-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fSiEOk+bDH0GJD5+D6Veymt7FVo337RMlWtYRj5IqjoF3AEBhuY3gejdEHAyYP+i kUEfZkSdK4Ey2dUI6quigw== 0000320351-94-000055.txt : 19941019 0000320351-94-000055.hdr.sgml : 19941019 ACCESSION NUMBER: 0000320351-94-000055 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941018 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY SELECT PORTFOLIOS CENTRAL INDEX KEY: 0000320351 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 042732797 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03114 FILM NUMBER: 94553876 BUSINESS ADDRESS: STREET 1: 82 DEVONSHIRE ST CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174391263 MAIL ADDRESS: STREET 1: 82 DEVONSHIRE STREET STREET 2: MAILZONE ZH-1 CITY: BOSTON STATE: MA ZIP: 02109 N-30D 1 (2_FIDELITY_LOGOS)FIDELITY SELECT PORTFOLIOS(REGISTERED TRADEMARK) AIR TRANSPORTATION AMERICAN GOLD AUTOMOTIVE BIOTECHNOLOGY BROKERAGE AND INVESTMENT MANAGEMENT CHEMICALS COMPUTERS CONSTRUCTION AND HOUSING CONSUMER PRODUCTS DEFENSE AND AEROSPACE DEVELOPING COMMUNICATIONS ELECTRONICS ENERGY ENERGY SERVICE ENVIRONMENTAL SERVICES FINANCIAL SERVICES FOOD AND AGRICULTURE HEALTH CARE HOME FINANCE INDUSTRIAL EQUIPMENT INDUSTRIAL MATERIALS INSURANCE LEISURE MEDICAL DELIVERY MONEY MARKET MULTIMEDIA NATURAL GAS PAPER AND FOREST PRODUCTS PRECIOUS METALS AND MINERALS REGIONAL BANKS RETAILING SOFTWARE AND COMPUTER SERVICES TECHNOLOGY TELECOMMUNICATIONS TRANSPORTATION UTILITIES GROWTH SEMIANNUAL REPORT AUGUST 31, 1994 CONTENTS
PERFORMANCE OVERVIEW 2 FUND UPDATES* CONSUMER SECTOR CONSUMER PRODUCTS FOOD AND AGRICULTURE LEISURE MULTIMEDIA RETAILING CYCLICALS SECTOR AIR TRANSPORTATION AUTOMOTIVE CHEMICALS CONSTRUCTION AND HOUSING ENVIRONMENTAL SERVICES INDUSTRIAL EQUIPMENT INDUSTRIAL MATERIALS PAPER AND FOREST PRODUCTS TRANSPORTATION ENERGY, UTILITIES AND AMERICAN GOLD NATURAL RESOURCES SECTOR ENERGY ENERGY SERVICE NATURAL GAS PRECIOUS METALS AND MINERALS UTILITIES GROWTH (FORMERLY UTILITIES) FINANCIAL SERVICES SECTOR BROKERAGE AND INVESTMENT MANAGEMENT FINANCIAL SERVICES HOME FINANCE INSURANCE REGIONAL BANKS HEALTH CARE SECTOR BIOTECHNOLOGY HEALTH CARE MEDICAL DELIVERY TECHNOLOGY SECTOR COMPUTERS DEFENSE AND AEROSPACE DEVELOPING COMMUNICATIONS ELECTRONICS SOFTWARE AND COMPUTER SERVICES TECHNOLOGY TELECOMMUNICATIONS MONEY MARKET NOTES TO FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS STATISTICAL ROUNDUP * FUND UPDATES FOR EACH SELECT PORTFOLIO INCLUDE: PERFORMANCE AND INVESTMENT SUMMARY, MANAGER'S OVERVIEW, INVESTMENTS, AND FINANCIAL STATEMENTS.
THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUNDS. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUNDS 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, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUNDS NOR FIDELITY DISTRIBUTORS CORPORATION IS A BANK. PERFORMANCE OVERVIEW DEAR SHAREHOLDER: The six-month period ended August 31, 1994, was marked by several crosscurrents which resulted in divergent returns for Select fund investors. Between February 28 and August 31, the Standard & Poor's Composite Index of 500 Stocks returned 3.26%, including reinvested dividends. Overall, 16 out of 35 Select equity funds outperformed the S&P 500 during the period. Select fund returns varied considerably, however, with Health Care generating a return of 16.64% during the six-month period and Software and Computer Services producing a loss of 14.34%. For the 12 months ended August 31, the S&P 500 returned 5.47%, and 21 out of 35 Select funds outperformed the index. Mounting evidence of economic strength in the United States and rising prices for certain commodities caused the Federal Reserve Board to raise short-term interest rates five times from February through August 1994. Rising rates negatively impacted certain funds more than others. For example, Construction and Housing, and Brokerage and Investment Management produced losses of 7.33% and 7.89%, respectively. Rising commodity prices that resulted from the improving economy, however, benefited Chemicals, and Paper and Forest Products, which generated returns of 13.71% and 10.94%, respectively. Over the trailing one-year period, Select funds that purchase CYCLICAL stocks - those that tend to rise and fall in step with the economy - generally performed well because of the improved business prospects of companies within this sector. Industrial Materials, Industrial Equipment and Transportation benefited from the continued U.S. economic expansion and the recovery of overseas economies in Europe and Japan. However, other cyclically oriented funds such as Automotive and Air Transportation have suffered over the past six months as investors feared U.S. economic growth might slow in the future as a result of higher interest rates. On balance, Select funds that focus on some aspect of TECHNOLOGY - Computers, Electronics and Technology, for example - benefited over the past year from the upswing in capital spending geared toward enhancing corporate productivity. Also, falling prices for certain technology products resulted in high levels of shipments for items such as personal computers and cellular telephones. The exception was Software and Computer Services. After an extended period of excellent performance, the fund suffered from investments in companies with slowing growth rates and/or product cycle transitions. Interestingly, market sectors that are directly linked to consumers, such as HEALTH CARE and CONSUMER PRODUCTS, are finding it difficult to pass along rising costs to consumers. Merger and acquisition activities in these market sectors have been notable over the past six months. Companies have attempted to reconcile oversupply conditions which exist for certain consumer products and services, while at the same time capturing greater operating efficiency as a result of consolidation. The lack of regulatory activity under President Clinton's plan for health care reform lifted a cloud hanging over certain medical delivery areas, especially nursing homes and health maintenance organizations (HMOs). This factor, combined with merger and acquisition activity, positively impacted Health Care and Medical Delivery over the past six months. Regulatory activity also continues to spur mergers and acquisitions in the FINANCIAL SERVICES sector, as banks and financial services companies position themselves for potential broadening of services and interstate banking. Improving loan growth and good profit margins, combined with merger activity, benefited Financial Services, Home Finance and Regional Banks during the six- and 12-month periods. Over the past six months, the ENERGY, UTILITIES AND NATURAL RESOURCES sector turned in mixed results. Energy and Energy Services generated positive returns, despite volatile energy prices. Higher shipments and better utilization of existing capacity, reflecting an improving economy, aided the energy group. American Gold suffered during the period due to the rise in interest rates, which is expected to lower longer-term inflationary pressures and, more importantly, expectations. Utilities Growth also was negatively impacted by the rise in rates but more importantly, by the specter of increasing competition in the years ahead. Despite the rapid rise in interest rates over the past six months, the stock market has performed remarkably well. Nevertheless, there is still good reason for caution going forward. Fixed-income investments have become more competitive due to higher yields and, broadly speaking, stocks remain expensive relative to historical standards. Investors should continue to maintain reasonable expectations in the months ahead for every Select fund. What follows are detailed summaries of all the funds. We hope you find them useful in evaluating your investments. As always, thank you for your continued interest in Fidelity Select Portfolios. Sincerely, Bart A. Grenier Select Group Leader CUMULATIVE TOTAL RETURNS* FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 1994 Row: 1, Col: 1, Value: 16.64 Row: 2, Col: 1, Value: 16.08 Row: 3, Col: 1, Value: 13.71 Row: 4, Col: 1, Value: 12.47 Row: 5, Col: 1, Value: 11.64 Row: 6, Col: 1, Value: 10.94 Row: 7, Col: 1, Value: 10.18 Row: 8, Col: 1, Value: 9.42 Row: 9, Col: 1, Value: 8.02 Row: 10, Col: 1, Value: 6.38 Row: 11, Col: 1, Value: 4.84 Row: 12, Col: 1, Value: 4.3 Row: 13, Col: 1, Value: 4.149999999999999 Row: 14, Col: 1, Value: 3.74 Row: 15, Col: 1, Value: 3.66 Row: 16, Col: 1, Value: 3.39 Row: 17, Col: 1, Value: 3.26 Row: 18, Col: 1, Value: 2.85 Row: 19, Col: 1, Value: 2.79 Row: 20, Col: 1, Value: 2.51 Row: 21, Col: 1, Value: 1.56 Row: 22, Col: 1, Value: 0.05 Row: 23, Col: 1, Value: -0.34 Row: 24, Col: 1, Value: -0.42 Row: 25, Col: 1, Value: -0.7200000000000001 Row: 26, Col: 1, Value: -2.66 Row: 27, Col: 1, Value: -3.65 Row: 28, Col: 1, Value: -4.02 Row: 29, Col: 1, Value: -4.18 Row: 30, Col: 1, Value: -5.04 Row: 31, Col: 1, Value: -7.33 Row: 32, Col: 1, Value: -7.89 Row: 33, Col: 1, Value: -8.380000000000001 Row: 34, Col: 1, Value: -8.619999999999999 Row: 35, Col: 1, Value: -10.27 Row: 36, Col: 1, Value: -14.34 Health Care 16.64%Home Finance 16.08%Chemicals 13.71%Precious Metals and Minerals 12.47%Regional Banks 11.64%Paper and Forest Products 10.94%Industrial Materials 10.18%Medical Delivery 9.42%Financial Services 8.02%Telecommunications 6.38%Insurance 4.84%Electronics 4.30%Computers 4.18%Transportation 3.74%Food and Agriculture 3.66%Multimedia 3.39%S&P 500 3.26%Retailing 2.85%Energy 2.79%Energy Service 2.51%Developing Communications 1.61%Defense and Aerospace 0.05%Technology -0.34%Natural Gas -0.42%Utilities Growth (formerly Utilities) -0.72%Industrial Equipment -2.66%Leisure -3.65%American Gold -4.02%Consumer Products - -4.18%Air Transportation -5.04%Construction and Housing -7.33%Brokerage and Investment Management -7.89%Environmental Services - -8.38%Biotechnology -8.62%Automotive -10.27%Software and Computer Services -14.34%Percentage of Cumulative Returns CONSUMER PRODUCTS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). If Fidelity had not reimbursed certain fund expenses during the period, the fund's total return would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 LIFE OF AUGUST 31, 1994 MONTHS YEAR FUND CONSUMER PRODUCTS -4.18% 0.77% 75.73% CONSUMER PRODUCTS (INCL. 3% SALES CHARGE) -7.05% -2.25% 70.46% S&P 500 3.26% 5.47% 51.13% 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 June 29, 1990. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 LIFE OF AUGUST 31, 1994 YEAR FUND CONSUMER PRODUCTS 0.77% 14.45% CONSUMER PRODUCTS (INCL. 3% SALES CHARGE) -2.25% 13.62% S&P 500 5.47% 10.39% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Consumer Products Standard & Poor's 500 06/29/90 9700.00 10000.00 06/30/90 9700.00 10012.31 07/31/90 9670.90 9980.27 08/31/90 8943.40 9078.05 09/30/90 8439.00 8635.95 10/31/90 8749.40 8598.82 11/30/90 9234.40 9154.30 12/31/90 9593.72 9409.71 01/31/91 9808.43 9819.97 02/28/91 10569.68 10522.10 03/31/91 11077.18 10776.73 04/30/91 10950.30 10802.60 05/31/91 11477.32 11269.27 06/30/91 10911.27 10753.14 07/31/91 11623.72 11254.23 08/31/91 12101.94 11520.96 09/30/91 11994.59 11328.56 10/31/91 12375.21 11480.36 11/30/91 11857.95 11017.70 12/31/91 13290.06 12278.13 01/31/92 13379.45 12049.75 02/29/92 13836.36 12206.40 03/31/92 13677.44 11968.38 04/30/92 13717.17 12320.25 05/31/92 13627.77 12380.62 06/30/92 13015.68 12196.14 07/31/92 13388.15 12694.97 08/31/92 13253.65 12434.72 09/30/92 13377.80 12581.45 10/31/92 13595.08 12625.48 11/30/92 14246.90 13056.01 12/31/92 14427.77 13216.60 01/31/93 14331.66 13327.62 02/28/93 13851.09 13508.88 03/31/93 14662.72 13793.92 04/30/93 14566.61 13460.10 05/31/93 15719.97 13820.83 06/30/93 15730.65 13860.91 07/31/93 15880.16 13805.47 08/31/93 16916.06 14328.70 09/30/93 17289.84 14218.37 10/31/93 17823.80 14512.69 11/30/93 17428.67 14374.82 12/31/93 17987.72 14548.75 01/31/94 17835.98 15043.41 02/28/94 17789.29 14635.73 03/31/94 16645.36 13997.61 04/30/94 16823.06 14176.78 05/31/94 16600.01 14409.28 06/30/94 15684.31 14056.26 07/31/94 16106.94 14517.30 08/31/94 17046.12 15112.51 Let's say you invested $10,000 in Fidelity Select Consumer Products Portfolio on June 29, 1990, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $17,046 - a 70.46% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $15,113 over the same period - a 51.13% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Dial Corp. (The) 6.0 Premark International, Inc. 4.3 Clear Channel Communications 3.8 Philip Morris Companies, Inc. 3.1 Scientific-Atlanta, Inc. 2.9 Interface, Inc. Class A 2.7 Burlington Coat Factory Warehouse Corp. 2.5 Cygne Designs, Inc. 2.2 Mirage Resorts, Inc. 2.1 Galey & Lord, Inc. 2.1 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 74.7 Row: 1, Col: 2, Value: 3.7 Row: 1, Col: 3, Value: 3.8 Row: 1, Col: 4, Value: 4.3 Row: 1, Col: 5, Value: 4.5 Row: 1, Col: 6, Value: 9.0 Conglomerates 9.0% Hotels, Motels & Tourist Courts 4.5% Fabricated Rubber Products 4.3% Apparel 3.8% Radio Broadcasting 3.7% All Others 74.7%* * INCLUDES SHORT-TERM INVESTMENTS CONSUMER PRODUCTS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Mary English, Portfolio Manager of Fidelity Select Consumer Products Portfolio Q. MARY, HOW DID THE FUND PERFORM? A. The fund returned -4.18% for the six months and 0.77% for the 12 months ended August 31, 1994. Those results trailed the S&P 500's 3.26% and 5.47% returns during the same periods. Q. WHY DID THE FUND'S PERFORMANCE LAG THE MARKET? A. Several of the fund's larger investments declined. Telefonos de Mexico fell along with the Mexican stock market following the assassination of a presidential candidate and the devaluing of the peso earlier this year. I eliminated the position in July. In addition, Ford Motor Company was down about 6% over the past six months. This investment had done well for the fund last year and into this year, however, I started reducing it in July because I expected rising interest rates would cause auto sales to slow. The fund's gaming investments also fell. Mirage Resorts, which operates casinos and hotels in Nevada and Arizona, dropped about 7% and Station Casinos is down 39% year-to-date through August 31. Station was targeting Missouri as a new growth market, and its stock fell after the state voted down a bill that would have allowed slot machines and other games of chance. The vote created negative sentiment in the market, as investors worried about the attitudes of other state legislatures toward legalized gambling. Those concerns, in turn, hurt other gambling stocks such as Mirage Resorts. Q. DIAL CORPORATION, PREMARK INTERNATIONAL AND CLEAR CHANNEL COMMUNICATIONS WERE THE FUND'S TOP THREE INVESTMENTS ON AUGUST 31. HOW DID THESE STOCKS DO? A. All three investments did well. Clear Channel led the way, moving up about 18%, with Premark up 14% and Dial up about 6% from the end of February through the end of August. Clear Channel owns radio stations nationwide. Last year it sold many of its less-profitable properties to focus more of its resources on its larger-market stations that have greater revenue-generating potential. Premark manufactures fabricated rubber products and is best known for its Tupperware line. Dial is a diversified company with interests in soap and toiletries, airline catering, convention services and travel services. Both Premark and Dial have cut costs, developed significant overseas businesses, and continued to post good results. However, rising raw materials costs could put pressure on both companies' earnings and stock prices. So, I'll likely reduce these two investments over the next six months. Q. THE FUND'S PERFORMANCE BEGAN TO IMPROVE DURING THE PAST THREE MONTHS AND IT ACTUALLY POSTED A 5.83% RETURN FOR THE MONTH OF AUGUST. WHAT HAVE YOU BEEN DOING TO TURN THE PERFORMANCE AROUND? A. I've begun to restructure the fund by selectively buying undervalued consumer products stocks and by searching for opportunities in other market sectors. It's been a challenge because many of the stocks of companies that make household and personal care products are expensive relative to earnings. Takeover speculation surrounding certain companies has elevated the prices of many consumer products stocks, making them unattractive and risky to hold. Q. IN WHAT SPECIFIC AREAS HAVE YOU FOUND OPPORTUNITIES? A. Certain consumer nondurable sectors, namely tobacco and pharmaceuticals, have been out of favor for a long time. Therefore, many of these stocks are at attractive prices relative to company earnings and future prospects. Philip Morris is now the fund's fourth largest investment, and I'm looking to add RJR Nabisco because of its tobacco business. I've also purchased textile manufacturing companies, such as Cygne Designs, which supplies clothing to AnnTaylor Stores and other apparel retailers. In May, I added clothing manufacturer Galey & Lord. I think the stocks of clothing suppliers offer better value than those of retailers. Q. WHAT IS YOUR OUTLOOK FOR CONSUMER PRODUCTS COMPANIES AND HOW WILL THAT AFFECT YOUR STOCK-PICKING STRATEGY GOING FORWARD? A. Companies that make consumer products - household and personal care products, food, beverages and tobacco - rely heavily on being able to raise the prices of those products. With inflation seemingly under control, I don't expect pricing power to return for most of these companies any time soon. The combination of stagnant pricing and rising raw materials costs makes the near-term outlook generally unfavorable. What this means in terms of stock selection is avoiding companies where the earnings are susceptible to the double-whammy of rising costs with no way to pass those costs on to the consumer through higher prices. I'll continue to work on a stock-by-stock basis, looking for undervalued opportunities in the consumer products groups. FUND FACTS START DATE: June 29, 1990 SIZE: as of August 31, 1994, more than $7 million MANAGER: Mary English, since February 1994; manager, Fidelity Select Retailing Portfolio, June 1993-January 1994; equity analyst, specialty retail and advertising industries, 1991-1993; joined Fidelity in 1991 (checkmark) CONSUMER PRODUCTS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 91.3% SHARES VALUE (NOTE 1) AIR TRANSPORTATION - 1.1% AIR TRANSPORTATION, REGIONAL - 1.1% Atlantic Southeast Airlines, Inc. 3,000 $ 87,745 APPAREL STORES - 4.2% GENERAL APPAREL STORES - 2.8% Burlington Coat Factory Warehouse Corp. (a) 8,000 193,000 Claire's Stores, Inc. 2,000 25,750 218,750 WOMEN'S CLOTHING STORES - 1.4% AnnTaylor Stores Corp. (a) 1,000 41,375 Talbots, Inc. 2,000 71,250 112,625 TOTAL APPAREL STORES 331,375 AUTOS, TIRES, & ACCESSORIES - 1.6% MOTOR VEHICLES & CAR BODIES - 1.6% Ford Motor Co. 4,200 122,850 BEVERAGES - 0.7% DISTILLED BEVERAGES - 0.4% Canadaigua Wine Co. Class A (a) 1,000 30,500 SOFT DRINKS - 0.3% COTT Corp. 2,000 21,762 TOTAL BEVERAGES 52,262 BROADCASTING - 3.7% RADIO BROADCASTING - 3.7% Clear Channel Communications, Inc. (a) 6,375 293,250 CELLULAR - 1.2% CELLULAR & COMMUNICATION SERVICES - 1.2% Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) (a) 3,300 96,860 CHEMICALS & PLASTICS - 0.4% INDUSTRIAL & ORGANIC CHEMICALS - 0.4% Bush Boake Allen, Inc. (a) 1,400 30,100 COMMUNICATIONS EQUIPMENT - 1.6% TELEPHONE INTERCONNECT SYSTEMS - 1.6% General Instrument Corp. (a) 4,000 122,000 CONGLOMERATES - 9.0% Dial Corp. (The) 19,800 465,300 Lancaster Colony Corp. 666 24,143 Mark IV Industries, Inc. 3,648 75,240 Standex International Corp. 5,000 138,125 702,808 CONSUMER DURABLES - 2.4% CUTLERY, HAND TOOLS, HARDWARE - 1.1% Syratech Corp. (a) 4,900 87,588 GLASS, PRESSED OR BLOWN - 1.1% Libbey, Inc. 5,100 85,425 MANUFACTURING INDUSTRIES, NEC - 0.2% Media Arts Group, Inc. (a) 2,000 17,000 TOTAL CONSUMER DURABLES 190,013 CONSUMER ELECTRONICS - 5.4% APPLIANCES - 3.4% Fedders Corp. (a) 18,100 138,013 Newell Co. 2,700 128,588 266,601 SHARES VALUE (NOTE 1) ELECTRIC HOUSEWARES & FANS - 0.5% Duracraft Corp. (a) 1,000 $ 35,750 RADIOS, TELEVISIONS, STEREOS - 0.4% Harman International Industries, Inc. 1,000 30,500 WATCHES & CLOCKS - 1.1% Fossil, Inc. (a) 3,800 88,350 TOTAL CONSUMER ELECTRONICS 421,201 ELECTRICAL EQUIPMENT - 4.7% ALARMS & SIGNAL DEVICES - 0.9% Sensormatic Electronics Corp. 2,000 69,250 ELECTRICAL EQUIPMENT - WHOLESALE - 1.0% Duracell International, Inc. 1,700 78,200 TV & RADIO COMMUNICATION EQUIPMENT - 2.8% Scientific-Atlanta, Inc. 5,000 223,750 TOTAL ELECTRICAL EQUIPMENT 371,200 ELECTRONICS - 1.0% SEMICONDUCTORS - 1.0% Motorola, Inc. 1,400 75,600 ENTERTAINMENT - 1.2% AMUSEMENT - 0.9% Scientific Games Holdings Corp. (a) 2,000 70,500 CRUISES - 0.3% Royal Carribean Cruises Ltd. 900 26,438 TOTAL ENTERTAINMENT 96,938 FOODS - 0.8% MEAT & FISH - 0.8% IBP, Inc. 2,000 63,000 GENERAL MERCHANDISE STORES - 3.3% CONVENIENCE STORES - 0.3% Casey's General Stores, Inc. 2,000 22,375 DEPARTMENT STORES - 2.6% Federated Department Stores, Inc. (a) 5,100 107,738 Penney (J.C.) Co., Inc. 1,000 52,125 Sears, Roebuck & Co. 1,000 47,288 207,151 GENERAL MERCHANDISE STORES - 0.4% Lechters, Inc. (a) 2,000 31,750 TOTAL GENERAL MERCHANDISE STORES 261,276 HOUSEHOLD PRODUCTS - 10.7% COSMETICS - 1.8% Avon Products, Inc. 500 29,563 CCA Industries, Inc. (a) 21,800 109,000 138,563 FABRICATED RUBBER PRODUCTS - 4.3% Premark International, Inc. 7,400 334,850 MANUFACTURED PRODUCTS - 2.3% Paragon Trade Brands, Inc. (a) 5,000 127,500 Windmere Corp. 5,000 55,625 183,125 SOAPS & DETERGENTS - 2.3% Colgate-Palmolive Co. 1,000 57,250 Stanhome, Inc. 3,500 122,938 180,188 TOTAL HOUSEHOLD PRODUCTS 836,726 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) INDUSTRIAL MACHINERY & EQUIPMENT - 1.2% SPECIAL INDUSTRIAL MACHINERY - 1.2% Nokia Corp. sponsored ADR (a) 1,700 $ 93,075 LEASING & RENTAL - 1.4% EQUIPMENT RENTAL AND LEASING, NEC - 0.9% Aaron Rents, Inc. Class B 5,000 66,875 VIDEO TAPE RENTAL - 0.5% Movie Gallery, Inc. (a) 2,000 39,500 TOTAL LEASING & RENTAL 106,375 LEISURE DURABLES & TOYS - 3.2% LEISURE DURABLES - 0.8% ARCTCO, Inc. 2,000 60,500 SPORTING & ATHLETIC GOODS - 2.0% Aldila, Inc. (a) 1,000 12,500 Callaway Golf Co. 4,000 145,500 158,000 TOYS & GAMES - 0.4% SLM International, Inc. (a) 3,000 28,125 TOTAL LEISURE DURABLES & TOYS 246,625 LODGING & GAMING - 5.6% HOTELS, MOTELS, & TOURIST COURTS - 4.5% La Quinta Motor Inns, Inc. 3,000 96,750 Mirage Resorts, Inc. (a) 7,750 163,719 Showboat, Inc. 2,200 31,900 Station Casinos, Inc. (a) 5,000 59,375 351,744 RACING & GAMING - 1.1% WMS Industries, Inc. (a) 4,400 84,700 TOTAL LODGING & GAMING 436,444 PRINTING - 1.4% COMMERCIAL PRINTING, NEC - 1.4% Devon Group, Inc. (a) 5,000 106,250 PUBLISHING - 2.5% BOOK PUBLISHING & PRINTING - 1.7% Harcourt General, Inc. 2,700 91,125 Houghton Mifflin Co. 1,000 43,250 134,375 GENERAL PUBLISHING - 0.4% Score Board, Inc. (a) 6,000 29,250 NEWSPAPERS - 0.4% Scripps (E.W.) Co. Class A 1,000 29,125 TOTAL PUBLISHING 192,750 RAILROADS - 1.4% Santa Fe Pacific Corp. 5,000 107,500 RESTAURANTS - 0.7% Quantum Restaurant Group, Inc. (a) 6,100 51,850 RETAIL & WHOLESALE, MISCELLANEOUS - 2.7% LUMBER & BUILDING MATERIALS - RETAIL - 0.6% Hechinger Co. Class A 1,000 14,563 Lowe's Companies, Inc. 1,000 36,125 50,688 MAIL ORDER - 1.7% Lillian Vernon Corp. 6,500 129,188 SHARES VALUE (NOTE 1) RETAIL, GENERAL - 0.4% Petco Animal Supplies, Inc. (a) 2,000 $ 28,750 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 208,626 SERVICES - 3.3% BUSINESS SERVICES - 1.8% Catalina Marketing Corp. (a) 2,700 139,050 PERSONNEL SUPPLY SERVICES - 1.5% Accustaff, Inc. (a) 1,000 14,000 Career Horizons, Inc. 1,000 17,500 Manpower, Inc. 2,000 53,000 Norrell Corp. (GA) (a) 2,000 35,500 120,000 TOTAL SERVICES 259,050 TEXTILES & APPAREL - 10.6% APPAREL - 3.8% Cygne Designs, Inc. (a) 6,300 168,525 Warnaco Group, Inc. Class A (a) 3,500 127,750 296,275 CARPETS & RUGS - 2.7% Interface, Inc. Class A 16,000 212,000 COTTON MILLS - 2.1% Galey & Lord, Inc. (a) 8,500 163,625 FOOTWEAR - 1.1% Nine West Group, Inc. (a) 3,000 84,750 MEN'S AND BOYS' CLOTHING - 0.5% Haggar Corp. 1,600 42,800 TEXTILE MILL PRODUCTS - 0.4% Westpoint Stevens, Inc. Class A (a) 2,000 29,000 TOTAL TEXTILES & APPAREL 828,450 TOBACCO - 3.1% TOBACCO MANUFACTURERS - 3.1% Philip Morris Companies, Inc. 4,000 244,000 TRUCKING & FREIGHT - 1.2% AIR COURIER SERVICES - 1.2% Airborne Freight Corp. 3,000 91,500 TOTAL COMMON STOCKS (Cost $6,399,024) 7,127,699 REPURCHASE AGREEMENTS - 8.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 683,092 683,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $7,082,024) $ 7,810,699 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $3,506,766 and $3,383,039, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $2,349 for the period (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $7,082,024. Net unrealized appreciation aggregated $728,675, of which $1,001,746 related to appreciated investment securities and $273,071 related to depreciated investment securities. CONSUMER PRODUCTS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $683,000) (cost $7,082,024) - See $ 7,810,699 accompanying schedule Cash 424 Receivable for investments sold 106,839 Receivable for fund shares sold 451,170 Dividends receivable 8,186 Redemption fees receivable 23 Prepaid expenses 6,460 Receivable from investment adviser for expense reductions 33 TOTAL ASSETS 8,383,834 LIABILITIES Payable for investments purchased $ 269,098 Payable for fund shares redeemed 149,255 Accrued management fee 3,610 Other payables and accrued expenses 21,720 TOTAL LIABILITIES 443,683 NET ASSETS $ 7,940,151 Net Assets consist of: Paid in capital $ 7,372,283 Accumulated net investment (loss) (43,440 ) Accumulated undistributed net realized gain (loss) on investments (117,367 ) Net unrealized appreciation (depreciation) on investments 728,675 NET ASSETS, for 546,904 shares outstanding $ 7,940,151 NET ASSET VALUE and redemption price per share ($7,940,151 (divided by) shares) $14.52 Maximum offering price per share (100/97 of $14.52) $14.97
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 41,523 Dividends Interest 7,652 TOTAL INCOME 49,175 EXPENSES Management fee $ 22,751 Transfer agent 41,673 Fees Redemption fees (2,875 ) Accounting fees and expenses 22,516 Non-interested trustees' compensation 22 Custodian fees and expenses 5,772 Registration fees 6,460 Audit 9,339 Legal 106 Reports to shareholders 796 Miscellaneous 16 Total expenses before reductions 106,576 Expense reductions (13,891 92,685 ) NET INVESTMENT INCOME (LOSS) (43,510 ) REALIZED AND UNREALIZED GAIN (LOSS) (112,684 Net realized gain (loss) on investment securities ) Change in net unrealized appreciation (depreciation) on investment securities (215,277 ) NET GAIN (LOSS) (327,961 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (371,471 ) OTHER INFORMATION $18,814 Sales Charges Paid to FDC Deferred sales charges withheld $1,477 by FDC Exchange fees withheld by FSC $2,453
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (43,510 $ (120,101 Net investment income (loss) ) ) Net realized gain (loss) (112,684 1,327,222 ) Change in net unrealized appreciation (depreciation) (215,277 607,019 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (371,471 1,814,140 ) Distributions to shareholders from net realized gain (41,078 (829,580 ) ) Share transactions 2,796,384 15,679,102 Net proceeds from sales of shares Reinvestment of distributions 40,260 814,217 Cost of shares redeemed (2,862,092 (16,130,050 ) ) Paid in capital portion of redemption fees 4,176 20,663 Net increase (decrease) in net assets resulting from share transactions (21,272 383,932 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (433,821 1,368,492 ) NET ASSETS Beginning of period 8,373,972 7,005,480 End of period (including undistributed net investment income (loss) of $(43,440) and $70, respectively)$ 7,940,151 $ 8,373,972 OTHER INFORMATION Shares Sold 195,497 1,044,542 Issued in reinvestment of distributions 2,888 54,101 Redeemed (201,093 (1,089,262 ) ) Net increase (decrease) (2,708 9,381 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEAR ENDED JUNE 29, 1990 ENDED FEBRUARY 28, ENDED APRIL 30, (COMMENCEMEN AUGUST 31, 1994 FEBRUARY 28, T OF OPERATIONS) TO APRIL 30, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991
Net asset value, beginning of period $ 15.24 $ 12.97 $ 13.81 $ 11.22 $ 10.00 Income from Investment Operations Net investment income (loss) (.08) (.20) (.09) (.07) .05F Net realized and unrealized gain (loss) (.57) 3.84 .20 2.86 1.18 Total from investment operations (.65) 3.64 .11 2.79 1.23 Less Distributions From net investment income - - - - (.06) From net realized gain (.08) (1.40) (.97) (.22) - Total distributions (.08) (1.40) (.97) (.22) (.06) Redemption fees added to paid in capital .01 .03 .02 .02 .05 Net asset value, end of period $ 14.52 $ 15.24 $ 12.97 $ 13.81 $ 11.22 TOTAL RETURND, E (4.18)% 28.43% .98% 25.27% 12.89% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 7,940 $ 8,374 $ 7,005 $ 7,553 $ 1,877 Ratio of expenses to average net assetsB 2.49%A 2.48% 2.47%A 2.48% 2.43%A Ratio of expenses to average net assets before 2.86%A 2.62% 3.17%A 2.83% 3.11%A expense reductionsB Ratio of net investment income (loss) to average net assets (1.17)% (1.34)% (.80)% (.56)% .62%A A A Portfolio turnover rate 96%A 169% 215%A 140% 108%A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.02 PER SHARE. FOOD AND AGRICULTURE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S FOOD AND AGRICULTURE 3.66% 10.96% 89.49% 379.17% FOOD AND AGRICULTURE (INCL. 3% SALES CHARGE) 0.55% 7.63% 83.80% 364.79% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND FOOD AND AGRICULTURE 10.96% 13.64% 18.79% FOOD AND AGRICULTURE (INCL. 3% SALES CHARGE) 7.63% 12.95% 18.39% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Food & Agr. (009)Standard & Poor 07/29/85 9700.00 10000.00 07/31/85 9583.60 9926.31 08/31/85 9651.50 9841.93 09/30/85 9467.20 9533.88 10/31/85 10194.70 9974.35 11/30/85 10864.00 10658.59 12/31/85 11164.70 11174.46 01/31/86 11116.20 11237.04 02/28/86 12328.70 12077.57 03/31/86 13143.50 12751.50 04/30/86 13628.50 12607.41 05/31/86 14152.30 13278.12 06/30/86 14947.70 13502.52 07/31/86 14103.80 12747.73 08/31/86 14782.80 13693.61 09/30/86 13589.70 12561.15 10/31/86 13890.40 13285.93 11/30/86 14055.30 13608.78 12/31/86 13677.00 13261.75 01/31/87 15345.40 15048.11 02/28/87 16538.50 15642.51 03/31/87 17042.90 16094.58 04/30/87 16984.70 15951.34 05/31/87 16878.00 16090.11 06/30/87 17857.70 16902.66 07/31/87 18507.60 17759.63 08/31/87 19157.50 18422.06 09/30/87 18963.50 18018.62 10/31/87 14685.80 14137.41 11/30/87 14035.90 12972.49 12/31/87 14704.52 13959.69 01/31/88 15279.79 14547.40 02/29/88 16036.71 15225.31 03/31/88 16147.73 14754.84 04/30/88 16198.19 14918.62 05/31/88 16319.30 15048.41 06/30/88 16985.39 15739.14 07/31/88 17106.50 15679.33 08/31/88 17096.41 15146.23 09/30/88 17782.69 15791.46 10/31/88 18610.26 16230.46 11/30/88 18176.29 15998.37 12/31/88 18641.57 16278.34 01/31/89 19603.00 17469.91 02/28/89 19248.79 17034.91 03/31/89 19977.45 17431.83 04/30/89 21009.72 18336.54 05/31/89 22305.12 19079.17 06/30/89 22743.39 18970.42 07/31/89 24912.89 20683.44 08/31/89 24528.81 21088.84 09/30/89 24632.62 21002.38 10/31/89 24383.49 20515.12 11/30/89 25307.34 20933.63 12/31/89 25887.07 21436.04 01/31/90 24086.42 19997.68 02/28/90 24430.99 20255.65 03/31/90 25486.92 20792.42 04/30/90 25386.89 20272.61 05/31/90 27598.79 22249.19 06/30/90 28494.04 22097.90 07/31/90 28482.81 22027.18 08/31/90 26405.00 20035.93 09/30/90 25562.64 19060.18 10/31/90 26169.14 18978.22 11/30/90 27247.35 20204.21 12/31/90 28301.55 20767.91 01/31/91 29113.81 21673.39 02/28/91 31306.92 23223.04 03/31/91 32838.61 23785.03 04/30/91 32339.65 23842.12 05/31/91 33523.23 24872.10 06/30/91 32142.06 23732.96 07/31/91 33487.21 24838.91 08/31/91 34820.56 25427.59 09/30/91 34206.98 25002.95 10/31/91 34218.78 25337.99 11/30/91 33982.79 24316.87 12/31/91 37949.47 27098.72 01/31/92 37383.79 26594.68 02/29/92 37174.74 26940.42 03/31/92 36350.82 26415.08 04/30/92 35932.71 27191.68 05/31/92 36252.44 27324.92 06/30/92 35856.08 26917.78 07/31/92 37241.02 28018.72 08/31/92 37075.85 27444.33 09/30/92 37698.43 27768.18 10/31/92 38105.02 27865.36 11/30/92 39566.20 28815.57 12/31/92 40236.31 29170.00 01/31/93 40249.32 29415.03 02/28/93 40145.25 29815.08 03/31/93 41237.99 30444.17 04/30/93 39636.78 29707.43 05/31/93 40884.76 30503.58 06/30/93 40477.81 30592.05 07/31/93 39975.91 30469.68 08/31/93 41888.57 31624.48 09/30/93 41752.92 31380.97 10/31/93 43326.45 32030.56 11/30/93 42824.55 31726.27 12/31/93 43784.13 32110.15 01/31/94 45108.33 33201.90 02/28/94 44837.79 32302.13 03/31/94 42744.70 30893.75 04/30/94 42267.09 31289.19 05/31/94 41959.96 31802.34 06/30/94 42281.71 31023.18 07/31/94 43700.37 32040.74 08/31/94 46479.17 33354.41 Let's say you invested $10,000 in Fidelity Select Food and Agriculture Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $46,479 - a 364.79% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Philip Morris Companies, Inc 9.6 RJR Nabisco Holdings Corp. 7.9 RalCorp Holdings, Inc. 6.4 Dean Foods Co. 6.1 Tyson Foods, Inc. 4.8 Dr. Pepper/Seven-Up Companies, Inc. 4.5 GoodMark Foods, Inc. 4.3 IBP, Inc. 4.1 Pioneer Hi-Bred International, Inc. 3.9 Ralston Purina Co. 3.0 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 49.5 Row: 1, Col: 2, Value: 7.9 Row: 1, Col: 3, Value: 8.300000000000001 Row: 1, Col: 4, Value: 8.4 Row: 1, Col: 5, Value: 10.9 Row: 1, Col: 6, Value: 15.0 Meat & Fish 15.0% Tobacco Manufacturers 10.9% Soft Drinks 8.4% Food 8.3% Cigarettes 7.9% All Others 49.5%* * INCLUDES SHORT-TERM INVESTMENTS FOOD AND AGRICULTURE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW William Mankivsky, Portfolio Manager of Fidelity Select Food and Agriculture Portfolio Q. BILL, HOW DID THE FUND DO? A. Pretty well. For the six months ended August 31, 1994, the fund had a total return of 3.66%, and for the year ended August 31, the fund returned 10.96%. The S&P 500 returned 3. 26% and 5. 47% for six months and one year, respectively. Q. WHAT HAS YOUR STRATEGY BEEN? A. I've stayed away from major brand packaged food companies. They had a tremendous run in the '80s and early '90s, and I think the number of areas in which things can get worse is significant. Instead, I've kept an eye on companies that are benefiting from favorable commodity trends. Q. WHAT ARE SOME EXAMPLES? A. Dean Foods, a vegetable and dairy company, is one. This company bought Bird's Eye, and with last year's floods greatly reducing the amount of vegetables available, Dean has taken advantage of a better pricing situation. Another is Tyson Foods, which had been hurt by higher feed costs earlier in the year, but now is benefiting from lower feed costs. The company is also one of the few in the industry that has grown sales volumes close to 10%. IBP, a meat processing company, has increased its profit margin per head slaughtered because cattle prices have dropped due to a substantial growth in the size of the national herd. Q. IS THIS YOUR ONLY STRATEGY? A. No, I also engage in what I call niche plays, special situations where something is compelling that is overlooked by others. One example is RalCorp. This is a human foods spin-off from Ralston Purina, with businesses in cereals (Chex is one example), cookies, crackers and Beech Nut baby food. In addition, the company owns two ski resorts in Colorado - Breckenridge and Keystone. If it sells these operations at some point - which I anticipate, because the resorts don't fit the other businesses - the company's value would be increased greatly. GoodMark Foods, the maker of Slim Jims and a major meat snack manufacturer, is another example. It's generating a lot of cash because competition is weak and beef prices are low. Q. WHAT ABOUT DISAPPOINTMENTS? A. McDonald's is moving to be even more aggressive in value pricing, offering its meals for even less. It has such a large market share of the U. S. fast food market that it has the power to govern price. I am disappointed that the company has not used its dominance of the U.S. fast food market to manage prices slowly upward so that its earnings could increase. Another disappointment was Chiquita, whose stock went up earlier in the year in anticipation of big profits due to a recovery in banana prices, but has corrected recently. Pioneer Hi-Bred is a seed company with a great deal of potential that hasn't been reflected in an increase in the stock price. And RJR Nabisco has not increased in price as much as I expected. Q. RJR IS ONE OF THE TOBACCO COMPANIES. YOU'VE INCREASED THE FUND'S STAKE IN THESE COMPANIES . . . A. Yes, I have. Tobacco companies have gotten a lot of attention from Congress and the media. I tend to be a contrarian in my stock picking. That is, I think it's a good time to buy a stock when bad news about it has reached a peak. I don't believe the most negative potential situation for the major tobacco companies - an increased excise tax - will occur, because it looks like there will be no significant health care legislation this year. Therefore, investments such as RJR Nabisco and Philip Morris could do better than expected. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I see a mixed bag. On the one hand, the industry has been affected by attempts on the part of wholesalers and grocery stores to lower inventories of packaged foods. In situations where this has already occurred, there is a better outlook for an increase in sales volumes. Pricing is going to be tough for all major packaged food companies because the U. S. consumer is conditioned to expect value in some form, such as larger packages at reduced prices. The corn crop is expected to be very good, leading to stable prices, which should benefit meat and poultry companies. I'll continue to be wary of larger packaged food companies, because, in general, they haven't been aggressive enough trimming costs and growing profits. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $101 million MANAGER: William Mankivsky, since April 1993; manager, Fidelity Select Energy Services Portfolio, since August 1991; equity analyst, energy service, since 1991, and food and agriculture since 1993; joined Fidelity in 1991 (checkmark) FOOD AND AGRICULTURE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 83.7% SHARES VALUE (NOTE 1) AGRICULTURE - 6.1% CROPS - 6.1% DEKALB Genetics Corp. Class B 70,500 $ 2,317,688 Pioneer Hi-Bred International, Inc. 128,100 4,003,125 6,320,813 BEVERAGES - 12.2% DISTILLED BEVERAGES - 0.7% Seagram Co. Ltd. 11,600 376,541 Universal Foods Corp. 9,894 319,082 695,623 MALT BEVERAGE - 3.1% Coors (Adolph) Co. Class B 20,000 407,500 Fomento Economico Mexicano SA de CV Class B 56,000 308,384 Greenalls Group PLC 50,000 352,947 Guinness PLC Ord. 90,000 687,095 Quilmes Industries SA 39,000 887,250 Whitbread Class A 65,000 579,523 3,222,699 SOFT DRINKS - 8.4% Celestial Seasonings, Inc. (a) 31,000 558,000 Coca-Cola Company (The) 12,000 552,000 Dr. Pepper/Seven-Up Companies, Inc. (a) 200,000 4,625,000 Panamerican Beverages, Inc. Class A 48,000 1,578,000 PepsiCo, Inc. 30,000 993,750 Serm Suk Co. Ltd. 40,000 325,878 8,632,628 TOTAL BEVERAGES 12,550,950 CHEMICALS & PLASTICS - 0.3% AGRICULTURAL CHEMICALS - 0.3% Potash Corp. of Saskatchewan 10,000 340,149 FOODS - 46.2% BAKERY PRODUCTS - 0.7% Grupo Industries Bimbo SA de CV, Series A Ord. 82,200 696,219 CANDY - 0.7% Hershey Foods Corp. 15,000 720,000 CEREAL BREAKFAST FOODS - 6.4% RalCorp Holdings, Inc. (a) 382,466 6,645,347 DAIRY - 6.1% Dean Foods Co. 196,700 6,294,400 FOOD - 8.3% Campbell Soup Co. 4,000 155,000 Chiquita Brands International, Inc. 122,000 1,997,750 Dole Food, Inc. 62,500 1,914,063 General Mills, Inc. 5,000 270,000 Hazlewood Foods Ord. 195,000 406,963 Heinz (H.J.) Co. 5,000 183,125 Hillsdown Holdings PLC 96,734 270,166 Kellogg Co. 5,000 283,125 Michael Foods, Inc. 38,300 483,538 Nestle SA (Reg.) 1,780 1,640,300 Perkins Foods PLC 400,000 487,988 Pet, Inc. 5,000 101,250 Sara Lee Corp. 5,000 115,625 Sylvan Foods Holdings, Inc. (a) 20,900 209,000 8,517,893 SHARES VALUE (NOTE 1) GENERAL FOOD PREPARATIONS - 3.3% CPC International, Inc. 35,500 $ 1,899,250 Herdez SA de CV Class B 848,846 871,765 McCormick & Co., Inc. (non-vtg) 32,000 632,000 3,403,015 GRAIN MILL PRODUCTS - 5.0% Archer-Daniels-Midland Co. 65,591 1,688,968 Quaker Oats Co. 5,000 401,875 Ralston Purina Co. 76,800 3,110,400 5,201,243 MEAT & FISH - 15.0% ConAgra, Inc. 20,900 684,475 GoodMark Foods, Inc. 321,800 4,424,750 Hormel (George A) & Co. 53,700 1,235,100 IBP, Inc. 134,100 4,224,150 Tyson Foods, Inc. 204,000 4,947,000 15,515,475 SUGAR AND CANDIES - 0.7% Tate & Lyle PLC 27,574 189,777 Tootsie Roll Industries, Inc. 8,452 532,476 722,253 TOTAL FOODS 47,715,845 RESTAURANTS - 0.1% RESTAURANTS - 0.1% ARK Restaurants Corp. (a) 11,700 81,900 TOBACCO - 18.8% CIGARETTES - 7.9% RJR Nabisco Holdings Corp. (a) 1,167,200 8,170,400 TOBACCO MANUFACTURERS - 10.9% Philip Morris Companies, Inc. 162,000 9,882,000 UST, Inc. 44,600 1,393,750 11,275,750 TOTAL TOBACCO 19,446,150 TOTAL COMMON STOCKS (Cost $76,629,353) 86,455,807 REPURCHASE AGREEMENTS - 16.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 16,839,259 16,837,000 TOTAL INVESTMENTS IN SECURITIES - 100% (Cost $93,466,353) $ 103,292,807 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $50,107,113 and $56,258,529, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $61,790 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $3,357,000 and $3,207,500, respectively. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $93,520,652. Net unrealized appreciation aggregated $9,772,155, of which $10,905,127 related to appreciated investment securities and $1,132,972 related to depreciated investment securities. FOOD AND AGRICULTURE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $16,837,000) (cost $93,466,353) - See $ 103,292,807 accompanying schedule Cash 823 Receivable for investments sold 1,089,695 Receivable for fund shares sold 4,901,249 Dividends receivable 136,805 Redemption fees receivable 630 Other receivables 2,706 Prepaid expenses 7,936 TOTAL ASSETS 109,432,651 LIABILITIES Payable for investments purchased $ 7,706,722 Payable for fund shares redeemed 522,499 Accrued management fee 46,719 Other payables and accrued expenses 101,628 TOTAL LIABILITIES 8,377,568 NET ASSETS $ 101,055,083 Net Assets consist of: Paid in capital $ 89,787,038 Undistributed net investment income 74,139 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 1,367,485 Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 9,826,421 NET ASSETS, for 3,180,007 shares outstanding $ 101,055,083 NET ASSET VALUE and redemption price per share ($101,055,083 (divided by) shares) $31.78 Maximum offering price per share (100/97 of $31.78) $32.76
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 656,232 Dividends Interest 112,644 TOTAL INCOME 768,876 EXPENSES Management fee $ 248,186 Transfer agent 394,912 Fees Redemption fees (18,549 ) Accounting fees and expenses 40,074 Non-interested trustees' compensation 238 Custodian fees and expenses 7,804 Registration fees 7,936 Audit 15,596 Legal 1,871 Interest 1,505 Reports to shareholders 7,546 Miscellaneous 246 Total expenses before reductions 707,365 Expense reductions (11,682 695,683 ) NET INVESTMENT INCOME 73,193 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,701,289 Foreign currency transactions 1,035 1,702,324 Change in net unrealized appreciation (depreciation) on: Investment securities 1,233,567 Assets and liabilities in foreign currencies (33 1,233,534 ) NET GAIN (LOSS) 2,935,858 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,009,051 OTHER INFORMATION $77,927 Sales Charges Paid to FDC Deferred sales charges withheld $4,285 by FDC Exchange fees withheld by FSC $13,695
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETSZZ SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 73,193 $ 314,450 Net investment income Net realized gain (loss) 1,702,324 12,506,767 Change in net unrealized appreciation (depreciation) 1,233,534 (1,004,065 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 3,009,051 11,817,152 Distributions to shareholders - (310,254 From net investment income ) From net realized gain (2,188,288 (12,323,186 ) ) TOTAL DISTRIBUTIONS (2,188,288 (12,633,440 ) ) Share transactions 33,072,676 124,680,275 Net proceeds from sales of shares Reinvestment of distributions 2,143,645 12,440,857 Cost of shares redeemed (30,003,904 (149,706,361 ) ) Paid in capital portion of redemption fees 11,563 34,844 Net increase (decrease) in net assets resulting from share transactions 5,223,980 (12,550,385 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 6,044,743 (13,366,673 ) NET ASSETS Beginning of period 95,010,340 108,377,013 End of period (including undistributed net investment income of $74,139 and $946, respectively) $ 101,055,083 $ 95,010,340 OTHER INFORMATION Shares Sold 1,098,695 3,975,362 Issued in reinvestment of distributions 73,665 414,802 Redeemed (1,009,929 (4,884,544 ) ) Net increase (decrease) 162,431 (494,380 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 31.49 $ 30.86 $ 29.22 $ 27.87 $ 22.84 $ 20.76 Income from Investment Operations Net investment income .03 .09 .05 .13 .21 .19 Net realized and unrealized gain (loss) 1.05 3.29 3.26 2.89 5.78 4.07 Total from investment operations 1.08 3.38 3.31 3.02 5.99 4.26 Less Distributions From net investment income - (.06) (.10) (.11) (.27) (.04) From net realized gain (.79) (2.70) (1.57) (1.59) (.79) (2.17) Total distributions (.79) (2.76) (1.67) (1.70) (1.06) (2.21) Redemption fees added to paid in capital - .01 - .03 .10 .03 Net asset value, end of period $ 31.78 $ 31.49 $ 30.86 $ 29.22 $ 27.87 $ 22.84 TOTAL RETURND, E 3.66% 11.69% 11.72% 11.11% 27.39% 20.83% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 101,055 $ 95,010 $ 108,377 $ 108,922 $ 64,490 $ 25,965 Ratio of expenses to average net assetsB 1.71%A 1.64% 1.67%A 1.83% 2.22% 2.53% Ratio of expenses to average net assets before 1.74%A 1.65% 1.67%A 1.83% 2.22% 2.58% expense reductionsB Ratio of net investment income to average net .18%A .29% .21%A .46% .85% .82% assets Portfolio turnover rate 129%A 96% 515%A 63% 124% 267%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. LEISURE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S LEISURE -3.65% 6.39% 55.13% 431.93% LEISURE (INCL. 3% SALES CHARGE) -6.54% 3.20% 50.47% 415.98% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or 10 years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS LEISURE 6.39% 9.18% 18.19% LEISURE (INCL. 3% SALES CHARGE) 3.20% 8.52% 17.83% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Leisure (062)Standard & Poor's 08/31/84 9699.99 10000.00 09/30/84 9584.73 10002.00 10/31/84 9726.59 10041.01 11/30/84 9575.86 9928.55 12/31/84 10081.26 10190.66 01/31/85 11473.30 10984.51 02/28/85 12067.36 11119.62 03/31/85 12510.69 11127.41 04/30/85 12368.82 11117.39 05/31/85 13095.88 11759.98 06/30/85 13863.32 11944.61 07/31/85 13792.27 11926.69 08/31/85 14103.11 11825.32 09/30/85 13135.07 11455.18 10/31/85 13836.68 11984.41 11/30/85 15000.09 12806.54 12/31/85 15772.74 13426.38 01/31/86 16314.49 13501.57 02/28/86 18010.77 14511.49 03/31/86 19431.74 15321.23 04/30/86 20017.89 15148.10 05/31/86 21323.40 15953.98 06/30/86 21820.74 16223.60 07/31/86 19732.21 15316.70 08/31/86 20381.94 16453.20 09/30/86 18397.15 15092.52 10/31/86 19340.59 15963.36 11/30/86 19100.28 16351.27 12/31/86 18254.74 15934.31 01/31/87 20177.23 18080.66 02/28/87 22348.93 18794.85 03/31/87 22615.94 19338.02 04/30/87 22099.72 19165.91 05/31/87 23007.56 19332.65 06/30/87 23995.51 20308.95 07/31/87 25766.69 21338.62 08/31/87 26300.71 22134.55 09/30/87 25731.09 21649.80 10/31/87 18388.25 16986.43 11/30/87 17106.59 15586.75 12/31/87 19294.59 16772.90 01/31/88 19591.59 17479.04 02/29/88 21304.24 18293.57 03/31/88 22017.02 17728.29 04/30/88 22155.62 17925.08 05/31/88 21581.43 18081.03 06/30/88 23022.88 18910.95 07/31/88 23214.32 18839.08 08/31/88 22307.51 18198.55 09/30/88 23859.16 18973.81 10/31/88 23859.16 19501.29 11/30/88 22942.28 19222.42 12/31/88 24312.57 19558.81 01/31/89 26388.15 20990.51 02/28/89 25964.98 20467.85 03/31/89 27184.13 20944.75 04/30/89 28725.71 22031.78 05/31/89 30156.45 22924.07 06/30/89 30442.40 22793.40 07/31/89 32997.08 24851.65 08/31/89 33261.70 25338.74 09/30/89 33475.44 25234.85 10/31/89 31063.26 24649.40 11/30/89 31429.66 25152.25 12/31/89 31899.99 25755.90 01/31/90 28031.36 24027.68 02/28/90 27782.82 24337.64 03/31/90 27998.94 24982.59 04/30/90 26907.51 24358.02 05/31/90 29133.60 26732.93 06/30/90 28798.60 26551.15 07/31/90 27804.43 26466.18 08/31/90 24594.98 24073.64 09/30/90 22260.83 22901.25 10/31/90 22001.48 22802.78 11/30/90 23752.09 24275.84 12/31/90 24790.92 24953.13 01/31/91 26177.29 26041.09 02/28/91 28185.89 27903.03 03/31/91 28655.29 28578.28 04/30/91 28731.70 28646.87 05/31/91 29725.08 29884.41 06/30/91 28054.89 28515.71 07/31/91 29397.60 29844.54 08/31/91 29703.25 30551.86 09/30/91 30467.39 30041.64 10/31/91 31384.36 30444.20 11/30/91 29877.91 29217.30 12/31/91 32956.31 32559.76 01/31/92 33698.62 31954.14 02/29/92 34877.58 32369.55 03/31/92 34168.02 31738.34 04/30/92 34550.09 32671.45 05/31/92 34757.50 32831.54 06/30/92 34222.60 32342.35 07/31/92 34386.35 33665.15 08/31/92 33895.11 32975.02 09/30/92 34561.01 33364.12 10/31/92 34823.00 33480.90 11/30/92 37191.83 34622.59 12/31/92 38305.30 35048.45 01/31/93 39255.01 35342.86 02/28/93 39047.61 35823.52 03/31/93 41078.04 36579.40 04/30/93 40152.31 35694.18 05/31/93 43036.55 36650.78 06/30/93 44194.79 36757.07 07/31/93 45375.74 36610.04 08/31/93 48498.44 37997.56 09/30/93 50917.12 37704.98 10/31/93 53733.23 38485.47 11/30/93 51734.70 38119.86 12/31/93 53456.46 38581.11 01/31/94 54012.07 39892.87 02/28/94 53551.03 38811.77 03/31/94 50311.96 37119.58 04/30/94 50413.41 37594.71 05/31/94 49879.86 38211.26 06/30/94 47771.71 37275.09 07/31/94 49619.60 38497.71 08/31/94 51597.62 40076.11 Let's say you invested $10,000 in Fidelity Select Leisure Portfolio on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $51,598 - a 415.98% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Capital Cities/ABC, Inc. 5.9 La Quinta Motor Inns, Inc. 4.1 Brunswick Corp. 3.0 Blockbuster Entertainment Corp. 2.6 Cedar Fair LP (depositary units) 2.2 Carmike Cinemas, Inc. Class A 2.2 Infinity Broadcasting Corp. 2.0 Tele-Communications, Inc. Class A 1.8 Time Warner, Inc. 1.6 International Game Technology Corp. 1.5 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 58.0 Row: 1, Col: 2, Value: 4.5 Row: 1, Col: 3, Value: 5.5 Row: 1, Col: 4, Value: 7.7 Row: 1, Col: 5, Value: 11.0 Row: 1, Col: 6, Value: 13.3 Television Broadcasting 13.3% Hotels, Motels, & Tourist Courts 11.0% Cable TV Operators 7.7% Radio Broadcasting 5.5% Movie Theaters 4.5% All Others 58.0%* * INCLUDES SHORT-TERM INVESTMENTS LEISURE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Deborah Wheeler, Portfolio Manager of Fidelity Select Leisure Portfolio Q. DEBORAH, HOW DID THE FUND PERFORM? A. The fund posted a loss of 3.65% for the six months ended August 31, 1994. That lagged the S&P 500's 3.26% gain during the same period. Q. WHAT FACTORS HURT THE FUND'S PERFORMANCE? A. The fund invests in some very volatile sectors of the market. Many of the stocks in sub-groups such as hotels, broadcasters, cable, airlines, and gaming were up 50% to 100% or even more during 1993. But several of the stocks in groups fell sharply during the past six months. For example, cable stocks declined 20% to 40%; gaming stocks declined 30% to 70%; and airline stocks fell 30% to 40%. Even so, the fund managed to post a 6.39% gain for the 12 months through August, slightly ahead of the S&P 500's 5.47% gain. Q. DID ANY SECTORS HELP THE FUND DURING THE MOST RECENT SIX MONTHS? A. A large portion of the fund's investments was in sectors that matched or slightly outperformed the S&P 500. For example, roughly 25% of the fund's investments was in broadcasters. Entertainment stocks, which amounted to 11% of the fund's investments, generally matched the market or lagged it by a small margin. The fund's holdings in that sector included movie theatre chains such as Carmike Cinemas and AMC Entertainment, and Cedar Fair, which owns amusement parks in the midwest. Q. HOW DID YOU ALTER THE FUND'S STRATEGY DURING THE PERIOD? A. For one thing, I dropped a lot of airline investments, which have declined from 15% of the fund's investments in mid-1993 to around 3% recently. I had expected that major airlines such as United and American would be able to lower their labor costs and other expenses significantly, but that hasn't occurred. At the same time, shares of many regional airlines climbed to levels that were less attractive so I sold them. In addition, oil prices have moved higher, which will boost costs for the airlines. I also increased the fund's investment in companies that manufacture durable goods in the leisure industry such as boats, golf clubs, camping equipment, toys and motorcycles. I found a number of attractive companies in that group. Q. WHAT COMPANIES DID YOU LIKE? A. Among leisure durable companies, I like Brunswick, which manufactures boats, among other things. Boat orders, which usually lag auto sales, are beginning to improve. Brunswick stock did well in the last boat cycle, in the mid-'80s. I also continued to hold Harley Davidson, which benefits from strong demand for its motorcycles. I purchased shares of Coleman, the camping equipment manufacturer, for the fund. The company's business has improved significantly in the U.S. and Japan, and the stock was at an attractive level. I also instituted positions in Cobra and Callaway, two leading golf club manufacturers. And I increased the fund's investment in Toys "R" Us when that stock temporarily declined. Among cable stocks, I increased the fund's holdings in Tele-Communications Inc. and Time Warner as their shares declined to attractive levels. And I invested 4% of the fund's assets in La Quinta Motor Inns, which is primarily a chain of budget motels. The company is renovating all of its lobbies; revenues at the renovated motels should increase sharply in 1994 and 1995. Q. WHAT ABOUT BROADCASTERS? A. Broadcasters remained the fund's biggest stake. Capital Cities/ABC accounted for about 6% of the fund's investments. The fund also held shares of Infinity, which owns radio stations. Such companies are likely to benefit from increased advertising as the economy grows, as well as structural changes in television and radio. Federal regulations have been changed to let companies own more radio stations, and I expect that during the next two years similar changes will occur in the television industry. Cap Cities and Infinity, as well as other broadcasters, could take advantage of those changes to make acquisitions that will give them economies of scale and access to wider markets. Q. WHAT IS YOUR STRATEGY GOING FORWARD? A. If the economy slows down as interest rates move higher, many of the economically sensitive companies that this fund generally holds will suffer. But some of those firms' stocks already have fallen. I will increase the fund's investments in areas that have suffered the sharpest declines, such as gaming and cable. And I will continue to look for sectors such as the boat industry, where prospects for growth don't depend on the economy as a whole. FUND FACTS START DATE: May 8, 1984 SIZE: As of August 31, 1994, more than $70 million MANAGER: Deborah Wheeler, since August 1992; manager, Fidelity Select Food and Agriculture Portfolio, September 1991-April 1993; Fidelity Select Housing Portfolio, September 1986-December 1988; Fidelity Select Retailing Portfolio, January 1989-August 1991; joined Fidelity in 1986 (checkmark) LEISURE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.9% SHARES VALUE (NOTE 1) ADVERTISING - 2.9% ADVERTISING AGENCIES - 2.9% Foote Cone & Belding Communications, Inc. 18,700 $ 804,100 Interpublic Group of Companies, Inc. 7,500 258,750 Omnicom Group, Inc. 19,100 957,388 2,020,238 AIR TRANSPORTATION - 2.6% AIR TRANSPORTATION, MAJOR NATIONAL - 1.6% AMR Corp. (a) 6,000 361,500 KLM Royal Dutch Airlines (a) 20,000 587,500 Southwest Airlines Co. 7,800 206,700 1,155,700 AIR TRANSPORTATION, REGIONAL - 1.0% Comair Holdings, Inc. 26,000 689,000 TOTAL AIR TRANSPORTATION 1,844,700 BEVERAGES - 4.2% DISTILLED BEVERAGES - 0.4% Canadaigua Wine Co. Class A (a) 10,200 311,100 Seagram Co. Ltd. 100 3,246 314,346 MALT BEVERAGE - 0.5% Anheuser-Busch Companies, Inc. 3,000 163,500 Coors (Adolph) Co. Class B 1,000 20,375 Grupo Modelo SA de CV Class C Ord. 6,800 143,485 327,360 SOFT DRINKS - 3.3% Buenos Aires Embotelladora sponsored ADR 1,000 38,250 COTT Corp. 39,000 424,363 Celestial Seasonings, Inc. (a) 17,000 306,000 Coca-Cola Company (The) 1,000 46,000 Coca-Cola Enterprises, Inc. 400 7,200 Dr. Pepper/Seven-Up Companies, Inc. (a) 43,900 1,015,188 Emvasa Del Valle de Enah Ord. (a) 56,600 295,653 PepsiCo, Inc. 3,441 113,983 Snapple Beverage Corp. (a) 7,700 103,950 2,350,587 TOTAL BEVERAGES 2,992,293 BROADCASTING - 25.7% CABLE TV OPERATORS - 6.9% BET Holdings, Inc. Class A (a) 16,600 273,900 CAI Wireless Systems, Inc. (a) 8,500 93,500 Cablemaxx, Inc. (a) 10,200 73,950 Gaylord Entertainment Co. Class A 11,900 270,725 Interactive Network, Inc. (a) 100 725 International Family Entertainment Class B (a) 8,500 134,938 NTN Communications, Inc. (a) 6,000 45,000 Peoples Choice TV Corp. (a) 19,100 439,300 QVC Network, Inc. (a) 6,500 292,500 Spectravision, Inc. Class B (a) 1,000 2,375 Tele-Communications, Inc. Class A (a) 56,500 1,274,781 Time Warner, Inc. 29,068 1,108,218 Turner Broadcasting System, Inc. Class B 1,100 19,938 SHARES VALUE (NOTE 1) Valuevision International, Inc. (a) 36,000 $ 216,000 Viacom, Inc. (non-vtg.) (a) 18,000 594,000 Video Jukebox Network, Inc. (a) 500 875 4,840,725 RADIO BROADCASTING - 5.5% Broadcasting Partners, Inc. Class A (a) 300 4,125 Clear Channel Communications, Inc. (a) 16,125 741,750 EZ Communications, Inc. (a) 38,500 519,750 Emmis Broadcasting Corp. Class A (a) 30,000 442,500 Evergreen Media Corp. Class A (a) 12,500 196,875 Grupo Radio Centro SA de CV sponsored ADR 15,600 313,950 Infinity Broadcasting Corp. (a) 43,900 1,382,850 SFX Broadcasting, Inc. (a) 600 9,000 Saga Communications, Inc. Class A (a) 15,400 231,000 3,841,800 TELEVISION BROADCASTING - 13.3% CBS, Inc. 1,401 450,246 Capital Cities/ABC, Inc. 49,100 4,118,263 Carlton Communications Ord. 20,000 263,943 Chris-Craft Industries, Inc. 1,030 37,724 Groupo Televisa GDS (b) 14,000 820,750 Home Shopping Network, Inc. (a) 66,300 779,025 Jacor Communications, Inc. Class A (a) 400 5,800 Multimedia, Inc. (a) 19,800 618,750 New World Communications Group, Inc. Class A (a) 62,500 804,688 Renaissance Communications Corp. (a) 18,500 504,125 Scandinavian Broadcasting Corp. (a) 18,100 479,650 Silver King Communications, Inc. (a) 20,700 248,400 Westwood One, Inc. (a) 22,700 227,000 9,358,364 TOTAL BROADCASTING 18,040,889 CELLULAR - 3.4% CELLULAR & COMMUNICATION SERVICES - 3.4% Cellular Communications, Inc. (redeemable) (a): Class A 9,600 511,200 Class P 19,000 1,032,270 Rogers Communications, Inc. Class B (a) 52,000 874,877 2,418,347 COMPUTER SERVICES & SOFTWARE - 0.9% PREPACKAGED COMPUTER SOFTWARE - 0.9% Sierra On-Line, Inc. (a) 30,500 663,375 CONGLOMERATES - 0.4% Whitman Corp. 16,300 281,175 CONSUMER ELECTRONICS - 1.1% RADIOS, TELEVISIONS, STEREOS - 1.1% Cambridge Soundworks, Inc. (a) 25,000 187,500 Harman International Industries, Inc. 20,200 616,100 803,600 DRUGS & PHARMACEUTICALS - 0.5% BIOTECHNOLOGY - 0.5% IDEXX Laboratories (a) 10,000 322,500 ELECTRICAL EQUIPMENT - 1.3% ELECTRICAL MACHINERY - 0.8% Philips NV 17,900 583,988 TV & RADIO COMMUNICATION EQUIPMENT - 0.5% California Amplifier, Inc. (a) 78,300 352,350 TOTAL ELECTRICAL EQUIPMENT 936,338 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ENTERTAINMENT - 10.9% AMUSEMENT - 0.3% Iwerks Entertainment, Inc. (a) 7,700 $ 39,463 Mountasia Entertainment International (a) 21,000 199,500 238,963 CRUISES - 0.3% Carnival Cruise Lines, Inc. Class A 1,500 66,563 Royal Carribean Cruises Ltd. 5,000 146,875 213,438 MOTION PICTURE PRODUCTION - 2.3% Cinergi Pictures Entertainment, Inc. (a) 63,100 441,700 Disney (Walt) Co. 16,000 658,000 Goldwyn (Samuel) Company (a) 500 3,500 King World Productions, Inc. (a) 7,000 264,250 Spelling Entertainment Group, Inc. 30,000 281,250 1,648,700 MOVIE THEATERS - 4.5% AMC Entertainment Inc. 53,900 646,800 Carmike Cinemas, Inc. Class A (a) 78,100 1,562,000 Cineplex Odeon Corp. (a) 166,100 601,438 GC Cos., Inc. (a) 500 16,000 Regal Cinemas, Inc. (a) 10,400 364,000 3,190,238 RECORDS & CD'S - 0.4% PolyGram NV ADR 6,200 279,000 RECREATIONAL SERVICES - 2.5% Cedar Fair LP (depositary units) 49,600 1,574,800 Discovery Zone, Inc. (a) 7,600 174,800 1,749,600 THEATRICAL PRODUCERS & SERVICES - 0.6% Live Entertainment of Canada, Inc. (a) 40,000 373,066 TOTAL ENTERTAINMENT 7,693,005 HOUSEHOLD PRODUCTS - 0.0% MANUFACTURED PRODUCTS - 0.0% Windmere Corp. (warrants ) (a) 845 739 LEASING & RENTAL - 2.6% VIDEO TAPE RENTAL - 2.6% Blockbuster Entertainment Corp. 70,500 1,824,188 LEISURE DURABLES & TOYS - 8.9% LEISURE DURABLES - 3.0% Brunswick Corp. 91,700 2,109,100 MOTORCYCLES - 0.8% Harley Davidson, Inc. 9,800 553,700 SPORTING & ATHLETIC GOODS - 3.4% Callaway Golf Co. 17,400 632,925 Cobra Golf, Inc. 15,000 731,250 Coleman, Inc. (a) 30,000 993,750 2,357,925 TOYS & GAMES - 1.7% Hasbro, Inc. 8,000 251,000 Mattel, Inc. 32,500 934,375 1,185,375 TOTAL LEISURE DURABLES & TOYS 6,206,100 SHARES VALUE (NOTE 1) LODGING & GAMING - 14.6% HOTELS, MOTELS, & TOURIST COURTS - 11.0% Accor Asia Pacific Ltd. (AAPC) 204,190 $ 154,966 Caesars World, Inc. (a) 15,467 717,282 Club Med, Inc. 1,700 41,013 Four Seasons Hotels, Inc. 33,600 341,026 Hilton Hotels Corp. 4,000 235,500 Hospitality Franchise Systems, Inc. (a) 12,600 370,125 Host Marriott Corp. 70,000 778,750 La Quinta Motor Inns, Inc. 88,725 2,861,381 Marriott International, Inc. 27,600 814,200 Mirage Resorts, Inc. (a) 31,400 663,325 Promus Companies, Inc. (a) 20,950 769,913 7,747,481 LODGING PLACES, OTHER THAN HOTEL, MOTEL - 0.6% Sholodge, Inc. (a) 23,333 431,661 RACING & GAMING - 3.0% Boyd Gaming Corp. (a) 18,600 234,825 International Game Technology Corp. 45,400 1,061,217 President Riverboat Casinos, Inc. (a) 42,000 388,500 WMS Industries, Inc. (a) 20,000 385,000 2,069,542 TOTAL LODGING & GAMING 10,248,684 PUBLISHING - 1.2% BOOK PUBLISHING & PRINTING - 0.4% Houghton Mifflin Co. 6,800 294,100 NEWSPAPERS - 0.8% Central Newspapers, Inc. Class A 4,000 109,000 News Corp. Ltd. ADR 3,500 189,875 Scripps (E.W.) Co. Class A 9,700 282,513 581,388 TOTAL PUBLISHING 875,488 REAL ESTATE INVESTMENT TRUSTS - 0.3% RFS Hotel Investors, Inc. 12,300 209,100 RESTAURANTS - 1.1% El Chico Restaurants, Inc. (a) 27,500 309,375 IHOP Corp. (a) 14,100 423,000 732,375 RETAIL & WHOLESALE, MISCELLANEOUS - 2.2% DURABLE GOODS, NEC - WHOLESALE - 1.0% Sodak Gaming, Inc. (a) 40,000 700,000 HOBBY, TOY, & GAME SHOPS - 1.2% Toys "R" Us, Inc. (a) 23,200 855,500 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 1,555,500 SERVICES - 1.4% GENERAL SERVICES - 1.4% Children's Discovery Center `A' (a) 76,500 1,013,625 TELEPHONE SERVICES - 0.7% Southwestern Bell Corp. 12,300 508,913 TOTAL COMMON STOCKS (Cost $57,896,010) 61,191,172 CORPORATE BONDS - 1.2% PRINCIPAL VALUE (NOTE 1) AMOUNT CONVERTIBLE BONDS - 0.4% LODGING & GAMING - 0.4% LODGING PLACES, OTHER THAN HOTEL, MOTEL - 0.4% Sholodge, Inc. 7 1/2%, 5/1/04 $ 250,000 $ 251,250 NONCONVERTIBLE BONDS - 0.8% BROADCASTING - 0.8% CABLE TV OPERATORS - 0.8% Time Warner, Inc. reset note 0%, 8/15/02 (c) 577,000 542,380 TOTAL CORPORATE BONDS (Cost $792,960) 793,630 REPURCHASE AGREEMENTS - 11.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $8,376,123 8,375,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $67,063,970) $ 70,359,802 LEGEND 1. Non-income producing 2. 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 this security amounted to $820,750 or 1.2% of net assets. 3. Debt obligation initially issued in zero coupon form which converts to coupon form at a specified rate and date. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $31,104,370 and $64,285,909, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $26,291 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $2,127,000 and $2,043,200, respectively. The weighted average interest rate paid was 4.7% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $67,118,590. Net unrealized appreciation aggregated $3,241,212 of which $7,627,079 related to appreciated investment securities and $4,385,867 related to depreciated investment securities. LEISURE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $8,375,000) (cost $67,063,970) - See $ 70,359,802 accompanying schedule Cash 211 Receivable for investments sold 44,525 Receivable for fund shares sold 333,125 Dividends receivable 29,527 Interest receivable 4,375 Redemption fees receivable 61 Other receivables 31,470 Prepaid expenses 10,987 TOTAL ASSETS 70,814,083 LIABILITIES Payable for fund shares redeemed $ 367,334 Accrued management fee 35,373 Other payables and accrued expenses 72,345 TOTAL LIABILITIES 475,052 NET ASSETS $ 70,339,031 Net Assets consist of: Paid in capital $ 66,253,126 Accumulated net investment (loss) (116,775 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 905,948 Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 3,296,732 NET ASSETS, for 1,774,011 shares outstanding $ 70,339,031 NET ASSET VALUE and redemption price per share ($70,339,031 (divided by) shares) $39.65 Maximum offering price per share (100/97 of $39.65) $40.88
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 293,566 Dividends Interest 152,871 TOTAL INCOME 446,437 EXPENSES Management fee $ 250,524 Transfer agent 317,410 Fees Redemption fees (18,496 ) Accounting fees and expenses 40,449 Non-interested trustees' compensation 256 Custodian fees and expenses 7,010 Registration fees 10,987 Audit 13,097 Legal 1,307 Interest 1,333 Reports to shareholders 4,861 Miscellaneous 197 Total expenses before reductions 628,935 Expense reductions (10,568 618,367 ) NET INVESTMENT INCOME (LOSS) (171,930 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,119,967 Foreign currency transactions (8,466 1,111,501 ) Change in net unrealized appreciation (depreciation) on: Investment securities (5,987,252 ) Assets and liabilities in foreign 900 (5,986,352 currencies ) NET GAIN (LOSS) (4,874,851 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (5,046,781 ) OTHER INFORMATION $160,758 Sales Charges Paid to FDC Deferred sales charges withheld $16,951 by FDC Exchange fees withheld by FSC $12,758
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (171,930 $ (603,590 Net investment income (loss) ) ) Net realized gain (loss) 1,111,501 19,779,082 Change in net unrealized appreciation (depreciation) (5,986,352 3,359,954 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,046,781 22,535,446 ) Distributions to shareholders from net realized gain (8,699,446 (6,700,464 ) ) Share transactions 17,720,636 171,635,469 Net proceeds from sales of shares Reinvestment of distributions 8,558,337 6,615,913 Cost of shares redeemed (48,065,234 (133,273,761 ) ) Paid in capital portion of redemption fees 38,449 196,293 Net increase (decrease) in net assets resulting from share transactions (21,747,812 45,173,914 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (35,494,039 61,008,896 ) NET ASSETS Beginning of period 105,833,070 44,824,174 End of period (including undistributed net investment income (loss) of $(116,775) and $167,185, respectively) $ 70,339,031 $ 105,833,070 OTHER INFORMATION Shares Sold 442,907 3,957,420 Issued in reinvestment of distributions 219,557 158,780 Redeemed (1,224,480 (3,033,266 ) ) Net increase (decrease) (562,016 1,082,934 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 45.30 $ 35.77 $ 31.65 $ 26.32 $ 24.90 $ 28.51 Income from Investment Operations Net investment income (loss) (.08) (.29) (.11) (.08) .08 .26F Net realized and unrealized gain (loss) (1.66) 12.98 4.21 5.40 1.55 (1.81) Total from investment operations (1.74) 12.69 4.10 5.32 1.63 (1.55) Less Distributions From net investment income - - - - (.23) (.07) From net realized gain (3.93) (3.26) - - - (2.03) Total distributions (3.93) (3.26) - - (.23) (2.10) Redemption fees added to paid in capital .02 .10 .02 .01 .02 .04 Net asset value, end of period $ 39.65 $ 45.30 $ 35.77 $ 31.65 $ 26.32 $ 24.90 TOTAL RETURN D, E (3.65)% 37.14% 13.02% 20.25% 6.78% (6.33)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 70,339 $ 105,833 $ 44,824 $ 40,051 $ 40,727 $ 49,609 Ratio of expenses to average net assets B 1.51%A 1.53% 1.90%A 2.21% 2.27% 1.96% Ratio of expenses to average net assets before 1.54%A 1.55% 1.90%A 2.21% 2.27% 1.96% expense reductions B Ratio of net investment income (loss) to average net (.42)% (.69)% (.39)% (.28)% .34% .86% assets A A Portfolio turnover rate 82%A 170% 109%A 45% 75% 124%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.16 PER SHARE. MULTIMEDIA PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S MULTIMEDIA 3.39% 11.04% 63.09% 248.21% MULTIMEDIA (INCL. 3% SALES CHARGE) 0.29% 7.71% 58.20% 237.76% S&P 500 3.26% 5.47% 58.16% 148.27% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on June 30, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND MULTIMEDIA 11.04% 10.28% 16.48% MULTIMEDIA (INCL. 3% SALES CHARGE) 7.71% 9.61% 16.05% S&P 500 5.47% 9.60% 11.76% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Multimedia (503) Standard & Poor's 06/30/86 9700.00 10000.00 07/31/86 9253.80 9488.77 08/31/86 9777.60 10192.84 09/30/86 9263.50 9349.89 10/31/86 9700.00 9889.38 11/30/86 9777.60 10129.69 12/31/86 9486.60 9871.39 01/31/87 10621.50 11201.06 02/28/87 11911.60 11643.50 03/31/87 11872.80 11980.00 04/30/87 11688.50 11873.38 05/31/87 12231.70 11976.68 06/30/87 12745.80 12581.50 07/31/87 13725.50 13219.38 08/31/87 13715.80 13712.46 09/30/87 13386.00 13412.16 10/31/87 10660.30 10523.18 11/30/87 9923.10 9656.07 12/31/87 11377.71 10390.90 01/31/88 11566.11 10828.35 02/29/88 12340.68 11332.96 03/31/88 12874.50 10982.77 04/30/88 13031.50 11104.68 05/31/88 12811.69 11201.29 06/30/88 13254.21 11715.43 07/31/88 13232.55 11670.91 08/31/88 12734.43 11274.10 09/30/88 13535.75 11754.37 10/31/88 13687.35 12081.14 11/30/88 13579.06 11908.38 12/31/88 14432.32 12116.78 01/31/89 16155.75 13003.73 02/28/89 16122.39 12679.94 03/31/89 16878.48 12975.38 04/30/89 18012.60 13648.80 05/31/89 18879.88 14201.58 06/30/89 19266.46 14120.63 07/31/89 20732.14 15395.72 08/31/89 20709.77 15697.48 09/30/89 20385.30 15633.12 10/31/89 19009.13 15270.43 11/30/89 19121.01 15581.95 12/31/89 19129.11 15955.91 01/31/90 16589.03 14885.27 02/28/90 16170.05 15077.29 03/31/90 16012.93 15476.84 04/30/90 15253.53 15089.92 05/31/90 16706.87 16561.19 06/30/90 16562.85 16448.57 07/31/90 15646.33 16395.93 08/31/90 13616.89 14913.74 09/30/90 12451.60 14187.44 10/31/90 11914.78 14126.44 11/30/90 13145.53 15039.00 12/31/90 14114.43 15458.59 01/31/91 14873.83 16132.59 02/28/91 15973.66 17286.07 03/31/91 16405.73 17704.39 04/30/91 16968.74 17746.88 05/31/91 17060.39 18513.55 06/30/91 15711.79 17665.63 07/31/91 16300.98 18488.84 08/31/91 16811.62 18927.03 09/30/91 17832.88 18610.95 10/31/91 18736.31 18860.33 11/30/91 17453.18 18100.26 12/31/91 19456.44 20170.93 01/31/92 19967.07 19795.75 02/29/92 21079.99 20053.10 03/31/92 20543.17 19662.06 04/30/92 20857.40 20240.13 05/31/92 21171.64 20339.30 06/30/92 21250.20 20036.25 07/31/92 21302.57 20855.73 08/31/92 21014.52 20428.19 09/30/92 20883.59 20669.24 10/31/92 21224.01 20741.58 11/30/92 22769.01 21448.87 12/31/92 23639.19 21712.69 01/31/93 24116.75 21895.08 02/28/93 24222.88 22192.85 03/31/93 25177.99 22661.12 04/30/93 24526.89 22112.72 05/31/93 26198.87 22705.34 06/30/93 27021.37 22771.19 07/31/93 28032.65 22680.10 08/31/93 30419.27 23539.68 09/30/93 31147.39 23358.43 10/31/93 33480.08 23841.94 11/30/93 31295.15 23615.45 12/31/93 32626.92 23901.19 01/31/94 33092.24 24713.83 02/28/94 32667.98 24044.09 03/31/94 30669.86 22995.77 04/30/94 30684.73 23290.11 05/31/94 31813.18 23672.07 06/30/94 31102.10 23092.10 07/31/94 31859.56 23849.53 08/31/94 33776.39 24827.36 Let's say you invested $10,000 in Fidelity Select Multimedia Portfolio on June 30, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $33,776 - a 237.76% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,827 over the same period - a 148.27% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Scientific-Atlanta, Inc. 7.6 General Instrument Corp. 6.4 Capital Cities/ABC, Inc. 4.8 Houghton Mifflin Co. 4.5 Pulitzer Publishing Co. 4.2 Meredith Corp. 3.9 Viacom, Inc. (non-vtg.) 3.4 Time Warner, Inc. 3.3 People's Choice TV Corp. 3.2 Scripps (E.W.) Co. Class A 3.2 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 39.4 Row: 1, Col: 2, Value: 8.199999999999999 Row: 1, Col: 3, Value: 10.5 Row: 1, Col: 4, Value: 12.4 Row: 1, Col: 5, Value: 14.4 Row: 1, Col: 6, Value: 15.1 Newspapers 15.1% Cable TV Operators 14.4% Television Broadcasting 12.4% TV & Radio Communication Equipment 10.5% Book Publishing & Printing 8.2% All Others 39.4%* * INCLUDES SHORT-TERM INVESTMENTS MULTIMEDIA PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Steve DuFour, Portfolio Manager of Fidelity Select Multimedia Portfolio Q. STEVE, HOW HAS THE FUND PERFORMED? A. Pretty well. For the six months ended August 31, 1994, the fund had a total return of 3.39%, and for the year ended August 31, the fund returned 11.04%. The six month number edged the S&P 500's six-month return of 3.26%, while the one-year performance topped the S&P 500, which finished the period up 5.47%. Q. WHAT HAS YOUR STRATEGY BEEN THE PAST SIX MONTHS? A. I've been concentrating on companies that supply cable and other types of distribution equipment, such as Scientific-Atlanta, General Instrument and Itel. The multimedia industry is undergoing major changes, as seen through the large number of successful and attempted joint ventures or mergers. Cable and telephone companies are racing to be the primary supplier of entertainment and information to U.S. households and businesses. The one product all of the competitors need is distribution equipment. It's like a war, and I view equipment companies as the weapons suppliers. For now, I want to win by owning the weapons dealers, and later I'll make a bet on who will win the war. Q. WHO ARE THE COMPETING SIDES IN THE WAR? A. Cable companies, satellite companies, wireless cable companies and - probably within the next year - Regional Bell (telephone) Operating Companies (RBOCs). Cable company stocks are down this year for two reasons. First, the FCC rolled back rates 7% in February. Second, there was the influence of the failure of the Bell Atlantic/TCI merger. Q. WHAT WILL HAPPEN IF THE RBOCS ARE ALLOWED TO PROVIDE CABLE AS WELL AS TELEPHONE SERVICES? A. There will be serious competition between the RBOCs and existing cable providers. On the one hand, the telephone system is the best in the world, and customers may gravitate toward phone companies because they historically have provided good service. On the other hand, cable operators have a larger piece of pie to go after since telephone service is a $100 billion business while cable is only a $30 billion business. Again, some investors are betting on who will win this battle, but I'm focusing the fund's holdings on the few companies that should benefit from supplying the equipment. Q. WHAT IS WIRELESS CABLE? A. Wireless cable companies can control 33 channels in every market. They put up towers, broadcast a signal in microwave, and install home antennas that receive and convert the signal. Unlike conventional cable, homes don't have to be wired. The largest wireless cable operator is People's Choice TV, one of the fund's top 10 investments. Q. WHAT OTHER CHANGES HAVE YOU MADE IN THE PORTFOLIO? A. I've reduced the fund's investments in newspaper companies and added to its investments in broadcasting stocks. While advertising lineage is still strong, newsprint prices are rising and are expected to rise more. Viacom is a diversified broadcasting and entertainment stock new to the top 10. The company borrowed a lot to buy Paramount, but has done a good job selling non-strategic assets - such as Madison Square Garden - to help pay off the debt. Q. WHAT STOCKS HAVE DISAPPOINTED? A. Well, I removed Gannett from the top 10 and Times Mirror from the fund because of mediocre advertising revenue performance and the newsprint situation. Houghton Mifflin, the textbook publisher, was another disappointment. The company had a big opportunity in California, but its proposal for new textbooks was rejected there. The problem with textbook stocks is that one has to place a bet that a book design will get adopted and that states will have the money to buy the new book. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. There are three ways to play the multimedia game. First is content, for instance developing a hit movie and then profiting from its distribution. These stocks are expensive at the moment. The second way is providing the distribution. Here is where cable fits in, but as I've said, these stocks have been hurt by new regulation. Finally, there is equipment. For now, I will continue my focus on equipment, because everyone needs it. FUND FACTS START DATE: June 30, 1986 SIZE: as of August 31, 1994, more than $28 million MANAGER: Stephen DuFour, since July 1993; equity analyst, media, 1992-1993; joined Fidelity in 1992 (checkmark) MULTIMEDIA PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 91.2% SHARES VALUE (NOTE 1) ADVERTISING - 1.0% ADVERTISING AGENCIES - 1.0% ADVO-Systems, Inc. 16,400 $ 295,197 BROADCASTING - 26.8% CABLE TV OPERATORS - 14.4% ACS Enterprises, Inc. (a) 52,000 630,500 American Telecasting, Inc. (a) 5,800 85,550 CAI Wireless Systems, Inc. (a) 500 5,500 Cablemaxx, Inc. (a) 14,000 101,500 Comcast Corp. Class A (Special) 19,600 313,600 People's Choice TV Corp. (a) 40,000 920,000 Preferred Entertainment, Inc. (a) 2,000 33,500 Tele Communications, Inc. Class A (a) 4,700 106,044 Time Warner, Inc. 25,126 957,929 Viacom, Inc. (non-vtg.) (a) 29,100 960,300 4,114,423 TELEVISION BROADCASTING - 12.4% CBS, Inc. 1,200 385,650 Capital Cities/ABC, Inc. 16,500 1,383,938 Groupo Televisa GDS (b) 10,000 586,250 Heritage Media Corp. Class A (a) 23,900 519,825 Multimedia, Inc. (a) 10,000 312,500 Scandinavian Broadcasting Corp. (a) 14,000 371,000 3,559,163 TOTAL BROADCASTING 7,673,586 CELLULAR - 4.6% CELLULAR & COMMUNICATION SERVICES - 4.6% Airtouch Communications (a) 5,000 141,250 Nextel Communications, Inc. Class A (a) 10,000 261,250 Rogers Communications, Inc. Class B (a) 14,700 247,321 Vodafone Group PLC sponsored ADR 20,400 652,800 1,302,621 COMMUNICATIONS EQUIPMENT - 6.4% TELEPHONE INTERCONNECT SYSTEMS - 6.4% General Instrument Corp. (a) 60,000 1,830,000 COMPUTER SERVICES & SOFTWARE - 1.6% PREPACKAGED COMPUTER SOFTWARE - 1.6% Electronic Arts, Inc. (a) 25,000 443,750 COMPUTERS & OFFICE EQUIPMENT - 0.9% GRAPHICS WORKSTATIONS - 0.9% Silicon Graphics, Inc. (a) 10,000 262,500 ELECTRICAL EQUIPMENT - 12.9% ELECTRICAL EQUIPMENT - WHOLESALE - 2.4% Itel Corp. (a) 20,200 696,900 TV & RADIO COMMUNICATION EQUIPMENT - 10.5% California Amplifier, Inc. (a) 189,200 851,400 Scientific-Atlanta, Inc. 48,300 2,161,425 3,012,825 TOTAL ELECTRICAL EQUIPMENT 3,709,725 ENGINEERING - 2.0% WATER & SEWER PIPES - 2.0% Glenayre Technologies, Inc. (a) 10,000 567,500 SHARES VALUE (NOTE 1) ENTERTAINMENT - 2.1% MOTION PICTURE PRODUCTION - 2.1% Alliance Communications Corp. (a) 25,000 $ 253,740 Disney (Walt) Co. 8,300 341,338 595,078 MEDICAL FACILITIES MANAGEMENT - 0.0% HEALTH SERVICES - 0.0% Lambert Communications, Inc. (a) 150,000 4,688 PUBLISHING - 29.8% BOOK PUBLISHING & PRINTING - 8.2% Houghton Mifflin Co. 30,100 1,301,825 McGraw-Hill, Inc. 10,000 696,250 Nelson Thomas, Inc. 18,500 342,250 2,340,325 GREETING CARDS - 1.1% American Greetings Corp. Class A 10,200 306,000 NEWSPAPERS - 15.1% American Publishing Co. Class A 30,000 412,500 Dow Jones & Co Inc. 10,000 317,500 Gannett Co., Inc. 6,900 345,000 McClatchy Newspapers, Inc. Class A 25,000 650,000 Pulitzer Publishing Co. 32,200 1,211,525 Scripps (E.W.) Co. Class A 31,000 902,875 Washington Post Co. Class B 2,000 468,000 4,307,400 PERIODICALS - 5.4% Enquirer/Star Group, Inc. Class A 26,700 443,888 Meredith Corp. 23,000 1,109,750 1,553,638 TOTAL PUBLISHING 8,507,363 SERVICES - 1.8% BUSINESS SERVICES - 0.9% Catalina Marketing Corp. (a) 5,000 257,500 GENERAL SERVICES - 0.9% Flextech PLC 40,000 263,943 TOTAL SERVICES 521,443 TELEPHONE SERVICES - 1.3% NYNEX Corp. 10,000 386,250 TOTAL COMMON STOCKS (Cost $24,455,587) 26,099,701 CONVERTIBLE PREFERRED STOCKS - 0.1% CREDIT & OTHER FINANCE - 0.1% FINANCIAL SERVICES - 0.1% Benpress Holdings Corp. 4.20% (b) (Cost $13,544) 9 33,793 REPURCHASE AGREEMENTS - 8.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 2,494,334 $ 2,494,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $26,963,131) $ 28,627,494 LEGEND 1. Non-income producing 2. 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 $620,043 or 2.1% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $13,386,892 and $33,611,058, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $6,411 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $3,305,000 and $2,996,000, respectively. The weighted average interest rate paid was 4.3% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $27,134,582. Net unrealized appreciation aggregated $1,492,912, of which $3,453,720 related to appreciated investment securities and $1,960,808 related to depreciated investment securities. MULTIMEDIA PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $2,494,000) (cost $26,963,131) - See $ 28,627,494 accompanying schedule Cash 998 Receivable for investments sold 844,513 Receivable for fund shares sold 560,241 Dividends receivable 20,449 Redemption fees receivable 87 Other receivables 456 Prepaid expenses 12,655 TOTAL ASSETS 30,066,893 LIABILITIES Payable for investments purchased $ 673,815 Payable for fund shares redeemed 388,921 Accrued management fee 14,225 Other payables and accrued expenses 46,938 TOTAL LIABILITIES 1,123,899 NET ASSETS $ 28,942,994 Net Assets consist of: Paid in capital $ 27,879,209 Accumulated net investment (loss) (136,144 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (464,434 ) Net unrealized appreciation (depreciation) on investments 1,664,363 NET ASSETS, for 1,324,520 shares outstanding $ 28,942,994 NET ASSET VALUE and redemption price per share ($28,942,994 (divided by) shares) $21.85 Maximum offering price per share (100/97 of $21.85) $22.53
