust pass through
certificates Series 1999-C1
Class F, 6.25% 11/17/13 (c)
CS First Boston Mortgage
Securities Corp.:
Series 1995-AEW1 Class G2, - 1,968,501 1,107,897
8.8988% 11/25/27 (c)(d)
Series 1997-SPICE Class G, - 1,331,953 953,179
7.446% 4/20/38 (c)(d)
DLJ Mortgage Acceptance Corp.:
Series 1994-MF11:
Class B2, 8.1% 6/18/04 (c) Ba2 1,201,000 1,042,993
Class B3, 8.1% 6/18/04 (c) B2 1,342,000 1,078,004
Series 1994-MF4 Class C, 8.5% - 460,000 383,813
4/18/01 (c)
Enterprise Mortgage - 2,110,000 1,302,925
Acceptance Co. Series 1998-1
Class E, 8.18% 6/15/16 (c)
First Chicago/Lennar Trust I - 2,800,000 1,995,000
Series 1997-CHL1 Class E,
8.0747% 4/1/39 (d)
FMAC Loan Receivables Trust:
Series 1997-A Class F, - 1,382,880 880,290
8.1098% 4/15/19 (c)(d)
Series 1997-B:
Class E, 7.8912% 9/15/19 - 1,000,000 627,813
(c)(d)
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Class F, 7.89% 9/15/19 (c)(d) - $ 2,176,544 $ 1,285,522
Series 1997-C Class F, - 1,110,680 661,202
8.2652% 12/15/19 (c)(d)
Series 1998-A Class E, BB 1,500,000 903,750
7.9294% 9/15/20 (c)(d)
GAFCO Franchisee Loan Trust - 2,700,000 2,259,141
Series 1998-1 Class D, 14%
6/1/16 (c)(d)
General Motors Acceptance Ba3 1,646,000 1,297,114
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 1,460,408 1,365,482
11/25/25 (c)
Series 1994-M1 Class D, - 842,000 614,397
8.1284% 7/25/01 (c)(d)
LB Multifamily Mortgage Trust Caa1 6,554,430 5,243,540
Series 1991-4 Class A1,
6.9928% 4/25/21 (d)
LTC Commercial Mortgage pass BB 800,000 609,288
through certificates Series
1998-1 Class E, 7.792%
5/28/30 (c)
Morgan Stanley Capital I, - 1,150,435 1,140,369
Inc. Series 1996-MBL1 Class
E, 8.4008% 5/25/21 (c)(d)
Nationslink Funding Corp. BB 3,500,000 2,522,433
Commercial Mortgage pass
through certificates Series
1998-2 Class F, 7.105%
8/20/30
Nomura Asset Securities Corp. BB+ 3,000,000 1,798,125
Series 1998-D Class B1, 6%
3/17/28
Nomura Depositor Trust
floater Series 1998-ST1A:
Class B2, 9.6938% 1/15/03 - 2,000,000 1,807,188
(c)(d)
Class B2-A, 9.6938% 2/15/34 - 200,000 180,719
(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 1,335,425
Class M, 7.9% 11/15/26 (c) - 5,862,000 826,542
Resolution Trust Corp.:
floater Series 1991-M2 Class Ba3 1,844,633 1,586,385
A1, 6.7994% 9/25/20 (d)
COMMERCIAL MORTGAGE
SECURITIES - CONTINUED
MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT VALUE (NOTE 1)
Resolution Trust Corp.: -
continued
Series 1991-M2:
Class A2, 7.1315% 9/25/20 (d) Ba3 $ 1,318,122 $ 1,107,223
Class A3, 7.2498% 9/25/20 (d) Ba3 637,963 516,750
Structured Asset Securities
Corp.:
Series 1994-C1 Class F, 6.87% B 3,250,000 2,603,301
8/25/26
Series 1995-C1:
Class E, 7.375% 9/25/24 (c) BB 2,350,000 2,090,031
Class F, 7.375% 9/25/24 (c) - 2,000,000 1,554,531
Series 1996-CFL:
Class G, 7.75% 2/25/28 (c) B+ 3,450,000 2,895,844
Class H, 7.75% 2/25/28 (c) B- 2,500,000 1,608,875
Structured Mortgage Trust
Series 1997-2:
Class C weighted average - 950,000 682,813
coupon, 7.41% 1/30/06 (c)
Class D weighted average - 1,200,000 773,063
coupon, 7.41% 1/30/06 (c)
TOTAL COMMERCIAL MORTGAGE 65,730,447
SECURITIES
(Cost $67,040,818)
COMPLEX MORTGAGE SECURITIES -
0.0%
INTEREST ONLY - 0.0%
BKB Commercial Mortgage Trust BBB 5,778,332 23,113
Series 1997-C1 Class X1,
0.6614% 12/26/01 (c)(d)(e)
(Cost $12,719)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMMON STOCKS - 6.1%
SHARES
CONSTRUCTION & REAL ESTATE -
5.9%
REAL ESTATE - 0.9%
Boardwalk Equities, Inc. (a) 70,000 500,814
Boardwalk Equities, Inc. 3,800 27,187
(a)(c)
LNR Property Corp. 25,000 440,625
968,626
SHARES VALUE (NOTE 1)
REAL ESTATE INVESTMENT TRUSTS
- - 5.0%
AMRESCO Capital Trust, Inc. 120,000 $ 1,057,500
Clarion Commercial Holdings, 67,400 505,500
Inc. Class A
Fortress Investment Corp. (c) 25,000 421,875
Imperial Credit Commercial 25,000 279,688
Mortgage Investment Corp.