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 142,439 Dividends Interest 48,658 TOTAL INCOME 191,097 EXPENSES Management fee $ 107,156 Transfer agent 184,821 Fees Redemption fees (15,220 ) Accounting fees and expenses 23,037 Non-interested trustees' compensation 114 Custodian fees and expenses 7,027 Registration fees 12,655 Audit 11,298 Legal 754 Interest 1,418 Reports to shareholders 1,339 Miscellaneous 105 Total expenses before reductions 334,504 Expense reductions (4,253 330,251 ) NET INVESTMENT INCOME (LOSS) (139,154 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (64,195 ) Foreign currency transactions (18 (64,213 ) ) Change in net unrealized appreciation (depreciation) on investment securities (587,318 ) NET GAIN (LOSS) (651,531 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (790,685 ) OTHER INFORMATION $103,417 Sales Charges Paid to FDC Deferred sales charges withheld $2,257 by FDC Exchange fees withheld by FSC $11,250
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (139,154 $ (263,237 Net investment income (loss) ) ) Net realized gain (loss) (64,213 10,978,209 ) Change in net unrealized appreciation (depreciation) (587,318 135,110 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (790,685 10,850,082 ) Distributions to shareholders from net realized gain (4,930,202 (1,336,869 ) ) Share transactions 15,846,786 242,015,079 Net proceeds from sales of shares Reinvestment of distributions 4,888,285 1,323,568 Cost of shares redeemed (35,279,740 (220,542,573 ) ) Paid in capital portion of redemption fees 31,948 219,824 Net increase (decrease) in net assets resulting from share transactions (14,512,721 23,015,898 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (20,233,608 32,529,111 ) NET ASSETS Beginning of period 49,176,602 16,647,491 End of period (including undistributed net investment income (loss) of $(136,144) and $3,010, respectively) $ 28,942,994 $ 49,176,602 OTHER INFORMATION Shares Sold 733,743 10,652,395 Issued in reinvestment of distributions 252,214 60,047 Redeemed (1,721,700 (9,563,667 ) ) Net increase (decrease) (735,743 1,148,775 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 23.87 $ 18.26 $ 15.93 $ 12.96 $ 11.65 $ 16.20 Income from Investment Operations Net investment income (loss) (.09) (.10) (.07) (.17) (.05) (.02)G Net realized and unrealized gain (loss) .56F 6.28 2.61 3.08 1.29 (1.96) Total from investment operations .47 6.18 2.54 2.91 1.24 (1.98) Less Distributions From net realized gain (2.51) (.65) (.23) - - (2.57) Redemption fees added to paid in capital .02 .08 .02 .06 .07 - Net asset value, end of period $ 21.85 $ 23.87 $ 18.26 $ 15.93 $ 12.96 $ 11.65 TOTAL RETURND, E 3.39% 34.86% 16.14% 22.92% 11.24% (15.32)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 28,943 $ 49,177 $ 16,647 $ 8,393 $ 5,177 $ 7,400 Ratio of expenses to average net assetsB 1.88%A 1.63% 2.49%A 2.49% 2.53% 2.51% Ratio of expenses to average net assets before 1.91%A 1.66% 2.54%A 2.78% 2.77% 2.51% expense reductionsB Ratio of net investment income (loss) to average net (.79)% (.42)% (.52)% (1.22)% (.43)% (.14)% assets A A Portfolio turnover rate 84%A 340% 70%A 111% 150% 75%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. G INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.05 PER SHARE. RETAILING PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S RETAILING 2.85% 8.20% 113.29% 318.19% RETAILING (INCL. 3% SALES CHARGE) -0.24% 4.95% 106.89% 305.64% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND RETAILING 8.20% 16.36% 17.84% RETAILING (INCL. 3% SALES CHARGE) 4.95% 15.65% 17.43% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Retail (046) Standard & Poo 12/16/85 9700.00 10000.00 12/31/85 9506.00 10080.42 01/31/86 9583.60 10136.87 02/28/86 10252.90 10895.11 03/31/86 11174.40 11503.06 04/30/86 11378.10 11373.07 05/31/86 12668.20 11978.12 06/30/86 12978.60 12180.55 07/31/86 11271.40 11499.66 08/31/86 11271.40 12352.93 09/30/86 10446.90 11331.35 10/31/86 11368.40 11985.16 11/30/86 11678.80 12276.40 12/31/86 10854.30 11963.36 01/31/87 11756.40 13574.82 02/28/87 13124.10 14111.03 03/31/87 13521.80 14518.83 04/30/87 13104.70 14389.62 05/31/87 13337.50 14514.81 06/30/87 14065.00 15247.80 07/31/87 14773.10 16020.87 08/31/87 15102.90 16618.45 09/30/87 14026.20 16254.50 10/31/87 9835.80 12753.28 11/30/87 9156.80 11702.41 12/31/87 10055.28 12592.97 01/31/88 10690.46 13123.13 02/29/88 11928.53 13734.67 03/31/88 12079.25 13310.27 04/30/88 12456.05 13458.01 05/31/88 12100.78 13575.09 06/30/88 13166.60 14198.19 07/31/88 13048.17 14144.24 08/31/88 13015.88 13663.33 09/30/88 13780.25 14245.39 10/31/88 14070.93 14641.41 11/30/88 13877.14 14432.04 12/31/88 13947.19 14684.60 01/31/89 14636.89 15759.52 02/28/89 14439.83 15367.10 03/31/89 15129.53 15725.16 04/30/89 15983.44 16541.29 05/31/89 17089.14 17211.21 06/30/89 16784.91 17113.11 07/31/89 18138.53 18658.42 08/31/89 19018.38 19024.13 09/30/89 18973.26 18946.13 10/31/89 18059.57 18506.58 11/30/89 18172.37 18884.12 12/31/89 18065.93 19337.33 01/31/90 16654.94 18039.80 02/28/90 17235.16 18272.51 03/31/90 18646.15 18756.73 04/30/90 18382.41 18287.82 05/31/90 20835.16 20070.88 06/30/90 20571.42 19934.40 07/31/90 19727.47 19870.61 08/31/90 16892.30 18074.30 09/30/90 15006.59 17194.08 10/31/90 14307.69 17120.15 11/30/90 16259.34 18226.11 12/31/90 17157.07 18734.62 01/31/91 18822.55 19551.45 02/28/91 20567.33 20949.38 03/31/91 22708.66 21456.35 04/30/91 23025.90 21507.85 05/31/91 24942.52 22436.99 06/30/91 24149.43 21409.37 07/31/91 25695.95 22407.05 08/31/91 27057.41 22938.10 09/30/91 26766.61 22555.03 10/31/91 26264.32 22857.27 11/30/91 25762.04 21936.12 12/31/91 28846.72 24445.61 01/31/92 30446.30 23990.92 02/29/92 31910.33 24302.81 03/31/92 31273.21 23828.90 04/30/92 29998.96 24529.47 05/31/92 30622.53 24649.67 06/30/92 29193.11 24282.39 07/31/92 30491.83 25275.53 08/31/92 29800.12 24757.39 09/30/92 30689.47 25049.52 10/31/92 32792.84 25137.20 11/30/92 35277.36 25994.38 12/31/92 35215.02 26314.11 01/31/93 35457.98 26535.14 02/28/93 34114.55 26896.02 03/31/93 36744.24 27463.53 04/30/93 34635.21 26798.91 05/31/93 36553.70 27517.12 06/30/93 35675.00 27596.92 07/31/93 35850.74 27486.53 08/31/93 37490.97 28528.27 09/30/93 38633.27 28308.61 10/31/93 39233.71 28894.59 11/30/93 39614.48 28620.10 12/31/93 39804.09 28966.40 01/31/94 38030.79 29951.26 02/28/94 39439.93 29139.58 03/31/94 38616.61 27869.09 04/30/94 39788.25 28225.82 05/31/94 37824.97 28688.72 06/30/94 37508.31 27985.85 07/31/94 38141.62 28903.78 08/31/94 40564.07 30088.84 Let's say you invested $10,000 in Fidelity Select Retailing Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $40,564 - a 305.64% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS AnnTaylor Stores Corp. 6.7 Sears, Roebuck & Co. 6.1 Gap, Inc. 4.5 Burlington Coat Factory Warehouse Corp. 3.3 Lowe's Companies, Inc. 3.2 Filene's Basement Corp. 3.0 Carson Pirie Scott & Co. 2.9 Circuit City Stores, Inc. 2.7 Cygne Designs, Inc. 2.2 Sunglass Hut International, Inc. 1.7 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 52.1 Row: 1, Col: 2, Value: 4.4 Row: 1, Col: 3, Value: 6.0 Row: 1, Col: 4, Value: 10.2 Row: 1, Col: 5, Value: 13.3 Row: 1, Col: 6, Value: 14.0 General Apparel Stores 14.0% Department Stores 13.3% Women's Clothing Stores 10.2% Music, TV, & Electronic Stores 6.0% Drug Stores 4.4% All Others 52.1%* * INCLUDES SHORT-TERM INVESTMENTS RETAILING PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Jeff Feinberg, Portfolio Manager of Fidelity Select Retailing Portfolio Q. JEFF, HOW HAS THE FUND PERFORMED? A. For the six months ended August 31, 1994, the fund had a total return of 2. 85%, and for the year ended August 31, the fund returned 8. 20%. The S&P 500 returned 3. 26% and 5. 47% for six months and one year, respectively. Q. WHAT FACTORS HAVE AFFECTED THE RETAILING ENVIRONMENT? A. Because there was a big boom in the construction of malls and strip malls in the 1980s, there is now an over-supply of retail stores. As a result of such heightened competition, retailers are now unable to increase their prices the way they could in the 1980s. Therefore, retail companies must differentiate themselves from their competition on the basis of breadth of assortment, value and superior service offered to their customers in order to survive and thrive. In addition, I expect the recent rise in interest rates will shift the consumer's focus away from big ticket items like major appliances, and toward soft goods, especially apparel. Q. WHAT HAS BEEN YOUR STRATEGY SINCE YOU TOOK OVER IN FEBRUARY? A. I tended to focus on specialty retailers, but it's still a stock picker's market. I gravitated toward retailers who put themselves in the place of the customer and focused on three aspects: the price/value relationship, or selling a product at a price the customer feels is fair given its quality; customer service; and store appearance. Q. WHAT ARE SOME EXAMPLES? A. AnnTaylor, Lowe's and The Gap - all members of the fund's top 10 - are companies well aware of the price/value relationship. AnnTaylor has attracted customers by cutting prices while increasing the quality of its goods. It is growing square footage at a healthy 30% per year and sales in its existing stores are also increasing rapidly. Lowe's also reduced all of its prices a few years ago and simultaneously has upgraded its product quality. Its new stores are as physically attractive as those of Home Depot's. Q. WHAT COMPANIES ARE FOCUSING ON CUSTOMER SERVICE AND STORE APPEARANCE? A. Best Buy, a consumer appliance retailer, offers low prices and no-pressure sales. Customers serve themselves, but can get help at answer centers, because research shows customers want to be left alone. Target, a part of the Dayton/Hudson group, also has very attractive stores. Sears has been working very hard at improving store appearance dramatically, and is attractive because its stock price is incredibly cheap in relationship to its potential earning power. I believe Sears' strategies - remodeling its stores, expanding its apparel assortment, advertising more heavily and acquiring new brands- are correct and that management can execute them successfully. Q. WERE THERE ANY DISAPPOINTMENTS? A. Sure. Hechinger's, a lumber and building materials company, is a stock the fund owned for a while, but not as of August 31. Its sales didn't materialize as I had thought they would. I also invested in Chico's, a specialty apparel company, whose stock was cheap because the company had surplus inventory. Unfortunately, the company tried to rectify the situation by not purchasing new merchandise, instead of selling the overstock at a fair price and liquidating it. Sales dropped when customers weren't satisfied by the same, recycled products. The fund was out of the stock at the end of the period. Q. THE FUND'S ASSETS GREW SUBSTANTIALLY, THEN DROPPED DURING THE PERIOD. WHAT HAPPENED AND HOW DID IT AFFECT THE FUND? A. A small group of investors made a substantial purchase of fund shares and then redeemed them, hoping to time the market. This move made it harder to manage the fund, but it had virtually no impact on its performance. Q. WHAT DO YOU SEE HAPPENING IN THE RETAILING INDUSTRY OVER THE NEXT SIX MONTHS? A. I believe the industry will continue to contend with an over-supply of store locations. At the same time, demand doesn't seem to be improving, because interest rates and taxes are going up, and consumer confidence seems to be flagging because there has only been a modest growth in disposable income. There will be a big disparity between those companies that will win by doing things right and continuing to improve- with the correct price/value relationship, customer service and physical appearance - - and those who lose out by failing to respond to the needs and desires of the consumer. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $58 million FUND MANAGER: Jeff Feinberg, since February 1994; equity analyst, footwear and specialty retail industries, 1992-1994; joined Fidelity in 1992 (checkmark) RETAILING PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 85.1% SHARES VALUE (NOTE 1) APPAREL STORES - 24.8% GENERAL APPAREL STORES - 14.0% BON-TON Stores, Inc. (a) 40,700 $ 412,088 Burlington Coat Factory Warehouse Corp. (a) 78,000 1,881,750 Filene's Basement Corp. (a) 151,900 1,737,356 Gap, Inc. 60,000 2,580,000 Gymboree Corp. (a) 24,800 632,400 Ross Stores, Inc. 51,300 833,625 8,077,219 MEN'S & BOYS' CLOTHING STORES - RETAIL - 1.1% Todays Man, Inc. (a) 50,000 650,000 SHOE STORES - 0.7% Baker (J.), Inc. 20,000 407,500 WOMEN'S CLOTHING STORES - 9.0% AnnTaylor Stores Corp. (a) 93,700 3,876,838 Cato Corp. Class A 34,000 365,500 One Price Clothing Stores, Inc. (a) 24,250 372,844 Talbots, Inc. 17,000 605,625 5,220,807 TOTAL APPAREL STORES 14,355,526 AUTOS, TIRES, & ACCESSORIES - 1.3% AUTO PARTS - RETAIL - 1.0% Pep Boys-Manny, Moe & Jack 16,000 558,000 GAS & AUTO SERVICE - RETAIL - 0.3% Uni Marts, Inc. 39,600 202,950 TOTAL AUTOS, TIRES, & ACCESSORIES 760,950 CONSUMER ELECTRONICS - 0.8% WATCHES & CLOCKS - 0.8% Fossil, Inc. (a) 20,000 465,000 DRUG STORES - 4.4% General Nutrition Companies, Inc. (a) 22,000 496,375 Genovese Drug Stores, Inc. Class A 30,300 344,663 Perry Drug Stores, Inc. (a) 83,800 471,375 Revco (D.S.), Inc. (a) 36,400 696,150 Rite Aid Corporation 25,000 515,625 2,524,188 ELECTRICAL EQUIPMENT - 0.9% WIRING & LIGHTING - 0.9% Catalina Lighting, Inc. (a) 45,500 517,563 GENERAL MERCHANDISE STORES - 18.8% CONVENIENCE STORES - 0.4% Dairy Mart Convenience Stores, Inc. (a): Class A 40,000 160,000 Class B 35,000 91,875 251,875 DEPARTMENT STORES - 13.3% Aoyama Trading Co. Ord. 2,900 112,874 Broadway Stores, Inc. (a) 40,000 480,000 Carson Pirie Scott & Co. (a) 81,900 1,668,713 Dillard Department Stores, Inc. Class A 19,000 532,000 Federated Department Stores, Inc. (a) 25,000 528,125 Mercantile Stores Co., Inc. 9,700 363,750 Sears, Roebuck & Co. 74,800 3,543,646 Younkers, Inc. (a) 25,300 455,400 7,684,508 SHARES VALUE (NOTE 1) GENERAL MERCHANDISE STORES - 2.6% Cifra SA, Class C 180,000 $ 485,525 Dayton Hudson Corp. 6,000 508,500 Hornbach Baumarket AG (Bearer) 850 483,718 1,477,743 VARIETY STORES - 2.5% Consolidated Stores Corp. (a) 21,500 354,750 Freds, Inc. Class A 25,000 293,750 Mac Frugals Bargains C/O, Inc. 42,000 792,750 1,441,250 TOTAL GENERAL MERCHANDISE STORES 10,855,376 GROCERY STORES - 0.9% GROCERY - RETAIL - 0.9% Kroger Co. (The) (a) 20,000 507,500 HOME FURNISHINGS - 2.0% FURNITURE STORES - 2.0% Levitz Furniture, Inc. (a) 66,600 624,375 Rhodes, Inc. (a) 55,000 550,000 1,174,375 TOTAL HOME FURNISHINGS 1,174,375 HOUSEHOLD PRODUCTS - 0.8% COSMETICS - 0.8% Alberto-Culver Co. Class A 22,000 481,250 LEISURE DURABLES & TOYS - 2.8% BOAT DEALERS - RETAIL - 1.0% West Marine, Inc. (a) 29,500 575,250 LEISURE DURABLES - 0.8% National R V Holdings, Inc. 50,000 450,000 SPORTING & ATHLETIC GOODS - 1.0% Leslie's Poolmart 43,670 562,251 TOTAL LEISURE DURABLES & TOYS 1,587,501 REAL ESTATE INVESTMENT TRUSTS - 0.9% Chelsea GCA Realty, Inc. 19,000 534,375 RETAIL & WHOLESALE, MISCELLANEOUS - 19.9% DURABLE GOODS - WHOLESALE - 0.9% Waban, Inc. (a) 28,000 518,000 GIFT, NOVELTY & SOUVENIR SHOPS - 1.1% Cole National Corp. Class A (a) 53,000 655,875 JEWELRY STORES - 1.1% Friedmans, Inc. Class A (a) 42,100 626,238 LUMBER & BUILDING MATERIALS - RETA - 4.0% Lowe's Companies, Inc. 51,300 1,853,213 Payless Cashways, Inc. (a) 35,000 437,500 2,290,713 MAIL ORDER - 1.8% Damark International, Inc. Class A (a) 25,000 246,875 Lillian Vernon Corp. 14,500 288,188 Spiegel, Inc. Class A 27,700 536,688 1,071,751 MUSIC, TV, & ELECTRONIC STORES - 6.0% Best Buy Co., Inc. (a) 22,800 812,250 Circuit City Stores, Inc. 64,600 1,534,250 Futures Shops Ltd. (a) 26,700 454,098 Rex Stores Corp. (a) 39,600 663,300 3,463,898 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) RETAIL, GENERAL - 4.1% Office Depot, Inc. (a) 13,650 $ 324,188 Pier 1 Imports, Inc. 65,000 528,125 Staples, Inc. 17,500 538,125 Sunglass Hut International, Inc. (a) 26,000 975,000 2,365,438 SEWING STORES - 0.9% Fabri-Centers of America, Inc. 36,000 540,000 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 11,531,913 SERVICES - 0.7% GENERAL SERVICES - 0.7% Regis Corporation (a) 31,400 416,050 TEXTILES & APPAREL - 6.1% APPAREL - 2.9% Cygne Designs, Inc. (a) 47,300 1,265,275 Fila Holding Spa sponsored ADR 23,100 395,588 1,660,863 FOOTWEAR - 2.4% K-Swiss, Inc. Class A 2,400 52,800 NIKE, Inc. Class B 8,500 547,188 Nine West Group, Inc. (a) 9,100 257,075 Reebok International Ltd. 15,000 545,625 1,402,688 MEN'S AND BOYS' CLOTHING - 0.8% Salant Corp. (a) 84,000 441,000 TOTAL TEXTILES & APPAREL 3,504,551 TOTAL COMMON STOCKS (Cost $45,373,645) 49,216,118 NONCONVERTIBLE PREFERRED STOCKS - 1.2% APPAREL STORES - 1.2% WOMEN'S CLOTHING STORES - 1.2% Dylex Limited Partnership Class A (Cost $640,761) 1,150,000 723,454 REPURCHASE AGREEMENTS - 13.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 7,900,060 7,899,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $53,913,406) $ 57,838,572 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $188,488,473 and $169,691,683, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $119,724 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $525,000 and $546,000, respectively (see Note 7 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $23,218,000 and $4,482,786, respectively. The weighted average interest rate paid was 4.6% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $53,949,499. Net unrealized appreciation aggregated $3,889,073, of which $5,135,192 related to appreciated investment securities and $1,246,119 related to depreciated investment securities. RETAILING PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $7,899,000) (cost $53,913,406) - - See $ 57,838,572 accompanying schedule Cash 667 Receivable for investments sold 3,042,900 Receivable for fund shares sold 1,062,964 Dividends receivable 51,235 Redemption fees receivable 113 Other receivables 6,029 Prepaid expenses 28,472 TOTAL ASSETS 62,030,952 LIABILITIES Payable for investments purchased $ 2,400,517 Payable for fund shares redeemed 663,468 Accrued management fee 26,977 Other payables and accrued expenses 63,531 Collateral on securities loaned, 546,000 at value TOTAL LIABILITIES 3,700,493 NET ASSETS $ 58,330,459 Net Assets consist of: Paid in capital $ 59,845,457 Accumulated net investment (loss) (181,135 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (5,258,186 ) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 3,924,323 NET ASSETS, for 2,276,962 shares outstanding $ 58,330,459 NET ASSET VALUE and redemption price per share ($58,330,459 (divided by) shares) $25.62 Maximum offering price per share (100/97 of $25.62) $26.41
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 351,394 Dividends Interest (including security lending fees of $12,958) 173,527 TOTAL INCOME 524,921 EXPENSES Management fee $ 243,501 Transfer agent 473,837 Fees Redemption fees (76,389 ) Accounting and security 40,748 lending fees Non-interested trustees' compensation 226 Custodian fees and expenses 7,557 Registration fees 28,472 Audit 11,140 Legal 821 Interest 10,243 Reports to shareholders 3,881 Miscellaneous 81 Total expenses before reductions 744,118 Expense reductions (38,062 706,056 ) NET INVESTMENT INCOME (LOSS) (181,135 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (5,119,550 ) Foreign currency transactions 214 (5,119,336 ) Change in net unrealized appreciation (depreciation) on: Investment securities 600,814 Assets and liabilities in foreign currencies (843 599,971 ) NET GAIN (LOSS) (4,519,365 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,700,500 ) OTHER INFORMATION $261,045 Sales Charges Paid to FDC Deferred sales charges withheld $1,512 by FDC Exchange fees withheld by FSC $56,033
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (181,135 $ (499,992 Net investment income (loss) ) ) Net realized gain (loss) (5,119,336 8,382,130 ) Change in net unrealized appreciation (depreciation) 599,971 (727,175 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,700,500 7,154,963 ) Distributions to shareholders from net realized gain - (7,142,724 ) Share transactions 151,917,304 83,392,727 Net proceeds from sales of shares Reinvestment of distributions - 7,020,042 Cost of shares redeemed (142,010,448 (112,598,899 ) ) Paid in capital portion of redemption fees 333,971 86,108 Net increase (decrease) in net assets resulting from share transactions 10,240,827 (22,100,022 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 5,540,327 (22,087,783 ) NET ASSETS Beginning of period 52,790,132 74,877,915 End of period (including undistributed net investment income (loss) of $(181,135) and $0, respectively) $ 58,330,459 $ 52,790,132 OTHER INFORMATION Shares Sold 6,006,759 3,246,217 Issued in reinvestment of distributions - 282,598 Redeemed (5,848,836 (4,546,561 ) ) Net increase (decrease) 157,923 (1,017,746 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 24.91 $ 23.87 $ 22.13 $ 17.42 $ 13.94 $ 14.60 Income from Investment Operations Net investment income (loss) (.06) (.22) (.08) (.03) (.05) .32F Net realized and unrealized gain (loss) .66G 3.85 2.93 5.09 3.43 1.72 Total from investment operations .60 3.63 2.85 5.06 3.38 2.04 Less Distributions From net investment income - - - - - (.16) From net realized gain - (2.63) (1.17) (.50) (.03) (2.57) Total distributions - (2.63) (1.17) (.50) (.03) (2.73) Redemption fees added to paid in capital .11 .04 .06 .15 .13 .03 Net asset value, end of period $ 25.62 $ 24.91 $ 23.87 $ 22.13 $ 17.42 $ 13.94 TOTAL RETURND, E 2.85% 15.61% 13.72% 30.28% 25.26% 15.01% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 58,330 $ 52,790 $ 74,878 $ 48,441 $ 18,069 $ 8,451 Ratio of expenses to average net assetsB 1.79%A 1.83% 1.77%A 1.87% 2.54% 2.50% Ratio of expenses to average net assets before 1.89%A 1.86% 1.77%A 1.87% 2.87% 3.18% expense reductionsB Ratio of net investment income (loss) to average net (.46)% (.87) (.44)% (.13)% (.34)% 2.13% assets A % A Portfolio turnover rate 513%A 154% 171%A 205% 115% 212%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.29 PER SHARE. G THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. AIR TRANSPORTATION PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). If Fidelity had not reimbursed certain fund expenses during the period, the fund's total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S AIR TRANSPORTATION -5.04% 0.91% 31.56% 108.10% AIR TRANSPORTATION (INCL. 3% SALES CHARGE) -7.88% -2.12% 27.61% 101.86% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND AIR TRANSPORTATION 0.91% 5.64% 8.77% AIR TRANSPORTATION (INCL. 3% SALES CHARGE) -2.12% 5.00% 8.39% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Air Transportation (034) Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9215.00 10080.42 01/31/86 9961.90 10136.87 02/28/86 10553.60 10895.11 03/31/86 10573.00 11503.06 04/30/86 10388.70 11373.07 05/31/86 10408.10 11978.12 06/30/86 9826.10 12180.55 07/31/86 9234.40 11499.66 08/31/86 9486.60 12352.93 09/30/86 9680.60 11331.35 10/31/86 10194.70 11985.16 11/30/86 10320.80 12276.40 12/31/86 10485.70 11963.36 01/31/87 11426.60 13574.82 02/28/87 11911.60 14111.03 03/31/87 11504.20 14518.83 04/30/87 11513.90 14389.62 05/31/87 12202.60 14514.81 06/30/87 12357.80 15247.80 07/31/87 12629.40 16020.87 08/31/87 12736.10 16618.45 09/30/87 12270.50 16254.50 10/31/87 8565.10 12753.28 11/30/87 7983.10 11702.41 12/31/87 8319.92 12592.97 01/31/88 8552.87 13123.13 02/29/88 9262.84 13734.67 03/31/88 9662.19 13310.27 04/30/88 9551.26 13458.01 05/31/88 9407.05 13575.09 06/30/88 10616.21 14198.19 07/31/88 10305.60 14144.24 08/31/88 9728.75 13663.33 09/30/88 10372.16 14245.39 10/31/88 10571.84 14641.41 11/30/88 10327.79 14432.04 12/31/88 10738.24 14684.60 01/31/89 11736.63 15759.52 02/28/89 11958.49 15367.10 03/31/89 12557.53 15725.16 04/30/89 13056.72 16541.29 05/31/89 13389.52 17211.21 06/30/89 13322.59 17113.11 07/31/89 14260.64 18658.42 08/31/89 15343.87 19024.13 09/30/89 14740.84 18946.13 10/31/89 13579.44 18506.58 11/30/89 13445.43 18884.12 12/31/89 13565.93 19337.33 01/31/90 12169.78 18039.80 02/28/90 12681.70 18272.51 03/31/90 13344.87 18756.73 04/30/90 12856.22 18287.82 05/31/90 13752.09 20070.88 06/30/90 13786.99 19934.40 07/31/90 13368.14 19870.61 08/31/90 11250.65 18074.30 09/30/90 10122.09 17194.08 10/31/90 10657.28 17120.15 11/30/90 10494.40 18226.11 12/31/90 11099.40 18734.62 01/31/91 12414.11 19551.45 02/28/91 13810.26 20949.38 03/31/91 13752.09 21456.35 04/30/91 13414.68 21507.85 05/31/91 14205.83 22436.99 06/30/91 13906.29 21409.37 07/31/91 14333.81 22407.05 08/31/91 14155.68 22938.10 09/30/91 13680.66 22555.03 10/31/91 14345.69 22857.27 11/30/91 13704.41 21936.12 12/31/91 15212.61 24445.61 01/31/92 16091.40 23990.92 02/29/92 16815.81 24302.81 03/31/92 15830.13 23828.90 04/30/92 15010.72 24529.47 05/31/92 15212.61 24649.67 06/30/92 14718.62 24282.39 07/31/92 14634.03 25275.53 08/31/92 14017.73 24757.39 09/30/92 14476.93 25049.52 10/31/92 14996.55 25137.20 11/30/92 15359.08 25994.38 12/31/92 16211.75 26314.11 01/31/93 16358.35 26535.14 02/28/93 16614.90 26896.02 03/31/93 18447.43 27463.53 04/30/93 18655.96 26798.91 05/31/93 19721.66 27517.12 06/30/93 18251.73 27596.92 07/31/93 18876.45 27486.53 08/31/93 20003.40 28528.27 09/30/93 19599.17 28308.61 10/31/93 20726.12 28894.59 11/30/93 20775.12 28620.10 12/31/93 21219.10 28966.40 01/31/94 22038.56 29951.26 02/28/94 21256.35 29139.58 03/31/94 20027.15 27869.09 04/30/94 19895.44 28225.82 05/31/94 19063.72 28688.72 06/30/94 18482.83 27985.85 07/31/94 19446.58 28903.78 08/31/94 20185.89 30088.84 Let's say you invested $10,000 in Fidelity Select Air Transportation Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $20,186 - a 101.86% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS KLM Royal Dutch Airlines 8.4 Northwest Airlines Corp. Class A 6.3 SkyWest, Inc. 5.6 Airborne Freight Corp. 5.6 Continental Airlines, Inc. 5.5 Comair Holdings, Inc. 5.4 Atlantic Southeast Airlines, Inc. 5.3 British Airways PLC ADR 4.6 Delta Airlines, Inc. 4.5 AMR Corp. 3.9 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 20.1 Row: 1, Col: 2, Value: 2.4 Row: 1, Col: 3, Value: 4.5 Row: 1, Col: 4, Value: 6.6 Row: 1, Col: 5, Value: 17.3 Row: 1, Col: 6, Value: 49.1 Air Transportation, Major National 49.1% Air Transportation, Regional 17.3% Air Courier Services 6.6% Conglomerates 4.5% Aircraft 2.4% All Others 20.1%* * INCLUDES SHORT-TERM INVESTMENTS AIR TRANSPORTATION PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Brenda Reed, Portfolio Manager of Fidelity Select Air Transportation Portfolio Q. BRENDA, HOW DID THE FUND PERFORM? A. The fund has experienced a setback in 1994, after performing well in 1993. The fund's total return for the six months ended August 31, 1994, was - -5.04%. That trailed the S&P 500, which returned 3.26% during the same period. For the 12 months ended August 31, the fund was up 0.91%, compared to a rise of 5.47% for the S&P 500. Q. WHAT CAUSED THE FUND'S FORTUNE TO CHANGE? A. There were several reasons why performance dropped off. First, the air transportation industry is very cyclically oriented, meaning these stocks tend to rise and fall in step with the economy. When the Federal Reserve Board began raising interest rates earlier this year, investors feared higher rates would slow economic growth. That triggered a sharp sell-off in cyclical stocks, including many of the fund's investments. In part, investor fears were well founded. For example, earnings growth slowed at air freight companies such as Federal Express and Airborne Freight, which hurt their stock performance. Q. WHAT OTHER FACTORS FIGURED IN? A. One of my biggest fears six months ago was that we would see fare wars break out among the major airlines, which limits their ability to raise ticket prices. Sure enough, it happened. Continental and U. S. Air, for example, slashed fares up and down the Atlantic Seaboard. The airlines have made up some of these revenue losses through increased passenger volumes, but the net result is that fare wars have been costly. I think this trend may continue, which is the main reason I've lessened the fund's investments in some of the major airlines such as American (AMR) and United (UAL). In addition, oil prices have been rising lately, which means higher jet fuel prices. That's resulted in the airlines' costs simply not falling as investors had hoped. Q. SIX MONTHS AGO, YOU MENTIONED THAT SEVERAL OF THE SMALLER, REGIONAL AIRLINES WERE ATTRACTIVE INVESTMENTS. HOW DID THEY DO? A. Most of the regional airlines have continued to show excellent earnings growth, as they enter into more partnership agreements with the majors to pick up secondary routes. In addition, they've been insulated from fare wars to some extent because often they're the only airlines flying those shorter routes. However, all of that didn't matter this past spring. Investors weren't discriminating; they sold the stocks of regionals as heavily as those of the majors. But I still believed strongly in the regionals' story, and stocks such as Atlantic Southeast, Comair and SkyWest have bounced back recently. Q. CONSIDERING THE ECONOMIC FEARS HERE IN THE U.S., DID YOU HAVE ANY BETTER LUCK OVERSEAS? A. I did. Dutch airline KLM was the fund's largest investment at the end of August. The company has benefited from the early stages of an economic recovery in Europe. Ridership is up and ticket prices are stabilizing. In addition, the airline's costs have fallen dramatically. KLM's stock has risen accordingly and has been one of the fund's top performers. While British Airways also has benefited from European economic growth, its stock has remained pretty flat over the past six months. But held up against most of the fund's U.S. stocks, that's not bad. Perhaps the fund's most interesting story - and another airline benefiting from overseas exposure - is Northwest Airlines. Q. WHAT HAPPENED WITH NORTHWEST? A. The company went public in March, and I bought its stock at around $14 per share. By August, its share price had risen to about $19. Northwest has a strong international presence - roughly 35% of its revenues are derived from the Far East, a region experiencing strong economic growth. In addition, the company, in large part, was able to sidestep the fare wars problem. It has U.S. hubs in places where many of the low-cost carriers, such as Southwest Airlines, don't fly: Detroit and Minneapolis. Q. WHAT'S YOUR VIEW ON THE NEXT SIX MONTHS? A. Perhaps the biggest question mark is the economy. If it weakens more than expected, airlines will be forced to slash prices to sell seats, which doesn't bode well for the fund. However, Continental recently began pulling back from a half-price sale in some of its markets, which may suggest that the "pricing power" of airlines is strengthening a bit. Another wild card is fuel prices. Worldwide demand for oil seems to be picking up, and new oil supply is limited. That could mean more expensive fuel. As for my strategy, I expect to lean toward those companies that have good exposure to growing economies overseas. Also, I think many of the regional airlines are poised for solid growth. We'll just have to see if the U. S. economy cooperates. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $12 million MANAGER: Brenda Reed, since December 1992; manager, Fidelity Select Automotive Portfolio, since May 1994; joined Fidelity in 1992 (checkmark) AIR TRANSPORTATION PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 85.1% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 2.4% AIRCRAFT - 2.4% Boeing Co. 6,500 $ 295,747 AIR TRANSPORTATION - 66.4% AIR TRANSPORTATION, MAJOR NATIONAL - 49.1% AMR Corp. (a) 7,800 469,950 Aerovias De Mexico SA de CV sponsored ADR representing B shares (a)(b) 15,400 59,675 Air Canada, Inc. (a) 49,200 274,423 Alaska Air Group, Inc. (a) 13,000 230,750 British Airways PLC ADR 8,800 563,200 Cathay Pacific Airways Ltd. 5,400 9,084 Continental Airlines, Inc. (a) 31,400 663,325 Delta Air Lines, Inc. 11,000 547,250 Great Lakes Aviation (a) 29,000 213,875 Japan Airlines Co. Ltd. 21,000 158,862 KLM Royal Dutch Airlines (a) 34,700 1,019,328 Mesa Airlines, Inc. (a) 39,100 298,138 Northwest Airlines Corp. Class A (a) 40,000 760,000 Singapore International Airlines 23,900 224,735 Southwest Airlines Co. 4,800 127,200 UAL Corp. 3,268 330,068 5,949,863 AIR TRANSPORTATION, REGIONAL - 17.3% Amtran, Inc. (a) 13,500 118,125 Atlantic Southeast Airlines, Inc. 22,100 646,425 Comair Holdings, Inc. 24,550 650,575 SkyWest, Inc. 24,550 681,263 2,096,388 TOTAL AIR TRANSPORTATION 8,046,251 CONGLOMERATES - 4.5% Allied-Signal, Inc. 7,500 280,313 Textron, Inc. 4,800 265,200 545,513 ENTERTAINMENT - 1.4% RECREATIONAL SERVICES - 1.4% Airtour PLC 25,000 174,555 OIL & GAS - 2.0% OIL & GAS EXPLORATION - 2.0% British Petroleum PLC ADR 3,140 238,640 TRUCKING & FREIGHT - 8.4% AIR COURIER SERVICES - 6.6% Airborne Freight Corp. 22,100 674,050 Federal Express Corp. (a) 1,700 120,488 794,538 FREIGHT FORWARDING - 1.8% Expeditors International of Washington, Inc. 4,000 81,000 Harper Group 9,000 136,125 217,125 TOTAL TRUCKING & FREIGHT 1,011,663 TOTAL COMMON STOCKS (Cost $9,927,544) 10,312,369 REPURCHASE AGREEMENTS - 14.9% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 1,809,243 $ 1,809,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $11,736,544) $ 12,121,369 LEGEND 1. Non-income producing 2. 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 this security amounted to $59,675 or 0.5% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $5,954,001 and $7,202,327, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $2,072 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $1,349,000 and $1,207,000, respectively. The weighted average interest rate paid was 3.8% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 77.4% Netherlands 8.4 United Kingdom 8.1 Canada 2.3 Singapore 1.9 Japan 1.3 Others (individually less than 1%) 0.6 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $11,774,407. Net unrealized appreciation aggregated $346,962, of which $1,079,183 related to appreciated investment securities and $732,221 related to depreciated investment securities. AIR TRANSPORTATION PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 12,121,369 at value (including repurchase agreements of $1,809,000) (cost $11,736,544) - See accompanying schedule Cash 116 Receivable for fund 371,499 shares sold Dividends receivable 9,343 Redemption fees 15 receivable Other receivables 225 Prepaid expenses 5,615 Receivable from 3,876 investment adviser for expense reductions TOTAL ASSETS 12,512,058 LIABILITIES Payable for fund shares $ 184,542 redeemed Accrued management 6,059 fee Other payables and 30,433 accrued expenses TOTAL LIABILITIES 221,034 NET ASSETS $ 12,291,024 Net Assets consist of: Paid in capital $ 12,086,808 Accumulated net (65,117 investment (loss) ) Accumulated (115,492 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized 384,825 appreciation (depreciation) on investments NET ASSETS, for 803,963 $ 12,291,024 shares outstanding NET ASSET VALUE and $15.29 redemption price per share ($12,291,024 (divided by) shares) Maximum offering price $15.76 per share (100/97 of $15.29)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 33,303 Dividends Interest 19,038 TOTAL INCOME 52,341 EXPENSES Management fee $ 28,568 Transfer agent 67,296 Fees Redemption fees (6,569 ) Accounting fees and 22,519 expenses Non-interested trustees' 28 compensation Custodian fees and 3,433 expenses Registration fees 5,615 Audit 10,382 Legal 186 Interest 251 Reports to shareholders 1,078 Miscellaneous 25 Total expenses before 132,812 reductions Expense reductions (15,354 117,458 ) NET INVESTMENT INCOME (65,117 (LOSS) ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (67,220 ) Foreign currency 73 (67,147 transactions ) Change in net unrealized (245,172 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (312,319 ) NET INCREASE $ (377,436 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $22,408 Sales Charges Paid to FDC Deferred sales $740 charges withheld by FDC Exchange fees $8,243 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (65,117 $ (198,334 Net investment income (loss) ) ) Net realized gain (loss) (67,147 2,844,048 ) Change in net unrealized appreciation (depreciation) (245,172 638,748 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (377,436 3,284,462 ) Distributions to shareholders (529,973 (252,463 From net realized gain ) ) In excess of net realized gain - (52,807 ) TOTAL DISTRIBUTIONS (529,973 (305,270 ) ) Share transactions 10,415,868 74,183,528 Net proceeds from sales of shares Reinvestment of distributions 502,275 292,761 Cost of shares redeemed (8,774,914 (78,501,131 ) ) Paid in capital portion of redemption fees 20,462 212,184 Net increase (decrease) in net assets resulting from share transactions 2,163,691 (3,812,658 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 1,256,282 (833,466 ) NET ASSETS Beginning of period 11,034,742 11,868,208 End of period (including accumulated net investment (loss) of $(65,117) and $0, respectively) $ 12,291,024 $ 11,034,742 OTHER INFORMATION Shares Sold 705,711 4,831,385 Issued in reinvestment of distributions 33,823 17,788 Redeemed (580,209 (5,077,239 ) ) Net increase (decrease) 159,325 (228,066 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 17.12 $ 13.60 $ 12.64 $ 11.53 $ 11.05 $ 11.77 Income from Investment Operations Net investment income (loss) (.11) (.18) (.09)F (.13) (.04) - Net realized and unrealized gain (loss) (.81) 3.78 1.33 1.40 .38 (.16) Total from investment operations (.92) 3.60 1.24 1.27 .34 (.16) Less Distributions From net realized gain (.94) (.22) (.36) (.25) - (.57) In excess of net realized gain - (.05) - - - - Total distributions (.94) (.27) (.36) (.25) - (.57) Redemption fees added to paid in capital .03 .19 .08 .09 .14 .01 Net asset value, end of period $ 15.29 $ 17.12 $ 13.60 $ 12.64 $ 11.53 $ 11.05 TOTAL RETURND, E (5.04)% 27.94% 10.69% 11.90% 4.34% (1.54)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 12,291 $ 11,035 $ 11,868 $ 6,971 $ 4,372 $ 4,688 Ratio of expenses to average net assetsB 2.50%A 2.31% 2.48%A 2.51% 2.48% 2.55% Ratio of expenses to average net assets before 2.83%A 2.33% 2.64%A 3.06% 3.03% 3.61% expense reductionsB Ratio of net investment income (loss) to average net (1.39)% (1.11)% (.90)% (1.04)% (.34)% (.03)% assets A A Portfolio turnover rate 133%A 171% 96%A 261% 106% 143%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.01 PER SHARE. AUTOMOTIVE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S AUTOMOTIVE -10.27% -1.10% 104.37% 189.07% AUTOMOTIVE (INCL. 3% SALES CHARGE) -12.96% -4.07% 98.24% 180.40% S&P 500 3.26% 5.47% 58.16% 148.27% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on June 30, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND AUTOMOTIVE -1.10% 15.37% 13.86% AUTOMOTIVE (INCL. 3% SALES CHARGE) -4.07% 14.67% 13.44% S&P 500 5.47% 9.60% 11.76% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Automotive (502) Standard & Poor's 06/30/86 9700.00 10000.00 07/31/86 9176.20 9488.77 08/31/86 9603.00 10192.84 09/30/86 8943.40 9349.89 10/31/86 9399.30 9889.38 11/30/86 9506.00 10129.69 12/31/86 9341.10 9871.39 01/31/87 10747.60 11201.06 02/28/87 11707.90 11643.50 03/31/87 12028.00 11980.00 04/30/87 12202.60 11873.38 05/31/87 12183.20 11976.68 06/30/87 12367.50 12581.50 07/31/87 13230.80 13219.38 08/31/87 13744.90 13712.46 09/30/87 13541.20 13412.16 10/31/87 9476.90 10523.18 11/30/87 9098.60 9656.07 12/31/87 9952.20 10390.90 01/31/88 10402.71 10828.35 02/29/88 11068.24 11332.96 03/31/88 11866.87 10982.77 04/30/88 12071.65 11104.68 05/31/88 12030.70 11201.29 06/30/88 12726.94 11715.43 07/31/88 12583.60 11670.91 08/31/88 11999.98 11274.10 09/30/88 12051.17 11754.37 10/31/88 11959.02 12081.14 11/30/88 11703.05 11908.38 12/31/88 11948.78 12116.78 01/31/89 12501.68 13003.73 02/28/89 12368.58 12679.94 03/31/89 12604.07 12975.38 04/30/89 13167.21 13648.80 05/31/89 13361.75 14201.58 06/30/89 13126.26 14120.63 07/31/89 13587.01 15395.72 08/31/89 13720.11 15697.48 09/30/89 13402.71 15633.12 10/31/89 12286.67 15270.43 11/30/89 12399.30 15581.95 12/31/89 12438.82 15955.91 01/31/90 12110.37 14885.27 02/28/90 12470.61 15077.29 03/31/90 12936.80 15476.84 04/30/90 12894.42 15089.92 05/31/90 13625.49 16561.19 06/30/90 13869.48 16448.57 07/31/90 13912.46 16395.93 08/31/90 11914.22 14913.74 09/30/90 10775.44 14187.44 10/31/90 10560.58 14126.44 11/30/90 11183.68 15039.00 12/31/90 11602.67 15458.59 01/31/91 12258.00 16132.59 02/28/91 13257.12 17286.07 03/31/91 13364.55 17704.39 04/30/91 13514.96 17746.88 05/31/91 14600.02 18513.55 06/30/91 14567.79 17665.63 07/31/91 15169.41 18488.84 08/31/91 15663.60 18927.03 09/30/91 15201.64 18610.95 10/31/91 15599.14 18860.33 11/30/91 14825.63 18100.26 12/31/91 15933.39 20170.93 01/31/92 17654.69 19795.75 02/29/92 19432.62 20053.10 03/31/92 19851.62 19662.06 04/30/92 21119.95 20240.13 05/31/92 21108.63 20339.30 06/30/92 20983.03 20036.25 07/31/92 21175.85 20855.73 08/31/92 19860.16 20428.19 09/30/92 19531.23 20669.24 10/31/92 20347.87 20741.58 11/30/92 21334.64 21448.87 12/31/92 22564.00 21712.69 01/31/93 23605.95 21895.08 02/28/93 23953.27 22192.85 03/31/93 25238.34 22661.12 04/30/93 25092.52 22112.72 05/31/93 26620.51 22705.34 06/30/93 27086.07 22771.19 07/31/93 27396.45 22680.10 08/31/93 28351.44 23539.68 09/30/93 28649.88 23358.43 10/31/93 29258.69 23841.94 11/30/93 29258.69 23615.45 12/31/93 30548.18 23901.19 01/31/94 32289.58 24713.83 02/28/94 31247.19 24044.09 03/31/94 29052.04 22995.77 04/30/94 28461.30 23290.11 05/31/94 28039.66 23672.07 06/30/94 27680.01 23092.10 07/31/94 28510.91 23849.53 08/31/94 28039.66 24827.36 Let's say you invested $10,000 in Select Automotive Portfolio on June 30, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $28,040 - a 180.40% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,827 over the same period - a 148.27% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Magna International, Inc. Class A 8.6 Echlin, Inc. 8.0 Smith (A.O.) Corp. Class B 7.9 Ford Motor Co. 6.4 Dana Corp. 5.8 General Motors Corp. 5.2 Genuine Parts Co. 4.7 Goodyear Tire & Rubber Co. 4.7 Chrysler Corp. 4.5 Bandag, Inc. 4.5 TOP INDUSTRIES AS OF AUGUST 31, 1994 Durables 80.8% Industrial Machinery & Equment 8.4% Autos & Truck Parts 41.5% Motor Vehicles & Car Bodies 21.0% Tire & Inner Tubes 13.2% Autos & Other Motor Vehicles 4.8% Auto Parts - Retail 4.3% All Others 15.2%* Row: 1, Col: 1, Value: 15.2 Row: 1, Col: 2, Value: 4.3 Row: 1, Col: 3, Value: 4.8 Row: 1, Col: 4, Value: 13.2 Row: 1, Col: 5, Value: 21.0 Row: 1, Col: 6, Value: 41.5 * INCLUDES SHORT-TERM INVESTMENTS AUTOMOTIVE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Brenda Reed, Portfolio Manager of Fidelity Select Automotive Portfolio Q. HOW DID THE FUND DO, BRENDA? A. After performing well in 1993, the fund has seen some rough going in 1994. The fund's total return for the six months ended August 31, 1994, was - -10.27%. That trailed the S&P 500, which returned 3.26% during the same period. For the 12 months ended August 31, the fund returned -1.10%, compared to 5.47% for the index. Q. WHAT CAUSED THE FUND TO TRAIL THE MARKET? A. In two words: economic fears. I took over managing the fund in mid-May, three months after the Federal Reserve Board began raising short-term interest rates. The Fed was attempting to limit future inflation that could be triggered by an improving economy. However, auto-related stocks are cyclical in nature, meaning they tend to do well when the economy is growing. In addition, when interest rates fall - as they did last year - autos become more affordable. And low rates allow consumers to refinance home mortgages, which frees up money for auto purchases. When rates began to rise, investors worried that the strengthening auto cycle that had lifted these stocks over the past couple of years was over. So in March and April, auto-related stocks fell sharply. The sell-off negatively affected not only auto makers such as Chrysler, Ford and General Motors, but also parts suppliers such as Magna and A.O. Smith, and tire manufacturers such as Goodyear. Q. WERE INVESTOR FEARS ABOUT THE AUTO CYCLE JUSTIFIED? A. Not to the extent that was factored into the selling of these stocks. Certainly, rising interest rates make auto loans more expensive. However, the demand for cars in the U.S. - while not as strong as it was several months ago - has remained at a reasonably high level. In addition, I believe that continued growth in employment coupled with pent-up demand from the last U.S. recession should keep demand firm going forward. On another positive note, many of the U.S. auto makers and parts suppliers do some business in Europe, which is in the early stages of an economic recovery. General Motors has the largest European presence of the Big Three auto makers, followed by Ford and Chrysler. That's one of the reasons I've invested larger stakes in G.M. and Ford than in Chrysler. European sales may help shore up corporate earnings for the auto makers if U.S. sales begin to flatten. Q. HOW ELSE HAVE YOU POSITIONED THE FUND? A. I've invested more heavily in Magna International and A.O. Smith - both original equipment auto parts suppliers. Because the prices of these stocks have fallen over the past six months, their valuations - prices relative to earnings - have become more attractive. In addition, U.S. auto makers are increasingly finding it cheaper to order their parts from these suppliers rather than manufacturing them in-house. So even if auto demand in North America drops off, I believe these companies will continue to see increasing business volumes. Also, the parts industry is consolidating. I believe the successful parts suppliers will simply continue to get bigger. Meanwhile, a company such as Echlin - another of the fund's top 10 investments - has the best of two worlds. It supplies both original equipment parts and after market parts - those it sells to retail stores. The company is gaining market share, and I think it has excellent earnings potential going forward. Q. YOU MENTIONED THAT ECONOMIES IN EUROPE ARE BEGINNING TO PICK UP. HAVE YOU FOUND ANY OPPORTUNITIES OVERSEAS? A. Even though Europe's economic recovery is behind that of the U.S., its auto-related stocks - like those in the U.S. - have performed very well over the past year. Many of them appeared too expensive, so I've held off investing in them. For now, the fund will get its European exposure through U.S. companies that do business there. The fund did, however, have a 4.9% stake in Japanese stocks on August 31. Japan's economic cycle is even farther behind that of the U.S., but I see signs of improvement. That should help the earnings of Japanese auto makers such as Honda, Nissan and Suzuki. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I think that if the U.S. economy can remain healthy, auto demand should stay fairly strong. However, even if the auto makers and parts suppliers continue to report solid earnings growth, investors may continue to ask, "Is this the last quarter of growth like this?" Attitudes like that have a tendency to keep stock prices flat, so that's a concern. In addition, I think it will be a real stock picker's market going forward. A year ago, you could invest in any auto-related stock and watch it rise. In the future, I think it'll be critical to know which companies are most likely to gain market share and control costs. Those are the types of companies on which I'll focus the fund's investments. FUND FACTS START DATE: June 30, 1986 SIZE: as of August 31, 1994, more than $90 million MANAGER: Brenda Reed, since May 1994; manager, Fidelity Select Air Transportation Portfolio, since December 1992; joined Fidelity in 1992 (checkmark) AUTOMOTIVE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.2% SHARES VALUE (NOTE 1) AUTOS, TIRES, & ACCESSORIES - 85.5% AUTO & TRUCK PARTS - 41.5% Automotive Industries Holding, Inc. (a) 54,000 $ 1,444,498 Dana Corp. 191,800 5,346,425 Donnelly Corp. Class A 63,500 1,079,500 Echlin, Inc. 236,000 7,286,500 Federal-Mogul Corp. 200 5,725 Johnson Controls, Inc. 22,700 1,205,938 Magna International, Inc. Class A 198,500 7,840,972 Mascotech, Inc. 119,100 1,756,725 Purolator Products Co. 100,000 1,700,000 Simpson Industries, Inc. 30,075 345,863 Smith (A.O.) Corp. Class B 264,700 7,279,250 Standard Products Co. 68,087 1,880,903 Superior Industries International, Inc. 30,040 889,935 38,062,234 AUTO PARTS - RETAIL - 4.3% Monro Muffler Brake, Inc. (a) 214,410 3,886,181 AUTOMOTIVE STAMPINGS - 0.7% Tower Automotive (a) 50,000 675,000 AUTOS & OTHER MOTOR VEHICLES - 4.8% Genuine Parts Co. 118,200 4,343,850 MOTOR VEHICLES & CAR BODIES - 21.0% Chrysler Corp. 86,500 4,162,813 Ford Motor Co. 200,000 5,850,000 General Motors Corp. 95,000 4,773,750 Honda Motor Co. Ltd. 106,000 1,756,088 Nissan Motor Co. Ltd. Ord. 104,000 800,239 Suzuki Motor Corp. 159,000 1,935,928 19,278,818 TIRES & INNER TUBES - 13.2% Bandag, Inc. 75,100 4,092,950 Cooper Tire & Rubber Co. 142,700 3,692,363 Goodyear Tire & Rubber Co. 122,600 4,291,000 12,076,313 TOTAL AUTOS, TIRES, & ACCESSORIES 78,322,396 CHEMICALS & PLASTICS - 0.1% PLASTICS, NEC - 0.1% Bailey Corp. (a) 17,000 110,500 CONSUMER ELECTRONICS - 1.3% RADIOS, TELEVISIONS, STEREOS - 1.3% Harman International Industries, Inc. 40,000 1,220,000 ELECTRICAL EQUIPMENT - 0.2% ELECTRICAL EQUIPMENT, NEC - 0.2% Satcon Technology Corp. 15,000 213,750 ELECTRONICS - 0.2% SEMICONDUCTORS - 0.2% American Electronic Components, Inc. (a) 20,000 165,000 HOUSEHOLD PRODUCTS - 1.3% MANUFACTURED PRODUCTS - 1.3% First Brands Corp. 34,400 1,195,400 INDUSTRIAL MACHINERY & EQUIPMENT - 0.6% METAL WORKING MACHINERY - 0.6% Exco Technologies Ltd. 79,500 523,390 TOTAL COMMON STOCKS (Cost $82,086,437) 81,750,436 REPURCHASE AGREEMENTS - 10.8% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 9,893,327 $ 9,892,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $91,978,437) $ 91,642,436 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $26,480,083 and $141,383,523, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $29,451 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $8,939,000 and $3,876,900, respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 86.0% Canada 9.1 Japan 4.9 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $91,992,040. Net unrealized depreciation aggregated $349,604, of which $6,260,094 related to appreciated investment securities and $6,609,698 related to depreciated investment securities. AUTOMOTIVE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 91,642,436 at value (including repurchase agreements of $9,892,000) (cost $91,978,437) - See accompanying schedule Cash 1,126 Receivable for fund 530,338 shares sold Dividends receivable 196,392 Redemption fees 2,199 receivable Prepaid expenses 20,936 TOTAL ASSETS 92,393,427 LIABILITIES Payable for fund shares $ 2,098,100 redeemed Accrued management 50,132 fee Other payables and 137,881 accrued expenses TOTAL LIABILITIES 2,286,113 NET ASSETS $ 90,107,314 Net Assets consist of: Paid in capital $ 74,362,067 Undistributed net 270,697 investment income Accumulated 15,810,551 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized (336,001 appreciation ) (depreciation) on investments NET ASSETS, for $ 90,107,314 3,985,433 shares outstanding NET ASSET VALUE and $22.61 redemption price per share ($90,107,314 (divided by) shares) Maximum offering price $23.31 per share (100/97 of $22.61)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,140,798 Dividends Interest 322,404 TOTAL INCOME 1,463,202 EXPENSES Management fee $ 396,374 Transfer agent 805,266 Fees Redemption fees (125,426 ) Accounting fees and 64,026 expenses Non-interested trustees' 447 compensation Custodian fees and 8,700 expenses Registration fees 20,936 Audit 15,870 Legal 2,092 Interest 4,407 Reports to shareholders 13,155 Miscellaneous 374 Total expenses before 1,206,221 reductions Expense reductions (13,716 1,192,505 ) NET INVESTMENT INCOME 270,697 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 15,917,908 Foreign currency (25,152 15,892,756 transactions ) Change in net unrealized (31,646,083 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (15,753,327 ) NET INCREASE $ (15,482,630 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $318,683 Sales Charges Paid to FDC Deferred sales $4,631 charges withheld by FDC Exchange fees $93,608 withheld by FSC
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 270,697 $ 300,002 Net investment income Net realized gain (loss) 15,892,756 9,992,964 Change in net unrealized appreciation (depreciation) (31,646,083 22,125,239 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (15,482,630 32,418,205 ) Distributions to shareholders - (277,866 From net investment income ) From net realized gain (1,498,744 (8,000,284 ) ) TOTAL DISTRIBUTIONS (1,498,744 (8,278,150 ) ) Share transactions 49,124,944 296,617,520 Net proceeds from sales of shares Reinvestment of distributions 1,470,265 8,140,832 Cost of shares redeemed (172,306,342 (210,814,302 ) ) Paid in capital portion of redemption fees 101,570 254,484 Net increase (decrease) in net assets resulting from share transactions (121,609,563 94,198,534 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (138,590,937 118,338,589 ) NET ASSETS Beginning of period 228,698,251 110,359,662 End of period (including undistributed net investment income of $270,697 and $230,333, $ 90,107,314 $ 228,698,251 respectively) OTHER INFORMATION Shares Sold 2,036,423 12,377,664 Issued in reinvestment of distributions 61,287 357,869 Redeemed (7,087,666 (9,094,036 ) ) Net increase (decrease) (4,989,956 3,641,497 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 25.48 $ 20.69 $ 18.65 $ 12.58 $ 12.17 $ 12.86 Income from Investment Operations Net investment income .05 .05 .13 .06 .25 .23 Net realized and unrealized gain (loss) (2.67) 6.00 2.26 6.55 .29 (.52) Total from investment operations (2.62) 6.05 2.39 6.61 .54 (.29) Less Distributions From net investment income - (.05) (.06) - (.18) (.41) From net realized gain (.27) (1.26) (.36) (.70) - - Total distributions (.27) (1.31) (.42) (.70) (.18) (.41) Redemption fees added to paid in capital .02 .05 .07 .16 .05 .01 Net asset value, end of period $ 22.61 $ 25.48 $ 20.69 $ 18.65 $ 12.58 $ 12.17 TOTAL RETURND, E (10.27)% 30.45% 13.42% 56.27% 4.81% (2.07)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 90,107 $ 228,698 $ 110,360 $ 178,445 $ 974 $ 1,213 Ratio of expenses to average net assetsB 1.83%A 1.68% 1.57%A 2.48% 2.25% 2.42% Ratio of expenses to average net assets before 1.85%A 1.69% 1.57%A 2.48% 2.85% 3.85% expense reductionsB Ratio of net investment income to average net .42%A .22% .72%A .36% 2.06% 1.84% assets Portfolio turnover rate 47%A 64% 140%A 29% 219% 121%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. CHEMICALS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S CHEMICALS 13.71% 27.91% 90.22% 411.68% CHEMICALS (INCL. 3% SALES CHARGE) 10.30% 24.07% 84.51% 396.33% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND CHEMICALS 27.91% 13.72% 19.65% CHEMICALS (INCL. 3% SALES CHARGE) 24.07% 13.03% 19.25% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select ChemicalS (069)Standard & Poor 07/29/85 9700.00 10000.00 07/31/85 9641.80 9926.31 08/31/85 9981.30 9841.93 09/30/85 9991.00 9533.88 10/31/85 10631.20 9974.35 11/30/85 11300.50 10658.59 12/31/85 12018.30 11174.46 01/31/86 12532.40 11237.04 02/28/86 13977.70 12077.57 03/31/86 14724.60 12751.50 04/30/86 14782.80 12607.41 05/31/86 15199.90 13278.12 06/30/86 15568.50 13502.52 07/31/86 14549.20 12747.73 08/31/86 15630.16 13693.61 09/30/86 14393.38 12561.15 10/31/86 15269.84 13285.93 11/30/86 15532.78 13608.78 12/31/86 15250.37 13261.75 01/31/87 17285.70 15048.11 02/28/87 18892.53 15642.51 03/31/87 19467.10 16094.58 04/30/87 19895.59 15951.34 05/31/87 19632.65 16090.11 06/30/87 20733.10 16902.66 07/31/87 22086.74 17759.63 08/31/87 22895.03 18422.06 09/30/87 23304.04 18018.62 10/31/87 16214.47 14137.41 11/30/87 15669.12 12972.49 12/31/87 17511.02 13959.69 01/31/88 17081.54 14547.40 02/29/88 18975.15 15225.31 03/31/88 19941.48 14754.84 04/30/88 20175.74 14918.62 05/31/88 19414.39 15048.41 06/30/88 21981.50 15739.14 07/31/88 21317.76 15679.33 08/31/88 20390.48 15146.23 09/30/88 20644.26 15791.46 10/31/88 20966.37 16230.46 11/30/88 20263.59 15998.37 12/31/88 21181.11 16278.34 01/31/89 22596.44 17469.91 02/28/89 22313.37 17034.91 03/31/89 22557.39 17431.83 04/30/89 23201.61 18336.54 05/31/89 23738.46 19079.17 06/30/89 23455.03 18970.42 07/31/89 24949.67 20683.44 08/31/89 26092.63 21088.84 09/30/89 25164.58 21002.38 10/31/89 23386.65 20515.12 11/30/89 23884.86 20933.63 12/31/89 24847.83 21436.04 01/31/90 23077.40 19997.68 02/28/90 23231.80 20255.65 03/31/90 23921.44 20792.42 04/30/90 23365.61 20272.61 05/31/90 25403.67 22249.19 06/30/90 25611.02 22097.90 07/31/90 25695.76 22027.18 08/31/90 22264.01 20035.93 09/30/90 21162.46 19060.18 10/31/90 21406.07 18978.22 11/30/90 22835.96 20204.21 12/31/90 23821.00 20767.91 01/31/91 25420.37 21673.39 02/28/91 27369.26 23223.04 03/31/91 28025.96 23785.03 04/30/91 27803.53 23842.12 05/31/91 29731.24 24872.10 06/30/91 28923.24 23732.96 07/31/91 30317.26 24838.91 08/31/91 30913.18 25427.59 09/30/91 30679.07 25002.95 10/31/91 31168.57 25337.99 11/30/91 29614.93 24316.87 12/31/91 33030.62 27098.72 01/31/92 33664.98 26594.68 02/29/92 34879.02 26940.42 03/31/92 34627.46 26415.08 04/30/92 35885.25 27191.68 05/31/92 35677.44 27324.92 06/30/92 34619.91 26917.78 07/31/92 35712.32 28018.72 08/31/92 34492.08 27444.33 09/30/92 34526.94 27768.18 10/31/92 34178.30 27865.36 11/30/92 35212.60 28815.57 12/31/92 35971.89 29170.00 01/31/93 35934.88 29415.03 02/28/93 35305.75 29815.08 03/31/93 36144.60 30444.17 04/30/93 36815.01 29707.43 05/31/93 37372.43 30503.58 06/30/93 36434.95 30592.05 07/31/93 36992.37 30469.68 08/31/93 38803.98 31624.48 09/30/93 37575.13 31380.97 10/31/93 38994.01 32030.56 11/30/93 39285.39 31726.27 12/31/93 40560.85 32110.15 01/31/94 43718.04 33201.90 02/28/94 43649.10 32302.13 03/31/94 42339.35 30893.75 04/30/94 44386.86 31289.19 05/31/94 45455.59 31802.34 06/30/94 44886.53 31023.18 07/31/94 46912.95 32040.74 08/31/94 49633.34 33354.41 Let's say you invested $10,000 in Fidelity Select Chemicals Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $49,633 - a 396.33% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Union Carbide Corp. 7.5 Grace (W.R.) & Co. 7.4 du Pont (E.I.) de Nemours & Co. 5.5 Hoechst AG Ord. 4.8 Eastman Chemical Co. 4.7 Olin Corp. 3.6 Nalco Chemical Co. 3.1 Raychem Corp. 3.1 Geon Co. 2.9 Lubrizol Corp. 2.9 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 21.3 Row: 1, Col: 2, Value: 2.9 Row: 1, Col: 3, Value: 4.7 Row: 1, Col: 4, Value: 5.7 Row: 1, Col: 5, Value: 9.699999999999999 Row: 1, Col: 6, Value: 55.7 Chemicals 55.7% Plastics, Resins & Elastomers 9.7% Specialty Chemicals 5.7% Plastics & Synthetic Resins 4.7% Organic Chemicals 2.9% All Others 21.3%* * INCLUDES SHORT-TERM INVESTMENTS CHEMICALS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Steve Wymer, Portfolio Manager of Fidelity Select Chemicals Portfolio Q. STEVE, HOW HAS THE FUND PERFORMED? A. Very well. The fund returned 13.71% for the six months ended August 31, 1994, and 27.91% for the year. By comparison, the S&P gained 3.26% and 5.47% for the same time periods. Q. WHAT FACTORS HELPED THE FUND OUTPERFORM THE MARKET? A. Like the U.S. economy, chemicals have done very well. When the economy accelerates, the demand for chemicals rises. Overall, it's been an extremely favorable environment in which demand is strong and supply additions are low. As a result, prices are up. For the companies in the sector, higher prices typically drop to the bottom line and lead to greater profits. Q. IS STRATEGY IMPORTANT IN THIS MARKET, OR IS EVERYTHING STRONG? A. Well, I divide chemical companies into three categories: commodity, diversified and specialty. Commodities have been the best place to be lately. Commodity chemicals - those companies that make chemical products that are used throughout the economy in autos, housing and consumer non-durables - have their own supply and demand cycle and don't necessarily follow major economic trends the way diversified chemical companies do. Commodities have been stronger in the past few months because of fires in domestic manufacturing plants and other unpredictable glitches that have slowed production and choked supply just as the demand for chemicals was increasing. Currently, demand is so strong that chemical manufacturers are having trouble keeping up with demand. This, combined with stable to lower raw materials prices - due to low prices for natural gas and crude oil - has been fantastic for both stock prices and the fund. Q. WHAT SIGNIFICANT CHANGES HAVE YOU MADE TO THE FUND'S TOP 10 HOLDINGS? A. DuPont, a company that I think has potential for handsome returns over time, is new to the top 10. DuPont owns a wide mix of businesses including Conoco, an oil and gas concern. Through past and current restructurings and divestitures, duPont has become more focused and is generating higher returns. I've been very impressed with recent performance, which should get a further boost in the future as prices begin to increase. I've also increased my position in Union Carbide. A big producer of commodity chemicals, it also has strong specialty chemical units. Since Union Carbide spun off its industrial gas business two years ago, the company has continued to cut costs dramatically while the supply/demand balance is tightening. Q. HOW IS THE INTERNATIONAL MARKET FOR CHEMICALS? A. Global demand has begun to pick up, especially in Europe. Hoechst, another new addition to the top 10, is a diversified German company that is undergoing a major restructuring. Between the recovery in Europe and its own cost-cutting measures, I think Hoechst has solid potential. I still have a sizable position in Akzo, a diversified Dutch chemical company. Diversified chemical companies have interests in businesses outside of chemicals and generally move with the economy. Q. SOUNDS GOOD. HAVE THERE BEEN ANY DISAPPOINTMENTS RECENTLY? A. Well, yes. I invested in a couple of specialty chemical stocks, Nalco and Lubrizol, that had under-performed the market and I thought were relatively inexpensive. Unfortunately, they continued to under-perform and became even less expensive after I bought them. They weren't disasters, but compared to the group they were disappointing. Q. DO YOU EXPECT TO CHANGE YOUR STRATEGY IN THE NEXT FEW MONTHS? A. Not really. Commodity chemicals are a good place to be right now, and should continue to be as long as the economy grows. I also expect prices to remain strong since many of these companies have restructured and are focusing their efforts on cutting costs rather than growing their supply base. Eventually, however, capacity will increase and prices will drop. In the meantime, I'll probably gradually shift more into specialty chemical stocks. Overall, if the economy grows more slowly, chemical stocks should maintain their strength. FUND FACTS START DATE: July 29, 1985 SIZE: as of August 31, 1994, more than $205 million MANAGER: Steven Wymer, since January 1993; assistant, Fidelity Magellan Fund, since April 1992; manager, Fidelity Select Automotive Portfolio, 1990-1993; assistant, Fidelity Growth & Income Portfolio, 1990-1992; joined Fidelity in 1989 (checkmark) CHEMICALS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 93.7% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 0.3% PAINT & VARNISH - 0.2% Dexter Corp. 5,200 $ 133,900 RPM, Inc. 10,000 176,250 Sherwin-Williams Co. 2,000 66,250 376,400 PAVING, ROOFING & SIDING - 0.1% Carlisle Companies, Inc. 5,200 182,650 TOTAL BUILDING MATERIALS 559,050 CHEMICALS & PLASTICS - 86.2% AGRICULTURAL CHEMICALS - 2.0% FMC Corp. (a) 14,100 824,850 IMC Fertilizer Group, Inc. (a) 10,000 401,250 Indo Gulf Fertilizer and Chemicals GDR (b) 1,000 3,900 Mississippi Chemical Corp. 37,600 601,600 OM Group, Inc. 87,500 1,750,000 Terra Industries, Inc. 10,000 105,000 Vigoro Corp. 12,000 349,500 4,036,100 CHEMICALS - 55.7% Akzo NV sponsored ADR 80,000 4,940,000 Avery Dennison Corp. 18,300 631,350 BASF AG 10,000 2,094,214 Bayer AG 10,000 2,402,782 Crompton & Knowles Corp. 6,000 95,250 Cytec Industries, Inc. (a) 114,671 3,741,141 Dow Chemical Co. 60,000 4,507,500 du Pont (E.I.) de Nemours & Co. 180,400 10,914,200 Engelhard Corp. 7,600 204,250 Georgia Gulf Corp. (a) 43,000 1,623,250 Goodrich (B.F.) Company 89,800 4,287,950 Grace (W.R.) & Co. 362,100 14,574,525 Hercules, Inc. 15,800 1,702,450 Hoechst AG Ord. 41,000 9,527,348 Imperial Chemical Industries PLC ADR 66,700 3,401,700 Lawter International, Inc. 8,988 110,103 Lyondell Petrochemical Co. 121,700 3,818,338 Minnesota Mining & Manufacturing Co. 20,000 1,102,500 Monsanto Co. 11,200 925,400 Morton International, Inc. 48,900 1,448,663 NL Industries, Inc. (a) 20,000 195,000 Olin Corp. 122,100 7,020,750 PPG Industries, Inc. 62,000 2,580,750 Raychem Corp. 148,000 6,179,000 Reliance Industries Ltd. GDS (b) 17,000 488,750 Rohm & Haas Co. 15,000 933,750 Solvay 5,000 2,462,770 Sterling Chemical, Inc. (a) 259,700 2,824,238 Union Carbide Corp. 429,100 14,750,313 Witco Corp. 15,200 467,400 109,955,635 CHEMICALS, GENERAL - 2.4% Albemarle Corp. 88,000 1,320,000 Great Lakes Chemical Corp. 53,100 3,199,275 Sybron Chemical Industry Corp. (a) 7,200 180,000 4,699,275 INDUSTRIAL GASES - 1.0% Air Products & Chemicals, Inc. 40,000 1,990,000 NONCELLULOSIC MAN-MADE ORGANIC FIBERS - 0.0% Yizheng Chemical Fibre Co. Class H (a) 110,000 36,724 SHARES VALUE (NOTE 1) ORGANIC CHEMICALS - 2.9% Lubrizol Corp. 181,000 $ 5,656,250 PLASTICS & SYNTHETIC RESINS - 4.7% AEP Industries, Inc. 10,350 191,475 ARCO Chemical Co. 46,800 2,275,650 Geon Co. 202,500 5,670,000 Schulman (A.), Inc. 6,562 173,893 Wellman, Inc. 28,660 909,955 9,220,973 PLASTICS, NEC - 2.1% Carlisle Plastics, Inc. Class A (a) 27,700 107,338 Hanna (M.A.) Co. 131,850 3,576,431 Sealed Air Corp. (a) 12,300 433,575 Triple S Plastics, Inc. (a) 4,000 50,000 4,167,344 PLASTICS, RESINS & ELASTOMERS - 9.7% Borden Chemical & Plastics Ltd. 35,000 730,625 Eastman Chemical Co. 174,650 9,212,788 PT Tri Polyta Indonesia sponsored ADR (a) 131,000 3,848,125 Praxair, Inc. 200,153 4,553,481 Rexene Corp. (a) 50,000 725,000 19,070,019 SPECIALTY CHEMICALS - 5.7% Ferro Corp. 126,600 3,370,725 Fuller (H.B.) Co. 19,200 729,600 Furon Co. 2,000 35,500 Loctite Corp. 4,400 199,650 Methanex Corp. (a) 36,500 620,771 Nalco Chemical Co. 182,700 6,188,963 11,145,209 TOTAL CHEMICALS & PLASTICS 169,977,529 CONGLOMERATES - 0.2% Hanson Trust PLC sponsored ADR 20,000 397,500 DRUGS & PHARMACEUTICALS - 0.4% DRUGS - 0.2% Rhone Poulenc SA Class A 10,000 253,625 Rhone Poulenc sponsored ADR 6,700 168,338 421,963 PHARMACEUTICAL PREPARATIONS - 0.2% Zeneca Group PLC sponsored ADR 10,000 385,000 TOTAL DRUGS & PHARMACEUTICALS 806,963 FOODS - 0.2% Montedison Spa ADR 40,000 350,000 GAS - 0.4% GAS TRANSMISSION - 0.4% Nova Corp. 80,000 811,967 HOUSEHOLD PRODUCTS - 0.1% MANUFACTURED PRODUCTS - 0.1% First Brands Corp. 2,800 97,300 INDUSTRIAL MACHINERY & EQUIPMENT - 0.4% PUMPING EQUIPMENT - 0.4% Duriron Company, Inc. 40,000 740,000 MEDICAL EQUIPMENT & SUPPLIES - 0.4% MEDICAL TECHNOLOGY - 0.4% Mallinckrodt Group, Inc. 26,800 864,300 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) METALS & MINING - 0.4% NON-METALLIC MINERAL MINING - 0.4% American Colloid Co. 55,000 $ 811,250 OIL & GAS - 2.8% CRUDE PETROLEUM & GAS - 2.5% Burlington Resources, Inc. 101,500 3,818,938 Occidental Petroleum Corp. 43,000 956,750 4,775,688 GENERAL PETROLEUM PRODUCTS - 0.3% Shanghai Petrochemical Ltd. Class H ADR 20,000 647,500 TOTAL OIL & GAS 5,423,188 POLLUTION CONTROL - 0.0% POLLUTION EQUIPMENT & DESIGN - 0.0% Harding Associates Inc. (a) 13,500 77,625 RAILROADS - 1.6% CSX Corp. 40,000 3,090,000 Chicago & North Western Holdings Corp. (a) 5,300 116,600 3,206,600 RETAIL & WHOLESALE, MISCELLANEOUS - 0.0% MISCELLANEOUS NONDURABLE GOODS - WHOLESALE - 0.0% Amway Asia Pacific Ltd. 2,000 65,500 TEXTILES & APPAREL - 0.3% CARPETS & RUGS - 0.2% Image Industries, Inc. (a) 45,000 472,500 SILK MILLS - 0.1% Worldtex Corp. (a) 33,000 160,871 TEXTILE MILL PRODUCTS - 0.0% Unifi, Inc. 2,100 50,400 TOTAL TEXTILES & APPAREL 683,771 TOTAL COMMON STOCKS (Cost $165,492,599) 184,872,543 REPURCHASE AGREEMENTS - 6.3% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $12,386,662 12,385,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $177,877,599) $ 197,257,543 LEGEND 1. Non-income producing 2. 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 $492,650 or 0.2% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $130,691,631 and $21,459,092, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $46,321 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $6,825,000 and $5,790,000, respectively. The weighted average interest rate paid was 3.9% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 83.6% Germany 7.1 Netherlands 2.5 United Kingdom 2.1 Indonesia 2.0 Belgium 1.3 Others (individually less than 1%) 1.4 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $177,939,958. Net unrealized appreciation aggregated $19,317,585, of which $21,629,930 related to appreciated investment securities and $2,312,345 related to depreciated investment securities. CHEMICALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 197,257,543 at value (including repurchase agreements of $12,385,000) (cost $177,877,599) - See accompanying schedule Cash 160 Receivable for 1,043,150 investments sold Receivable for fund 7,955,114 shares sold Dividends receivable 757,818 Redemption fees 349 receivable Other receivables 11,945 Prepaid expenses 21,714 TOTAL ASSETS 207,047,793 LIABILITIES Payable for investments $ 137,815 purchased Payable for fund shares 1,596,191 redeemed Accrued management 97,720 fee Other payables and 130,229 accrued expenses TOTAL LIABILITIES 1,961,955 NET ASSETS $ 205,085,838 Net Assets consist of: Paid in capital $ 183,485,105 Undistributed net 820,017 investment income Accumulated 1,400,772 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 19,379,944 appreciation (depreciation) on investments NET ASSETS, for $ 205,085,838 5,734,619 shares outstanding NET ASSET VALUE and $35.76 redemption price per share ($205,085,838 (divided by) (hollow bullet) shares) Maximum offering price $36.87 per share (100/97 of $35.76)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,394,672 Dividends Interest (including 279,791 security lending fees of $3,150) TOTAL INCOME 1,674,463 EXPENSES Management fee $ 361,505 Transfer agent 484,837 Fees Redemption fees (38,962 ) Accounting and security 58,475 lending fees Non-interested trustees' 254 compensation Custodian fees and 9,395 expenses Registration fees 24,542 Audit 9,917 Legal 350 Interest 2,538 Reports to shareholders 2,395 Miscellaneous 49 Total expenses before 915,295 reductions Expense reductions (9,529 905,766 ) NET INVESTMENT INCOME 768,697 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,480,604 Foreign currency 36 1,480,640 transactions Change in net unrealized 15,455,394 appreciation (depreciation) on investment securities NET GAIN (LOSS) 16,936,034 NET INCREASE $ 17,704,731 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $521,122 Sales Charges Paid to FDC Deferred sales $4,560 charges withheld by FDC Exchange fees $31,643 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 768,697 $ 265,602 Net investment income Net realized gain (loss) 1,480,640 2,851,580 Change in net unrealized appreciation (depreciation) 15,455,394 2,343,419 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 17,704,731 5,460,601 Distributions to shareholders (16,878 (189,427 From net investment income ) ) From net realized gain (332,922 (2,552,992 ) ) TOTAL DISTRIBUTIONS (349,800 (2,742,419 ) ) Share transactions 213,022,625 59,344,504 Net proceeds from sales of shares Reinvestment of distributions 339,142 2,653,509 Cost of shares redeemed (88,029,434 (31,346,756 ) ) Paid in capital portion of redemption fees 181,414 51,531 Net increase (decrease) in net assets resulting from share transactions 125,513,747 30,702,788 TOTAL INCREASE (DECREASE) IN NET ASSETS 142,868,678 33,420,970 NET ASSETS Beginning of period 62,217,160 28,796,190 End of period (including undistributed net investment income of $820,017 and $96,969, $ 205,085,838 $ 62,217,160 respectively) OTHER INFORMATION Shares Sold 6,470,261 1,911,622 Issued in reinvestment of distributions 10,863 93,252 Redeemed (2,711,680 (1,045,994 ) ) Net increase (decrease) 3,769,444 958,880
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28,
SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990 Net asset value, beginning of period $ 31.66 $ 28.62 $ 32.81 $ 26.25 $ 22.70 $ 23.77 Income from Investment Operations Net investment income .21 .29 .30 .12 .28 .41 Net realized and unrealized gain (loss) 4.05 5.97 (.84) 7.27 3.94 (.21) Total from investment operations 4.26 6.26 (.54) 7.39 4.22 .20 Less Distributions From net investment income (.01) (.23) (.31) (.18) (.10) (.16) From net realized gain (.20) (3.05) (3.36) (.71) (.60) (1.13) Total distributions (.21) (3.28) (3.67) (.89) (.70) (1.29) Redemption fees added to paid in capital .05 .06 .02 .06 .03 .02 Net asset value, end of period $ 35.76 $ 31.66 $ 28.62 $ 32.81 $ 26.25 $ 22.70 TOTAL RETURN D, E 13.71% 23.63% (1.61)% 29.07% 18.99% .71% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 205,086 $ 62,217 $ 28,796 $ 39,566 $ 20,396 $ 21,150 Ratio of expenses to average net assets B 1.52%A 1.93% 1.89%A 2.16% 2.50% 2.37% Ratio of expenses to average net assets before 1.53%A 1.93% 1.89%A 2.16% 2.52% 2.37% expense reductions B Ratio of net investment income to average net 1.29%A .97% 1.21%A .40% 1.21% 1.65% assets Portfolio turnover rate 39%A 81% 214%A 87% 87% 99%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. CONSTRUCTION AND HOUSING PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S CONSTRUCTION AND HOUSING -7.33% 7.26% 81.09% 169.55% CONSTRUCTION AND HOUSING (INCL. 3% SALES CHARGE) -10.11% 4.04% 75.66% 161.46% S&P 500 3.26% 5.47% 58.16% 164.55% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on September 29, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND CONSTRUCTION AND HOUSING 7.26% 12.61% 13.32% CONSTRUCTION AND HOUSING (INCL. 3% SALES CHARGE) 4.04% 11.93% 12.89% S&P 500 5.47% 9.60% 13.05% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Const.& Housing (511) Standard & Poor's 09/29/86 9700.00 10000.00 09/30/86 9709.70 9962.80 10/31/86 10262.60 10537.66 11/30/86 10369.30 10793.72 12/31/86 10437.20 10518.48 01/31/87 12192.90 11935.32 02/28/87 13483.00 12406.77 03/31/87 14307.50 12765.32 04/30/87 13327.80 12651.71 05/31/87 12949.50 12761.78 06/30/87 12804.00 13406.25 07/31/87 13599.40 14085.95 08/31/87 13890.40 14611.35 09/30/87 12823.40 14291.37 10/31/87 8749.40 11213.00 11/30/87 8109.20 10289.05 12/31/87 9141.25 11072.05 01/31/88 9466.31 11538.18 02/29/88 10352.85 12075.86 03/31/88 10766.57 11702.72 04/30/88 11081.79 11832.62 05/31/88 11012.84 11935.56 06/30/88 11662.97 12483.41 07/31/88 11544.76 12435.97 08/31/88 10953.73 12013.15 09/30/88 11288.65 12524.91 10/31/88 11367.45 12873.10 11/30/88 11229.55 12689.01 12/31/88 11809.47 12911.07 01/31/89 12529.18 13856.16 02/28/89 12377.13 13511.14 03/31/89 12691.37 13825.95 04/30/89 13188.08 14543.52 05/31/89 13654.38 15132.53 06/30/89 13645.75 15046.28 07/31/89 14199.40 16404.95 08/31/89 14438.23 16726.49 09/30/89 14698.77 16657.91 10/31/89 13873.73 16271.45 11/30/89 14079.99 16603.39 12/31/89 13769.50 17001.87 01/31/90 12900.94 15861.04 02/28/90 13167.30 16065.65 03/31/90 13908.47 16491.39 04/30/90 13503.14 16079.11 05/31/90 14753.86 17646.82 06/30/90 14487.50 17526.82 07/31/90 13731.86 17470.73 08/31/90 11986.06 15891.38 09/30/90 10748.37 15117.47 10/31/90 10370.55 15052.46 11/30/90 11373.73 16024.85 12/31/90 12442.06 16471.95 01/31/91 13536.43 17190.12 02/28/91 14722.01 18419.22 03/31/91 15086.81 18864.96 04/30/91 15321.32 18910.24 05/31/91 16845.63 19727.16 06/30/91 15985.76 18823.66 07/31/91 16402.67 19700.84 08/31/91 17080.14 20167.75 09/30/91 16702.32 19830.95 10/31/91 16415.70 20096.68 11/30/91 15594.91 19286.79 12/31/91 17582.47 21493.19 01/31/92 18889.56 21093.42 02/29/92 19198.76 21367.64 03/31/92 19184.71 20950.97 04/30/92 19451.75 21566.92 05/31/92 20070.15 21672.60 06/30/92 18636.06 21349.68 07/31/92 18973.62 22222.88 08/31/92 18326.63 21767.31 09/30/92 18565.73 22024.17 10/31/92 19212.72 22101.25 11/30/92 20323.85 22854.91 12/31/92 20872.39 23136.02 01/31/93 21744.41 23330.36 02/28/93 22138.23 23647.66 03/31/93 22658.63 24146.62 04/30/93 22123.97 23562.27 05/31/93 22363.22 24193.74 06/30/93 22630.62 24263.90 07/31/93 23404.68 24166.85 08/31/93 24375.77 25082.77 09/30/93 25163.90 24889.63 10/31/93 26078.70 25404.85 11/30/93 25670.56 25163.50 12/31/93 27887.76 25467.98 01/31/94 28798.84 26333.89 02/28/94 28215.18 25620.25 03/31/94 26563.83 24503.20 04/30/94 26503.73 24816.84 05/31/94 25101.27 25223.84 06/30/94 24485.90 24605.86 07/31/94 25187.13 25412.93 08/31/94 26145.96 26454.86 Let's say you invested $10,000 in Fidelity Select Construction and Housing Portfolio on September 29, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $26,146 - a 161.46% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $26,455 over the same period - a 164.55% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Medusa Corp. 8.2 General Electric Co. 6.8 Lowe's Companies, Inc. 6.6 Armstrong World Industries, Inc. 5.7 Lafarge Corp. 5.4 Pulte Corp. 5.4 Federal National Mortgage Association 5.1 Federal Home Loan Mortgage Corporation 4.5 Leggett & Platt, Inc. 4.0 Texas Industries, Inc. 4.0 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 40.6 Row: 1, Col: 2, Value: 6.6 Row: 1, Col: 3, Value: 6.8 Row: 1, Col: 4, Value: 13.1 Row: 1, Col: 5, Value: 9.6 Row: 1, Col: 6, Value: 23.3 Cement 23.3% Operative Builders 13.1% Federal & Federally Sponsored Credit Agencies 9.6% Electrical Machinery 6.8% Lumber & Building Materials - Retail 6.6% All Others 40.6%* * INCLUDES SHORT-TERM INVESTMENTS CONSTRUCTION AND HOUSING PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Katherine Collins, Portfolio Manager of Fidelity Select Construction and Housing Portfolio Q. KATHERINE, HOW DID THE FUND PERFORM? A. Rising interest rates created a difficult environment for construction and home-building companies this year. The fund returned -7. 33% for the six months ended August 31, 1994. That trailed the S&P 500's 3.26% return during the same period. However, the fund posted better results for the 12 months ended August 31, returning 7.26% versus the S&P 500's 5.47% return. Q. WITH HOUSING-RELATED STOCKS DOWN AS MUCH AS 40% YEAR-TO-DATE, HOW DID THE FUND MANAGE TO LIMIT ITS LOSS TO 7.33%? A. Going into 1994, as rising interest rates became more likely, I began shifting the fund into stocks that tend to hold their value better than residential construction stocks when rates rise. These include stocks such as the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). Both companies purchase mortgages from lenders and resell them to investors. Although their businesses are related to the housing market, investors tend to hold onto these stocks even when interest rates rise. I also increased the fund's investment in companies that have a broader business base and do not depend primarily on residential construction, which include building materials companies. Many of these companies generate a significant amount of their business from non-residential construction, which is just beginning to accelerate. Q. THE IMPORTANCE OF DIVERSIFICATION ALWAYS BECOMES CLEAR IN PERIODS OF VOLATILITY. AMONG THE FUND'S LARGEST INVESTMENTS, WHICH WERE DOWN THE MOST AND WHICH HELPED THE FUND LIMIT ITS DOWNSIDE? A. The pure home builders were down the most. Pulte, Centex and Lennar were hit pretty hard, falling as much as 30% to 40% this year. Pulte is the only one still among the fund's top 10 investments. Stocks that held up relatively well compared to the housing companies included Armstrong World Industries, a manufacturer of floor coverings and ceiling tiles; General Electric; and, as mentioned, Fannie Mae and Freddie Mac. Lowe's, a building products retailer and the fund's third largest investment, was actually up about 20% year-to-date through August 31. Q. G.E. WAS THE FUND'S SECOND LARGEST INVESTMENT. THE STOCK'S PRICE HAS BEEN DOWN THIS YEAR. WILL YOU MAINTAIN THE FUND'S POSITION? A. G.E. is down about 7% year-to-date due to a scandal at its wholly owned brokerage company. This resulted in a charge to earnings and a lot of negative publicity. However, nearly every other G.E. business is doing very well, and the brokerage subsidiary is a small contributor to earnings. I plan to maintain the fund's investment. Q. CEMENT PRODUCERS MEDUSA AND LAFARGE WERE THE FUND'S LARGEST AND FIFTH LARGEST INVESTMENTS, RESPECTIVELY, AT THE END OF AUGUST. HOW WERE THESE STOCKS AFFECTED? A. These stocks were down along with the rest of the industry, but business for these companies is less interest rate sensitive. Residential construction accounts for about a third of cement sales with more going to public works projects. The industry's supply and demand balance is extremely favorable. Cement plants are operating at about 95% capacity domestically, which enables producers to continue raising their prices. Even if residential construction were to decline significantly, the other segments of cement producers' markets - public works projects and commercial construction - are just beginning to pick up. Q. WHAT IS YOUR OUTLOOK FOR THE INDUSTRY AND YOUR GAME PLAN FOR THE FUND GOING FORWARD? A. New home construction in the U. S. is still at healthy levels, although I don't expect it to grow much from this point. I think the worst is probably over as far as interest rate shocks. Consequently, I expect to see some recovery in residential construction stocks. This group has been hit very hard and the stocks are now trading at value prices when compared to yardsticks such as earnings and book value - a company's assets minus its liabilities. So, it makes sense for the fund to hold onto them. Commercial and non-residential construction should continue to accelerate this year and on into next year. Companies with significant exposure to those markets have the best growth prospects, and their stocks likewise have the best upside potential. Apartment construction is also increasing in many parts of the country. All of this should keep the overall demand for building materials pretty steady, which would help the stocks in that group. The fund has investments in what I think are the best companies in each of these sectors, and is therefore positioned well within the housing and construction industries. FUND FACTS START DATE: September 29, 1986 SIZE: as of August 31, 1994, more than $48 million MANAGER: Katherine Collins, since June 1992; equity analyst, home-building and construction industries, 1990-1992; joined Fidelity in 1990 (checkmark) CONSTRUCTION & HOUSING PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.7% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 36.3% CEMENT - 23.3% Cemex SA, Series B 33,750 $ 304,283 Centex Construction Products (a) 30,000 341,250 Lafarge Corp. 119,100 2,426,663 Medusa Corp. 128,600 3,649,021 St. Lawrence Cement, Inc. Class A (a) 52,700 390,320 Southdown, Inc. (a) 7,000 146,125 Texas Industries, Inc. 48,300 1,768,988 Vulcan Materials Co. 26,300 1,390,613 10,417,263 CONCRETE, GYPSUM, PLASTER - 1.6% National Gypsum Co. (a)(b) 10,000 400,000 USG Corp. (a) 13,600 306,000 706,000 FLOOR COVERINGS - 5.7% Armstrong World Industries, Inc. 52,300 2,549,625 PAVING, ROOFING & SIDING - 4.1% Bird Corp. 19,100 162,350 Carlisle Companies, Inc. 18,000 632,250 Owens-Corning Fiberglass Corp. (a) 30,000 1,068,750 1,863,350 PLUMBING SUPPLIES - WHOLESALE - 1.6% Masco Corp. 25,700 713,175 TOTAL BUILDING MATERIALS 16,249,413 CONSTRUCTION - 14.1% GENERAL BUILDING - 1.0% Schuler Homes, Inc. (a) 18,600 441,750 OPERATIVE BUILDERS - 13.1% Centex Corp. 66,500 1,762,250 Continental Homes Holding Corp. 29,900 414,863 Inco Homes (a) 20,000 65,000 Lennar Corp. 39,450 779,138 Pulte Corp. 97,300 2,408,175 Standard Pacific Corp. 49,000 434,875 5,864,301 TOTAL CONSTRUCTION 6,306,051 ELECTRICAL EQUIPMENT - 7.1% CURRENT-CARRYING WIRING DEVICE - 0.3% Cherry Corp. (a) 5,000 70,000 Cherry Corp. Class A (a) 5,000 71,250 141,250 ELECTRICAL MACHINERY - 6.8% General Electric Co. 61,000 3,034,750 TOTAL ELECTRICAL EQUIPMENT 3,176,000 ENGINEERING - 1.6% ARCHITECTS & ENGINEERS - 1.0% Fluor Corp. 8,400 445,200 SPECIAL CONTRACTORS - 0.6% Foster Wheeler Corp. 6,100 248,575 TOTAL ENGINEERING 693,775 FEDERAL SPONSORED CREDIT - 9.6% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 9.6% Federal Home Loan Mortgage Corporation 32,600 2,025,275 Federal National Mortgage Association 25,700 2,284,088 4,309,363 SHARES VALUE (NOTE 1) HOME FURNISHINGS - 9.8% FURNITURE - 4.9% LADD Furniture, Inc. 55,000 $ 371,250 Leggett & Platt, Inc. 48,800 1,805,600 2,176,850 FURNITURE STORES - 3.1% Ethan Allen Interiors, Inc. (a) 41,100 1,017,225 Haverty Furniture Companies, Inc. 31,550 388,459 1,405,684 NON-WOOD OFFICE FURNITURE - 1.8% Miller (Herman), Inc. 31,900 797,500 TOTAL HOME FURNISHINGS 4,380,034 LEISURE DURABLES & TOYS - 2.1% LEISURE DURABLES - 2.1% Champion Enterprises, Inc. (a) 25,600 934,400 REAL ESTATE - 1.3% SUBDIVIDED REAL ESTATE DEVELOP - 1.3% Newhall Land & Farming Co. 41,400 600,300 RETAIL & WHOLESALE, MISCELLANEOUS - 10.0% BUILDING MATERIALS - RETAIL - 3.4% Home Depot, Inc. (The) 33,266 1,505,287 LUMBER & BUILDING MATERIALS - RETAIL - 6.6% Lowe's Companies, Inc. 82,200 2,969,475 TOTAL RETAIL & WHOLESALE, MISCELLANEOUS 4,474,762 TEXTILES & APPAREL - 3.8% CARPETS & RUGS - 3.5% Interface, Inc. Class A 78,200 1,036,150 Mohawk Industries Inc. (a) 20,206 358,657 Shaw Industries, Inc. 10,500 182,438 1,577,245 FOOTWEAR - 0.3% Justin Industries Inc. 9,900 118,800 TOTAL TEXTILES & APPAREL 1,696,045 TOTAL COMMON STOCKS (Cost $39,932,744) 42,820,143 REPURCHASE AGREEMENTS - 4.3% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 1,928,259 1,928,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $41,860,744) $ 44,748,143 LEGEND 1. Non-income producing 2. Restricted securities - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on each holding is as follows: ACQUISITION ACQUISITION SECURITY DATE COST National Gypsum Co. 7/5/94 $ 323,750 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $7,781,012 and $29,697,501, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $9,565 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $2,951,000 and $1,993,222, respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $41,864,433. Net unrealized appreciation aggregated $2,883,710, of which $6,152,443 related to appreciated investment securities and $3,268,733 related to depreciated investment securities. CONSTRUCTION AND HOUSING PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 44,748,143 at value (including repurchase agreements of $1,928,000) (cost $41,860,744) - See accompanying schedule Cash 373 Receivable for fund 4,202,217 shares sold Dividends receivable 75,431 Redemption fees 73 receivable Other receivables 75 Prepaid expenses 16,965 TOTAL ASSETS 49,043,277 LIABILITIES Payable for fund shares $ 385,049 redeemed Accrued management 22,739 fee Other payables and 50,512 accrued expenses TOTAL LIABILITIES 458,300 NET ASSETS $ 48,584,977 Net Assets consist of: Paid in capital $ 43,418,127 Undistributed net 27,519 investment income Accumulated 2,251,932 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 2,887,399 appreciation (depreciation) on investments NET ASSETS, for $ 48,584,977 2,659,628 shares outstanding NET ASSET VALUE and $18.27 redemption price per share ($48,584,977 (divided by) shares) Maximum offering price $18.84 per share (100/97 of $18.27)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 406,517 Dividends Interest 31,662 TOTAL INCOME 438,179 EXPENSES Management fee $ 165,481 Transfer agent 220,365 Fees Redemption fees (32,050 ) Accounting fees and 26,878 expenses Non-interested trustees' 178 compensation Custodian fees and 5,540 expenses Registration fees 16,965 Audit 11,223 Legal 575 Interest 2,065 Reports to shareholders 4,013 Miscellaneous 133 Total expenses before 421,366 reductions Expense reductions (4,329 417,037 ) NET INVESTMENT INCOME 21,142 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 2,278,069 Foreign currency (56 2,278,013 transactions ) Change in net unrealized (8,014,856 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (5,736,843 ) NET INCREASE $ (5,715,701 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $97,350 Sales Charges Paid to FDC Deferred sales $2,837 charges withheld by FDC Exchange fees $25,553 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 21,142 $ 11,881 Net investment income Net realized gain (loss) 2,278,013 1,149,357 Change in net unrealized appreciation (depreciation) (8,014,856 7,883,107 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,715,701 9,044,345 ) Distributions to shareholders from net realized gain (330,062 (529,457 ) ) Share transactions 18,580,801 103,244,564 Net proceeds from sales of shares Reinvestment of distributions 327,212 523,498 Cost of shares redeemed (45,294,486 (62,476,673 ) ) Paid in capital portion of redemption fees 18,070 81,997 Net increase (decrease) in net assets resulting from share transactions (26,368,403 41,373,386 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (32,414,166 49,888,274 ) NET ASSETS Beginning of period 80,999,143 31,110,869 End of period (including undistributed net investment income of $27,519 and $12,162, $ 48,584,977 $ 80,999,143 respectively) OTHER INFORMATION Shares Sold 1,000,109 5,578,570 Issued in reinvestment of distributions 17,276 28,856 Redeemed (2,444,360 (3,497,427 ) ) Net increase (decrease) (1,426,975 2,109,999 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 19.82 $ 15.74 $ 13.84 $ 11.76 $ 11.66 $ 13.01 Income from Investment Operations Net investment income (loss) .01 .01 .02 (.06) .01 - Net realized and unrealized gain (loss) (1.47) 4.26 1.87 2.93 1.45 .34 Total from investment operations (1.46) 4.27 1.89 2.87 1.46 .34 Less Distributions From net investment income - - - - (.16) (.08) From net realized gain (.10) (.22) (.01) (.88) (1.27) (1.62) Total distributions (.10) (.22) (.01) (.88) (1.43) (1.70) Redemption fees added to paid in capital .01 .03 .02 .09 .07 .01 Net asset value, end of period $ 18.27 $ 19.82 $ 15.74 $ 13.84 $ 11.76 $ 11.66 TOTAL RETURND, E (7.33)% 27.45% 13.81% 26.96% 13.46% 2.39% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 48,585 $ 80,999 $ 31,111 $ 26,687 $ 4,070 $ 1,217 Ratio of expenses to average net assetsB 1.54%A 1.66% 2.02%A 2.50% 2.48% 2.41% Ratio of expenses to average net assets before 1.55%A 1.67% 2.02%A 3.10% 3.48% 3.30% expense reductionsB Ratio of net investment income (loss) to average net .08%A .03% .20%A (.49)% .08% (.03)% assets Portfolio turnover rate 29%A 35% 60%A 183% 137% 185%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. ENVIRONMENTAL SERVICES PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S ENVIRONMENTAL SERVICES -8.38% -1.09% 7.49% 17.71% ENVIRONMENTAL SERVICES (INCL. 3% SALES CHARGE) -11.13% -4.05% 4.27% 14.17% S&P 500 3.26% 5.47% 58.16% 71.62% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five yearse, or since the fund started on June 29, 1989. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND ENVIRONMENTAL SERVICES -1.09% 1.46% 3.20% ENVIRONMENTAL SERVICES (INCL. 3% SALES CHARGE) -4.05% 0.84% 2.59% S&P 500 5.47% 9.60% 10.99% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Envir. Services (516) Standard & Poor's 5 06/29/89 9700.00 10000.00 06/30/89 9573.90 9761.13 07/31/89 10485.70 10642.57 08/31/89 10621.50 10851.16 09/30/89 11193.80 10806.67 10/31/89 10941.60 10555.96 11/30/89 11009.50 10771.30 12/31/89 11368.64 11029.81 01/31/90 10358.96 10289.71 02/28/90 10562.84 10422.44 03/31/90 11019.14 10698.64 04/30/90 11077.39 10431.17 05/31/90 12106.49 11448.21 06/30/90 12485.12 11370.37 07/31/90 12407.45 11333.98 08/31/90 10863.80 10309.39 09/30/90 10281.29 9807.32 10/31/90 10135.66 9765.15 11/30/90 10485.17 10395.98 12/31/90 11087.10 10686.03 01/31/91 12057.94 11151.94 02/28/91 12611.33 11949.30 03/31/91 12611.33 12238.47 04/30/91 12572.49 12267.85 05/31/91 12601.62 12797.82 06/30/91 11650.19 12211.68 07/31/91 12019.11 12780.74 08/31/91 12232.70 13083.64 09/30/91 11941.44 12865.15 10/31/91 11494.85 13037.54 11/30/91 10863.80 12512.13 12/31/91 11936.56 13943.51 01/31/92 13005.20 13684.17 02/29/92 13146.34 13862.06 03/31/92 11835.74 13591.75 04/30/92 11482.89 13991.35 05/31/92 11190.52 14059.90 06/30/92 10592.18 13850.41 07/31/92 10665.30 14416.89 08/31/92 10445.94 14121.35 09/30/92 10571.29 14287.98 10/31/92 11072.70 14337.99 11/30/92 11762.13 14826.91 12/31/92 11772.57 15009.28 01/31/93 12002.39 15135.36 02/28/93 11866.59 15341.20 03/31/93 11574.10 15664.90 04/30/93 11333.84 15285.81 05/31/93 11584.55 15695.47 06/30/93 11438.30 15740.99 07/31/93 10957.79 15678.02 08/31/93 11542.76 16272.22 09/30/93 11553.21 16146.93 10/31/93 11877.03 16481.17 11/30/93 11354.74 16324.60 12/31/93 11699.45 16522.12 01/31/94 12691.82 17083.88 02/28/94 12462.01 16620.90 03/31/94 11333.84 15896.23 04/30/94 11521.87 16099.70 05/31/94 11490.53 16363.74 06/30/94 10801.10 15962.83 07/31/94 11030.91 16486.41 08/31/94 11417.41 17162.35 Let's say you invested $10,000 in Fidelity Select Environmental Services Portfolio on June 29, 1989, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $11,417 - a 14.17% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $17,162 over the same period - a 71.62% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Thermedics, Inc. 7.6 Thermo Electron Corp. 6.2 TETRA Technologies, Inc. 5.7 United Waste Systems, Inc. 4.8 Attwoods PLC ADR 4.6 Heidemij NV 4.1 USA Waste Services, Inc. 3.0 EA Engineering Science & Technology, Inc. 2.6 OHM Corp. 2.4 TRC Companies, Inc. 2.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 45.1 Row: 1, Col: 2, Value: 5.9 Row: 1, Col: 3, Value: 6.2 Row: 1, Col: 4, Value: 7.9 Row: 1, Col: 5, Value: 15.5 Row: 1, Col: 6, Value: 19.4 Refuse Systems 19.4% Pollution Equipment & Design 15.5% Hazardous Waste Management 7.9% Steam Supply 6.2% Business Consulting Services 5.9% All Others 45.1%* * INCLUDES SHORT-TERM INVESTMENTS ENVIRONMENTAL SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Philip Barton, Portfolio Manager of Fidelity Select Environmental Services Portfolio Q. PIP, HOW DID THE FUND PERFORM? A. For the six months ended August 31, 1994, the fund had a total return of - -8.38%, and for the year ended August 31, the fund returned -1.09%. Both numbers lagged the S&P 500's return of 3.26% and 5.47% for six months and one year, respectively. Q. WHAT WAS BEHIND THE FUND'S SUB-PAR PERFORMANCE? A. There were a number of factors. First, during the second quarter of 1994, the market contracted due to higher interest rates, affecting a number of the fund's small company positions. Investors could find higher returns in less risky investments, so they were less willing to take risk. Second, the fund's assets decreased during the period because of redemptions, and some of the investments were difficult to sell, so they stayed in the portfolio and adversely affected performance. Finally, there were specific holdings and subsectors within the fund that performed poorly. Q. WHICH INVESTMENTS DISAPPOINTED? A. USA Waste and OHM, which at one point during the period accounted for about 14% of the fund, dropped about 40% combined. USA Waste was the fund's biggest holding among secondary market waste companies, those that offer services in specific regions. The company overpaid for an acquisition in January and waited until June to file documents with the Securities and Exchange Commission for the purchase, and the stock dropped. OHM had a great deal of success bidding for government clean-up contracts, but suffered from poor press involving a dispute with a customer. There is always an element of risk with clean-up companies, but I believe this is a good company, and the stock price has started to bounce back. Q. DID ANY GROUPS OF STOCKS PERFORM POORLY? A. There were problems in the hazardous waste sector. I owned American Ecology, a specialist in the area of low-level radioactive waste, which went down because of concerns about permitting. In addition, the fund's investments in consulting firms - such as Roy Weston, EMCON and Harding Associates - performed below expectations, even though the fund bought many of them below book value. Growth has been slow for consulting businesses due to sluggish spending by private companies, which also look for price breaks when they contract with consultants. Q. WHAT WERE SOME OF THE POSITIVE STORIES FROM THE PERIOD? A. Three come to mind. First, Thermedics, the fund's biggest investment at the end of the period, an environmental and quality control instrumentation business. The company's earnings and operating income have been growing, driven by demand for new products including quality assurance products for the beverage industry. Second, TETRA Technologies, a chemical recycler. The company primarily handles industrial calcium chloride waste, which it processes and sells as fluids to protect drilling equipment. Finally, IMCO Recycling, the world's largest recycler of aluminum. This is a high-volume business where only a small increase in gross profit per pound can meaningfully help earnings. Q. WHAT HAS THE STRUCTURE OF THE FUND LOOKED LIKE SINCE YOU TOOK OVER? A. I'd say it is a hybrid of growth and cyclical stocks. On the one hand, I've focused on high growth, "new age" companies that are providing advanced technology designed to help companies comply with environmental regulations. On the other hand, there is a significant component of traditional, late cyclical stocks in the portfolio. Cyclical stocks are those that tend to increase in value as the economy improves, or decrease in value when the economy performs poorly. Waste companies are benefiting from the economic recovery because an increase in economic activity inevitably results in greater generation of waste. Most of my investments in this area are secondary market waste companies, because the business is regional and determined by specific market conditions. Secondary market waste investments include Sanifill, Western Waste and United Waste. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I'm very positive about the sector. Solid waste companies are cyclicals that perform best in the latter stages of a recovery. These fixed-cost businesses are seeing better volumes from commercial and industrial customers and their pricing is improving. And instrumentation companies are starting new product cycles or making acquisitions that should lead to cost savings. I also think there are some great opportunities out there in stocks whose prices have bottomed. FUND FACTS START DATE: June 29, 1989 SIZE: as of August 31, 1994, more than $52 million MANAGER: Philip Barton, since August 1993; manager, Fidelity Select Developing Communications Portfolio, January 1993 to August 1993; Senior European technology analyst, Fidelity International, London, 1989-1993; joined Fidelity in 1986 (checkmark) ENVIRONMENTAL SERVICES PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.5% SHARES VALUE (NOTE 1) AUTOS, TIRES, & ACCESSORIES - 0.4% AUTO & TRUCK PARTS - 0.4% Williams Controls, Inc. (a) 70,000 $ 188,125 BUILDING MATERIALS - 2.9% AIRCONDITIONING EQUIPMENT - 0.6% Thermo Power Corp. (a) 35,300 313,288 FURNACES - 2.3% Thermo Process Systems, Inc. (a) 49,900 405,438 Thermo Remediation 52,600 795,575 1,201,013 TOTAL BUILDING MATERIALS 1,514,301 CHEMICALS & PLASTICS - 0.8% PLASTICS, NEC - 0.8% ESSEF Industries Inc. (a) 30,000 427,500 COMPUTER SERVICES & SOFTWARE - 0.7% PREPACKAGED COMPUTER SOFTWARE - 0.7% Micro Focus Group, PLC ADR (a) 15,000 196,875 Telepanel Systems, Inc. (a) 79,500 180,279 377,154 CREDIT & OTHER FINANCE - 1.8% FINANCIAL SERVICES - 1.8% Acmat Corp. Class A (a) 110,000 962,500 DRUGS & PHARMACEUTICALS - 1.7% COMMERCIAL LABORATORY RESEARCH - 1.7% Thermotrex Corp. (a) 47,000 646,250 Zenon Environmental, Inc. (a) 44,000 273,582 919,832 ELECTRICAL EQUIPMENT - 1.2% TV & RADIO COMMUNICATION EQUIPMENT - 1.2% California Amplifier, Inc. (a) 144,300 649,350 ELECTRONIC INSTRUMENTS - 5.0% INDUSTRIAL MEASUREMENT INSTRUMENTS - 1.3% TSI, Inc. 73,800 682,650 LABORATORY & RESEARCH EQUIPMENT - 1.8% Microfluidics International Corp. (a) 203,300 940,263 MEASURING INSTRUMENTS - 1.9% Andros, Inc. (a) 10,000 165,000 Liberty Technologies, Inc. (a) 171,900 859,500 1,024,500 TOTAL ELECTRONIC INSTRUMENTS 2,647,413 ELECTRONICS - 1.8% SEMICONDUCTORS - 1.8% Geotek Industries, Inc. (a) 80,800 919,100 Integrated Circuit Systems, Inc. (a) 3,500 36,750 955,850 ENERGY SERVICES - 2.0% OIL & GAS SERVICES - 2.0% Serv-Tech, Inc. 112,700 1,070,650 ENGINEERING - 3.2% ARCHITECTS & ENGINEERS - 2.6% EA Engineering Science & Technology, Inc. (a) 136,800 1,368,000 SPECIAL CONTRACTORS - 0.1% Matrix Service Co. (a) 7,000 47,250 WATER & SEWER PIPES - 0.5% UTILX Corporation (a) 67,500 253,125 TOTAL ENGINEERING 1,668,375 SHARES VALUE (NOTE 1) FOODS - 0.7% CEREAL BREAKFAST FOODS - 0.7% Ralcorp Holdings, Inc. (a) 20,000 $ 347,500 INDEPENDENT POWER - 6.2% STEAM SUPPLY - 6.2% Thermo Electron Corp. (a) 73,550 3,300,556 INDUSTRIAL MACHINERY & EQUIPMENT - 2.8% MEASURING & DISPENSING PUMPS - 1.3% Total Containment, Inc. (a) 55,000 715,000 SERVICE INDUSTRY MACHINERY, NEC - 1.5% Trojan Technologies (a) 111,400 774,149 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 1,489,149 MEDICAL EQUIPMENT & SUPPLIES - 7.6% MEDICAL TECHNOLOGY - 7.6% Thermedics, Inc. (a) 269,400 4,041,000 MEDICAL FACILITIES MANAGEMENT - 1.3% MEDICAL LABORATORIES - 1.3% Huntingdon International Holdings PLC ADR 130,300 700,363 METALS & MINING - 1.8% SECONDARY NONFERROUS SMELTING - 1.8% IMCO Recycling, Inc. (a) 59,300 941,388 PACKAGING & CONTAINERS - 0.1% METAL CANS & SHIPPING CONTAINERS - 0.1% Air Packaging Technologies, Inc. (a) 54,300 29,791 POLLUTION CONTROL - 46.0% HAZARDOUS WASTE MANAGEMENT - 7.9% American Ecology Corp. 125,500 1,004,000 GNI Group, Inc. (a) 187,500 656,250 OHM Corp. (a) 104,000 1,287,000 TRC Companies, Inc. (a) 122,600 1,226,000 4,173,250 POLLUTION EQUIPMENT & DESIGN - 15.5% Davis Water & Waste Industries, Inc. (a) 27,900 240,638 EMCON Associates (a) 93,600 573,300 Envirosource, Inc. (a) 17,600 61,600 Envirotest Systems Corp. (a) 25,000 400,000 GZA Geo Environmental Technologies, Inc. (a) 91,100 580,763 Harding Associates Inc. (a) 89,300 513,475 MFRI, Inc. (a) 100,000 700,000 Sevenson Environmental Services, Inc. 34,200 607,050 TETRA Technologies, Inc. (a) 314,600 3,028,025 Tetra Tech, Inc. (a) 40,000 930,000 Thermo Instrument Systems, Inc. (a) 3,150 96,469 Weston (Roy F.), Inc. Class A (a) 92,700 521,438 8,252,758 REFUSE SYSTEMS - 19.4% Air & Water Technologies Corp.Class A (a) 64,500 564,375 Attwoods PLC ADR 281,400 2,462,250 Biomedical Waste Systems, Inc. 100,000 212,500 Browning-Ferris Industries, Inc. 20,000 632,500 International Recovery Corp. 8,200 121,975 Laidlaw, Inc. Class B (a) 25,000 203,449 Rollins Environmental Services, Inc. 100,000 612,500 Sanifill, Inc. (a) 44,500 1,068,000 United Waste Systems, Inc. (a) 110,500 2,569,125 WMX Technologies, Inc. 34,000 1,020,000 Western Waste Industries, Inc. (a) 45,600 872,100 10,338,774 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) POLLUTION CONTROL - CONTINUED SANITARY SERVICES - 3.2% Allwaste, Inc. (a) 15,000 $ 99,375 USA Waste Services, Inc. (a) 108,300 1,583,888 1,683,263 TOTAL POLLUTION CONTROL 24,448,045 SECURITIES INDUSTRY - 0.7% SECURITY BROKERS & DEALERS - 0.7% Lehman Brothers Holdings, Inc. 23,000 373,750 SERVICES - 6.8% BUSINESS CONSULTING SERVICES - 5.9% Earth Technology Corp. (USA) (a) 111,900 993,113 Heidemij NV (a) 211,800 2,170,943 3,164,056 BUSINESS SERVICES - 0.5% Marcum Natural Gas Services, Inc. (a) 27,600 113,850 Vectra Technologies (a) 45,000 174,375 288,225 MISCELLANEOUS PERSONAL SERVICES - 0.2% Thermolase Corp. (a) 12,618 116,717 SPECIAL WAREHOUSING & STORAGE, NEC - 0.2% Astrotech International Corp. (a) 29,300 89,731 TOTAL SERVICES 3,658,729 TOTAL COMMON STOCKS (Cost $53,750,694) 50,711,321 REPURCHASE AGREEMENTS - 4.5% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 2,424,325 2,424,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $56,174,694) $ 53,135,321 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $24,022,200 and $33,716,885, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $18,775 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $1,368,000 and $1,248,000, respectively. The weighted average interest rate paid was 4.3% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 86.5% United Kingdom 6.7 Netherlands 4.1 Canada 2.7 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $56,366,435. Net unrealized depreciation aggregated $3,231,114, of which $3,446,538 related to appreciated investment securities and $6,677,652 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $289,000 which will expire on February 28, 2001. ENVIRONMENTAL SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 53,135,321 at value (including repurchase agreements of $2,424,000) (cost $56,174,694) - See accompanying schedule Cash 849 Receivable for 276,283 investments sold Receivable for fund 164,562 shares sold Dividends receivable 10,489 Redemption fees 81 receivable Other receivables 62,040 Prepaid expenses 7,655 TOTAL ASSETS 53,657,280 LIABILITIES Payable for investments $ 413,090 purchased Payable for fund shares 363,235 redeemed Accrued management 25,629 fee Other payables and 59,351 accrued expenses TOTAL LIABILITIES 861,305 NET ASSETS $ 52,795,975 Net Assets consist of: Paid in capital $ 55,624,943 Accumulated net (335,433 investment (loss) ) Accumulated 545,838 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized (3,039,373 appreciation ) (depreciation) on investments NET ASSETS, for $ 52,795,975 4,828,744 shares outstanding NET ASSET VALUE and $10.93 redemption price per share ($52,795,975 (divided by) shares) Maximum offering price $11.27 per share (100/97 of $10.93)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 128,233 Dividends Interest 16,555 TOTAL INCOME 144,788 EXPENSES Management fee $ 155,382 Transfer agent 303,153 Fees Redemption fees (31,062 ) Accounting fees and 25,485 expenses Non-interested trustees' 154 compensation Custodian fees and 6,638 expenses Registration fees 7,655 Audit 10,726 Legal 558 Interest 1,478 Reports to shareholders 5,159 Miscellaneous 99 Total expenses before 485,425 reductions Expense reductions (5,204 480,221 ) NET INVESTMENT INCOME (335,433 (LOSS) ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,048,864 Foreign currency 35 1,048,899 transactions Change in net unrealized (5,890,481 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (4,841,582 ) NET INCREASE $ (5,177,015 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $56,455 Sales Charges Paid to FDC Deferred sales $13,278 charges withheld by FDC Exchange fees $24,803 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (335,433 $ (575,756 Net investment income (loss) ) ) Net realized gain (loss) 1,048,899 1,694,174 Change in net unrealized appreciation (depreciation) (5,890,481 1,070,736 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,177,015 2,189,154 ) Share transactions 20,399,608 46,687,197 Net proceeds from sales of shares Cost of shares redeemed (28,399,996 (48,886,268 ) ) Paid in capital portion of redemption fees 17,595 53,169 Net increase (decrease) in net assets resulting from share transactions (7,982,793 (2,145,902 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (13,159,808 43,252 ) NET ASSETS Beginning of period 65,955,783 65,912,531 End of period (including accumulated net investment (loss) of $(335,433) and $0, $ 52,795,975 $ 65,955,783 respectively) OTHER INFORMATION Shares Sold 1,899,027 4,126,128 Redeemed (2,597,584 (4,401,687 ) ) Net increase (decrease) (698,557 (275,559 ) )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, JUNE 29, 1989 ENDED FEBRUARY 28, ENDED (COMMENCEMEN AUGUST 31, 1994 FEBRUARY 28, T OF OPERATIONS) TO APRIL 30, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 11.93 $ 11.36 $ 11.39 $ 12.95 $ 11.41 $ 10.00 Income from Investment Operations Net investment income (loss) (.07) (.11) (.06) (.09) (.04) .02 Net realized and unrealized gain (loss) (.93) .67 .42 (1.06) 1.55 1.38 Total from investment operations (1.00) .56 .36 (1.15) 1.51 1.40 Less Distributions From net investment income - - - - - (.01) From net realized gain - - (.39) (.42) - - Total distributions - - (.39) (.42) - (.01) Redemption fees added to paid in capital - .01 - .01 .03 .02 Net asset value, end of period $ 10.93 $ 11.93 $ 11.36 $ 11.39 $ 12.95 $ 11.41 TOTAL RETURND, E (8.38)% 5.02% 3.34% (8.67)% 13.50% 14.20% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 52,796 $ 65,956 $ 65,913 $ 65,132 $ 100,263 $ 101,736 Ratio of expenses to average net assetsB 1.88%A 2.03% 1.99%A 2.03% 2.03% 2.25%A Ratio of expenses to average net assets before 1.90%A 2.07% 1.99%A 2.03% 2.03% 2.25%A expense reductionsB Ratio of net investment income (loss) to average (1.32)% (1.02) (.70)% (.74)% (.30)% .16%A net assets A % A Portfolio turnover rate 95%A 191% 176%A 130% 122% 72%A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. INDUSTRIAL EQUIPMENT PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S INDUSTRIAL EQUIPMENT -2.66% 11.13% 72.56% 113.93% INDUSTRIAL EQUIPMENT (INCL. 3% SALES CHARGE) -5.58% 7.80% 67.38% 107.51% S&P 500 3.26% 5.47% 58.16% 164.55% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on September 29, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND INDUSTRIAL EQUIPMENT 11.13% 11.53% 10.07% INDUSTRIAL EQUIPMENT (INCL. 3% SALES CHARGE) 7.80% 10.85% 9.64% S&P 500 5.47% 9.60% 13.05% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Ind.Equipment (510) Standard & Poor's 09/29/86 9700.00 10000.00 09/30/86 9729.10 9962.80 10/31/86 10039.50 10537.66 11/30/86 10291.70 10793.72 12/31/86 10311.10 10518.48 01/31/87 11804.90 11935.32 02/28/87 12804.00 12406.77 03/31/87 12580.90 12765.32 04/30/87 12367.50 12651.71 05/31/87 12357.80 12761.78 06/30/87 12707.00 13406.25 07/31/87 13483.00 14085.95 08/31/87 14084.40 14611.35 09/30/87 14414.20 14291.37 10/31/87 8759.10 11213.00 11/30/87 8361.40 10289.05 12/31/87 9357.40 11072.05 01/31/88 9188.17 11538.18 02/29/88 10024.36 12075.86 03/31/88 10173.68 11702.72 04/30/88 10472.32 11832.62 05/31/88 10412.60 11935.56 06/30/88 11149.24 12483.41 07/31/88 10561.92 12435.97 08/31/88 9606.27 12013.15 09/30/88 9785.45 12524.91 10/31/88 9626.18 12873.10 11/30/88 9317.58 12689.01 12/31/88 9815.31 12911.07 01/31/89 10532.05 13856.16 02/28/89 10113.95 13511.14 03/31/89 10263.28 13825.95 04/30/89 10999.92 14543.52 05/31/89 11597.20 15132.53 06/30/89 11099.47 15046.28 07/31/89 11806.25 16404.95 08/31/89 12025.25 16726.49 09/30/89 11856.02 16657.91 10/31/89 11069.60 16271.45 11/30/89 11378.20 16603.39 12/31/89 11577.29 17001.87 01/31/90 11189.06 15861.04 02/28/90 11756.48 16065.65 03/31/90 12453.30 16491.39 04/30/90 12353.76 16079.11 05/31/90 13498.55 17646.82 06/30/90 13258.63 17526.82 07/31/90 13008.09 17470.73 08/31/90 10863.46 15891.38 09/30/90 9390.28 15117.47 10/31/90 9139.74 15052.46 11/30/90 9440.38 16024.85 12/31/90 9781.12 16471.95 01/31/91 10823.37 17190.12 02/28/91 11845.58 18419.22 03/31/91 11745.36 18864.96 04/30/91 11625.10 18910.24 05/31/91 12116.16 19727.16 06/30/91 11725.01 18823.66 07/31/91 11825.31 19700.84 08/31/91 12005.85 20167.75 09/30/91 12286.69 19830.95 10/31/91 12216.48 20096.68 11/30/91 11634.74 19286.79 12/31/91 12406.41 21493.19 01/31/92 13519.55 21093.42 02/29/92 14480.89 21367.64 03/31/92 14055.87 20950.97 04/30/92 14055.87 21566.92 05/31/92 14167.19 21672.60 06/30/92 13296.92 21349.68 07/31/92 13418.35 22222.88 08/31/92 12720.11 21767.31 09/30/92 12983.22 22024.17 10/31/92 12932.62 22101.25 11/30/92 13549.90 22854.91 12/31/92 13813.01 23136.02 01/31/93 14460.65 23330.36 02/28/93 15219.61 23647.66 03/31/93 15492.83 24146.62 04/30/93 16201.66 23562.27 05/31/93 17011.75 24193.74 06/30/93 17234.52 24263.90 07/31/93 17477.55 24166.85 08/31/93 18672.42 25082.77 09/30/93 18459.77 24889.63 10/31/93 19077.46 25404.85 11/30/93 19057.21 25163.50 12/31/93 19798.03 25467.98 01/31/94 20728.98 26333.89 02/28/94 21318.57 25620.25 03/31/94 20087.66 24503.20 04/30/94 19905.86 24816.84 05/31/94 19498.98 25223.84 06/30/94 18497.43 24605.86 07/31/94 19373.78 25412.93 08/31/94 20750.92 26454.86 Let's say you invested $10,000 in Fidelity Select Industrial Equipment Portfolio on September 29, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $20,751 - a 107.51% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $26,455 over the same period - a 164.55% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Caterpillar, Inc. 10.3 Harnischfeger Industries, Inc. 6.6 Joy Technologies, Inc. Class A 6.4 Goulds Pumps, Inc. 6.0 Cooper Industries, Inc. 5.9 Trinity Industries, Inc. 5.4 International Business Machines Corp. 5.1 Finning Ltd. 4.2 NACCO Industries, Inc. Class A 4.0 TRINOVA Corp. 3.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 33.2 Row: 1, Col: 2, Value: 5.4 Row: 1, Col: 3, Value: 6.4 Row: 1, Col: 4, Value: 10.1 Row: 1, Col: 5, Value: 16.0 Row: 1, Col: 6, Value: 28.9 General Industrial Machinery 28.9% Construction Equipment 16.0% Pumping Equipment 10.1% Mining & Handling Equipment 6.4% Railroad Equipment 5.4% All Others 33.2%* * INCLUDES SHORT-TERM INVESTMENTS INDUSTRIAL EQUIPMENT PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Albert Ruback, Portfolio Manager of Fidelity Select Industrial Equipment Portfolio Q. ALBERT, HOW DID THE FUND PERFORM? A. It turned in mixed results. Over the six months and year ended August 31, 1994, the fund had total returns of -2.66% and 11.13%, respectively. This compares to the S&P 500, which returned 3.26% and 5.47% for the same periods. Q. WHY DID IT UNDER-PERFORM THE S&P 500 OVER THE PAST SIX MONTHS? A. I think the fund's under-performance was mostly due to larger economic factors. During the period, the Federal Reserve Board raised short-term interest rates five times, which pushed bond yields up and prices down. Shortly after, the general stock market fell in response to the slowing bond market. The drop in stocks strongly affected cyclical stocks - those that tend to do well when the economy improves or poorly when the economy is weak -which make up the bulk of this fund. The general economic picture started turning around in August when fears about the bond market lessened and stocks started looking more positive. Q. HOW DID THE UPTURN IN AUGUST AFFECT THE FUND? A. In the month of August alone, the fund was up 7.11%. Caterpillar, the fund's single biggest holding, was up about 6% on news that John Deere, another major cyclical stock, had a strong third fiscal quarter. The fund's performance was also boosted in August when Harnischfeger, a paper machinery and surface-mining machinery company, acquired Joy Technologies, a large underground-mining machinery company. The fund profited because it owned both stocks. Q. WHAT OTHER STOCKS LOOKED LIKE GOOD INVESTMENTS? A. The diversified manufacturing company Cooper Industries was attractive. I bought this company at an inexpensive price because its petroleum division had under-performed. However, I think Cooper, which has excellent management and a history of great returns, will be a solid investment going forward. Another company, Goulds Pumps - a late-cycle cyclical stock - recently hired an enthusiastic new CEO, who I think could improve the company's profitability. Q. WHEN YOU REFER TO GOULDS PUMPS AS A LATE-CYCLE CYCLICAL STOCK, WHAT DO YOU MEAN? A. A late-cycle cyclical stock typically turns in its strongest performance later in an economic upturn. Early-cycle cyclical stocks, like auto makers, pick up right at the beginning of an economic upturn. Q. CAN YOU PROVIDE AN EXAMPLE OF ANOTHER LATE-CYCLE CYCLICAL? A. Sure. Let's look at paper machinery companies. When the economy improves, paper use increases, but this demand can be satisfied with inventories that have built up at paper manufacturers and throughout the distribution channel. However, when inventories decline, paper manufacturers often need to operate their machinery at higher rates to satisfy the increased demand and rebuild their depleted inventories. Because of high usage, the paper manufacturers' machinery may start breaking down, and they may need to order spare parts, such as water pumps made by Goulds Pumps, to repair their paper-making machinery. Paper companies may also contact a paper machinery company, such as Harnischfeger, to buy new equipment. Q. DO YOU REGRET ANY OF THE INVESTMENT DECISIONS YOU MADE OVER THE PAST SIX MONTHS? A. Yes. I wish I'd taken profits out of the railroad equipment company Trinity Industries sooner. My biggest regret, however, is one I had no control over. The fund began the calendar year with about $85 million in assets. In March it hit around $218 million, as investors flooded into the market to take advantage of peaking cyclical stocks. By the end of the period, the fund's assets had trickled back down to about $90 million. This meant that I had to buy stocks when prices were elevated and sell them when prices were depressed. Q. WHAT'S YOUR OUTLOOK GOING FORWARD? A. I'm not that optimistic because the gap between my own expectations for earnings in this sector and Wall Street estimates has narrowed. This works against the fund's strategy of buying companies that have earnings growth far beyond what the general investing public expects. FUND FACTS START DATE: September 29, 1986 SIZE: as of August 31, 1994, more than $89 million MANAGER: Albert Ruback, since September 1991; joined Fidelity in 1991 (checkmark) INDUSTRIAL EQUIPMENT PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.1% SHARES VALUE (NOTE 1) AUTOS, TIRES, & ACCESSORIES - 8.8% AUTO & TRUCK PARTS - 3.2% Titan Wheel International, Inc. 99,200 $ 2,802,396 INDUSTRIAL TRUCKS - 4.0% NACCO Industries, Inc. Class A 57,600 3,592,800 MOTOR VEHICLES & CAR BODIES - 1.6% Spartan Motors, Inc. 86,500 1,394,813 TOTAL AUTOS, TIRES, & ACCESSORIES 7,790,009 BUILDING MATERIALS - 1.6% AIRCONDITIONING EQUIPMENT - 1.6% Tecumseh Products Co. Class A 28,200 1,381,800 COMPUTERS & OFFICE EQUIPMENT - 5.1% MAINFRAME COMPUTERS - 5.1% International Business Machines Corp. 66,700 4,577,288 ENGINEERING - 0.9% ARCHITECTS & ENGINEERS - 0.9% Corrpro Companies, Inc. (a) 54,000 769,500 HOLDING COMPANIES - 0.1% HOLDING COMPANY OFFICES, NEC - 0.1% Brierley Investments Ltd. 137,382 108,550 INDUSTRIAL MACHINERY & EQUIPMENT - 73.2% AIR & GAS COMPRESSORS - 0.1% Gardner Denver Machinery, Inc. (a) 4,968 45,954 BALL & ROLLER BEARINGS - 2.3% Bearings, Inc. 60,700 1,972,750 SKF AB sponsored ADR (a) 4,900 88,506 2,061,256 CONSTRUCTION & MINING EQUIPMENT - 0.2% Champion Road Machinery Ltd. (b) 22,800 195,969 CONSTRUCTION EQUIPMENT - 16.0% Astec Industries, Inc. (a) 90,600 1,211,775 Caterpillar, Inc. 79,200 9,147,600 Finning Ltd. 225,100 3,704,876 Indresco, Inc. (a) 14,000 185,500 14,249,751 ENGINES & TURBINES - 1.6% Briggs & Stratton Corp. 18,400 1,419,100 FARM MACHINERY & EQUIPMENT - 0.3% Valmont Industries, Inc. 14,000 227,500 GENERAL INDUSTRIAL MACHINERY - 28.9% Cooper Industries, Inc. 132,900 5,266,163 Dover Corp. 25,000 1,446,875 Harnischfeger Industries, Inc. 253,800 5,869,125 Manitowoc Co., Inc. 30,400 801,800 Park-Ohio Industries, Inc. (a) 203,300 2,846,200 Parker-Hannifin Corp. 55,800 2,343,600 Regal-Beloit Corp. 152,800 2,120,100 TRINOVA Corp. 78,200 2,952,050 Watts Industries, Inc. Class A 85,400 2,092,300 25,738,213 MACHINE TOOLS, METAL CUTTING - 3.4% Cincinnati Milacron, Inc. 113,400 2,664,900 Greenfield Industries, Inc. 16,800 365,400 3,030,300 METAL WORKING MACHINERY - 1.3% Acme-Cleveland Corp. 92,800 1,160,000 SHARES VALUE (NOTE 1) MINING & HANDLING EQUIPMENT - 6.4% Joy Technologies, Inc. Class A (a) 458,099 $ 5,726,238 PUMPING EQUIPMENT - 10.1% Amtrol, Inc. 30,200 528,500 BWIP Holdings, Inc. Class A 85,500 1,539,000 Duriron Company, Inc. 6,750 124,875 Goulds Pumps, Inc. 247,700 5,356,513 IDEX Corp. (a) 6,700 272,188 Keystone International, Inc. 58,000 1,160,000 8,981,076 SPECIAL INDUSTRIAL MACHINERY - 2.6% CMI Corp. Oklahoma Class A 295,600 2,327,850 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 65,163,207 RAILROADS - 5.4% RAILROAD EQUIPMENT - 5.4% Trinity Industries, Inc. 140,450 4,775,300 TOTAL COMMON STOCKS (Cost $85,871,434) 84,565,654 REPURCHASE AGREEMENTS - 4.9% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 4,353,584 4,353,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $90,224,434) $ 88,918,654 LEGEND 1. Non-income producing 2. 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 this security amounted to $195,969 or 0.2% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated compay. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Rexworks, Inc. (a) $ - $ 63,125 $ - $ - OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $97,408,555 and $153,283,769, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $41,143 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $3,887,000 and $2,095,235, respectively. The weighted average interest rate paid was 4.5% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $90,242,202. Net unrealized depreciation aggregated $1,323,548, of which $3,634,917 related to appreciated investment securities and $4,958,465 related to depreciated investment securities. On October 26, 1990, the fund acquired substantially all of the assets of Automation and Machinery Portfolio in a tax-free exchange for shares of Industrial Technology Portfolio. Automation and Machinery Portfolio had a capital loss carryover of approximately $106,000 available to offset future realized capital gains in Industrial Technology Portfolio, to the extent provided by regulations. INDUSTRIAL EQUIPMENT PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 88,918,654 at value (including repurchase agreements of $4,353,000) (cost $90,224,434) - See accompanying schedule Cash 903 Receivable for 739,353 investments sold Receivable for fund 1,509,545 shares sold Dividends receivable 112,202 Redemption fees 304 receivable Prepaid expenses 62,289 TOTAL ASSETS 91,343,250 LIABILITIES Payable for fund shares $ 1,402,138 redeemed Accrued management 45,195 fee Other payables and 123,444 accrued expenses TOTAL LIABILITIES 1,570,777 NET ASSETS $ 89,772,473 Net Assets consist of: Paid in capital $ 92,228,066 Accumulated net (166,988 investment (loss) ) Accumulated (982,990 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized (1,305,615 appreciation ) (depreciation) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 89,772,473 4,513,717 shares outstanding NET ASSET VALUE and $19.89 redemption price per share ($89,772,473 (divided by) shares) Maximum offering price $20.51 per share (100/97 of $19.89)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 844,909 Dividends Interest 198,198 TOTAL INCOME 1,043,107 EXPENSES Management fee $ 440,542 Transfer agent 762,240 Fees Redemption fees (128,821 ) Accounting fees and 71,105 expenses Non-interested trustees' 432 compensation Custodian fees and 9,067 expenses Registration fees 62,289 Audit 11,978 Legal 987 Interest 4,453 Reports to shareholders 6,148 Miscellaneous 166 Total expenses before 1,240,586 reductions Expense reductions (26,563 1,214,023 ) NET INVESTMENT INCOME (170,916 (LOSS) ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (939,957 (including ) realized gain of $11,876 on sales of investments in affiliated issuers) Foreign currency (228 (940,185 transactions ) ) Change in net unrealized appreciation (depreciation) on: Investment securities (15,221,003 ) Assets and liabilities in 165 (15,220,838 foreign ) currencies NET GAIN (LOSS) (16,161,023 ) NET INCREASE $ (16,331,939 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $651,922 Sales Charges Paid to FDC Deferred sales $4,525 charges withheld by FDC Exchange fees $108,008 withheld by FSC
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (170,916 $ 5,878 Net investment income (loss) ) Net realized gain (loss) (940,185 6,549,137 ) Change in net unrealized appreciation (depreciation) (15,220,838 13,055,339 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (16,331,939 19,610,354 ) Distributions to shareholders - (9,388 From net investment income ) From net realized gain (1,803,689 (1,748,414 ) ) TOTAL DISTRIBUTIONS (1,803,689 (1,757,802 ) ) Share transactions 96,152,294 267,189,015 Net proceeds from sales of shares Reinvestment of distributions 1,784,527 1,738,476 Cost of shares redeemed (196,238,863 (95,571,492 ) ) Paid in capital portion of redemption fees 197,799 202,432 Net increase (decrease) in net assets resulting from share transactions (98,104,243 173,558,431 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (116,239,871 191,410,983 ) NET ASSETS Beginning of period 206,012,344 14,601,361 End of period (including undistributed net investment income (loss) of $(166,988) and $3,928, $ 89,772,473 $ 206,012,344 respectively) OTHER INFORMATION Shares Sold 4,762,608 14,282,723 Issued in reinvestment of distributions 90,356 93,575 Redeemed (10,336,883 (5,349,531 ) ) Net increase (decrease) (5,483,919 9,026,767 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28,
SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990 Net asset value, beginning of period $ 20.61 $ 15.04 $ 13.89 $ 11.60 $ 12.41 $ 11.05 Income from Investment Operations Net investment income (loss) (.02) - .02 (.07) .01 .13F Net realized and unrealized gain (loss) (.56) 5.92 1.09 2.39 (.80) 1.19 Total from investment operations (.58) 5.92 1.11 2.32 (.79) 1.32 Less Distributions From net investment income - (.01) - - - - In excess of net investment income - - - (.11) (.09) - From net realized gain (.17) (.40) - - - - Total distributions (.17) (.41) - (.11) (.09) - Redemption fees added to paid in capital .03 .06 .04 .08 .07 .04 Net asset value, end of period $ 19.89 $ 20.61 $ 15.04 $ 13.89 $ 11.60 $ 12.41 TOTAL RETURND, E (2.66)% 40.07% 8.28% 20.91% (5.90)% 12.31% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 89,772 $ 206,012 $ 14,601 $ 7,529 $ 1,949 $ 3,240 Ratio of expenses to average net assetsB 1.69%A 1.68% 2.49%A 2.49% 2.52% 2.59% Ratio of expenses to average net assets before 1.72%A 1.69% 3.40%A 2.86% 2.99% 3.86% expense reductionsB Ratio of net investment income (loss) to average net (.24)% .01% .15%A (.57)% .09% 1.06% assets A Portfolio turnover rate 157%A 95% 407%A 167% 43% 132%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.11 PER SHARE. INDUSTRIAL MATERIALS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S INDUSTRIAL MATERIALS 10.18% 26.26% 60.85% 152.77% INDUSTRIAL MATERIALS (INCL. 3% SALES CHARGE) 6.87% 22.47% 56.03% 145.18% S&P 500 3.26% 5.47% 58.16% 164.55% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on September 29, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND INDUSTRIAL MATERIALS 26.26% 9.97% 12.41% INDUSTRIAL MATERIALS (INCL. 3% SALES CHARGE) 22.47% 9.31% 11.98% S&P 500 5.47% 9.60% 13.05% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Ind. Materials (509) Standard & Poor's 09/29/86 9700.00 10000.00 09/30/86 9729.10 9962.80 10/31/86 10262.60 10537.66 11/30/86 10621.50 10793.72 12/31/86 10233.50 10518.48 01/31/87 12008.60 11935.32 02/28/87 13017.40 12406.77 03/31/87 13958.30 12765.32 04/30/87 14123.20 12651.71 05/31/87 13764.30 12761.78 06/30/87 14482.10 13406.25 07/31/87 15820.70 14085.95 08/31/87 16363.90 14611.35 09/30/87 16606.40 14291.37 10/31/87 10301.40 11213.00 11/30/87 10252.90 10289.05 12/31/87 11834.98 11072.05 01/31/88 11222.33 11538.18 02/29/88 12544.89 12075.86 03/31/88 12768.56 11702.72 04/30/88 12788.01 11832.62 05/31/88 12476.82 11935.56 06/30/88 13838.28 12483.41 07/31/88 13322.87 12435.97 08/31/88 12603.24 12013.15 09/30/88 12710.21 12524.91 10/31/88 12476.82 12873.10 11/30/88 12360.12 12689.01 12/31/88 13117.42 12911.07 01/31/89 13908.22 13856.16 02/28/89 13305.24 13511.14 03/31/89 13166.85 13825.95 04/30/89 13572.13 14543.52 05/31/89 13750.06 15132.53 06/30/89 12949.38 15046.28 07/31/89 14115.81 16404.95 08/31/89 15242.70 16726.49 09/30/89 14313.51 16657.91 10/31/89 13137.19 16271.45 11/30/89 13325.01 16603.39 12/31/89 13700.64 17001.87 01/31/90 12652.83 15861.04 02/28/90 12870.30 16065.65 03/31/90 13245.93 16491.39 04/30/90 12287.08 16079.11 05/31/90 13028.46 17646.82 06/30/90 12890.19 17526.82 07/31/90 12738.06 17470.73 08/31/90 11267.51 15891.38 09/30/90 10466.31 15117.47 10/31/90 10344.61 15052.46 11/30/90 10892.26 16024.85 12/31/90 11348.64 16471.95 01/31/91 11754.31 17190.12 02/28/91 12616.36 18419.22 03/31/91 12788.77 18864.96 04/30/91 12809.06 18910.24 05/31/91 13904.37 19727.16 06/30/91 13752.19 18823.66 07/31/91 14302.28 19700.84 08/31/91 14638.45 20167.75 09/30/91 14444.90 19830.95 10/31/91 15066.29 20096.68 11/30/91 13864.25 19286.79 12/31/91 15412.64 21493.19 01/31/92 16084.97 21093.42 02/29/92 16869.36 21367.64 03/31/92 16573.94 20950.97 04/30/92 17439.82 21566.92 05/31/92 17643.55 21672.60 06/30/92 17215.30 21349.68 07/31/92 17602.62 22222.88 08/31/92 16491.63 21767.31 09/30/92 16267.39 22024.17 10/31/92 16450.86 22101.25 11/30/92 17062.41 22854.91 12/31/92 17318.99 23136.02 01/31/93 17687.48 23330.36 02/28/93 17851.25 23647.66 03/31/93 18148.09 24146.62 04/30/93 17881.96 23562.27 05/31/93 18618.94 24193.74 06/30/93 18669.79 24263.90 07/31/93 18926.52 24166.85 08/31/93 19419.45 25082.77 09/30/93 18813.56 24889.63 10/31/93 19922.66 25404.85 11/30/93 20189.66 25163.50 12/31/93 21021.48 25467.98 01/31/94 22726.20 26333.89 02/28/94 22253.81 25620.25 03/31/94 21627.38 24503.20 04/30/94 22439.13 24816.84 05/31/94 22665.58 25223.84 06/30/94 22428.84 24605.86 07/31/94 23262.59 25412.93 08/31/94 24518.35 26454.86 Let's say you invested $10,000 in Fidelity Select Industrial Materials Portfolio on September 29, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $24,518 - a 145.18% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $26,455 over the same period - a 164.55% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Union Carbide Corp. 10.3 Georgia-Pacific Corp. 9.7 Temple-Inland, Inc. 9.6 Du Pont (E.I.) de Nemours & Co. 9.5 Caterpillar, Inc. 7.8 Great Lakes Chemical Corp. 6.1 Amerada Hess Corp. 5.1 British Petroleum PLC ADR 4.8 Imperial Chemical Industries PLC ADR 4.6 Reynolds Metals Co. 4.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 22.7 Row: 1, Col: 2, Value: 6.1 Row: 1, Col: 3, Value: 7.8 Row: 1, Col: 4, Value: 9.800000000000001 Row: 1, Col: 5, Value: 21.5 Row: 1, Col: 6, Value: 32.1 Chemicals 32.1% Paper 21.5% Oil & Gas Exploration 9.8% Construction Equipment 7.8% Chemicals, General 6.1% All Others 22.7%* * INCLUDES SHORT-TERM INVESTMENTS INDUSTRIAL MATERIALS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Louis Salemy, Portfolio Manager of Fidelity Select Industrial Materials Portfolio Q. LOUIS, HOW DID THE FUND PERFORM? A. Quite well. For the six months and year ended August 31, 1994, the fund had total returns of 10.18% and 26.26%, respectively. This was significantly above the S&P 500's returns of 3.26% and 5.47% for the same periods. Q. WHAT WAS BEHIND THE FUND'S STRONG PERFORMANCE, ESPECIALLY OVER THE PAST SIX MONTHS? A. With the economy picking up during the past six months, demand for industrial materials - especially liner board and paper - rose. The fund did well because it owned a number of attractive industrial material companies, focusing on the ones with the best supply/demand characteristics. By this I mean that I looked for companies with high-demand products that weren't spending money to increase their supply. In August, the sector's performance picked up even more because earnings estimates for industrial material companies were raised. Q. YOU MENTIONED LINER BOARD AND PAPER. WHY DID THEY LOOK GOOD? A. Stocks of companies that make liner board and paper are considered cyclical stocks - those that tend to do well when the economy picks up or poorly when the economy is down. Over this period when the economy was strong, demand for both liner board and paper picked up. In addition, their supply was limited, further driving up their prices. Demand for liner board, which is used to make shipping boxes for products like refrigerators, increased dramatically as consumers bought more big-ticket items. During the period, Temple-Inland, the fund's largest liner board company, turned in strong results because it increased the number of products it shipped out and was able to sell them at a higher price. Paper company Georgia-Pacific, another of the fund's top stocks, was tied to liner board as well as paper. Q. HOW DID PAPER DO? A. As I indicated, its performance pretty much mirrored that of liner board. That's mostly because market pulp, which is used to make white paper, benefited from high demand and a tight supply. Q. WHAT OTHER TYPES OF INDUSTRIAL MATERIALS LOOKED ATTRACTIVE? A. The fund's number one stock, diversified chemical company Union Carbide, did well during the period because chemicals were in high demand. In addition, it looks strong going forward because of its cost-cutting potential. Aluminum companies, such as Reynolds Metals, were also attractive. The company's inventories dropped because of strong demand, and, as a result, the price of its aluminum took off. Aluminum went from 50 cents a pound at the end of 1993 to 65 cents at the end of this period. Q. ON ANOTHER NOTE, IT LOOKS LIKE THE FUND'S ASSETS HAVE INCREASED SIGNIFICANTLY OVER THE PERIOD . . . A. They have - from about $156 million to about $213 million over the past six months - as investors tried to take advantage of the upturn in cyclical stocks. This environment forced me to buy large capitalization companies, such as Caterpillar, at higher prices than I would have normally. These large cap companies were necessary investments because they were highly liquid, meaning the fund could have sold them quickly if its assets had dropped. Another result of the increase in the fund's assets was that the fund had a higher cash position during the period than I would have liked. Q. IN HINDSIGHT, DO YOU REGRET ANY OF YOUR INVESTMENT DECISIONS? A. Yes. I wish I'd owned more paper companies to take advantage of the tremendous growth in that industry. In retrospect, I was too selective. Q. WHAT DO YOU THINK SHAREHOLDERS CAN EXPECT OVER THE NEXT YEAR? A. I think the outlook for the fund is positive. Economic growth in the United States may slow going forward, but many other economies worldwide, such as Europe and Japan, are just starting to pick up. As a result, I expect demand for industrial materials to stay strong. FUND FACTS START DATE: September 29, 1986 SIZE: as of August 31, 1994, more than $212 million MANAGER: Louis Salemy, since August 1992; manager, Fidelity Select Medical Delivery Portfolio, since April 1993; joined Fidelity in 1992 (checkmark) INDUSTRIAL MATERIALS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 99.5% SHARES VALUE (NOTE 1) CHEMICALS & PLASTICS - 39.1% CHEMICALS - 32.1% Akzo NV sponsored ADR 30,000 $ 1,852,499 du Pont (E.I.) de Nemours & Co. 300,000 18,150,000 Grace (W.R.) & Co. 56,600 2,278,150 Imperial Chemical Industries PLC ADR 172,800 8,812,800 Olin Corp. 10,400 598,000 PPG Industries, Inc. 175,000 7,284,375 Rohm & Haas Co. 25,000 1,556,250 Union Carbide Corp. 573,200 19,703,750 Witco Corp. 43,900 1,349,925 61,585,749 CHEMICALS, GENERAL - 6.1% Great Lakes Chemical Corp. 192,700 11,610,175 PLASTICS & SYNTHETIC RESINS - 0.9% ARCO Chemical Co. 1,100 53,488 Geon 58,600 1,640,800 1,694,288 TOTAL CHEMICALS & PLASTICS 74,890,212 CONGLOMERATES - 0.4% Textron, Inc. 15,000 828,750 DEFENSE ELECTRONICS - 1.2% Litton Industries, Inc. 60,000 2,332,500 INDUSTRIAL MACHINERY & EQUIPMENT - 8.0% CONSTRUCTION EQUIPMENT - 7.8% Caterpillar, Inc. 130,000 15,015,000 FARM MACHINERY & EQUIPMENT - 0.2% Kverneland Gruppen AS 34,650 449,786 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 15,464,786 METALS & MINING - 7.7% PRIMARY PRODUCTION OF ALUMINUM - 4.4% Reynolds Metals Co. 151,800 8,330,025 PRIME NONFERROUS SMELTING - 3.3% Alcan Aluminum Ltd. 238,975 6,249,483 TOTAL METALS & MINING 14,579,508 OIL & GAS - 10.2% CRUDE PETROLEUM & GAS - 0.4% Burlington Resources, Inc. 20,000 752,500 OIL & GAS EXPLORATION - 9.8% Amerada Hess Corp. 193,300 9,689,163 British Petroleum PLC ADR 119,943 9,115,668 18,804,831 TOTAL OIL & GAS 19,557,331 PAPER & FOREST PRODUCTS - 24.9% PAPER - 21.5% Abitibi-Price, Inc. (a) 12,000 171,171 Georgia-Pacific Corp. 251,100 18,675,563 Stone Container Corp. (a) 190,000 3,752,500 Temple-Inland, Inc. 327,900 18,485,363 41,084,597 PAPER MILLS - 3.4% Bowater, Inc. 232,500 6,510,000 TOTAL PAPER & FOREST PRODUCTS 47,594,597 PRECIOUS METALS - 1.9% GOLD ORES - 1.9% Hecla Mining Co. (a) 302,300 3,703,175 SHARES VALUE (NOTE 1) RAILROADS - 4.7% CSX Corp. 90,800 $ 7,014,300 Conrail, Inc. 37,200 2,046,000 9,060,300 SERVICES - 1.4% SURVEYING SERVICES - 1.4% Western Atlas, Inc. 60,000 2,662,500 TOTAL COMMON STOCKS (Cost $177,382,382) 190,673,659 REPURCHASE AGREEMENTS - 0.5% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 990,133 990,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $178,372,382) $ 191,663,659 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $132,990,096 and $67,639,201, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $37,092 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balance during the period for which the loan was outstanding amounted to $2,584,000. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 86.0% United Kingdom 9.4 Canada 3.4 Netherlands 1.0 Others (individually less than 1%) 0.2 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $178,372,382. Net unrealized appreciation aggregated $13,291,277, of which $15,628,586 related to appreciated investment securities and $2,337,309 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $11,257,000 of which $1,664,000, $8,694,000, $141,000 and $758,000 will expire on February 28, 1996, 1997, 1998 and 1999, respectively. INDUSTRIAL MATERIALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 191,663,659 at value (including repurchase agreements of $990,000) (cost $178,372,382) - See accompanying schedule Cash 618 Receivable for 19,301,566 investments sold Receivable for fund 5,642,828 shares sold Dividends receivable 716,855 Redemption fees 1,543 receivable Other receivables 631 Prepaid expenses 43,960 TOTAL ASSETS 217,371,660 LIABILITIES Payable for investments $ 2,801,000 purchased Payable for fund shares 1,338,437 redeemed Accrued management 102,950 fee Other payables and 215,477 accrued expenses TOTAL LIABILITIES 4,457,864 NET ASSETS $ 212,913,796 Net Assets consist of: Paid in capital $ 208,618,365 Undistributed net 868,243 investment income Accumulated (9,864,258 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized 13,291,446 appreciation (depreciation) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 212,913,796 8,937,840 shares outstanding NET ASSET VALUE and $23.82 redemption price per share ($212,913,796 (divided by) shares) Maximum offering price $24.56 per share (100/97 of $23.82)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,520,688 Dividends Interest (including 659,326 security lending fees of $6,736) TOTAL INCOME 2,180,014 EXPENSES Management fee $ 475,596 Transfer agent 703,656 Fees Redemption fees (57,119 ) Accounting and security 76,987 lending fees Non-interested trustees' 407 compensation Custodian fees and 7,041 expenses Registration fees 49,240 Audit 10,285 Legal 467 Interest 902 Reports to shareholders 6,515 Miscellaneous 126 Total expenses before 1,274,103 reductions Expense reductions (15,341 1,258,762 ) NET INVESTMENT INCOME 921,252 REALIZED AND 1,427,767 UNREALIZED GAIN (LOSS) Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on: Investment securities 13,170,603 Assets and liabilities in 169 13,170,772 foreign currencies NET GAIN (LOSS) 14,598,539 NET INCREASE $ 15,519,791 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $831,254 Sales Charges Paid to FDC Deferred sales $2,262 charges withheld by FDC Exchange fees $45,383 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 921,252 $ 252,679 Net investment income Net realized gain (loss) 1,427,767 5,537,215 Change in net unrealized appreciation (depreciation) 13,170,772 584,391 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 15,519,791 6,374,285 Distributions to shareholders from net investment income (299,606 (63,962 ) ) Share transactions 155,939,326 184,699,746 Net proceeds from sales of shares Reinvestment of distributions 295,143 62,757 Cost of shares redeemed (114,472,206 (60,508,680 ) ) Paid in capital portion of redemption fees 210,725 115,446 Net increase (decrease) in net assets resulting from share transactions 41,972,988 124,369,269 TOTAL INCREASE (DECREASE) IN NET ASSETS 57,193,173 130,679,592 NET ASSETS Beginning of period 155,720,623 25,041,031 End of period (including undistributed net investment income of $868,243 and $246,597, $ 212,913,796 $ 155,720,623 respectively) OTHER INFORMATION Shares Sold 6,992,243 8,798,809 Issued in reinvestment of distributions 13,664 3,433 Redeemed (5,252,871 (3,053,659 ) ) Net increase (decrease) 1,753,036 5,748,583
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 21.67 $ 17.44 $ 17.12 $ 12.63 $ 12.43 $ 13.73 Income from Investment Operations Net investment income .13 .15 .12 .04 .15 .17 Net realized and unrealized gain (loss) 2.04 4.07 .19 4.32 .37 (1.50) Total from investment operations 2.17 4.22 .31 4.36 .52 (1.33) Less Distributions From net investment income (.05) (.06) (.08) - - - In excess of net investment income - - - (.06) (.34) - Total distributions (.05) (.06) (.08) (.06) (.34) - Redemption fees added to paid in capital .03 .07 .09 .19 .02 .03 Net asset value, end of period $ 23.82 $ 21.67 $ 17.44 $ 17.12 $ 12.63 $ 12.43 TOTAL RETURND, E 10.18% 24.66% 2.36% 36.15% 4.25% (9.47)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 212,914 $ 155,721 $ 25,041 $ 22,184 $ 2,689 $ 3,140 Ratio of expenses to average net assetsB 1.61%A 2.08% 2.02%A 2.47% 2.49% 2.59% Ratio of expenses to average net assets before 1.63%A 2.10% 2.02%A 2.81% 2.67% 3.81% expense reductionsB Ratio of net investment income to average net 1.18%A .75% .86%A .25% 1.30% 1.22% assets Portfolio turnover rate 106%A 185% 273%A 222% 148% 250%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. PAPER AND FOREST PRODUCTS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S PAPER AND FOREST PRODUCTS 10.94% 29.96% 67.30% 153.89% PAPER AND FOREST PRODUCTS (INCL. 3% SALES CHARGE) 7.61% 26.06% 62.28% 146.28% S&P 500 3.26% 5.47% 58.16% 148.27% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on June 30, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND PAPER AND FOREST PRODUCTS 29.96% 10.84% 12.07% PAPER AND FOREST PRODUCTS (INCL. 3% SALES CHARGE) 26.06% 10.17% 11.65% S&P 500 5.47% 9.60% 11.76% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Paper & Forest (506) Standard & Poor's 06/30/86 9700.00 10000.00 07/31/86 9515.70 9488.77 08/31/86 10689.40 10192.84 09/30/86 10573.00 9349.89 10/31/86 11358.70 9889.38 11/30/86 11834.00 10129.69 12/31/86 11659.40 9871.39 01/31/87 14714.90 11201.06 02/28/87 15190.20 11643.50 03/31/87 16354.20 11980.00 04/30/87 15384.20 11873.38 05/31/87 14501.50 11976.68 06/30/87 15141.70 12581.50 07/31/87 15326.00 13219.38 08/31/87 16441.50 13712.46 09/30/87 15946.80 13412.16 10/31/87 11213.20 10523.18 11/30/87 10825.20 9656.07 12/31/87 12118.45 10390.90 01/31/88 11629.03 10828.35 02/29/88 12724.90 11332.96 03/31/88 12320.60 10982.77 04/30/88 12458.91 11104.68 05/31/88 12320.60 11201.29 06/30/88 13597.34 11715.43 07/31/88 12990.89 11670.91 08/31/88 12352.52 11274.10 09/30/88 12597.23 11754.37 10/31/88 12320.60 12081.14 11/30/88 12054.61 11908.38 12/31/88 12938.95 12116.78 01/31/89 13066.95 13003.73 02/28/89 12682.94 12679.94 03/31/89 12693.61 12975.38 04/30/89 13152.29 13648.80 05/31/89 13386.96 14201.58 06/30/89 12533.61 14120.63 07/31/89 13738.97 15395.72 08/31/89 14720.32 15697.48 09/30/89 13909.64 15633.12 10/31/89 13280.29 15270.43 11/30/89 13184.29 15581.95 12/31/89 13466.65 15955.91 01/31/90 12235.54 14885.27 02/28/90 12354.33 15077.29 03/31/90 12699.91 15476.84 04/30/90 11879.16 15089.92 05/31/90 12667.51 16561.19 06/30/90 12365.13 16448.57 07/31/90 12548.72 16395.93 08/31/90 11047.62 14913.74 09/30/90 9978.50 14187.44 10/31/90 9665.32 14126.44 11/30/90 10637.25 15039.00 12/31/90 11432.17 15458.59 01/31/91 12376.61 16132.59 02/28/91 12969.64 17286.07 03/31/91 13233.20 17704.39 04/30/91 13881.13 17746.88 05/31/91 15473.51 18513.55 06/30/91 15078.16 17665.63 07/31/91 15089.14 18488.84 08/31/91 15166.02 18927.03 09/30/91 14583.98 18610.95 10/31/91 15133.07 18860.33 11/30/91 13979.97 18100.26 12/31/91 15406.60 20170.93 01/31/92 16823.55 19795.75 02/29/92 16902.27 20053.10 03/31/92 17014.73 19662.06 04/30/92 17284.63 20240.13 05/31/92 16801.06 20339.30 06/30/92 16689.45 20036.25 07/31/92 16565.49 20855.73 08/31/92 15900.62 20428.19 09/30/92 15731.58 20669.24 10/31/92 16497.87 20741.58 11/30/92 17106.40 21448.87 12/31/92 17263.87 21712.69 01/31/93 17795.58 21895.08 02/28/93 18191.55 22192.85 03/31/93 18168.92 22661.12 04/30/93 18995.41 22112.72 05/31/93 19052.01 22705.34 06/30/93 18644.48 22771.19 07/31/93 18452.04 22680.10 08/31/93 18950.13 23539.68 09/30/93 18044.51 23358.43 10/31/93 18746.37 23841.94 11/30/93 19912.35 23615.45 12/31/93 20467.05 23901.19 01/31/94 22844.30 24713.83 02/28/94 22199.05 24044.09 03/31/94 19844.43 22995.77 04/30/94 19822.25 23290.11 05/31/94 20630.85 23672.07 06/30/94 20422.93 23092.10 07/31/94 22155.64 23849.53 08/31/94 24627.65 24827.36 Let's say you invested $10,000 in Fidelity Select Paper and Forest Products Portfolio on June 30, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $24,628 - a 146.28% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,827 over the same period - a 148.27% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Stone Container Corp. 12.8 Scott Paper Co. 6.6 Temple-Inland, Inc. 5.7 Weyerhaeuser Co. 3.8 Jefferson Smurfit Corp. 3.8 International Paper Co. 3.7 Georgia-Pacific Corp. 3.6 Alco Standard Corp. 3.5 Champion International Corp. 3.4 Mead Corp. 3.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 3.5 Row: 1, Col: 2, Value: 3.5 Row: 1, Col: 3, Value: 5.5 Row: 1, Col: 4, Value: 87.5 Paper & Allied Products 87.5% Paper Containers 5.5% Services for Print Industry 3.5% All Others 3.5%* * INCLUDES SHORT-TERM INVESTMENTS PAPER AND FOREST PRODUCTS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Scott Offen, Portfolio Manager of Fidelity Select Paper and Forest Products Portfolio Q. SCOTT, HOW HAS THE FUND PERFORMED? A. Very well. For the six months ended August 31, 1994, the fund had a total return of 10.94%, and for the year ended August 31, the fund returned 29.96%. Both numbers were well above the S&P 500, which returned 3. 26% and 5. 47% for six months and one year, respectively. Q. WHAT FACTORS HAVE HELPED YOU DO SO WELL? A. Paper is a cyclical commodity. That is, the price of paper rises or falls with the health of the economy. Therefore, paper stocks tend to increase in value as the economy improves or decrease in value when the economy performs poorly. The current economic recovery has fueled demand for all grades of paper, leading paper companies to announce price increases on a regular basis. In addition, two factors have constrained supply, which has also helped push prices higher. First, environmental concerns have led to a worldwide reduction of tree cutting on government lands. And second, recycled paper prices have increased markedly. What was once a cheap source of raw material is now expensive, reducing the incentive to add supply capacity. Q. IS THERE ANYTHING ABOUT ENVIRONMENTAL PRESSURE THAT IS MAKING THIS CYCLE DIFFERENT FROM PREVIOUS ONES? A. Absolutely. Some say this will be a longer cycle because of increased environmental pressure. Ordinarily, as prices get higher, companies build new machines, adding to capacity. The U. S. Environmental Protection Agency has imposed new regulations - called cluster rules - requiring all paper companies to use processes that will bring them into compliance as an industry. It has been estimated that paper companies will spend $3 billion to $10 billion to meet these standards. Every dollar spent for environmental compliance is another dollar that can't be spent adding to capacity. The result is less supply and, hopefully, a longer cycle of higher prices for paper, perhaps as long as the up-market of 1985-1988. While this could happen, I'm not convinced that it will because prices have increased in a much more compressed time period than before. Q. WHAT HAS BEEN YOUR STOCK-PICKING STRATEGY? A. In the short term, the direction of pricing for cyclical paper companies is determined by inventories. As long as inventory is in short supply, prices will go up, even if demand isn't great. Ideally, I look for companies that have different product mixes, with production capacity for grades that are in tight supply. Q. WHAT ARE SOME INVESTMENTS THAT HAVE WORKED WELL FOR YOU? A. Stone Container, a producer of the three best grades - liner board, newsprint and pulp -is the fund's largest position as of August 31 and the biggest winner because its stock price has doubled. Jefferson Smurfit, an Irish-based company with a U. S. division, also has performed strongly. This is one of the few companies that manages itself intelligently, increasing capacity in down times to avoid hurting pricing by increasing supply when prices are high. I've also added Scott Paper and Champion to the fund's top 10 holdings. Scott, a tissue manufacturer, should benefit from restructuring and cost cutting. Champion makes all grades of paper and should benefit from price improvement. Q. LET'S TOUCH UPON SOME DISAPPOINTMENTS. A. Wausau was one. The company has had a hard time keeping its margins up because it buys pulp to make paper, and pulp prices were increasing faster than paper prices. In addition, Pope & Talbot's stock price dropped, because earnings didn't come through in its diaper division, and its wood profits declined. However, my main disappointment this period was that price increases haven't translated into revenue increases for the companies as quickly as I had expected. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I don't think the environment or my strategy will change markedly. Overall, I believe paper's "cyclical moment" could last for another year or more, unless the Federal Reserve Board continues to raise interest rates and the economy goes into a recession or near recession. If interest rates go up far enough, paper stocks will suffer because paper is an economically sensitive commodity. FUND FACTS START DATE: June 30, 1986 SIZE: as of August 31, 1994, more than $66 million MANAGER: Scott Offen, since October 1993; manager, Fidelity Select Brokerage and Investment Management Portfolio, 1990-1993; Fidelity Select Life Insurance Portfolio; 1988-1990; joined Fidelity in 1985 (checkmark) PAPER AND FOREST PRODUCTS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 97.5% SHARES VALUE (NOTE 1) PACKAGING & CONTAINERS - 6.4% FIBER CANS, TUBES & DRUMS - 0.9% Sonoco Products Co. 25,100 $ 558,475 PAPER CONTAINERS - 5.5% Gaylord Container Corp.: Class A (a) 273,600 1,778,397 (warrants) (a) 153,900 827,213 Grupo Industrial Durango SA de CV ADR (a) 20,000 440,000 Mayr Melnhof Karton AG 1,000 57,976 Shorewood Packaging Corp. (a) 10,000 207,500 3,311,086 TOTAL PACKAGING & CONTAINERS 3,869,561 PAPER & FOREST PRODUCTS - 87.5% PAPER & ALLIED PRODUCTS - 87.5% Abitibi-Price, Inc. installment receipts (a)(c) 101,100 721,060 Alliance Forest Products, Inc. (a) 46,100 741,890 Aracruz Celulose SA ADR (a) 17,800 244,750 Assi Doman Ab Free shares 46,300 1,052,082 Avenor, Inc. (a) 7,900 147,361 Boise Cascade Corp. 30,000 858,750 Bowater, Inc. 40,200 1,125,600 Caraustar Industries, Inc. 35,200 668,800 Cascades, Inc. 16,700 94,675 Champion International Corp. 57,100 2,055,600 Chesapeake Corp. 15,000 498,750 Consolidated Papers, Inc. 33,300 1,631,700 Enso Gutzeit OY R Free shares 26,000 235,550 Federal Paper Board Co., Inc. 20,000 607,500 Georgia-Pacific Corp. 28,900 2,149,438 Glatfelter (P.H.) Co. 11,500 184,000 International Paper Co. 28,300 2,182,638 James River Corp. of Virginia 30,000 701,250 Jefferson Smurfit Corp. (a) 111,300 2,267,738 Kimberly-Clark Corp. 28,200 1,674,375 Leykam Muerstaler Pap Und. Zel Ord. 3,000 117,213 Louisiana-Pacific Corp. 28,700 1,018,850 Mead Corp. 38,900 1,964,450 Metsa Serla 'B' 4,700 228,075 Mo Och Domsjoe AB (Modo) (a) 89 3,999 Mosinee Paper Corp. 3,000 97,500 Pentair, Inc. 8,200 334,150 Potlatch Corp. 10,000 440,000 QUNO Corp. (a) 35,000 646,465 Rayonier, Inc. 10,000 332,500 Rengo Co. Ltd. 15,000 133,982 Repap Enterprises, Inc. 219,500 1,043,670 Repola OY 10,000 215,239 Riverwood International Corp. 5,000 87,500 Rock Tenn Co. Class A 20,000 330,000 Scott Paper Co. 60,000 3,930,000 Smith Holdings PLC 6,000 51,101 Smurfit (Jefferson) Group PLC 154,700 1,003,534 Specialty Paperboard, Inc. (a) 5,000 56,250 St Laurent Paperboard, Inc. (a) 27,000 311,071 St Laurent Paperboard, Inc. (b) 20,000 230,423 Stone Consolidated Corp. (a) 27,000 390,074 Stone Container Corp. (a) 386,600 7,635,350 Stora Kopparbergs B Free shares 4,500 255,636 Temple-Inland, Inc. 60,600 3,416,325 Union Camp Corp. 36,400 1,833,650 SHARES VALUE (NOTE 1) Wausau Paper Mills Co. 25,000 $ 650,000 Westvaco Corp. 40,000 1,450,000 Weyerhaeuser Co. 50,100 2,298,338 Willamette Industries, Inc. 36,000 1,854,000 52,202,852 PRINTING - 3.5% SERVICES FOR PRINT INDUSTRY - 3.5% Alco Standard Corp. 32,000 2,088,000 TEXTILES & APPAREL - 0.1% COATED FABRICS, NOT RUBBERIZED - 0.1% Tufco Technologies, Inc. (a) 14,900 70,775 TOTAL COMMON STOCKS (Cost $51,264,581) 58,231,188 REPURCHASE AGREEMENTS - 2.5% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 1,512,203 1,512,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $52,776,581) $ 59,743,188 CURRENCY ABBREVIATIONS CAD - Canadian dollar LEGEND 1. Non-income producing 2. 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 this security amounted to $230,423 or .03% of net assets. 3. Market value reflects the payment of the first installment. Additional equal payments of CAD 505,500 are payable in January and October of 1995. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $35,427,822 and $48,802,834, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $20,761 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $5,361,000 and $3,444,692, respectively. The weighted average interest rate paid was 3.9% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 86.1% Canada 7.2 Sweden 2.2 Ireland 1.7 Finland 1.1 Others (individually less than 1%) 1.7 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $52,812,668. Net unrealized appreciation aggregated $6,930,520, of which $7,309,529 related to appreciated investment securities and $379,009 related to depreciated investment securities. PAPER AND FOREST PRODUCTS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $1,512,000) (cost $52,776,581) - See $ 59,743,188 accompanying schedule Cash 3,095 Receivable for investments sold 50,548 Receivable for fund shares sold 8,059,244 Dividends receivable 111,527 Redemption fees receivable 2,515 Other receivables 675 Prepaid expenses 11,692 TOTAL ASSETS 67,982,484 LIABILITIES Payable for fund shares redeemed $ 1,459,400 Accrued management fee 29,298 Other payables and accrued expenses 63,804 TOTAL LIABILITIES 1,552,502 NET ASSETS $ 66,429,982 Net Assets consist of: Paid in capital $ 59,176,431 Accumulated net investment (loss) (41,982 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 330,190 Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 6,965,343 NET ASSETS, for 3,115,129 shares outstanding $ 66,429,982 NET ASSET VALUE and redemption price per share ($66,429,982 (divided by) shares) $21.32 Maximum offering price per share (100/97 of $21.32) $21.98