LTC Properties, Inc. 218,000 2,111,875
Northstar Capital Investment 40,000 580,000
Corp. (c)
Redwood Trust, Inc. 27,151 315,630
5,272,068
TOTAL CONSTRUCTION & REAL 6,240,694
ESTATE
FINANCE - 0.2%
SAVINGS & LOANS - 0.2%
Wilshire Financial Services 209,127 261,409
Group, Inc. (a)
HEALTH - 0.0%
MEDICAL FACILITIES MANAGEMENT
- - 0.0%
LTC Healthcare, Inc. (a) 5,850 8,409
TOTAL COMMON STOCKS 6,510,512
(Cost $11,519,603)
PREFERRED STOCKS - 6.4%
CONVERTIBLE PREFERRED STOCKS
- - 4.0%
CONSTRUCTION & REAL ESTATE -
3.1%
REAL ESTATE INVESTMENT TRUSTS
- - 3.1%
Innkeepers USA Trust Series 146,500 2,508,813
A, $2.16
Reckson Associates Realty 39,400 768,300
Corp. $1.9064
3,277,113
MEDIA & LEISURE - 0.9%
LODGING & GAMING - 0.9%
Host Marriott Financial Trust 30,000 1,012,500
$3.375 QUIPS
TOTAL CONVERTIBLE PREFERRED 4,289,613
STOCKS
PREFERRED STOCKS - CONTINUED
SHARES VALUE (NOTE 1)
NONCONVERTIBLE PREFERRED
STOCKS - 2.4%
CONSTRUCTION & REAL ESTATE -
2.4%
REAL ESTATE INVESTMENT TRUSTS
- - 2.4%
Crown American Realty Trust 40,300 $ 1,571,700
Series A, $5.50
Walden Residential 58,600 930,275
Properties, Inc. $2.30
2,501,975
TOTAL PREFERRED STOCKS 6,791,588
(Cost $8,311,703)
CASH EQUIVALENTS - 5.9%
MATURITY AMOUNT
Investments in repurchase $ 6,245,973 6,245,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 5.61%,
dated 11/30/99 due 12/1/99
(Cost $6,245,000)
TOTAL INVESTMENT PORTFOLIO - 107,423,106
100.8%
(Cost $116,169,965)
NET OTHER ASSETS - (0.8)% (804,161)
NET ASSETS - 100% $ 106,618,945
</TABLE>
SECURITY TYPE ABBREVIATIONS
QUIPS - Quarterly Income Preferred
Securities
LEGEND
(a) Non-income producing
(b) S&P (registered trademark) 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 $53,632,704 or 50.3% 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 0.0% AAA, AA, A 0.0%
Baa 0.0% BBB 1.5%
Ba 13.3% BB 19.9%
B 10.5% B 22.0%
Caa 5.3% CCC 1.7%
Ca, C 0.0% CC, C 0.0%
D 4.9%
The percentage not rated by Moody's or S&P amounted to 25.2%. FMR has
determined that unrated debt securities that are lower quality account
for 25.2% of the total value of investment in securities.
INCOME TAX INFORMATION
At November 30, 1999, the aggregate cost of investment securities for
income tax purposes was $116,204,982. Net unrealized depreciation
aggregated $8,781,876, of which $3,315,403 related to appreciated
investment securities and $12,097,279 related to depreciated
investment securities.
The fund hereby designates approximately $1,131,000 as a capital gain
dividend for the purpose of the dividend paid deduction.