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 281,691 Dividends Interest 51,485 TOTAL INCOME 333,176 EXPENSES Management fee $ 112,681 Transfer agent 230,745 Fees Redemption fees (39,351 ) Accounting fees and expenses 23,578 Non-interested trustees' compensation 120 Custodian fees and expenses 11,578 Registration fees 11,692 Audit 10,717 Legal 539 Interest 9,627 Reports to shareholders 4,076 Miscellaneous 103 Total expenses before reductions 376,105 Expense reductions (2,236 373,869 ) NET INVESTMENT INCOME (LOSS) (40,693 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 498,087 Foreign currency transactions 6,630 504,717 Change in net unrealized appreciation (depreciation) on: Investment securities 3,935,796 Assets and liabilities in foreign (1,264 3,934,532 currencies ) NET GAIN (LOSS) 4,439,249 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,398,556 OTHER INFORMATION $169,942 Sales Charges Paid to FDC Deferred sales charges withheld $1,562 by FDC Exchange fees withheld by FSC $33,645
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (40,693 $ (20,302 Net investment income (loss) ) ) Net realized gain (loss) 504,717 2,597,166 Change in net unrealized appreciation (depreciation) 3,934,532 2,559,400 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 4,398,556 5,136,264 Distributions to shareholders - (10,601 From net investment income ) From net realized gain (516,287 - ) TOTAL DISTRIBUTIONS (516,287 (10,601 ) ) Share transactions 76,492,568 149,638,420 Net proceeds from sales of shares Reinvestment of distributions 508,003 10,249 Cost of shares redeemed (81,555,759 (113,224,182 ) ) Paid in capital portion of redemption fees 195,156 259,283 Net increase (decrease) in net assets resulting from share transactions (4,360,032 36,683,770 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (477,763 41,809,433 ) NET ASSETS Beginning of period 66,907,745 25,098,312 End of period (including accumulated net investment (loss) of $(41,982) and $(1,289), respectively) $ 66,429,982 $ 66,907,745 OTHER INFORMATION Shares Sold 3,986,816 8,097,781 Issued in reinvestment of distributions 29,638 645 Redeemed (4,313,841 (6,246,980 ) ) Net increase (decrease) (297,387 1,851,446 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 19.61 $ 16.08 $ 15.37 $ 12.64 $ 11.00 $ 12.33 Income from Investment Operations Net investment income (loss) (.02) (.01) .06 .13 .19 .11 Net realized and unrealized gain (loss) 1.98 3.38 .65 2.64 1.56 (1.31) Total from investment operations 1.96 3.37 .71 2.77 1.75 (1.20) Less Distributions From net investment income - (.01) (.09) (.30) (.17) (.15) From net realized gain (.35) - - - - - Total distributions (.35) (.01) (.09) (.30) (.17) (.15) Redemption fees added to paid in capital .10 .17 .09 .26 .06 .02 Net asset value, end of period $ 21.32 $ 19.61 $ 16.08 $ 15.37 $ 12.64 $ 11.00 TOTAL RETURND, E 10.94% 22.03% 5.25% 24.52% 16.85% (9.68)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 66,430 $ 66,908 $ 25,098 $ 28,957 $ 12,579 $ 5,289 Ratio of expenses to average net assetsB 2.00%A 2.07% 2.21%A 2.05% 2.49% 2.57% Ratio of expenses to average net assets before 2.01%A 2.08% 2.21%A 2.05% 2.72% 3.28% expense reductionsB Ratio of net investment income (loss) to average net (.22)% (.08) .49%A .92% 1.73% .92% assets A % Portfolio turnover rate 181%A 176% 222%A 421% 171% 221%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. TRANSPORTATION PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S TRANSPORTATION 3.74% 17.26% 96.81% 218.31% TRANSPORTATION (INCL. 3% SALES CHARGE) 0.62% 13.75% 90.90% 208.76% S&P 500 3.26% 5.47% 58.16% 164.55% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on September 29, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND TRANSPORTATION 17.26% 14.50% 15.72% TRANSPORTATION (INCL. 3% SALES CHARGE) 13.75% 13.81% 15.28% S&P 500 5.47% 9.60% 13.05% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Transport.(512) Standard & Poor 09/29/86 9700.00 10000.00 09/30/86 9748.50 9962.80 10/31/86 10039.50 10537.66 11/30/86 10204.40 10793.72 12/31/86 10039.50 10518.48 01/31/87 10737.90 11935.32 02/28/87 11397.50 12406.77 03/31/87 11397.50 12765.32 04/30/87 11475.10 12651.71 05/31/87 11649.70 12761.78 06/30/87 11998.90 13406.25 07/31/87 12474.20 14085.95 08/31/87 12474.20 14611.35 09/30/87 11795.20 14291.37 10/31/87 7992.80 11213.00 11/30/87 7527.20 10289.05 12/31/87 8284.50 11072.05 01/31/88 8698.73 11538.18 02/29/88 9418.69 12075.86 03/31/88 9704.70 11702.72 04/30/88 9734.29 11832.62 05/31/88 9675.11 11935.56 06/30/88 10661.36 12483.41 07/31/88 10523.29 12435.97 08/31/88 10030.16 12013.15 09/30/88 10690.95 12524.91 10/31/88 11036.14 12873.10 11/30/88 11134.76 12689.01 12/31/88 11470.09 12911.07 01/31/89 12456.34 13856.16 02/28/89 12584.55 13511.14 03/31/89 12969.19 13825.95 04/30/89 13403.14 14543.52 05/31/89 13975.16 15132.53 06/30/89 13889.01 15046.28 07/31/89 14730.77 16404.95 08/31/89 15688.27 16726.49 09/30/89 15383.13 16657.91 10/31/89 14404.59 16271.45 11/30/89 14530.85 16603.39 12/31/89 14737.71 17001.87 01/31/90 13812.21 15861.04 02/28/90 14456.54 16065.65 03/31/90 14890.01 16491.39 04/30/90 14327.68 16079.11 05/31/90 14854.86 17646.82 06/30/90 14691.34 17526.82 07/31/90 14642.53 17470.73 08/31/90 12494.96 15891.38 09/30/90 10884.28 15117.47 10/31/90 10713.45 15052.46 11/30/90 11152.73 16024.85 12/31/90 11555.40 16471.95 01/31/91 12543.77 17190.12 02/28/91 13763.98 18419.22 03/31/91 13776.18 18864.96 04/30/91 13739.58 18910.24 05/31/91 14825.56 19727.16 06/30/91 14702.47 18823.66 07/31/91 15596.13 19700.84 08/31/91 15877.69 20167.75 09/30/91 15583.89 19830.95 10/31/91 16734.62 20096.68 11/30/91 15694.06 19286.79 12/31/91 17811.91 21493.19 01/31/92 17971.05 21093.42 02/29/92 18938.16 21367.64 03/31/92 18485.21 20950.97 04/30/92 18962.64 21566.92 05/31/92 19354.38 21672.60 06/30/92 18521.93 21349.68 07/31/92 18791.26 22222.88 08/31/92 18228.13 21767.31 09/30/92 18950.40 22024.17 10/31/92 19758.36 22101.25 11/30/92 21190.66 22854.91 12/31/92 22049.81 23136.02 01/31/93 23037.30 23330.36 02/28/93 23349.79 23647.66 03/31/93 24912.28 24146.62 04/30/93 24850.18 23562.27 05/31/93 25778.45 24193.74 06/30/93 25853.72 24263.90 07/31/93 25853.72 24166.85 08/31/93 26330.40 25082.77 09/30/93 26393.12 24889.63 10/31/93 26945.07 25404.85 11/30/93 27095.60 25163.50 12/31/93 28513.96 25467.98 01/31/94 29763.85 26333.89 02/28/94 29763.85 25620.25 03/31/94 28967.22 24503.20 04/30/94 29508.52 24816.84 05/31/94 29034.15 25223.84 06/30/94 29006.25 24605.86 07/31/94 29982.89 25412.93 08/31/94 30875.82 26454.86 Let's say you invested $10,000 in Fidelity Select Transportation Portfolio on September 29, 1986 when the fund started and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $30,876 - a 208.76% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $26,455 over the same period - a 164.55% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Landstar System, Inc. 5.0 TNT Freightways Corp. 3.8 Carolina Freight Corp. 3.1 U.S. Delivery Systems, Inc. 2.9 Consolidated Freightways, Inc. 2.7 Rollins Truck Leasing Corp. 2.7 Burlington Northern, Inc. 2.4 Arnold Industries, Inc. 2.3 Canadian Pacific Ltd. Ord. 2.0 Ryder Systems, Inc. 1.8 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 50.3 Row: 1, Col: 2, Value: 4.7 Row: 1, Col: 3, Value: 6.2 Row: 1, Col: 4, Value: 8.0 Row: 1, Col: 5, Value: 11.1 Row: 1, Col: 6, Value: 19.7 Trucking, Local & Long Distance 19.7% Railroads 11.1% Trucking, Long Distance 8.0% Air Transport, Major National 6.2% Shipping 4.7% All Others 50.3%* * INCLUDES SHORT-TERM INVESTMENTS TRANSPORTATION PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Beso Sikharulidze, Portfolio Manager of Select Transportation Portfolio Q. BESO, HOW DID THE FUND PERFORM? A. Pretty well. The fund returned 3.74% for the six months ended August 31, 1994, and 17.26% for the past year. That beat the S&P 500 which was up 3.26% and 5.47% for the same time periods, respectively. Q. THE DOW JONES TRANSPORTATION AVERAGE (DJTA) IS DOWN 3.55% FOR THE PAST SIX MONTHS AND 0.23% FOR THE YEAR. WHY DID YOUR FUND DO SO MUCH BETTER? A. First of all, the DJTA is not a fair index against which to compare this fund. Because it's only made up of 20 stocks, it's much more narrow than my fund. A better index would be the S&P Transportation Index. I can be more broadly invested in many segments of the transportation industry. I think the fund did well because I picked individual stocks rather than betting on particular groups in the industry. Take Landstar, one of the fund's big winners. It's a truck load stock, which means that it's in the segment of the trucking industry that carries over 10,000 pounds. Landstar's special program attracts more owner-operators than the competition, thus avoiding a major constraint in the truck load industry, a shortage of drivers. Although it's been a good performer, I still see a lot of growth prospects for the company and upside potential for the stock. Q. HOW IS THE INVESTING ENVIRONMENT FOR TRANSPORTATION STOCKS? A. At the end of August, the transportation industry had fundamentals that were just about as strong as they can be. In every segment - air freight, trucking, railroads - the news gets better as the economy strengthens. The trick is to maintain the momentum. Q. ANY DISAPPOINTING STOCK PICKS IN THE LAST SIX MONTHS? A. Oh, sure. Nissan France, a distributor of Nissan cars and trucks in France, was a letdown. The economy was picking up in France when I invested and I thought the company would prosper in a stronger economy. The strengthening yen put pressure on margins and hurt profitability. It wasn't a good buy, but luckily, the fund didn't own too much of the stock. Q. CSX, WHICH WAS YOUR LARGEST HOLDING SIX MONTHS AGO, IS GONE FROM THE FUND'S TOP 10. HAVE YOU SOURED ON RAILROADS? A. Not at all, I've just become more picky. As I mentioned, railroad fundamentals are very strong today. I did get out of CSX a few months ago. It's a great company, but I don't see much upside in the stock price in the short-term. The fund still has rail holdings, although I have tried to trim back my positions. Most of the cost-cutting in the railroad industry is over and I don't see the dramatic growth in revenue to sustain itself. I'm interested in the relatively small railroads that are experiencing high growth or that are growing by acquisition and have strong balance sheets. There are also a few potential turnaround stories out there - like Southern Pacific - that have my attention. Q. WHAT ABOUT THE AIRLINES? A. I've begun to back off on the airlines. A few months ago I was strong on the regionals, but that group has become too volatile. Although I don't own a lot of airline stock right now, I'm looking for opportunities to invest in an airline that will be able to position itself for long-term success in this very competitive industry. Q. HOW DO YOU SEE THE TRANSPORTATION INDUSTRY SHAPING UP IN THE NEXT SIX MONTHS? A. I think the pace will slow down. The degree of the decline will depend on how painful interest rate increases are to the economy. I'm concerned about where we're heading and am preparing for a downturn. I'm choosing companies that have some kind of a niche, companies that will weather a tougher market most successfully. The trucking sector, which I'm heavily invested in, should fare well. With the increase in competition and consolidation, the top companies will not only survive, they should do well. I also think there will be opportunities internationally, especially in the fast growth countries; transportation benefits from growth. Basically, I'm an opportunist; I'm always looking for the best places to invest. FUND FACTS START DATE: September 29, 1986 SIZE: As of August 31, 1994, more than $13 million MANAGER: Beso Sikharulidze, since November 1993; equity analyst, equipment manufacturing and shipping industries, since 1993; appliances and trucking, since 1992; joined Fidelity in 1992 (checkmark) TRANSPORTATION PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.4% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.9% AIRCRAFT - 0.9% McDonnell Douglas Corp. 1,000 $ 118,250 AIR TRANSPORTATION - 10.7% AIR TRANSPORTATION, MAJOR NATIONAL - 6.2% AMR Corp. 2,000 120,500 Finnair OY 15,000 130,379 Great Lakes Aviation (a) 14,400 106,200 KLM Royal Dutch Airlines (a) 2,400 70,500 KLM Royal Dutch Airlines Ord. (a) 2,000 58,270 Mesa Airlines, Inc. (a) 13,600 103,700 Northwest Airlines Corp. Class A (a) 11,000 209,000 USAir Group, Inc. (a) 1,800 12,150 810,699 AIR TRANSPORTATION, REGIONAL - 3.4% Atlantic Southeast Airlines, Inc. 5,000 146,250 Comair Holdings, Inc. 6,300 166,950 SkyWest, Inc. 5,000 138,750 451,950 TRANSPORTATION SERVICES - 1.1% Helikopter Services 9,500 143,186 TOTAL AIR TRANSPORTATION 1,405,835 AUTOS, TIRES, & ACCESSORIES - 10.8% AUTO & TRUCK PARTS - 4.5% Cummins Engine Co., Inc. 5,000 201,250 Federal-Mogul Corp. 2,600 74,425 Masland Corp. 10,000 168,750 Smith (A.O.) Corp. Class B 3,000 82,500 Wabash National Corp. 1,550 66,069 592,994 AUTO DEALERS, NEC - RETAIL - 0.3% Qingling Motors Ltd. Class H (b) 124,000 43,644 MOTOR VEHICLES & CAR BODIES - 4.0% Appleyard Group 56,000 107,419 Ford Motor Co. 5,000 146,250 Nissan France SA Class A (a) 900 105,902 Sime Darby Hong Kong Ltd. 100,000 157,867 517,438 TRUCK & BUS BODIES - 2.0% Grupo Dina: ADS 8,000 114,000 Series L, sponsored ADR 12,977 154,102 268,102 TOTAL AUTOS, TIRES, & ACCESSORIES 1,422,178 CONSUMER ELECTRONICS - 4.2% APPLIANCES - 4.2% Black & Decker Corp. 6,000 138,750 Fedders Corp. (a) 30,000 228,750 Stanley Works 3,000 130,125 Whirlpool Corp. 1,000 54,875 552,500 ENGINEERING - 0.9% ELECTRICAL WORK - 0.9% Nippondenso Co. Ltd. 6,000 121,557 INDUSTRIAL MACHINERY & EQUIPMENT - 0.8% CONSTRUCTION EQUIPMENT - 0.8% Astec Industries, Inc. (a) 8,000 107,000 SHARES VALUE (NOTE 1) LEASING & RENTAL - 3.6% AUTO REPAIR SERVICES & GARAGES - 1.4% PHH Corp. 5,000 $ 184,375 EQUIP RENTAL AND LEASING, NEC - 2.2% GATX Corp. 1,400 54,425 Ryder Systems, Inc. 8,600 236,500 290,925 TOTAL LEASING & RENTAL 475,300 LEISURE DURABLES & TOYS - 1.3% LEISURE DURABLES - 1.3% Champion Enterprises, Inc. 4,700 171,550 RAILROADS - 12.2% RAILROAD EQUIPMENT - 1.1% Trinity Industries, Inc. 4,000 136,000 RAILROADS - 11.1% Burlington Northern, Inc. 5,900 309,750 Canadian Pacific Ltd. Ord. 14,900 264,310 Chicago & North Western Holdings Corp. (a) 9,700 213,400 East Japan Railway Ord. 23 120,279 Illinois Central Corp., Series A 4,300 135,450 Santa Fe Pacific Corp. 4,934 106,081 Southern Pacific Rail Corp. (a) 7,000 141,750 Wisconsin Central Transportation Corp. (a) 4,300 172,000 1,463,020 TOTAL RAILROADS 1,599,020 SERVICES - 2.9% COURIER SERVICES, NOT BY AIR - 2.9% U.S. Delivery Systems, Inc. (a) 25,000 387,500 SHIPPING - 7.4% DEEP SEA TRANSPORTATION - 2.7% Finnlines Oy (b) 3,400 68,524 London & Overseas Freighters PLC 75,000 103,583 Transportacion Maritima Mexicana SA de CV ADR representing L share (a) 20,000 182,500 354,607 SHIPPING - 4.7% American President Companies, Ltd. 3,000 79,125 Anangel-American Shipholdings Ltd. ADR 10,000 137,500 ICB Shipping Class B 15,000 132,291 Kirby Corp. (a) 5,000 87,500 MC Shipping, Inc. (a) 20,000 68,750 Storli Skibs Series `A' AS (a) 7,000 108,029 613,195 TOTAL SHIPPING 967,802 TRUCKING & FREIGHT - 31.7% AIR COURIER SERVICES - 0.7% Airborne Freight Corp. 3,000 91,500 FREIGHT FORWARDING - 2.6% Air Express International Corp. 6,800 182,750 Fritz Companies, Inc. (a) 3,000 100,875 Harper Group 4,000 60,500 344,125 TRANSPORTATION SERVICES, NEC - 0.7% Landair Services, Inc. (a) 5,000 90,000 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TRUCKING & FREIGHT - CONTINUED TRUCKING, LOCAL & LONG DISTANCE - 19.7% Carolina Freight Corp. 45,000 $ 410,625 Consolidated Freightways, Inc. (a) 15,000 360,000 Hitachi Transport System Co. 6,000 70,060 Landstar System, Inc. (a) 21,000 661,500 Mark VII, Inc. (a) 1,000 9,500 Matlack Systems, Inc. (a) 5,000 80,625 Old Dominion Freight Lines, Inc. (a) 10,000 200,000 Roadway Services, Inc. 2,700 172,800 Rollins Truck Leasing Corp. 20,000 350,000 Seino Transpotation Co. Ltd. 7,000 129,940 XTRA Corp. 3,000 150,375 2,595,425 TRUCKING, LONG DISTANCE - 8.0% Arkansas Best Corp. 10,600 145,750 Arnold Industries, Inc. 15,100 305,775 TNT Freightways Corp. 20,400 494,700 Yellow Corp. 5,000 101,250 1,047,475 TOTAL TRUCKING & FREIGHT 4,168,525 TOTAL COMMON STOCKS (Cost $10,590,683) 11,497,017 NONCONVERTIBLE BONDS - 0.4% PRINCIPAL AMOUNT AUTOS, TIRES, & ACCESSORIES - 0.4% TRUCK & BUS BODIES - 0.4% Grupo Dina yankee 8%, 8/8/04 (Cost $45,144) $ 50,160 46,147 REPURCHASE AGREEMENTS - 12.2% MATURITY VALUE (NOTE 1) AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 1,604,215 1,604,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $12,239,827) $ 13,147,164 LEGEND 1. Non-income producing 2. 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 $112,168 or 0.8% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $14,021,098 and $15,046,311, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $8,145 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $1,946,000 and $1,744,000, respectively. The weighted average interest rate paid was 4.8% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 80.7% Mexico 3.8 Japan 3.4 United Kingdom 2.7 Canada 2.0 Norway 1.9 Finland 1.5 Hong Kong 1.2 Sweden 1.0 Netherlands 1.0 Others (individually less than 1%) 0.8 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $12,239,827. Net unrealized appreciation aggregated $907,337, of which $1,275,020 related to appreciated investment securities and $367,683 related to depreciated investment securities. TRANSPORTATION PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $1,604,000) (cost $12,239,827) - See $ 13,147,164 accompanying schedule Cash 260 Receivable for investments sold 627,858 Receivable for fund shares sold 612,725 Dividends receivable 18,230 Interest receivable 245 Redemption fees receivable 128 Prepaid expenses 5,061 TOTAL ASSETS 14,411,671 LIABILITIES Payable for investments purchased $ 642,741 Payable for fund shares redeemed 369,295 Accrued management fee 6,811 Other payables and accrued expenses 29,831 TOTAL LIABILITIES 1,048,678 NET ASSETS $ 13,362,993 Net Assets consist of: Paid in capital $ 11,103,932 Accumulated net investment (loss) (49,856 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 1,401,609 Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 907,308 NET ASSETS, for 603,734 shares outstanding $ 13,362,993 NET ASSET VALUE and redemption price per share ($13,362,993 (divided by) shares) $22.13 Maximum offering price per share (100/97 of $22.13) $22.81
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 68,749 Dividends Interest 33,848 TOTAL INCOME 102,597 EXPENSES Management fee $ 42,296 Transfer agent 68,840 Fees Redemption fees (8,399 ) Accounting fees and expenses 22,525 Non-interested trustees' compensation 40 Custodian fees and expenses 10,944 Registration fees 5,061 Audit 8,426 Legal 112 Interest 2,074 Reports to shareholders 992 Miscellaneous 95 Total expenses before reductions 153,006 Expense reductions (553 152,453 ) NET INVESTMENT INCOME (LOSS) (49,856 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,404,267 Foreign currency transactions 570 1,404,837 Change in net unrealized appreciation (depreciation) on: Investment securities (1,199,382 ) Assets and liabilities in foreign (29 (1,199,411 currencies ) ) NET GAIN (LOSS) 205,426 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 155,570 OTHER INFORMATION $55,771 Sales Charges Paid to FDC Deferred sales charges withheld $677 by FDC Exchange fees withheld by FSC $6,480
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (49,856 $ (100,747 Net investment income (loss) ) ) Net realized gain (loss) 1,404,837 1,441,309 Change in net unrealized appreciation (depreciation) (1,199,411 1,066,611 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 155,570 2,407,173 Distributions to shareholders from net realized gain (247,905 (827,694 ) ) Share transactions 13,762,439 25,059,536 Net proceeds from sales of shares Reinvestment of distributions 242,350 796,335 Cost of shares redeemed (13,642,815 (25,177,172 ) ) Paid in capital portion of redemption fees 16,561 39,052 Net increase (decrease) in net assets resulting from share transactions 378,535 717,751 TOTAL INCREASE (DECREASE) IN NET ASSETS 286,200 2,297,230 NET ASSETS Beginning of period 13,076,793 10,779,563 End of period (including accumulated net investment loss of $49,856 and $0, respectively) $ 13,362,993 $ 13,076,793 OTHER INFORMATION Shares Sold 635,309 1,225,390 Issued in reinvestment of distributions 11,601 40,016 Redeemed (646,543 (1,239,184 ) ) Net increase (decrease) 367 26,222
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 21.67 $ 18.68 $ 15.49 $ 11.26 $ 12.23 $ 13.59 Income from Investment Operations Net investment income (loss) (.08) (.20) (.07) (.05) .06 (.03) Net realized and unrealized gain (loss) .84 5.07 3.55 4.18 (.57) .96 Total from investment operations .76 4.87 3.48 4.13 (.51) .93 Less Distributions In excess of net investment income - - - (.04) - - From net realized gain (.33) (1.96) (.36) - (.50) (2.32) Total distributions (.33) (1.96) (.36) (.04) (.50) (2.32) Redemption fees added to paid in capital .03 .08 .07 .14 .04 .03 Net asset value, end of period $ 22.13 $ 21.67 $ 18.68 $ 15.49 $ 11.26 $ 12.23 TOTAL RETURND, E 3.74% 27.47% 23.14% 38.01% (4.10)% 6.90% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 13,363 $ 13,077 $ 10,780 $ 2,998 $ 770 $ 1,630 Ratio of expenses to average net assetsB 2.21%A 2.39% 2.48%A 2.43% 2.39% 2.50% Ratio of expenses to average net assets before 2.22%A 2.40% 4.20%A 3.13% 2.89% 3.92% expense reductionsB Ratio of net investment income (loss) to average net (.72)% (.96) (.53)% (.34)% .52% (.20)% assets A % A Portfolio turnover rate 224%A 115% 116%A 423% 187% 156%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. AMERICAN GOLD PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S AMERICAN GOLD -4.02% 1.97% 40.14% 120.71% AMERICAN GOLD (INCL. 3% SALES CHARGE) -6.90% -1.09% 35.94% 114.09% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND AMERICAN GOLD 1.97% 6.98% 9.51% AMERICAN GOLD (INCL. 3% SALES CHARGE) -1.09% 6.33% 9.13% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select American Gold (041) Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9719.40 10080.42 01/31/86 10097.70 10136.87 02/28/86 9622.40 10895.11 03/31/86 10010.40 11503.06 04/30/86 9806.70 11373.07 05/31/86 9855.20 11978.12 06/30/86 9874.60 12180.55 07/31/86 9826.10 11499.66 08/31/86 10941.60 12352.93 09/30/86 11475.10 11331.35 10/31/86 11310.20 11985.16 11/30/86 11494.50 12276.40 12/31/86 11475.10 11963.36 01/31/87 13221.10 13574.82 02/28/87 14588.80 14111.03 03/31/87 16975.00 14518.83 04/30/87 18032.30 14389.62 05/31/87 17072.00 14514.81 06/30/87 16538.50 15247.80 07/31/87 19739.50 16020.87 08/31/87 19409.70 16618.45 09/30/87 20234.20 16254.50 10/31/87 14326.90 12753.28 11/30/87 16616.10 11702.41 12/31/87 16122.98 12592.97 01/31/88 13701.58 13123.13 02/29/88 14065.78 13734.67 03/31/88 15473.34 13310.27 04/30/88 15571.77 13458.01 05/31/88 15473.34 13575.09 06/30/88 15778.47 14198.19 07/31/88 15739.10 14144.24 08/31/88 14813.85 13663.33 09/30/88 14174.05 14245.39 10/31/88 14321.70 14641.41 11/30/88 14518.56 14432.04 12/31/88 14114.99 14684.60 01/31/89 14626.83 15759.52 02/28/89 15394.59 15367.10 03/31/89 14853.22 15725.16 04/30/89 14134.68 16541.29 05/31/89 13622.84 17211.21 06/30/89 14390.60 17113.11 07/31/89 14538.24 18658.42 08/31/89 15276.48 19024.13 09/30/89 15365.06 18946.13 10/31/89 15522.55 18506.58 11/30/89 17501.01 18884.12 12/31/89 17225.41 19337.33 01/31/90 17983.33 18039.80 02/28/90 17481.33 18272.51 03/31/90 16802.15 18756.73 04/30/90 14981.18 18287.82 05/31/90 16300.16 20070.88 06/30/90 15256.79 19934.40 07/31/90 16319.84 19870.61 08/31/90 16024.55 18074.30 09/30/90 16014.71 17194.08 10/31/90 13386.60 17120.15 11/30/90 13219.27 18226.11 12/31/90 14262.64 18734.62 01/31/91 12284.18 19551.45 02/28/91 13396.45 20949.38 03/31/91 13347.23 21456.35 04/30/91 12874.76 21507.85 05/31/91 13317.70 22436.99 06/30/91 14213.42 21409.37 07/31/91 14055.93 22407.05 08/31/91 12914.13 22938.10 09/30/91 12697.59 22555.03 10/31/91 13672.05 22857.27 11/30/91 13642.52 21936.12 12/31/91 13386.60 24445.61 01/31/92 13711.42 23990.92 02/29/92 13288.17 24302.81 03/31/92 12382.61 23828.90 04/30/92 11752.65 24529.47 05/31/92 12589.31 24649.67 06/30/92 13406.29 24282.39 07/31/92 14252.79 25275.53 08/31/92 13987.03 24757.39 09/30/92 13908.29 25049.52 10/31/92 13494.88 25137.20 11/30/92 12353.08 25994.38 12/31/92 12973.19 26314.11 01/31/93 12727.12 26535.14 02/28/93 13927.97 26896.02 03/31/93 15493.02 27463.53 04/30/93 17451.80 26798.91 05/31/93 19390.89 27517.12 06/30/93 20522.84 27596.92 07/31/93 22156.80 27486.53 08/31/93 20995.31 28528.27 09/30/93 18770.77 28308.61 10/31/93 21576.05 28894.59 11/30/93 21595.74 28620.10 12/31/93 23180.48 28966.40 01/31/94 23190.32 29951.26 02/28/94 22304.44 29139.58 03/31/94 22845.81 27869.09 04/30/94 20916.57 28225.82 05/31/94 21822.13 28688.72 06/30/94 20749.23 27985.85 07/31/94 20444.10 28903.78 08/31/94 21408.72 30088.84 Let's say you invested $10,000 in Fidelity Select American Gold Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $21,409 - a 114.09% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS American Barrick Resources Corp. 10.6 Placer Dome, Inc. 6.2 Newmont Mining Corp. 6.1 Homestake Mining Co. 5.7 Santa Fe Pacific Corp. 5.5 Euro-Nevada Mining Corp. 4.5 Cambior, Inc. 4.3 Franco Nevada Mining Corp. 4.0 Agnico Eagle Mines Ltd. 3.8 Prime Resources Group, Inc. 3.1 TOP INDUSTRIES AS OF AUGUST 31, 1994 Gold Ores 56.5% Gold & Silver Ores 19.5% Railroads 5.5% Copper Ores 1.4% Petroleum Refiners 1.1% All Others 16.0%* Row: 1, Col: 1, Value: 16.0 Row: 1, Col: 2, Value: 1.1 Row: 1, Col: 3, Value: 1.4 Row: 1, Col: 4, Value: 5.5 Row: 1, Col: 5, Value: 19.5 Row: 1, Col: 6, Value: 56.5 * INCLUDES SHORT-TERM INVESTMENTS AMERICAN GOLD PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Malcolm MacNaught, Portfolio Manager of Fidelity Select American Gold Portfolio Q. MALCOLM, HOW DID THE FUND PERFORM? A. Not as well as I would have liked. For the six months and the year ended August 31, 1994, the fund had total returns of -4.02% and 1.97%, respectively. Over the same periods, the S&P 500 returned 3.26% and 5.47%, respectively. Q. WHY WAS THE FUND'S PERFORMANCE DOWN OVER THE PAST SIX MONTHS? A. The fund invests only in North and South American gold stocks. During the period, the North American gold market - like many markets worldwide - fell due to investors' disinterest in gold. In addition, I believe the North American market was negatively influenced during the period by stringent U.S. and Canadian environmental policies, which discourage companies from exploring in North America. Also, one should not lose sight of the Federal Reserve's actions to control inflation, which negatively affected gold shares. Q. WHAT WAS YOUR STRATEGY IN THIS ENVIRONMENT? A. My strategy remained much the same as it was six months ago. I invested in established companies that continued to grow - like Canadian mining company American Barrick, still my biggest holding. Well-known companies like this made up most of the fund's top 10 stocks. I also liked young exploration companies that may have found new ore bodies, such as the Canadian mining exploration company Sudbury Contact, which looks like it's discovered a major new gold mine in Kirkland, Ontario. Canadian exploration companies Orvana and Kinross Gold also looked like good exploration plays in North and South America. Q. YOU MENTIONED AMERICAN BARRICK. HASN'T THAT COMPANY BEEN IN THE NEWS OVER THE PAST SIX MONTHS? A. Yes. American Barrick made news recently when it bought Lac Minerals, a Canadian gold mining company, becoming the largest gold mining company in North America. With this acquisition, I think it can double its production over the next few years. In addition, the purchase provided the company with a number of interesting exploration properties in South America - where there is a tremendous opportunity to find undiscovered ore bodies. However, while American Barrick looked great from a corporate standpoint, it was weak from a stock standpoint. As I noted, North American gold stocks fell due to the general disinterest in gold. In addition, American Barrick's stock was overowned and extremely susceptible to selling by disenchanted gold share owners. Q. LET'S SWITCH DIRECTION A BIT. THERE'S BEEN A LOT OF TALK LATELY ABOUT DERIVATIVES. DOES THE FUND OWN THEM? A. Yes. The fund does own some derivatives - or financial arrangements whose prices are derived from other securities, currencies or indices. The fund has a small investment in indexed securities, or structured notes, which were linked to gold and silver on August 31, 1994. These indexed securities let the fund earn the small, but meaningful, return that it would earn if it could lend its gold to other buyers. I should note that these securities carry the same risk as the underlying metal. That means that if gold dropped 1%, an indexed security linked to gold would fall 1%. Q. IN HINDSIGHT, DO YOU REGRET ANY OF YOUR INVESTMENT DECISIONS? A. Sure. I invested a small amount of money in North American diamond companies, and I wish I hadn't. These exploration companies, located mostly in the Northwest Territories of Canada, didn't find enough diamonds to be successful. Q. WHAT DO YOU SEE HAPPENING IN THE NEAR FUTURE? A. Right now, we're entering the season when jewelry manufacturers will be buying more bullion to meet demand for Christmas and the first quarter. So the picture should improve short term and continue to improve as economies in Europe, Japan, and many developing countries pick up. Long term, I think gold prices may increase because world gold supply is virtually flat and consumption is growing. That said, I think it's important to remind shareholders that gold stocks are extremely volatile. They can produce very high returns. On the other hand, they can drop dramatically. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $366 million MANAGER: Malcolm MacNaught, since December 1985; manager, Precious Metals and Minerals Portfolio, since July 1981; Advisor Global Resources, since November 1988; joined Fidelity in 1968 (checkmark) AMERICAN GOLD PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 83.8% SHARES VALUE (NOTE 1) CANADA - 57.1% HOLDING COMPANIES - 0.5% HOLDING COMPANY OFFICES, NEC - 0.5% Bolivar Goldfields Ltd. (a) 892,800 $ 1,632,717 METALS & MINING - 1.1% METAL MINING - 0.5% Cominco Resources International Ltd. (a) 662,900 1,624,456 Southernera Resources Ltd. (a) 253,900 375,170 1,999,626 METAL MINING SERVICES - 0.1% Tombstone Exploration Co. (a) 200,000 197,506 MISCELLANEOUS NONMETAL MINERALS - 0.5% DIA Metal Minerals Ltd.: Class A (a) 31,250 342,892 Class B (a) 125,000 1,554,443 1,897,335 TOTAL METALS & MINING 4,094,467 OIL & GAS - 1.1% PETROLEUM REFINERS - 1.1% Horsham Corp. 275,700 4,033,502 PRECIOUS METALS - 54.4% GOLD & SILVER ORES - 0.1% Greenstone Resources Ltd. 115,500 215,446 GOLD ORES - 54.3% Aber Resources Ltd. (a) 50,000 274,314 Agnico Eagle Mines Ltd. 1,090,000 13,853,737 American Barrick Resources Corp. 1,670,000 38,022,555 Aurizon Mines Ltd. (a) 188,000 99,016 Baja Gold, Inc. (a) 100,000 153,615 Bema Gold Corp. (a) 350,000 601,661 Breakwater Resources Ltd. (a) 429,500 50,269 Cambior, Inc. 1,163,600 15,427,567 Campbell Resources, Inc. (a) 1,320,000 579,348 Canarc Resources Corp. (a) 550,000 1,206,981 Cathedral Gold Corp. (a) 81,000 103,691 Echo Bay Mines Ltd. 530,000 6,736,221 Euro-Nevada Mining Corp. 560,000 16,129,624 Exall Resource Ltd. (a) 100,000 89,975 Franco Nevada Mining Corp. 240,000 14,395,963 Golden Knight Resources, Inc. 386,200 2,542,555 Golden Star Resources, Ltd. (a) 720,000 7,900,222 Hemlo Gold Mines Inc. 800,000 8,119,672 Kinross Gold Corp. (a) 1,164,100 5,641,461 Orvana Minerals Corp. (a)(c) 1,310,000 5,749,603 Pegasus Gold, Inc. 480,000 7,768,550 Placer Dome, Inc. 990,000 22,449,804 Prime Equities, Inc. (a) 55,883 65,405 Prime Resources Group, Inc. (a) 1,394,800 11,095,760 Rayrock Yellowknife Resources Inc. (a) 289,500 3,547,145 Royal Oaks Mines, Inc. (warrants) (a) 100,000 98,753 Sudbury Contact Mines, Ltd. (a) 382,900 3,676,211 Viceroy Resources Corp. (a) 659,600 4,161,555 Wharf Resources Ltd. 570,000 5,107,713 195,648,946 TOTAL PRECIOUS METALS 195,864,392 TOTAL CANADA 205,625,078 SHARES VALUE (NOTE 1) PERU - 0.2% PRECIOUS METALS - 0.2% GOLD ORES - 0.2% Buenaventura (CIA DE MIN) Class T 164,467 $ 583,828 UNITED KINGDOM - 0.1% RETAIL & WHOLESALE, MISCELLANEOUS - 0.1% RETAIL, GENERAL - 0.1% Signet Group PLC (a) 1,000,000 452,690 UNITED STATES - 26.4% METALS & MINING - 1.4% COPPER ORES - 1.4% Freeport-McMoran Copper Co. Class A 220,000 5,087,500 PRECIOUS METALS - 19.4% GOLD & SILVER ORES - 19.4% Amax Gold, Inc. 862,500 5,929,688 Battle Mountain Gold Co. 1,000,000 10,875,000 Canyon Resources Corp. (a) 820,100 1,896,481 Coeur d'Alene Mines Corp. 181,700 3,861,125 FMC Gold Co. 117,200 586,000 Hecla Mining Co. (a) 330,000 4,042,500 Homestake Mining Co. 1,087,300 20,522,788 Newmont Mining Corp. 513,105 21,999,377 69,712,959 RAILROADS - 5.5% Santa Fe Pacific Corp. 926,900 19,928,350 SERVICES - 0.1% JEWELRY, PRECIOUS METAL - 0.1% Oroamerica, Inc. (a) 50,000 337,500 TOTAL UNITED STATES 95,066,309 TOTAL COMMON STOCKS (Cost $241,682,291) 301,727,905 CONVERTIBLE PREFERRED STOCKS - 2.0% UNITED STATES - 2.0% PRECIOUS METALS - 2.0% GOLD ORES - 2.0% Battle Gold Co. medium term notes 33,500 2,139,813 Newmont Mining Corp. depository shares representing 1/2 share, $1.375 (b) 83,800 5,153,700 TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $7,368,215) 7,293,513 BULLION - 3.0% TROY OUNCES Gold Bullion (a) (Cost $10,593,389) 27,867 10,759,427 INDEXED SECURITIES - 4.2% PRINCIPAL VALUE (NOTE 1) AMOUNT Goldman Sachs Group, L.P. notes: 4.72%, 11/10/94 (indexed to silver price) $ 5,000,000 $ 5,192,000 5.04%, 1/13/95 (indexed to gold price) 9,856,248 9,812,881 TOTAL INDEXED SECURITIES (Cost $14,856,248) 15,004,881 REPURCHASE AGREEMENTS - 7.0% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 25,370,403 25,367,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $299,867,143) $ 360,152,726 LEGEND 1. Non-income producing 2. 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 this security amounted to $5,153,700 or 1.4% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Orvana Minerals Corp. (a) $ 50,738 $ - $ - $ 5,749,603 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $65,584,352 and $27,420,633, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $23,924 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balance during the period for which the loan was outstanding amounted to $3,380,000. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $301,635,660. Net unrealized appreciation aggregated $58,517,066, of which $84,972,426 related to appreciated investment securities and $26,455,360 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $38,864,000 of which $13,677,000, $2,503,000, $1,152,000, $13,193,000 and $8,339,000 will expire on February 28, 1997, 1998, 1999, 2000 and 2001, respectively. AMERICAN GOLD PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 360,152,726 at value (including repurchase agreements of $25,367,000) (cost $299,867,143) - See accompanying schedule Cash 933 Receivable for 3,580,853 investments sold Receivable for fund 7,352,342 shares sold Dividends receivable 171,662 Interest receivable 129,342 Redemption fees 2,361 receivable Other receivables 10,156 Prepaid expenses 56,951 TOTAL ASSETS 371,457,326 LIABILITIES Payable for investments $ 300,108 purchased Payable for fund shares 4,444,664 redeemed Accrued management 176,012 fee Other payables and 244,524 accrued expenses TOTAL LIABILITIES 5,165,308 NET ASSETS $ 366,292,018 Net Assets consist of: Paid in capital $ 347,663,533 Accumulated net (459,426 investment (loss) ) Accumulated (41,198,070 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized 60,285,981 appreciation (depreciation) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 366,292,018 16,837,380 shares outstanding NET ASSET VALUE and $21.75 redemption price per share ($366,292,018 (divided by) shares) Maximum offering price $22.42 per share (100/97 of $21.75)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,092,885 Dividends Interest 1,043,872 TOTAL INCOME 2,136,757 EXPENSES Management fee $ 1,112,510 Transfer agent fees 1,183,400 Redemption fees (109,190 ) Accounting fees and 179,546 expenses Non-interested trustees' 1,037 compensation Custodian fees and 28,708 expenses Registration fees 56,951 Audit 21,718 Legal 4,121 Interest 1,179 Reports to shareholders 13,229 Miscellaneous 658 Total expenses before 2,493,867 reductions Expense reductions (299 2,493,568 ) NET INVESTMENT INCOME (356,811 (LOSS) ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (571,473 (including realized loss ) of $346,022 on sales of investments in precious metals) Foreign currency (8,791 (580,264 transactions ) ) Change in net unrealized appreciation (depreciation) on: Investment securities (19,281,426 ) Assets and liabilities in 398 (19,281,028 foreign ) currencies NET GAIN (LOSS) (19,861,292 ) NET INCREASE $ (20,218,103 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $916,855 Sales Charges Paid to FDC Deferred sales $25,847 charges withheld by FDC Exchange fees $89,850 withheld by FSC
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (356,811 $ (1,607,332 Net investment income (loss) ) ) Net realized gain (loss) (580,264 5,091,181 ) Change in net unrealized appreciation (depreciation) (19,281,028 102,337,003 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (20,218,103 105,820,852 ) Share transactions 308,350,583 927,864,527 Net proceeds from sales of shares Cost of shares redeemed (270,075,912 (857,107,198 ) ) Paid in capital portion of redemption fees 829,006 2,794,982 Net increase (decrease) in net assets resulting from share transactions 39,103,677 73,552,311 TOTAL INCREASE (DECREASE) IN NET ASSETS 18,885,574 179,373,163 NET ASSETS Beginning of period 347,406,444 168,033,281 End of period (including accumulated net investment (loss) of $(459,426) and $(102,615), $ 366,292,018 $ 347,406,444 respectively) OTHER INFORMATION Shares Sold 14,022,775 46,202,228 Redeemed (12,518,197 (42,741,926 ) ) Net increase (decrease) 1,504,578 3,460,302
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 22.66 $ 14.15 $ 11.94 $ 13.08 $ 15.22 $ 14.36 Income from Investment Operations Net investment income (loss) (.02) (.11) (.05) (.06) (.04) (.06) Net realized and unrealized gain (loss) (.94) 8.44 2.16 (1.17) (2.23) .85 Total from investment operations (.96) 8.33 2.11 (1.23) (2.27) .79 Redemption fees added to paid in capital .05 .18 .10 .09 .13 .07 Net asset value, end of period $ 21.75 $ 22.66 $ 14.15 $ 11.94 $ 13.08 $ 15.22 TOTAL RETURND, E (4.02)% 60.14% 18.51% (8.72)% (14.06)% 5.99% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 366,292 $ 347,406 $ 168,033 $ 130,407 $ 164,137 $ 195,322 Ratio of expenses to average net assetsB 1.37%A 1.49% 1.59%A 1.75% 1.75% 1.85% Ratio of expenses to average net assets before 1.37%A 1.50% 1.59%A 1.75% 1.75% 1.85% expense reductionsB Ratio of net investment income (loss) to average net (.20)% (.51) (.44)% (.47)% (.29)% (.38)% assets A % A Portfolio turnover rate 17%A 39% 30%A 40% 38% 68%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. ENERGY PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S ENERGY 2.79% -5.86% 30.54% 120.62% ENERGY (INCL. 3% SALES CHARGE) -0.30% -8.69% 26.63% 114.00% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS ENERGY -5.86% 5.48% 8.23% ENERGY (INCL. 3% SALES CHARGE) -8.69% 4.83% 7.91% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Energy (060) Standard & Poor 08/31/84 9700.00 10000.00 09/30/84 9838.70 10002.00 10/31/84 9209.91 10041.01 11/30/84 9098.95 9928.55 12/31/84 9089.70 10190.66 01/31/85 9672.26 10984.51 02/28/85 10217.82 11119.62 03/31/85 10615.44 11127.41 04/30/85 10763.39 11117.39 05/31/85 10615.44 11759.98 06/30/85 10196.32 11944.61 07/31/85 10304.27 11926.69 08/31/85 10677.19 11825.32 09/30/85 10343.52 11455.18 10/31/85 10961.78 11984.41 11/30/85 11138.42 12806.54 12/31/85 10726.25 13426.38 01/31/86 9990.23 13501.57 02/28/86 9764.52 14511.49 03/31/86 9715.45 15321.23 04/30/86 9735.08 15148.10 05/31/86 10186.51 15953.98 06/30/86 10215.95 16223.60 07/31/86 9578.06 15316.70 08/31/86 10844.02 16453.20 09/30/86 10726.25 15092.52 10/31/86 11010.85 15963.36 11/30/86 11236.56 16351.27 12/31/86 11315.07 15934.31 01/31/87 12512.33 18080.66 02/28/87 12757.67 18794.85 03/31/87 13817.53 19338.02 04/30/87 13424.99 19165.91 05/31/87 13896.04 19332.65 06/30/87 14376.91 20308.95 07/31/87 15122.74 21338.62 08/31/87 15034.42 22134.55 09/30/87 14710.57 21649.80 10/31/87 10824.39 16986.43 11/30/87 10372.96 15586.75 12/31/87 11111.42 16772.90 01/31/88 11525.20 17479.04 02/29/88 11938.98 18293.57 03/31/88 12786.72 17728.29 04/30/88 13271.14 17925.08 05/31/88 12786.72 18081.03 06/30/88 12928.01 18910.95 07/31/88 13008.74 18839.08 08/31/88 12514.23 18198.55 09/30/88 12372.94 18973.81 10/31/88 12483.95 19501.29 11/30/88 12514.23 19222.42 12/31/88 12882.83 19558.81 01/31/89 13856.29 20990.51 02/28/89 13638.81 20467.85 03/31/89 14425.87 20944.75 04/30/89 14912.60 22031.78 05/31/89 15088.65 22924.07 06/30/89 15399.33 22793.40 07/31/89 16041.40 24851.65 08/31/89 16393.50 25338.74 09/30/89 16652.40 25234.85 10/31/89 16538.48 24649.40 11/30/89 17159.84 25152.25 12/31/89 18399.96 25755.90 01/31/90 17578.44 24027.68 02/28/90 18126.12 24337.64 03/31/90 18136.66 24982.59 04/30/90 17525.78 24358.02 05/31/90 18589.54 26732.93 06/30/90 18151.42 26551.15 07/31/90 19387.74 26466.18 08/31/90 19736.16 24073.64 09/30/90 19679.96 22901.25 10/31/90 18668.43 22802.78 11/30/90 18466.12 24275.84 12/31/90 17573.36 24953.13 01/31/91 16435.10 26041.09 02/28/91 17968.27 27903.03 03/31/91 17724.35 28578.28 04/30/91 17921.81 28646.87 05/31/91 18026.34 29884.41 06/30/91 17223.25 28515.71 07/31/91 18107.69 29844.54 08/31/91 18456.81 30551.86 09/30/91 18270.61 30041.64 10/31/91 18817.56 30444.20 11/30/91 17421.08 29217.30 12/31/91 17579.54 32559.76 01/31/92 16638.83 31954.14 02/29/92 16662.35 32369.55 03/31/92 16180.23 31738.34 04/30/92 17285.57 32671.45 05/31/92 18108.69 32831.54 06/30/92 17212.60 32342.35 07/31/92 17672.39 33665.15 08/31/92 17990.70 32975.02 09/30/92 18096.81 33364.12 10/31/92 17318.70 33480.90 11/30/92 16917.86 34622.59 12/31/92 17159.66 35048.45 01/31/93 17806.74 35342.86 02/28/93 18981.07 35823.52 03/31/93 19951.69 36579.40 04/30/93 20335.48 35694.18 05/31/93 20946.98 36650.78 06/30/93 21222.76 36757.07 07/31/93 21066.89 36610.04 08/31/93 22733.53 37997.56 09/30/93 22601.64 37704.98 10/31/93 22277.90 38485.47 11/30/93 19580.09 38119.86 12/31/93 20446.49 38581.11 01/31/94 21541.62 39892.87 02/28/94 20819.83 38811.77 03/31/94 19811.82 37119.58 04/30/94 21325.18 37594.71 05/31/94 21550.85 38211.26 06/30/94 21438.01 37275.09 07/31/94 21763.97 38497.71 08/31/94 21400.40 40076.11 Let's say you invested $10,000 in Fidelity Select Energy Portfolio on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $21,400 - a 114.00% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS British Petroleum PLC ADR 9.0 Amerada Hess Corp. 7.8 Total SA sponsored ADR 6.3 Amoco Corp. 5.9 Canadian Natural Resources Ltd. 5.4 Unocal Corp. 5.2 Halliburton Co. 4.0 Shell Transport & Trading PLC 3.6 Apache Corp. 3.5 Schlumberger Ltd. 2.9 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 16.1 Row: 1, Col: 2, Value: 3.2 Row: 1, Col: 3, Value: 3.6 Row: 1, Col: 4, Value: 8.6 Row: 1, Col: 5, Value: 30.7 Row: 1, Col: 6, Value: 37.8 Crude Petroleum & Gas 37.8% Oil & Gas Exploration 30.7% Oil & Gas Services 8.6% Holding Company Offices 3.6% Petroleum Refiners 3.2% All Others 16.1% ENERGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Robert Bertelson, Portfolio Manager of Fidelity Select Energy Portfolio Q. BOB, HOW HAS THE FUND PERFORMED? A. For the six months ended August 31, 1994, the fund had a total return of 2.79%, and for the year ended August 31, the fund returned -5.86%. Both numbers lagged the S&P 500's return of 3.26% and 5.47% for six months and one year, respectively. Q. WHAT ACCOUNTED FOR THE FUND'S PERFORMANCE OVER THE LAST SIX MONTHS? A. The fund's performance more or less matched the market's performance, as improved oil prices were offset by weakening natural gas prices and declining refining margins. The price of oil is determined largely by psychology, by what buyers and sellers think it's worth. At the beginning of the year, the perception was that there was plenty of oil, so prices suffered. However, over the past few months that perception has changed for a number of reasons. Last winter's extremely cold weather almost single-handedly wiped out oil inventories. There has been political strife in three oil- producing countries: Nigeria, Yemen and Colombia. And demand has picked up due to the global economic recovery. These factors have catalyzed the commodity markets to be somewhat concerned about the supply of oil, leading to higher oil prices. As a result, oil stocks have bounced back from their lows of early 1994. Q. WHAT ABOUT NATURAL GAS? A. The fund presently is tilted toward oil stocks. It is a big industry, so it's hard to avoid an "oily bias" in investing. At the same time, the fund has meaningful positions - about 25% as of August 31 - in independent producer companies in the U.S. and Canada which are heavily weighted to natural gas production, such as Canadian Natural Resources, Apache and Rio Alto; and energy service companies Enerflex and Precision Drilling. Complex interrelationships of products and fuels on a global basis drive the energy industry. That web is always slightly out of balance. One of the more successful ways to invest in this sector is to anticipate how the disequilibrium is going to be resolved. Natural gas prices have been very low because of a cool summer and excess supply. At the same time, supply and demand relationships in the commodity are strong, so I believe natural gas investors could be rewarded over the next six to 12 months and beyond. Q. WHICH OIL STOCKS DO YOU FIND APPEALING? A. I'll highlight three of the fund's top five investments at the end of the period. British Petroleum has cut costs and turned around its earnings performance. The company has major positions in two of the most exciting major oil discoveries outside of the Middle East: the large Cuisiana field in Colombia and a new oil province in the North Sea called the West of Shetlands area. Amerada Hess is the second largest holder of rights in West of Shetlands. The company has also upgraded its refinery in the Virgin Islands. Total, a refiner and marketer that holds about a 20% share of the French market, is involved in the Cuisiana field, as well as in natural gas production in the Far East, where there is explosive growth potential. Q. WHAT ABOUT DISAPPOINTMENTS? A. Louis Dreyfus Natural Gas, a company that came public last year, hasn't done well. It's trying to sell one of its producing properties and it's a good deal in terms of the price, but the company's cash flow will suffer until Dreyfus can transfer the profits into investments that can generate earnings. The reduction in estimated cash flow per share has resulted in a decline of the stock price. Energy service companies also have disappointed over the last six months, reflecting the fact that drilling activity has slowed worldwide. Halliburton and Schlumberger are two service companies whose stock prices haven't moved substantially. Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. I believe prospects for the energy industry are improving. Margins - the difference between the revenue received by a company for its products and services and the cost of producing them - seem to be rocketing off the bottom in petrochemicals as economies around the world recover. Inventory levels are tighter than last year heading into the winter, which is historically the strongest season for crude oil consumption. There is a possibility that crude prices will get to robust levels, particularly if OPEC (the Organization of Petroleum Exporting Countries) continues to demonstrate good production discipline and doesn't accommodate demand increases as they occur. I'm looking for those companies that are cutting costs and growing production levels, those with earnings surprises and those performing better than the market. I have reserved optimism about the group over the next six months. FUND FACTS START DATE: July 14, 1981 SIZE: as of August 31, 1994, more than $100 million MANAGER: Robert Bertelson, since January 1992; equity analyst, integrated oils, since December 1991; refiners, since 1992; joined Fidelity in 1991 (checkmark) ENERGY PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 93.9% SHARES VALUE (NOTE 1) CHEMICALS & PLASTICS - 2.3% PLASTICS & SYNTHETIC RESINS - 2.3% ARCO Chemical Co. 46,600 $ 2,265,925 ENERGY SERVICES - 10.4% DRILLING - 1.8% Dual Drilling Co. (a) 23,000 255,875 Global Marine, Inc. (a) 160,000 640,000 Precision Drilling Class A (a) 73,500 914,012 1,809,887 OIL & GAS SERVICES - 8.6% BJ Services Co. (a) 14,400 277,200 Enserv Corp. 70,000 640,065 Halliburton Co. 130,000 3,932,500 Nowsco Well Service Ltd. 11,100 167,468 Schlumberger Ltd. 50,000 2,850,000 Veritas Energy Service, Inc. (a)(b) 44,500 354,002 Weatherford International, Inc. (a) 14,900 180,663 8,401,898 TOTAL ENERGY SERVICES 10,211,785 GAS - 3.1% GAS TRANSMISSION - 1.9% Associated Nature Gas Corp. 16,000 500,000 Enron Corp. 30,000 915,000 Trident NGL Holding, Inc. 38,300 402,150 1,817,150 GAS TRANSMISSION & DISTRIBUTION - 1.2% Gas Natural SDG SA, Series E 15,000 1,195,192 TOTAL GAS 3,012,342 HOLDING COMPANIES - 3.6% HOLDING COMPANY OFFICES - 3.6% Shell Transport & Trading PLC 50,700 3,491,963 INDUSTRIAL MACHINERY & EQUIPMENT - 0.0% AIR & GAS COMPRESSORS - 0.0% Enerflex Systems Ltd. 1,200 15,362 OIL & GAS - 74.3% CRUDE PETROLEUM & GAS - 37.8% Anadarko Petroleum Corp. 5,800 271,875 Apache Corp. 135,800 3,428,950 Basin Exploration, Inc. (a) 30,000 300,000 Bellwether Exploration Co. 50,000 275,000 British Borneo Petroleum 245,900 849,029 Burlington Resources, Inc. 59,600 2,242,450 Canadian Natural Resources Ltd. (a) 385,200 5,248,053 Coho Resources, Inc. (a) 50,000 231,250 DEKALB Energy Corp. Class B (a) 29,000 464,000 Encal Energy Ltd. (a) 50,000 137,157 Excel Energy, Inc. (a) 30,000 59,252 Global Natural Resources, Inc. (a) 50,000 375,000 Intensity Resources Ltd. (a) 146,100 336,648 Louis Dreyfus Natural Gas Corp. (a) 93,300 1,282,875 Morrison Petroleums Ltd. 100,800 691,269 Newfield Exploration Co. (a) 56,300 1,407,500 SHARES VALUE (NOTE 1) Norsk Hydro A.S. ADR 30,000 $ 1,128,750 Nuevo Energy Corp. (a) 26,200 589,500 Paramount Resources Ltd. 31,000 357,156 Parker & Parsley Petroleum Co. 24,500 640,063 Petromet Resources Ltd. Ord. (a) 25,000 148,586 Renaissance Energy Ltd. (a) 102,908 2,079,539 Renaissance Energy Ltd. (a)(c) 11,000 222,285 Rio Alto Exploration Ltd. (a) 317,500 1,916,078 Sceptre Resources Ltd. (a) 57,500 483,706 Total SA sponsored ADR 205,607 6,142,509 Triton Energy Corp. (a) 40,000 1,275,000 Ulster Petroleums Ltd. (a) 168,900 531,268 United Meridian Corp. (a) 40,000 600,000 Vastar Resources, Inc. 30,000 821,250 Vintage Petroleum, Inc. 96,400 2,012,350 YPF Sociedad Anonima sponsored ADR representing Class D shares 20,000 517,500 37,065,848 NATURAL GAS LIQUIDS - 1.2% Western Gas Resources, Inc. 52,100 1,152,713 OIL & GAS EXPLORATION - 30.7% Amerada Hess Corp. 152,400 7,639,045 Amoco Corp. 100,000 5,787,500 British Petroleum PLC ADR 115,401 8,770,476 Louisiana Land & Exploration Co. 18,400 793,500 Phillips Petroleum Co. 58,900 1,951,063 Unocal Corp. 178,400 5,106,700 30,048,284 OIL FIELD EQUIPMENT - 1.4% Camco International, Inc. 66,400 1,311,400 Taro, Inc. 50,000 44,256 1,355,656 PETROLEUM REFINERS - 3.2% Crown Central Petroleum Corp. Class B (a) 18,100 321,275 Diamond Shamrock R&M, Inc. 22,800 612,750 Sun Company, Inc. 20,000 557,500 Tesoro Petroleum Corp. (a) 30,000 307,500 Tosco Corp. 44,900 1,347,000 3,146,025 TOTAL OIL & GAS 72,768,526 TRUCKING & FREIGHT - 0.2% TRUCKING, LONG DISTANCE - 0.2% Trimac Ltd. 15,500 179,995 TOTAL COMMON STOCKS (Cost $85,669,097) 91,945,898 NONCONVERTIBLE PREFERRED STOCKS - 0.0% OIL & GAS - 0.0% CRUDE PETROLEUM & GAS - 0.0% Gulf Canada Resources Ltd. sr., Series 1, adj. rate (Cost $27,710) 11,000 30,250 REPURCHASE AGREEMENTS - 6.1% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 6,006,806 $ 6,006,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $91,702,807) $ 97,982,148 LEGEND 1. Non-income producing 2. Restricted securities - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on each holding is as follows: ACQUISITION ACQUISITION SECURITY DATE COST Veritas Energy Service, Inc. 4/13/94 to 5/17/94 $ 357,275 3. Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of this security amounted to $222,285 or 0.2% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $49,371,112 and $90,888,282, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $42,224 for the period (see Note 5 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 62.5% Canada 14.9 United Kingdom 13.4 France 6.3 Spain 1.2 Norway 1.2 Others (individually less than 1%) 0.5 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $91,959,931. Net unrealized appreciation aggregated $6,022,217, of which $9,067,287 related to appreciated investment securities and $3,045,070 related to depreciated investment securities. ENERGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 97,982,148 at value (including repurchase agreements of $6,006,000) (cost $91,702,807) - See accompanying schedule Cash 678 Receivable for 2,788,092 investments sold Receivable for fund 1,110,748 shares sold Dividends receivable 383,971 Redemption fees 257 receivable Other receivables 1,542 Prepaid expenses 21,147 TOTAL ASSETS 102,288,583 LIABILITIES Payable for fund shares $ 1,642,632 redeemed Accrued management 53,550 fee Other payables and 117,129 accrued expenses TOTAL LIABILITIES 1,813,311 NET ASSETS $ 100,475,272 Net Assets consist of: Paid in capital $ 92,549,653 Undistributed net 263,940 investment income Accumulated 1,382,338 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized 6,279,341 appreciation (depreciation) on investments NET ASSETS, for $ 100,475,272 5,887,656 shares outstanding NET ASSET VALUE and $17.07 redemption price per share ($100,475,272 (divided by) shares) Maximum offering price $17.60 per share (100/97 of $17.07)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,056,322 Dividends Interest (including 206,008 security lending fees of $2,294) TOTAL INCOME 1,262,330 EXPENSES Management fee $ 330,989 Transfer agent 621,137 Fees Redemption fees (82,073 ) Accounting and security 65,381 lending fees Non-interested trustees' 325 compensation Custodian fees and 5,709 expenses Registration fees 21,147 Audit 11,818 Legal 851 Reports to shareholders 6,493 Miscellaneous 175 Total expenses before 981,952 reductions Expense reductions (7,907 974,045 ) NET INVESTMENT INCOME 288,285 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,679,546 Foreign currency (123 1,679,423 transactions ) Change in net unrealized (170,188 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) 1,509,235 NET INCREASE $ 1,797,520 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $320,398 Sales Charges Paid to FDC Deferred sales $10,385 charges withheld by FDC Exchange fees $70,418 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 288,285 $ 467,695 Net investment income Net realized gain (loss) 1,679,423 11,660,936 Change in net unrealized appreciation (depreciation) (170,188 35,273 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,797,520 12,163,904 Distributions to shareholders (51,167 (210,175 From net investment income ) ) From net realized gain (562,840 (2,444,037 ) ) TOTAL DISTRIBUTIONS (614,007 (2,654,212 ) ) Share transactions 91,729,353 307,692,300 Net proceeds from sales of shares Reinvestment of distributions 599,230 2,596,445 Cost of shares redeemed (138,675,352 (353,996,623 ) ) Paid in capital portion of redemption fees 148,552 555,239 Net increase (decrease) in net assets resulting from share transactions (46,198,217 (43,152,639 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (45,014,704 (33,642,947 ) ) NET ASSETS Beginning of period 145,489,976 179,132,923 End of period (including undistributed net investment income of $263,940 and $354,166, $ 100,475,272 $ 145,489,976 respectively) OTHER INFORMATION Shares Sold 5,388,164 17,743,944 Issued in reinvestment of distributions 37,012 166,316 Redeemed (8,231,669 (20,523,434 ) ) Net increase (decrease) (2,806,493 (2,613,174 ) )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 16.73 $ 15.84 $ 14.70 $ 15.43 $ 16.64 $ 14.40 Income from Investment Operations Net investment income .05 .06 .23 .17 .16 .27 Net realized and unrealized gain (loss) .39 1.35 1.16 (.75) .15 2.23 Total from investment operations .44 1.41 1.39 (.58) .31 2.50 Less Distributions From net investment income (.01) (.03) (.27) (.16) (.15) (.07) From net realized gain (.11) (.57) - (.02) (1.43) (.22) Total distributions (.12) (.60) (.27) (.18) (1.58) (.29) Redemption fees added to paid in capital .02 .08 .02 .03 .06 .03 Net asset value, end of period $ 17.07 $ 16.73 $ 15.84 $ 14.70 $ 15.43 $ 16.64 TOTAL RETURN D, E 2.79% 9.69 9.81% (3.55)% 2.26% 17.52% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 100,475 $ 145,490 $ 179,133 $ 77,334 $ 92,611 $ 83,912 Ratio of expenses to average net assets B 1.79%A 1.66 1.71%A 1.78% 1.79% 1.94% % Ratio of expenses to average net assets before 1.81%A 1.67 1.71%A 1.78% 1.79% 1.94% expense reductions B % Ratio of net investment income to average net .53%A .37 1.88%A 1.16% .99% 1.69% assets % Portfolio turnover rate 98%A 157 72%A 81% 61% 74% %
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. ENERGY SERVICE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S ENERGY SERVICE 2.51% -12.19% 15.07% 20.25% ENERGY SERVICE (INCL. 3% SALES CHARGE) -0.56% -14.83% 11.62% 16.64% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND ENERGY SERVICE -12.19% 2.85% 2.14% ENERGY SERVICE (INCL. 3% SALES CHARGE) -14.83% 2.22% 1.78% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Energy Service (043)Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9855.20 10080.42 01/31/86 9118.00 10136.87 02/28/86 8739.70 10895.11 03/31/86 8671.80 11503.06 04/30/86 8555.40 11373.07 05/31/86 9050.10 11978.12 06/30/86 8885.20 12180.55 07/31/86 7614.50 11499.66 08/31/86 8371.10 12352.93 09/30/86 8235.30 11331.35 10/31/86 7944.30 11985.16 11/30/86 8215.90 12276.40 12/31/86 8303.20 11963.36 01/31/87 9234.40 13574.82 02/28/87 9622.40 14111.03 03/31/87 10534.20 14518.83 04/30/87 10534.20 14389.62 05/31/87 11349.00 14514.81 06/30/87 12464.50 15247.80 07/31/87 13279.30 16020.87 08/31/87 12270.50 16618.45 09/30/87 11872.80 16254.50 10/31/87 7633.90 12753.28 11/30/87 6799.70 11702.41 12/31/87 7323.50 12592.97 01/31/88 7614.50 13123.13 02/29/88 8283.80 13734.67 03/31/88 8768.80 13310.27 04/30/88 8943.40 13458.01 05/31/88 8332.30 13575.09 06/30/88 7857.00 14198.19 07/31/88 7730.90 14144.24 08/31/88 7876.40 13663.33 09/30/88 7536.90 14245.39 10/31/88 7284.70 14641.41 11/30/88 6974.30 14432.04 12/31/88 7294.40 14684.60 01/31/89 7740.60 15759.52 02/28/89 7827.90 15367.10 03/31/89 8322.60 15725.16 04/30/89 8720.30 16541.29 05/31/89 8875.50 17211.21 06/30/89 9166.50 17113.11 07/31/89 9680.60 18658.42 08/31/89 10136.50 19024.13 09/30/89 9991.00 18946.13 10/31/89 9496.30 18506.58 11/30/89 10311.10 18884.12 12/31/89 11630.30 19337.33 01/31/90 10883.40 18039.80 02/28/90 11911.60 18272.51 03/31/90 12483.90 18756.73 04/30/90 11824.30 18287.82 05/31/90 13812.80 20070.88 06/30/90 13104.70 19934.40 07/31/90 14336.60 19870.61 08/31/90 14084.40 18074.30 09/30/90 13812.80 17194.08 10/31/90 12076.50 17120.15 11/30/90 12260.80 18226.11 12/31/90 11834.40 18734.62 01/31/91 11300.01 19551.45 02/28/91 13116.95 20949.38 03/31/91 12096.74 21456.35 04/30/91 12155.04 21507.85 05/31/91 12475.68 22436.99 06/30/91 10843.35 21409.37 07/31/91 11659.51 22407.05 08/31/91 11533.20 22938.10 09/30/91 10474.13 22555.03 10/31/91 10629.59 22857.27 11/30/91 9356.76 21936.12 12/31/91 9055.55 24445.61 01/31/92 8929.24 23990.92 02/29/92 9113.85 24302.81 03/31/92 8462.86 23828.90 04/30/92 9162.43 24529.47 05/31/92 9891.15 24649.67 06/30/92 9317.89 24282.39 07/31/92 9706.54 25275.53 08/31/92 10202.07 24757.39 09/30/92 10512.99 25049.52 10/31/92 9968.88 25137.20 11/30/92 9764.84 25994.38 12/31/92 9366.47 26314.11 01/31/93 9735.69 26535.14 02/28/93 10697.60 26896.02 03/31/93 11542.92 27463.53 04/30/93 12165.15 26798.91 05/31/93 12729.16 27517.12 06/30/93 12661.09 27596.92 07/31/93 12836.13 27486.53 08/31/93 13283.45 28528.27 09/30/93 12894.47 28308.61 10/31/93 12709.71 28894.59 11/30/93 11367.75 28620.10 12/31/93 11329.36 28966.40 01/31/94 11436.70 29951.26 02/28/94 11378.15 29139.58 03/31/94 10529.18 27869.09 04/30/94 11079.70 28225.82 05/31/94 11573.25 28688.72 06/30/94 11925.78 27985.85 07/31/94 12147.37 28903.78 08/31/94 11663.90 30088.84 Let's say you invested $10,000 in Fidelity Select Energy Service Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $11,664 - a 16.64% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Schlumberger Ltd. 9.9 Western Atlas, Inc. 9.5 Halliburton Co. 9.5 Western Co. of North America 7.8 Camco International, Inc. 6.8 Enterra Corp. 4.1 Tuboscope Vetco Corp. 4.1 BJ Services Co. 4.0 Coflexip sponsored ADR 3.7 Atwood Oceanics, Inc. 3.7 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 5.3 Row: 1, Col: 2, Value: 3.7 Row: 1, Col: 3, Value: 6.8 Row: 1, Col: 4, Value: 9.5 Row: 1, Col: 5, Value: 15.4 Row: 1, Col: 6, Value: 59.3 Oil & Gas Services 59.3% Drilling 15.4% Surveying Services 9.5% Oil Field Equipment 6.8% Fabricated Pipe & Fittings 3.7% All others 5.3% ENERGY SERVICE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW William Mankivsky, Portfolio Manager of Fidelity Select Energy Service Portfolio Q. BILL, HOW HAS THE FUND PERFORMED? A. For the six months ended August 31, 1994, the fund had a total return of 2.51%, and for the year ended August 31, the fund returned -12.19%. Both numbers lagged the S&P 500's return of 3.26% and 5.47% for six months and one year, respectively. Q. WHAT HAS AFFECTED THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS? A. The performance of energy services companies is driven by energy prices. While oil prices rebounded somewhat over the period, natural gas prices have been low because of oversupply and a relatively cool summer. With less cash flow, energy supply companies have reined in their drilling programs, hoping to decrease the supply and raise prices, resulting in reduced demand for energy services. Q. WHAT FACTORS HELPED CAUSE THE INCREASE IN OIL PRICES? A. Production in Nigeria - normally the supplier of about 2% of the world's oil - was down substantially because of ongoing political unrest. In addition, the economic recovery in the U.S. has helped increase oil consumption. Despite a modest recovery in oil and gas prices, however, energy service companies need a sustained period of higher oil and gas prices in order to enjoy a sustained period of earnings growth. Q. WHAT KIND OF STOCKS HAVE YOU LOOKED FOR IN THIS KIND OF ENVIRONMENT? A. I have favored service companies that may have a technological edge, that can provide a better product or service. These are companies that may have an opportunity to grow profitability because they have better technology, even in a sluggish drilling environment. Q. WHAT ARE SOME EXAMPLES? A. I'm very high on Schlumberger, one of the fund's top 10 investments. Along with many interests in drilling, seismic and metering services, the company is the industry leader in wire line systems, the technology that helps drillers measure the quality of rock strata within the production zone of a well. Schlumberger is optimally positioned to benefit from an international increase in drilling, a scenario that is quite possible given the present minimal excess capacity to produce more oil on a sustained basis. Smith International, another top investment, is a company with a technological advantage in the production of drill bits. The company has benefited from cost cutting and from its purchase from Dresser of an interest in MI Drilling Fluids, a drilling muds company that has performed better as part of a smaller company. Smith was out of the fund as of August 31, because I took profits when its stock reached what I thought was full valuation. Q. WHAT STOCKS HAVE DISAPPOINTED? A. BJ Services, a pumping services company, has been hurt by weak pressure pumping prices as well as sluggish international activity. I remain invested because the company has a strong management team and substantial growth opportunities in new international arenas. Halliburton has not performed as well as I would have liked. The company has a high cost structure that has kept it from generating high profits in the past few years. However, the company is taking steps to reduce costs and become more profitable. Q. THE FUND'S ASSETS ESSENTIALLY TRIPLED BY EARLY AUGUST, THEN DROPPED ABOUT THE SAME AMOUNT DURING THE LAST MONTH. WHY DID THIS HAPPEN AND HOW DID THE FLUCTUATION AFFECT YOUR STRATEGY? A. The fluctuation was a result of investors trying to time the market. When I received the influx of funds, I first gained exposure to the commodity by investing in companies such as Chevron and Exxon. Once the fund flow started to stabilize, I worked off those more stable, liquid names and invested gradually in energy service companies. I believe the fund's net asset value would have been lower if one-third hadn't been in the big oil companies. Q. WHAT DO YOU SEE HAPPENING IN THE INDUSTRY IN THE NEAR FUTURE? A. During the next six months, the overall operating environment could remain fairly sluggish. Sometime within six to 12 months, however, U.S. natural gas prices could recover. Absent a warm winter, gas capacity utilization should be relatively high compared to supply, keeping upward pressure on gas prices. Upward pressure on oil or gas prices would lead to more spending on production, which should lead to better times for my favorite investments. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $46 million MANAGER: William Mankivsky, since August 1991; manager, Fidelity Select Food and Agriculture Portfolio, since April 1993; equity analyst, energy service, since 1991, and food and agriculture since 1993; joined Fidelity in 1991 (checkmark) ENERGY SERVICE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.3% SHARES VALUE (NOTE 1) AIR TRANSPORTATION - 1.3% TRANSPORTATION SERVICES - 1.3% Helikopter Services 38,450 $ 579,526 BUILDING MATERIALS - 3.7% FABRICATED PIPE & FITTINGS - 3.7% Coflexip sponsored ADR 74,200 1,613,850 ENERGY SERVICES - 70.0% DRILLING - 15.4% Arethusa Offshore Ltd. (a) 40,600 436,450 Atwood Oceanics, Inc. (a) 113,700 1,606,013 Chiles Offshore Corp. (a) 114,200 571,000 Cliffs Drilling Co. (a) 58,100 740,775 Dual Drilling Co. (a) 133,400 1,484,075 Marine Drilling Companiess, Inc. (a) 101,500 482,125 Noble Drilling Corp. (a) 94,400 649,000 Rowan Companies, Inc. (a) 84,900 626,138 Tucker Drilling Co., Inc. (a) 20,700 119,025 6,714,601 OIL & GAS SERVICES - 54.6% BJ Services Co. (a) 90,931 1,750,422 Baker Hughes, Inc. 31,700 594,375 Dreco Energy Services Ltd. Class A (a) 70,000 612,500 Enterra Corp. (a) 81,200 1,786,400 Geophysique (a) 7,200 791,355 Gulfmark International, Inc. (a) 19,100 281,725 Halliburton Co. 136,300 4,123,075 McDermott International, Inc. 26,700 697,538 Nowsco Well Service Ltd. 13,800 208,204 Offshore Logistics, Inc. (a) 16,200 226,800 Offshore Pipelines, Inc. 15,900 302,100 Petroleum Helicopters, Inc. (a) 28,000 287,000 Petroleum Helicopters, Inc. (non vtg.) (a) 8,600 88,150 Schlumberger Ltd. 75,600 4,309,200 Service Fracturing Co. (a)(b) 318,500 1,393,438 Tidewater, Inc. 15,200 343,900 Tuboscope Vetco Corp. (a) 253,220 1,772,540 Weatherford International, Inc. (a) 68,700 832,988 Western Co. of North America (a) 307,000 3,415,375 23,817,085 TOTAL ENERGY SERVICES 30,531,686 IRON & STEEL - 3.0% FABRICATED METAL PRODUCTS - 3.0% ICO, Inc. 287,700 1,294,650 OIL & GAS - 7.8% CRUDE PETROLEUM & GAS - 1.0% Unit Corp. (3 common & 1 warrant) (a) 50,700 430,950 OIL FIELD EQUIPMENT - 6.8% Camco International, Inc. 150,200 2,966,450 TOTAL OIL & GAS 3,397,400 SERVICES - 9.5% SURVEYING SERVICES - 9.5% Western Atlas, Inc. 93,000 4,126,872 TOTAL COMMON STOCKS (Cost $44,964,923) 41,543,984 CONVERTIBLE PREFERRED STOCKS - 2.0% SHARES VALUE (NOTE 1) ENERGY SERVICES - 2.0% OIL & GAS SERVICES - 2.0% Offshore Pipeline, Inc. (Cost $722,849) 20,000 $ 865,000 NONCONVERTIBLE BONDS - 2.7% TROY OUNCES ENERGY SERVICES - 2.7% OIL & GAS SERVICES - 2.7% Tuboscope Vetco International, Inc. gtd. 10 3/4%, 4/15/03 (Cost $1,200,000) $1,200,000 1,188,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $46,887,772) $ 43,596,984 LEGEND 1. Non-income producing 2. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated compay. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Service Fracturing Co. (a) $ - $ 111,300 $ - $ 1,393,438 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $95,902,383 and $92,230,868, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $74,518 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and the average daily loan balances during the periods for which loans were outstanding amounted to $14,032,000 and $4,719,385, respectively. The weighted average interest rate was 5.0% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $47,399,413. Net unrealized depreciation aggregated $3,802,429, of which $1,190,137 related to appreciated investment securities and $4,992,566 related to depreciated investment securities. ENERGY SERVICE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 43,596,984 at value (cost $46,887,772) - See accompanying schedule Receivable for 4,640,036 investments sold Receivable for fund 1,102,602 shares sold Dividends receivable 288,161 Interest receivable 48,375 Redemption fees 487 receivable Prepaid expenses 13,874 TOTAL ASSETS 49,690,519 LIABILITIES Payable to custodian $ 650,457 bank Payable for fund shares 2,174,822 redeemed Accrued management 40,328 fee Other payables and 99,302 accrued expenses TOTAL LIABILITIES 2,964,909 NET ASSETS $ 46,725,610 Net Assets consist of: Paid in capital $ 49,800,863 Undistributed net 127,056 investment income Accumulated 88,479 undistributed net realized gain (loss) on investments and foreign currency transactions Net unrealized (3,290,788 appreciation ) (depreciation) on investments NET ASSETS, for $ 46,725,610 4,033,780 shares outstanding NET ASSET VALUE and $11.58 redemption price per share ($46,725,610 (divided by) shares) Maximum offering price $11.94 per share (100/97 of $11.58)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 423,966 Dividends Interest (including 243,742 security lending fees of $1,250) TOTAL INCOME 667,708 EXPENSES Management fee $ 195,448 Transfer agent 327,360 Fees Redemption fees (53,431 ) Accounting and security 33,354 lending fees Non-interested trustees' 154 compensation Custodian fees and 3,445 expenses Registration fees 13,874 Audit 10,389 Legal 472 Interest 21,161 Reports to shareholders 3,475 Miscellaneous 76 Total expenses before 555,777 reductions Expense reductions (3,276 552,501 ) NET INVESTMENT INCOME 115,207 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,197,643 (including realized gain of $49,025 on sales of investments in affiliated issuers) Foreign currency (15 1,197,628 transactions ) Change in net unrealized (1,934,613 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (736,985 ) NET INCREASE $ (621,778 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $211,869 Sales Charges Paid to FDC Deferred sales $4,375 charges withheld by FDC Exchange fees $44,820 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED)
Operations $ 115,207 $ 214,893 Net investment income Net realized gain (loss) 1,197,628 17,604,019 Change in net unrealized appreciation (depreciation) (1,934,613 (4,993,642 ) ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (621,778 12,825,270 ) Distributions to shareholders (32,876 (269,046 From net investment income ) ) From net realized gain (1,052,014 - ) TOTAL DISTRIBUTIONS (1,084,890 (269,046 ) ) Share transactions 164,480,926 359,408,419 Net proceeds from sales of shares Reinvestment of distributions 1,069,279 265,568 Cost of shares redeemed (158,327,592 (417,772,180 ) ) Paid in capital portion of redemption fees 352,837 1,164,835 Net increase (decrease) in net assets resulting from share transactions 7,575,450 (56,933,358 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 5,868,782 (44,377,134 ) NET ASSETS Beginning of period 40,856,828 85,233,962 End of period (including undistributed net investment income of $127,056 and $44,725, $ 46,725,610 $ 40,856,828 respectively) OTHER INFORMATION Shares Sold 14,102,553 29,627,725 Issued in reinvestment of distributions 104,320 22,698 Redeemed (13,678,265 (33,889,248 ) ) Net increase (decrease) 528,608 (4,238,825 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 11.66 $ 11.01 $ 9.43 $ 12.51 $ 12.19 $ 8.99 Income from Investment Operations Net investment income (loss) .02 .03 .01 (.12) - (.05) Net realized and unrealized gain (loss) .16 .51 1.47 (3.11) .15 3.17 Total from investment operations .18 .54 1.48 (3.23) .15 3.12 Less Distributions From net investment income (.01) (.05) - - (.02) - From net realized gain (.32) - - - - - Total distributions (.33) (.05) - - (.02) - Redemption fees added to paid in capital .07 .16 .10 .15 .19 .08 Net asset value, end of period $ 11.58 $ 11.66 $ 11.01 $ 9.43 $ 12.51 $ 12.19 TOTAL RETURN D, E 2.51% 6.36 16.76% (24.62)% 2.80% 35.60% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 46,726 $ 40,857 $ 85,234 $ 41,322 $ 73,398 $ 61,821 Ratio of expenses to average net assets B 1.74%A 1.65 1.76%A 2.07% 1.82% 2.29% % Ratio of expenses to average net assets before 1.75%A 1.66 1.76%A 2.07% 1.82% 2.29% expense reductions B % Ratio of net investment income (loss) to average net .36%A .23 .13%A (1.13)% (.02)% (.42)% assets % Portfolio turnover rate 330%A 137 236%A 89% 62% 128% %
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. NATURAL GAS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 LIFE OF AUGUST 31, 1994 MONTHS YEAR FUND NATURAL GAS -0.42% -13.73% -4.24% NATURAL GAS (INCL. 3% SALES CHARGE) -3.41% -16.32% -7.11% S&P 500 3.26% 5.47% 11.08% 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 April 21, 1993. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED AUGUST 31, 1994 PAST 1 LIFE OF YEAR FUND NATURAL GAS PORT. -13.73% -3.13% NATURAL GAS (INCL. 3% SALES CHARGE) -16.32% -5.27% S&P 500 5.47% 8.01% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Nat. Gas (513Standard & Poor's 04/21/93 9700.00 10000.00 04/30/93 9515.70 9893.80 05/31/93 9670.90 10158.96 06/30/93 9952.20 10188.42 07/31/93 9913.40 10147.66 08/31/93 10767.00 10532.26 09/30/93 10582.70 10451.16 10/31/93 10010.40 10667.50 11/30/93 9156.80 10566.16 12/31/93 9209.91 10694.01 01/31/94 9672.38 11057.61 02/28/94 9327.99 10757.95 03/31/94 8993.44 10288.90 04/30/94 9692.06 10420.60 05/31/94 9613.34 10591.50 06/30/94 9662.54 10332.00 07/31/94 9603.50 10670.89 08/31/94 9288.63 11108.40 Let's say you invested $10,000 in Fidelity Select Natural Gas Portfolio on April 21, 1993, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would be valued at $9,289 - a -7.11% decrease. That compares to $10,000 invested in the S&P 500, which would have grown to $11,108 over the same period - a 11.08% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Burlington Resources, Inc. 5.2 Williams Companies, Inc. 5.0 Anadarko Petroleum Corp. 4.8 Enron Oil & Gas Co. 4.5 Apache Corp. 3.4 Amerada Hess Corp. 3.3 Enron Corp. 3.1 Halliburton Co. 3.1 Oryx Energy Co. 2.8 Cabot Oil & Gas Corp. Class A 2.8 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 23.5 Row: 1, Col: 2, Value: 7.4 Row: 1, Col: 3, Value: 8.199999999999999 Row: 1, Col: 4, Value: 8.5 Row: 1, Col: 5, Value: 14.1 Row: 1, Col: 6, Value: 38.3 Crude Petroleum & Gas 38.3% Gas Transmission 14.1% Gas Transmission & Distribution 8.5% Gas Distribution 8.2% Oil & Gas Services 7.4% All Others 23.5%* * INCLUDES SHORT-TERM INVESTMENTS NATURAL GAS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Michael Tempero, Portfolio Manager of Fidelity Select Natural Gas Portfolio Q. MIKE, HOW HAS THE FUND PERFORMED? A. For the six months ended August 31, 1994, the fund had a total return of - -0.42%, and for the year ended August 31, the fund returned -13.73%. Both numbers lagged the S&P 500's return of 3.26% and 5.47% for the same six months and one year, respectively. Q. WHAT WERE THE REASONS BEHIND THE FUND'S SUB-PAR PERFORMANCE? A. The overriding factor was a disappointment in natural gas prices relative to expectations. Prices dropped because winter storage filled up more quickly than people anticipated. We had a cooler summer than normal and there is more deliverability than last year, so surplus supply drove the price down. Some of the stocks did well, but these investments couldn't make up for the negative effect of lower prices in the commodity itself. Q. WHAT INVESTMENTS HELPED THE FUND? A. Amerada Hess is an exploration and production (E&P) and refining company benefiting from growing oil and gas production and debt reduction, and whose stock is cheap on a cash flow basis. Anadarko Petroleum has been a volatile stock, but its inclusion in the portfolio has helped. The company has been successful exploring in Algeria and the Gulf of Mexico. The fund took some profits by selling shares at one point, but it is still a large position in the fund because it has real potential for added value from its exploration programs. Q. WHAT ABOUT DISAPPOINTMENTS? A. Western Gas Resources, a gas gathering and marketing company, had a disappointing second quarter earnings report that caused its stock to come down hard. In addition, many E&P companies have had a tough six months as a result of the drop in natural gas prices. Companies like Burlington Resources, Apache and Enron Oil & Gas have seen their stock prices fall because the commodity price has gone down. All three have a good record of growing production and cash flow over a long period of time, but no company can control the commodity price, so it's been difficult for anyone to do as well as they would have liked. Q. YOU'VE STRESSED E&P COMPANIES. HOW DID PIPELINE COMPANIES FARE? A. Pipeline stocks were hurt when the bond market faltered. Many investors purchase these stocks for their dividends, so when interest rates rose these stocks tumbled as investors went elsewhere to get higher returns. A heavier weighting in E&P stocks helped the fund during the period, but I'm now shifting back into pipelines. Williams is one of those companies. I purchased the stock because it included a wireless communication business which was not adequately reflected in the share price. The unit has since been sold, and the company should benefit from the cash. Q. WHAT OTHER FACTORS AFFECT STOCKS IN THIS INDUSTRY? A. Oil prices have a strong influence. The rise in oil prices has helped a great deal over the past six months, because residual fuel oil, when cheap, can be a substitute for natural gas in some uses. In addition, there have been some massive changes in the natural gas industry, most notably the deregulation of pricing and the placement of responsibility for natural gas storage in the hands of local distribution companies instead of pipeline companies. The market is now more fragmented, but more efficient. One company that has done a good job getting out in front of these changes and anticipating their effects is one of the fund's top holdings, Enron Corp., a diversified company handling pipelines, power generation, E&P and gas services. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. Although the outlook is not as good as it was six months ago because of an increase in supply and inventories, I don't believe it is as negative as current futures market prices reflect. Colder weather and a continued increase in the price of oil would help natural gas stocks, which tend to rally in the winter. The key will be to find the companies doing the best job in each segment. FUND FACTS START DATE: April 21, 1993 SIZE: as of August 31, 1994, more than $76 million MANAGER: Michael Tempero, since February 1994; joined Fidelity in 1993 (checkmark) NATURAL GAS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.5% SHARES VALUE (NOTE 1) BUILDING MATERIALS - 0.7% FABRICATED PIPE & FITTINGS - 0.7% Coflexip sponsored ADR 25,000 $ 543,746 COAL - 0.2% Eastern Enterprises Co. 6,300 163,013 ELECTRIC UTILITY - 0.7% ELECTRIC & OTHER SERVICES - 0.7% LG&E Energy Corp. 13,125 500,391 ENERGY SERVICES - 8.1% DRILLING - 0.7% Akita Drilling Ltd. Class A (non-voting) (a) 10,000 37,490 Atwood Oceanics, Inc. (a) 5,000 70,625 Global Marine, Inc. (a) 100,000 400,000 508,115 OIL & GAS SERVICES - 7.4% BJ Services Co. (a) 5,986 115,231 Baker Hughes, Inc. 100 1,875 Computalog Ltd. (a) 1,250 9,487 Halliburton Co. 77,375 2,340,594 Nowsco Well Service Ltd. 100 1,509 Schlumberger Ltd. 8,000 456,000 Service Fracturing Co. 27,900 122,063 Smith International, Inc. (a) 67,100 1,006,500 Tuboscope Vetco Corp. (a) 20,000 140,000 Weatherford International, Inc. (a) 34,580 419,283 Western Co. of North America (a) 95,000 1,056,875 5,669,417 TOTAL ENERGY SERVICES 6,177,532 GAS - 30.8% GAS & OTHER SERVICES - 0.0% UGI Corporation 355 6,878 GAS DISTRIBUTION - 8.2% Aquila Gas Pipeline Corp. 48,200 445,850 Atlanta Gas Light Co. 25,000 818,750 Brooklyn Union Gas Co. (The) 30,000 746,250 K N Energy, Inc. 9,400 242,050 MCN Corp. 42,910 1,668,126 National Fuel Gas Co. 10,200 317,475 New Jersey Resources Corp. 10,000 223,750 Pacific Enterprises 80,000 1,710,000 Peoples Energy Corp. 5,200 139,100 6,311,351 GAS TRANSMISSION - 14.1% Associated Nature Gas Corp. 15,920 497,500 Enron Corp. 78,110 2,382,355 ONEOK, Inc. 4,700 84,600 Panhandle Eastern Corp. 68,000 1,487,500 Sonat, Inc. 50,026 1,525,793 Tejas Power Corp. (a) 41,000 404,875 TransCanada PipeLines Ltd. 6,732 91,103 Transco Energy Co. 20,000 305,000 Trident NGL Holding, Inc. 25,900 271,950 Williams Companies, Inc. 122,252 3,805,094 10,855,770 GAS TRANSMISSION & DISTRIBUTION - 8.5% Bay State Gas Co. 5,000 118,125 Columbia Gas System, Inc. (The) (a) 60,195 1,617,741 Consolidated Natural Gas Co. 40,000 1,595,000 ENSERCH Corp. 20,000 317,500 El Paso Natural Gas Co. 2,400 78,900 SHARES VALUE (NOTE 1) Equitable Resources, Inc. 2,700 $ 87,075 Questar Corp. 39,540 1,220,798 Seagull Energy Corp. (a) 32,100 770,400 Tejas Gas Corp. (Del.) (a) 15,200 714,400 6,519,939 TOTAL GAS 23,693,938 INDEPENDENT POWER - 0.0% STEAM SUPPLY - 0.0% Magma Power Co. (a) 100 2,900 OIL & GAS - 47.3% CRUDE PETROLEUM & GAS - 38.3% American Exploration Co. (a) 40,000 55,000 Anadarko Petroleum Corp. 78,075 3,659,766 Apache Corp. 102,225 2,581,181 Ballistic Energy Corp. (a) 1,000 7,498 Barrett Resources Corp. (a) 15,000 270,000 Beau Canada Exploration 20,000 35,112 Benton Oil & Gas Co. (a) 20,000 140,000 Berry Petroleum Co. Class A 3,700 36,538 Burlington Resources, Inc. 105,957 3,986,632 Cabot Oil & Gas Corp. Class A 108,367 2,126,702 Canadian Natural Resources Ltd. (a) 17,800 242,511 Enron Oil & Gas Co. 177,600 3,418,800 Global Natural Resources, Inc. (a) 100 750 Hugoton Energy Corp. (a) 17,000 208,250 Inverness Petroleum Ltd. (a) 72,000 546,432 Louis Dreyfus Natural Gas Corp. (a) 49,000 673,750 Maxus Energy Corp. (a) 119,500 627,375 Newfield Exploration Co. (a) 24,000 600,000 Noble Affiliates, Inc. 22,550 580,663 Norsk Hydro AS ADR 10,000 376,250 Northstar Energy Corp. (a) 52,800 550,382 Nuevo Energy Corporation (a) 4,015 90,338 Oryx Energy Co. 151,900 2,183,563 Petromet Resources Ltd. Ord. (a) 72,000 427,928 Pinnacle Resources Ltd. (a) 48,900 773,536 Renaissance Energy Ltd. (a) 14,500 293,012 Tarragon Oil & Gas Ltd. (a) 75,500 980,304 Tide West Oil Co. (a) 9,800 120,050 Total SA sponsored ADR 55,770 1,666,129 Triton Energy Corp. (a) 25,000 796,875 Vastar Resources, Inc. 50,000 1,368,750 Vintage Petroleum, Inc. 100 2,088 29,426,165 NATURAL GAS LIQUIDS - 1.0% Western Gas Resources, Inc. 35,235 779,574 OIL & GAS EXPLORATION - 6.3% Amerada Hess Corp. 51,000 2,556,375 Ampolex Ltd. Ord. 200,000 632,442 Anderson Exploration Ltd. (a) 800 8,924 British Petroleum PLC ADR 16,470 1,251,720 Forcenergy AB 'B' Free shares 2,600 11,749 Unocal Corp. 43 1,231 Woodside Petroleum Ltd. 100,000 362,352 4,824,793 OIL FIELD EQUIPMENT - 1.0% Ensign Resource Service Group Ord. (a) 166,500 745,995 PETROLEUM REFINERS - 0.7% Coastal Corp. (The) 15,600 477,750 Tesoro Petroleum Corp. (a) 2,200 22,550 500,300 TOTAL OIL & GAS 36,276,827 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) SERVICES - 1.7% SURVEYING SERVICES - 1.7% Western Atlas, Inc. 29,800 $ 1,322,375 TOTAL COMMON STOCKS (Cost $71,907,602) 68,680,722 REPURCHASE AGREEMENTS - 10.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 8,054,080 8,053,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $79,960,602) $ 76,733,722 LEGEND 1.Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $67,830,529 and $55,439,455, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $63,151for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balance during the period for which the loan was outstanding amounted to $1,061,000. The weighted average interest rate paid was 4.7% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 87.5% Canada 6.2 France 2.9 United Kingdom 1.6 Australia 1.3 Others (individually less than 1%) 0.5 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $79,980,399. Net unrealized depreciation aggregated $3,246,677, of which $2,043,598 related to appreciated investment securities and $5,290,275 related to depreciated investment securities. The fund has elected to defer to its fiscal year ending February 28, 1995 $356,000 of losses recognized during the period November 1, 1993 to February 28, 1994. NATURAL GAS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 76,733,722 at value (including repurchase agreements of $8,053,000) (cost $79,960,602) - See accompanying schedule Cash 556,555 Receivable for 57,495 investments sold Receivable for fund 804,441 shares sold Dividends receivable 141,324 Redemption fees 182 receivable Prepaid expenses 27,555 TOTAL ASSETS 78,321,274 LIABILITIES Payable for investments $ 22,121 purchased Payable for fund shares 1,567,705 redeemed Accrued management 40,883 fee Other payables and 84,931 accrued expenses TOTAL LIABILITIES 1,715,640 NET ASSETS $ 76,605,634 Net Assets consist of: Paid in capital $ 83,071,381 Accumulated net (28,121 investment (loss) ) Accumulated (3,210,746 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized (3,226,880 appreciation ) (depreciation) on investments NET ASSETS, for $ 76,605,634 8,117,534 shares outstanding NET ASSET VALUE and $9.44 redemption price per share ($76,605,634 (divided by) shares) Maximum offering price $9.73 per share (100/97 of $9.44)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 473,103 Dividends Interest 175,175 TOTAL INCOME 648,278 EXPENSES Management fee $ 236,815 Transfer agent 398,458 Fees Redemption fees (29,725 ) Accounting fees and 38,209 expenses Non-interested trustees' 212 compensation Custodian fees and 4,768 expenses Registration fees 29,644 Audit 13,113 Legal 588 Interest 140 Reports to shareholders 4,396 Miscellaneous 104 Total expenses before 696,722 reductions Expense reductions (20,323 676,399 ) NET INVESTMENT INCOME (28,121 (LOSS) ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (2,702,107 ) Foreign currency (208 (2,702,315 transactions ) ) Change in net unrealized 1,684,246 appreciation (depreciation) on investment securities NET GAIN (LOSS) (1,018,069 ) NET INCREASE $ (1,046,190 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $214,931 Sales Charges Paid to FDC Deferred sales $929 charges withheld by FDC Exchange fees $22,133 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS APRIL 21, 1993 ENDED (COMMENCEMENT AUGUST 31, 1994 OF (UNAUDITED) OPERATIONS) TO FEBRUARY 28, 1994 Operations $ (28,121 $ 66,941 Net investment income (loss) ) Net realized gain (loss) (2,702,315 390,296 ) Change in net unrealized appreciation (depreciation) 1,684,246 (4,911,126) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,046,190 (4,453,889) ) Distributions to shareholders - (390,296) From net realized gain In excess of net realized gain - (296,172) TOTAL DISTRIBUTIONS - (686,468) Share transactions 53,773,105 154,654,614 Net proceeds from sales of shares Reinvestment of distributions - 673,872 Cost of shares redeemed (39,243,183 (87,329,043) ) Paid in capital portion of redemption fees 49,007 213,809 Net increase (decrease) in net assets resulting from share transactions 14,578,929 68,213,252 TOTAL INCREASE (DECREASE) IN NET ASSETS 13,532,739 63,072,895 NET ASSETS Beginning of period 63,072,895 - End of period (including undistributed net investment income (loss) of $(28,121) and $66,827,$ 76,605,634 $ 63,072,895 respectively) OTHER INFORMATION Shares Sold 5,536,205 15,170,940 Issued in reinvestment of distributions - 74,626 Redeemed (4,072,520 (8,591,717) ) Net increase (decrease) 1,463,685 6,653,849
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS SELECTED PER-SHARE DATAC SIX MONTHS APRIL 21, 1993 ENDED (COMMENCEMENT AUGUST 31, 1994 OF (UNAUDITED) OPERATIONS) TO FEBRUARY 28, 1994
Net asset value, beginning of period $ 9.48 $ 10.00 Income from Investment Operations Net investment income (loss) - .02 Net realized and unrealized gain (loss) (.05) (.46) Total from investment operations (.05) (.44) Less Distributions From net realized gain - (.07) In excess of net realized gain - (.06) Total distributions - (.13) Redemption fees added to paid in capital .01 .05 Net asset value, end of period $ 9.44 $ 9.48 TOTAL RETURN D, E (.42)% (3.84)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 76,606 $ 63,073 Ratio of expenses to average net assets B 1.75%A 1.93%A Ratio of expenses to average net assets before expense reductions B 1.80%A 1.94%A Ratio of net investment income (loss) to average net assets (.07)%A .17%A Portfolio turnover rate 162%A 44%A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. PRECIOUS METALS AND MINERALS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S PRECIOUS METALS AND MINERALS 12.47% 24.29% 63.42% 79.48% PRECIOUS METALS AND MINERALS (INCL. 3% SALES CHARGE) 9.09% 20.56% 58.52% 74.09% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS PRECIOUS METALS AND MINERALS 24.29% 10.32% 6.02% PRECIOUS METALS AND MINERALS (INCL. 3% SALES CHARGE) 20.56% 9.65% 5.70% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Prec. Metals (061)Standard & Poor's 08/31/84 9700.00 10000.00 09/30/84 9275.18 10002.00 10/31/84 8449.15 10041.01 11/30/84 8866.10 9928.55 12/31/84 7748.99 10190.66 01/31/85 7874.86 10984.51 02/28/85 7497.24 11119.62 03/31/85 9054.91 11127.41 04/30/85 8787.43 11117.39 05/31/85 8677.29 11759.98 06/30/85 8373.64 11944.61 07/31/85 7704.40 11926.69 08/31/85 7533.01 11825.32 09/30/85 7280.00 11455.18 10/31/85 6627.09 11984.41 11/30/85 7394.26 12806.54 12/31/85 6929.06 13426.38 01/31/86 8398.12 13501.57 02/28/86 8504.22 14511.49 03/31/86 7981.89 15321.23 04/30/86 7565.65 15148.10 05/31/86 6798.48 15953.98 06/30/86 6937.22 16223.60 07/31/86 6846.89 15316.70 08/31/86 8151.84 16453.20 09/30/86 9217.28 15092.52 10/31/86 8407.88 15963.36 11/30/86 9275.09 16351.27 12/31/86 9209.02 15934.31 01/31/87 10315.75 18080.66 02/28/87 11042.56 18794.85 03/31/87 14197.58 19338.02 04/30/87 15180.43 19165.91 05/31/87 13825.92 19332.65 06/30/87 13627.70 20308.95 07/31/87 16402.79 21338.62 08/31/87 15973.31 22134.55 09/30/87 16468.86 21649.80 10/31/87 11926.30 16986.43 11/30/87 13429.48 15586.75 12/31/87 12663.16 16772.90 01/31/88 10438.32 17479.04 02/29/88 10455.05 18293.57 03/31/88 11324.91 17728.29 04/30/88 10948.53 17925.08 05/31/88 11007.08 18081.03 06/30/88 10605.60 18910.95 07/31/88 10672.52 18839.08 08/31/88 10036.85 18198.55 09/30/88 9359.36 18973.81 10/31/88 9702.29 19501.29 11/30/88 10061.94 19222.42 12/31/88 9641.74 19558.81 01/31/89 10042.76 20990.51 02/28/89 10365.31 20467.85 03/31/89 10365.31 20944.75 04/30/89 9894.56 22031.78 05/31/89 9423.80 22924.07 06/30/89 10164.80 22793.40 07/31/89 10443.77 24851.65 08/31/89 10652.99 25338.74 09/30/89 11027.85 25234.85 10/31/89 11019.13 24649.40 11/30/89 12422.68 25152.25 12/31/89 12742.78 25755.90 01/31/90 13757.61 24027.68 02/28/90 12575.11 24337.64 03/31/90 12027.98 24982.59 04/30/90 10792.53 24358.02 05/31/90 11410.26 26732.93 06/30/90 10580.74 26551.15 07/31/90 11224.94 26466.18 08/31/90 11339.66 24073.64 09/30/90 11083.75 22901.25 10/31/90 9839.47 22802.78 11/30/90 9662.98 24275.84 12/31/90 10057.43 24953.13 01/31/91 8965.79 26041.09 02/28/91 9771.10 27903.03 03/31/91 9583.19 28578.28 04/30/91 9556.35 28646.87 05/31/91 10093.22 29884.41 06/30/91 10755.36 28515.71 07/31/91 10755.36 29844.54 08/31/91 9627.93 30551.86 09/30/91 9824.78 30041.64 10/31/91 10486.93 30444.20 11/30/91 10818.00 29217.30 12/31/91 10212.06 32559.76 01/31/92 10428.76 31954.14 02/29/92 9887.01 32369.55 03/31/92 9498.75 31738.34 04/30/92 8938.94 32671.45 05/31/92 9525.84 32831.54 06/30/92 9579.58 32342.35 07/31/92 9706.22 33665.15 08/31/92 9272.02 32975.02 09/30/92 8892.09 33364.12 10/31/92 8322.20 33480.90 11/30/92 7833.72 34622.59 12/31/92 7979.09 35048.45 01/31/93 8172.35 35342.86 02/28/93 9074.26 35823.52 03/31/93 10307.47 36579.40 04/30/93 11973.23 35694.18 05/31/93 13556.17 36650.78 06/30/93 13777.04 36757.07 07/31/93 15571.65 36610.04 08/31/93 14007.12 37997.56 09/30/93 12902.75 37704.98 10/31/93 14734.16 38485.47 11/30/93 14706.55 38119.86 12/31/93 16885.67 38581.11 01/31/94 16187.14 39892.87 02/28/94 15479.30 38811.77 03/31/94 15320.97 37119.58 04/30/94 15321.59 37594.71 05/31/94 15349.55 38211.26 06/30/94 15657.10 37275.09 07/31/94 16253.56 38497.71 08/31/94 17409.20 40076.11 Let's say you invested $10,000 in Fidelity Select Precious Metals and Minerals Portfolio ten years ago on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $17,409 - a 74.09% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS American Barrick Resources Corp. 7.8 Free State Consolidated Gold Mines Ltd. ADR 5.5 Anglo American Corp. of South Africa Ltd. ADR 4.7 Vaal Reefs Exploration & Mining Co. Ltd. ADR 4.2 Western Deep Levels Ltd. ADR 4.1 Kloof Gold Mining Ltd. ADR 3.5 Rustenberg Platinum Holding Ltd. ADR 2.8 Driefontein Consolidated Ltd. ADR 2.7 Poseidon Gold Ltd. 2.4 Gold Fields Property Co. Ltd. ADR 2.4 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 33.8 Row: 1, Col: 2, Value: 6.1 Row: 1, Col: 3, Value: 5.7 Row: 1, Col: 4, Value: 19.9 Row: 1, Col: 5, Value: 34.5 Gold Ores (South Africa) 34.5% Gold Ores (Canada) 19.9% Gold Ores (U.S.) 6.1% Gold Ores (Australia) 5.7% All Others 33.8%* * INCLUDES SHORT-TERM INVESTMENTS PRECIOUS METALS AND MINERALS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Malcolm MacNaught, Portfolio Manager of Fidelity Select Precious Metals and Minerals Portfolio Q. HOW DID THE FUND DO, MALCOLM? A. Quite well. For the six months and the year ended August 31, 1994, the fund had total returns of 12.47% and 24.29%, respectively. Over the same periods, the S&P 500 returned 3.26% and 5.47%, respectively. Q. WHY DID THE FUND DO SO WELL? A. The fund's high returns were due mostly to a strong gold share market in South Africa, where nearly half of the fund was invested. Over the past six months, South Africa went through a turbulent pre-election period. However, the election of Nelson Mandela in April of 1994 was relatively peaceful. Since then, South Africa has looked increasingly stable both politically and economically. As a result, foreign investors have begun reinvesting in the country's gold stocks. In addition, gold companies looked more attractive to South African investors as the country's currency depreciated and inflation increased. Outside of South Africa, the fund's gold stocks in Australia have pretty much held their own. But, in general, the worldwide gold market has been down during the period, due to investors' disinterest in gold. Q. WHAT WAS YOUR STRATEGY IN THIS ENVIRONMENT? A. Pretty much the same as it was six months ago. I invested in established companies that continue to grow - like Canadian mining company American Barrick, which is still the fund's biggest holding. Well-known companies, such as South Africa's Vaal Reefs Exploration and Mining, made up most of my top 10 stocks. I also liked young companies that found new ore bodies, such as St. Barbara Mines and Great Central Mines, which are strong Australian exploration plays. Q. SINCE SOUTH AFRICAN COMPANIES HAVE TURNED IN THE STRONGEST PERFORMANCE DURING THIS PERIOD, WHY IS YOUR TOP STOCK THE CANADIAN COMPANY AMERICAN BARRICK? A. Because I still expect the company to have outstanding production growth over the next three years. I should point out that American Barrick made news recently when it bought Lac Minerals, a Canadian gold mining company, and became the largest gold mining company in North America. With this acquisition, I think American Barrick can double its production over the next few years. In addition, the purchase provided the company with a number of interesting exploration properties in South America where there is a tremendous opportunity to find undiscovered ore bodies. However, American Barrick was weak from a stock standpoint during the period, mostly because its stock was overowned and was extremely susceptible to selling by disenchanted gold stock owners. Q. LET'S SWITCH DIRECTION A BIT. THERE'S BEEN A LOT OF TALK LATELY ABOUT DERIVATIVES. DOES THE FUND OWN THEM? A. Yes. The fund does own some derivatives - or financial arrangements whose prices are derived from other securities, currencies or indices. The fund has a small investment in indexed securities, or structured notes, which were linked to the precious metal palladium on August 31, 1994. These indexed securities let the fund earn the small, but meaningful, return that it would earn if it could lend its palladium to other buyers. I should note that these securities carry the same risk as the underlying metal. That means that if palladium dropped 1%, an indexed security linked to palladium would fall 1%. Q. DO YOU REGRET SOME OF YOUR INVESTMENT DECISIONS OVER THE PAST SIX MONTHS? A. Sure. I wish I'd had much more of the fund in cash instruments, like government Treasury bills, instead of poor-performing North American gold shares. Q. WHAT'S YOUR OUTLOOK GOING FORWARD? A. Right now, we're starting to enter the season when jewelry manufacturers will be buying more bullion to meet demand for Christmas and the first quarter. So the picture should improve short term and continue to improve as economies in Europe, Japan, and many developing countries pick up. Long term, I think gold prices may increase because world gold supply is virtually flat and consumption continues to grow. That said, I think it's important to remind shareholders that gold stocks are extremely volatile. They can produce very high returns. On the other hand, they can drop dramatically. FUND FACTS START DATE: July 14, 1981 SIZE: as of August 31, 1994, more than $467 million MANAGER: Malcolm MacNaught, since July 1981; manager, American Gold Portfolio, since December 1985; Advisor Global Resources, since November 1988; joined Fidelity in 1968 (checkmark) PRECIOUS METALS AND MINERALS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 85.1% SHARES VALUE (NOTE 1) AUSTRALIA - 9.7% PRECIOUS METALS - 9.7% GOLD & SILVER ORES - 4.0% Macraes Mining Co. Ltd. 800,000 $ 1,398,817 North Flindes 700,000 4,375,014 Plutonic Resources Ltd. 1,307,600 5,934,817 Zapopan N.L. 3,400,000 7,235,093 18,943,741 GOLD ORES - 5.7% Delta Gold (a) 540,000 1,237,502 Poseidon Gold Ltd. 4,363,487 11,525,627 Gold Mines Kalgoorlie 4,475,000 4,461,709 Great Central Mines N.L. (a) 605,500 4,640,382 Great Central Mines N.L. ADR (a) 125,000 937,500 Newcrest Mining Ltd. 300,000 1,417,416 Placer Pacific Ltd. Ord. 200,000 565,478 St. Barbara Mines Ltd. (a) 1,600,000 2,285,728 27,071,342 TOTAL AUSTRALIA 46,015,083 CANADA - 20.2% HOLDING COMPANIES - 0.3% HOLDING COMPANY OFFICES, NEC - 0.3% Bolivar Goldfields Ltd. (a) 707,200 1,293,299 PRECIOUS METALS - 19.9% GOLD ORES - 19.9% Agnico Eagle Mines Ltd. 800,000 10,167,880 American Barrick Resources Corp. 1,630,000 37,111,840 Cambior Inc. 361,000 4,786,311 Euro-Nevada Mining Corp. 290,000 8,352,841 Franco Nevada Mining Corp. 150,000 8,997,477 Golden Star Resources, Ltd. Canada (a) 116,500 1,278,300 Hemlo Gold Mines Inc. 291,400 2,957,591 Kinross Gold Corp. (a) 819,000 3,969,038 Orvana Minerals Corp. (a) 809,900 3,554,659 Pegasus Gold, Inc. 60,500 979,161 Placer Dome, Inc. 270,000 6,122,674 Prime Resources Group, Inc. (a) 866,956 6,896,713 95,174,485 TOTAL CANADA 96,467,784 SOUTH AFRICA - 47.6% CREDIT & OTHER FINANCE - 0.7% FINANCIAL SERVICES - 0.7% Genbel Investments Ltd. Ord. 1,592,500 3,333,962 HOLDING COMPANIES - 2.8% HOLDING COMPANY OFFICES, NEC - 2.8% Anglovaal Ltd. Class N 56,100 1,599,288 Anglovaal Ltd. Class N (b) 30,000 855,000 Anglovaal Ltd. Class N sponsored ADR (b) 56,500 1,593,300 Beatrix Mines Ltd. ADR 401,300 2,357,638 Johannesburg Consolodated Investment Co. Ltd. 282,200 6,945,013 13,350,239 IRON & STEEL - 0.2% BLAST FURNACES - 0.2% Iscor Ltd. 1,000,000 922,050 SHARES VALUE (NOTE 1) METALS & MINING - 7.1% MISC NONMETAL MINERALS - 1.8% De Beers Consolidated Mines Ltd. ADR 390,000 $ 8,896,875 MISCELLANEOUS METAL ORES, NEC - 5.3% Impala Platinum Holdings Ltd.: ADR (a) 439,900 9,457,850 Ord. 114,700 2,541,793 Rustenberg Platinum Holding Ltd. ADR 510,000 13,196,250 25,195,893 TOTAL METALS & MINING 34,092,768 PRECIOUS METALS - 36.8% GOLD & SILVER ORES - 2.3% Eastvaal Gold Holdings Ltd. (a) 1,300,000 2,707,133 Southvaal Holdings Ltd. ADR 296,000 8,436,000 11,143,133 GOLD ORES - 34.5% Anglo American Corp. of South Africa Ltd. ADR 393,000 22,548,375 Buffelsfontein Gold Mining Co. Ltd. ADR 100,000 1,025,000 Driefontein Consolidated Ltd. ADR 865,000 12,758,750 Free State Consolidated Gold Mines Ltd. ADR 1,621,600 26,351,000 Gold Fields Property Co. Ltd. ADR 400,200 11,411,955 Harmony Gold Mining Co. Ltd. ADR (a) 170,000 1,083,750 Hartebeestfontein Gold Mining Co. Ltd. ADR 1,290,000 7,095,000 Kloof Gold Mining Ltd. ADR 1,120,100 16,521,475 Middle Witwatersrand West Area 300,000 1,002,228 Randfontein Estates Gold Mining Co. Ltd.: ADR 900,000 10,575,000 Ord. 31,900 379,887 Unisel Gold Mines Ltd. 485,000 1,515,625 Vaal Reefs Exploration & Mining Co. Ltd.: ADR 2,097,900 20,061,169 Reg. 1,000 92,888 Western Areas Gold Mining Ltd.: ADR 566,500 8,639,125 Ord. 48,200 743,396 Western Deep Levels Ltd. ADR 444,000 19,647,000 Winkelhaak Mines Ltd. ADR 270,700 2,910,025 164,361,648 TOTAL PRECIOUS METALS 175,504,781 TOTAL SOUTH AFRICA 227,203,800 UNITED KINGDOM - 0.1% RETAIL & WHOLESALE, MISCELLANEOUS - 0.1% RETAIL, GENERAL - 0.1% Signet Group PLC (a) 1,000,000 452,690 UNITED STATES - 7.5% PRECIOUS METALS - 5.6% GOLD ORES - 5.6% Amax Gold, Inc. 500,000 3,437,500 Hecla Mining Co. (a) 300,000 3,675,000 Homestake Mining Co. 542,500 10,239,688 Newmont Mining Corp. 214,810 9,209,979 26,562,167 RAILROADS - 1.4% Santa Fe Pacific Corp. 310,000 6,665,000 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) UNITED STATES - CONTINUED SECURITIES INDUSTRY - 0.5% INVESTMENT MANAGERS - 0.5% Pioneer Group, Inc. 56,700 $ 2,579,850 TOTAL UNITED STATES 35,807,017 TOTAL COMMON STOCKS (Cost $303,759,715) 405,946,374 NONCONVERTIBLE PREFERRED STOCKS - 0.5% UNITED STATES - 0.5% PRECIOUS METALS - 0.5% GOLD ORES - 0.5% Newmont Mining Corp. depository shares representing 1/2 $1.375 (b) (Cost $2,577,297) 39,200 2,410,800 INDEXED SECURITIES - 2.1% TROY OUNCES UNITED STATES - 2.1% Goldman Sachs Group, L.P. note 4.6875%, 12/7/94 (indexed to palladium price) (Cost $10,000,000) $ 10,000,000 9,928,000 BULLION - 0.8% TROY OUNCES Gold Bullion (a) (Cost $3,882,799) 10,047 3,879,267 REPURCHASE AGREEMENTS - 11.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 54,684,336 54,677,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $374,896,811) $ 476,841,441 LEGEND 1. Non-income producing 2. 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 $4,859,100 or 1.0% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $66,336,659 and $57,531,117, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $12,198 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $6,355,000 and $3,942,364, respectively. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $375,711,636. Net unrealized appreciation aggregated $101,129,805, of which $119,802,331 related to appreciated investment securities and $18,672,526 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $70,093,000 of which $42,141,000, $6,357,000, $2,070,000, $8,843,000 and $10,682,000 will expire on February 28, 1997, 1998, 1999, 2000, and 2001, respectively. PRECIOUS METALS AND MINERALS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 476,841,441 at value (including repurchase agreements of $54,677,000) (cost $374,896,811) - See accompanying schedule Cash 24 Receivable for 2,071,783 investments sold Receivable for fund 13,522,874 shares sold Dividends receivable 1,494,322 Redemption fees 9,725 receivable Prepaid expenses 47,145 TOTAL ASSETS 493,987,314 LIABILITIES Payable for investments $ 11,593,882 purchased Payable for fund shares 14,699,253 redeemed Accrued management 220,031 fee Other payables and 390,479 accrued expenses TOTAL LIABILITIES 26,903,645 NET ASSETS $ 467,083,669 Net Assets consist of: Paid in capital $ 426,899,765 Undistributed net 2,042,464 investment income Accumulated (63,803,746 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized 101,945,186 appreciation (depreciation) on investments and assets and liabilities in foreign currencies NET ASSETS, for $ 467,083,669 25,010,475 shares outstanding NET ASSET VALUE and $18.68 redemption price per share ($467,083,669 (divided by) shares) Maximum offering price $19.26 per share (100/97 of $18.68)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 5,025,565 Dividends Interest (including 728,957 security lending fees of $81) TOTAL INCOME 5,754,522 EXPENSES Management fee $ 1,246,961 Transfer agent 1,576,032 Fees Redemption fees (159,747 ) Accounting and security 201,321 lending fees Non-interested trustees' 1,156 compensation Custodian fees and 60,888 expenses Registration fees 47,145 Audit 26,237 Legal 5,013 Interest 5,055 Reports to shareholders 19,816 Miscellaneous 896 Total expenses before 3,030,773 reductions Expense reductions (375 3,030,398 ) NET INVESTMENT INCOME 2,724,124 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on Investment securities 7,133,548 (including realized loss of $151,900 on sales of investments in precious metals) Foreign currency (19,733 7,113,815 transactions ) Change in net unrealized appreciation (depreciation) on: Investment securities 30,251,151 Assets and liabilities in 556 30,251,707 foreign currencies NET GAIN (LOSS) 37,365,522 NET INCREASE $ 40,089,646 (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $884,582 Sales Charges Paid to FDC Deferred sales $26,953 charges withheld by FDC Exchange fees $120,600 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 2,724,124 $ 5,207,951 Net investment income Net realized gain (loss) 7,113,815 18,030,231 Change in net unrealized appreciation (depreciation) 30,251,707 112,846,238 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 40,089,646 136,084,420 Distributions to shareholders (232,432 (5,127,603) From net investment income ) In excess of net investment income - (551,255) TOTAL DISTRIBUTIONS (232,432 (5,678,858) ) Share transactions 474,999,995 1,777,546,533 Net proceeds from sales of shares Reinvestment of distributions 227,969 5,586,071 Cost of shares redeemed (459,077,481 (1,649,222,991) ) Paid in capital portion of redemption fees 1,863,499 6,974,855 Net increase (decrease) in net assets resulting from share transactions 18,013,982 140,884,468 TOTAL INCREASE (DECREASE) IN NET ASSETS 57,871,196 271,290,030 NET ASSETS Beginning of period 409,212,473 137,922,443 End of period (including under (over) distribution of net investment income of $2,042,464 and $ 467,083,669 $ 409,212,473 $(449,228), respectively) OTHER INFORMATION Shares Sold 28,072,799 119,380,060 Issued in reinvestment of distributions 14,784 319,586 Redeemed (27,700,985 (109,070,745) ) Net increase (decrease) 386,598 10,628,901
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1993 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 16.62 $ 9.86 $ 9.90 $ 10.68 $ 12.23 $ 11.35 Income from Investment Operations Net investment income .11 .21 .09 .10 .18 .13 Net realized and unrealized gain (loss) 1.88 6.48 (.05) (.91) (1.71) .84 Total from investment operations 1.99 6.69 .04 (.81) (1.53) .97 Less Distributions From net investment income (.01) (.19) (.17) (.10) (.15) (.18) In excess of net investment income - (.02) - - - - Total distributions (.01) (.21) (.17) (.10) (.15) (.18) Redemption fees added to paid in capital .08 .28 .09 .13 .13 .09 Net asset value, end of period $ 18.68 $ 16.62 $ 9.86 $ 9.90 $ 10.68 $ 12.23 TOTAL RETURND, E 12.47% 70.58% 1.51% (6.46)% (11.45)% 9.08% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 467,084 $ 409,212 $ 137,922 $ 130,002 $ 155,367 $ 192,551 Ratio of expenses to average net assetsB 1.48%A 1.55% 1.73%A 1.81% 1.79% 1.93% Ratio of expenses to average net assets before 1.48%A 1.55% 1.73%A 1.81% 1.79% 1.93% expense reductionsB Ratio of net investment income to average net 1.33%A 1.38% 1.12%A .92% 1.52% 1.01% assets Portfolio turnover rate 30%A 73% 36%A 44% 41% 98%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. UTILITIES GROWTH PORTFOLIO (FORMERLY UTILITIES PORTFOLIO) PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S UTILITIES GROWTH -0.72% -9.25% 60.87% 299.10% UTILITIES GROWTH (INCL. 3% SALES CHARGE) -3.70% -11.97% 56.04% 287.12% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS UTILITIES GROWTH -9.25% 9.97% 14.84% UTILITIES GROWTH (INCL. 3% SALES CHARGE) -11.97% 9.31% 14.49% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Util. (065) Standard & Poor's 08/31/84 9700.00 10000.00 09/30/84 10100.19 10002.00 10/31/84 10424.16 10041.01 11/30/84 10633.78 9928.55 12/31/84 11008.57 10190.66 01/31/85 11230.90 10984.51 02/28/85 11338.89 11119.62 03/31/85 11980.48 11127.41 04/30/85 12240.92 11117.39 05/31/85 12920.62 11759.98 06/30/85 13264.83 11944.61 07/31/85 12504.06 11926.69 08/31/85 12861.69 11825.32 09/30/85 12282.98 11455.18 10/31/85 13128.29 11984.41 11/30/85 13674.48 12806.54 12/31/85 14500.29 13426.38 01/31/86 14903.43 13501.57 02/28/86 15956.82 14511.49 03/31/86 16490.01 15321.23 04/30/86 16164.89 15148.10 05/31/86 16834.64 15953.98 06/30/86 17809.99 16223.60 07/31/86 18605.48 15316.70 08/31/86 19837.06 16453.20 09/30/86 17643.92 15092.52 10/31/86 18467.17 15963.36 11/30/86 18631.82 16351.27 12/31/86 17986.39 15934.31 01/31/87 19441.90 18080.66 02/28/87 18756.96 18794.85 03/31/87 18381.55 19338.02 04/30/87 17327.79 19165.91 05/31/87 17051.18 19332.65 06/30/87 17657.09 20308.95 07/31/87 17413.41 21338.62 08/31/87 17960.05 22134.55 09/30/87 17815.16 21649.80 10/31/87 16741.64 16986.43 11/30/87 16181.83 15586.75 12/31/87 16321.58 16772.90 01/31/88 17732.09 17479.04 02/29/88 17593.12 18293.57 03/31/88 17092.84 17728.29 04/30/88 17141.48 17925.08 05/31/88 17676.50 18081.03 06/30/88 18142.04 18910.95 07/31/88 18084.47 18839.08 08/31/88 18055.87 18198.55 09/30/88 18684.90 18973.81 10/31/88 19078.04 19501.29 11/30/88 19042.30 19222.42 12/31/88 19007.52 19558.81 01/31/89 19902.85 20990.51 02/28/89 19778.09 20467.85 03/31/89 20115.68 20944.75 04/30/89 21150.45 22031.78 05/31/89 22155.87 22924.07 06/30/89 22715.49 22793.40 07/31/89 23959.45 24851.65 08/31/89 24065.00 25338.74 09/30/89 24411.80 25234.85 10/31/89 24298.71 24649.40 11/30/89 25097.86 25152.25 12/31/89 26424.76 25755.90 01/31/90 25120.48 24027.68 02/28/90 25075.25 24337.64 03/31/90 24939.54 24982.59 04/30/90 23899.14 24358.02 05/31/90 25143.10 26732.93 06/30/90 25441.04 26551.15 07/31/90 25649.89 26466.18 08/31/90 24242.09 24073.64 09/30/90 24303.97 22901.25 10/31/90 25549.33 22802.78 11/30/90 26222.29 24275.84 12/31/90 26571.29 24953.13 01/31/91 26454.13 26041.09 02/28/91 27594.46 27903.03 03/31/91 27906.88 28578.28 04/30/91 27781.91 28646.87 05/31/91 27789.72 29884.41 06/30/91 27452.63 28515.71 07/31/91 28346.06 29844.54 08/31/91 28995.83 30551.86 09/30/91 29889.25 30041.64 10/31/91 30303.48 30444.20 11/30/91 30652.73 29217.30 12/31/91 32158.70 32559.76 01/31/92 31168.81 31954.14 02/29/92 30940.38 32369.55 03/31/92 30618.88 31738.34 04/30/92 31456.47 32671.45 05/31/92 32065.64 32831.54 06/30/92 32436.57 32342.35 07/31/92 34161.27 33665.15 08/31/92 34143.76 32975.02 09/30/92 34327.61 33364.12 10/31/92 34318.86 33480.90 11/30/92 34555.24 34622.59 12/31/92 35565.05 35048.45 01/31/93 36170.02 35342.86 02/28/93 38030.77 35823.52 03/31/93 39057.39 36579.40 04/30/93 38843.92 35694.18 05/31/93 38927.24 36650.78 06/30/93 40417.68 36757.07 07/31/93 40880.55 36610.04 08/31/93 42657.96 37997.56 09/30/93 42657.96 37704.98 10/31/93 42222.86 38485.47 11/30/93 40158.47 38119.86 12/31/93 40026.57 38581.11 01/31/94 40846.70 39892.87 02/28/94 38993.42 38811.77 03/31/94 37587.48 37119.58 04/30/94 38668.73 37594.71 05/31/94 37896.66 38211.26 06/30/94 37777.04 37275.09 07/31/94 38864.46 38497.71 08/31/94 38712.22 40076.11 Let's say you invested $10,000 in Fidelity Select Utilities Growth Portfolio on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $38,712 - a 287.12% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Ameritech Corp. 6.4 Southwestern Bell Corp. 6.0 BellSouth Corp. 5.7 U.S. West, Inc. 5.3 NYNEX Corp. 4.9 Bell Atlantic Corp. 3.8 Enron Corp. 3.1 Williams Companies, Inc. 3.1 GTE Corp. 2.9 MCN Corp. 2.6 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 15.9 Row: 1, Col: 2, Value: 7.6 Row: 1, Col: 3, Value: 10.3 Row: 1, Col: 4, Value: 11.0 Row: 1, Col: 5, Value: 16.0 Row: 1, Col: 6, Value: 39.2 Telephone Services 39.2% Electric Power 16.0% Electric & Other Services 11.0% Gas Transmission 10.3% Gas Transmission & Distribution 7.6% All Others 15.9%* * INCLUDES SHORT-TERM INVESTMENTS UTILITIES GROWTH PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Muresianu, Portfolio Manager of Fidelity Select Utilities Growth (formerly Utilities) Portfolio Q. JOHN, HOW HAS THE FUND PERFORMED? A. For the six months ended August 31, 1994, the fund had a total return of - -0.72%, and for the year ended August 31, the fund returned -9.25%. Both numbers lagged the S&P 500's return of 3.26% and 5.47% for six months and one year, respectively. Q. WHAT WERE THE REASONS FOR THE FUND'S SUB-PAR PERFORMANCE? A. Most utility stocks saw a sharp correction in the first half of this year. The fall in utilities prices coincided with a fall in bond prices, which was driven by higher interest rates, as the Federal Reserve Board tried to head off possible inflation. Q. WHAT HAS THE ENVIRONMENT BEEN LIKE FOR UTILITIES, SPECIFICALLY? A. In the fourth quarter of 1993, the economy began to accelerate, commodity prices started to pick up, and interest rates started to rise. As interest rates continued to rise through the second quarter of 1994, utility stocks fell, because investors were attracted by the higher yields offered in the bond market and elsewhere. Another factor impacting utilities is deregulation, which means two things for utilities, one positive and one negative. On the plus side, deregulation means the removal of a ceiling on earnings set by regulators. On the minus side, deregulation means price competition and the removal of a floor on earnings. The pace of deregulation is a function of political decisions at the federal and state levels, and is extremely difficult to predict. Q. HOW HAVE YOU STRUCTURED THE FUND? A. I have a balanced portfolio of telephone, electric and gas utilities. However, my clear favorite is telephone utilities. While the yield of the sector is lower than the others, the growth prospects seem to be higher. By contrast, electric utilities have the highest current yields, but probably the lowest growth potential. Gas is in between phones and electrics in yields and growth. Q. WHAT MAKES PHONE UTILITIES SO ATTRACTIVE? A. Superior earnings growth driven by cellular and other new services. As the business is deregulated, the number of new services which the Regional Bell Operating companies will be able to offer should increase. The list of services could ultimately include cable and long distance. The fund's performance was helped by this group, notably Southwestern Bell and Ameritech. Q. WHAT STOCKS DISAPPOINTED DURING THE PERIOD? A. One was ENSERCH, a natural gas utility. It has an exploration and production operation that is sensitive to the price of oil. The stock was hurt by a collapse in the price of oil, but looking forward, the company should benefit from tightening supply and increased demand. NYNEX was another company that didn't do as well as expected, because of disappointing earnings due to a costly union agreement and a difficult regulatory environment. Q. HOW HAVE GAS COMPANIES FARED? A. Gas utilities have benefited from a tightening gas supply and demand balance. Enron is one company that did particularly well. Its management consistently has shown the ability to seize opportunities domestically and internationally. The company's earnings have grown even in difficult commodity environments. Another gas utility, Sonat, has benefited from the rapid growth of earnings in its exploration and production division. Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS? A. On the one hand, there seems to be a potential for a tremendous bond market rally, because bond yields are high and inflation is moderately low. There is usually a correlation between the bond market and electrical utility stocks. On the other hand, we are late in an economic cycle and the potential for an acceleration of inflation is significant. High inflation is bad for bonds and utilities. The combination of these facts makes the current environment very difficult to call. My investment stance is cautious. I'm comfortable with where the fund is now, but I plan to respond quickly to changing circumstances. FUND FACTS START DATE: December 10, 1981 SIZE: as of August 31, 1994, more than $233 million MANAGER: John Muresianu, since December 1992; manager, Fidelity Utilities (formerly Utilities Income) Fund, January 1993 to present; Fidelity Select Natural Gas Portfolio, April 1993 to January 1994; U.S. Pension Accounts and Canadian Mutual Funds, 1990-1992; analyst, natural gas, life insurance, 1989-1992; joined Fidelity in 1986 (checkmark) UTILITIES GROWTH PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 95.2% SHARES VALUE (NOTE 1) CELLULAR - 1.7% CELLULAR & COMMUNICATION SERVICES - 1.7% Airtouch Communications (a) 143,600 $ 4,056,700 COMPUTERS & OFFICE EQUIPMENT - 0.0% ELECTRONIC COMPUTERS - 0.0% Itron, Inc. (a) 1,100 21,450 ELECTRIC UTILITY - 26.0% ELECTRIC & OTHER SERVICES - 10.4% CIPSCO, Inc. 4,500 122,625 CMS Energy Corp. 107,900 2,427,750 Cincinnati Gas & Electric Co. 39,600 891,000 DPL, Inc. 139,200 2,818,800 Hidro Cantabrico 33,050 998,878 IES Industries, Inc. 21,900 607,725 Illinova Corp. 163,100 3,404,700 LG&E Energy Corp. 9,900 377,438 Long Island Lighting Co. 18,000 324,000 Montana Power Co. 73,300 1,731,713 NIPSCO Industries, Inc. 117,100 3,381,263 New York State Electric & Gas Corp. 300 6,225 Niagara Mohawk Power Corp. 147,300 2,191,088 Peco Energy Co. 92,600 2,523,350 Public Service Co. of Colorado 307 8,327 Public Service Co. of New Mexico (a) 125,500 1,568,750 Rochester Gas & Electric Corp. 21,200 484,950 Sierra Pacific Resources 12,400 248,000 Utilicorp United, Inc. 7,840 225,400 24,341,982 ELECTRIC POWER - 15.6% AES Corp. 252,249 4,351,295 Boston Edison Co. 56,700 1,516,725 Centerior Energy Corp. 48,700 487,000 Central & South West Corp. 19,200 432,000 Central Louisiana Electric Co., Inc. 66,106 1,536,965 Cesc Ltd. GDR (c) 45,000 472,500 Cesc Ltd. GDR (warrants) (a) (c) 18,000 31,500 Commonwealth Edison Co. 29,100 698,400 DQE, Inc. 100,300 3,071,688 Detroit Edison Company 34,500 940,125 EUA Power Corp. (interest certificates) (a) 800 800 Eastern Utilities Associates 116,082 2,873,030 El Paso Electric Co. (a) 76,900 163,413 Empresa Nacional de Electricidad SA sponsored ADR 24,300 1,090,463 Entergy Corp. 105,014 2,612,223 General Public Utilities Corp. 54,600 1,426,425 Hawaiian Electric Industries, Inc. 4,200 133,350 IPALCO Enterprises, Inc. 800 24,800 Kansas City Power & Light Co. 1,300 28,113 Maine Public Service Co. 44,200 1,099,475 National Power PLC (c) 198,500 1,577,871 New England Electric Systems 27,800 920,875 Northeast Utilities 33,000 767,250 Nova Scotia Power, Inc. 49,700 418,090 Ohio Edison Co. 26,500 513,438 PSI Resources, Inc. 91,600 2,049,550 Pinnacle West Capital Corp. 170,200 3,148,700 Portland General Corp. 47,100 841,913 Sithe Energies, Inc. (a) 27,200 312,800 Southern Co. 108,200 2,042,275 SHARES VALUE (NOTE 1) TECO Energy, Inc. 16,900 $ 333,775 United Illuminating Co. 22,500 739,688 36,656,515 TOTAL ELECTRIC UTILITY 60,998,497 GAS - 26.8% GAS & OTHER SERVICES - 1.4% MDU Resources Group, Inc. 66,600 1,881,450 UGI Corporation 54,177 1,049,679 Western Resources, Inc. 15,000 431,250 3,362,379 GAS DISTRIBUTION - 7.5% Energen Corp. 43,500 973,313 MCN Corp. 157,700 6,130,588 NICOR, Inc. 37,100 904,313 NUI Corp. 27,100 542,000 National Fuel Gas Co. 46,800 1,456,650 New Jersey Resources Corp. 18,400 411,700 Pacific Enterprises 277,800 5,937,975 Peoples Energy Corp. 21,300 569,775 WICOR, Inc. 24,700 753,350 17,679,664 GAS TRANSMISSION - 10.3% Enron Corp. 241,600 7,368,800 ONEOK, Inc. 58,600 1,054,800 Panhandle Eastern Corp. 49,000 1,071,875 Sonat, Inc. 200,800 6,124,400 Tejas Power Corp. (a) 4,500 44,438 TransCanada PipeLines Ltd. 66,300 897,224 Transco Energy Co. 13,400 204,350 Williams Companies, Inc. 236,000 7,345,500 24,111,387 GAS TRANSMISSION & DISTRIBUTION - 7.6% Columbia Gas System, Inc. (The)(a) 129,900 3,491,063 Consolidated Natural Gas Co. 29,400 1,172,325 ENSERCH Corp. 87,400 1,387,475 El Paso Natural Gas Co. 23,600 775,850 Equitable Resources, Inc. 28,150 907,838 Noram Energy Corp. 88,900 644,525 Questar Corp. (a) 142,300 4,393,513 Tejas Gas Corp. (Del.) 10,300 484,100 Westcoat Energy, Inc. 218,700 3,679,529 Yankee Energy System, Inc. 36,600 814,350 17,750,568 TOTAL GAS 62,903,998 INDEPENDENT POWER - 0.4% STEAM SUPPLY - 0.4% Bonneville Pacific Corp. 11,300 57 Magma Power Co. (a) 28,700 832,300 832,357 TOTAL INDEPENDENT POWER 832,357 METALS & MINING - 0.3% METAL ORES - 0.3% Cameco, Inc. 32,500 641,893 OIL & GAS - 0.8% CRUDE PETROLEUM & GAS - 0.3% Nuevo Energy Corporation (a) 1,400 31,500 Occidental Petroleum Corp. 26,500 589,625 621,125 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) OIL & GAS - CONTINUED PETROLEUM REFINERS - 0.5% Coastal Corp. (The) 39,700 $ 1,215,813 TOTAL OIL & GAS 1,836,938 TELEPHONE SERVICES - 39.2% ALLTEL Corp. 15,600 434,850 AT & T Corporation 3,500 191,625 Ameritech Corp. 363,600 15,043,950 BCE, Inc. 18,682 652,548 Bell Atlantic Corp. 162,000 8,869,500 BellSouth Corp. 224,200 13,311,875 British Telecommunications PLC ADR 23,200 1,380,400 Cincinnati Bell, Inc. 23,200 437,900 GTE Corp. 214,500 6,810,375 NYNEX Corp. 294,900 11,390,513 Pacific Telesis Group 183,600 6,058,800 Southwestern Bell Corp. 340,600 14,092,325 Sprint Corporation 5,100 202,088 Telephone & Data Systems, Inc. 18,331 797,400 U.S. West, Inc. 305,659 12,340,982 92,015,131 TOTAL COMMON STOCKS (Cost $221,611,176) 223,306,964 NONCONVERTIBLE PREFERRED STOCKS - 0.6% ELECTRIC UTILITY - 0.6% ELECTRIC & OTHER SERVICES - 0.6% Long Island Lighting Co. $7.95 (Cost $1,595,000) 63,800 1,499,300 NONCONVERTIBLE BONDS - 0.4% TROY OUNCES ELECTRIC UTILITY - 0.4% ELECTRIC POWER - 0.4% EUA Power Corp. secured pay-in-kind (b): 17 1/2%,11/15/92 (c) $ 442,800 35,424 17 1/2%, 5/15/93 800,000 64,000 Northern Indiana Public Service Co. 1st mtg. 8 1/4%, 7/15/03 845,000 845,000 TOTAL NONCONVERTIBLE BONDS (Cost $1,718,036) 944,424 REPURCHASE AGREEMENTS - 3.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 8,874,190 8,873,000 TOTAL INVESTMENTS IN SECURITIES - 100% (Cost $233,797,212) $ 234,623,688 LEGEND 1.Non-income producing 2.Non-income producing - issuer filed for protection under the Federal Bankruptcy Code or is in default of interest payment. 3.Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of these securities amounted to $2,117,295 or 0.9% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $26,028,014 and $39,700,653, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $20,971 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balance during the period for which the loan was outstanding amounted to $2,759,000. The weighted average interest rate paid was 4.0% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $233,472,095. Net unrealized appreciation aggregated $1,151,593, of which $15,012,764 related to appreciated investment securities and $13,861,171 related to depreciated investment securities. On February 25, 1994, the fund acquired all of the assets of Electric Utilities Portfolio in a tax-free exchange for shares of Utilities Growth Portfolio (formerly Utilities Portfolio). Electric Utilities Portfolio had net unrealized appreciation of $1,838,111 (see Note 10 of Notes to Financial Statements). UTILITIES GROWTH PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, $ 234,623,688 at value (including repurchase agreements of $8,873,000) (cost $233,797,212) - See accompanying schedule Cash 30 Receivable for fund 1,824,044 shares sold Dividends receivable 790,766 Interest receivable 8,582 Redemption fees 295 receivable Other receivables 647 Prepaid expenses 21,935 TOTAL ASSETS 237,269,987 LIABILITIES Payable for fund shares $ 3,745,535 redeemed Accrued management 121,255 fee Other payables and 160,015 accrued expenses TOTAL LIABILITIES 4,026,805 NET ASSETS $ 233,243,182 Net Assets consist of: Paid in capital $ 228,592,778 Undistributed net 3,901,220 investment income Accumulated (77,292 undistributed net ) realized gain (loss) on investments and foreign currency transactions Net unrealized 826,476 appreciation (depreciation) on investments NET ASSETS, for $ 233,243,182 6,552,135 shares outstanding NET ASSET VALUE and $35.60 redemption price per share ($233,243,182 (divided by) shares) Maximum offering price $36.70 per share (100/97 of $35.60)
STATEMENT OF OPERATIONS SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 5,161,365 Dividends Interest (including 201,006 security lending fees of $1,155) TOTAL INCOME 5,362,371 EXPENSES Management fee $ 724,285 Transfer agent 786,583 Fees Redemption fees (57,527 ) Accounting and security 113,737 lending fees Non-interested trustees' 679 compensation Custodian fees and 11,249 expenses Registration fees 21,935 Audit 18,648 Legal 3,129 Interest 307 Reports to shareholders 9,568 Miscellaneous 459 Total expenses before 1,633,052 reductions Expense reductions (9,595 1,623,457 ) NET INVESTMENT INCOME 3,738,914 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (15,210 ) Foreign currency (1,197 (16,407 transactions ) ) Change in net unrealized (6,372,185 appreciation ) (depreciation) on investment securities NET GAIN (LOSS) (6,388,592 ) NET INCREASE $ (2,649,678 (DECREASE) IN NET ) ASSETS RESULTING FROM OPERATIONS OTHER INFORMATION $273,771 Sales Charges Paid to FDC Deferred sales $33,369 charges withheld by FDC Exchange fees $38,843 withheld by FSC STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 3,738,914 $ 9,675,531 Net investment income Net realized gain (loss) (16,407 46,918,583 ) Change in net unrealized appreciation (depreciation) (6,372,185 (44,694,870 ) ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,649,678 11,899,244 ) Distributions to shareholders (778,007 (7,450,649 From net investment income ) ) From net realized gain (3,890,120 (32,195,614 ) ) TOTAL DISTRIBUTIONS (4,668,127 (39,646,263 ) ) Share transactions 87,287,932 263,259,087 Net proceeds from sales of shares Reinvestment of distributions 4,513,358 38,572,943 Cost of shares redeemed (101,934,359 (314,447,184 ) ) Paid in capital portion of redemption fees 171,781 166,488 Net increase (decrease) in net assets resulting from share transactions (9,961,288 (12,448,666 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (17,279,093 (40,195,685 ) ) NET ASSETS Beginning of period 250,522,275 290,717,960 End of period (including undistributed net investment income of $3,901,220 and $3,613,887, $ 233,243,182 $ 250,522,275 respectively) OTHER INFORMATION Shares Sold 2,456,269 6,222,531 Issued in reinvestment of distributions 131,353 1,019,080 Redeemed (2,878,141 (7,406,487 ) ) Net increase (decrease) (290,519 (164,876 ) )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 36.61 $ 41.49 $ 37.18 $ 35.57 $ 31.70 $ 28.82 Income from Investment Operations Net investment income .57 1.33 1.19 1.66 1.59 1.27 Net realized and unrealized gain (loss) (.89) (.16)F 6.14 2.82 3.41 2.40 Total from investment operations (.32) 1.17 7.33 4.48 5.00 3.67 Less Distributions From net investment income (.12) (1.13) (1.33) (1.69) (.60) (.81) From net realized gain (.60) (4.94) (1.70) (1.19) (.58) - Total distributions (.72) (6.07) (3.03) (2.88) (1.18) (.81) Redemption fees added to paid in capital .03 .02 .01 .01 .05 .02 Net asset value, end of period $ 35.60 $ 36.61 $ 41.49 $ 37.18 $ 35.57 $ 31.70 TOTAL RETURN D, E (.72)% 2.53% 20.90% 13.23% 16.25% 13.00% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 233,243 $ 250,522 $ 290,718 $ 206,872 $ 197,409 $ 124,931 Ratio of expenses to average net assets B 1.37%A 1.35% 1.42% 1.51% 1.65% 1.67% A Ratio of expenses to average net assets before 1.38%A 1.36% 1.42% 1.51% 1.65% 1.67% expense reductions B A Ratio of net investment income to average net 3.15%A 3.11% 3.71% 4.58% 4.75% 3.93% assets A Portfolio turnover rate 23%A 61% 34% 45% 45% 75% A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). If Fidelity had not reimbursed certain fund expenses during the period, the fund's total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S BROKERAGE AND INVESTMENT MANAGEMENT -7.89% -3.60% 84.22% 122.34% BROKERAGE AND INVESTMENT MANAGEMENT (INCL. 3% SALES CHARGE) -10.65% -6.49% 78.69% 115.67% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND BROKERAGE AND INVESTMENT MANAGEMENT -3.60% 13.00% 9.18% BROKERAGE AND INVESTMENT MANAGEMENT (INCL. 3% SALES CHARGE) -6.49% 12.31% 8.81% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Brokerage (068) Standard & Poor's 07/29/85 9700.00 10000.00 07/31/85 9564.20 9926.31 08/31/85 9263.50 9841.93 09/30/85 8671.80 9533.88 10/31/85 9418.70 9974.35 11/30/85 10340.20 10658.59 12/31/85 10757.30 11174.46 01/31/86 11989.20 11237.04 02/28/86 12852.50 12077.57 03/31/86 13192.00 12751.50 04/30/86 13075.60 12607.41 05/31/86 13211.40 13278.12 06/30/86 13201.70 13502.52 07/31/86 12002.55 12747.73 08/31/86 13072.47 13693.61 09/30/86 11545.40 12561.15 10/31/86 12809.85 13285.93 11/30/86 12177.63 13608.78 12/31/86 11788.57 13261.75 01/31/87 13996.49 15048.11 02/28/87 14317.47 15642.51 03/31/87 14259.11 16094.58 04/30/87 12702.86 15951.34 05/31/87 12138.72 16090.11 06/30/87 12119.27 16902.66 07/31/87 12148.45 17759.63 08/31/87 12537.51 18422.06 09/30/87 12109.54 18018.62 10/31/87 7654.79 14137.41 11/30/87 7080.92 12972.49 12/31/87 7444.51 13959.69 01/31/88 7977.92 14547.40 02/29/88 8360.58 15225.31 03/31/88 8140.26 14754.84 04/30/88 8279.41 14918.62 05/31/88 7966.32 15048.41 06/30/88 8812.88 15739.14 07/31/88 8743.21 15679.33 08/31/88 8685.16 15146.23 09/30/88 8905.77 15791.46 10/31/88 8940.60 16230.46 11/30/88 8743.21 15998.37 12/31/88 8825.36 16278.34 01/31/89 9975.47 17469.91 02/28/89 9740.76 17034.91 03/31/89 9752.49 17431.83 04/30/89 9846.38 18336.54 05/31/89 10491.85 19079.17 06/30/89 10196.87 18970.42 07/31/89 11424.27 20683.44 08/31/89 11707.51 21088.84 09/30/89 11341.65 21002.38 10/31/89 10421.10 20515.12 11/30/89 10314.89 20933.63 12/31/89 10066.13 21436.04 01/31/90 9623.79 19997.68 02/28/90 9946.58 20255.65 03/31/90 10221.54 20792.42 04/30/90 9528.15 20272.61 05/31/90 10436.73 22249.19 06/30/90 10424.49 22097.90 07/31/90 10053.46 22027.18 08/31/90 8689.07 20035.93 09/30/90 7947.02 19060.18 10/31/90 7456.32 18978.22 11/30/90 7947.02 20204.21 12/31/90 8437.73 20767.91 01/31/91 9139.86 21673.39 02/28/91 10047.80 23223.04 03/31/91 11076.79 23785.03 04/30/91 11234.16 23842.12 05/31/91 11827.35 24872.10 06/30/91 11039.82 23732.96 07/31/91 11888.10 24838.91 08/31/91 12154.71 25427.59 09/30/91 12784.86 25002.95 10/31/91 13633.14 25337.99 11/30/91 12881.81 24316.87 12/31/91 15378.19 27098.72 01/31/92 15596.32 26594.68 02/29/92 15499.37 26940.42 03/31/92 15087.35 26415.08 04/30/92 13911.87 27191.68 05/31/92 13875.51 27324.92 06/30/92 13548.32 26917.78 07/31/92 14311.77 28018.72 08/31/92 13899.75 27444.33 09/30/92 13802.80 27768.18 10/31/92 14420.84 27865.36 11/30/92 15717.50 28815.57 12/31/92 16165.88 29170.00 01/31/93 17123.23 29415.03 02/28/93 17232.29 29815.08 03/31/93 18613.79 30444.17 04/30/93 18553.16 29707.43 05/31/93 19159.48 30503.58 06/30/93 20068.94 30592.05 07/31/93 20735.89 30469.68 08/31/93 22372.93 31624.48 09/30/93 22785.22 31380.97 10/31/93 22045.52 32030.56 11/30/93 21439.21 31726.27 12/31/93 24139.71 32110.15 01/31/94 24654.17 33201.90 02/28/94 23414.20 32302.13 03/31/94 20789.17 30893.75 04/30/94 20617.69 31289.19 05/31/94 21118.95 31802.34 06/30/94 21923.61 31023.18 07/31/94 21409.16 32040.74 08/31/94 21567.45 33354.41 Let's say you invested $10,000 in Fidelity Select Brokerage and Investment Management Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $21,567 - a 115.67% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Invesco Mim PLC 8.8 United Asset Management Corp. 5.8 Nomura Securities Ltd. 4.7 McIntosh Securities Ltd. 4.3 Yamaichi Securities 4.0 Warburg (SG) Group PLC Ord. 3.8 Daiwa Securities 3.5 New Japan Securities 3.5 Merrill Lynch & Co., Inc. 3.4 Wako Securities 3.1 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 19.7 Row: 1, Col: 2, Value: 2.5 Row: 1, Col: 3, Value: 7.5 Row: 1, Col: 4, Value: 10.7 Row: 1, Col: 5, Value: 14.5 Row: 1, Col: 6, Value: 45.1 Security & Commodity Brokers 45.1% Investment Advice 14.5% Financial Services 10.7% Investment Managers 7.5% Management & Investment Offices 2.5% All Others 19.7%* * INCLUDES SHORT-TERM INVESTMENTS BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Arieh Coll, Portfolio Manager of Fidelity Select Brokerage and Investment Management Portfolio Q. ARIEH, HOW WAS THE FUND'S PERFORMANCE? A. It's been a difficult year. During the six months ended August 31, 1994, the fund had a total return of -7.89%. That lagged the S&P 500, which returned 3.26% during the same period. The fund returned -3.60% for the 12 months ended August 31, compared to a 5.47% return for the S&P 500. Q. THAT'S DOWN FROM THE FUND'S TOTAL RETURN DURING 1993. WHAT HAPPENED? A. Brokerage stocks did perform extremely well through most of 1993. Low interest rates and low inflation fueled a strong stock market, and high volumes on the stock exchanges resulted in excellent earnings growth for brokerage companies. However, in October of 1993, I began to expect that the good times may be ending. I expected trading volumes in the United States to decline in 1994, mainly because I didn't feel that interest rates could fall any further - which would hurt stocks. In addition, expenses at brokerage companies were rising because most had been hiring aggressively, expecting the prosperity to continue. Those factors led me to concentrate the fund's investments in brokerage stocks outside the United States. In hindsight, I was correct in getting out of U. S. brokerage stocks - they performed poorly. But as it turned out, some of the fund's foreign investments did worse. Q. WHERE DID YOU FOCUS YOUR ENERGIES? A. Mainly in three countries: Canada, the United Kingdom and Japan. When interest rates rose in the U. S. , they also shot up dramatically in many overseas countries, including Canada and the U. K. The extent to which the behavior of these markets was tied to that of the U. S. market surprised many investors, including myself. The net result was lackluster performance in the Canadian and British stock markets, and in the brokerage stocks of these countries. Midland Walwyn and Mackenzie Financial of Canada, and SG Warburg and Invesco of the U. K. were among the fund's top 10 investments six months ago. The prices of all four have fallen since then. However, I think the earnings prospects of these companies have improved to varying degrees. In addition, after prices fell, their stock valuations - prices relative to earnings - became much more attractive. Invesco and SG Warburg remained among the fund's top 10 investments at the end of August. Q. WHAT ABOUT JAPAN? A. Japan was the fund's bright spot over the past six months. Near the end of 1993, the environment for brokerage stocks in Japan was the opposite of that in the United States. Company profits and Japanese market trading volumes had fallen sharply, and the valuations of brokerage stocks were very attractive. When the Japanese stock market rebounded in January, the brokerage stocks rose quickly. Since I began investing the fund in Japan in January, stocks such as Daiwa, Nomura and Yamaichi are all up at least 20% through the end of August. Because the prices of these stocks have risen so strongly over the past six months, I've cut back on the fund's Japanese investment lately. But I do believe there is still upside potential. Q. HAS YOUR OUTLOOK IMPROVED AT ALL FOR THE U. S. BROKERAGE AND INVESTMENT MANAGEMENT FIRMS? A. It has. Now that stock prices in this sector have fallen roughly 30% since October 1993, many brokerage stocks are more attractively valued. In addition, I think the short-term downside potential for these stocks is limited; I believe the U. S. stock market is poised for better performance in 1995, which would lead to increased trading volumes. That's the main reason why I've recently moved Merrill Lynch and United Asset Management into the fund's top 10 investments. Q. DO YOU SEE THE FUND'S PERFORMANCE IMPROVING OVER THE NEXT SIX MONTHS? A. I think the potential is there. As I've discussed, the performance of brokerage stocks tends to mimic, and often magnify, the performance of the entire stock market. I believe that the Federal Reserve Board has achieved its goal of slow and steady economic growth that won't trigger sharp increases in inflation. Therefore, it's my belief that interest rates may at least remain stable, and possibly move lower in 1995. That would be good news for U. S. stocks. Also, I think the Japanese market shows a lot of potential. Japan's economy is where the U. S. economy was two years ago - in the early stages of recovery. That's often when investors anticipate prosperity and push stock prices higher. For these reasons, I am optimistic that the worst may be over for this year in terms of the fund's performance. FUND FACTS START DATE: July 29, 1985 SIZE: as of August 31, 1994, more than $28 million MANAGER: Arieh Coll, since October 1993; manager, Fidelity Select Software and Computer Services Portfolio, October 1991-August 1994; Fidelity Select Technology Portfolio, July 1992- September 1993; joined Fidelity in 1989 (checkmark) BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 82.4% SHARES VALUE (NOTE 1) BANKS - 0.1% INTERNATIONAL BANKS - 0.1% National Bank of Greece 200 $ 8,793 Union Financiere de France BQ 100 13,485 22,278 COMPUTER SERVICES & SOFTWARE - 1.4% DATA PROCESSING - 1.4% Investment Technology Group, Inc. (a) 31,000 406,881 CREDIT & OTHER FINANCE - 13.2% FINANCIAL SERVICES - 10.7% Finansbank (a) 28,000 3,061 Marleau Lemire, Inc. 349,800 716,464 McIntosh Securities Ltd. 1,208,900 1,286,258 Perpetual PLC 50,000 913,058 Rashid Hussain BHD 51,000 157,444 TA Enterprise BHD 25,000 169,988 3,246,273 MANAGEMENT & INVESTMENT OFFICES - 2.5% Trimark Financial Corp. 31,300 755,569 TOTAL CREDIT & OTHER FINANCE 4,001,842 MEDICAL EQUIPMENT & SUPPLIES - 0.3% MEDICAL TECHNOLOGY - 0.3% Mentor Corp. 6,140 100,543 SECURITIES INDUSTRY - 67.4% INVESTMENT ADVICE - 14.5% CI Fund Management, Inc. (c) 10,000 77,722 Govett & Co. Ltd. 137,500 814,462 Invesco Mim PLC 971,900 2,669,654 Mutual Fund Co., Ltd. 28,600 831,502 4,393,340 INVESTMENT MANAGERS - 7.5% Mackenzie Financial Corporation 60,100 368,192 Pioneer Group, Inc. 3,200 145,600 United Asset Management Corp. 45,100 1,758,900 2,272,692 SECURITY & COMMODITY BROKERS - 43.0% Daiwa Securities 67,000 1,049,800 First Marathon, Inc. Class A (non-vtg.) 29,400 290,333 Jefferies Group, Inc. 15,100 551,150 Kim Eng Holdings Ltd. (warrants) (a) 303,800 307,953 Kokusai Securities 47,000 759,880 McDonald & Co. Investments, Inc. 31,600 406,850 Merrill Lynch & Co., Inc. 25,000 1,015,625 Midland Walwyn Inc. 87,500 568,057 New Japan Securities 127,000 1,045,658 Nikko Securities 75,000 890,719 Nomura Securities Ltd. 65,000 1,433,633 Okasan Securities Co. Ltd. ORD 74,000 524,351 Phatra Thanakit 700 30,136 Ichiyoshi Securities 89,000 810,060 Warburg (SG) Group PLC Ord. 97,100 1,160,747 Wako Securities 90,000 952,096 Yamaichi Securities 140,000 1,202,993 13,000,041 SHARES VALUE (NOTE 1) SECURITY BROKERS & DEALERS - 2.4% Finanza & Futuro Holdings Spa 2,600 $ 9,722 20/20 Financial Corp. 16,500 125,224 Tokyo Securities Co. Ltd. 67,000 601,797 736,743 TOTAL SECURITIES INDUSTRY 20,402,816 TOTAL COMMON STOCKS (Cost $23,900,800) 24,934,360 NONCONVERTIBLE PREFERRED STOCKS - 1.5% SECURITIES INDUSTRY - 1.5% SECURITY & COMMODITY BROKERS - 1.5% A G F Management Ltd. Class A (Cost $584,043) 37,800 456,238 NONCONVERTIBLE BONDS - 0.6% PRINCIPAL AMOUNT (B) SECURITIES INDUSTRY - 0.6% SECURITY & COMMODITY BROKERS - 0.6% Kim Eng Holdings Ltd. 3 1/2%, 12/27/97 (Cost $188,860) SGD 303,800 185,380 REPURCHASE AGREEMENTS - 15.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 4,681,628 4,681,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $29,354,703) $ 30,256,978 CURRENCY ABBREVIATIONS SGD - Singapore dollar LEGEND 1. Non-income producing 2. Principal amount is stated in United States dollars unless otherwise noted. 3. Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the period end, the value of this security amounted to $77,722 or 0.3% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $10,318,341 and $38,515,317, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $850 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $11,186,000 and $5,978,500, respectively. The weighted average interest rate paid was 4.0% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: Japan 30.6% United States 29.9 United Kingdom 18.4 Canada 11.1 Australia 4.3 Thailand 2.9 Singapore 1.6 Malaysia 1.1 Others (individually less than 1%) 0.1 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $29,374,039. Net unrealized appreciation aggregated $882,939, of which $2,783,580 related to appreciated investment securities and $1,900,641 related to depreciated investment securities. The fund has elected to defer to its fiscal year ending February 28, 1995 $462,000 of losses recognized during the period November 1, 1993 to February 28, 1994. BROKERAGE AND INVESTMENT MANAGEMENT PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $4,681,000) (cost $29,354,703) - See $ 30,256,978 accompanying schedule Cash 6,095 Receivable for fund shares sold 230,822 Dividends receivable 24,722 Interest receivable 4,058 Redemption fees receivable 112 Other receivables 6,481 Prepaid expenses 14,668 Receivable from investment adviser for expense reductions 6,144 TOTAL ASSETS 30,550,080 LIABILITIES Payable for investments purchased $ 1,089,136 Payable for fund shares redeemed 921,201 Accrued management fee 16,462 Other payables and accrued expenses 80,492 TOTAL LIABILITIES 2,107,291 NET ASSETS $ 28,442,789 Net Assets consist of: Paid in capital $ 26,867,397 Accumulated net investment (loss) (181,546 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 854,610 Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 902,328 NET ASSETS, for 1,739,955 shares outstanding $ 28,442,789 NET ASSET VALUE and redemption price per share ($28,442,789 (divided by) shares) $16.35 Maximum offering price per share (100/97 of $16.35) $16.86
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 296,580 Dividends Interest 74,929 TOTAL INCOME 371,509 EXPENSES Management fee $ 112,009 Transfer agent 334,845 Fees Redemption fees (35,384 ) Accounting fees and expenses 23,062 Non-interested trustees' compensation 123 Custodian fees and expenses 45,989 Registration fees 14,668 Audit 12,246 Legal 808 Interest 13,385 Reports to shareholders 5,165 Miscellaneous 150 Total expenses before reductions 527,066 Expense reductions (69,208 457,858 ) NET INVESTMENT INCOME (LOSS) (86,349 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,299,453 Foreign currency transactions 6,420 1,305,873 Change in net unrealized appreciation (depreciation) on: Investment securities (6,132,891 ) Assets and liabilities in foreign currencies 53 (6,132,838 ) NET GAIN (LOSS) (4,826,965 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,913,314 ) OTHER INFORMATION $88,170 Sales Charges Paid to FDC Deferred sales charges withheld $1,408 by FDC Exchange fees withheld by FSC $27,773
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (86,349 $ (95,196 Net investment income (loss) ) ) Net realized gain (loss) 1,305,873 9,170,168 Change in net unrealized appreciation (depreciation) (6,132,838 5,304,530 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,913,314 14,379,502 ) Distributions to shareholders - (3,536 From net investment income ) From net realized gain - (5,264,467 ) TOTAL DISTRIBUTIONS - (5,268,003 ) Share transactions 25,777,617 254,155,679 Net proceeds from sales of shares Reinvestment of distributions - 5,046,669 Cost of shares redeemed (52,298,934 (233,513,002 ) ) Paid in capital portion of redemption fees 67,582 322,223 Net increase (decrease) in net assets resulting from share transactions (26,453,735 26,011,569 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (31,367,049 35,123,068 ) NET ASSETS Beginning of period 59,809,838 24,686,770 End of period (including accumulated net investment (loss) of $(181,546) and $(95,197), respectively) $ 28,442,789 $ 59,809,838 OTHER INFORMATION Shares Sold 1,564,745 14,759,782 Issued in reinvestment of distributions - 301,596 Redeemed (3,194,262 (13,428,141 ) ) Net increase (decrease) (1,629,517 1,633,237 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 17.75 $ 14.22 $ 11.48 $ 9.28 $ 7.97 $ 8.39 Income from Investment Operations Net investment income (loss) (.04)F (.02) - .02 .08 .08 Net realized and unrealized gain (loss) (1.39) 4.95 2.65 1.96 1.15 (.35) Total from investment operations (1.43) 4.93 2.65 1.98 1.23 (.27) Less Distributions From net investment income - (.01) - (.01) (.09) (.16) From net realized gain - (1.47) - - - - Total distributions - (1.48) - (.01) (.09) (.16) Redemption fees added to paid in capital .03 .08 .09 .23 .17 .01 Net asset value, end of period $ 16.35 $ 17.75 $ 14.22 $ 11.48 $ 9.28 $ 7.97 TOTAL RETURND, E (7.89)% 35.87% 23.87% 23.84% 17.90% (3.23)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 28,443 $ 59,810 $ 24,687 $ 17,915 $ 11,285 $ 2,298 Ratio of expenses to average net assetsB 2.49%A 1.77% 2.21%A 2.17% 2.50% 2.50% Ratio of expenses to average net assets before 2.86%A 1.79% 2.21%A 2.17% 2.91% 3.16% expense reductionsB Ratio of net investment income (loss) to average net (.47)% (.14) .02%A .16% .94% .91% assets A % Portfolio turnover rate 60%A 295% 111%A 254% 62% 142%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM FIRST MARATHON, INC. CLASS A WHICH AMOUNTED TO $.02 PER SHARE. FINANCIAL SERVICES PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S FINANCIAL SERVICES 8.02% 8.77% 102.80% 375.16% FINANCIAL SERVICES (INCL. 3% SALES CHARGE) 4.78% 5.51% 96.71% 360.90% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS FINANCIAL SERVICES 8.77% 15.19% 16.86% FINANCIAL SERVICES (INCL. 3% SALES CHARGE) 5.51% 14.49% 16.51% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Fin. Svcs. (066)Standard & Poor 08/31/84 9700.00 10000.00 09/30/84 10062.78 10002.00 10/31/84 10397.65 10041.01 11/30/84 10749.26 9928.55 12/31/84 11139.94 10190.66 01/31/85 12071.98 10984.51 02/28/85 12205.93 11119.62 03/31/85 12122.21 11127.41 04/30/85 12706.56 11117.39 05/31/85 13411.46 11759.98 06/30/85 13955.02 11944.61 07/31/85 13932.43 11926.69 08/31/85 14034.09 11825.32 09/30/85 13429.80 11455.18 10/31/85 14310.82 11984.41 11/30/85 15157.94 12806.54 12/31/85 15733.99 13426.38 01/31/86 16665.83 13501.57 02/28/86 18393.97 14511.49 03/31/86 19585.60 15321.23 04/30/86 19404.88 15148.10 05/31/86 20201.18 15953.98 06/30/86 20794.17 16223.60 07/31/86 19306.45 15316.70 08/31/86 20527.79 16453.20 09/30/86 18331.66 15092.52 10/31/86 18738.78 15963.36 11/30/86 18555.29 16351.27 12/31/86 18096.57 15934.31 01/31/87 19369.52 18080.66 02/28/87 20653.94 18794.85 03/31/87 19868.38 19338.02 04/30/87 18618.36 19165.91 05/31/87 18486.48 19332.65 06/30/87 19168.83 20308.95 07/31/87 19392.46 21338.62 08/31/87 20516.32 22134.55 09/30/87 19788.10 21649.80 10/31/87 15309.83 16986.43 11/30/87 14375.19 15586.75 12/31/87 15103.55 16772.90 01/31/88 16240.77 17479.04 02/29/88 16781.72 18293.57 03/31/88 16492.80 17728.29 04/30/88 16203.89 17925.08 05/31/88 16363.71 18081.03 06/30/88 17371.85 18910.95 07/31/88 17255.05 18839.08 08/31/88 17205.87 18198.55 09/30/88 17918.94 18973.81 10/31/88 17968.12 19501.29 11/30/88 17224.31 19222.42 12/31/88 16918.14 19558.81 01/31/89 17785.25 20990.51 02/28/89 17747.27 20467.85 03/31/89 19044.77 20944.75 04/30/89 19392.88 22031.78 05/31/89 20608.10 22924.07 06/30/89 20464.51 22793.40 07/31/89 22102.43 24851.65 08/31/89 22727.01 25338.74 09/30/89 23198.63 25234.85 10/31/89 20987.11 24649.40 11/30/89 20700.32 25152.25 12/31/89 20190.52 25755.90 01/31/90 18486.00 24027.68 02/28/90 19154.94 24337.64 03/31/90 18859.06 24982.59 04/30/90 18190.12 24358.02 05/31/90 19791.73 26732.93 06/30/90 19238.56 26551.15 07/31/90 18003.59 26466.18 08/31/90 15848.82 24073.64 09/30/90 13488.22 22901.25 10/31/90 12311.14 22802.78 11/30/90 14047.82 24275.84 12/31/90 15278.18 24953.13 01/31/91 16666.51 26041.09 02/28/91 18581.21 27903.03 03/31/91 19469.48 28578.28 04/30/91 20101.14 28646.87 05/31/91 21640.80 29884.41 06/30/91 19884.00 28515.71 07/31/91 21456.56 29844.54 08/31/91 22877.79 30551.86 09/30/91 22739.62 30041.64 10/31/91 23239.68 30444.20 11/30/91 21515.78 29217.30 12/31/91 24693.90 32559.76 01/31/92 25923.94 31954.14 02/29/92 27785.63 32369.55 03/31/92 27160.63 31738.34 04/30/92 28204.51 32671.45 05/31/92 29414.60 32831.54 06/30/92 30091.42 32342.35 07/31/92 30951.95 33665.15 08/31/92 29176.68 32975.02 09/30/92 30084.64 33364.12 10/31/92 31277.19 33480.90 11/30/92 33628.39 34622.59 12/31/92 35267.86 35048.45 01/31/93 37492.41 35342.86 02/28/93 38489.13 35823.52 03/31/93 40504.23 36579.40 04/30/93 38565.16 35694.18 05/31/93 38579.78 36650.78 06/30/93 40020.03 36757.07 07/31/93 41094.74 36610.04 08/31/93 42374.15 37997.56 09/30/93 43353.81 37704.98 10/31/93 42191.38 38485.47 11/30/93 40312.47 38119.86 12/31/93 41458.89 38581.11 01/31/94 44273.33 39892.87 02/28/94 42666.27 38811.77 03/31/94 40717.81 37119.58 04/30/94 42264.01 37594.71 05/31/94 44068.01 38211.26 06/30/94 43027.56 37275.09 07/31/94 44529.50 38497.71 08/31/94 46090.17 40076.11 Let's say you invested $10,000 in Fidelity Select Financial Services Portfolio on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $46,090 - a 360.90% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Bank of New York Co., Inc. 6.8 Citicorp 5.9 Federal National Mortage Association 4.9 NationsBank Corp. 4.8 Federal Home Loan Mortage Corporation 4.4 First Chicago Corp. 3.7 State Street Boston Corp. 3.6 Household International, Inc. 3.2 Dean Witter Discover & Co. 3.1 BankAmerica Corp. 2.9 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 13.5 Row: 1, Col: 2, Value: 5.4 Row: 1, Col: 3, Value: 9.300000000000001 Row: 1, Col: 4, Value: 9.6 Row: 1, Col: 5, Value: 13.4 Row: 1, Col: 6, Value: 48.8 Banks 48.8% Savings & Loans 13.4% Credit & Other Finance 9.6% Federal Sponsored Credit 9.3% Insurance 5.4% All Others 13.5% * INCLUDES SHORT-TERM INVESTMENTS FINANCIAL SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Stephen Binder, Portfolio Manager of Fidelity Select Financial Services Portfolio Q. STEVE, HOW DID THE FUND PERFORM? A. Pretty well. The fund returned 8.02% for the six months and 8.77% for the 12 months ended August 31, 1994. Those results beat the S&P 500's 3.26% and 5.47% returns during the same periods. Q. WHICH GROUPS WERE THE MAIN CONTRIBUTORS TO THE FUND'S SOLID PERFORMANCE? A. Banks, thrifts and investments in the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) were the principal drivers behind the fund's performance. At the end of August, about 13% of the fund was invested in thrifts. The reason for this significant investment is the relative attractiveness of thrifts versus banks and other financial services sectors. This attractiveness is evident in several ways. First, thrift stocks are cheap relative to their earnings and book values - assets minus liabilities. Second, the industry is undergoing massive consolidation. This often provides an additional boost to many thrift stock prices. Third, many thrifts are improving the credit quality of their loan portfolios. Finally, many thrifts are overcapitalized. This means that they have the ability to acquire other companies as a way to grow their earnings. The fund has smaller positions in numerous thrifts, as opposed to making large commitments to any one of them. Many of these are in the New York/New Jersey area, such as Astoria Financial, GP Financial, Reliance Bancorp, Haven Bancorp and Lakeview Savings Bank. Q. BANKS ACCOUNTED FOR ABOUT 50% OF THE FUND'S INVESTMENTS. HOW DID RISING INTEREST RATES AFFECT BANKS? A. Contrary to the view held by many investors last year and into this year, higher interest rates turned out to be good for banks' earnings. The rates banks pay on deposits - a major component of banks' cost of funds - increased only modestly. Thus banks were able to raise the rates they charge for loans faster than their cost of funds increased. The stronger economy led to increasing loan demand. So, banks made more loans at higher rates and maintained a favorable spread between what they were charging for money and what that money cost them. All of this combined to increase banks' earnings and propel their stock prices. Q. BANK OF NEW YORK, CITICORP AND NATIONSBANK WERE AMONG THE FUND'S TOP INVESTMENTS. HOW DID THEY DO? A. Bank of New York - up over 19% over the past six months - continues to have strong fee income from its trust and securities processing services. It also benefited from offering low-rate credit cards, which boosted the bank's loan volume. Meanwhile, Citicorp - up over 6% during the same period - - has a significant presence in emerging overseas markets which enhanced the overall growth in its loan volume. NationsBank - up 14% - continued to increase its revenues through solid loan growth and relatively strong growth in fee income. Q. FANNIE MAE AND FREDDIE MAC TOGETHER MADE UP ABOUT 10% OF THE FUND AT THE END OF AUGUST. HOW DID THESE STOCKS HELP THE FUND? A. Fannie Mae and Freddie Mac have consistently delivered double-digit earnings while trading at prices that don't fully reflect those earnings, making the stocks excellent values. Both are high-quality companies with great business franchises. They have been and will continue to be long-term investments for the fund. Freddie Mac is up about 11% and Fannie Mae is up nearly 7% for the six-month period. Q. THE PERCENTAGE OF THE FUND'S ASSETS INVESTED IN SECURITIES BROKERS REMAINED RELATIVELY LOW. WHAT'S THE STORY IN THAT INDUSTRY? A. Brokerage stocks have been adversely affected by rising interest rates. The pace of corporate refinancing has slowed, resulting in fewer bond underwriting deals. Initial public stock offerings also have dropped from the pace of the past couple of years. Q. WHAT IS YOUR OUTLOOK FOR THE INDUSTRY AND YOUR GAME PLAN FOR THE FUND THROUGH THE END OF 1994? A. I expect the consolidation of thrifts and banks to continue, as many small and medium-size institutions conclude that it will become increasingly difficult for them to compete. So, I'll continue to look for value-priced thrift stocks to add to the fund. I also expect the favorable spread relationship between banks' deposit costs and lending rates to remain intact even if interest rates continue to rise - as long as they rise gradually. I will probably sell some of the fund's bank investments that have appreciated substantially and are no longer undervalued. As for other industry sectors, consumer finance companies have done well and their outlook is similar to that for banks. The near-term environment will likely remain difficult for securities brokers and insurance companies. FUND FACTS START DATE: December 10, 1981 SIZE: as of August 31, 1994, more than $120 million MANAGER: Stephen Binder, since November 1993; manager, Fidelity Select Defense and Aerospace Portfolio, since October 1992; Fidelity Select Regional Banks Portfolio, since May 1990; joined Fidelity in 1989 (checkmark) FINANCIAL SERVICES PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 93.8% SHARES VALUE (NOTE 1) BANKS - 48.8% COMMERCIAL BANKS, NEC - 0.1% Norwalk Savings Society (Conn.) 10,000 $ 147,497 NATIONAL COMMERCIAL BANKS - 31.6% Bank Atlantic Bancorp, Inc. 25,000 406,250 BankAmerica Corp. 70,000 3,456,250 BanPonce Corp. 54,700 1,818,775 Citicorp 160,413 7,098,275 Comerica, Inc. 108,745 3,303,129 First Chicago Corp. 84,803 4,409,756 Fleet Financial Group, Inc. 194 7,687 Huntington Bancshares, Inc. 136 2,907 Keycorp. 78,064 2,566,354 Mercantile Bancorporation, Inc. 22,050 843,413 Midlantic Corp. 51,900 1,563,488 NBD Bancorp, Inc. 24,100 750,113 NationsBank Corp. 103,285 5,758,139 Shawmut National Corp. 70,000 1,575,000 West One Bancorp 62,700 1,943,700 Zions Bancorporation 62,400 2,527,200 38,030,436 STATE BANKS FEDERAL RESERVE - 17.1% Bank of New York Co., Inc. 250,934 8,155,355 Bank of New York Co., Inc. (warrants) (a) 72,700 908,750 Chemical Banking Corp. 68,500 2,654,375 Compass Bancshares, Inc. 21,200 530,000 Crestar Financial Corp. 53,149 2,564,439 First Empire State Corp. 3,800 598,500 Northern Trust Corp. 10,000 382,500 State Street Boston Corp. 109,600 4,384,000 T R Financial Corp. (a) 24,700 401,375 20,579,294 TOTAL BANKS 58,757,227 CREDIT & OTHER FINANCE - 9.5% FINANCIAL SERVICES - 5.7% Argentaria Corp. Bancaria de Esp 58,100 2,434,413 Corporacion Bancaria de Espana SA sponsored ADR 4,000 84,000 Dean Witter Discover & Co. 86,600 3,691,325 GFC Financial Corp. 17,200 651,450 6,861,188 PERSONAL CREDIT INSTITUTIONS - 3.8% Beneficial Corp. 17,300 743,900 Household International, Inc. 97,022 3,832,369 4,576,269 TOTAL CREDIT & OTHER FINANCE 11,437,457 FEDERAL SPONSORED CREDIT - 9.3% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 9.3% Federal Home Loan Mortgage Corporation 85,300 5,299,263 Federal National Mortgage Association 66,200 5,883,525 11,182,788 INSURANCE - 5.4% LIFE INSURANCE - 2.6% Providian Corp. 36,800 1,237,400 UNUM Corp. 38,500 1,891,313 3,128,713 SHARES VALUE (NOTE 1) PROPERTY-CASUALTY & REINSURANCE - 2.8% Allstate Corp. 82,900 $ 2,155,400 Travelers, Inc. (The) 34,633 1,281,421 3,436,821 TOTAL INSURANCE 6,565,534 REAL ESTATE INVESTMENT TRUSTS - 2.7% Developers Diversified Realty 60,000 1,800,000 Lend Lease Corp. Ltd. 109,500 1,411,121 3,211,121 SAVINGS & LOANS - 13.4% SAVINGS BANKS & SAVINGS & LOANS - 6.8% Astoria Financial Corp. (a) 54,200 1,781,825 Boston Bancorp 8,500 318,750 Charter One Financial Corp. 28,000 665,000 Coast Savings Financial, Inc. (a) 20,000 370,000 Collective Bancorp, Inc. 26,000 533,000 Commercial Federal Corp. (a) 25,600 678,400 DS Bancor Inc. (a) 12,000 348,750 First Federal Savings Bank of Puerto Rico (a) 31,700 578,525 FirstFed Michigan Corp. 5,100 127,500 FirstFed Financial Corp. (a) 3,500 56,438 Golden West Financial Corp. 38,200 1,656,925 Lakeview Financial Corp. 29,300 545,713 Standard Federal Bank 19,300 533,163 8,193,989 SAVINGS BANKS, FEDERAL CHARTER - 5.2% Ahmanson (H.F.) & Co. 110,600 2,474,675 Anchor Bancorp Inc. (a) 30,000 476,250 Bay Ridge Bancorp, Inc. (a) 30,000 435,000 CSF Holdings, Inc. Class B (a) 7,700 184,800 CenFed Financial Corp. 5,300 106,000 Haven Bancorp, Inc. (a) 32,600 537,900 Quaker City Bancorp (a) 64,000 696,000 Reliance BanCorp, Inc. (a) 60,300 753,750 Washington Mutual Savings Bank 28,000 591,500 6,255,875 SAVINGS BANKS, NO FEDERAL CHARTER - 1.4% GP Financial Corp. 70,500 1,709,625 TOTAL SAVINGS & LOANS 16,159,489 SECURITIES INDUSTRY - 4.7% INVESTMENT ADVICE - 0.7% Invesco Mim PLC 318,100 873,770 INVESTMENT MANAGERS - 0.3% Mackenzie Financial Corporation 53,300 326,533 SECURITY & COMMODITY BROKERS - 0.9% Salomon, Inc. 24,300 1,054,013 SECURITY BROKERS & DEALERS - 2.8% Lehman Brothers Holdings, Inc. 129,300 2,101,125 Paine Webber Group, Inc. 76,350 1,240,688 3,341,813 TOTAL SECURITIES INDUSTRY 5,596,129 TOTAL COMMON STOCKS (Cost $102,014,096) 112,909,745 CONVERTIBLE BONDS - 0.1% PRINCIPAL AMOUNT (B) CREDIT & OTHER FINANCE - 0.1% FINANCIAL SERVICES - 0.1% Lend Lease Finance International Ltd. gtd. 4 3/4%, 6/1/03 (b) (Cost $100,000) $ 100,000 $ 112,000 REPURCHASE AGREEMENTS - 6.1% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 7,336,984 7,336,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $109,450,096) $ 120,357,745 LEGEND 1. Non-income producing 2. 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 this security amounted to $112,000 or 0.1% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $40,545,918 and $50,678,755, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $21,527 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $4,058,00 and $2,293,632, respectively. The weighted average interest rate paid was 3.8% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $109,450,096. Net unrealized appreciation aggregated $10,907,649, of which $12,664,996 related to appreciated investment securities and $1,757,347 related to depreciated investment securities. FINANCIAL SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $7,336,000) (cost $109,450,096) - See $ 120,357,745 accompanying schedule Cash 644 Receivable for fund shares sold 1,826,827 Dividends receivable 243,666 Interest receivable 1,174 Redemption fees receivable 280 Other receivables 27,032 Prepaid expenses 11,317 TOTAL ASSETS 122,468,685 LIABILITIES Payable for investments purchased $ 141,250 Payable for fund shares redeemed 1,195,456 Accrued management fee 60,955 Other payables and accrued expenses 113,812 TOTAL LIABILITIES 1,511,473 NET ASSETS $ 120,957,212 Net Assets consist of: Paid in capital $ 101,336,726 Undistributed net investment income 646,543 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 8,066,294 Net unrealized appreciation (depreciation) on investments 10,907,649 NET ASSETS, for 2,201,962 shares outstanding $ 120,957,212 NET ASSET VALUE and redemption price per share ($120,957,212 (divided by) shares) $54.93 Maximum offering price per share (100/97 of $54.93) $56.63