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
NOVEMBER 30, 1999
ASSETS
Investment in securities, at $ 107,423,106
value (including repurchase
agreements of $6,245,000)
(cost $116,169,965) - See
accompanying schedule
Cash 860
Dividends receivable 59,008
Interest receivable 1,057,739
TOTAL ASSETS 108,540,713
LIABILITIES
Payable for investments $ 1,811,000
purchased
Accrued management fee 64,138
Other payables and accrued 46,630
expenses
TOTAL LIABILITIES 1,921,768
NET ASSETS $ 106,618,945
Net Assets consist of:
Paid in capital $ 115,980,505
Undistributed net investment 604,979
income
Accumulated undistributed net (1,219,680)
realized gain (loss) on
investments and foreign
currency transactions
Net unrealized appreciation (8,746,859)
(depreciation) on investments
NET ASSETS, for 11,405,783 $ 106,618,945
shares outstanding
NET ASSET VALUE, offering $9.35
price and redemption price
per share ($106,618,945
(divided by) 11,405,783
shares)
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1999
INVESTMENT INCOME $ 1,411,432
Dividends
Interest 9,154,843
TOTAL INCOME 10,566,275
EXPENSES
Management fee $ 718,815
Transfer agent fees 23,065
Accounting fees and expenses 60,210
Non-interested trustees' 424
compensation
Custodian fees and expenses 8,168
Registration fees 9,761
Audit 45,168
Legal 32,332
Miscellaneous 283
Total expenses before 898,226
reductions
Expense reductions (19,804) 878,422
NET INVESTMENT INCOME 9,687,853
REALIZED AND UNREALIZED GAIN (264,963)
(LOSS)
Net realized gain (loss) on
investment securities
Change in net unrealized (1,333,320)
appreciation (depreciation)
on investment securities
NET GAIN (LOSS) (1,598,283)
NET INCREASE (DECREASE) IN $ 8,089,570
NET ASSETS RESULTING FROM
OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED NOVEMBER 30, 1999 YEAR ENDED NOVEMBER 30, 1998
INCREASE (DECREASE) IN NET
ASSETS
Operations Net investment $ 9,687,853 $ 7,047,514
income
Net realized gain (loss) (264,963) 1,685,401
Change in net unrealized (1,333,320) (10,123,790)
appreciation (depreciation)
NET INCREASE (DECREASE) IN 8,089,570 (1,390,875)
NET ASSETS RESULTING FROM
OPERATIONS
Distributions to shareholders (10,796,658) (7,493,833)
From net investment income
From net realized gain (1,176,123) (6,036,848)
TOTAL DISTRIBUTIONS (11,972,781) (13,530,681)
Share transactions Net 25,000,000 24,999,660
proceeds from sales of shares
Reinvestment of distributions 11,972,781 13,530,317
NET INCREASE (DECREASE) IN 36,972,781 38,529,977
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
TOTAL INCREASE (DECREASE) 33,089,570 23,608,421
IN NET ASSETS
NET ASSETS
Beginning of period 73,529,375 49,920,954
End of period (including $ 106,618,945 $ 73,529,375
undistributed net investment
income of $604,979 and
$922,526, respectively)
OTHER INFORMATION
Shares
Sold 2,613,030 2,262,960
Issued in reinvestment of 1,261,702 1,248,709
distributions
Net increase (decrease) 3,874,732 3,511,669
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED NOVEMBER 30, 1999 1998 1997 1996 1995 E
SELECTED PER-SHARE DATA
Net asset value, beginning of $ 9.760 $ 12.420 $ 11.850 $ 11.040 $ 10.000
period
Income from Investment .931 D 1.033 D 1.124D .950 D .922
Operations Net investment
income
Net realized and unrealized (.100) (1.136) 1.594 .970 1.045
gain (loss)
Total from investment .831 (.103) 2.718 1.920 1.967
operations
Less Distributions
From net investment income (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 (1.241) (2.557) (2.148) (1.110) (.927)
Net asset value, end of period $ 9.350 $ 9.760 $ 12.420 $ 11.850 $ 11.040
TOTAL RETURN B, C 9.08% (1.35)% 26.22% 18.71% 20.33%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period $ 106,619 $ 73,529 $ 49,921 $ 57,697 $ 72,429
(000 omitted)
Ratio of expenses to average .91% .91% 1.02% .91% 1.09% A
net assets
Ratio of expenses to average .89% F .89% F .99% F .90% F 1.09% A
net assets after expense
reductions
Ratio of net investment 9.84% 9.65% 9.58% 8.72% 9.14% A
income to average net assets
Portfolio turnover rate 16% 53% 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.
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.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
For the period ended November 30, 1999
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, 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 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.
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
2. OPERATING POLICIES - CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
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 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 $46,517,268 and $15,083,530, 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 annual 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 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.
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 $141 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 $3,937 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 $7,694 and $8,173, 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%.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Fidelity Advisor Series IV and the Shareholders of
Fidelity Real Estate High Income Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Real Estate High Income Fund (a fund of Fidelity Advisor
Series IV) at November 30, 1999, and the results of its operations,
the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Real Estate High Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at November 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 13, 2000
DISTRIBUTIONS
A total of 3% of the dividends distributed during the fiscal year
qualifies for the dividends-received deduction for corporate
shareholders.
The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.
The fund will notify shareholders in January 2000 of amounts for use
in preparing 1999 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
Mark P. Snyderman, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy 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. Gary Burkhead
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