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,544,911 Dividends Interest 134,356 TOTAL INCOME 1,679,267 EXPENSES Management fee $ 357,117 Transfer agent 530,589 Fees Redemption fees (34,381 ) Accounting fees and expenses 57,644 Non-interested trustees' compensation 335 Custodian fees and expenses 13,169 Registration fees 11,317 Audit 13,380 Legal 1,413 Interest 4,619 Reports to shareholders 7,213 Miscellaneous 223 Total expenses before reductions 962,638 Expense reductions (8,960 953,678 ) NET INVESTMENT INCOME 725,589 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 8,057,533 Foreign currency transactions 1,809 8,059,342 Change in net unrealized appreciation (depreciation) on investment securities (1,093,129 ) NET GAIN (LOSS) 6,966,213 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,691,802 OTHER INFORMATION $170,616 Sales Charges Paid to FDC Deferred sales charges withheld $5,502 by FDC Exchange fees withheld by FSC $23,543
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 725,589 $ 899,157 Net investment income Net realized gain (loss) 8,059,342 30,258,224 Change in net unrealized appreciation (depreciation) (1,093,129 (19,675,121 ) ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 7,691,802 11,482,260 Distributions to shareholders (42,640 (452,372 From net investment income ) ) From net realized gain (788,912 (18,241,269 ) ) TOTAL DISTRIBUTIONS (831,552 (18,693,641 ) ) Share transactions 54,434,149 237,223,869 Net proceeds from sales of shares Reinvestment of distributions 803,698 18,154,544 Cost of shares redeemed (57,455,059 (347,083,133 ) ) Paid in capital portion of redemption fees 118,802 499,434 Net increase (decrease) in net assets resulting from share transactions (2,098,410 (91,205,286 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS 4,761,840 (98,416,667 ) NET ASSETS Beginning of period 116,195,372 214,612,039 End of period (including undistributed net investment income of $646,543 and $450,603, respectively) $ 120,957,212 $ 116,195,372 OTHER INFORMATION Shares Sold 1,036,889 4,310,339 Issued in reinvestment of distributions 15,830 361,878 Redeemed (1,118,329 (6,431,527 ) ) Net increase (decrease) (65,610 (1,759,310 ) )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 51.24 $ 53.29 $ 42.42 $ 30.55 $ 28.28 $ 30.64 Income from Investment Operations Net investment income .33 .29 .33 .54 .58 .66 Net realized and unrealized gain (loss) 3.70 5.02 14.30 11.35 1.67 (2.53) Total from investment operations 4.03 5.31 14.63 11.89 2.25 (1.87) Less Distributions From net investment income (.02) (.20) (.51) (.35) (.52) (.33) From net realized gain (.37) (7.32) (3.38) - - (.19) Total distributions (.39) (7.52) (3.89) (.35) (.52) (.52) Redemption fees added to paid in capital .05 .16 .13 .33 .54 .03 Net asset value, end of period $ 54.93 $ 51.24 $ 53.29 $ 42.42 $ 30.55 $ 28.28 TOTAL RETURN D, E 8.02% 10.85% 36.46% 40.31% 10.51% (6.20)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 120,957 $ 116,195 $ 214,612 $ 91,700 $ 35,962 $ 21,087 Ratio of expenses to average net assets B 1.63%A 1.63% 1.54%A 1.85% 2.49% 2.22% Ratio of expenses to average net assets before 1.65%A 1.64% 1.54%A 1.85% 2.49% 2.22% expense reductions B Ratio of net investment income to average net assets 1.24%A .53% .86%A 1.49% 2.22% 2.03% Portfolio turnover rate 74%A 93% 100%A 164% 237% 308%
1 ANNUALIZED 2 SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. 3 NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING EACH PERIOD. 4 TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. 5 THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. HOME FINANCE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S HOME FINANCE 16.08% 25.60% 166.93% 412.87% HOME FINANCE (INCL. 3% SALES CHARGE) 12.60% 21.83% 158.93% 397.48% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND HOME FINANCE 25.60% 21.70% 20.63% HOME FINANCE (INCL. 3% SALES CHARGE) 21.83% 20.96% 20.21% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Home Finance (098)Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9797.00 10080.42 01/31/86 11378.10 10136.87 02/28/86 12794.30 10895.11 03/31/86 13065.90 11503.06 04/30/86 12920.40 11373.07 05/31/86 13065.90 11978.12 06/30/86 14132.90 12180.55 07/31/86 13259.90 11499.66 08/31/86 13405.40 12352.93 09/30/86 11804.90 11331.35 10/31/86 12241.40 11985.16 11/30/86 12464.50 12276.40 12/31/86 12493.60 11963.36 01/31/87 14423.90 13574.82 02/28/87 15781.90 14111.03 03/31/87 14841.00 14518.83 04/30/87 14006.80 14389.62 05/31/87 13521.80 14514.81 06/30/87 13774.00 15247.80 07/31/87 13725.50 16020.87 08/31/87 14967.10 16618.45 09/30/87 14006.80 16254.50 10/31/87 11281.10 12753.28 11/30/87 10359.60 11702.41 12/31/87 11500.81 12592.97 01/31/88 12887.84 13123.13 02/29/88 12526.63 13734.67 03/31/88 12179.87 13310.27 04/30/88 12382.15 13458.01 05/31/88 12367.70 13575.09 06/30/88 13147.91 14198.19 07/31/88 13379.08 14144.24 08/31/88 13046.77 13663.33 09/30/88 13711.39 14245.39 10/31/88 14101.49 14641.41 11/30/88 13393.53 14432.04 12/31/88 13627.99 14684.60 01/31/89 14770.98 15759.52 02/28/89 15093.36 15367.10 03/31/89 15166.63 15725.16 04/30/89 15943.28 16541.29 05/31/89 16632.01 17211.21 06/30/89 16966.79 17113.11 07/31/89 17557.96 18658.42 08/31/89 18636.86 19024.13 09/30/89 19331.49 18946.13 10/31/89 16922.45 18506.58 11/30/89 16375.61 18884.12 12/31/89 14898.98 19337.33 01/31/90 13663.83 18039.80 02/28/90 14173.33 18272.51 03/31/90 14204.21 18756.73 04/30/90 13864.55 18287.82 05/31/90 15176.89 20070.88 06/30/90 15022.50 19934.40 07/31/90 13725.59 19870.61 08/31/90 12336.05 18074.30 09/30/90 11270.73 17194.08 10/31/90 10421.57 17120.15 11/30/90 11548.64 18226.11 12/31/90 12651.77 18734.62 01/31/91 13861.94 19551.45 02/28/91 15747.91 20949.38 03/31/91 16470.87 21456.35 04/30/91 17036.66 21507.85 05/31/91 17743.91 22436.99 06/30/91 16753.77 21409.37 07/31/91 18545.45 22407.05 08/31/91 19252.69 22938.10 09/30/91 19095.52 22555.03 10/31/91 18765.48 22857.27 11/30/91 17901.07 21936.12 12/31/91 20825.52 24445.61 01/31/92 22877.85 23990.92 02/29/92 24373.34 24302.81 03/31/92 23959.69 23828.90 04/30/92 24468.80 24529.47 05/31/92 26887.04 24649.67 06/30/92 26920.71 24282.39 07/31/92 28244.42 25275.53 08/31/92 26713.39 24757.39 09/30/92 27143.99 25049.52 10/31/92 27654.33 25137.20 11/30/92 30493.13 25994.38 12/31/92 32873.65 26314.11 01/31/93 35232.16 26535.14 02/28/93 35829.86 26896.02 03/31/93 37106.04 27463.53 04/30/93 35096.20 26798.91 05/31/93 34495.57 27517.12 06/30/93 35355.93 27596.92 07/31/93 37628.58 27486.53 08/31/93 39609.03 28528.27 09/30/93 42141.41 28308.61 10/31/93 42466.08 28894.59 11/30/93 40566.79 28620.10 12/31/93 41846.51 28966.40 01/31/94 43678.58 29951.26 02/28/94 42856.72 29139.58 03/31/94 42051.98 27869.09 04/30/94 43677.84 28225.82 05/31/94 46371.79 28688.72 06/30/94 47144.06 27985.85 07/31/94 48185.71 28903.78 08/31/94 49748.20 30088.84 Let's say you invested $10,000 in Fidelity Select Home Finance Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $49,748 - a 397.48% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Standard Federal Bank 3.7 Astoria Financial Corp. 3.4 Brooklyn Bancorp, Inc. 3.3 Citicorp 3.1 North Side Savings Bank (Bronx, NY) 3.0 FirstFed Michigan Corp. 2.8 Washington Mutual Savings Bank 2.6 GP Financial Corp. 2.6 Charter One Financial Corp. 2.4 Commercial Federal Corp. 2.4 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 30.6 Row: 1, Col: 2, Value: 3.7 Row: 1, Col: 3, Value: 6.4 Row: 1, Col: 4, Value: 6.5 Row: 1, Col: 5, Value: 23.0 Row: 1, Col: 6, Value: 29.8 Savings Banks and Savings & Loans 29.8% Savings Banks, Federal Charter 23.0% National Commercial Banks 6.5% State Banks Federal Reserve 6.4% Savings Banks, No Federal Charter 3.7% All Others 30.6%* * INCLUDES SHORT-TERM INVESTMENTS HOME FINANCE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW David Ellison, Portfolio Manager of Fidelity Select Home Finance Portfolio Q. DAVID, HOW DID THE FUND PERFORM? A. Extremely well. The fund returned 16.08% for the six months and 25.60% for the 12 months ended August 31, 1994. Those results beat the S&P 500's 3.26% and 5.47% returns during the same periods. Q. WHAT'S THE STORY BEHIND THE FUND'S STRONG RESULTS? A. Thrifts - or savings and loans - make up the largest portion of the fund's investments. The view of many investors at the beginning of the year was that rising interest rates would cause earnings to fall throughout the entire financial sector. That turned out to be wrong. Mortgage refinancing was a big negative for thrifts. And when rates started to rise, refinancing activity dropped off. The benefit of less refinancing activity more than offset the effect of rising rates on thrifts' lending spreads - the difference between what thrifts charge for loans and what they pay depositors. A second positive aspect was higher than normal takeover activity, which generally provides an additional boost to many thrift stock prices. Third, valuations for thrifts - stocks' prices relative to certain measures such as earnings - were at attractive levels. Many investors sold their thrift holdings due to interest rate fears. That enabled me to load up on stocks with the best growth potential at very cheap prices. Q. HOW WAS THE RISE IN INTEREST RATES AND THE RESULTING DECLINE IN REFINANCING ACTIVITY BENEFICIAL TO THE FUND'S INVESTMENTS IN THRIFTS? A. The high level of refinancing that existed before this year's rise in interest rates hurt thrifts in three ways. First, it reduced the average yield on thrifts' loan portfolios, given that higher interest rate loans were refinanced into ones carrying lower rates. This, in turn, caused the spread between what thrift's charge for loans and what they pay depositors to widen more slowly than thrifts would have liked. Deposit rates, which are a thrift's cost of funds, were falling, but so were mortgage loan rates. Second, thrifts were losing a lot of loans to mortgage bankers and other lenders, making it difficult to grow their assets. Finally, many borrowers were refinancing out of adjustable rate mortgages (ARMs) into fixed rate loans. Banks and thrifts typically don't keep fixed rate loans on the books, so this resulted in shrinking loan portfolios. These factors combined to place a major drag on thrifts' earnings. When rates went up and refinancing declined, ARMs became more attractive relative to rising fixed rate mortgages. Thrifts' asset bases began to grow again since they were able to originate more of the type of loan they keep in their portfolios. Moreover, with ARM rates also rising, thrifts' average portfolio yields began to grow. By keeping deposit rates low, thrifts' lending spreads, and thus their earnings, increased. This propelled the stocks and drove the fund's performance. Q. DERIVATIVES HAVE BEEN GETTING A LOT OF ATTENTION LATELY. DO YOU USE THEM IN THE FUND? A. The fund has owned small amounts of interest-only (IO) and principal-only (PO) securities in the past, but there are no derivatives in the portfolio now and I do not have current plans to purchase any in the near future. IOs and POs are created by splitting mortgage securities into their two component parts: interest and principal repayment. IOs receive their cash flow from interest payments and POs receive their cash flow from principal payments. Q. WHAT IS YOUR GAME PLAN FOR THE FUND AND YOUR OUTLOOK FOR THE INDUSTRY THROUGH THE END OF 1994? A. My approach has always been to follow a lot of institutions - especially smaller, lesser-known ones - and stay on top of what each is doing. The more I know, the more I'll be able to capitalize on attractive investment opportunities as they're developing. The fund has almost 90 names in the portfolio. I expect this to continue. The fund will continue to focus on stocks that are selling cheaply based on the company's earnings and book value. I tend to buy stocks for the long term, so the fund's larger investments usually remain in place for several years. As for the industry, the rise in rates has been beneficial thus far. If there's a dramatic rise from the current levels, leading to rising deposit rates, that would probably be detrimental because it would raise the companies' cost of funds, squeezing their lending spreads. However, even if rates continue to go up, there should be little problem if they go up gradually. Banks and thrifts could continue to raise their deposit rates slowly. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $312 million MANAGER: David Ellison, since December 1985; manager, Fidelity Select Financial Services Portfolio, 1985-1987; Fidelity Select Brokerage and Investment Management Portfolio, 1987-1990; joined Fidelity in 1985 (checkmark) HOME FINANCE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 72.6% SHARES VALUE (NOTE 1) BANKS - 13.3% COMERCIAL BANKS, NEC - 0.4% MLF Bancorp, Inc. (a) 45,000 $ 742,500 Norwalk Savings Society (Conn.)(a) 50,000 737,500 1,480,000 NATIONAL COMMERCIAL BANKS - 6.5% Bank of Boston Corp. 35,000 918,750 Bank Atlantic Bancorp, Inc. 158,900 2,582,125 Citicorp 230,615 10,204,714 Fidelity FSB (Garden City, NY)(a)(b) 162,800 4,415,950 PNC Financial Corp. 35,000 980,000 Peoples Heritage Financial Group, Inc. 89,125 1,281,172 Union Planters Corp. 45,000 1,158,750 21,541,461 STATE BANKS FEDERAL RESERVE - 6.4% BB & T Financial Corp. 39,000 1,160,250 Bank of New York Co., Inc. 190,000 6,175,000 Chemical Banking Corp. 150,000 5,812,500 Letchworth Independent Bancshares 20,000 435,000 North Fork Bancorporation, Inc. 49,800 759,450 ONBANCorp, Inc. 190,900 5,822,450 T R Financial Corp. (a) 56,200 913,250 21,077,900 TOTAL BANKS 44,099,361 CONSTRUCTION - 1.0% OPERATIVE BUILDERS - 1.0% Centex Corp. 20,000 530,000 Inco Homes (a) 32,500 105,625 Standard Pacific Corp. 307,100 2,725,513 3,361,138 TOTAL CONSTRUCTION 3,361,138 CREDIT & OTHER FINANCE - 0.6% MORTGAGE BANKERS - 0.6% Equicredit Corp. (a) 86,400 1,922,400 FEDERAL SPONSORED CREDIT - 0.8% FEDERAL & FEDERALLY SPONSORED CREDIT AGENCIES - 0.8% Federal Home Loan Mortgage Corporation 38,300 2,379,388 Federal National Mortgage Association 5,000 444,375 2,823,763 TOTAL FEDERAL SPONSORED CREDIT 2,823,763 REAL ESTATE INVESTMENT TRUSTS - 0.7% Prime Multifamily, Inc. 140,000 2,310,000 SAVINGS & LOANS - 56.2% SAVINGS BANKS AND SAVINGS & LOANS - 29.8% Andover Bancorp, Inc. (Del.) (a)(b) 99,100 1,932,450 Astoria Financial Corp. (a) 345,400 11,355,025 Bankers Corp. 5,000 75,625 Boston Bancorp 84,700 3,176,250 Calumet Bancorp, Inc. 25,000 906,250 Charter One Financial Corp. 335,400 7,965,750 Coast Savings Financial, Inc. (a) 356,700 6,598,950 Collective Bancorp, Inc. 239,100 4,901,550 Commercial Federal Corp. (a) 300,200 7,955,300 Eagle Financial Corp. 600 13,150 Eastern Bancorp (b) 74,700 1,755,450 First Essex Bancorp Inc. 66,000 627,000 SHARES VALUE (NOTE 1) First Federal Savings Bank of Puerto Rico (a) 144,000 $ 2,628,000 FirstFed Financial Corp. (a) 96,300 1,552,838 FirstFed Michigan Corp. 374,150 9,353,750 Glendale Federal Bank Federal Savings Bank, California (a) 218,000 2,861,250 Golden West Financial Corp. 40,000 1,735,000 Great Western Financial Corp. 31,432 648,285 Lakeview Financial Corp. 88,800 1,653,895 NFS Financial Corp. 45,300 951,300 New Horizons Savings & Loan Association California 7,000 84,000 New York Bancorp, Inc. 25,000 496,875 North Side Savings Bank (Bronx, NY)(b) 403,393 10,084,825 Pamrapo Bancorp, Inc. (b) 180,600 3,431,400 Peoples Savings Financial Corp. 30,000 562,500 Sovereign Bancorp, Inc. 65,200 660,150 Standard Federal Bank 448,400 12,387,050 TCF Financial Corporation 12,500 520,313 Webster Financial Corp. (Waterbury, CT) 76,450 1,873,025 98,747,206 SAVINGS BANKS, NO FEDERAL CHARTER - 3.7% Farmers & Mechanics Bank (a) 20,700 346,725 GP Financial Corp. 353,900 8,582,075 Queens County Bancorp, Inc. (a) 10,000 472,500 Somerset Savings Bank (a) 470,000 705,000 Sterling Financial Corp. (a) 157,200 2,259,750 12,366,050 SAVINGS BANKS, FEDERAL CHARTER - 22.7% Ahmanson (H.F.) & Co. 240,800 5,387,900 Ameribanc Investors Group (SBI)(a) 515,000 1,174,844 Amfed Financial, Inc. 15,000 360,000 Anchor Bancorp Inc. (a) 394,400 6,261,100 Bay Ridge Bancorp, Inc. (a) 245,800 3,564,100 Brooklyn Bancorp, Inc. (a) 305,000 10,903,750 CSF Holdings, Inc. Class B (a) 44,800 1,075,200 California Federal Bank Class A (a) 35,000 481,250 CenFed Financial Corp. (b) 267,550 5,351,000 Conestoga Bancorp, Inc. (a) 110,000 1,485,000 D & N Financial Corp. (a)(b) 30,000 270,000 Dime Bancorp, Inc. (a) 674,540 6,323,813 FFY Financial Corp. 15,000 262,500 Fidelity Bancorp, Inc. (Del.)(a) 127,600 1,595,000 Hamilton Bancorp, Inc. (a) 33,600 991,200 Haven Bancorp, Inc. (a) 193,800 3,197,700 Landmark Bancshares, Inc. 72,000 864,000 Long Island Bancorp, Inc. (a) 325,000 5,565,625 Main Street Community Bancorp 13,500 216,000 Metropolitan Financial Corp. 30,000 708,750 Permanent Bancorp, Inc. (a) 60,000 795,000 Quaker City Bancorp (a)(b) 210,500 2,289,188 RedFed Bancorp, Inc. (a) 120,000 1,620,000 Reliance BanCorp, Inc. (a) 396,600 4,957,500 Telebanc Financial Corp. (a)(b) 55,000 350,625 WFS BanCorp, Inc. (a) 40,700 574,888 Washington Mutual Savings Bank 408,700 8,633,788 Westerfed Financial Corp. 10,000 138,750 75,398,471 TOTAL SAVINGS & LOANS 186,511,727 TOTAL COMMON STOCKS (Cost $202,724,307) 241,028,389 PREFERRED STOCKS - 0.4% SHARES VALUE (NOTE 1) CONVERTIBLE PREFERRED STOCKS - 0.3% SAVINGS & LOANS - 0.3% SAVINGS BANKS, FEDERAL CHARTER - 0.3% Roosevelt Financial Group, Inc. 3 1/4% 15,000 956,250 NONCONVERTIBLE PREFERRED STOCKS - 0.1% BANKS - 0.1% COMMERCIAL BANKS, NEC - 0.1% Community Bank Pasadena California, Series B, 13% 15,000 363,750 TOTAL PREFERRED STOCKS (Cost $1,380,000) 1,320,000 REPURCHASE AGREEMENTS - 27.0% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 (Note 3) $ 89,531,010 89,519,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $293,623,307) $ 331,867,389 LEGEND 1. Non-income producing 2. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Andover Bancorp, Inc. (Del.)(a) $ - $ 30,625 $ - $ - CenFed Financial Corp. 1,062,038 463,333 17,456 5,351,000 D & N Financial Corp. (a) - 1,532,617 - - Eastern Bancorp - 68,025 5,268 - Fidelity FSB (Garden City, NY)(a) - 1,432,275 - - North Side Savings Bank (Bronx, NY) 247,075 - 49,799 10,084,825 Pamrapo Bancorp, Inc. 258,575 517,075 48,163 3,431,400 Peterborough Saving Bank (a) - 298,342 - - Quaker City Bancorp (a) 33,750 - - 2,289,188 Telebanc Financial Corp. (a) - - - 350,625 $ 1,601,438 $ 4,342,292 $ 120,686 $ 21,507,038 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $134,379,856 and $84,013,988, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $32,186 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $11,470,000 and $10,872,000, respectively. The weighted average interest rate paid was 3.8% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $293,684,758. Net unrealized appreciation aggregated $38,182,631, of which $39,217,912 related to appreciated investment securities and $1,035,281 related to depreciated investment securities. HOME FINANCE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $89,519,000) (cost $293,623,307) - See $ 331,867,389 accompanying schedule Cash 814 Receivable for investments sold 2,078,914 Receivable for fund shares sold 5,237,379 Dividends receivable 334,680 Redemption fees receivable 3,654 Other receivables 127,696 Prepaid expenses 15,430 TOTAL ASSETS 339,665,956 LIABILITIES Payable for investments purchased $ 14,029,697 Payable for fund shares redeemed 12,412,402 Accrued management fee 161,531 Other payables and accrued expenses 205,996 TOTAL LIABILITIES 26,809,626 NET ASSETS $ 312,856,330 Net Assets consist of: Paid in capital $ 263,487,532 Undistributed net investment income 793,655 Accumulated undistributed net realized gain (loss) on investments 10,331,061 Net unrealized appreciation (depreciation) on investments 38,244,082 NET ASSETS, for 11,295,695 shares outstanding $ 312,856,330 NET ASSET VALUE and redemption price per share ($312,856,330 (divided by) shares) $27.70 Maximum offering price per share (100/97 of $27.70) $28.56
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 1,303,179 Dividends (including $120,686 received from affiliated issuers) Interest 1,063,878 TOTAL INCOME 2,367,057 EXPENSES Management fee $ 681,478 Transfer agent 802,310 Fees Redemption fees (73,701 ) Accounting fees and expenses 109,990 Non-interested trustees' compensation 573 Custodian fees and expenses 7,719 Registration fees 15,430 Audit 14,577 Legal 1,823 Interest 2,303 Reports to shareholders 11,203 Miscellaneous 337 Total expenses before reductions 1,574,042 Expense reductions (13,107 1,560,935 ) NET INVESTMENT INCOME 806,122 REALIZED AND UNREALIZED GAIN (LOSS) 10,388,914 Net realized gain (loss) on investment securities (including realized gain of $1,604,733 on sales of investments in affiliated issuers) Change in net unrealized appreciation (depreciation) on investment securities 19,625,270 NET GAIN (LOSS) 30,014,184 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 30,820,306 OTHER INFORMATION $982,915 Sales Charges Paid to FDC Deferred sales charges withheld $2,864 by FDC Exchange fees withheld by FSC $54,728
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 806,122 $ 246,419 Net investment income Net realized gain (loss) 10,388,914 47,403,270 Change in net unrealized appreciation (depreciation) 19,625,270 (23,478,057 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 30,820,306 24,171,632 Distributions to shareholders - (144,027 From net investment income ) From net realized gain (6,341,292 (9,550,960 ) ) TOTAL DISTRIBUTIONS (6,341,292 (9,694,987 ) ) Share transactions 291,618,992 480,076,731 Net proceeds from sales of shares Reinvestment of distributions 6,204,745 9,482,227 Cost of shares redeemed (165,490,521 (687,125,356 ) ) Paid in capital portion of redemption fees 480,823 750,443 Net increase (decrease) in net assets resulting from share transactions 132,814,039 (196,815,955 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 157,293,053 (182,339,310 ) NET ASSETS Beginning of period 155,563,277 337,902,587 End of period (including undistributed net investment income of $793,655 and $213,666, respectively) $ 312,856,330 $ 155,563,277 OTHER INFORMATION Shares Sold 11,172,837 19,770,402 Issued in reinvestment of distributions 259,396 403,141 Redeemed (6,351,116 (29,193,857 ) ) Net increase (decrease) 5,081,117 (9,020,314 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 25.03 $ 22.18 $ 15.38 $ 10.84 $ 8.98 $ 10.88 Income from Investment Operations Net investment income .09 .03 .09 .05 .16 .09 Net realized and unrealized gain (loss) 3.69 4.15 6.80 4.40 1.69 (1.47) Total from investment operations 3.78 4.18 6.89 4.45 1.85 (1.38) Less Distributions From net investment income - (.01) (.01) (.14) (.14) (.04) From net realized gain (1.17) (1.40) (.28) - - (.49) Total distributions (1.17) (1.41) (.29) (.14) (.14) (.53) Redemption fees added to paid in capital .06 .08 .20 .23 .15 .01 Net asset value, end of period $ 27.70 $ 25.03 $ 22.18 $ 15.38 $ 10.84 $ 8.98 TOTAL RETURN D, E 16.08% 19.61% 46.43% 43.62% 22.88% (13.04)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 312,856 $ 155,563 $ 337,903 $ 49,405 $ 8,782 $ 5,432 Ratio of expenses to average net assets B 1.39%A 1.58% 1.55% 2.08% 2.50% 2.53% A Ratio of expenses to average net assets before 1.40%A 1.58% 1.55% 2.08% 2.82% 2.92% expense reductions B A Ratio of net investment income to average net .72%A .11% .61% .40% 1.78% .83% assets A Portfolio turnover rate 94%A 95% 61% 134% 159% 282% A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. INSURANCE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S INSURANCE 4.84% -5.93% 74.05% 158.78% INSURANCE (INCL. 3% SALES CHARGE) 1.70% -8.75% 68.83% 151.01% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND INSURANCE -5.93% 11.72% 11.53% INSURANCE (INCL. 3% SALES CHARGE) -8.75% 11.04% 11.14% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Insurance (045) Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9884.30 10080.42 01/31/86 10660.30 10136.87 02/28/86 11475.10 10895.11 03/31/86 12018.30 11503.06 04/30/86 11649.70 11373.07 05/31/86 12299.60 11978.12 06/30/86 12241.40 12180.55 07/31/86 11824.30 11499.66 08/31/86 12901.00 12352.93 09/30/86 11222.90 11331.35 10/31/86 11106.50 11985.16 11/30/86 10737.90 12276.40 12/31/86 10640.90 11963.36 01/31/87 11387.80 13574.82 02/28/87 12590.60 14111.03 03/31/87 11950.40 14518.83 04/30/87 10961.00 14389.62 05/31/87 10815.50 14514.81 06/30/87 11164.70 15247.80 07/31/87 11271.40 16020.87 08/31/87 12086.20 16618.45 09/30/87 12086.20 16254.50 10/31/87 9816.40 12753.28 11/30/87 9127.70 11702.41 12/31/87 9347.07 12592.97 01/31/88 10066.08 13123.13 02/29/88 10056.23 13734.67 03/31/88 9819.84 13310.27 04/30/88 9750.90 13458.01 05/31/88 10016.83 13575.09 06/30/88 10469.90 14198.19 07/31/88 10519.15 14144.24 08/31/88 10627.49 13663.33 09/30/88 10991.92 14245.39 10/31/88 10942.67 14641.41 11/30/88 10706.29 14432.04 12/31/88 10973.60 14684.60 01/31/89 11807.79 15759.52 02/28/89 11887.24 15367.10 03/31/89 12165.30 15725.16 04/30/89 12562.54 16541.29 05/31/89 12632.05 17211.21 06/30/89 12910.00 17113.11 07/31/89 13994.12 18658.42 08/31/89 14421.80 19024.13 09/30/89 14620.72 18946.13 10/31/89 15098.13 18506.58 11/30/89 15505.92 18884.12 12/31/89 15125.04 19337.33 01/31/90 13841.22 18039.80 02/28/90 14232.39 18272.51 03/31/90 14162.18 18756.73 04/30/90 13670.71 18287.82 05/31/90 14924.45 20070.88 06/30/90 14964.57 19934.40 07/31/90 14743.91 19870.61 08/31/90 13209.34 18074.30 09/30/90 12065.93 17194.08 10/31/90 11584.50 17120.15 11/30/90 13119.07 18226.11 12/31/90 13640.62 18734.62 01/31/91 14372.80 19551.45 02/28/91 15827.13 20949.38 03/31/91 16870.24 21456.35 04/30/91 16779.97 21507.85 05/31/91 17201.23 22436.99 06/30/91 16131.94 21409.37 07/31/91 16730.92 22407.05 08/31/91 16629.40 22938.10 09/30/91 16791.84 22555.03 10/31/91 17299.45 22857.27 11/30/91 17147.17 21936.12 12/31/91 18644.06 24445.61 01/31/92 18623.68 23990.92 02/29/92 19122.89 24302.81 03/31/92 18847.82 23828.90 04/30/92 18368.98 24529.47 05/31/92 18613.49 24649.67 06/30/92 19002.89 24282.39 07/31/92 20079.57 25275.53 08/31/92 19491.28 24757.39 09/30/92 20523.57 25049.52 10/31/92 21400.45 25137.20 11/30/92 22133.04 25994.38 12/31/92 22839.19 26314.11 01/31/93 23794.10 26535.14 02/28/93 24243.47 26896.02 03/31/93 25524.17 27463.53 04/30/93 24916.83 26798.91 05/31/93 24275.05 27517.12 06/30/93 24534.01 27596.92 07/31/93 25389.72 27486.53 08/31/93 26684.54 28528.27 09/30/93 26774.62 28308.61 10/31/93 25997.72 28894.59 11/30/93 24410.16 28620.10 12/31/93 24706.64 28966.40 01/31/94 25039.68 29951.26 02/28/94 23941.89 29139.58 03/31/94 22819.42 27869.09 04/30/94 23066.11 28225.82 05/31/94 24126.91 28688.72 06/30/94 23991.22 27985.85 07/31/94 24435.28 28903.78 08/31/94 25101.36 30088.84 Let's say you invested $10,000 in Fidelity Select Insurance Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $25,101 - a 151.01% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Allied Group, Inc. 11.2 Allstate Corp. 8.9 Gryphon Holdings, Inc. 8.7 Harleysville Group, Inc. 8.5 Travelers, Inc. (The) 6.9 NAC Re Corp. 5.4 Providian Corp. 5.3 USF&G Corp. 4.9 MBIA, Inc. 4.8 SAFECO Corp 4.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 11.6 Row: 1, Col: 2, Value: 4.2 Row: 1, Col: 3, Value: 5.3 Row: 1, Col: 4, Value: 7.2 Row: 1, Col: 5, Value: 71.7 Property-Casualty & Reinsurance 71.7% Insurance Carriers 7.2% Life Insurance 5.3% Financial Services 4.2% All Others 11.6%* * INCLUDES SHORT-TERM INVESTMENTS INSURANCE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Robert Chow, Portfolio Manager of Fidelity Select Insurance Portfolio Q. BOB, HOW DID THE FUND PERFORM? A. Relatively well. The fund returned 4. 84% for the six months ended August 31, 1994. That beat the S&P 500's 3.26% return during the same period. However, for the 12 months ended August 31, the fund's -5.93% return trailed the S&P's 5.47% result. Q. WOULD YOU BEGIN BY SUMMARIZING THE CURRENT STATE OF THE INSURANCE INDUSTRY? A. Three factors drive the insurance industry: supply and demand fundamentals, which is known as the "insurance cycle;" company valuations, such as earnings growth potential; and interest rates. The insurance cycle is the most important of the three. The cycle can be understood in terms of the industry's surplus, which is the total insurance capacity of all insurers. For example, for every $1 of surplus, insurers can issue $3 worth of coverage, according to industry regulations. The industry currently has around $180 billion in surplus, which is more than at any time since 1962 relative to total premiums received. The more surplus or capacity the industry has, the harder it is for insurers to grow their earnings. That's because every insurer can write more business, which prevents companies from raising their prices. So, a big surplus eliminates insurers' pricing power, thus limiting the industry's earnings potential. That's where we are today. Q. WHAT ABOUT THE OTHER TWO FACTORS: COMPANY VALUATIONS AND INTEREST RATES? A. Interest rates impact the value of insurers' extensive bond portfolios. If rates fall, as they did prior to this year, the value of the bonds rises. This, along with the market's perception that falling rates are good for all financial stocks, tends to boost insurance stocks. When interest rates are rising as they have this year, the value of insurers' bond portfolios declines. If that decline is big enough, it can begin to reduce the industry's surplus, which could lead to some improvement in pricing power. However, the industry's surplus is so large that even the major sell-off in bonds this year wasn't enough to help pricing. As for company valuations, since the industry's fundamentals are sluggish, looking for and buying stocks that are cheap relative to the overall group is really my only card to play. Q. HOW DOES THAT AFFECT YOUR INVESTMENT APPROACH? A. It forces me to focus more heavily on the short-term prospects of the fund's stocks. Insurance stock prices have tended to stay in a trading range. In the absence of positive fundamental developments like price increases, there's nothing to provide the stocks with momentum to push through the upper end of this trading range. So, when a stock's price gets close to the top of the range, I tend to sell it in favor of another that's cheaper. Likewise, if a stock is trading at or near the bottom of the range, and the company doesn't have any potentially adverse claims exposure, I'll tend to buy it. Q. WHICH OF THE FUND'S INVESTMENTS HAS POSTED THE BEST PERFORMANCE THIS YEAR? A. Allied Group - the fund's largest investment at the end of August - rose about 25%. So, it was a major contributor to the fund's positive performance. Allied Group is a small, midwestern property and casualty company that focuses on rural markets. Even though the stock has had a nice upward move, I plan to hold onto it because I don't think the price fully reflects the company's earnings potential. General Re also did extremely well before I reduced the fund's investment in June from about 7.5% to just under 2% on August 31. I reduced it because I felt the stock's price fully reflected the company's earnings and further upside was limited. I did the same thing with investments in Aetna Life & Casualty, CIGNA and St. Paul Companies. Q. WHAT IS YOUR OUTLOOK FOR THE INDUSTRY AND HOW WILL THIS AFFECT YOUR APPROACH GOING FORWARD? A. I don't expect the industry's over-capacity problem to improve right away. There would have to be a series of major catastrophes in quick succession to cut the huge surplus, and that is very unlikely. However, things do change, so I constantly track the surplus. If things continue as they are, I'll keep looking for cheaper stocks and sell them when I think they reach full value in the market. But if industry fundamentals were to improve, I would shift to a strategy of investing heavily in the highest quality companies, such as American International Group (AIG) or Chubb. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $6 million MANAGER: Robert Chow, since June 1993; manager, Fidelity Select Paper and Forest Products, 1990-1993; Fidelity Select Computers, May 1991-June 1992; Fidelity Select Technology Portfolio, June 1991-June 1992; assistant, Fidelity Equity Income, since December 1993; Fidelity Growth & Income, June 1992-January 1993; equity analyst, financial services industry, February 1994 to present; joined Fidelity in 1989 (checkmark) INSURANCE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.4% SHARES VALUE (NOTE 1) CREDIT & OTHER FINANCE - 4.2% FINANCIAL SERVICES - 4.2% Transamerica Corporation 5,000 $ 266,875 INSURANCE - 84.2% INSURANCE CARRIERS - 7.2% Blanch E.W. Holdings, Inc. 7,000 157,500 MBIA, Inc. 5,000 306,250 463,750 LIFE INSURANCE - 5.3% Providian Corp. 10,000 336,250 PROPERTY-CASUALTY & REINSURANCE - 71.7% Allied Group, Inc. 24,000 717,000 Allmerica Property & Casualty Companies 10,000 166,250 Allstate Corp. 22,000 572,000 American Reinsurance Corp. (a) 5,000 146,250 Berkley (W.R.) Corp. 7,000 256,375 Chubb Corp. (The) 2,000 146,500 General Re Corp. 1,000 111,625 Gryphon Holdings, Inc. (a) 38,000 555,750 Harleysville Group, Inc. 25,000 543,750 NAC Re Corp. 13,000 344,500 SAFECO Corp. 5,000 273,125 Travelers, Inc. (The) 12,000 444,000 USF&G Corp. 23,000 310,500 4,587,625 TOTAL INSURANCE 5,387,625 TOTAL COMMON STOCKS (Cost $5,293,553) 5,654,500 REPURCHASE AGREEMENTS - 11.6% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 744,100 744,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $6,037,553) $ 6,398,500 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $7,361,406 and $19,215,422, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $10,198 for the period (see Note 5 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $6,037,553. Net unrealized appreciation aggregated $360,947, of which $433,949 related to appreciated investment securities and $73,002 related to depreciated investment securities. On October 26, 1990, the fund acquired all of the assets of Life Insurance Portfolio in a tax-free exchange for shares of Insurance Portfolio. Life Insurance Portfolio had a capital loss carryover of approximately $101,000 available to offset future realized capital gains in Insurance Portfolio, to the extent provided by regulations. INSURANCE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $744,000) (cost $6,037,553) - See $ 6,398,500 accompanying schedule Cash 587 Receivable for investments sold 204,433 Receivable for fund shares sold 43,266 Dividends receivable 2,560 Redemption fees receivable 23 Other receivables 2,749 Prepaid expenses 4,990 TOTAL ASSETS 6,657,108 LIABILITIES Payable for fund shares redeemed $ 160,997 Accrued management fee 3,520 Other payables and accrued expenses 23,557 TOTAL LIABILITIES 188,074 NET ASSETS $ 6,469,034 Net Assets consist of: Paid in capital $ 7,073,770 Undistributed net investment income 18,644 Accumulated undistributed net realized gain (loss) on investments (984,327 ) Net unrealized appreciation (depreciation) on investments 360,947 NET ASSETS, for 317,820 shares outstanding $ 6,469,034 NET ASSET VALUE and redemption price per share ($6,469,034 (divided by) shares) $20.35 Maximum offering price per share (100/97 of $20.35) $20.98
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 121,669 Dividends Interest 16,994 TOTAL INCOME 138,663 EXPENSES Management fee $ 34,572 Transfer agent 46,615 Fees Redemption fees (6,377 ) Accounting fees and expenses 22,526 Non-interested trustees' compensation 39 Custodian fees and expenses 5,687 Registration fees 4,990 Audit 9,662 Legal 201 Reports to shareholders 3,623 Miscellaneous 32 Total expenses before reductions 121,570 Expense reductions (1,551 120,019 ) NET INVESTMENT INCOME 18,644 REALIZED AND UNREALIZED GAIN (LOSS) (970,854 Net realized gain (loss) on investment securities ) Change in net unrealized appreciation (depreciation) on investment securities 743,798 NET GAIN (LOSS) (227,056 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (208,412 ) OTHER INFORMATION $41,761 Sales Charges Paid to FDC Deferred sales charges withheld $555 by FDC Exchange fees withheld by FSC $4,808
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 18,644 $ (4,905 Net investment income (loss) ) Net realized gain (loss) (970,854 2,620,140 ) Change in net unrealized appreciation (depreciation) 743,798 (2,713,783 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (208,412 (98,548 ) ) Distributions to shareholders - (8,586 From net investment income ) From net realized gain - (1,719,115 ) TOTAL DISTRIBUTIONS - (1,727,701 ) Share transactions 8,779,151 31,795,113 Net proceeds from sales of shares Reinvestment of distributions - 1,707,519 Cost of shares redeemed (20,536,609 (39,665,244 ) ) Paid in capital portion of redemption fees 16,177 40,196 Net increase (decrease) in net assets resulting from share transactions (11,741,281 (6,122,416 ) ) TOTAL INCREASE (DECREASE) IN NET ASSETS (11,949,693 (7,948,665 ) ) NET ASSETS Beginning of period 18,418,727 26,367,392 End of period (including undistributed net investment income of $18,644 and $0, respectively) $ 6,469,034 $ 18,418,727 OTHER INFORMATION Shares Sold 451,610 1,431,358 Issued in reinvestment of distributions - 84,550 Redeemed (1,082,935 (1,788,708 ) ) Net increase (decrease) (631,325 (272,800 ) )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 19.41 $ 21.58 $ 18.03 $ 16.73 $ 13.63 $ 12.65 Income from Investment Operations Net investment income (loss) .03 - (.04) .04 .23 .17 Net realized and unrealized gain (loss) .88F (.24) 5.12 1.48 2.83 .93 Total from investment operations .91 (.24) 5.08 1.52 3.06 1.10 Less Distributions From net investment income - (.01) - (.26) - (.15) In excess of net investment income - - (.03) - - - From net realized gain - (1.96) (1.71) - - - Total distributions - (1.97) (1.74) (.26) - (.15) Redemption fees added to paid in capital .03 .04 .21 .04 .04 .03 Net asset value, end of period $ 20.35 $ 19.41 $ 21.58 $ 18.03 $ 16.73 $ 13.63 TOTAL RETURND, E 4.84% (1.24) 31.98% 9.47% 22.74% 8.82% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 6,469 $ 18,419 $ 26,367 $ 2,573 $ 2,176 $ 2,240 Ratio of expenses to average net assetsB 2.13%A 1.93% 2.49%A 2.47% 2.49% 2.50% Ratio of expenses to average net assets before 2.16%A 1.93% 2.52%A 2.71% 2.73% 2.97% expense reductionsB Ratio of net investment income (loss) to average net .33%A (.02) (.26)% .22% 1.58% 1.15% assets % A Portfolio turnover rate 148%A 101% 81%A 112% 98% 158%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. REGIONAL BANKS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S REGIONAL BANKS 11.64% 13.06% 122.95% 228.72% REGIONAL BANKS (INCL. 3% SALES CHARGE) 8.29% 9.67% 116.26% 218.86% S&P 500 3.26% 5.47% 58.16% 148.27% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on June 30, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND REGIONAL BANKS 13.06% 17.39% 15.66% REGIONAL BANKS (INCL. 3% SALES CHARGE) 9.67% 16.68% 15.23% S&P 500 5.47% 9.60% 11.76% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Reg. Banks (507Standard & Poor's 06/30/86 9700.00 10000.00 07/31/86 9040.40 9488.77 08/31/86 9379.90 10192.84 09/30/86 8361.40 9349.89 10/31/86 8574.80 9889.38 11/30/86 8545.70 10129.69 12/31/86 8283.80 9871.39 01/31/87 8894.90 11201.06 02/28/87 9486.60 11643.50 03/31/87 9506.00 11980.00 04/30/87 8933.70 11873.38 05/31/87 8982.20 11976.68 06/30/87 9302.30 12581.50 07/31/87 9302.30 13219.38 08/31/87 9729.10 13712.46 09/30/87 9476.90 13412.16 10/31/87 7924.90 10523.18 11/30/87 7672.70 9656.07 12/31/87 8031.30 10390.90 01/31/88 8599.98 10828.35 02/29/88 8819.46 11332.96 03/31/88 9019.00 10982.77 04/30/88 8919.23 11104.68 05/31/88 9078.86 11201.29 06/30/88 9717.37 11715.43 07/31/88 9767.26 11670.91 08/31/88 9637.56 11274.10 09/30/88 10006.70 11754.37 10/31/88 10126.42 12081.14 11/30/88 9877.00 11908.38 12/31/88 10095.78 12116.78 01/31/89 10736.79 13003.73 02/28/89 10897.04 12679.94 03/31/89 11794.44 12975.38 04/30/89 12104.26 13648.80 05/31/89 13033.71 14201.58 06/30/89 12816.92 14120.63 07/31/89 13957.64 15395.72 08/31/89 14302.01 15697.48 09/30/89 14420.38 15633.12 10/31/89 13085.96 15270.43 11/30/89 13064.44 15581.95 12/31/89 12785.92 15955.91 01/31/90 11633.94 14885.27 02/28/90 12112.98 15077.29 03/31/90 11816.43 15476.84 04/30/90 11143.49 15089.92 05/31/90 11919.08 16561.19 06/30/90 11451.44 16448.57 07/31/90 10755.69 16395.93 08/31/90 9751.98 14913.74 09/30/90 8565.77 14187.44 10/31/90 8314.84 14126.44 11/30/90 9421.21 15039.00 12/31/90 10143.17 15458.59 01/31/91 10816.29 16132.59 02/28/91 11733.12 17286.07 03/31/91 12394.63 17704.39 04/30/91 13230.22 17746.88 05/31/91 14089.03 18513.55 06/30/91 13253.44 17665.63 07/31/91 14355.95 18488.84 08/31/91 15388.84 18927.03 09/30/91 15087.10 18610.95 10/31/91 15713.79 18860.33 11/30/91 14994.25 18100.26 12/31/91 16816.66 20170.93 01/31/92 17868.47 19795.75 02/29/92 19311.64 20053.10 03/31/92 19042.58 19662.06 04/30/92 20155.53 20240.13 05/31/92 21011.66 20339.30 06/30/92 21221.30 20036.25 07/31/92 21245.92 20855.73 08/31/92 20113.46 20428.19 09/30/92 21048.97 20669.24 10/31/92 21947.55 20741.58 11/30/92 23744.72 21448.87 12/31/92 24976.51 21712.69 01/31/93 26017.20 21895.08 02/28/93 26826.62 22192.85 03/31/93 27970.10 22661.12 04/30/93 26530.18 22112.72 05/31/93 26270.84 22705.34 06/30/93 27736.09 22771.19 07/31/93 27813.89 22680.10 08/31/93 28202.90 23539.68 09/30/93 29175.41 23358.43 10/31/93 27606.42 23841.94 11/30/93 26737.64 23615.45 12/31/93 27767.00 23901.19 01/31/94 29386.35 24713.83 02/28/94 28560.80 24044.09 03/31/94 28084.52 22995.77 04/30/94 29572.74 23290.11 05/31/94 31050.57 23672.07 06/30/94 30279.53 23092.10 07/31/94 31082.70 23849.53 08/31/94 31885.87 24827.36 Let's say you invested $10,000 in Fidelity Select Regional Banks Portfolio on June 30, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $31,886 - a 218.86% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,827 over the same period - a 148.27% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS NationsBank Corp. 6.8 Bank of New York Co., Inc. 6.3 Citicorp. 5.9 Comerica, Inc. 4.7 State Street Boston Corp. 4.7 BankAmerica Corp. 4.5 BanPonce Corp. 4.2 Bank of Boston Corp. 4.1 Keycorp. 4.0 Chemical Banking Corp. 3.6 TOP REGIONS AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 23.2 Row: 1, Col: 2, Value: 10.8 Row: 1, Col: 3, Value: 11.5 Row: 1, Col: 4, Value: 11.9 Row: 1, Col: 5, Value: 20.3 Row: 1, Col: 6, Value: 22.3 Northeast 22.3% Midwest 20.3% West 11.9% Southeast 11.5% Multi-Regional 10.8% All Others 23.2%* * INCLUDES SHORT-TERM INVESTMENTS REGIONAL BANKS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Stephen Binder, Portfolio Manager of Fidelity Select Regional Banks Portfolio Q. STEVE, HOW DID THE FUND PERFORM? A. Very well. The fund returned 11.64% for the six months and 13.06% for the 12 months ended August 31, 1994. Those results beat the S&P 500's 3.26% and 5.47% returns during the same periods. Q. WOULD YOU DESCRIBE THE DYNAMICS IN THE INDUSTRY DURING THE PAST SIX MONTHS AND HOW THE FUND CAPITALIZED ON THEM TO POST SUCH STRONG RESULTS? A. Toward the end of last year, bank stocks performed poorly as investors sold them, fearing rising interest rates would decimate banks' earnings. That view turned out to be wrong, but the selling depressed the stocks' prices, making them cheap relative to the overall market and to banks' earnings. Higher interest rates turned out to be good for earnings. The rates banks pay on deposits - a major component of banks' cost of funds - increased only modestly. Thus, banks were able to raise the rates they charge for loans faster than their cost of funds increased. The stronger economy led to increasing loan demand. So, banks made more loans at higher rates and maintained a favorable spread between what they were charging for money and what that money cost them. All of this combined to increase banks' earnings, propel their stock prices, and drive the fund's return. Q. WHAT OTHER FACTORS HELPED THE FUND'S PERFORMANCE? A. Accelerating consolidation in the industry provided an additional boost to many stocks' prices. The catalyst for this is the liberalization of interstate banking regulations. This should open up new markets for many banks. In the meantime, there are plenty of acquisitions occurring, with small and medium-size institutions being purchased by larger banks. Many banks are also buying thrifts, because a thrift can usually be acquired more cheaply than another bank. For example, Shawmut National, a large New England bank and one of the fund's larger investments, purchased several thrifts in the past six months. Q. AMONG THE FUND'S LARGER INVESTMENTS, WHICH WERE THE STANDOUTS DURING THE PERIOD AND WHY? A. NationsBank, the fund's largest position, continued to increase its revenues through solid loan growth and relatively strong growth in fee income. Bank of New York, the fund's second largest investment, was up more than 19% over the past six months. It continues to have strong fee income from its trust and securities processing services. It also benefited from offering low-rate credit cards, which boosted the bank's loan volume. Bank of Boston, up about 12% from the end of February through the end of August, experienced good domestic loan growth with continued cost cutting. Internationally, its branch system in Argentina is thriving, contributing further to revenues. Q. SIGNET BANKING WAS THE FUND'S THIRD LARGEST INVESTMENT AT THE END OF FEBRUARY. YOU SOLD OUT OF IT IN JULY. WHAT'S THE STORY THERE? A. It was a terrific performer throughout 1993 and the first half of 1994. I sold it before a disappointing earnings report caused the stock to drop about 10% in one day. Signet became a credit card powerhouse by aggressively pursuing a strategy of offering low-rate cards with the rate guaranteed for a year. It attracted a lot of new customers who transferred balances from higher rate cards. This year's rise in interest rates made it more difficult for the bank to do this profitably. Competition from other banks intensified. Both factors led investors to conclude that Signet's credit card business had peaked. Since that had been the driver behind earnings, investors sold out of the stock. I managed to get out ahead of the pack. Q. WHAT IS YOUR OUTLOOK FOR THE INDUSTRY AND YOUR GAME PLAN FOR THE FUND GOING FORWARD? A. I expect the favorable spread relationship between bank deposit costs and lending rates to remain intact even if interest rates continue to rise - - as long as they rise gradually. This would continue to support banks' earnings and stock prices. I also expect industry consolidation to continue, as many small and medium-size banks and thrifts conclude that it will become increasingly difficult for them to compete. One of the negatives in the past six months was the difficulty banks had in growing fee revenue. This is revenue generated from areas such as trust services, mutual fund sales, service charges on deposits and mortgage banking activities. This could be a problem if rising interest rates do squeeze banks' lending margins, which would further pressure overall loan revenues. So, I'll continue to focus on finding those companies that can deliver consistent revenue growth. FUND FACTS START DATE: June 30, 1986 SIZE: as of August 31, 1994, more than $163 million MANAGER: Stephen Binder, since May 1990; manager, Fidelity Select Defense and Aerospace Portfolio, since October 1992; Fidelity Select Financial Services Portfolio, since November 1993; joined Fidelity in 1989 (checkmark) REGIONAL BANKS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 97.3% SHARES VALUE (NOTE 1) BANKS - 96.4% MID-ATLANTIC - 9.4% BB & T Financial Corp. 15,000 $ 446,250 Commerce Bank, Virginia Beach 12,962 466,632 Crestar Financial Corp. 76,583 3,695,130 First Fidelity Bancorporation 41,200 1,890,050 HUBCO, Inc. 55,020 1,237,950 Integra Financial Corp. 28,280 1,382,185 Midlantic Corp. 143,500 4,322,938 Pamrapo Bancorp, Inc. 14,000 266,000 Southern National Corp. 20,000 417,500 Wachovia Corp. 40,000 1,400,000 15,524,635 MIDWEST - 20.3% Boatmen's Bancshares, Inc. 140,000 4,707,500 Comerica, Inc. 256,500 7,791,188 Fifth Third Bancorp 46,500 2,394,750 First Bank System, Inc. 100,701 3,725,937 First Chicago Corp. 86,100 4,477,200 Huntington Bancshares, Inc. 50,386 1,077,001 Mercantile Bancorporation, Inc. 51,700 1,977,525 National City Corp. 74,109 1,991,679 Northern Trust Corp. 38,200 1,461,150 Norwest Corp. 100,296 2,670,381 Standard Federal Bank 36,100 997,263 33,271,574 NORTHEAST - 22.3% Bank of Boston Corp. 255,639 6,710,524 Bank of New York Co., Inc. 319,224 10,374,780 Banknorth Group, Inc. (DE) 26,500 669,125 DS Bancor, Inc. (a) 15,000 435,938 First Empire State Corp. 4,600 724,500 NBD Bancorp, Inc. 100,600 3,131,175 North Fork Bancorporation, Inc. 72,000 1,098,000 North Side Savings Bank (Bronx, NY) 5,733 143,325 Reliance BanCorp, Inc. (a) 38,000 475,000 Shawmut National Corp. 209,800 4,720,500 State Street Boston Corp. 194,000 7,760,000 Webster Financial Corp. (Waterbury, CT) 17,350 425,075 36,667,942 SOUTHEAST - 11.5% BanPonce Corp. 208,501 6,932,658 Barnett Banks, Inc. 100,000 4,725,000 Colonial BancGroup, Inc. Class A 5,300 129,850 Compass Bancshares, Inc. 14,000 350,000 Deposit Guaranty Corp. 8,600 281,650 First Commerce Corp. 32,000 904,000 First Union Corp. 20,700 954,788 Regions Financial Corp. 51,800 1,871,275 SunTrust Banks, Inc. 45,000 2,300,625 Whitney Holding Corp. 16,800 453,600 18,903,446 SOUTHWEST - 0.7% Liberty Bancorporation, Inc. 35,500 1,144,875 WEST - 11.9% Bancorp Hawaii, Inc. 60,000 1,942,500 BankAmerica Corp. 150,000 7,406,250 CenFed Financial Corp. 23,950 479,000 First Security Corp. 97,805 3,178,663 Silicon Valley Bancshares (a) 37,200 465,000 West One Bancorp 83,800 2,597,800 Westamerica Bancorp 24,900 787,463 Zions Bancorporation 68,000 2,754,000 19,610,676 SHARES VALUE (NOTE 1) MONEY CENTER - 9.5% Chemical Banking Corp. 152,000 $ 5,890,000 Citicorp 219,000 9,690,750 15,580,750 MULTI-REGIONAL - 10.8% Keycorp. 199,723 6,565,894 NationsBank Corp. 199,353 11,113,930 17,679,824 TOTAL BANKS 158,383,722 CREDIT & OTHER FINANCE - 0.9% MORTGAGE BANKERS - 0.2% Green Tree Acceptance, Inc. 10,000 335,000 PERSONAL CREDIT INSTITUTIONS - 0.7% Household International, Inc. 27,512 1,086,720 TOTAL CREDIT & OTHER FINANCE 1,421,720 TOTAL COMMON STOCKS (Cost $146,292,335) 159,805,442 REPURCHASE AGREEMENTS - 2.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $4,486,602 4,486,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $150,778,335) $ 164,291,442 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $122,664,605 and $70,348,481, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $67,771 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $8,555,000 and $2,665,111, respectively. The weighted average interest rate paid was 4.3% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $150,790,792. Net unrealized appreciation aggregated $13,500,650, of which $14,645,498 related to appreciated investment securities and $1,144,848 related to depreciated investment securities. REGIONAL BANKS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $4,486,000) (cost $150,778,335) - See $ 164,291,442 accompanying schedule Cash 473 Receivable for fund shares sold 1,698,798 Dividends receivable 463,738 Redemption fees receivable 558 Other receivables 1,677 Prepaid expenses 20,358 TOTAL ASSETS 166,477,044 LIABILITIES Payable for fund shares redeemed $ 3,024,877 Accrued management fee 85,190 Other payables and accrued expenses 141,086 TOTAL LIABILITIES 3,251,153 NET ASSETS $ 163,225,891 Net Assets consist of: Paid in capital $ 143,012,046 Undistributed net investment income 1,403,329 Accumulated undistributed net realized gain (loss) on investments 5,297,409 Net unrealized appreciation (depreciation) on investments 13,513,107 NET ASSETS, for 8,221,498 shares outstanding $ 163,225,891 NET ASSET VALUE and redemption price per share ($163,225,891 (divided by) (verticle 8) shares) $19.85 Maximum offering price per share (100/97 of $19.85) $20.46
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 2,237,870 Dividends Interest 372,575 TOTAL INCOME 2,610,445 EXPENSES Management fee $ 488,109 Transfer agent 661,054 Fees Redemption fees (74,399 ) Accounting fees and expenses 78,757 Non-interested trustees' compensation 415 Custodian fees and expenses 5,598 Registration fees 20,358 Audit 12,961 Legal 1,371 Interest 2,858 Reports to shareholders 7,174 Miscellaneous 193 Total expenses before reductions 1,204,449 Expense reductions (10,716 1,193,733 ) NET INVESTMENT INCOME 1,416,712 REALIZED AND UNREALIZED GAIN (LOSS) 5,394,814 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on investment securities 5,904,205 NET GAIN (LOSS) 11,299,019 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 12,715,731 OTHER INFORMATION $747,628 Sales Charges Paid to FDC Deferred sales charges withheld $2,162 by FDC Exchange fees withheld by FSC $61,230
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 1,416,712 $ 1,775,482 Net investment income Net realized gain (loss) 5,394,814 47,667,500 Change in net unrealized appreciation (depreciation) 5,904,205 (45,382,083 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 12,715,731 4,060,899 Distributions to shareholders (66,752 (1,037,780 From net investment income ) ) From net realized gain (1,401,894 (23,400,595 ) ) TOTAL DISTRIBUTIONS (1,468,646 (24,438,375 ) ) Share transactions 221,259,396 278,064,736 Net proceeds from sales of shares Reinvestment of distributions 1,435,330 23,731,357 Cost of shares redeemed (168,490,514 (500,062,192 ) ) Paid in capital portion of redemption fees 345,729 552,081 Net increase (decrease) in net assets resulting from share transactions 54,549,941 (197,714,018 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 65,797,026 (218,091,494 ) NET ASSETS Beginning of period 97,428,865 315,520,359 End of period (including undistributed net investment income of $1,403,329 and $1,064,151, respectively) $ 163,225,891 $ 97,428,865 OTHER INFORMATION Shares Sold 11,661,794 13,266,789 Issued in reinvestment of distributions 77,036 1,338,190 Redeemed (8,932,275 (24,299,694 ) ) Net increase (decrease) 2,806,555 (9,694,715 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 17.99 $ 20.88 $ 16.48 $ 11.40 $ 9.77 $ 11.33 Income from Investment Operations Net investment income .17 .19 .16 .25 .22 .21 Net realized and unrealized gain (loss) 1.87 .93 5.09 5.37 1.41 (1.03) Total from investment operations 2.04 1.12 5.25 5.62 1.63 (.82) Less Distributions From net investment income (.01) (.15) (.11) (.15) (.15) (.11) From net realized gain (.21) (3.92) (.81) (.53) - (.65) Total distributions (.22) (4.07) (.92) (.68) (.15) (.76) Redemption fees added to paid in capital .04 .06 .07 .14 .15 .02 Net asset value, end of period $ 19.85 $ 17.99 $ 20.88 $ 16.48 $ 11.40 $ 9.77 TOTAL RETURND, E 11.64% 6.46% 33.10% 52.34% 18.73% (7.94)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 163,226 $ 97,429 $ 315,520 $ 156,570 $ 24,212 $ 5,410 Ratio of expenses to average net assetsB 1.50%A 1.60% 1.49%A 1.77% 2.51% 2.55% Ratio of expenses to average net assets before 1.51%A 1.62% 1.49%A 1.77% 2.94% 2.72% expense reductionsB Ratio of net investment income to average net 1.78%A .88% 1.06%A 1.80% 2.34% 1.74% asset Portfolio turnover rate 101% 74% 63% 89% 110% 411%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. BIOTECHNOLOGY PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S BIOTECHNOLOGY -8.62% -0.24% 142.04% 242.88% BIOTECHNOLOGY (INCL. 3% SALES CHARGE) -11.36% -3.23% 134.78% 232.60% S&P 500 3.26% 5.47% 58.16% 200.89% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on December 16, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND BIOTECHNOLOGY -0.24% 19.34% 15.19% BIOTECHNOLOGY (INCL. 3% SALES CHARGE) -3.23% 18.61% 14.79% S&P 500 5.47% 9.60% 13.47% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Biotechnology (042)Standard & Poor's 12/16/85 9700.00 10000.00 12/31/85 9700.00 10080.42 01/31/86 10175.30 10136.87 02/28/86 10417.80 10895.11 03/31/86 12192.90 11503.06 04/30/86 12377.20 11373.07 05/31/86 12988.30 11978.12 06/30/86 13715.80 12180.55 07/31/86 11863.10 11499.66 08/31/86 12328.70 12352.93 09/30/86 10214.10 11331.35 10/31/86 10970.70 11985.16 11/30/86 10728.20 12276.40 12/31/86 10039.50 11963.36 01/31/87 11378.10 13574.82 02/28/87 13715.80 14111.03 03/31/87 13657.60 14518.83 04/30/87 13483.00 14389.62 05/31/87 13424.80 14514.81 06/30/87 13327.80 15247.80 07/31/87 13347.20 16020.87 08/31/87 13890.40 16618.45 09/30/87 13686.70 16254.50 10/31/87 9476.90 12753.28 11/30/87 8555.40 11702.41 12/31/87 9701.08 12592.97 01/31/88 10191.13 13123.13 02/29/88 10571.17 13734.67 03/31/88 10501.17 13310.27 04/30/88 10311.14 13458.01 05/31/88 10111.12 13575.09 06/30/88 10451.16 14198.19 07/31/88 10441.16 14144.24 08/31/88 10151.13 13663.33 09/30/88 10361.15 14245.39 10/31/88 10251.14 14641.41 11/30/88 9771.08 14432.04 12/31/88 10101.12 14684.60 01/31/89 10801.20 15759.52 02/28/89 10721.19 15367.10 03/31/89 11511.28 15725.16 04/30/89 11901.32 16541.29 05/31/89 12441.38 17211.21 06/30/89 12121.35 17113.11 07/31/89 13241.47 18658.42 08/31/89 13741.53 19024.13 09/30/89 14321.59 18946.13 10/31/89 14371.60 18506.58 11/30/89 14821.65 18884.12 12/31/89 14538.80 19337.33 01/31/90 13450.93 18039.80 02/28/90 14721.80 18272.51 03/31/90 15341.99 18756.73 04/30/90 15535.16 18287.82 05/31/90 17721.06 20070.88 06/30/90 18958.59 19934.40 07/31/90 19009.99 19870.61 08/31/90 18423.96 18074.30 09/30/90 18012.71 17194.08 10/31/90 18166.93 17120.15 11/30/90 20367.12 18226.11 12/31/90 20986.43 18734.62 01/31/91 23396.61 19551.45 02/28/91 26711.92 20949.38 03/31/91 29469.41 21456.35 04/30/91 28185.39 21507.85 05/31/91 29974.60 22436.99 06/30/91 28383.14 21409.37 07/31/91 30938.29 22407.05 08/31/91 33106.29 22938.10 09/30/91 34820.78 22555.03 10/31/91 38249.77 22857.27 11/30/91 35694.62 21936.12 12/31/91 41772.50 24445.61 01/31/92 40935.22 23990.92 02/29/92 37792.53 24302.81 03/31/92 34925.11 23828.90 04/30/92 31667.73 24529.47 05/31/92 33938.72 24649.67 06/30/92 33343.04 24282.39 07/31/92 35086.05 25275.53 08/31/92 32891.61 24757.39 09/30/92 32778.75 25049.52 10/31/92 34383.83 25137.20 11/30/92 37769.55 25994.38 12/31/92 37451.88 26314.11 01/31/93 35527.21 26535.14 02/28/93 29792.77 26896.02 03/31/93 30240.98 27463.53 04/30/93 31018.75 26798.91 05/31/93 33022.51 27517.12 06/30/93 33220.25 27596.92 07/31/93 32126.09 27486.53 08/31/93 33338.90 28528.27 09/30/93 34709.89 28308.61 10/31/93 37293.69 28894.59 11/30/93 37003.67 28620.10 12/31/93 37715.53 28966.40 01/31/94 39007.43 29951.26 02/28/94 36397.27 29139.58 03/31/94 32719.31 27869.09 04/30/94 32126.09 28225.82 05/31/94 31585.61 28688.72 06/30/94 30333.25 27985.85 07/31/94 30412.35 28903.78 08/31/94 33259.80 30088.84 Let's say you invested $10,000 in Fidelity Select Biotechnology Portfolio on December 16, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $33,260 - a 232.60% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $30,089 over the same period - a 200.89% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Genentech, Inc. 8.2 Amgen, Inc. 7.8 Roche Holdings Ltd. (participation certificates) 3.3 Cellpro, Inc. 3.1 COR Therapeutics, Inc. 2.9 Protein Design Labs, Inc. 2.8 Schering-Plough Corp. 2.3 Teva Pharmaceutical Industries Ltd. ADR 2.3 Biogen, Inc. 2.2 Elan PLC ADR 1.9 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 30.6 Row: 1, Col: 2, Value: 1.0 Row: 1, Col: 3, Value: 1.3 Row: 1, Col: 4, Value: 3.7 Row: 1, Col: 5, Value: 20.6 Row: 1, Col: 6, Value: 43.4 Biotechnology 43.4% Drugs 20.6% Pharmaceutical Preparations 3.7% Commercial Laboratory Research 1.0% Computer Services 0.7% All Others 30.6%* * INCLUDES SHORT-TERM INVESTMENTS BIOTECHNOLOGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Karen Firestone, Portfolio Manager of Fidelity Select Biotechnology Portfolio Q. KAREN, HOW DID THE FUND PERFORM? A. It's been disappointing. The fund returned -8.62% for the six months ended August 31, 1994, and -0.24% for the year. The S&P returned 3.26% and 5.47% for the same periods, respectively. Q. WHAT FACTORS CONTRIBUTED TO THE POOR RESULTS? A. Well, for some time now, biotech companies have been unable to show marketable results of drugs undergoing testing. Accordingly, the market became very discouraged. Investors' growing impatience with the lack of positive news caused the market to erode over the past six months. For example, stocks such as Cellpro and COR Therapeutics are down despite good earnings. However, by August, the biotech giants such as Biogen, Amgen and Genentech began producing the type of results that investors were anxious to see, leading the group to a terrific finish. The fund was up 9.3% in August alone. Q. YOURS IS ONE OF THE FEW PURE BIOTECH FUNDS. HOW HAS THAT AFFECTED PERFORMANCE? A. It's hurt over the past few years. I diversify outside pure biotech as much as my charter allows, but basically it's a very challenging environment with little flexibility for me. Also, because a large amount of money flows in and out of my fund, I sometimes have to sell a lot of stock in a down market, which doesn't help. Q. WHAT STRATEGIES DO YOU EMPLOY IN SUCH A TOUGH MARKET? A. I've tried to position the fund defensively. I don't think that being really aggressive right now is wise. I'm holding larger companies that have real sales and profits rather than smaller companies that are losing money or are without any product on the market. My top 10 holdings haven't changed much in the past six months and I think that reflects my philosophy. Even with the stocks moving higher, I focus the fund on those companies I think have the more solid income statements and balance sheets. I own a lot of Biogen and it's up nearly 20% since it announced positive data on a drug to treat multiple sclerosis. Q. UNDER THESE MARKET CONDITIONS, DO YOU HAVE ANY ROOM FOR SMALLER STOCKS? A. Sure I do. In this sector you must take risks to get returns. I try not to stretch risk so much that the returns are minimal. Instead, I strive for balance. For example, I do own some companies that may not have a product on the market now, but which I believe - based upon ongoing scientific analysis - will have a valuable product in the future. I have great confidence in the ultimate benefit of the drugs these companies are working on. Conversely, I stay away from companies that are developing one product that only has a 10 percent chance of working. There are an awful lot of companies out there working on cures for AIDS, cancer and other auto immune disorders that I think have absolutely no chance for success. It doesn't mean that what they're doing isn't a noble effort, but this fund isn't philanthropic. Q. HOW HAS THE HEALTH CARE DEBATE INFLUENCED THE STOCKS IN YOUR SECTOR? A. Certainly it's been a factor, but I don't think it's the primary reason that the sector performed poorly. Health care reform may change the way companies get paid for their product but not whether the drugs will work. This industry is much more concerned with companies raising money to produce successful drugs, than who will ultimately pay for them. Plus, I believe that any effect that health care may have on stocks is already built into current prices. Q. WHAT'S THE OUTLOOK FOR THE NEXT SIX MONTHS? A. My emphasis will continue to be on the top 20 holdings in the fund - those I really think will succeed. There is a fair amount of data coming from these companies about their products in the next few months. If the data is good, the stocks should rally. I'm optimistic about the stronger stocks, the real survivors, coming out on top. I think the group has a better than average chance of outperforming the market. FUND FACTS START DATE: December 16, 1985 SIZE: as of August 31, 1994, more than $462 million MANAGER: Karen Firestone, since August 1992; manager, Fidelity Select Air Transportation Portfolio, September 1987- November 1992; Fidelity Select Leisure Portfolio, April 1989- August 1992; joined Fidelity in 1983 (checkmark) BIOTECHNOLOGY PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 73.3% SHARES VALUE (NOTE 1) AGRICULTURE - 0.2% CROPS - 0.2% DEKALB Genetics Corp. Class B 23,700 $ 779,138 CELLULAR - 0.1% CELLULAR & COMMUNICATION SERVICES - 0.1% Millicom International Cellular SA (a) 26,942 646,608 COMPUTER SERVICES & SOFTWARE - 0.7% COMPUTER SERVICES - 0.7% Cerner Corp. (a) 84,400 3,523,700 DRUGS & PHARMACEUTICALS - 69.2% BIOTECHNOLOGY - 43.4% Advanced Tissue Sciences Corp. Class A (a) 341,000 1,960,750 Alkermes, Inc. (a)(c) 678,500 2,544,375 Amgen, Inc. (a) 735,800 38,813,450 Athena Neurosciences, Inc. (a) 332,700 2,204,138 Bio-Rad Laboratories, Inc. Class A (a) 76,000 1,862,000 Biogen, Inc. (a) 216,200 10,891,075 COR Therapeutics, Inc. (a)(c) 997,300 14,710,175 Cambridge Neuroscience, Inc. (a) 93,900 446,025 Cell Genesys, Inc. (a) 139,000 1,251,000 Cellcor, Inc. (a) 150,000 459,375 Cellpro, Inc. (a) 618,700 15,312,825 Celtrix Laboratories, Inc. (a) 601,400 4,736,025 Centocor, Inc. (a) 627,300 8,860,613 Cephalon, Inc. (a) 340,800 4,260,000 Chiron Corp. (a) 10,000 701,250 Collagen Corp. 90,300 1,918,875 Creative Biomolecules, Inc. (a) 317,400 952,200 Cytotheraputics, Inc. (a) 455,100 3,697,688 Dynagen, Inc. (warrants) (a) 40,000 11,250 Genentech, Inc. (a) 795,800 40,884,225 Genetics Institute, Inc. (warrants) (a) 40,000 585,000 Genetics Institute, Inc. (depositary shares) (a) 133,280 5,497,800 Genzyme Corp. (a) 156,400 5,317,600 Idexx Laboratories (a) 56,000 1,806,000 Imclone Systems, Inc. (a) 320,000 560,000 Insite Vision, Inc. (a)(c) 689,700 4,138,200 Liposome Co., Inc. (a)(c) 1,036,500 7,708,969 Magainin Pharmaceuticals, Inc. (a) 315,700 1,085,219 Neurogen (a) 301,900 1,509,500 North American Vaccine, Inc. (a) 26,000 331,500 Perspective Biosystems, Inc. (a) 421,000 5,578,250 Protein Design Labs, Inc. (a) 539,400 13,754,700 Quidel Corp. (a) 570,800 2,069,150 SciGenics, Inc. (a)(c) 122,000 1,372,500 Sepracor, Inc. (a) 171,400 814,150 Somatix Therapy Corp. (a) 449,600 2,978,600 Telios Pharmaceuticals, Inc. (a) 355,000 1,020,625 Univax Biologics, Inc. (a) 285,800 1,643,350 Viagene, Inc. (a) 22,500 81,563 Vical, Inc. (a) 278,900 2,579,825 216,909,815 COMMERCIAL LABORATORY RESEARCH - 1.0% Cantab Pharmaceutical sponsored ADR (a) 5,000 27,500 Medarex, Inc. (a) 30,000 146,250 Medarex, Inc. (a)(b) 175,000 853,125 Medarex, Inc. (warrants) (a) 175,000 262,500 Scios, Inc. (a) 480,203 3,661,548 4,950,923 SHARES VALUE (NOTE 1) DRUGS - 20.6% A.L. Laboratories, Inc. Class A 81,700 $ 1,266,350 Allergan, Inc. 169,100 4,629,113 Argus Pharmaceuticals, Inc. (a) 80,000 260,000 Astra AB free shares 145,000 3,276,139 Elan PLC ADR (a) 256,815 9,245,340 Elan PLC (warrants) (a) 76,575 1,617,647 Elan PLC unit (Therapeutic Systems, Inc. 1 common & 1 ADR warrant) (a) 35,539 928,456 Glaxo Holdings PLC sponsored ADR 160,000 3,140,000 IVAX Corp. 100,000 1,987,500 Lilly (Eli) & Co. 140,000 7,962,500 Lynx Therapeutics, Inc. 79,035 15,807 Matrix Pharmaceutical, Inc. (a) 178,600 2,143,200 Mylan Laboratories, Inc. 173,400 4,465,050 Novo Industri AS ADR 16,000 368,000 Pfizer, Inc. 42,800 2,921,100 Roche Holdings Ltd. (participation certificates) 3,650 16,721,742 Schering-Plough Corp. 164,900 11,522,388 Schering Plough Corp. equity unit (a)(d) 6,300 145,278 Teva Pharmaceutical Industries Ltd. ADR 391,600 11,258,500 Upjohn Co. (a) 160,000 5,780,000 Vertex Pharmaceuticals, Inc. (a) 100,500 1,444,688 Warner-Lambert Co. 22,000 1,839,750 Watson Pharmaceuticals, Inc. (a) 221,100 5,057,663 Zenith Laboratories, Inc. (a) 201,900 4,921,313 102,917,524 IN VITRO, IN VIVO DIAGNOSTIC SUBSTANCES - 0.1% Igen, Inc. (a) 73,900 471,113 MEDICINAL CHEMICALS - 0.4% Martek Biosciences (a) 200,000 2,050,000 PHARMACEUTICAL PREPARATIONS - 3.7% Affymax (a) 135,000 2,227,500 Circa Pharmaceuticals, Inc. (a) 237,900 3,152,175 Cocensys, Inc. (a) 206,000 1,133,000 Copley Pharmaceutical, Inc. (a) 102,500 3,113,438 Inhale Therapeutic Systems (a) 72,000 612,000 Ligand Pharmaceuticals, Inc. (a) 77,500 891,250 Neurobiological Technologies, Inc. (a) 58,900 265,050 Noven Pharmaceuticals, Inc. (a) 36,000 546,750 T Cell Sciences, Inc. (a) 394,100 1,379,350 Theratech, Inc. (a) 130,000 1,787,500 Zeneca Group PLC sponsored ADR 25,000 962,500 Zeneca Group PLC Ord. (a) 190,000 2,444,768 18,515,281 TOTAL DRUGS & PHARMACEUTICALS 345,814,656 INDUSTRIAL MACHINERY & EQUIPMENT - 0.3% SPECIAL INDUSTRIAL MACHINERY, NEC - 0.3% Perspective Technologies Corp. unit (1 common & 1 warrant) (a) 100,000 1,375,000 MEDICAL EQUIPMENT & SUPPLIES - 1.4% MEDICAL SUPPLIES & APPLIANCES - 0.7% Abaxis, Inc. (a) 118,000 708,000 Boston Scientific Corp. (a) 166,400 2,766,400 3,474,400 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) MEDICAL EQUIPMENT & SUPPLIES - CONTINUED MEDICAL TECHNOLOGY - 0.7% SciMed Life Systems, Inc. (a) 40,900 $ 1,503,075 Target Therapeutics, Inc. (a) 78,100 1,932,975 3,436,050 TOTAL MEDICAL EQUIPMENT & SUPPLIES 6,910,450 MEDICAL FACILITIES MANAGEMENT - 1.4% HEALTH SERVICES - 0.1% Healthwise America, Inc. (a) 22,950 556,538 HMO'S & OUTPATIENT CARE - 0.4% U.S. Healthcare, Inc. 51,200 2,214,400 MEDICAL LABS - 0.2% Health Images, Inc. 96,600 676,200 Spectral Diagnostics, Inc. (a) 24,600 449,874 1,126,074 MEDICAL SERVICES - 0.7% Surgical Care Affiliates, Inc. 188,000 3,242,993 TOTAL MEDICAL FACILITIES MANAGEMENT 7,140,005 TOTAL COMMON STOCKS (Cost $353,567,544) 366,189,557 NONCONVERTIBLE PREFERRED STOCKS - 0.0% DRUGS & PHARMACEUTICALS - 0.0% DRUGS - 0.0% Lynx Therapeutics, Inc. (Cost $114,960) 114,960 114,960 REPURCHASE AGREEMENTS - 26.7% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 (Note 3) $ 133,428,899 133,411,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $487,093,504) $ 499,715,517 LEGEND 1. Non-income producing 2. Restricted securities - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on each holding is as follows: ACQUISITION ACQUISITION SECURITY DATE COST Mederax, Inc. 12/18/92 $ 853,125 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated company. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Alkermes, Inc. (a) $ 206,250 $ 453,863 $ - $ 2,544,375 COR Therapeutics, Inc. (a) 502,925 - - 14,710,175 Insite Vision, Inc. (a) 432,068 - - 4,138,200 Liposome Co., Inc. (a) - 362,635 - 7,708,969 Neurogen Corp. (a) - 123,750 - - SciGenics, Inc. (a) 151,250 - - 1,372,500 Totals $ 1,292,493 $ 940,248 $ - $ 30,474,219 4. 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 this security amounted to $145,278 or 0.0% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $117,832,322 and $147,939,257, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $33,547 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $20,650,625 and $21,377,600, respectively (see Note 7 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $1,448,000 and $1,390,500, respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 89.1% Switzerland 3.4 Ireland 2.4 Israel 2.3 United Kingdom 1.3 Others (individually less than 1%) 1.5 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $489,107,524. Net unrealized appreciation aggregated $10,607,993, of which $58,698,517 related to appreciated investment securities and $48,090,524 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $10,904,000 which will expire on February 28, 2002. BIOTECHNOLOGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $133,411,000) (cost $487,093,504) - $ 499,715,517 See accompanying schedule Cash 918 Receivable for investments sold 2,996,680 Receivable for fund shares sold 5,703,258 Dividends receivable 179,781 Redemption fees receivable 1,123 Other receivables 369,445 Prepaid expenses 12,555 TOTAL ASSETS 508,979,277 LIABILITIES Payable for investments purchased $ 19,616,224 Payable for fund shares redeemed 2,553,532 Accrued management fee 214,097 Other payables and accrued expenses 2,317,443 Collateral on securities loaned, 21,377,600 at value TOTAL LIABILITIES 46,078,896 NET ASSETS $ 462,900,381 Net Assets consist of: Paid in capital $ 489,652,218 Accumulated net investment (loss) (844,693 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (38,529,157 ) Net unrealized appreciation (depreciation) on investments 12,622,013 NET ASSETS, for 18,345,580 shares outstanding $ 462,900,381 NET ASSET VALUE and redemption price per share ($462,900,381 (divided by) shares) $25.23 Maximum offering price per share (100/97 of $25.23) $26.01
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 796,554 Dividends Interest (including security lending fees of $47,445) 1,562,722 TOTAL INCOME 2,359,276 EXPENSES Management fee $ 1,268,049 Transfer agent 1,711,035 Fees Redemption fees (84,998 ) Accounting and security lending fees 208,134 Non-interested trustees' compensation 1,235 Custodian fees and expenses 25,489 Registration fees 12,555 Audit 28,154 Legal 6,728 Interest 636 Reports to shareholders 28,739 Miscellaneous 971 Total expenses before reductions 3,206,727 Expense reductions (2,758 3,203,969 ) NET INVESTMENT INCOME (LOSS) (844,693 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (including realized loss of $226,245 on sales of investments in affiliated issuers) (24,816,125 ) Foreign currency transactions 4,146 (24,811,979 ) Change in net unrealized appreciation (depreciation) on investment securities (13,676,672 ) NET GAIN (LOSS) (38,488,651 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (39,333,344 ) OTHER INFORMATION $552,503 Sales Charges Paid to FDC Deferred sales charges withheld $21,209 by FDC Exchange fees withheld by FSC $57,750
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (844,693 $ (3,787,601 Net investment income (loss) ) ) Net realized gain (loss) (24,811,979 (8,338,254 ) ) Change in net unrealized appreciation (depreciation) (13,676,672 118,233,161 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (39,333,344 106,107,306 ) Share transactions 102,230,762 439,265,841 Net proceeds from sales of shares Cost of shares redeemed (81,225,330 (573,106,933 ) ) Paid in capital portion of redemption fees 82,075 886,916 Net increase (decrease) in net assets resulting from share transactions 21,087,507 (132,954,176 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (18,245,837 (26,846,870 ) ) NET ASSETS Beginning of period 481,146,218 507,993,088 End of period (including accumulated net investment (loss) of $(844,693) and $(3,787,602), respectively) $ 462,900,381 $ 481,146,218 OTHER INFORMATION Shares Sold 4,200,178 16,958,709 Redeemed (3,279,917 (22,006,765 ) ) Net increase (decrease) 920,261 (5,048,056 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 27.61 $ 22.60 $ 27.61 $ 26.78 $ 15.28 $ 11.90 Income from Investment Operations Net investment income (loss) (.05) (.18) (.08) (.11) .05F (.04)G Net realized and unrealized gain (loss) (2.33) 5.15 (1.09) 3.36 11.80 3.60 Total from investment operations (2.38) 4.97 (1.17) 3.25 11.85 3.56 Less Distributions In excess of net investment income - - - (.02) - - From net realized gain - - (3.89) (2.52) (.67) (.24) Total distributions - - (3.89) (2.54) (.67) (.24) Redemption fees added to paid in capital - .04 .05 .12 .32 .06 Net asset value, end of period $ 25.23 $ 27.61 $ 22.60 $ 27.61 $ 26.78 $ 15.28 TOTAL RETURN D, E (8.62)% 22.17% (5.92)% 12.36% 81.43% 30.53% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 462,900 $ 481,146 $ 507,993 $ 679,877 $ 482,271 $ 70,994 Ratio of expenses to average net assets B 1.54%A 1.61% 1.50%A 1.50% 1.63% 2.07% Ratio of expenses to average net assets before 1.54%A 1.62% 1.50%A 1.50% 1.63% 2.07% expense reductions B Ratio of net investment income (loss) to average net (.41)%A (.69) (.37)%A (.34)% .24% (.31)% assets % Portfolio turnover rate 68%A 51% 79%A 160% 166% 290%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.02 PER SHARE. G INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.05 PER SHARE. HEALTH CARE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S HEALTH CARE 16.64% 31.86% 136.13% 553.64% HEALTH CARE (INCL. 3% SALES CHARGE) 13.14% 27.90% 129.04% 534.03% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS HEALTH CARE 31.86% 18.75% 20.65% HEALTH CARE (INCL. 3% SALES CHARGE) 27.90% 18.03% 20.28% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Health (063) Standard & Poor's 08/31/84 9700.00 10000.00 09/30/84 9556.13 10002.00 10/31/84 9528.46 10041.01 11/30/84 9179.86 9928.55 12/31/84 9439.93 10190.66 01/31/85 10607.47 10984.51 02/28/85 11343.41 11119.62 03/31/85 11603.48 11127.41 04/30/85 12079.35 11117.39 05/31/85 13567.82 11759.98 06/30/85 13869.76 11944.61 07/31/85 13997.26 11926.69 08/31/85 13675.74 11825.32 09/30/85 12572.59 11455.18 10/31/85 13398.57 11984.41 11/30/85 14656.93 12806.54 12/31/85 15050.52 13426.38 01/31/86 15150.30 13501.57 02/28/86 16220.19 14511.49 03/31/86 18387.69 15321.23 04/30/86 18609.43 15148.10 05/31/86 19762.47 15953.98 06/30/86 21087.36 16223.60 07/31/86 19579.49 15316.70 08/31/86 20301.96 16453.20 09/30/86 17529.69 15092.52 10/31/86 19058.64 15963.36 11/30/86 18778.61 16351.27 12/31/86 18358.57 15934.31 01/31/87 21097.23 18080.66 02/28/87 24227.94 18794.85 03/31/87 24082.32 19338.02 04/30/87 23511.07 19165.91 05/31/87 23740.69 19332.65 06/30/87 24306.34 20308.95 07/31/87 25236.03 21338.62 08/31/87 25980.91 22134.55 09/30/87 25493.66 21649.80 10/31/87 18767.41 16986.43 11/30/87 16947.23 15586.75 12/31/87 18241.33 16772.90 01/31/88 19597.02 17479.04 02/29/88 20185.45 18293.57 03/31/88 19683.56 17728.29 04/30/88 19377.80 17925.08 05/31/88 19325.88 18081.03 06/30/88 19833.55 18910.95 07/31/88 19804.70 18839.08 08/31/88 19268.19 18198.55 09/30/88 19914.31 18973.81 10/31/88 20162.38 19501.29 11/30/88 19573.95 19222.42 12/31/88 19851.82 19558.81 01/31/89 21253.60 20990.51 02/28/89 20846.44 20467.85 03/31/89 21945.77 20944.75 04/30/89 23143.97 22031.78 05/31/89 23865.22 22924.07 06/30/89 23327.28 22793.40 07/31/89 26216.76 24851.65 08/31/89 26851.04 25338.74 09/30/89 27044.84 25234.85 10/31/89 26845.16 24649.40 11/30/89 28002.13 25152.25 12/31/89 28286.55 25755.90 01/31/90 26663.55 24027.68 02/28/90 26384.13 24337.64 03/31/90 27436.41 24982.59 04/30/90 27436.41 24358.02 05/31/90 31211.51 26732.93 06/30/90 32274.96 26551.15 07/31/90 32720.56 26466.18 08/31/90 31253.79 24073.64 09/30/90 30313.09 22901.25 10/31/90 31006.24 22802.78 11/30/90 34304.91 24275.84 12/31/90 35164.79 24953.13 01/31/91 38636.13 26041.09 02/28/91 43408.40 27903.03 03/31/91 47277.99 28578.28 04/30/91 46454.95 28646.87 05/31/91 48977.15 29884.41 06/30/91 46768.66 28515.71 07/31/91 50906.97 29844.54 08/31/91 53450.90 30551.86 09/30/91 54528.00 30041.64 10/31/91 58120.68 30444.20 11/30/91 54946.08 29217.30 12/31/91 64595.12 32559.76 01/31/92 62475.77 31954.14 02/29/92 59747.67 32369.55 03/31/92 56102.68 31738.34 04/30/92 52923.66 32671.45 05/31/92 54013.40 32831.54 06/30/92 51931.52 32342.35 07/31/92 55055.53 33665.15 08/31/92 53570.61 32975.02 09/30/92 49862.37 33364.12 10/31/92 51395.98 33480.90 11/30/92 54211.64 34622.59 12/31/92 53333.46 35048.45 01/31/93 50469.11 35342.86 02/28/93 45083.45 35823.52 03/31/93 46326.96 36579.40 04/30/93 46309.81 35694.18 05/31/93 48162.20 36650.78 06/30/93 47990.68 36757.07 07/31/93 46429.87 36610.04 08/31/93 48085.02 37997.56 09/30/93 49585.80 37704.98 10/31/93 53273.43 38485.47 11/30/93 53093.33 38119.86 12/31/93 54622.35 38581.11 01/31/94 55704.15 39892.87 02/28/94 54356.19 38811.77 03/31/94 50810.29 37119.58 04/30/94 52848.66 37594.71 05/31/94 55833.44 38211.26 06/30/94 54947.47 37275.09 07/31/94 56048.48 38497.71 08/31/94 63402.91 40076.11 Let's say you invested $10,000 in Fidelity Select Health Care Portfolio on August 31, 1984 and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $63,403 - a 534.03% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Pfizer, Inc. 9.2 Warner-Lambert Co. 8.5 Schering-Plough Corp. 7.0 American Home Products Corp. 5.2 Bristol-Myers Squibb Co. 4.8 Johnson & Johnson 4.8 American Cyanamid Co. 3.6 Allergan, Inc. 3.6 St. Jude Medical, Inc. 3.4 McKesson Corp. 3.0 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 18.2 Row: 1, Col: 2, Value: 5.1 Row: 1, Col: 3, Value: 6.6 Row: 1, Col: 4, Value: 9.5 Row: 1, Col: 5, Value: 11.2 Row: 1, Col: 6, Value: 49.4 Drugs 49.4% Medical Supplies & Appliances 11.2% Medical Technology 9.5% Biotechnology 6.6% Drug Distributors - Wholesale 5.1% All Others 18.2%* * INCLUDES SHORT-TERM INVESTMENTS HEALTH CARE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Charles Mangum, Portfolio Manager of Fidelity Select Health Care Portfolio Q. CHARLES, HOW DID THE FUND PERFORM? A. Very well. For the six months and year ended August 31, 1994, the fund had total returns of 16.64% and 31.86%, respectively. This soundly beat the S&P 500, which returned 3.26% and 5.47% during the same periods. Q. WHY DID THE FUND OUTPERFORM THE S&P 500 OVER THE PAST SIX MONTHS? A. Mostly because of a strong performance by pharmaceutical stocks in August. During that month, there were several high-profile takeovers in the industry. When one of the fund's largest positions, American Cyanamid, was taken over by American Home Products, its stock soared. In fact, it was up about 50% in August alone. In addition, nearly all of the fund's pharmaceutical stocks rallied on consolidation rumors. I should note that I wasn't surprised by the rising prices of pharmaceutical stocks. I felt strongly that their valuations - prices relative to earnings - were unfairly low and that ultimately investors would push prices back up. Q. WERE THERE OTHER REASONS THE FUND DID WELL? A. Yes. It owned some biotechnology stocks that were strong performers, such as the California-based company Amgen, which produces a number of high-demand products. This stock was extremely cheap in the spring, despite its outlook for 20% revenues and earnings growth. Q. YOU HAD 57% OF THE FUND INVESTED IN PHARMACEUTICAL STOCKS AT THE END OF THE PERIOD. CLEARLY, THEY LOOKED GOOD IN AUGUST, BUT HOW WAS THEIR PERFORMANCE OVER THE PAST SIX MONTHS? A. There weren't many buyers for pharmaceutical stocks for much of the period, even though they cut costs, divested themselves of weak business units, and focused on improving margins. But, as we discussed, pharmaceuticals dramatically picked up in August, and, as a result, turned in a strong six-month performance. Warner-Lambert, which was up 20 points in August alone, was clearly the fund's standout over the period. Concerns about hostile takeovers affected the company dramatically since Warner-Lambert is the most asset-rich company in the industry. Another reason it looked good was that a large part of its profits come from its over-the-counter (OTC) medications business. Worldwide, OTC drugs are going through a major growth phase. That's because many foreign governments are pushing for more medications to be sold over the counter. This cuts their costs since most of these governments pick up the tab for prescription medications, but not OTC drugs. Other pharmaceutical companies that were up in August included Pfizer, Schering-Plough and Johnson & Johnson. Q. DID ANY OTHER TYPES OF STOCKS LOOK INTERESTING TO YOU? A. Yes. Over the past three or four months, I added a number of small medical technology names. These stocks were incredibly cheap and cash rich - - they had between 10% to 40% of their market value in cash. One company worth noting is Protocol Systems, which has a great new technology for making portable monitors to measure vital signs. Q. LET'S SWITCH THE FOCUS TO HEALTH CARE REFORM. HOW MUCH DID NEWS OF POSSIBLE REFORM AFFECT THE FUND? A. Frankly, it didn't seem to have any major effect on the fund's performance or my investment decisions over the past six months. If legislation were passed at this juncture, there could be an impact, but I don't believe there will be any legislation. I should note that the fund, which owns mostly medical product companies, was less affected by reform than funds that focused on medical services, such as health maintenance organizations, or HMOs. Q. IN HINDSIGHT, DO YOU REGRET ANY OF YOUR INVESTMENT DECISIONS? A. Sure. While I didn't invest in HMOs because I thought they'd be hurt by reform and that their stocks were too expensive, I wish I'd owned some of the California-based HMOs, which had excellent earnings over the period. One reason these companies looked good is that the federal government increased Medicare rates and this extra income gave some HMOs, such as Pacific Care, a boost. Q. HOW DO YOU PLAN TO INVEST THE FUND GOING FORWARD? A. I plan to continue to invest in pharmaceutical and medical technology companies that I think have growth potential. I'm optimistic about these companies because they have a good chance to improve their profit margins. I also think they'll benefit from the enormous amount of consolidation underway in the industry. FUND FACTS START DATE: July 14, 1981 SIZE: as of August 31, 1994, more than $655 million MANAGER: Charles Mangum, since March 1992; manager, Fidelity Select Medical Delivery Portfolio, 1991-1993; joined Fidelity in 1990 (checkmark) HEALTH CARE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.5% SHARES VALUE (NOTE 1) DRUGS & PHARMACEUTICALS - 57.0% BIOTECHNOLOGY - 6.6% Alkermes, Inc. (a) 2,700 $ 10,119 Amgen, Inc. (a) 362,800 19,137,700 Bio-Rad Laboratories, Inc. Class A (a) 500 12,250 COR Therapeutics, Inc. (a) 164,600 2,427,850 Cellpro, Inc. (a) 85,500 2,116,125 Cephalon, Inc. (a) 89,900 1,123,750 Chiron Corp. (a) 247,600 17,270,100 Liposome Co, Inc. (a) 5,000 37,188 North American Vaccine, Inc. (a) 5,000 63,750 Protein Design Labs, Inc. (a) 127,400 3,248,700 Somatix Therapy Corp. (a) 20,000 132,500 45,580,032 DRUGS - 49.4% ALZA Corp. Class A 415,200 9,757,200 Allergan, Inc. 912,700 24,985,163 American Cyanamid Co. 259,300 25,022,450 American Home Products Corp. 600,000 35,625,000 Astra AB A Free shares 5,000 113,616 Bristol-Myers Squibb Co. 581,100 33,413,250 Elan PLC (a): ADR 553,150 19,913,400 unit (Therapeutic Systems, Inc. common & 1 ADR warrant) 56,806 1,484,057 Forest Laboratories, Inc. (a) 224,200 10,537,400 IVAX Corp. 171,500 3,408,563 Pfizer, Inc. 927,500 63,301,875 Pharmacia AB A Free shares 321,000 5,346,271 Schering-Plough Corp. 692,600 48,395,425 Vertex Pharmaceuticals, Inc. (a) 23,900 343,563 Warner-Lambert Co. 701,000 58,621,125 340,268,358 IN VITRO, IN VIVO DIAGNOSTIC SUBSTANCE - 0.2% Igen, Inc. (a) 174,000 1,109,250 PHARMACEUTICAL PREPARATIONS - 0.8% Immunex Corp. (a) 20,000 305,000 Ligand Pharmaceuticals, Inc. (a) 102,500 1,178,750 Noven Pharmaceuticals, Inc. (a) 148,000 2,247,750 Shaman Pharmaceuticals (a) 124,000 976,500 Vivus, Inc. (a) 52,500 721,875 Zeneca Group PLC sponsored ADR 3,000 115,500 5,545,375 TOTAL DRUGS & PHARMACEUTICALS 392,503,015 HOME FURNISHINGS - 0.0% FURNITURE - 0.0% Kinetic Concepts, Inc. 45,000 202,500 HOUSEHOLD PRODUCTS - 0.1% FABRICATED RUBBER PRODUCTS - 0.1% Safeskin Corp. (a) 41,200 690,100 MEDICAL EQUIPMENT & SUPPLIES - 25.2% DRUG DISTRIBUTORS - WHOLESALE - 5.1% Bergen Brunswig Corp. Class A 770,500 11,557,500 Cardinal Health, Inc. 69,867 2,707,346 McKesson Corp. 200,000 20,500,000 34,764,846 SHARES VALUE (NOTE 1) MEDICAL SUPPLIES & APPLIANCES - 11.2% Baxter International, Inc. 553,800 $ 15,714,075 Becton, Dickinson & Co. 449,500 19,272,313 Boston Scientific Corp. (a) 405,500 6,741,438 Healthdyne, Inc. (a) 223,200 1,534,500 Johnson & Johnson 663,100 33,237,888 Molecular Dynamics, Inc. (a) 25,000 168,750 Orthofix International (a) 50,000 637,500 77,306,464 MEDICAL TECHNOLOGY - 8.2% AMSCO International, Inc. (a) 65,000 503,750 Acuson Corp. (a) 231,100 3,235,400 Advanced Technology Laboratories, Inc. (a) 182,900 2,754,931 Ballard Medical Products 40,000 415,000 Beckman Instruments, Inc. 113,100 3,279,900 Conmed Corp. (a) 45,600 820,800 Datascope Corp. (a) 218,300 3,383,650 Mallinckrodt Group, Inc. 47,000 1,515,750 Medrad, Inc. (a) 5,000 61,250 Medtronic, Inc. 90,100 8,897,375 Mentor Corp. (a) 176,900 2,896,738 Nellcor, Inc. (a) 10,000 302,500 St. Jude Medical, Inc. 680,400 23,473,800 Spacelabs Medical, Inc. (a) 163,400 4,003,300 Utah Medical Products, Inc. 37,200 348,750 Vital Signs, Inc. 77,500 813,750 56,706,644 X-RAY ELECTRO-MEDICAL APPARATUS - 0.7% American Medical Electronics, Inc. 55,000 501,875 Circon Corp. (a) 58,000 659,750 Fischer Imaging Corp. (a) 91,000 364,000 Protocol Systems, Inc. (a)(c) 411,200 3,392,400 4,918,025 TOTAL MEDICAL EQUIPMENT & SUPPLIES 173,695,979 MEDICAL FACILITIES MANAGEMENT - 3.9% HEALTH SERVICES - 0.0% Healthwise America, Inc. (a) 3,960 96,030 HOME HEALTH CARE AGENCIES - 1.6% Abbey Healthcare Group, Inc. (a) 289,600 5,285,200 Coram Healthcare Corp. (a) 149,334 2,314,677 Homedco Group, Inc. (a) 127,900 3,549,225 11,149,102 HOSPITALS - 0.9% Columbia/HCA Healthcare Corp. 1,705 72,463 Health Management Associates, Inc. Class A (a) 6,050 144,444 Humana, Inc. (a) 200,000 4,250,000 Quorum Health Group, Inc. (a) 8,000 147,000 Vencor, Inc. (a) 43,400 1,844,500 6,458,407 HMO'S & OUTPATIENT CARE - 0.4% FHP International Corp. (a) 45,000 1,215,000 Healthsource, Inc. (a) 11,000 360,250 Physician Corp of America (a) 10,000 210,000 Rightchoice Managed Care, Inc. Class A (a) 50,000 575,000 2,360,250 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) MEDICAL FACILITIES MANAGEMENT - CONTINUED MEDICAL LABS - 0.1% National Health Laboratories Holdings, Inc. 61,500 $ 761,063 MEDICAL SERVICES - 0.9% Lincare Holdings, Inc. (a) 217,588 5,385,303 Surgical Care Affiliates, Inc. 20,000 345,000 Syncor International Corp. 65,000 520,000 6,250,303 TOTAL MEDICAL FACILITIES MANAGEMENT 27,075,155 REAL ESTATE INVESTMENT TRUSTS - 0.3% Capstone Capital Corp. 100,000 1,762,500 TOTAL COMMON STOCKS (Cost $543,978,119) 595,929,249 CONVERTIBLE PREFERRED STOCKS - 0.9% MEDICAL EQUIPMENT & SUPPLIES - 0.9% MEDICAL TECHNOLOGY - 0.9% U.S. Surgical Corp. $2.20 (b) (Cost $5,006,100) 222,000 6,465,750 CORPORATE BONDS - 0.4% PRINCIPAL AMOUNT CONVERTIBLE BONDS - 0.4% MEDICAL EQUIPMENT & SUPPLIES - 0.4% MEDICAL TECHNOLOGY - 0.4% Advanced Medical, Inc. 7 1/4%, 1/15/02 $ 4,180,000 2,194,500 NONCONVERTIBLE BONDS - 0.0% HOUSEHOLD PRODUCTS - 0.0% COSMETICS - 0.0% Revlon Worldwide Corp. secured 0%, 3/15/98 360,000 150,300 TOTAL CORPORATE BONDS (Cost $2,187,380) 2,344,800 REPURCHASE AGREEMENTS - 12.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 84,315,311 84,304,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $635,475,599) $ 689,043,799 LEGEND 1. Non-income producing 2. 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 this security amounted to $6,465,750 or 1.0% of net assets. 3. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated compay. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Protocol Systems, Inc. (a) $ 451,250 $ - $ - $ 3,392,400 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $582,140,895 and $540,564,878, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $138,122 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $20,261,100 and $19,664,550, respectively (see Note 7 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $637,602,917. Net unrealized appreciation aggregated $51,440,882, of which $59,089,727 related to appreciated investment securities and $7,648,845 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $605,000 which will expire on February 28, 2002. The fund has elected to defer to its fiscal year ending February 28, 1995 $6,543,000 of losses recognized during the period November 1, 1993 to February 28, 1994. HEALTH CARE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $84,304,000) (cost $635,475,599) - See $ 689,043,799 accompanying schedule Cash 147 Receivable for investments sold 39,542,126 Receivable for fund shares sold 15,316,233 Dividends receivable 1,605,976 Interest receivable 37,881 Redemption fees receivable 1,350 Other receivables 324,670 Prepaid expenses 12,941 TOTAL ASSETS 745,885,123 LIABILITIES Payable for investments purchased $ 65,521,085 Payable for fund shares redeemed 2,871,910 Accrued management fee 303,488 Other payables and accrued expenses 1,825,176 Collateral on securities loaned, 20,261,100 at value TOTAL LIABILITIES 90,782,759 NET ASSETS $ 655,102,364 Net Assets consist of: Paid in capital $ 565,238,133 Undistributed net investment income 2,118,904 Accumulated undistributed net realized gain (loss) on investments 34,177,127 Net unrealized appreciation (depreciation) on investments 53,568,200 NET ASSETS, for 8,887,902 shares outstanding $ 655,102,364 NET ASSET VALUE and redemption price per share ($655,102,364 (divided by) shares) $73.71 Maximum offering price per share (100/97 of $73.71) $75.99
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 4,907,080 Dividends Interest (including security lending fees of $60,921) 1,006,030 TOTAL INCOME 5,913,110 EXPENSES Management fee $ 1,651,709 Transfer agent 1,905,923 Fees Redemption fees (100,821 ) Accounting and security lending fees 265,454 Non-interested trustees' compensation 1,511 Custodian fees and expenses 22,992 Registration fees 12,941 Audit 28,812 Legal 6,317 Reports to shareholders 27,326 Miscellaneous 990 Total expenses before reductions 3,823,154 Expense reductions (92,251 3,730,903 ) NET INVESTMENT INCOME 2,182,207 REALIZED AND UNREALIZED GAIN (LOSS) 44,532,632 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on investment securities 38,052,295 NET GAIN (LOSS) 82,584,927 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 84,767,134 OTHER INFORMATION $456,210 Sales Charges Paid to FDC Deferred sales charges withheld $45,316 by FDC Exchange fees withheld by FSC $61,538
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 2,182,207 $ 1,451,437 Net investment income Net realized gain (loss) 44,532,632 (3,984,876 ) Change in net unrealized appreciation (depreciation) 38,052,295 103,530,466 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 84,767,134 100,997,027 Distributions to shareholders from net investment income (883,343 (631,397 ) ) Share transactions 182,902,241 255,996,151 Net proceeds from sales of shares Reinvestment of distributions 852,517 614,017 Cost of shares redeemed (135,661,155 (370,922,213 ) ) Paid in capital portion of redemption fees 235,406 469,371 Net increase (decrease) in net assets resulting from share transactions 48,329,009 (113,842,674 ) TOTAL INCREASE (DECREASE) IN NET ASSETS 132,212,800 (13,477,044 ) NET ASSETS Beginning of period 522,889,564 536,366,608 End of period (including undistributed net investment income of $2,118,904 and $820,040, respectively) $ 655,102,364 $ 522,889,564 OTHER INFORMATION Shares Sold 2,743,418 4,521,405 Issued in reinvestment of distributions 14,401 10,053 Redeemed (2,129,659 (6,474,354 ) ) Net increase (decrease) 628,160 (1,942,896 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 63.31 $ 52.57 $ 70.42 $ 69.99 $ 46.15 $ 39.79 Income from Investment Operations Net investment income (loss) .26 .15 .13 (.02) .73F .72 Net realized and unrealized gain (loss) 10.22 10.61 (9.34) 9.47 28.70 6.56 Total from investment operations 10.48 10.76 (9.21) 9.45 29.43 7.28 Less Distributions From net investment income (.11) (.07) (.16) (.34) (.20) (.13) From net realized gain - - (8.51) (8.81) (5.67) (.84) Total distributions (.11) (.07) (8.67) (9.15) (5.87) (.97) Redemption fees added to paid in capital .03 .05 .03 .13 .28 .05 Net asset value, end of period $ 73.71 $ 63.31 $ 52.57 $ 70.42 $ 69.99 $ 46.15 TOTAL RETURN D, E 16.64% 20.57 (14.81)% 13.92% 69.32% 18.55% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 655,102 $ 522,890 $ 536,367 $ 838,814 $ 624,018 $ 217,522 Ratio of expenses to average net assets B 1.38%A 1.55 1.46%A 1.44% 1.53% 1.74% % Ratio of expenses to average net assets before 1.41%A 1.59 1.46%A 1.44% 1.53% 1.74% expense reductions B % Ratio of net investment income (loss) to average net .81%A .26 .24%A (.02)% 1.28% 1.61% assets % Portfolio turnover rate 214%A 213 112%A 154% 159% 126% %
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.55 PER SHARE. MEDICAL DELIVERY PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S MEDICAL DELIVERY 9.42% 42.88% 128.74% 189.87% MEDICAL DELIVERY (INCL. 3% SALES CHARGE) 6.14% 38.60% 121.88% 181.17% S&P 500 3.26% 5.47% 58.16% 148.27% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on June 30, 1986. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND MEDICAL DELIVERY 42.88% 18.00% 13.90% MEDICAL DELIVERY (INCL. 3% SALES CHARGE) 38.60% 17.28% 13.47% S&P 500 5.47% 9.60% 11.76% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND 01/31/87 8342.00 11201.06 02/28/87 8953.10 11643.50 03/31/87 9379.90 11980.00 04/30/87 8409.90 11873.38 05/31/87 8671.80 11976.68 06/30/87 9263.50 12581.50 07/31/87 9661.20 13219.38 08/31/87 9438.10 13712.46 09/30/87 9292.60 13412.16 10/31/87 6644.50 10523.18 11/30/87 6246.80 9656.07 12/31/87 6984.29 10390.90 01/31/88 7025.49 10828.35 02/29/88 7386.04 11332.96 03/31/88 7581.76 10982.77 04/30/88 7643.57 11104.68 05/31/88 7519.96 11201.29 06/30/88 7756.89 11715.43 07/31/88 7674.48 11670.91 08/31/88 7458.15 11274.10 09/30/88 7880.50 11754.37 10/31/88 8086.53 12081.14 11/30/88 7829.00 11908.38 12/31/88 8086.53 12116.78 01/31/89 8684.00 13003.73 02/28/89 9003.34 12679.94 03/31/89 9497.81 12975.38 04/30/89 10146.79 13648.80 05/31/89 10672.16 14201.58 06/30/89 10548.09 14120.63 07/31/89 11745.33 15395.72 08/31/89 12292.35 15697.48 09/30/89 12632.94 15633.12 10/31/89 12209.78 15270.43 11/30/89 12777.44 15581.95 12/31/89 12778.17 15955.91 01/31/90 10896.86 14885.27 02/28/90 11171.65 15077.29 03/31/90 11689.55 15476.84 04/30/90 11805.81 15089.92 05/31/90 13475.74 16561.19 06/30/90 14120.46 16448.57 07/31/90 14173.31 16395.93 08/31/90 13042.41 14913.74 09/30/90 12175.73 14187.44 10/31/90 12027.76 14126.44 11/30/90 13697.70 15039.00 12/31/90 14856.15 15458.59 01/31/91 17250.55 16132.59 02/28/91 18317.15 17286.07 03/31/91 21038.06 17704.39 04/30/91 20406.81 17746.88 05/31/91 22093.77 18513.55 06/30/91 20232.49 17665.63 07/31/91 22262.54 18488.84 08/31/91 22523.38 18927.03 09/30/91 22727.52 18610.95 10/31/91 23226.53 18860.33 11/30/91 22580.09 18100.26 12/31/91 26417.99 20170.93 01/31/92 26441.20 19795.75 02/29/92 25419.77 20053.10 03/31/92 23736.72 19662.06 04/30/92 22796.54 20240.13 05/31/92 22564.40 20339.30 06/30/92 21376.21 20036.25 07/31/92 22592.64 20855.73 08/31/92 22567.30 20428.19 09/30/92 19919.03 20669.24 10/31/92 20907.38 20741.58 11/30/92 22960.11 21448.87 12/31/92 22934.76 21712.69 01/31/93 21769.02 21895.08 02/28/93 18322.47 22192.85 03/31/93 18727.94 22661.12 04/30/93 18499.86 22112.72 05/31/93 19070.07 22705.34 06/30/93 19260.13 22771.19 07/31/93 19741.64 22680.10 08/31/93 19678.28 23539.68 09/30/93 21300.19 23358.43 10/31/93 22301.21 23841.94 11/30/93 22668.67 23615.45 12/31/93 24201.88 23901.19 01/31/94 25557.69 24713.83 02/28/94 25697.07 24044.09 03/31/94 24417.29 22995.77 04/30/94 25202.90 23290.11 05/31/94 26051.86 23672.07 06/30/94 24442.63 23092.10 07/31/94 25532.35 23849.53 08/31/94 28117.26 24827.36 Let's say you invested $10,000 in Fidelity Select Medical Delivery Portfolio on June 30, 1986, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $28,117 - a 181.17% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $24,827 over the same period - a 148.27% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS U.S. Healthcare, Inc. 11.1 United HealthCare Corp. 10.4 Columbia/HCA Healthcare Corp. 9.4 Humana, Inc. 8.4 Lincare Holdings, Inc. 8.2 Health Management Associates, Inc. Class A 5.6 Homedco Group, Inc. 5.5 Integrated Health Services, Inc. 4.3 Capstone Capital Corp. 3.5 Multicare Companies, Inc. 3.2 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 26.9 Row: 1, Col: 2, Value: 4.4 Row: 1, Col: 3, Value: 5.5 Row: 1, Col: 4, Value: 8.199999999999999 Row: 1, Col: 5, Value: 26.6 Row: 1, Col: 6, Value: 28.4 Hospitals 28.4% HMOs & Outpatient Care 26.6% Medical Services 8.2% Home Health Care Agencies 5.5% Nursing Care & Nursing Homes 4.4% All Others 26.9%* * INCLUDES SHORT-TERM INVESTMENTS MEDICAL DELIVERY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Louis Salemy, Portfolio Manager of Fidelity Select Medical Delivery Portfolio Q. LOUIS, HOW DID THE FUND PERFORM? A. Very well. For the six months and year ended August 31, 1994, the fund had total returns of 9.42% and 42.88%. This was significantly above the S&P 500, which returned 3.26% and 5.47% over the same periods. Q. WHAT WAS BEHIND ITS STRONG PERFORMANCE? A. For most of the period, investors were relatively unconcerned about possible health care reform - which could negatively impact the sector - because it wasn't front page news. As a result, they were pretty optimistic about medical services stocks, such as health maintenance organizations (HMOs), which made up most of the fund. However, in June and July, the fund's performance dropped off as the health care debate heated up again in the House and Senate. In August, after Congress adjourned without addressing the issue of health care reform and it looked like the issue was dead in the water, medical services stocks picked up again. Q. YOU MENTIONED HMOS. WHAT'S THE STORY WITH THESE STOCKS? A. Over the past six months, HMOs were the best performing stocks the fund owned. Especially noteworthy were the fund's two top stocks - U.S. Healthcare and United HealthCare - which turned in strong results throughout the period. However, as I just indicated, many HMOs stumbled a bit early this summer. In addition to dropping because of investors' concerns about health care reform, many HMOs went through a period of slowing earnings growth, mostly due to reduced pricing. I took advantage of the lower stock prices on HMOs during this period by buying a number of companies that I thought had strong fundamentals - or business prospects - and had been unfairly hit by dropping prices. A good example was Gencare, an inexpensive HMO that was growing membership and controlling costs. Q. HOW ABOUT HOSPITALS. SIX MONTHS AGO, SOME OF THE FUND'S STOCKS WERE BENEFITING FROM ACQUISITIONS AND MERGERS. IS THAT STILL TRUE? A. Yes. Columbia/ HCA Healthcare Corp., the fund's number one hospital stock, was still acquiring hospitals within its market. In fact, it picked up several large non-profit hospitals, such as Emory Hospital in Atlanta, during the period. Columbia's goal is to bring prices for its medical services down by increasing the amount of services it sells through its many hospitals. Q. THE FUND ADDED A NUMBER OF NEW STOCKS TO ITS TOP 10. WERE THERE ANY STANDOUTS? A. Yes. Integrated Health Services is worth noting. This company has been successfully buying nursing homes and upgrading them so they can offer patients more medical services at cheaper prices than most hospitals. Under the company's plan, patients could receive, say, three hours of medical rehabilitation services at one of their nursing homes for around $300 - significantly less than the $800 it would probably cost for that patient to receive the same treatment in a hospital. Q. LOUIS, DO YOU REGRET ANY OF YOUR INVESTMENT DECISIONS OVER THE PAST SIX MONTHS? A. Sure. I wish I'd invested in pharmacy benefit management companies, which help companies manage their pharmaceutical costs. During the second quarter, these companies took off on rumors that some large pharmaceutical companies were targeting them for takeover. Q. WHAT DO YOU THINK SHAREHOLDERS CAN EXPECT GOING FORWARD? A. I think the fund's outlook is fairly positive. As I see it, that's mostly because health care reform is pretty much out of the picture. For now, I think the private sector will depend on health care services companies - especially HMOs - to help them control their medical costs. Over the past few years, the United States has seen its medical costs drop as more companies and state governments have shifted out of standard indemnity plans and into HMOs. FUND FACTS START DATE: June 30,1986 SIZE: as of August 31, 1994, more than $211 million MANAGER: Louis Salemy, since April 1993; manager, Fidelity Select Industrial Materials Portfolio, since August 1992; joined Fidelity in 1992 (checkmark) MEDICAL DELIVERY PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 82.7% SHARES VALUE (NOTE 1) DRUGS & PHARMACEUTICALS - 1.7% BIOTECHNOLOGY - 1.7% Chiron Corp. (a) 50,000 $ 3,487,498 LODGING & GAMING - 0.1% RACING & GAMING - 0.1% Boyd Gaming Corp. (a) 18,400 232,300 MEDICAL EQUIPMENT & SUPPLIES - 0.6% MEDICAL, DENTAL, HOSPITAL EQUIPMENT - WHOLESALE - 0.5% Owens and Minor, Inc. 75,150 1,108,463 MEDICAL TECHNOLOGY - 0.1% Beckman Instruments, Inc. 5,600 162,400 TOTAL MEDICAL EQUIPMENT & SUPPLIES 1,270,863 MEDICAL FACILITIES MANAGEMENT - 76.8% HEALTH PRACTITIONERS, NEC - 0.5% Apogee, Inc. (a) 56,500 1,073,500 HOME HEALTH CARE AGENCIES - 5.5% Abbey Healthcare Group, Inc. (a) 2,400 43,800 Homedco Group, Inc. (a) 402,800 11,177,700 11,221,500 HOSPITALS - 28.4% Columbia/HCA Healthcare Corp. 453,282 19,264,485 Health Management Associates, Inc. Class A (a) 480,012 11,460,287 Humana, Inc. (a) 808,200 17,174,250 Quorum Health Group, Inc. (a) 205,700 3,779,738 Universal Health Services, Inc. Class B (a) 216,400 6,248,550 57,927,310 HMO'S & OUTPATIENT CARE - 26.6% Coventry Corp. (a) 255,000 5,482,500 Gencare Health Systems, Inc. (a) 120,900 4,956,900 U.S. Healthcare, Inc. 523,700 22,650,025 United HealthCare Corp. 405,400 21,182,150 54,271,575 MEDICAL SERVICES - 8.2% Lincare Holdings, Inc. (a) 672,800 16,651,800 NURSING CARE & NURSING HOMES - 4.4% Integrated Health Services, Inc. (a) 242,900 8,835,488 SKILLED NURSING CARE FACILITIES - 3.2% Multicare Companies, Inc. (a) 349,900 6,560,625 TOTAL MEDICAL FACILITIES MANAGEMENT 156,541,798 REAL ESTATE INVESTMENT TRUSTS - 3.5% Capstone Capital Corp. (a)(b) 405,000 7,138,125 TOTAL COMMON STOCKS (Cost $142,945,312) 168,670,584 REPURCHASE AGREEMENTS - 17.3% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 35,203,723 $ 35,199,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $178,144,312) $ 203,869,584 LEGEND 1. Non-income producing 2. A company in which the fund has ownership of at least 5% of the voting securities is an affiliated compay. A summary of the transactions during the period in which the issuers were affiliates is as follows: PURCHASES SALES DIVIDEND MARKET AFFILIATE COST COST INCOME VALUE Capstone Capital Corp. (a) $ 87,750 $ - $ - $ 7,138,125 OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $149,811,923 and $138,934,857, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $57,317 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $12,310,000 and $4,586,286, respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $178,144,312. Net unrealized appreciation aggregated $25,725,272, of which $26,400,567 related to appreciated investment securities and $675,295 related to depreciated investment securities. At February 28, 1994, the fund had a capital loss carryforward of approximately $12,510,000 of which $1,477,000 and $11,033,000 will expire on February 28, 2001 and 2002, respectively. MEDICAL DELIVERY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $35,199,000) (cost $178,144,312) - See $ 203,869,584 accompanying schedule Cash 21 Receivable for investments sold 15,433,683 Receivable for fund shares sold 10,197,597 Dividends receivable 15,001 Redemption fees receivable 952 Other receivables 56,698 Prepaid expenses 32,247 TOTAL ASSETS 229,605,783 LIABILITIES Payable for investments purchased $ 16,497,615 Payable for fund shares redeemed 1,236,222 Accrued management fee 90,470 Other payables and accrued expenses 596,930 TOTAL LIABILITIES 18,421,237 NET ASSETS $ 211,184,546 Net Assets consist of: Paid in capital $ 185,159,516 Undistributed net investment income 86,576 Accumulated undistributed net realized gain (loss) on investments 213,182 Net unrealized appreciation (depreciation) on investments 25,725,272 NET ASSETS, for 9,516,173 shares outstanding $ 211,184,546 NET ASSET VALUE and redemption price per share ($211,184,546 (divided by) shares) $22.19 Maximum offering price per share (100/97 of $22.19) $22.88
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 564,476 Dividends Interest (including security lending fees of $7,468) 778,892 TOTAL INCOME 1,343,368 EXPENSES Management fee $ 531,809 Transfer agent 671,191 Fees Redemption fees (68,948 ) Accounting and security 87,063 lending fees Non-interested trustees' compensation 498 Custodian fees and expenses 7,920 Registration fees 32,600 Audit 14,075 Legal 1,541 Interest 3,624 Reports to shareholders 7,849 Miscellaneous 280 Total expenses before reductions 1,289,502 Expense reductions (32,710 1,256,792 ) NET INVESTMENT INCOME 86,576 REALIZED AND UNREALIZED GAIN (LOSS) 13,441,652 Net realized gain (loss) on investment securities Change in net unrealized appreciation (depreciation) on investment securities (19,279 ) NET GAIN (LOSS) 13,422,373 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 13,508,949 OTHER INFORMATION $367,766 Sales Charges Paid to FDC Deferred sales charges withheld $4,342 by FDC Exchange fees withheld by FSC $53,453
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 86,576 $ (606,248 Net investment income (loss) ) Net realized gain (loss) 13,441,652 (9,573,815 ) Change in net unrealized appreciation (depreciation) (19,279 46,689,562 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 13,508,949 36,509,499 Share transactions 179,138,568 293,157,307 Net proceeds from sales of shares Cost of shares redeemed (170,298,131 (213,446,953 ) ) Paid in capital portion of redemption fees 282,533 523,366 Net increase (decrease) in net assets resulting from share transactions 9,122,970 80,233,720 TOTAL INCREASE (DECREASE) IN NET ASSETS 22,631,919 116,743,219 NET ASSETS Beginning of period 188,552,627 71,809,408 End of period (including undistributed net investment income of $86,576 and $0, respectively) $ 211,184,546 $ 188,552,627 OTHER INFORMATION Shares Sold 8,767,724 17,052,395 Redeemed (8,547,480 (12,723,955 ) ) Net increase (decrease) 220,244 4,328,440
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 20.28 $ 14.46 $ 19.64 $ 18.75 $ 11.17 $ 9.85 Income from Investment Operations Net investment income (loss) .01 (.10) (.13) (.15) (.01) .16 Net realized and unrealized gain (loss) 1.87 5.84 (3.56) 2.16 7.76 1.43 Total from investment operations 1.88 5.74 (3.69) 2.01 7.75 1.59 Less Distributions From net investment income - - - - - (.05) From net realized gain - - (1.55) (1.24) (.39) (.26) Total distributions - - (1.55) (1.24) (.39) (.31) Redemption fees added to paid in capital .03 .08 .06 .12 .22 .04 Net asset value, end of period $ 22.19 $ 20.28 $ 14.46 $ 19.64 $ 18.75 $ 11.17 TOTAL RETURND, E 9.42% 40.25% (19.63)% 11.71% 72.85% 16.35% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 211,185 $ 188,553 $ 71,809 $ 129,361 $ 131,622 $ 23,559 Ratio of expenses to average net assetsB 1.44%A 1.79% 1.77%A 1.69% 1.94% 2.16% Ratio of expenses to average net assets before 1.48%A 1.82% 1.77%A 1.69% 1.94% 2.16% expense reductionsB Ratio of net investment income (loss) to average net .10%A (.57) (.89)% (.71)% (.07)% 1.43% assets % A Portfolio turnover rate 205%A 164% 155%A 181% 165% 253%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. COMPUTERS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S COMPUTERS 4.18% 28.87% 175.17% 227.44% COMPUTERS (INCL. 3% SALES CHARGE) 1.06% 25.00% 166.91% 217.62% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND COMPUTERS 28.87% 22.44% 13.92% COMPUTERS (INCL. 3% SALES CHARGE) 25.00% 21.70% 13.54% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Computer (007)Standard & Poor' 07/29/85 9700.00 10000.00 07/31/85 9515.70 9926.31 08/31/85 9312.00 9841.93 09/30/85 8904.60 9533.88 10/31/85 9438.10 9974.35 11/30/85 10476.00 10658.59 12/31/85 11019.20 11174.46 01/31/86 11145.30 11237.04 02/28/86 11727.30 12077.57 03/31/86 11727.30 12751.50 04/30/86 12901.00 12607.41 05/31/86 13405.40 13278.12 06/30/86 12513.00 13502.52 07/31/86 10571.75 12747.73 08/31/86 11603.62 13693.61 09/30/86 10708.04 12561.15 10/31/86 11759.37 13285.93 11/30/86 11837.25 13608.78 12/31/86 11885.92 13261.75 01/31/87 14251.43 15048.11 02/28/87 15672.67 15642.51 03/31/87 15779.75 16094.58 04/30/87 16159.40 15951.34 05/31/87 16091.26 16090.11 06/30/87 15760.29 16902.66 07/31/87 16023.12 17759.63 08/31/87 17123.13 18422.06 09/30/87 17269.14 18018.62 10/31/87 11175.30 14137.41 11/30/87 9666.44 12972.49 12/31/87 11131.17 13959.69 01/31/88 10549.01 14547.40 02/29/88 11502.54 15225.31 03/31/88 11321.87 14754.84 04/30/88 11904.02 14918.62 05/31/88 11552.73 15048.41 06/30/88 12646.77 15739.14 07/31/88 11693.24 15679.33 08/31/88 10579.12 15146.23 09/30/88 10860.16 15791.46 10/31/88 9986.93 16230.46 11/30/88 9926.71 15998.37 12/31/88 10569.09 16278.34 01/31/89 11191.39 17469.91 02/28/89 10990.65 17034.91 03/31/89 10468.72 17431.83 04/30/89 11643.06 18336.54 05/31/89 12676.88 19079.17 06/30/89 11171.31 18970.42 07/31/89 11372.06 20683.44 08/31/89 11542.69 21088.84 09/30/89 11813.69 21002.38 10/31/89 11422.24 20515.12 11/30/89 11171.31 20933.63 12/31/89 11291.76 21436.04 01/31/90 11191.39 19997.68 02/28/90 12205.14 20255.65 03/31/90 13078.37 20792.42 04/30/90 12727.07 20272.61 05/31/90 14383.19 22249.19 06/30/90 14644.16 22097.90 07/31/90 13600.30 22027.18 08/31/90 11442.32 20035.93 09/30/90 10689.53 19060.18 10/31/90 11091.02 18978.22 11/30/90 12917.77 20204.21 12/31/90 13370.20 20767.91 01/31/91 15649.21 21673.39 02/28/91 16662.11 23223.04 03/31/91 17978.87 23785.03 04/30/91 16814.04 23842.12 05/31/91 17664.87 24872.10 06/30/91 15259.51 23732.96 07/31/91 16792.77 24838.91 08/31/91 17835.80 25427.59 09/30/91 16897.07 25002.95 10/31/91 16563.30 25337.99 11/30/91 15426.40 24316.87 12/31/91 17481.17 27098.72 01/31/92 19306.47 26594.68 02/29/92 20631.11 26940.42 03/31/92 19003.99 26415.08 04/30/92 18388.60 27191.68 05/31/92 18618.07 27324.92 06/30/92 16824.06 26917.78 07/31/92 17648.05 28018.72 08/31/92 16636.31 27444.33 09/30/92 17460.31 27768.18 10/31/92 18837.10 27865.36 11/30/92 20005.30 28815.57 12/31/92 21319.51 29170.00 01/31/93 22560.72 29415.03 02/28/93 21017.03 29815.08 03/31/93 21434.25 30444.17 04/30/93 20825.49 29707.43 05/31/93 23265.47 30503.58 06/30/93 22334.43 30592.05 07/31/93 23265.47 30469.68 08/31/93 24645.99 31624.48 09/30/93 25341.60 31380.97 10/31/93 25341.60 32030.56 11/30/93 26422.47 31726.27 12/31/93 27474.01 32110.15 01/31/94 29245.43 33201.90 02/28/94 30486.56 32302.13 03/31/94 30170.64 30893.75 04/30/94 29978.82 31289.19 05/31/94 29956.26 31802.34 06/30/94 27496.57 31023.18 07/31/94 28365.36 32040.74 08/31/94 31761.53 33354.41 Let's say you invested $10,000 in Fidelity Select Computers Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $31,762 - a 217.62% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Advanced Micro Devices, Inc. 7.6 Compaq Computer Corp. 6.2 Texas Instruments, Inc. 6.1 International Business Machines Corp. 5.3 Intel Corp. 5.3 Sun Microsystems, Inc. 4.9 EMC Corp. 4.1 Digital Equipment Corp. 4.1 LSI Logic Corp. 2.5 Samsung Electronics Ltd. GDR (non-vtg.) 2.3 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 35.6 Row: 1, Col: 2, Value: 4.9 Row: 1, Col: 3, Value: 6.4 Row: 1, Col: 4, Value: 6.7 Row: 1, Col: 5, Value: 11.2 Row: 1, Col: 6, Value: 35.2 Semiconductors 35.2% Mini & Micro Computers 11.2% Mainframe Computers 6.7% Graphics Workstations 6.4% Computer Peripherals 4.9% All Others 35.6%* * INCLUDES SHORT-TERM INVESTMENTS COMPUTERS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Harry Lange, Portfolio Manager of Fidelity Select Computers Portfolio Q. HARRY, HOW HAS THE FUND PERFORMED? A. The fund returned 4.18% during the six months ended August 31, 1994. That topped the S&P 500, which returned 3.26% during the same period. For the 12 months ended August 31, the fund was up 28.87%, compared to 5.47% for the S&P 500. Q. ALTHOUGH THE FUND OUT-PERFORMED THE BROAD MARKET OVER THE PAST SIX MONTHS, PERFORMANCE APPEARS TO HAVE SLOWED FROM LAST YEAR. WHAT HAPPENED? A. Two things. First, investors sold technology stocks heavily in March and April, because they were concerned about a summer slowdown in orders. Often business slows as a result of summer vacations. Over the past couple of years, explosive growth in the personal computer industry has allowed these stocks to continue performing well right through the summer, but this year the momentum wasn't strong enough. In addition, some of the highest-flying computer-related stocks over the past few years - those of data communications companies - fell particularly hard as earnings growth slowed at a couple of key companies. Although the fund had less than a 2% stake in these networking stocks at the end of February, their performance led investors to worry about the future earnings potential of many companies linked to the PC industry. Q. DO YOU FEEL THAT GROWTH IN THE PC INDUSTRY MAY BE SLOWING? A. Not at all; I think the underlying story behind these companies remains very positive. In fact, once the valuations - prices relative to earnings - of some of the fund's stocks had fallen, investors rushed back to these companies because they have such strong earnings potential. That caused the fund to bounce back quickly from the spring correction - it was up nearly 12% in August alone. In addition, the correction had little or no effect on several of the fund's largest investments. Q. WHICH STOCKS WERE THOSE? A. Two companies that manufacture computer hardware - IBM and Compaq - performed well over the past six months. IBM has done a good job of cutting costs, and the marketplace has embraced many of the company's new products. Meanwhile, Compaq continues to gain market share with its successful line of PCs. Sun Microsystems and Digital Equipment are two more hardware-related companies that are among the fund's top 10 investments. Sun manufactures low-end computer workstations that are competing very well in the marketplace. Data processing equipment manufacturer Digital has fallen on rough times recently, but I believe a major restructuring plan is helping to turn things around. Q. WHERE ELSE DID YOU FIND OPPORTUNITIES? A. The fund had about a 14% stake in overseas computer-related companies on August 31, and they have performed well lately. Three Taiwanese companies offered very strong earnings growth coupled with attractive valuations: Acer, the country's largest PC company; UMC, a semiconductor manufacturer; and Kinpo Electronics, which makes electronics products. In addition, the fund benefited from owning Samsung, a Korean company that is the largest semiconductor memory maker in the world. Q. THE FUND CONTINUES TO HOLD A SIZABLE INVESTMENT IN MAJOR U.S. CHIP MAKERS. HOW DID THEY PERFORM? A. Micron Technology led the pack, on the heels of an upward surprise in earnings. However, the summer slowdown I described earlier contributed to disappointing stock performance from most of the fund's other U.S. chip makers, including Advanced Micro Devices, Intel and Texas Instruments, despite continued strong earnings. Q. WERE THERE ANY OTHER NOTABLE DISAPPOINTMENTS? A. Yes. Although they've had a strong past couple of years, increased price competition hurt computer distributors such as Merisel, MicroAge and Tech Data. Longer term, I think these "middle men" will continue to grow faster than the PC industry as a whole. But I've cut back on the fund's investments in some of these companies until I can see some improvement in their ability to raise prices. Q. HOW DO YOU SEE THE REST OF THE YEAR SHAPING UP? A. All signs point to a strong Christmas season for personal computers. However, there is reason for caution. While I believe that PC sales should remain strong through the end of the year, pricing is critical. PC manufacturers have higher inventories than they've had for a while. That means that even if they sell all of their units, they may not be able to price them high enough to create desirable profit margins. Although this could lead to some short-term volatility, I believe the long-term picture for the industry remains encouraging. FUND FACTS START DATE: July 29, 1985 SIZE: as of August 31, 1994, more than $110 million MANAGER: Harry Lange, since June 1992; manager, Fidelity Electronics Portfolio, since January 1994; Fidelity Select Technology Portfolio, since November 1993; manager Fidelity Select Capital Goods and Automation Machinery Portfolios, 1988; joined Fidelity in 1987 (checkmark) COMPUTERS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 86.6% SHARES VALUE (NOTE 1) COMMUNICATIONS EQUIPMENT - 1.4% DATACOMMUNICATIONS EQUIPMENT - 0.3% 3Com Corp. (a) 5,000 $ 334,687 TELEPHONE EQUIPMENT - 1.1% DSC Communications Corp. (a) 1,000 28,625 Natural Microsystems (a) 57,200 672,100 Perceptron, Inc. (a) 31,700 594,375 1,295,100 TOTAL COMMUNICATIONS EQUIPMENT 1,629,787 COMPUTER SERVICES & SOFTWARE - 6.7% COMPUTER & SOFTWARE STORES - 2.1% Intelligent Electronics, Inc. 3,800 58,900 MicroAge, Inc. (a) 187,600 2,391,900 2,450,800 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.0% Softdesk, Inc. (a) 2,500 38,750 CAD/CAM/CAE - 0.5% Brooktrout Technology (a) 22,100 226,525 Computervision Corporation 52,000 143,000 ECI Telecom Ltd. 10,000 180,625 Integrated Silicon Systems, Inc. (a) 500 12,500 Tecnomatix Technologies (a) 7,500 46,875 609,525 DATA PROCESSING - 0.2% Ceridian Corp. (a) 10,000 267,500 ELECTRONIC INFORMATION RETRIEVAL - 0.1% Data Broadcasting Corp. (a) 15,000 75,000 PREPACKAGED COMPUTER SOFTWARE - 3.8% Cheyenne Software, Inc. (a) 6,450 80,625 Fuji Software, Inc. 13,000 323,054 Geoworks (a) 3,300 23,100 Globalink, Inc. (a) 118,200 1,462,725 Infosoft International, Inc. (a) 17,500 470,313 Oracle Systems Corp. (a) 40,000 1,707,500 Tulip Computers NV 20,000 190,476 Wonderware Corp. (a) 4,000 75,000 4,332,793 TOTAL COMPUTER SERVICES & SOFTWARE 7,774,368 COMPUTERS & OFFICE EQUIPMENT - 39.1% COMPUTER EQUIPMENT - 1.0% Stratus Computer, Inc. (a) 20,000 760,000 Syquest Technology, Inc. (a) 35,200 343,200 1,103,200 COMPUTER EQUIPMENT - WHOLESALE - 3.8% GBC Technologies, Inc. (a) 138,700 1,230,963 Merisel, Inc. (a) 50,000 456,250 Southern Electronics Corp. (a) 20,000 127,500 Tech Data Corp. (a) 134,800 2,527,500 4,342,213 COMPUTER PERIPHERALS - 4.9% EMC Corp. (a) 263,100 4,735,800 Komag, Inc. (a) 15,700 368,950 Liuski International, Inc. (a) 22,500 123,750 Radius, Inc. (a) 28,350 272,869 Western Digital Corp. (a) 6,200 93,000 5,594,369 SHARES VALUE (NOTE 1) COMPUTER RENTAL & LEASING - 1.5% Comdisco, Inc. 76,600 $ 1,675,625 COMPUTER STORAGE DEVICES - 0.3% Exabyte (a) 20,900 394,488 COMPUTERS & OFFICE EQUIPMENT - 3.0% Canon, Inc. 35,000 611,277 Fujitsu Ltd. 50,000 543,912 Hewlett-Packard Co. 20,500 1,842,438 Nippon Data Kiki Co. Ltd. 18,000 395,210 3,392,837 ELECTRONIC COMPUTERS - 0.2% Integrated Micro Products sponsored ADR (a) 25,000 237,500 GRAPHICS WORKSTATIONS - 6.4% Silicon Graphics, Inc. (a) 52,000 1,365,000 Sun Microsystems, Inc. (a) 212,100 5,620,650 Supermac Technology, Inc. (a) 50,000 343,750 7,329,400 MAINFRAME COMPUTERS - 6.7% Amdahl Corp. 170,800 1,579,900 Control Data Systems, Inc. (a) 5,000 38,125 International Business Machines Corp. 89,300 6,128,213 7,746,238 MINI & MICRO COMPUTERS - 11.2% Compaq Computer Corp. (a) 191,600 7,161,050 Concurrent Computer Corp. (a) 23,200 49,300 Digital Equipment Corp. (a) 195,200 4,733,600 Sequent Computer Systems, Inc. (a) 10,000 165,000 Tandem Computers, Inc. (a) 50,000 756,250 12,865,200 PENS, PENCILS, OFFICE SUPPLIES - 0.1% International Imaging Materials, Inc. (a) 6,000 144,750 TOTAL COMPUTERS & OFFICE EQUIPMENT 44,825,820 CONSUMER ELECTRONICS - 0.3% RADIOS, TELEVISIONS, STEREOS - 0.3% Foster Electric Co. Ltd. (a) 7,000 62,892 Odetics, Inc. Class A (a) 32,000 296,000 358,892 ELECTRICAL EQUIPMENT - 0.3% TV & RADIO COMMUNICATION EQUIPMENT - 0.1% Avid Technology, Inc. (a) 3,000 99,750 WIRING & LIGHTING - 0.2% Oak Industries, Inc. (a) 7,400 198,875 TOTAL ELECTRICAL EQUIPMENT 298,625 ELECTRONIC INSTRUMENTS - 3.3% ELECTRONIC EQUIPMENT - 1.2% ASECO Corp. (a) 35,700 294,525 Credence Systems Corp. (a) 15,400 342,650 GenRad, Inc. (a) 51,500 270,375 LTX Corp. (a) 10,000 40,000 Megatest Corp. (a) 20,300 390,775 Micro Component Technology, Inc. 200 975 1,339,300 MEASURING INSTRUMENTS - 0.3% Perkin-Elmer Corp. (a) 10,000 298,750 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRONIC INSTRUMENTS - CONTINUED SEMI-CONDUCTOR CAPITAL EQUIPMENT - 1.8% Applied Materials, Inc. (a) 3,300 $ 166,650 Electro Scientific Industries, Inc. (a) 32,500 402,188 KLA Instruments Corp. (a) 32,600 1,548,500 2,117,338 TOTAL ELECTRONIC INSTRUMENTS 3,755,388 ELECTRONICS - 34.6% ELECTRONIC PARTS - WHOLESALE - 1.1% Arrow Electronics, Inc. (a) 7,703 295,603 Pioneer-Standard Electronics, Inc. 4,950 84,769 Sterling Electronics Corp. (a) 68,800 877,200 1,257,572 ELECTRONICS AND ELECTRIC COMPONENTS - 1.2% Cirrus Logic, Inc. (a) 15,000 414,375 Sanmina Corp. (a) 10,000 202,500 Toshiba Corp. 100,000 757,485 1,374,360 SEMICONDUCTORS - 32.3% Advanced Micro Devices, Inc. (a) 302,000 8,758,000 Atmel Corp. (a) 20,000 550,000 Austria Mikro Systems International (b) 10,000 621,174 Burr-Brown Corp. (a) 5,000 49,375 Cyrix Corp. (a) 5,700 226,575 Geotek Industries, Inc. (a) 50,000 568,750 IMP, Inc. (a) 180,000 320,625 Integrated Device Technology, Inc. (a) 700 16,363 Intel Corp. 92,900 6,108,170 Interpoint Corp. (a) 10,000 107,500 LSI Logic Corp. (a) 90,800 2,860,200 Lattice Semiconductor Corp. (a) 12,200 230,275 Logic Devices, Inc. (a) 30,000 88,125 Micron Technology, Inc. (a) 23,500 945,875 Motorola, Inc. (a) 10,000 540,000 National Semiconductor Corp. (a) 93,200 1,735,850 Opti, Inc. (a) 48,700 645,275 Samsung Electronics Co. Ltd.: GDS (b) 25,400 1,993,900 GDR (a) (b) 2,831 222,234 GDR (non - vtg.) (b) 34,275 2,690,588 GDR Part Dividend (a) (b) 2,589 110,092 Supertex, Inc. (a) 20,000 82,500 Texas Instruments, Inc. (a) 90,000 7,008,750 VLSI Technology, Inc. (a) 40,200 560,288 37,040,484 TOTAL ELECTRONICS 39,672,416 INDUSTRIAL MACHINERY & EQUIPMENT - 0.2% GENERAL INDUSTRIAL MACHINERY - 0.0% Robotic Vision Systems, Inc. (a) 5,000 25,000 SPECIAL INDUSTRIAL MACHINERY - 0.2% Asyst Technologies, Inc. (a) 10,700 173,875 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 198,875 LEASING & RENTAL - 0.1% EQUIPMENT RENTAL AND LEASING, NEC - 0.1% Leasing Solutions, Inc. (a) 14,000 115,500 MEDICAL EQUIPMENT & SUPPLIES - 0.2% MEDICAL SUPPLIES & APPLIANCES - 0.2% Steris Corporation (a) 10,000 225,000 SHARES VALUE (NOTE 1) PHOTOGRAPHIC EQUIPMENT - 0.1% Megahertz Corp. (a) 13,800 $ 79,350 SERVICES - 0.3% ELECTRICAL REPAIR SHOPS, NEC - 0.3% Cerplex Group, Inc. (a) 22,500 354,375 TOTAL COMMON STOCKS (Cost $88,721,449) 99,288,396 CORPORATE BONDS - 6.1% PRINCIPAL AMOUNT CONVERTIBLE BONDS - 6.1% COMPUTERS & OFFICE EQUIPMENT - 3.2% ELECTRONIC COMPUTERS - 2.7% Acer, Inc. 4%, 6/10/01 $ 1,070,000 3,156,500 OFFICE EQUIPMENT - WHOLESALE - 0.5% Kinpo Electronics, Inc. euro 3%, 7/21/01 450,000 533,250 TOTAL COMPUTERS & OFFICE EQUIPMENT 3,689,750 ELECTRONICS - 2.9% SEMICONDUCTORS - 2.9% United Microelectronics Corp.: 1 1/4%, 6/8/04 (b) 1,070,000 1,845,750 1 1/4%, 6/8/04 850,000 1,466,250 3,312,000 TOTAL CONVERTIBLE BONDS (Cost $5,773,444) 7,001,750 OTHER SECURITIES - 0.4% INDEXED SECURITIES - 0.4% Hewlett Packard Finance Co. 0%, 4/25/95 (indexed to the price of Hewlett Packard common stock) (b) (Cost $424,000) 400,000 451,600 REPURCHASE AGREEMENTS - 6.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 7,948,066 7,947,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $102,865,893) $ 114,688,746 LEGEND 1. Non-income producing 2. 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 $7,935,338 or 7.2% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $193,867,108 and $164,444,384, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $98,114 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $14,435,000 and $5,307,625, respectively. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 85.6% Taiwan (Free China) 6.3 Korea 4.5 Japan 2.4 Others (individually less than 1%) 1.2 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $102,871,639. Net unrealized appreciation aggregated $11,817,107, of which $15,550,832 related to appreciated investment securities and $3,733,725 related to depreciated investment securities. COMPUTERS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $7,947,000) (cost $102,865,893) - See $ 114,688,746 accompanying schedule Cash 63,917 Receivable for investments sold 810,350 Receivable for fund shares sold 5,199,675 Dividends receivable 34,879 Interest receivable 5,703 Redemption fees receivable 2,038 Other receivables 38,959 TOTAL ASSETS 120,844,267 LIABILITIES Payable for investments purchased $ 6,795,136 Payable for fund shares redeemed 2,996,737 Accrued management fee 49,563 Other payables and accrued expenses 53,294 TOTAL LIABILITIES 9,894,730 NET ASSETS $ 110,949,537 Net Assets consist of: Paid in capital $ 101,913,592 Accumulated net investment (loss) (678,906 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (2,108,006 ) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 11,822,857 NET ASSETS, for 3,941,482 shares outstanding $ 110,949,537 NET ASSET VALUE and redemption price per share ($110,949,537 (divided by) shares) $28.15 Maximum offering price per share (100/97 of $28.15) $29.02
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 173,530 Dividends Interest 152,184 TOTAL INCOME 325,714 EXPENSES Management fee $ 354,216 Transfer agent 583,523 Fees Redemption fees (98,602 ) Accounting fees and expenses 57,172 Non-interested trustees' compensation 328 Custodian fees and expenses 9,396 Registration fees 47,649 Audit 11,163 Legal 706 Interest 34,423 Reports to shareholders 4,025 Miscellaneous 117 Total expenses before reductions 1,004,116 Expense reductions (10,193 993,923 ) NET INVESTMENT INCOME (LOSS) (668,209 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (1,854,019 ) Foreign currency transactions 388 (1,853,631 ) Change in net unrealized appreciation (depreciation) on: Investment securities (3,756,702 ) Assets and liabilities in foreign currencies 4 (3,756,698 ) NET GAIN (LOSS) (5,610,329 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (6,278,538 ) OTHER INFORMATION $1,101,177 Sales Charges Paid to FDC Deferred sales charges withheld $4,813 by FDC Exchange fees withheld by FSC $78,945
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (668,209 $ (377,060 Net investment income (loss) ) ) Net realized gain (loss) (1,853,631 5,305,912 ) Change in net unrealized appreciation (depreciation) (3,756,698 11,882,729 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (6,278,538 16,811,581 ) Distributions to shareholders from net realized gain - (3,924,122 ) Share transactions 259,585,198 184,130,331 Net proceeds from sales of shares Reinvestment of distributions - 3,842,739 Cost of shares redeemed (263,741,545 (128,419,730 ) ) Paid in capital portion of redemption fees 949,848 398,209 Net increase (decrease) in net assets resulting from share transactions (3,206,499 59,951,549 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (9,485,037 72,839,008 ) NET ASSETS Beginning of period 120,434,574 47,595,566 End of period (including accumulated net investment (loss) of $(678,906) and $(10,697), respectively) $ 110,949,537 $ 120,434,574 OTHER INFORMATION Shares Sold 9,514,215 7,631,888 Issued in reinvestment of distributions - 169,028 Redeemed (10,029,160 (5,706,315 ) ) Net increase (decrease) (514,945 2,094,601 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 27.02 $ 20.15 $ 17.63 $ 16.60 $ 12.68 $ 11.60 Income from Investment Operations Net investment income (loss) (.15) (.21)H (.15) (.03)G .42F (.11) Net realized and unrealized gain (loss) 1.06I 8.66 2.44 1.18 3.21 .98 Total from investment operations .91 8.45 2.29 1.15 3.63 .87 Less Distributions From net investment income - - - - (.12) - In excess of net investment income - - - (.27) - - From net realized gain - (1.80) - (.22) - - Total distributions - (1.80) - (.49) (.12) - Redemption fees added to paid in capital .22 .22 .23 .37 .41 .21 Net asset value, end of period $ 28.15 $ 27.02 $ 20.15 $ 17.63 $ 16.60 $ 12.68 TOTAL RETURND, E 4.18% 45.06% 14.29% 9.36% 32.11% 9.31% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 110,950 $ 120,435 $ 47,596 $ 32,810 $ 29,455 $ 27,561 Ratio of expenses to average net assetsB 1.70%A 1.89% 1.81%A 2.17% 2.26% 2.64% Ratio of expenses to average net assets before 1.72%A 1.90% 1.81%A 2.17% 2.26% 3.82% expense reductionsB Ratio of net investment income (loss) to average net (1.15)% (.91) (.98)% (.18)% 2.94% (.94)% assets A % A Portfolio turnover rate 332%A 145% 254%A 568% 695% 596%
1 ANNUALIZED 2 SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. 3 NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING EACH PERIOD. 4 TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. 5 THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. 6 INVESTMENT INCOME PER SHARE INCLUDES A SPECIAL DIVIDEND WHICH AMOUNTED TO $.08 PER SHARE AND $.36 PER SHARE RELATING TO A NONRECURRING INITIATIVE TO INVEST IN DIVIDEND INCOME PRODUCING SECURITIES WHICH WAS IN EFFECT FOR A PORTION OF 1991. 7 INVESTMENT INCOME PER SHARE INCLUDES $.22 PER SHARE RELATING TO A NONRECURRING INITIATIVE TO INVEST IN DIVIDEND INCOME PRODUCING SECURITIES WHICH WAS IN EFFECT FOR A PORTION OF 1992. 8 INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND FROM INTELLIGENT ELECTRONICS WHICH AMOUNTED TO $.07 PER SHARE. I THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET LOSS ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. DEFENSE AND AEROSPACE PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). If Fidelity had not reimbursed certain fund expenses during the period, the fund's total returns would have been lower. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S DEFENSE AND AEROSPACE 0.05% 12.05% 48.10% 82.53% DEFENSE AND AEROSPACE (INCL. 3% SALES CHARGE) -2.95% 8.68% 43.66% 77.05% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS DEFENSE AND AEROSPACE 12.05% 8.17% 6.20% DEFENSE AND AEROSPACE (INCL. 3% SALES CHARGE) 8.68% 7.51% 5.88% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Defense (067) Standard & Poor's 08/31/84 9700.00 10000.00 09/30/84 9404.32 10002.00 10/31/84 9535.73 10041.01 11/30/84 9059.36 9928.55 12/31/84 9371.47 10190.66 01/31/85 10603.47 10984.51 02/28/85 10973.08 11119.62 03/31/85 10660.97 11127.41 04/30/85 10274.94 11117.39 05/31/85 10521.34 11759.98 06/30/85 10967.56 11944.61 07/31/85 11282.10 11926.69 08/31/85 11248.99 11825.32 09/30/85 10595.07 11455.18 10/31/85 10785.45 11984.41 11/30/85 11364.87 12806.54 12/31/85 11844.96 13426.38 01/31/86 11695.97 13501.57 02/28/86 12333.33 14511.49 03/31/86 13036.91 15321.23 04/30/86 13136.23 15148.10 05/31/86 13459.05 15953.98 06/30/86 13740.48 16223.60 07/31/86 12886.06 15316.70 08/31/86 13549.26 16453.20 09/30/86 12457.93 15092.52 10/31/86 12625.82 15963.36 11/30/86 13028.78 16351.27 12/31/86 12415.95 15934.31 01/31/87 13498.89 18080.66 02/28/87 14355.16 18794.85 03/31/87 14086.52 19338.02 04/30/87 13473.70 19165.91 05/31/87 13289.02 19332.65 06/30/87 13163.09 20308.95 07/31/87 13515.68 21338.62 08/31/87 13372.96 22134.55 09/30/87 13104.33 21649.80 10/31/87 9763.19 16986.43 11/30/87 9259.50 15586.75 12/31/87 9535.62 16772.90 01/31/88 10149.13 17479.04 02/29/88 10753.87 18293.57 03/31/88 10727.58 17728.29 04/30/88 10657.46 17925.08 05/31/88 10254.30 18081.03 06/30/88 10674.99 18910.95 07/31/88 10464.65 18839.08 08/31/88 10210.48 18198.55 09/30/88 10517.23 18973.81 10/31/88 10499.70 19501.29 11/30/88 10035.19 19222.42 12/31/88 9947.55 19558.81 01/31/89 10341.94 20990.51 02/28/89 10298.12 20467.85 03/31/89 10508.47 20944.75 04/30/89 10885.34 22031.78 05/31/89 11078.15 22924.07 06/30/89 10946.69 22793.40 07/31/89 11656.60 24851.65 08/31/89 11954.59 25338.74 09/30/89 11735.48 25234.85 10/31/89 11069.39 24649.40 11/30/89 10648.70 25152.25 12/31/89 10823.98 25755.90 01/31/90 10210.48 24027.68 02/28/90 10245.54 24337.64 03/31/90 10876.57 24982.59 04/30/90 10429.59 24358.02 05/31/90 11200.85 26732.93 06/30/90 11208.91 26551.15 07/31/90 10759.14 26466.18 08/31/90 9815.51 24073.64 09/30/90 9498.03 22901.25 10/31/90 9374.57 22802.78 11/30/90 9877.25 24275.84 12/31/90 10327.82 24953.13 01/31/91 11239.36 26041.09 02/28/91 11460.61 27903.03 03/31/91 12345.60 28578.28 04/30/91 12142.05 28646.87 05/31/91 12708.44 29884.41 06/30/91 12069.03 28515.71 07/31/91 12593.39 29844.54 08/31/91 12460.08 30551.86 09/30/91 12166.80 30041.64 10/31/91 12753.36 30444.20 11/30/91 12175.68 29217.30 12/31/91 13108.86 32559.76 01/31/92 13064.42 31954.14 02/29/92 13268.83 32369.55 03/31/92 13002.21 31738.34 04/30/92 12771.14 32671.45 05/31/92 12131.25 32831.54 06/30/92 11562.46 32342.35 07/31/92 12006.82 33665.15 08/31/92 11775.75 32975.02 09/30/92 11944.61 33364.12 10/31/92 12042.37 33480.90 11/30/92 12460.08 34622.59 12/31/92 13108.86 35048.45 01/31/93 13499.90 35342.86 02/28/93 13402.14 35823.52 03/31/93 14113.13 36579.40 04/30/93 14157.56 35694.18 05/31/93 14593.05 36650.78 06/30/93 15206.27 36757.07 07/31/93 15828.39 36610.04 08/31/93 15801.73 37997.56 09/30/93 16210.54 37704.98 10/31/93 16859.32 38485.47 11/30/93 16361.63 38119.86 12/31/93 16891.78 38581.11 01/31/94 17696.15 39892.87 02/28/94 17696.15 38811.77 03/31/94 16984.24 37119.58 04/30/94 17076.42 37594.71 05/31/94 17132.72 38211.26 06/30/94 16701.12 37275.09 07/31/94 16945.07 38497.71 08/31/94 17705.06 40076.11 Let's say you invested $10,000 in Fidelity Select Defense and Aerospace Portfolio on August 31, 1984, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $17,705 - a 77.05% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS McDonnell Douglas Corp. 9.1 United Technologies Corp. 8.5 General Motors Corp. Class H 7.2 Allied-Signal, Inc. 6.2 Raytheon Co. 6.1 Harris Corp. 5.8 TRW, Inc. 5.6 AMR Corp. 4.6 General Electric Co. 4.5 Loral Corp. 4.2 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 20.8 Row: 1, Col: 2, Value: 6.6 Row: 1, Col: 3, Value: 7.2 Row: 1, Col: 4, Value: 12.2 Row: 1, Col: 5, Value: 13.2 Row: 1, Col: 6, Value: 13.7 Row: 1, Col: 7, Value: 26.3 Conglomerates 26.3% Missiles & Space Vehicles 13.9% Defense Electronics 13.7% Aircraft 12.2% Motor Vehicles & Car Bodies 7.2% Air Transportation, Major National 6.6% All Others 20.1% DEFENSE AND AEROSPACE PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Stephen Binder, Portfolio Manager of Fidelity Select Defense and Aerospace Portfolio Q. STEVE, HOW DID THE FUND PERFORM? A. The fund essentially broke even, returning 0.05% for the six months ended August 31, 1994. That trailed the S&P 500's 3.26% return during the same period. However, the fund posted better results for the 12 months ended August 31, returning 12.05% versus the S&P 500's 5.47% return. Q. WHAT WAS THE BIGGEST INFLUENCE ON THE FUND'S PERFORMANCE OVER THE PAST SIX MONTHS? A. The fund holds a lot of multi-industrial conglomerates that have aerospace or defense subsidiaries. These companies are largely cyclical, which means their fortunes tend to rise and fall with the ups and downs in the economy. When the economy improved late last year and into this year, many of the fund's conglomerate stocks likewise improved. The restructuring and cost-cutting that many of these companies undertook really benefited their profits and their stock prices once the economy picked up. However, this year's rise in interest rates held back the stock prices of many conglomerates. More recently, with evidence that inflation remains under control and the economic recovery remains intact, many of the stocks have made a comeback. Q. UNITED TECHNOLOGIES IS THE FUND'S LARGEST INVESTMENT IN A CONGLOMERATE. HOW DID IT DO DURING THE PERIOD? A. United Technologies (UT) continues to benefit from economic recoveries in many parts of the world. This is particularly evident in its Carrier air conditioning subsidiary. Demand for air conditioning systems and equipment has been very strong, especially in North America. In addition, Pratt & Whitney, UT's aerospace subsidiary, installed new management which implemented an aggressive cost-cutting and downsizing plan. These solid contributions from UT's major subsidiaries increased the company's free cash flow substantially. It is using this cash to reduce its debt, buy back shares of its stock and increase the stock's dividend. The stock was down about 6% for the past six months, but the company's prospects going forward are quite compelling. Q. WHICH STOCKS HAVE HELPED THE FUND THIS YEAR? A. Examples include Watkins-Johnson - up over 80% year-to-date through August 31 - and Harris Corporation. Both have semiconductor operations in addition to their defense businesses. Semiconductor sales have been strong due to increased computer sales and higher levels of industrial production. These stocks performed well early in the year, corrected through the spring and summer, and have recovered lately. Q. WHAT'S YOUR TAKE ON THE CURRENT STATE OF THE DEFENSE INDUSTRY? A. There continues to be immense pressure on revenues due to the reduced federal defense budget. Companies are trying to deal with this in three primary ways: downsizing, which means cutting employees and shedding non-core operations; generating more export sales to U. S. allies; and consolidating operations through mergers. The most notable combinations of defense contractors this year have been Northrop's purchase of Grumman and, at the end of August, Martin Marietta's agreement to merge with Lockheed, thus forming the largest company in the industry. Q. MCDONNELL DOUGLAS IS THE FUND'S LARGEST PURE PLAY ON THE DEFENSE INDUSTRY. HOW HAS IT DONE RECENTLY? A. The stock was somewhat volatile during the past six months and ended the period close to where it started. However, McDonnell Douglas improved its profit margins and balance sheet significantly in 1993 through aggressive cost cutting and debt repayment. One question mark for the stock is the impact of cost overruns in the C-17 military airlift program, which has stirred controversy in Congress. McDonnell Douglas appears to have reached an agreement with the Defense Department, but Congress has yet to approve acquisition funding for the aircraft. Q. WHAT IS YOUR OUTLOOK AND GAME PLAN GOING FORWARD? A. The overall performance of the conglomerates hasn't been as strong as I had hoped. However, I'm going to stick with them because many of the companies are showing improving profit margins and plenty of free cash flow. This gives them options that they wouldn't otherwise have, such as paying down debt, buying their own shares, or making strategic acquisitions. As for pure defense companies, industry consolidation will likely continue. I expect to maintain the fund's investment in defense contractors because I think the consolidation trend will support their stock prices. FUND FACTS START DATE: May 8, 1984 SIZE: as of August 31, 1994, more than $4 million MANAGER: Stephen Binder, since October 1992; manager, Fidelity Select Regional Banks Portfolio, since May 1990; Fidelity Select Financial Services Portfolio, since November 1993; joined Fidelity in 1989 (checkmark) DEFENSE AND AEROSPACE PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 99.3% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 34.2% AIRCRAFT - 12.2% Boeing Co. 2,500 $ 113,750 McDonnell Douglas Corp. 2,800 331,100 444,850 AIRCRAFT & PARTS - 1.4% ROHR Industries, Inc. (a) 5,000 51,875 AIRCRAFT EQUIPMENT - 3.4% Aviall, Inc. 4,000 42,500 Transtechnology Corp. 6,400 82,400 124,900 MISSILES & SPACE VEHICLES - 13.2% Lockheed Corp. 1,000 78,750 Martin Marietta Corp. 2,500 127,188 Orbital Sciences Corporation (a) 3,000 55,500 Rockwell International Corp. 3,600 130,050 Thiokol Corp. 3,500 89,688 481,176 ORDNANCE - 1.0% Alliant Techsystems, Inc. (a) 1,200 38,250 TRNG EQUIPMENT & SIMULATORS - 3.0% Flightsafety International, Inc. 2,800 109,550 TOTAL AEROSPACE & DEFENSE 1,250,601 AIR TRANSPORTATION - 6.6% AIR TRANSPORT, MAJOR NATIONAL - 6.6% AMR Corp. (a) 2,800 168,700 KLM Royal Dutch Airlines (a) 2,400 70,500 239,200 AUTOS, TIRES, & ACCESSORIES - 12.8% AUTO & TRUCK PARTS - 5.6% TRW, Inc. 2,700 202,500 MOTOR VEHICLES & CAR BODIES - 7.2% General Motors Corp. Class H 7,000 262,500 TOTAL AUTOS, TIRES, & ACCESSORIES 465,000 CONGLOMERATES - 26.3% Allied-Signal, Inc. 6,000 224,250 Harris Corp. 4,400 212,850 Sequa Corp. Class A (a) 3,000 84,000 Textron, Inc. 2,300 127,075 United Technologies Corp. 4,850 308,581 956,756 DEFENSE ELECTRONICS - 13.7% Loral Corp. 3,700 154,475 Raytheon Co. 3,300 223,163 Watkins-Johnson Co. 3,300 120,450 498,088 ELECTRICAL EQUIPMENT - 4.5% ELECTRICAL MACHINERY - 4.5% General Electric Co. 3,300 164,175 SHIP BUILDING & REPAIR - 1.2% SHIP BUILDERS - 1.2% General Dynamics Corp. 1,000 45,124 TOTAL COMMON STOCKS (Cost $3,549,113) 3,618,944 CORPORATE BONDS - 0.7% PRINCIPAL AMOUNT CONVERTIBLE BONDS - 0.7% AEROSPACE & DEFENSE - 0.7% MISSILES & SPACE VEHICLES - 0.7% Orbital Sciences Corp. 6 3/4%, 3/1/03 (Cost $18,000) $18,000 $ 24,390 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $3,567,113) $ 3,643,334 LEGEND 1. Non-income producing OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $4,483,840 and $9,391,841, respectively. (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $4,047 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $2,032,000 and $2,009,750 respectively. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $3,567,113. Net unrealized appreciation aggregated $76,221, of which $153,966 related to appreciated investment securities and $77,745 related to depreciated investment securities. DEFENSE AND AEROSPACE PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (cost $3,567,113) - See accompanying schedule $ 3,643,334 Receivable for investments sold 468,138 Receivable for fund shares sold 281,504 Dividends receivable 14,220 Interest receivable 604 Redemption fees receivable 10 Other receivables 1,084 Prepaid expenses 10,403 Receivable from investment adviser for expense reductions 4,726 TOTAL ASSETS 4,424,023 LIABILITIES Payable to custodian bank $ 108,799 Payable for investments purchased 116,304 Payable for fund shares redeemed 160,872 Accrued management fee 2,053 Other payables and accrued expenses 21,224 TOTAL LIABILITIES 409,252 NET ASSETS $ 4,014,771 Net Assets consist of: Paid in capital $ 4,229,685 Accumulated net investment (loss) (16,654 ) Accumulated undistributed net realized gain (loss) on investments (274,481 ) Net unrealized appreciation (depreciation) on investments 76,221 NET ASSETS, for 212,736 shares outstanding $ 4,014,771 NET ASSET VALUE and redemption price per share ($4,014,771 (divided by)shares) $18.87 Maximum offering price per share (100/97 of $18.87) $19.45
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 55,359 Dividends Interest 12,947 TOTAL INCOME 68,306 EXPENSES Management fee $ 20,860 Transfer agent 56,822 Fees Redemption fees (11,173 ) Accounting fees and expenses 22,516 Non-interested trustees' compensation 21 Custodian fees and expenses 4,388 Registration fees 10,403 Audit 8,473 Interest 942 Reports to shareholders 822 Miscellaneous 40 Total expenses before reductions 114,114 Expense reductions (29,154 84,960 ) NET INVESTMENT INCOME (LOSS) (16,654 ) REALIZED AND UNREALIZED GAIN (LOSS) (269,720 Net realized gain (loss) on investment securities ) Change in net unrealized appreciation (depreciation) on investment securities (250,974 ) NET GAIN (LOSS) (520,694 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (537,348 ) OTHER INFORMATION $44,842 Sales Charges Paid to FDC Deferred sales charges withheld $537 by FDC Exchange fees withheld by FSC $10,170
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (16,654 $ 18,345 Net investment income (loss) ) Net realized gain (loss) (269,720 629,513 ) Change in net unrealized appreciation (depreciation) (250,974 236,253 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (537,348 884,111 ) Distributions to shareholders - (15,420 From net investment income ) From net realized gain (145,443 (95,604 ) ) TOTAL DISTRIBUTIONS (145,443 (111,024 ) ) Share transactions 8,326,513 29,885,117 Net proceeds from sales of shares Reinvestment of distributions 142,332 109,302 Cost of shares redeemed (14,933,345 (21,129,974 ) ) Paid in capital portion of redemption fees 26,165 35,674 Net increase (decrease) in net assets resulting from share transactions (6,438,335 8,900,119 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (7,121,126 9,673,206 ) NET ASSETS Beginning of period 11,135,897 1,462,691 End of period (including undistributed net investment income (loss) of $(16,654) and $2,925, respectively) $ 4,014,771 $ 11,135,897 OTHER INFORMATION Shares Sold 436,221 1,666,363 Issued in reinvestment of distributions 7,812 6,120 Redeemed (813,221 (1,187,524 ) ) Net increase (decrease) (369,188 484,959 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 19.14 $ 15.08 $ 14.37 $ 13.72 $ 11.90 $ 12.42 Income from Investment Operations Net investment income (loss) (.05) .07 (.02) (.01) .10 .04 Net realized and unrealized gain (loss) (.02) 4.57 .69 .67 1.72 (.56) Total from investment operations (.07) 4.64 .67 .66 1.82 (.52) Less Distributions From net investment income - (.10) - (.04) (.12) - In excess of net investment income - - - (.02) - - From net realized gain (.27) (.62) - - - - Total distributions (.27) (.72) - (.06) (.12) - Redemption fees added to paid in capital .07 .14 .04 .05 .12 - Net asset value, end of period $ 18.87 $ 19.14 $ 15.08 $ 14.37 $ 13.72 $ 11.90 TOTAL RETURN D, E .05% 32.04% 4.94% 5.18% 16.42% (4.19)% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 4,015 $ 11,136 $ 1,463 $ 1,280 $ 3,070 $ 1,599 Ratio of expenses to average net assets B 2.48%A 2.53% 2.48%A 2.46% 2.49% 2.43% Ratio of expenses to average net assets before 3.33%A 3.58% 9.63%A 2.72% 3.11% 3.26% expense reductions B Ratio of net investment income (loss) to average net (.49)% .40% (.14)% (.10)% .78% .34% assets A A Portfolio turnover rate 148%A 324% 87%A 32% 162% 96%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. DEVELOPING COMMUNICATIONS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS
PERIODS ENDED PAST 6 PAST 1 LIFE OF AUGUST 31, 1994 MONTHS YEAR FUND DEVELOPING COMMUNICATIONS 1.61% 6.26% 133.59% DEVELOPING COMMUNICATIONS (INCL. 3% SALES CHARGE) -1.44% 3.07% 126.58% S&P 500 3.26% 5.47% 51.13%
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 June 29, 1990. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 LIFE OF AUGUST 31, 1994 YEAR FUND DEVELOPING COMMUNICATIONS 6.26% 22.51% DEVELOPING COMMUNICATIONS (INCL. 3% SALES CHARGE) 3.07% 21.62% S&P 500 5.47% 10.39% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Developing Comm. (518) Standard & Poor 06/29/90 9700.00 10000.00 06/30/90 9700.00 10012.31 07/31/90 8953.10 9980.27 08/31/90 7866.70 9078.05 09/30/90 6751.20 8635.95 10/31/90 7081.00 8598.82 11/30/90 8235.30 9154.30 12/31/90 8759.10 9409.71 01/31/91 10146.20 9819.97 02/28/91 10776.70 10522.10 03/31/91 11494.50 10776.73 04/30/91 11591.50 10802.60 05/31/91 11766.10 11269.27 06/30/91 10841.06 10753.14 07/31/91 11963.62 11254.23 08/31/91 12670.42 11520.96 09/30/91 12815.94 11328.56 10/31/91 13564.31 11480.36 11/30/91 12888.70 11017.70 12/31/91 14135.99 12278.13 01/31/92 14510.18 12049.75 02/29/92 14998.70 12206.40 03/31/92 14260.72 11968.38 04/30/92 14073.62 12320.25 05/31/92 14011.26 12380.62 06/30/92 13512.34 12196.14 07/31/92 14104.81 12694.97 08/31/92 13574.71 12434.72 09/30/92 14032.05 12581.45 10/31/92 14655.70 12625.48 11/30/92 15986.14 13056.01 12/31/92 16569.33 13216.60 01/31/93 17017.15 13327.62 02/28/93 17121.29 13508.88 03/31/93 17735.74 13793.92 04/30/93 17206.92 13460.10 05/31/93 18365.82 13820.83 06/30/93 19160.49 13860.91 07/31/93 19535.76 13805.47 08/31/93 21323.77 14328.70 09/30/93 21621.78 14218.37 10/31/93 22372.30 14512.69 11/30/93 20672.58 14374.82 12/31/93 21833.49 14548.75 01/31/94 22673.24 15043.41 02/28/94 22298.76 14635.73 03/31/94 20744.09 13997.61 04/30/94 21598.01 14176.78 05/31/94 20440.76 14409.28 06/30/94 18918.06 14056.26 07/31/94 20879.30 14517.30 08/31/94 22657.81 15112.51 Let's say you invested $10,000 in Fidelity Select Developing Communications Portfolio on June 29, 1990, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $22,658 - a 126.58% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $15,113 over the same period - a 51.13% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS DSC Communications Corp. 8.7 Nokia AB Free shares 7.4 Glenayre Technologies, Inc. 4.6 Airtouch Communications 4.2 Vanguard Cellular Systems, Inc. Class A 4.2 Ericsson (L.M.) Telephone Co. Class B ADR 3.4 Philips NV 3.0 Commnet Cellular, Inc. 2.8 Nokia Corp. sponsored ADR 2.3 Sanmina Corp. 2.2 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 35.1 Row: 1, Col: 2, Value: 4.7 Row: 1, Col: 3, Value: 9.1 Row: 1, Col: 4, Value: 9.6 Row: 1, Col: 5, Value: 17.1 Row: 1, Col: 6, Value: 24.4 Cellular & Communication Services 24.4% Telephone Equipment 17.1% Special Industrial Machinery 9.6% Telephone Services 9.1% Electronics & Electric Components 4.7% All Others 35.1%* * INCLUDES SHORT-TERM INVESTMENTS DEVELOPING COMMUNICATIONS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Paul Antico, Portfolio Manager of Select Developing Communications Q. PAUL, HOW DID THE FUND PERFORM? A. Its results were mixed. For the six months and year ended August 31, 1994, the fund had total returns of 1.61% and 6.26%, respectively. As a comparison, the S& P 500 returned 3.26% and 5.47% over the same periods. Q. WHY DID THE FUND UNDER-PERFORM THE S&P? A. The fund had a fairly tough time at the beginning of the six month period, which I attribute to the normal learning curve of a new manager. When I took over the fund in December of 1993, I wanted to restructure the fund with names I knew well. Unfortunately, the group of stocks I knew best was the communications equipment group, which experienced a sharp downturn in the early spring. It was during this time - when I was overweighted in equipment stocks and before I added wireless stocks - that the fund's performance suffered. Around May, I repositioned the fund with a focus on wireless communications. This move has paid off. Over the past two months, the fund's cellular stocks were up at least 10%. Q. WHY DID WIRELESS COMMUNICATION STOCKS LOOK SO GOOD? A. Because there's tremendous potential for growth with these stocks. At the end of 1993, only 6% of Americans had cellular phones. That number is projected to grow by 45% this year alone. And long-term projections call for more than 20% of Americans to have a cellular device by the year 2000. Right now, the industry is picking up as major players such as AT&T are getting into the game. As a result, I expect cellular phones to finally be widely advertised, which should boost sales. In addition, rates are coming down, making cellular phones increasingly economical. Q. HOW'S WIRELESS TECHNOLOGY DOING INTERNATIONALLY? A. The overseas market for cellular phones and pagers - which are also big in the United States - is even stronger. One reason behind this is that most developing countries realize that they need top-notch communication capacities to be a player in the global economy. But, it would cost a fortune and take forever to set up an entire wired-line network. It's much cheaper and easier for these countries to set up cellular networks. Another important trend is the worldwide growth of paging, especially in lesser developed nations where there are no existing telephone networks and pagers are cheaper than cellular phones. In China and India, people use pagers with handbooks to communicate in codes. Q. WHAT ARE SOME NOTABLE STOCKS THAT THE FUND OWNS? A. Probably the best performer was the Finnish company Nokia, a less known but better play on global cellular growth than Motorola or Ericsson, in my opinion. This stock was up almost 40% over the past few months. Another top company was Glenayre Technologies, which focuses on the worldwide growth of paging. In addition, Airtouch Communications is not only a fantastic U.S. cellular company, but it also has the best portfolio of international licenses of any carrier I know. Q. IS THE REST OF THE MARKET AS OPTIMISTIC ABOUT CELLULAR STOCKS? A. Some investors are, although wireless stocks fell out of favor with others during the period. That's because it costs money for growing companies to add subscribers. During this spring when the number of cellular subscribers was up, the prices of these companies dropped. I saw this as an opportunity for the fund to buy these stocks inexpensively. Q. WHAT'S HAPPENING WITH THE BROADBAND REVOLUTION WE TALKED ABOUT SIX MONTHS AGO? A. It's definitely still happening. Many large companies continue to use broadband networks for high speed data services. DSC Communications, which makes several products for broadband networks, is still one of the fund's top stocks. Q. HOW DOES THE FUND LOOK GOING FORWARD? A. I think its outlook is great because I feel confident that the fund's cellular stocks should be strong performers. FUND FACTS START DATE: June 29, 1990 SIZE: as of August 31, 1994, more than $201 million MANAGER: Paul Antico, since December 1993; equity analyst, telecommunications equipment, since 1993; restaurant industry, 1992-1993; and wireless communication, since 1993; assistant, Fidelity Balanced Fund and Fidelity Equity Income Fund, 1991-1992; joined Fidelity in 1991 (checkmark) DEVELOPING COMMUNICATIONS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 92.2% SHARES VALUE (NOTE 1) AUTOS, TIRES, & ACCESSORIES - 1.1% AUTO & TRUCK PARTS - 1.1% Allen Group, Inc. (The) 106,000 $ 2,093,500 BROADCASTING - 0.2% RADIO BROADCASTING - 0.2% International Cablecasting Technologies, Inc. (a) 131,000 384,813 CELLULAR - 24.4% CELLULAR & COMMUNICATION SERVICES - 24.4% Airtouch Communications (a) 298,425 8,430,506 American Paging, Inc. (a) 58,500 468,000 Arch Communications Group, Inc. (a) 188,900 3,541,877 BCE Mobile Communications, Inc. 40,000 1,119,566 Call-Net Enterprises, Inc. (a) 96,700 707,362 Cellular Communications, Inc. (redeemable) (a): Series A 53,000 2,822,250 Class P 19,550 1,062,152 Century Telephone Enterprises, Inc. 57,500 1,732,188 Commnet Cellular, Inc. (a) 225,800 5,503,875 McCaw Cellular Communications, Inc. Class A (a) 25,000 1,353,125 Metrocall, Inc. (a) 85,100 1,340,325 Nationwide Cellular Service, Inc. (a) 70,000 1,050,000 Premier Page Co. (a) 345,300 3,021,375 Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) (a) 99,700 2,926,347 United States Cellular Corp. (a) 71,000 2,201,000 Vanguard Cellular Systems, Inc. Class A 298,150 8,348,200 Vodafone Group PLC sponsored ADR 89,700 2,870,400 48,498,548 COMMUNICATIONS EQUIPMENT - 21.2% DATACOMMUNICATIONS EQUIPMENT - 2.3% Aspect Telecommunications Corp. (a) 52,500 1,942,500 Cabletron Systems, Inc. (a) 23,900 2,530,413 Tekelec (a) 7,300 59,313 4,532,226 TELEPHONE EQUIPMENT - 17.1% Coherent Communications Systems Corp. (a) 148,000 1,147,000 DSC Communications Corp. (a) 599,900 17,172,138 Dialogoc Corp. (a) 72,200 1,119,100 Ericsson (L.M.) Telephone Co. Class B ADR 124,800 6,754,800 Inter-Tel, Inc. (a) 133,500 1,168,125 Keptel, Inc. (a) 48,800 927,200 Newbridge Networks Corp. (a) 55,600 1,779,200 Octel Communications Corp. (a) 75,000 1,818,750 Porta Systems Corp. (a) 39,500 306,125 Telco Systems, Inc. (a) 104,100 1,223,175 Tellabs, Inc. (a) 11,300 476,013 33,891,626 TELEPHONE INTERCONNECT SYSTEMS - 1.8% General Instrument Corp. 123,000 3,751,500 TOTAL COMMUNICATIONS EQUIPMENT 42,175,352 COMPUTER SERVICES & SOFTWARE - 5.5% CAD/CAM/CAE - 3.5% EIS International, Inc. (a) 318,700 3,744,725 Stratacom, Inc. (a) 84,700 3,218,600 6,963,325 SHARES VALUE (NOTE 1) PREPACKAGED COMPUTER SOFTWARE - 2.0% Lotus Development Corp. (a) 57,000 $ 2,329,875 Oracle Systems Corp. (a) 38,000 1,622,125 3,952,000 TOTAL COMPUTER SERVICES & SOFTWARE 10,915,325 COMPUTERS & OFFICE EQUIPMENT - 1.6% COMPUTER PERIPHERALS - 1.5% Micom Communication Corp. (a) 244,933 3,061,663 COMPUTER STORAGE DEVICES - 0.1% Xylogics, Inc. (a) 10,100 214,625 TOTAL COMPUTERS & OFFICE EQUIPMENT 3,276,288 ELECTRICAL EQUIPMENT - 5.4% ELECTRICAL EQUIPMENT - WHOLESALE - 0.3% Cabletel Communications Corp. (a) 25,000 90,524 Cabletel Communications Corp. (b) 125,000 452,618 543,142 ELECTRICAL MACHINERY - 3.0% Philips NV 180,400 5,885,550 TV & RADIO COMMUNICATION EQUIPMENT - 2.1% C COC Electronics, Inc. (a) 18,800 639,200 Scientific-Atlanta, Inc. 28,900 1,293,275 Spectrain Corp. (a) 142,000 2,183,250 4,115,725 TOTAL ELECTRICAL EQUIPMENT 10,544,417 ELECTRONICS - 8.6% ELECTRONIC PARTS - WHOLESALE - 0.5% ARC International Corp. (a) 411,200 1,028,000 ELECTRONICS & ELECTRIC COMPONENTS - 4.7% Allgon AB B Free shares 210,000 3,063,384 Benefon Oy 2,200 740,422 Digital Microwave Corp. (a) 67,900 1,052,450 Sanmina Corp. (a) 218,900 4,432,725 9,288,981 SEMICONDUCTORS - 3.4% Austria Mikro Systeme International (b) 23,000 1,428,700 Intel Corp. 19,100 1,255,825 LSI Logic Corp. (a) 63,900 2,012,850 Motorola, Inc. 39,200 2,116,800 6,814,175 TOTAL ELECTRONICS 17,131,156 ENGINEERING - 4.6% WATER & SEWER PIPES - 4.6% Glenayre Technologies, Inc. (a) 161,800 9,182,150 INDUSTRIAL MACHINERY & EQUIPMENT - 9.6% SPECIAL INDUSTRIAL MACHINERY - 9.6% Nokia AB Free shares 135,000 14,634,289 Nokia Corp. sponsored ADR (a) 81,900 4,484,025 19,118,314 RESTAURANTS - 0.8% McDonald's Corp. 55,000 1,553,750 SERVICES - 0.1% PERSONAL SERVICES - 0.1% Value-Added Communications, Inc. (a) 120,000 157,500 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TELEPHONE SERVICES - 9.1% ALLTEL Corp. 40,000 $ 1,115,000 Ameritech Corp. 40,000 1,655,000 BellSouth Corp. 20,000 1,187,500 Cable & Wireless PLC ADR 45,000 961,875 Rochester Telephone Corp. 65,500 1,473,750 Telebras PN: (Pfd. Reg.) 41,700,000 2,453,211 (rights) (a) 836,650 3,991 Telecom Argentina Stet France 48,700 355,564 Telecom Italia Ord. 700,000 2,031,477 Telefonica Argentina Class B 40,000 291,244 Telefonos de Mexico SA sponsored ADR representing shares Ord. Class L 57,600 3,614,400 Telephone & Data Systems, Inc. 67,058 2,917,023 18,060,035 TOTAL COMMON STOCKS (Cost $162,787,460) 183,091,148 REPURCHASE AGREEMENTS - 7.8% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 15,405,066 15,403,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $178,190,460) $ 198,494,148 LEGEND 1. Non-income producing 2. 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 this security amounted to $1,881,318 or 0.9% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $234,096,926 and $264,611,995, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $67,627 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $16,231,000 and $3,648,600 respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 71.5% Finland 10.0 Sweden 5.0 Canada 3.6 Netherland 3.0 United Kingdom 1.9 Mexico 1.8 Brazil 1.2 Italy 1.0 Others (individually less than 1%) 1.0 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $178,233,925. Net unrealized appreciation aggregated $20,260,223, of which $25,398,889 related to appreciated investment securities and $5,138,666 related to depreciated investment securities. DEVELOPING COMMUNICATIONS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $15,403,000) (cost $178,190,460) - See $ 198,494,148 accompanying schedule Cash 545 Receivable for investments sold 9,868,610 Receivable for fund shares sold 4,760,748 Dividends receivable 31,971 Redemption fees receivable 568 Other receivables 272 Prepaid expenses 35,140 TOTAL ASSETS 213,192,002 LIABILITIES Payable for investments purchased $ 9,859,999 Payable for fund shares redeemed 1,430,934 Accrued management fee 94,291 Other payables and accrued expenses 172,060 TOTAL LIABILITIES 11,557,284 NET ASSETS $ 201,634,718 Net Assets consist of: Paid in capital $ 185,134,170 Accumulated net investment (loss) (945,975 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (2,857,346 ) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 20,303,869 NET ASSETS, for 10,842,897 shares outstanding $ 201,634,718 NET ASSET VALUE and redemption price per share ($201,634,718 (divided by) shares) $18.60 Maximum offering price per share (100/97 of $18.60) $19.18
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 383,271 Dividends Interest 128,436 TOTAL INCOME 511,707 EXPENSES Management fee $ 565,460 Transfer agent 779,279 Fees Redemption fees (49,846 ) Accounting fees and expenses 91,297 Non-interested trustees' compensation 554 Custodian fees and expenses 28,317 Registration fees 35,140 Audit 17,153 Legal 2,720 Interest 4,140 Reports to shareholders 10,909 Miscellaneous 415 Total expenses before reductions 1,485,538 Expense reductions (28,132 1,457,406 ) NET INVESTMENT INCOME (LOSS) (945,699 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (1,959,099 ) Foreign currency transactions (22,710 (1,981,809 ) ) Change in net unrealized appreciation (depreciation) on: Investment securities 4,252,842 Assets and liabilities in foreign 181 4,253,023 currencies NET GAIN (LOSS) 2,271,214 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,325,515 OTHER INFORMATION $521,307 Sales Charges Paid to FDC Deferred sales charges withheld $3,465 by FDC Exchange fees withheld by FSC $36,405
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (945,699 $ (1,552,126 Net investment income (loss) ) ) Net realized gain (loss) (1,981,809 27,786,284 ) Change in net unrealized appreciation (depreciation) 4,253,023 9,550,677 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,325,515 35,784,835 Distributions to shareholders from net realized gain (14,149,454 (12,078,883 ) ) Share transactions 63,734,668 326,209,686 Net proceeds from sales of shares Reinvestment of distributions 13,955,364 11,939,467 Cost of shares redeemed (85,395,211 (223,354,110 ) ) Paid in capital portion of redemption fees 54,616 225,044 Net increase (decrease) in net assets resulting from share transactions (7,650,563 115,020,087 ) TOTAL INCREASE (DECREASE) IN NET ASSETS (20,474,502 138,726,039 ) NET ASSETS Beginning of period 222,109,220 83,383,181 End of period (including accumulated net investment (loss) of $(945,975) and $(276), respectively)$ 201,634,718 $ 222,109,220 OTHER INFORMATION Shares Sold 3,611,623 17,423,530 Issued in reinvestment of distributions 794,724 685,710 Redeemed (4,869,116 (11,874,788 ) ) Net increase (decrease) (462,769 6,234,452 )
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEAR ENDED JUNE 29, 1990 ENDED FEBRUARY 28, ENDED APRIL 30, (COMMENCEMENT AUGUST 31, 1994 FEBRUARY 28, OF OPERATIONS) TO APRIL 30, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991
Net asset value, beginning of period $ 19.65 $ 16.44 $ 13.54 $ 11.95 $ 10.00 Income from Investment Operations Net investment income (loss) (.09) (.16) (.07) (.08)F (.10) Net realized and unrealized gain (loss) .32 4.82 2.98 2.42 1.86 Total from investment operations .23 4.66 2.91 2.34 1.76 Less Distributions From net realized gain (1.29) (1.47) (.03) (.79) - Redemption fees added to paid in capital .01 .02 .02 .04 .19 Net asset value, end of period $ 18.60 $ 19.65 $ 16.44 $ 13.54 $ 11.95 TOTAL RETURN D, E 1.61% 30.24% 21.66% 21.41% 19.50% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 201,635 $ 222,109 $ 83,383 $ 39,261 $ 7,745 Ratio of expenses to average net assets B 1.57%A 1.56% 1.88%A 2.50% 2.50%A Ratio of expenses to average net assets before 1.60%A 1.56% 1.88%A 2.50% 3.29%A expense reductions B Ratio of net investment income (loss) to average net assets (1.02)% (.88)% (.59)% (.61)% (1.23)% A A A Portfolio turnover rate 262%A 280% 77%A 25% 469%A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.06 PER SHARE. ELECTRONICS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S ELECTRONICS 4.30% 19.90% 188.47% 118.08% ELECTRONICS (INCL. 3% SALES CHARGE) 1.17% 16.30% 179.82% 111.54% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND ELECTRONICS 19.90% 23.60% 8.95% ELECTRONICS (INCL. 3% SALES CHARGE) 16.30% 22.85% 8.58% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Elect. (008) Standard & Poor 07/29/85 9700.00 10000.00 07/31/85 9544.80 9926.31 08/31/85 10126.80 9841.93 09/30/85 9030.70 9533.88 10/31/85 8982.20 9974.35 11/30/85 10078.30 10658.59 12/31/85 10776.70 11174.46 01/31/86 10883.40 11237.04 02/28/86 11096.80 12077.57 03/31/86 10883.40 12751.50 04/30/86 11775.80 12607.41 05/31/86 10854.30 13278.12 06/30/86 9797.00 13502.52 07/31/86 8623.30 12747.73 08/31/86 9360.50 13693.61 09/30/86 8322.60 12561.15 10/31/86 8351.70 13285.93 11/30/86 8351.70 13608.78 12/31/86 8206.20 13261.75 01/31/87 9564.20 15048.11 02/28/87 10330.50 15642.51 03/31/87 10165.60 16094.58 04/30/87 10466.30 15951.34 05/31/87 10252.90 16090.11 06/30/87 10029.80 16902.66 07/31/87 10340.20 17759.63 08/31/87 11087.10 18422.06 09/30/87 11077.40 18018.62 10/31/87 7313.80 14137.41 11/30/87 6169.20 12972.49 12/31/87 7100.40 13959.69 01/31/88 6693.00 14547.40 02/29/88 7401.10 15225.31 03/31/88 7294.40 14754.84 04/30/88 7624.20 14918.62 05/31/88 7362.30 15048.41 06/30/88 8080.10 15739.14 07/31/88 7585.40 15679.33 08/31/88 6828.80 15146.23 09/30/88 6935.50 15791.46 10/31/88 6431.10 16230.46 11/30/88 6111.00 15998.37 12/31/88 6499.00 16278.34 01/31/89 6731.80 17469.91 02/28/89 6634.80 17034.91 03/31/89 6586.30 17431.83 04/30/89 7100.40 18336.54 05/31/89 7779.40 19079.17 06/30/89 7013.10 18970.42 07/31/89 7090.70 20683.44 08/31/89 7333.20 21088.84 09/30/89 7536.90 21002.38 10/31/89 7197.40 20515.12 11/30/89 7216.80 20933.63 12/31/89 7517.50 21436.04 01/31/90 7769.70 19997.68 02/28/90 8390.50 20255.65 03/31/90 8797.90 20792.42 04/30/90 8836.70 20272.61 05/31/90 10136.50 22249.19 06/30/90 10291.70 22097.90 07/31/90 9806.70 22027.18 08/31/90 8274.10 20035.93 09/30/90 7022.80 19060.18 10/31/90 6770.60 18978.22 11/30/90 7469.00 20204.21 12/31/90 7954.10 20767.91 01/31/91 9061.26 21673.39 02/28/91 9857.64 23223.04 03/31/91 10382.09 23785.03 04/30/91 10440.36 23842.12 05/31/91 10780.28 24872.10 06/30/91 9469.16 23732.96 07/31/91 10119.86 24838.91 08/31/91 10537.48 25427.59 09/30/91 9731.38 25002.95 10/31/91 10207.27 25337.99 11/30/91 9585.70 24316.87 12/31/91 10760.85 27098.72 01/31/92 12033.12 26594.68 02/29/92 12693.53 26940.42 03/31/92 11693.20 26415.08 04/30/92 11469.82 27191.68 05/31/92 11489.25 27324.92 06/30/92 10654.02 26917.78 07/31/92 11217.31 28018.72 08/31/92 11333.86 27444.33 09/30/92 11741.76 27768.18 10/31/92 12625.55 27865.36 11/30/92 13451.06 28815.57 12/31/92 13713.29 29170.00 01/31/93 14179.46 29415.03 02/28/93 13868.68 29815.08 03/31/93 14354.28 30444.17 04/30/93 14101.25 29707.43 05/31/93 15516.25 30503.58 06/30/93 15799.25 30592.05 07/31/93 16248.15 30469.68 08/31/93 17643.64 31624.48 09/30/93 17936.40 31380.97 10/31/93 17594.85 32030.56 11/30/93 17458.22 31726.27 12/31/93 18112.47 32110.15 01/31/94 19363.59 33201.90 02/28/94 20281.84 32302.13 03/31/94 20063.75 30893.75 04/30/94 20006.36 31289.19 05/31/94 19948.97 31802.34 06/30/94 18881.51 31023.18 07/31/94 19271.76 32040.74 08/31/94 21154.18 33354.41 Let's say you invested $10,000 in Fidelity Select Electronics Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $21,154 - a 111.54% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Intel Corp. 9.8 Advanced Micro Devices, Inc. 7.8 Texas Instruments, Inc. 7.3 Micron Technology, Inc. 5.7 Compaq Computer Corp. 4.3 International Business Machines Corp. 4.2 National Semiconductor Corp. 3.6 EMC Corp. 2.5 Kyocera Corp. 2.4 Opti, Inc. 2.4 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 32.5 Row: 1, Col: 2, Value: 3.0 Row: 1, Col: 3, Value: 4.2 Row: 1, Col: 4, Value: 4.3 Row: 1, Col: 5, Value: 4.4 Row: 1, Col: 6, Value: 51.6 Semiconductors 51.6% Electronics and Electronic Component 4.4% Mini & Micro Computers 4.3% Mainframe Computer 4.2% Semi-Conductor Capital Equipment 3.0% All Others 32.5%* * INCLUDES SHORT-TERM INVESTMENTS ELECTRONICS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Harry Lange, Portfolio Manager of Fidelity Select Electronics Portfolio Q. HARRY, HOW DID THE FUND DO? A. The fund had a total return of 4.30% for the six months ended August 31, 1994. That topped the S&P 500, which returned 3.26% during the same period. For the year ended August 31, the fund was up 19.9%, compared to 5.47% for the S&P 500. Q. WHAT CAUSED THE FUND'S PERFORMANCE TO DROP OFF DURING THE FIRST SIX MONTHS OF 1994? A. Technology stocks suffered in March and April as investors anticipated a summer slowdown in PC sales. This has happened in the past; orders sometimes diminish when industry people in the U.S. and Europe start taking vacations. Over the past couple of years, growth among electronics companies has been so rapid their earnings have been able to surge right through the summer. However, this year the momentum wasn't strong enough. That said, the business prospects of many of the fund's semiconductor stocks - 51.6% of the fund on August 31 - remained excellent. The supply of computer chips has not yet met the rising demand worldwide due to the boom in personal computers. Because the underlying story behind these stocks remained positive, their prices began to rise again in July and August. Q. AND YOU'VE STAYED WITH SEVERAL OF THE FUND'S LARGEST INVESTMENTS . . . A. I have. Despite sluggish stock performance, I think investors will eventually reward the strong earnings growth and earnings potential of several of the fund's largest companies. For example, Advanced Micro Devices- the fund's second largest investment on August 31 - is operating at capacity and I expect earnings to remain strong. In addition, I still believe the new Pentium cycle of microprocessors - though off to a slower start than I had hoped - will boost the fortunes of Intel. And, although Texas Instruments (TI) lost a recent court case that may diminish earnings from royalties, I'm still optimistic about the company's future. There's still plenty of room for TI to cut costs, which goes right to the bottom line. Q. WHICH OF THE FUND'S INVESTMENTS WERE AMONG ITS BEST PERFORMERS OVER THE PAST SIX MONTHS? A. Among the semiconductor companies, Micron turned in the best performance. The company only makes one product - dynamic rams, a type of memory chip for PCs - but it does it more efficiently than anyone else. In addition, the fund had about a 14.4% stake in foreign technology companies at the end of August, and they have been strong performers. UMC is a chip maker in Taiwan, while Samsung - a Korean company - is the largest memory chip maker in the world. Both companies have shown strong earnings growth. In addition, IBM was an excellent stock. The company has succeeded in effectively cutting costs. Even though it's still struggling a bit to find its niche in the PC market, demand for many of the company's other products has been strong. Q. WHAT ABOUT DISAPPOINTMENTS? A. I would say the biggest was the lackluster performance of most of the big-name U.S. chip makers. But there were others. Xilinx - a small semiconductor company - suffered from slowing sales, and I eventually sold the fund's investment. Also, Opti - which makes the computer chips that surround Intel's Pentium chip - was a disappointment. I expected the stock to do well based on its ties to the Pentium but so far, performance has been lackluster. Q. WHAT'S YOUR OUTLOOK FOR THE REST OF THE YEAR? A. The big picture for stocks tied to the fortunes of personal computers looks good. PC sales in the U.S. and Japan should remain strong through the holiday season, and I expect sales in Europe to pick up as economies begin to recover there. In addition, there's still not enough semiconductor capacity worldwide to cover demand, so I remain upbeat about the earnings of microchip companies. That said, a slowdown in the U.S. economy could have a negative effect on the fund's stocks. Also, it's unclear whether the market will ultimately embrace new products such as Intel's Pentium chip and Microsoft's Chicago operating system - which the company is scheduled to unveil next year. So while I'm optimistic in my outlook, I'm not discounting the possibility of volatility along the way. FUND FACTS START DATE: July 29, 1985 SIZE: as of August 31, 1994, more than $148 million MANAGER: Harry Lange, since January 1994; manager, Fidelity Select Technology Portfolio, since November 1993; Fidelity Select Computers Portfolio, since June 1992; manager, Fidelity Select Capital Goods and Automation Machinery Portfolios, 1988; joined Fidelity in 1987 (checkmark) ELECTRONICS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 88.6% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.4% MISSILES & SPACE VEHICLES - 0.4% Orbital Sciences Corporation (a) 33,400 $ 617,894 AUTOS, TIRES, & ACCESSORIES - 0.3% MOTOR VEHICLES & CAR BODIES - 0.3% General Motors Corp. Class H 14,100 528,750 CELLULAR - 0.0% CELLULAR & COMMUNICATION SERVICES - 0.0% Millicom International Cellular SA 1,900 45,600 COMMUNICATIONS EQUIPMENT - 1.9% DATACOMMUNICATIONS EQUIPMENT - 0.3% General DataComm Industries, Inc. (a) 20,000 395,000 TELEPHONE EQUIPMENT - 1.6% ADC Telecommunications, Inc. (a) 20,600 957,900 Natural Microsystems Corp. (a) 69,000 810,750 Perceptron, Inc. (a) 33,300 624,375 2,393,025 TOTAL COMMUNICATIONS EQUIPMENT 2,788,025 COMPUTER SERVICES & SOFTWARE - 3.5% CAD/CAM/CAE - 0.2% Brooktrout Technology (a) 13,600 139,400 ECI Telecom Ltd. 12,200 220,363 Integrated Silicon Systems, Inc. (a) 500 12,500 372,263 COMPUTER & SOFTWARE STORES - 0.7% Inacom Corp. (a) 18,200 170,625 Intelligent Electronics, Inc. 5,800 89,900 MicroAge, Inc. (a) 58,450 745,238 1,005,763 COMPUTER SERVICES - 0.2% Wave Systems Corp. Class A 50,000 250,000 CUSTOM COMPUTER PROGRAMMING SERVICES - 0.0% Softdesk, Inc. (a) 2,500 38,750 ELECTRONIC INFORMATION RETRIEVAL - 0.0% Data Broadcasting Corp. (a) 15,000 75,000 PREPACKAGED COMPUTER SOFTWARE - 2.4% Cheyenne Software, Inc. (a) 5,650 70,625 Geoworks (a) 103,300 723,100 Globalink, Inc. (a) 106,400 1,316,700 Infosoft International, Inc. (a) 30,000 806,250 Media Logic, Inc. (a) 22,200 43,013 Microsoft Corp. (a) 13,000 755,625 3,715,313 TOTAL COMPUTER SERVICES & SOFTWARE 5,457,089 COMPUTERS & OFFICE EQUIPMENT - 18.7% COMPUTER EQUIPMENT - 0.1% Syquest Technology, Inc. (a) 14,500 141,375 COMPUTER EQUIPMENT - WHOLESALE - 1.8% GBC Technologies, Inc. (a) 89,000 789,875 Merisel, Inc. (a) 50,000 456,250 Southern Electronics Corp. (a) 20,000 127,500 Tech Data Corp. (a) 75,000 1,406,250 2,779,875 COMPUTER PERIPHERALS - 2.8% EMC Corp. (a) 210,000 3,780,000 Komag, Inc. (a) 19,100 448,850 4,228,850 SHARES VALUE (NOTE 1) COMPUTER RENTAL & LEASING - 1.2% Comdisco, Inc. 85,800 $ 1,876,875 COMPUTER STORAGE DEVICES - 1.2% ADAPTEC, Inc. (a) 56,100 1,072,913 Exabyte (a) 46,300 873,913 1,946,826 COMPUTERS & OFFICE EQUIPMENT - 0.4% Fujitsu Ltd. 50,000 543,912 Hewlett-Packard Co. 400 35,950 579,862 ELECTRONIC COMPUTERS - 0.2% Intergrated Micro Products sponsored ADR (a) 25,000 237,500 GRAPHICS WORKSTATIONS - 2.5% Silicon Graphics, Inc. (a) 30,200 792,750 Sun Microsystems, Inc. (a) 113,300 3,002,450 3,795,200 MAINFRAME COMPUTERS - 4.2% International Business Machines Corp. 92,300 6,334,088 MINI & MICRO COMPUTERS - 4.3% Compaq Computer Corp. (a) 175,800 6,570,525 TOTAL COMPUTERS & OFFICE EQUIPMENT 28,490,976 CONSUMER ELECTRONICS - 1.8% RADIOS, TELEVISIONS, STEREOS - 1.8% Sony Corp. ADR 44,700 2,709,938 DEFENSE ELECTRONICS - 0.1% Watkins-Johnson Co. 5,300 193,450 ELECTRICAL EQUIPMENT - 1.7% ELECTRICAL MACHINERY - 1.5% Murata Manufacturing Co. Ord. 41,000 1,775,848 Philips NV 16,600 541,575 2,317,423 WIRING & LIGHTING - 0.2% Oak Industries, Inc. (a) 11,600 311,750 TOTAL ELECTRICAL EQUIPMENT 2,629,173 ELECTRONIC INSTRUMENTS - 4.1% ELECTRONIC EQUIPMENT - 1.1% ASECO Corp. (a) 35,500 292,875 Credence Systems Corp. (a) 5,400 120,150 Megatest Corp. (a) 55,100 1,060,675 Teradyne, Inc. (a) 5,100 151,725 1,625,425 SEMI-CONDUCTOR CAPITAL EQUIPMENT - 3.0% Applied Materials, Inc. (a) 36,500 1,843,250 KLA Instruments Corp. (a) 52,600 2,498,500 Kulicke & Soffa Industries, Inc. (a) 10,700 168,525 4,510,275 TOTAL ELECTRONIC INSTRUMENTS 6,135,700 ELECTRONICS - 55.8% CONNECTORS - 0.7% AMP, Inc. 10,000 726,250 Methode Electronics, Inc. Class A 20,000 340,000 Thomas & Betts Corp. 1,400 90,300 1,156,550 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) ELECTRONICS - CONTINUED ELECTRONIC PARTS - WHOLESALE - 2.8% Kent Electronics Corp. (a) 12,300 $ 448,950 Marshall Industries (a) 26,100 655,763 Pioneer-Standard Electronics, Inc. 79,950 1,369,144 Sterling Electronics Corp. (a) 106,500 1,357,875 Wyle Laboratories 19,500 382,688 4,214,420 ELECTRONICS AND ELECTRONIC COMPONENTS - 4.4% Cirrus Logic, Inc. (a) 20,000 552,500 Hitachi Ltd. ADR 11,300 1,122,937 Kyocera Corp. 50,000 3,727,250 Sanmina Corp. (a) 30,000 607,500 Toshiba Corp. 100,000 757,485 6,767,672 SEMICONDUCTORS - 47.9% Advanced Micro Devices, Inc. (a) 411,300 11,927,700 Altera Corp. (a) 50,000 1,525,000 Atmel Corp. (a) 30,000 825,000 Burr-Brown Corp. (a) 5,000 49,375 Cyrix Corp. (a) 18,600 739,350 Geotek Industries, Inc. (a) 50,000 568,750 Integrated Device Technology, Inc. (a) 15,600 364,650 Intel Corp. 226,700 14,905,525 Interpoint Corp. (a) 10,000 107,500 LSI Logic Corp. (a) 30,000 945,000 Lattice Semiconductor Corp. (a) 42,200 796,525 Linear Technology Corp. 21,100 938,950 Logic Devices, Inc. (a) 30,000 88,125 Maxim Integrated Products, Inc. (a) 35,500 2,156,625 Micron Technology, Inc. 215,250 8,663,813 Motorola, Inc. 54,600 2,948,400 National Semiconductor Corp. (a) 294,400 5,483,200 Opti, Inc. (a) 281,300 3,727,225 Samsung Electronics Co. Ltd.: GDR: (New) (a)(b) 621 48,749 (non-vtg.) (b) 43,475 3,412,788 GDS (b) 1,826 77,647 Texas Instruments, Inc. 142,200 11,073,825 VLSI Technology, Inc. (a) 105,300 1,467,619 72,841,341 TOTAL ELECTRONICS 84,979,983 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% SPECIAL INDUSTRIAL MACHINERY - 0.1% Asyst Technologies, Inc. (a) 9,900 160,875 LEASING & RENTAL - 0.1% EQUIPMENT RENTAL AND LEASING, NEC - 0.1% Leasing Solutions, Inc. (a) 11,000 90,750 PHOTOGRAPHIC EQUIPMENT - 0.1% Megahertz Corp. (a) 16,200 93,150 TOTAL COMMON STOCKS (Cost $121,964,183) 134,921,353 CONVERTIBLE PREFERRED STOCKS - 0.4% ELECTRONICS - 0.4% SEMICONDUCTORS - 0.4% Advanced Micro Devices, Inc. $3.00 (Cost $506,250) 10,000 592,500 CONVERTIBLE BONDS - 4.8% PRINCIPAL AMOUNT COMPUTERS & OFFICE EQUIPMENT - 1.5% COMPUTER STORAGE DEVICES - 0.3% Maxtor Corporation 5 3/4%, 3/1/12 $ 1,000,000 $ 525,000 ELECTRONIC COMPUTERS - 0.8% Acer, Inc. 4%, 6/10/01 400,000 1,180,000 OFFICE EQUIPMENT - WHOLESALE - 0.4% Kinpo Electronics, Inc. euro 3%, 7/21/01 540,000 639,900 TOTAL COMPUTERS & OFFICE EQUIPMENT 2,344,900 ELECTRONICS - 3.3% SEMICONDUCTORS - 3.3% United Microelectronics Corp.: 1 1/4%, 6/8/04 (b) 1,120,000 1,932,000 euro 1 1/4%, 6/8/04 1,770,000 3,053,250 4,985,250 TOTAL CONVERTIBLE BONDS (Cost $6,474,819) 7,330,150 REPURCHASE AGREEMENTS - 6.2% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 9,362,256 9,361,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $138,306,252) $ 152,205,003 LEGEND 1. Non-income producing 2. 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 $5,471,184 or 3.7% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $299,995,959 and $206,512,842, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $102,772 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $1,530,375 and $1,617,000, respectively (see Note 7 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $11,441,000 and $5,279,875, respectively. The weighted average interest rate paid was 4.3% (see Note 8 of Notes to Financial Statements). OTHER INFORMATION - CONTINUED Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 85.6% Japan 7.0 Taiwan (Free China) 4.5 Korea 2.3 Others (individually less than 1%) 0.6 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $138,333,666. Net unrealized appreciation aggregated $13,871,337, of which $18,906,041 related to appreciated investment securities and $5,034,704 related to depreciated investment securities. ELECTRONICS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $9,361,000) (cost $138,306,252) - See $ 152,205,003 accompanying schedule Cash 82,398 Receivable for investments sold 1,821,810 Receivable for fund shares sold 5,384,257 Dividends receivable 61,295 Interest receivable 32,610 Redemption fees receivable 8,547 Other receivables 44,280 Prepaid expenses 62,617 TOTAL ASSETS 159,702,817 LIABILITIES Payable for investments purchased $ 5,582,153 Payable for fund shares redeemed 3,489,867 Accrued management fee 70,353 Other payables and accrued expenses 259,090 Collateral on securities loaned, 1,617,000 at value TOTAL LIABILITIES 11,018,463 NET ASSETS $ 148,684,354 Net Assets consist of: Paid in capital $ 151,733,237 Accumulated net investment (loss) (707,245 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (16,240,389 ) Net unrealized appreciation (depreciation) on investments 13,898,751 NET ASSETS, for 8,065,524 shares outstanding $ 148,684,354 NET ASSET VALUE and redemption price per share ($148,684,354 (divided by) shares) $18.43 Maximum offering price per share (100/97 of $18.43) $19.00
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 339,854 Dividends Interest (including security lending fees of $13,910) 315,607 TOTAL INCOME 655,461 EXPENSES Management fee $ 487,265 Transfer agent 841,413 Fees Redemption fees (145,860 ) Accounting and security lending fees 79,829 Non-interested trustees' compensation 418 Custodian fees and expenses 10,553 Registration fees 69,686 Audit 11,513 Legal 581 Interest 18,703 Reports to shareholders 3,679 Miscellaneous 83 Total expenses before reductions 1,377,863 Expense reductions (15,157 1,362,706 ) NET INVESTMENT INCOME (LOSS) (707,245 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (16,187,784 ) Foreign currency transactions 630 (16,187,154 ) Change in net unrealized appreciation (depreciation) on investment securities 2,302,605 NET GAIN (LOSS) (13,884,549 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (14,591,794 ) OTHER INFORMATION $1,460,185 Sales Charges Paid to FDC Deferred sales charges withheld $5,505 by FDC Exchange fees withheld by FSC $122,145
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (707,245 $ (283,946 Net investment income (loss) ) ) Net realized gain (loss) (16,187,154 10,940,991 ) Change in net unrealized appreciation (depreciation) 2,302,605 7,342,630 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (14,591,794 17,999,675 ) Distributions to shareholders from net realized gain - (6,751,718 ) Share transactions 435,361,550 234,477,570 Net proceeds from sales of shares Reinvestment of distributions - 6,551,694 Cost of shares redeemed (384,578,350 (189,780,938 ) ) Paid in capital portion of redemption fees 1,499,468 469,729 Net increase (decrease) in net assets resulting from share transactions 52,282,668 51,718,055 TOTAL INCREASE (DECREASE) IN NET ASSETS 37,690,874 62,966,012 NET ASSETS Beginning of period 110,993,480 48,027,468 End of period (including undistributed net investment income (loss) of $(707,245) and $0, respectively) 148,684,354 110,993,480 OTHER INFORMATION Shares Sold 24,230,773 13,902,581 Issued in reinvestment of distributions - 431,270 Redeemed (22,448,026 (11,413,385 ) ) Net increase (decrease) 1,782,747 2,920,466
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 17.67 $ 14.28 $ 11.81 $ 10.75 $ 9.11 $ 7.32 Income from Investment Operations Net investment income (loss) (.08) (.09) (.05) (.12) (.04) - Net realized and unrealized gain (loss) .67F 6.09 2.33 1.00 1.53 1.62 Total from investment operations .59 6.00 2.28 .88 1.49 1.62 Less Distributions From net investment income - - - - (.01) - From net realized gain - (2.75) - - - - Total distributions - (2.75) - - (.01) - Redemption fees added to paid in capital .17 .14 .19 .18 .16 .17 Net asset value, end of period $ 18.43 $ 17.67 $ 14.28 $ 11.81 $ 10.75 $ 9.11 TOTAL RETURN D, E 4.30% 46.24% 20.91% 9.86% 18.15% 24.45% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 148,684 $ 110,993 $ 48,027 $ 34,222 $ 18,178 $ 26,141 Ratio of expenses to average net assets B 1.71% 1.67% 1.69%A 2.16% 2.26% 2.57% A Ratio of expenses to average net assets before 1.73% 1.67% 1.69%A 2.16% 2.26% 3.47% expense reductions B A Ratio of net investment income (loss) to average net (.89)% (.52)% (.50)% (1.07)% (.45)% (.02)% assets A A Portfolio turnover rate 312% 163% 293%A 299% 268% 378% A
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE AGGREGATE NET GAIN (LOSS) ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET VALUES OF THE INVESTMENTS OF THE FUND. SOFTWARE AND COMPUTER SERVICES PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S SOFTWARE AND COMPUTER SERVICES -14.34% -6.20% 155.98% 302.11% SOFTWARE AND COMPUTER SERVICES (INCL. 3% SALES CHARGE) -16.91% -9.02% 148.30% 290.05% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND SOFTWARE AND COMPUTER SERVICES -6.20% 20.68% 16.52% SOFTWARE AND COMPUTER SERVICES (INCL. 3% SALES CHARGE) -9.02% 19.95% 16.14% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Software (028) Standard & Poor's 07/29/85 9700.00 10000.00 07/31/85 9622.40 9926.31 08/31/85 9515.70 9841.93 09/30/85 8933.70 9533.88 10/31/85 9215.00 9974.35 11/30/85 10282.00 10658.59 12/31/85 10776.70 11174.46 01/31/86 11019.20 11237.04 02/28/86 11775.80 12077.57 03/31/86 11853.40 12751.50 04/30/86 12959.20 12607.41 05/31/86 13483.00 13278.12 06/30/86 13143.50 13502.52 07/31/86 11232.60 12747.73 08/31/86 12163.80 13693.61 09/30/86 11232.60 12561.15 10/31/86 12280.20 13285.93 11/30/86 12551.80 13608.78 12/31/86 12270.50 13261.75 01/31/87 14879.80 15048.11 02/28/87 16276.60 15642.51 03/31/87 16548.20 16094.58 04/30/87 16829.50 15951.34 05/31/87 16907.10 16090.11 06/30/87 16315.40 16902.66 07/31/87 16266.90 17759.63 08/31/87 17411.50 18422.06 09/30/87 17595.80 18018.62 10/31/87 12939.80 14137.41 11/30/87 11707.90 12972.49 12/31/87 13428.92 13959.69 01/31/88 13040.86 14547.40 02/29/88 14113.14 15225.31 03/31/88 14235.68 14754.84 04/30/88 14664.59 14918.62 05/31/88 14266.32 15048.41 06/30/88 15389.65 15739.14 07/31/88 14623.74 15679.33 08/31/88 13612.74 15146.23 09/30/88 14490.98 15791.46 10/31/88 13725.08 16230.46 11/30/88 13520.83 15998.37 12/31/88 14644.17 16278.34 01/31/89 15736.86 17469.91 02/28/89 15032.23 17034.91 03/31/89 14664.59 17431.83 04/30/89 16084.07 18336.54 05/31/89 16666.16 19079.17 06/30/89 15015.60 18970.42 07/31/89 14572.41 20683.44 08/31/89 15237.19 21088.84 09/30/89 15543.20 21002.38 10/31/89 15870.31 20515.12 11/30/89 16334.60 20933.63 12/31/89 16408.68 21436.04 01/31/90 15825.35 19997.68 02/28/90 16235.84 20255.65 03/31/90 16883.98 20792.42 04/30/90 16829.97 20272.61 05/31/90 18947.22 22249.19 06/30/90 19390.11 22097.90 07/31/90 17618.53 22027.18 08/31/90 15155.61 20035.93 09/30/90 13416.44 19060.18 10/31/90 13686.50 18978.22 11/30/90 15447.27 20204.21 12/31/90 16549.11 20767.91 01/31/91 18979.62 21673.39 02/28/91 20362.32 23223.04 03/31/91 21518.16 23785.03 04/30/91 21356.13 23842.12 05/31/91 21745.01 24872.10 06/30/91 20151.25 23732.96 07/31/91 21389.13 24838.91 08/31/91 23126.93 25427.59 09/30/91 22365.15 25002.95 10/31/91 23484.01 25337.99 11/30/91 20913.03 24316.87 12/31/91 24136.01 27098.72 01/31/92 28010.15 26594.68 02/29/92 28851.81 26940.42 03/31/92 27465.54 26415.08 04/30/92 26772.40 27191.68 05/31/92 27193.24 27324.92 06/30/92 25720.32 26917.78 07/31/92 27539.80 28018.72 08/31/92 25485.15 27444.33 09/30/92 27329.39 27768.18 10/31/92 29532.57 27865.36 11/30/92 32107.08 28815.57 12/31/92 32713.57 29170.00 01/31/93 34396.91 29415.03 02/28/93 34186.49 29815.08 03/31/93 34916.76 30444.17 04/30/93 34329.13 29707.43 05/31/93 38200.94 30503.58 06/30/93 40171.79 30592.05 07/31/93 38955.74 30469.68 08/31/93 41583.54 31624.48 09/30/93 42422.20 31380.97 10/31/93 42324.35 32030.56 11/30/93 41276.03 31726.27 12/31/93 43421.00 32110.15 01/31/94 44934.04 33201.90 02/28/94 45532.95 32302.13 03/31/94 40647.10 30893.75 04/30/94 40857.40 31289.19 05/31/94 36768.46 31802.34 06/30/94 33542.04 31023.18 07/31/94 35187.20 32040.74 08/31/94 39004.60 33354.41 Let's say you invested $10,000 in Fidelity Select Software and Computer Services Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $39,005 - a 290.05% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Cabletron Systems, Inc. 8.0 DSC Communications Corp. 7.4 Oracle Systems Corp. 7.4 3Com Corp. 7.0 Electronics for Imaging, Inc. 5.6 EMC Corp. 4.7 Sybase, Inc. 3.8 Nokia AB Free shares 3.6 Chipcom Corp. 3.2 Micron Technology, Inc. 3.1 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 32.3 Row: 1, Col: 2, Value: 7.9 Row: 1, Col: 3, Value: 8.5 Row: 1, Col: 4, Value: 9.4 Row: 1, Col: 5, Value: 17.0 Row: 1, Col: 6, Value: 24.9 Prepackaged Computer Software 24.9% Datacommunications Equipment 17.0% Semiconductors 9.4% Telephone Equipment 8.5% CAD/CAM/CAE 7.9% All Others 32.3%* * INCLUDES SHORT-TERM INVESTMENTS SOFTWARE & COMPUTER SERVICES PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Hurley, Portfolio Manager of Select Software and Computer Services Portfolio Q. JOHN, HOW DID THE FUND PERFORM? A. It's been a volatile year so far. The fund had a total return of -14.34% for the six months ended August 31, 1994. That compared to a 3.26% total return for the S&P 500 during the same period. The fund returned -6.20% for the 12 months ended August 31, compared to 5.47% for the S&P 500. Q. WHY DID THE FUND UNDER-PERFORM THE BROADER MARKET? A. Although I only began managing the fund at the beginning of August, I can point to a couple of reasons why it stumbled during the first six months of this year. First, the fund had a large stake - nearly 30% at the end of February - in data communications stocks. These companies provide equipment that ties together computer networks. When many technology stocks suffered a correction in March and April, networking stocks were hit hardest. Second, one of the fund's largest investments at the end of February - Cheyenne Software - hurt performance. The company's stock price fell roughly 50% earlier this year on the heels of disappointing earnings. Q. LET'S GO BACK TO THE NETWORKING STOCKS. DIDN'T THOSE PERFORM WELL OVER THE PREVIOUS COUPLE OF YEARS? A. They did, and the fund benefited from emphasizing these stocks in 1992 and 1993. Networking companies capitalized on the trend away from mainframe computer systems and toward "client-server" set-ups - personal computers linked through wide and local area networks. However, despite strong growth, the leader in this field - Cisco Systems - missed analysts' earnings projections by a mere penny per share in the first quarter of 1994. As a result, investors heavily sold Cisco and most other networking stocks, regardless of the business prospects of each company. This type of "group psychology" is not rare in the technology sector. Investors sometimes panic at the slightest bit of bad news, which can make these stocks very volatile. When Cisco went down, so did many of the fund's largest networking companies, including Cabletron, DSC Communications, 3Com and Wellfeet. Q. HAVE THESE STOCKS BOUNCED BACK AT ALL SINCE THEN? A. Many have. The stocks of networking companies that continued to show strong earnings growth right through the correction rebounded in July and August. In addition, Oracle Systems, a recent addition to the fund's top 10 investments, has performed very well lately. Oracle manufactures database software, and has strong earnings prospects. The company is at the center of this shift from mainframe to client-server architecture that I described earlier, much the same way that DOS and Windows software is at the heart of the PC movement. Q. CAN YOU DESCRIBE YOUR STRATEGY FOR THE FUND GOING FORWARD? A. Sure. I'm in no hurry to get rid of high-quality technology companies already in the fund that continue to show solid short-term business prospects. However, I do expect to look for opportunities to rotate the fund more heavily into its namesake software and computer services companies. For example, I took advantage of a sharp drop in the price of Sybase - a database software company similar to Oracle - to move it up into the fund's top 10 largest investments. So far, the move has paid off very well. In addition, I plan to look very closely at the stocks of smaller companies. Often these companies have the best ideas and the best software, or their stocks are simply overlooked and undervalued. It can take a lot of legwork to thoroughly research these small companies, but often they offer stronger growth and better valuations - stock prices relative to earnings - than the bigger, more closely followed names. Q. HOW DO YOU SEE THE REST OF THE YEAR SHAPING UP? A. I think the underlying story behind the fund's stocks remains strong. I have de-emphasized personal computer software stocks. I'm concerned that these companies may face major product transitions over the next year surrounding the release of Microsoft's new Chicago operating system. I am very optimistic, however, about the prospects for the "enterprise software" companies - those that write programs to support the operations of entire corporations. We're still early on in the migration away from IBM mainframes, and that should continue to open up an enormous market opportunity for the best client-server companies such as Oracle, Sybase and Peoplesoft, among others. As we have seen lately, though, the effects of market psychology on these stocks are often unpredictable. So although I'm optimistic, a certain level of volatility is a given. FUND FACTS START DATE: July 29, 1985 SIZE: as of August 31, 1994, more than $180 million MANAGER: John Hurley, since August 1994; analyst for the PC software, database software and mainframe software industries; joined Fidelity in 1993 (checkmark) SOFTWARE & COMPUTER SERVICES PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.1% SHARES VALUE (NOTE 1) COMMUNICATIONS EQUIPMENT - 25.5% DATACOMMUNICATIONS EQUIPMENT - 17.0% Cabletron Systems, Inc. (a) 131,200 $ 13,890,800 Network General Corp. (a) 149,100 2,944,725 3Com Corp. (a) 182,900 12,242,869 Wellfleet Communications, Inc. (a) 23,200 524,900 29,603,294 TELEPHONE EQUIPMENT - 8.5% DSC Communications Corp. (a) 452,000 12,938,500 Inter-Tel, Inc. (a) 203,100 1,777,125 14,715,625 TOTAL COMMUNICATIONS EQUIPMENT 44,318,919 COMPUTER SERVICES & SOFTWARE - 36.8% CAD/CAM/CAE - 7.9% Ascend Communications, Inc. (a) 4,000 103,000 Chipcom Corp. (a) 97,900 5,519,113 Clinicom, Inc. (a) 10,000 197,500 Computer Data Systems, Inc. (a) 50,000 631,250 Crosscommunications Corp. (a) 361,500 3,615,000 ECI Telecom Ltd. 100,000 1,806,250 Network Peripherals, Inc. (a) 100,000 1,100,000 State of The Art, Inc. (a) 80,000 580,000 Stratacom, Inc. (a) 4,400 167,200 13,719,313 COMPUTER SERVICES - 3.2% Cerner Corp. (a) 25,000 1,043,750 SHL Systemhouse, Inc. (a) 546,000 2,764,125 SunGard Data Systems, Inc. (a) 50,000 1,737,500 5,545,375 DATA PROCESSING - 0.8% Investment Technology Group, Inc. (a) 106,000 1,391,250 PREPACKAGED COMPUTER SOFTWARE - 24.9% Artisoft, Inc. (a) 100,000 1,362,500 Banyan Systems, Inc. (a) 50,000 837,500 Boole & Babbage, Inc. (a) 1,000 28,250 Compuware Corp. (a) 84,500 3,506,750 Data Systems & Software (a) 55,000 412,500 EICON Technology Corp. (a) 221,200 1,719,213 Electronics for Imaging, Inc. (a) 397,800 9,746,100 FTP Software, Inc. (a) 115,000 2,213,750 Gupta Corp. (a) 150,000 1,481,250 Manugistics Group, Inc. (a) 55,000 591,250 MathSoft, Inc. (a) 40,000 90,000 Midisoft Corp. (a) 80,000 1,180,000 Modatech Systems, Inc. (a) 250,000 156,250 Oracle Systems Corp. (a) 300,000 12,806,250 Peoplesoft, Inc. (a) 10,000 447,500 Platinum Technology, Inc. (a) 100 1,450 Sanctuary Woods Multimedia Corp. (a) 53,300 99,812 Sybase, Inc. (a) 151,500 6,590,250 Xcellenet, Inc. (a) 3,000 35,250 43,305,825 TOTAL COMPUTER SERVICES & SOFTWARE 63,961,763 COMPUTERS & OFFICE EQUIPMENT - 8.8% COMPUTER EQUIPMENT - WHOLESALE - 0.1% Kenfil, Inc. (a) 185,000 150,313 SHARES VALUE (NOTE 1) COMPUTER PERIPHERALS - 5.1% Asante Technologies, Inc. (a) 135,000 $ 624,375 EMC Corp. (a) 454,600 8,182,800 8,807,175 COMPUTER STORAGE DEVICES - 1.5% ADAPTEC, Inc. (a) 10,000 191,250 Read Rite Corp. (a) 50,000 881,250 Xylogics, Inc. (a) 73,900 1,570,375 2,642,875 COMPUTERS & OFFICE EQUIPMENT - 2.1% Netframe Systems, Inc. (a) 377,700 3,588,150 TOTAL COMPUTERS & OFFICE EQUIPMENT 15,188,513 ELECTRONIC INSTRUMENTS - 0.5% OPTICAL INSTRUMENTS - 0.4% Cognex Corp. (a) 40,000 760,000 SEMICONDUCTOR CAPITAL EQUIPMENT - 0.1% Quad Systems Corp. (a) 6,700 82,075 TOTAL ELECTRONIC INSTRUMENTS 842,075 ELECTRONICS - 12.2% ELECTRONIC PARTS - WHOLESALE - 0.2% ARC International Corp. (a) 133,500 333,750 ELECTRONICS AND ELECTRONIC COMPONENTS - 2.6% Cascade Communications Corp. (a) 1,000 37,250 Digital Microwave Corp. (a) 50,000 775,000 Sanmina Corp. (a) 184,200 3,730,050 4,542,300 SEMICONDUCTORS - 9.4% Advanced Micro Devices, Inc. (a) 6,000 174,000 Intel Corp. 81,500 5,358,625 Intel Corp. (warrants) (a) 201,600 3,124,800 Micron Technology, Inc. (a) 134,000 5,393,500 Motorola, Inc. (a) 40,000 2,160,000 Texas Instruments, Inc. 2,000 155,750 16,366,675 TOTAL ELECTRONICS 21,242,725 ENGINEERING - 0.0% ARCHITECTS & ENGINEERS - 0.0% DSP Group, Inc. (a) 200 4,650 INDUSTRIAL MACHINERY & EQUIPMENT - 3.6% SPECIAL INDUSTRIAL MACHINERY - 3.6% Nokia AB Free shares 57,700 6,254,803 SECURITIES INDUSTRY - 0.1% SECURITY & COMMODITY BROKERS - 0.1% Kim Eng Holdings Ltd. (warrants) (a) 90,600 91,839 SERVICES - 1.1% BUSINESS SERVICES - 1.1% Zebra Technologies Corp. Class A (a) 50,000 1,962,499 TELEPHONE SERVICES - 0.5% ALC Communications Corp. (a) 26,200 936,650 TOTAL COMMON STOCKS (Cost $151,234,474) 154,804,436 NONCONVERTIBLE PREFERRED STOCKS - 2.4% SHARES VALUE (NOTE 1) INDUSTRIAL MACHINERY & EQUIPMENT - 2.4% SPECIAL INDUSTRIAL MACHINERY - 2.4% Nokia (Cost $2,720,645) 37,300 $ 4,050,699 NONCONVERTIBLE BONDS - 0.0% PRINCIPAL AMOUNT SECURITIES INDUSTRY - 0.0% SECURITY & COMMODITY BROKERS - 0.0% Kim Eng Holdings Ltd. 3 1/2%, 12/27/97 (Cost $56,322) SGD 90,600 55,284 REPURCHASE AGREEMENTS - 8.5% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 14,830,990 14,829,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $168,840,441) $ 173,739,419 CURRENCY ABBREVIATIONS SGD - Singapore dollar LEGEND 1. Non-income producing 2. Principal amount is stated in United States dollars unless otherwise noted. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $141,076,407 and $132,059,808, respectively. (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $30,172 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $126,263 and $136,500, respectively (see Note 7 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $2,092,000 and $1,447,167, respectively. The weighted average interest rate paid was 4.6% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 89.9% Finland 5.9 Canada 2.7 Israel 1.0 Others (individually less than 1%) 0.5 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $169,588,682. Net unrealized appreciation aggregated $4,150,737, of which $19,465,884 related to appreciated investment securities and $15,315,147 related to depreciated investment securities. SOFTWARE AND COMPUTER SERVICES PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $14,829,000) (cost $168,840,441) - See $ 173,739,419 accompanying schedule Cash 299 Receivable for investments sold 4,700,039 Receivable for fund shares sold 11,045,808 Dividends receivable 39,366 Interest receivable 1,210 Redemption fees receivable 2,856 Other receivables 169,793 Prepaid expenses 18,125 TOTAL ASSETS 189,716,915 LIABILITIES Payable for investments purchased $ 6,386,245 Payable for fund shares redeemed 2,908,435 Accrued management fee 79,388 Other payables and accrued expenses 141,172 Collateral on securities loaned, at value 136,500 TOTAL LIABILITIES 9,651,740 NET ASSETS $ 180,065,175 Net Assets consist of: Paid in capital $ 190,745,283 Accumulated net investment (loss) (892,068 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (14,669,012 ) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 4,880,972 NET ASSETS, for 7,372,607 shares outstanding $ 180,065,175 NET ASSET VALUE and redemption price per share ($180,065,175 (divided by) shares) $24.42 Maximum offering price per share (100/97 of $24.42) $25.18
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 143,204 Dividends Interest (including security lending fees of $18,255) 126,780 TOTAL INCOME 269,984 EXPENSES Management fee $ 472,402 Transfer agent 621,229 Fees Redemption fees (58,560 ) Accounting and security lending fees 80,255 Non-interested trustees' compensation 450 Custodian fees and expenses 19,820 Registration fees 19,939 Audit 17,593 Legal 1,817 Interest 2,195 Reports to shareholders 8,502 Miscellaneous 292 Total expenses before reductions 1,185,934 Expense reductions (23,882 1,162,052 ) NET INVESTMENT INCOME (LOSS) (892,068 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (13,681,276 ) Foreign currency transactions 74,187 (13,607,089 ) Change in net unrealized appreciation (depreciation) on: Investment securities (10,318,355 ) Assets and liabilities in foreign (18,006 (10,336,361 currencies ) ) NET GAIN (LOSS) (23,943,450 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (24,835,518 ) OTHER INFORMATION $635,928 Sales Charges Paid to FDC Deferred sales charges withheld $6,601 by FDC Exchange fees withheld by FSC $38,250
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (892,068 $ (2,049,464 Net investment income (loss) ) ) Net realized gain (loss) (13,607,089 35,000,477 ) Change in net unrealized appreciation (depreciation) (10,336,361 10,379,359 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (24,835,518 43,330,372 ) Distributions to shareholders from net realized gain (2,015,425 (32,503,084 ) ) Share transactions 126,284,559 412,354,230 Net proceeds from sales of shares Reinvestment of distributions 1,989,953 32,019,820 Cost of shares redeemed (99,735,898 (429,424,876 ) ) Paid in capital portion of redemption fees 343,679 1,045,419 Net increase (decrease) in net assets resulting from share transactions 28,882,293 15,994,593 TOTAL INCREASE (DECREASE) IN NET ASSETS 2,031,350 26,821,881 NET ASSETS Beginning of period 178,033,825 151,211,944 End of period (including net investment income (loss) of ($892,068) and $0, respectively) $ 180,065,175 $ 178,033,825 OTHER INFORMATION Shares Sold 5,339,758 14,575,603 Issued in reinvestment of distributions 80,951 1,265,940 Redeemed (4,209,752 (15,154,744 ) ) Net increase (decrease) 1,210,957 686,799
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 28.89 $ 27.62 $ 21.63 $ 19.77 $ 15.58 $ 15.75 Income from Investment Operations Net investment income (loss) (.14) (.34) (.07)F (.28) (.14)G (.20) Net realized and unrealized gain (loss) (4.05) 7.92 5.88 4.37 4.06 .82 Total from investment operations (4.19) 7.58 5.81 4.09 3.92 .62 Less Distributions From net realized gain (.33) (6.48) - (2.50) - (.86) Redemption fees added to paid in capital .05 .17 .18 .27 .27 .07 Net asset value, end of period $ 24.42 $ 28.89 $ 27.62 $ 21.63 $ 19.77 $ 15.58 TOTAL RETURN D, E (14.34)% 33.19 27.69% 25.36% 26.89% 4.64% % RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 180,065 $ 178,034 $ 151,212 $ 89,571 $ 17,290 $ 10,539 Ratio of expenses to average net assets B 1.50%A 1.57 1.64%A 1.98% 2.50% 2.56% % Ratio of expenses to average net assets before 1.53%A 1.57 1.64%A 1.98% 2.82% 3.39% expense reductions B % Ratio of net investment income (loss) to average net (1.15)%A (1.19) (.37)%A (1.30)% (.84)% (1.30)% assets % Portfolio turnover rate 176%A 376 402%A 348% 326% 284% %
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. F INVESTMENT INCOME PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS FROM UNISYS CORP.,$3.75 SERIES A WHICH AMOUNTED TO $.03 PER SHARE. G INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.02 PER SHARE. TECHNOLOGY PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 MONTH YEAR YEARS YEARS S TECHNOLOGY -0.34% 13.00% 172.77% 144.72% TECHNOLOGY (INCL. 3% SALES CHARGE) -3.33% 9.61% 164.58% 137.38% S&P 500 3.26% 5.47% 58.16% 300.76% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or ten years. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 PAST 10 AUGUST 31, 1994 YEAR YEARS YEARS TECHNOLOGY 13.00% 22.22% 9.36% TECHNOLOGY (INCL. 3% SALES CHARGE) 9.61% 21.48% 9.03% S&P 500 5.47% 9.60% 14.89% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER TEN YEARS Select Tech. (064) Standard & Poor's 08/31/84 9700.00 10000.00 09/30/84 9054.48 10002.00 10/31/84 8942.59 10041.01 11/30/84 8529.46 9928.55 12/31/84 8981.32 10190.66 01/31/85 10319.70 10984.51 02/28/85 10052.88 11119.62 03/31/85 9200.80 11127.41 04/30/85 8507.94 11117.39 05/31/85 8645.65 11759.98 06/30/85 8665.75 11944.61 07/31/85 9069.83 11926.69 08/31/85 8696.50 11825.32 09/30/85 8046.46 11455.18 10/31/85 8270.46 11984.41 11/30/85 9170.85 12806.54 12/31/85 9658.38 13426.38 01/31/86 9755.01 13501.57 02/28/86 10396.27 14511.49 03/31/86 10418.23 15321.23 04/30/86 10949.68 15148.10 05/31/86 10611.48 15953.98 06/30/86 9952.66 16223.60 07/31/86 8677.01 15316.70 08/31/86 9113.51 16453.20 09/30/86 8306.65 15092.52 10/31/86 8782.83 15963.36 11/30/86 9131.14 16351.27 12/31/86 8937.14 15934.31 01/31/87 10603.77 18080.66 02/28/87 11803.03 18794.85 03/31/87 11132.85 19338.02 04/30/87 11454.71 19165.91 05/31/87 11714.85 19332.65 06/30/87 11366.53 20308.95 07/31/87 11481.17 21338.62 08/31/87 12155.75 22134.55 09/30/87 12217.48 21649.80 10/31/87 7918.65 16986.43 11/30/87 6886.94 15586.75 12/31/87 7884.55 16772.90 01/31/88 7459.36 17479.04 02/29/88 8198.82 18293.57 03/31/88 8111.01 17728.29 04/30/88 8420.66 17925.08 05/31/88 8189.58 18081.03 06/30/88 8942.91 18910.95 07/31/88 8277.39 18839.08 08/31/88 7514.82 18198.55 09/30/88 7718.17 18973.81 10/31/88 7399.28 19501.29 11/30/88 7177.44 19222.42 12/31/88 7671.96 19558.81 01/31/89 8291.26 20990.51 02/28/89 8064.80 20467.85 03/31/89 7916.90 20944.75 04/30/89 8489.99 22031.78 05/31/89 9183.24 22924.07 06/30/89 8369.83 22793.40 07/31/89 8517.72 24851.65 08/31/89 8702.59 25338.74 09/30/89 8910.56 25234.85 10/31/89 8845.86 24649.40 11/30/89 8868.97 25152.25 12/31/89 8975.26 25755.90 01/31/90 8790.40 24027.68 02/28/90 9284.91 24337.64 03/31/90 9719.35 24982.59 04/30/90 9280.29 24358.02 05/31/90 10477.30 26732.93 06/30/90 10569.74 26551.15 07/31/90 10005.89 26466.18 08/31/90 8642.50 24073.64 09/30/90 7907.66 22901.25 10/31/90 8134.12 22802.78 11/30/90 9354.24 24275.84 12/31/90 9918.08 24953.13 01/31/91 11591.12 26041.09 02/28/91 12178.07 27903.03 03/31/91 13153.24 28578.28 04/30/91 12506.21 28646.87 05/31/91 13199.46 29884.41 06/30/91 11918.97 28515.71 07/31/91 13238.65 29844.54 08/31/91 13889.20 30551.86 09/30/91 13958.90 30041.64 10/31/91 14335.29 30444.20 11/30/91 13865.96 29217.30 12/31/91 15766.93 32559.76 01/31/92 16366.56 31954.14 02/29/92 16622.21 32369.55 03/31/92 15302.10 31738.34 04/30/92 15078.99 32671.45 05/31/92 15227.73 32831.54 06/30/92 14139.09 32342.35 07/31/92 14859.49 33665.15 08/31/92 14098.51 32975.02 09/30/92 14788.47 33364.12 10/31/92 15661.06 33480.90 11/30/92 16929.37 34622.59 12/31/92 17142.44 35048.45 01/31/93 17664.99 35342.86 02/28/93 17563.52 35823.52 03/31/93 17791.82 36579.40 04/30/93 17740.81 35694.18 05/31/93 19530.60 36650.78 06/30/93 20484.41 36757.07 07/31/93 19940.18 36610.04 08/31/93 21006.20 37997.56 09/30/93 21331.62 37704.98 10/31/93 20910.82 38485.47 11/30/93 20708.84 38119.86 12/31/93 22053.79 38581.11 01/31/94 23164.17 39892.87 02/28/94 23819.01 38811.77 03/31/94 23016.12 37119.58 04/30/94 22552.57 37594.71 05/31/94 22588.12 38211.26 06/30/94 20674.17 37275.09 07/31/94 21474.12 38497.71 08/31/94 23737.67 40076.11 Let's say you invested $10,000 in Fidelity Select Technology Portfolio on August 31, 1984, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $23,738 - a 137.38% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $40,076 over the same period - a 300.76% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Intel Corp. 6.4 International Business Machines Corp. 6.2 Oracle Systems Corp. 5.8 Texas Instruments, Inc. 4.8 Advanced Micro Devices, Inc. 4.1 Compaq Computer Corp. 4.1 Micron Technology, Inc. 2.9 EMC Corp. 2.5 Digital Equipment Corp. 2.1 Samsung Electronics Co., Ltd. GDS 2.1 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 37.5 Row: 1, Col: 2, Value: 5.5 Row: 1, Col: 3, Value: 6.6 Row: 1, Col: 4, Value: 7.6 Row: 1, Col: 5, Value: 13.8 Row: 1, Col: 6, Value: 29.0 Semiconductors 29.0% Prepackaged Computer Software 13.8% Mainframe Computers 7.6% Mini & Micro Computers 6.6% Datacommunications Equipment 5.5% All Others 37.5%* * INCLUDES SHORT-TERM INVESTMENTS TECHNOLOGY PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW Harry Lange, Portfolio Manager of Fidelity Select Technology Portfolio Q. HARRY, CAN YOU DESCRIBE THE FUND'S RECENT PERFORMANCE? A. The fund had total returns of -0.34% and 13.00% for the six and 12 months ended August 31, 1994, respectively. That compares to total returns of 3.26% and 5.47% for the S&P 500 during the same periods. Q. IT LOOKS LIKE THE FUND'S PERFORMANCE HAS FALLEN OFF SOMEWHAT THROUGH THE FIRST SIX MONTHS OF 1994 . . . A. That's true. However, it's also important to keep in mind that 1993 was an extraordinarily strong year for technology stocks and for the fund. The fortunes of the fund are very closely tied to those of the personal computer market. While growth in the PC industry remains strong, small bits of negative news now and then can have a huge impact on these stocks. Q. CAN YOU GIVE US AN EXAMPLE? A. Sure. When Cisco Systems - a leading computer networking equipment manufacturer - reported first quarter 1994 earnings that fell but a penny per share short of analysts' expectations, investors reacted by heavily selling most other networking stocks such as 3Com and Cabletron. I had previously scaled back on these stocks because I thought that they were getting expensive, but this correction did hurt the fund. I later reduced the fund's stake in networking stocks. Q. CONVERSELY, WHICH STOCKS SHONE? A. Compaq and IBM - two computer stocks - continued to perform well over the past six months. Compaq had first quarter 1994 earnings growth that surprised even the most optimistic analysts. IBM's performance was even better. The company has succeeded in trimming layers of its extensive bureaucracy, and its products are in strong demand. Q. DID YOU MAKE ANY STRATEGIC CHANGES TO THE FUND OVER THE PAST SIX MONTHS? A. Yes. I feel that the technological nature of pharmaceutical research falls in line with the fund's objectives, so I began investing more heavily in drug stocks - roughly 4% of the fund on August 31. The prices of these stocks were severely beaten down on fears of the effects of health care reform. However, companies such as Pfizer, Schering-Plough and Warner-Lambert are capable of strong earnings growth. The investments paid off; these stocks rose recently amid merger activity and Congress' apparent unwillingness to enact major new health care legislation. In addition, the fund had about a 14% stake in overseas technology companies at the end of August. Kinpo Electronics - a Taiwanese electronic goods manufacturer - and Samsung - a Korean company that is the largest semiconductor memory manufacturer in the world - have boosted performance. Q. THE FUND HAS A SIZABLE STAKE IN LARGE U.S. SEMICONDUCTOR COMPANIES. HOW DID THEY DO? A. The stocks of most U.S. chip companies such as Advanced Micro Devices, Texas Instruments and Intel were relatively flat during the period. That was due mainly to investor worries about a summer slowdown in orders that often negatively affects the stocks of technology companies. Also, Intel's new Pentium microprocessor didn't take off in the marketplace as quickly as I had hoped. But I'm sticking with these companies. They continue to show strong earnings growth as worldwide semiconductor demand exceeds available supply. Their stock prices did rebound somewhat in July and August, and I think its just a matter of time until investors appropriately reward chip makers for their excellent earnings prospects. Q. WAS THE PERFORMANCE OF THE CHIP MANUFACTURERS AND THE NETWORKING STOCKS YOUR BIGGEST DISAPPOINTMENT? A. Actually, PC software maker Lotus Development - one of the fund's top 10 investments six months ago - was my biggest disappointment. The company experienced a significant slowdown in sales of its word processing, spread sheet and other applications products. I sold much of the fund's investment before the stock bottomed out in July, but not in time to avoid a loss. Q. LET'S TALK ABOUT THE REST OF THE YEAR. WHAT'S YOUR OUTLOOK? A. I'm pretty optimistic about the next six months. At this point, signs are pointing toward a strong Christmas season for PC manufacturers and those who make related products such as semiconductors and software. In addition, companies in large numbers continue to make the shift from mainframe computer set-ups to PC-based networks, which bodes well for the PC industry in the long term. However, as we've seen recently, the chances are good there will be corrections and volatility along the way. FUND FACTS START DATE: July 14, 1981 SIZE: as of August 31, 1994, more than $217 million MANAGER: Harry Lange, since November, 1993; manager, Fidelity Select Electronics Portfolio, since January 1994; Fidelity Select Computers Portfolio, since June 1992; manager, Fidelity Select Capital Goods and Automation Machinery Portfolios, 1988; joined Fidelity in 1987 (checkmark) TECHNOLOGY PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 89.4% SHARES VALUE (NOTE 1) AEROSPACE & DEFENSE - 0.1% AIRCRAFT & PARTS - 0.1% Hong Kong Aircraft & Engineering Co. 50,000 $ 236,802 BROADCASTING - 0.7% CABLE TV OPERATORS - 0.0% NTN Communications, Inc. (a) 3,800 28,500 TELEVISION BROADCASTING - 0.7% Scandinavian Broadcasting Corp. (a) 60,000 1,590,000 TOTAL BROADCASTING 1,618,500 CELLULAR - 0.1% CELLULAR & COMMUNICATION SERVICES - 0.1% Advanced Information Services (For. Reg.) 2,500 109,425 Millicom International Cellular SA 2,800 67,200 176,625 COMMUNICATIONS EQUIPMENT - 6.6% DATACOMMUNICATIONS EQUIPMENT - 5.5% Broadband Technologies, Inc. (a) 20,000 385,000 Cabletron Systems, Inc. (a) 43,600 4,616,150 Cisco Systems, Inc. (a) 105,900 2,627,644 General DataComm Industries, Inc. (a) 20,000 395,000 Network General Corp. (a) 157,500 3,110,625 Wellfleet Communications, Inc. (a) 50,000 1,131,250 12,265,669 TELEPHONE EQUIPMENT - 1.1% Ericsson (L.M.) Telephone Co. Class B ADR 20,000 1,082,500 Natural Microsystems (a) 1,300 15,275 Newbridge Networks Corp.(a) 41,000 1,312,000 Teledata Communications Ltd. (a) 7,300 66,613 2,476,388 TOTAL COMMUNICATIONS EQUIPMENT 14,742,057 COMPUTER SERVICES & SOFTWARE - 15.6% COMPUTER & SOFTWARE STORES - 1.3% Inacom Corp. (a) 37,300 349,688 MicroAge, Inc. (a) 198,000 2,524,500 Software Spectrum, Inc. (a) 8,000 102,000 2,976,188 COMPUTER SERVICES - 0.1% Wave Systems Corp. Class A (a) 50,000 250,000 CAD/CAM/CAE - 0.4% Brooktrout Technology (a) 17,900 183,475 Chipcom Corp. (a) 6,200 349,525 Viewlogic Systems, Inc. (a) 20,000 370,000 903,000 ELECTRONIC INFORMATION RETRIEV - 0.0% Data Broadcasting Corp. (a) 15,000 75,000 Quickresponse Services, Inc. (a) 1,500 19,125 94,125 PREPACKAGED COMPUTER SOFTWARE - 13.8% Brock Control Systems, Inc. (a) 82,400 803,400 Corel Systems Corp. (a) 105,800 1,818,734 EICON Technology Corp. (a) 21,000 163,216 FTP Software, Inc. (a) 34,900 671,825 Fourth Shift Corp. (a) 54,000 276,750 Fourth Dimension Software (a) 38,000 218,500 Geoworks (a) 103,400 723,800 Globalink, Inc. (a) 127,100 1,572,863 Informix Corp. (a) 86,000 2,031,750 Infosoft International, Inc. (a) 7,500 201,563 SHARES VALUE (NOTE 1) LEGENT Corp. (a) 20,000 $ 465,000 Lotus Development Corp. (a) 30,000 1,226,250 MDL Information Systems, Inc. (a) 16,000 92,000 Media Logic, Inc. (a) 65,000 125,938 Microsoft Corp. (a) 42,100 2,447,063 Midisoft Corp. (a) 40,000 590,000 Novell, Inc. (a) 100,000 1,562,500 Oracle Systems Corp. (a) 303,800 12,968,463 Sybase, Inc. (a) 40,000 1,740,000 Systems Software Associates, Inc. (a) 50,000 712,500 Tulip Computers NV 20,000 190,476 Wonderware Corp. (a) 9,300 174,375 30,776,966 TOTAL COMPUTER SERVICES & SOFTWARE 35,000,279 COMPUTERS & OFFICE EQUIPMENT - 26.6% COMPUTER EQUIPMENT - 1.2% Stratus Computer, Inc. (a) 50,000 1,900,000 Syquest Technology, Inc. (a) 70,400 686,400 2,586,400 COMPUTER EQUIPMENT - WHOLESALE - 1.2% GBC Technologies, Inc. (a) 170,100 1,509,638 Kenfil, Inc. (a) 56,300 45,744 Merisel, Inc. (a) 70,000 638,750 Tech Data Corp. (a) 24,700 463,125 2,657,257 COMPUTER PERIPHERALS - 2.9% EMC Corp. (a) 306,800 5,522,400 Komag, Inc. (a) 19,800 465,300 Liuski International, Inc. (a) 2,500 13,750 Radius, Inc. (a) 36,650 352,757 Western Digital Corp. (a) 3,900 58,500 6,412,707 COMPUTER RENTAL & LEASING - 0.2% Comdisco, Inc. 23,300 509,688 COMPUTER STORAGE DEVICES - 0.5% Pinnacle Micro, Inc. (a) 84,500 1,119,625 COMPUTERS & OFFICE EQUIPMENT - 2.0% Fujitsu Ltd. 100,000 1,087,824 Hewlett-Packard Co. 37,000 3,325,375 4,413,199 ELECTRONIC COMPUTERS - 0.1% TSL Holding, Inc. (a) 10,864 326 Tricord Systems, Inc. (a) 40,500 227,813 228,139 GRAPHICS WORKSTATIONS - 2.4% Intergraph Corp. (a) 20,000 192,500 Silicon Graphics, Inc. (a) 24,600 645,750 Sun Microsystems, Inc. (a) 170,200 4,510,300 5,348,550 MAINFRAME COMPUTERS - 7.6% Amdahl Corp. (a) 348,400 3,222,700 Control Data Systems, Inc. (a) 5,000 38,125 International Business Machines Corp. 200,800 13,779,900 17,040,725 MINI & MICRO COMPUTERS - 6.6% Compaq Computer Corp. (a) 244,600 9,141,925 Digital Equipment Corp. (a) 195,300 4,736,025 Tandem Computers, Inc. (a) 50,000 756,250 14,634,200 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) COMPUTERS & OFFICE EQUIPMENT - CONTINUED OFFICE AUTOMATION - 0.5% Xerox Corp. (a) 10,000 $ 1,071,250 PENS, PENCILS, OFFICE SUPPLIES - 1.4% International Imaging Materials, Inc. (a) 129,700 3,129,013 TOTAL COMPUTERS & OFFICE EQUIPMENT 59,150,753 CONSUMER ELECTRONICS - 0.3% RADIOS, TELEVISIONS, STEREOS - 0.3% Foster Electric Co. Ltd. (a) 7,000 62,892 Odetics, Inc. Class A (a) 66,000 610,500 673,392 DEFENSE ELECTRONICS - 0.0% DEFENSE ELECTRONICS - 0.0% Stanford Telecommunications, Inc. (a) 200 3,813 DRUGS & PHARMACEUTICALS - 3.8% BIOTECHNOLOGY - 1.5% Amgen, Inc. (a) 20,000 1,055,000 Applied Immune Sciences, Inc. (a) 1,100 8,113 COR Therapeutics, Inc. (a) 80,000 1,180,000 Genentech, Inc. (redeemable)(a) 20,000 1,027,500 3,270,613 DRUGS - 2.3% A.L. Laboratories, Inc. Class A 5,000 77,500 Pfizer, Inc. (a) 20,000 1,365,000 Schering-Plough Corp. 30,000 2,096,250 Warner-Lambert Co. 20,000 1,672,500 Watson Pharmaceuticals, Inc. (a) 400 9,150 5,220,400 TOTAL DRUGS & PHARMACEUTICALS 8,491,013 ELECTRICAL EQUIPMENT - 0.5% ELECTRICAL EQUIPMENT, NEC - 0.0% IEC Electronics Corp. (a) 5,000 71,250 TV & RADIO COMMUNICATION EQUIPMENT - 0.2% Avid Technology, Inc. (a) 12,000 399,000 WIRING & LIGHTING - 0.3% Oak Industries, Inc. (a) 20,800 559,000 TOTAL ELECTRICAL EQUIPMENT 1,029,250 ELECTRONIC INSTRUMENTS - 2.3% ELECTRONIC EQUIPMENT - 1.3% ASECO Corp. (a) 15,000 123,750 Credence Systems Corp. (a) 55,400 1,232,650 GenRad, Inc. (a) 41,500 217,875 Megatest Corp. (a) 35,800 689,150 Micro Component Technology, Inc. (a) 600 2,925 Teradyne, Inc. (a) 20,000 595,000 2,861,350 MEASURING INSTRUMENTS - 0.3% Perkin-Elmer Corp. (a) 20,000 597,500 SEMI-CONDUCTOR CAPITAL EQUIPMENT - 0.7% KLA Instruments Corp. (a) 29,100 1,382,250 Kulicke & Soffa Industries, Inc. (a) 10,800 170,100 1,552,350 TOTAL ELECTRONIC INSTRUMENTS 5,011,200 ELECTRONICS - 28.3% CONNECTORS - 0.0% Thomas & Betts Corp. (a) 2,000 129,000 SHARES VALUE (NOTE 1) ELECTRONIC PARTS - WHOLESALE - 0.3% Pioneer-Standard Electronics, Inc. 5,100 $ 87,338 Sterling Electronics Corp. (a) 40,000 510,000 597,338 ELECTRONICS AND ELECTRONIC COMPONENT - 0.8% GTI Corp. (a) 20,000 260,000 Hitachi Ltd. ADR 10,800 1,073,250 Toshiba Corp. 50,000 378,743 1,711,993 SEMICONDUCTORS - 27.2% Advanced Micro Devices, Inc. (a) 316,700 9,184,300 Cyrix Corp. (a) 7,300 290,175 Geotek Industries, Inc. (a) 99,000 1,126,125 Integrated Device Technology, Inc. (a) 1,700 39,738 Intel Corp. 217,600 14,307,200 Interpoint Corp. (a) 10,000 107,500 LSI Logic Corp. (a) 98,500 3,102,750 Lattice Semiconductor Corp. (a) 30,000 566,250 Linear Technology Corp. 20,000 890,000 Micron Technology, Inc. 159,000 6,399,750 Motorola, Inc. 41,400 2,235,600 National Semiconductor Corp. (a) 145,200 2,704,350 Opti, Inc. (a) 10,000 132,500 Samsung Electronics Co. Ltd.: GDR (non-vtg.)(b) 43,475 3,412,788 GDR Part Dividend (b) 4,258 181,063 GDS (b) 59,300 4,655,050 Texas Instruments, Inc. 137,400 10,700,025 VLSI Technology, Inc. (a) 50,000 696,875 60,732,039 TOTAL ELECTRONICS 63,170,370 INDUSTRIAL MACHINERY & EQUIPMENT - 0.1% GENERAL INDUSTRIAL MACHINERY - 0.0% Robotic Vision Systems, Inc. (a) 5,000 25,000 SPECIAL INDUSTRIAL MACHINERY - 0.1% Asyst Technologies, Inc. (a) 9,400 152,750 TOTAL INDUSTRIAL MACHINERY & EQUIPMENT 177,750 MEDICAL EQUIPMENT & SUPPLIES - 1.1% MEDICAL SUPPLIES & APPLIANCES - 0.5% Healthdyne, Inc. (a) 25,000 171,875 Johnson & Johnson (a) 17,300 867,163 Medical Technology Systems, Inc. (a) 9,800 72,275 1,111,313 MEDICAL TECHNOLOGY - 0.6% Mallinckrodt Group, Inc. 11,900 383,775 Medtronic, Inc. 10,000 987,500 1,371,275 TOTAL MEDICAL EQUIPMENT & SUPPLIES 2,482,588 MEDICAL FACILITIES MANAGEMENT - 0.4% HOME HEALTH CARE AGENCIES - 0.1% Abbey Healthcare Group, Inc. (a) 375 6,844 Homedco Group, Inc. (a) 5,900 163,725 Medical Care America, Inc. (a) 4,408 130,587 301,156 HOSPITALS - 0.3% Columbia/HCA Healthcare Corp. 2,300 97,750 Health Management Associates, Inc. Class A (a) 19,575 467,353 565,103 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) MEDICAL FACILITIES MANAGEMENT - CONTINUED HOSPITALS, GENERAL MEDICAL - 0.0% Charter Medical Corp. (a) 5,000 $ 141,250 TOTAL MEDICAL FACILITIES MANAGEMENT 1,007,509 RETAIL & WHOLESALE, MISC - 1.1% MAIL ORDER - 1.1% Micro Warehouse, Inc. (a) 87,400 2,381,650 SERVICES - 0.0% JEWELRY, SILVERWARE, & PLATED - 0.0% Aurora Electronics (a) 7,000 55,125 TELEPHONE SERVICES - 1.8% TELEPHONE SERVICES - 1.8% MFS Communications, Inc. (a) 3,300 116,325 Japan Telecom Co. Ltd. (a)(b) 5 235,896 Southwestern Bell Corp. 10,000 413,750 Telebras PN: (Pfd. Reg.) 53,000,000 3,117,990 PN (rights) (a) 1,208,241 5,763 US Long Distance Corp.(a) 12,500 134,377 4,024,101 TOTAL COMMON STOCKS (Cost $171,016,082) 199,432,777 PREFERRED STOCKS - 1.2% NONCONVERTIBLE PREFERRED STOCKS - 1.2% TELEPHONE SERVICES - 1.2% Stet (Societa Finanziaria Telefonica) Spa (Cost $1,559,319) 1,035,100 2,697,057 CORPORATE BONDS - 4.0% PRINCIPAL AMOUNT CONVERTIBLE BONDS - 4.0% COMPUTER SERVICES & SOFTWARE - 0.0% PREPACKAGED COMPUTER SOFTWARE - 0.0% Sterling Software, Inc. 5 3/4%, 2/01/03 $ 62,000 73,470 COMPUTERS & OFFICE EQUIPMENT - 2.2% COMPUTERS & OFFICE EQUIPMENT - 0.3% Data General Corp. 7 3/4%, 6/1/01 770,000 635,250 ELECTRONIC COMPUTERS - 1.4% Acer, Inc. 4%, 6/10/01 1,070,000 3,156,500 OFFICE EQUIPMENT - WHOLESALE - 0.5% Kinpo Electronics, Inc. euro 3%, 7/21/01 860,000 1,019,100 TOTAL COMPUTERS & OFFICE EQUIPMENT 4,810,850 ELECTRONICS - 1.8% SEMICONDUCTORS - 1.8% United Microelectronics Corp.: 1 1/4%, 6/8/04 (b) 870,000 1,500,750 euro 1 1/4%, 6/8/04 1,500,000 2,587,500 4,088,250 TOTAL CORPORATE BONDS (Cost $7,785,015) 8,972,570 REPURCHASE AGREEMENTS - 5.4% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasure obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $12,049,616 $ 12,048,000 TOTAL INVESTMENTS IN SECURITIES - 100% (Cost $192,408,416) $ 223,150,404 LEGEND 1. Non-income producing 2. 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 $9,985,547 or 4.6% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $146,719,499 and $115,464,703, respectively. (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $120,412 for the period (see Note 5 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $12,443,000 and $6,434,364, respectively. The weighted average interest rate paid was 4.2% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 85.6% Taiwan 3.7 Korea 3.7 Canada 1.5 Brazil 1.4 Japan 1.3 Italy 1.2 Others (individually less than 1%) 1.6 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $192,582,863. Net unrealized appreciation aggregated $30,567,541, of which $39,330,225 related to appreciated investment securities and $8,762,684 related to depreciated investment securities. TECHNOLOGY PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $12,048,000) (cost $192,408,416) - See $ 223,150,404 accompanying schedule Cash 21,074 Receivable for investments sold 3,198,145 Receivable for fund shares sold 5,028,600 Dividends receivable 85,780 Interest receivable 22,060 Redemption fees receivable 1,520 Other receivables 188,962 Prepaid expenses 25,140 TOTAL ASSETS 231,721,685 LIABILITIES Payable for investments purchased $ 11,127,569 Payable for fund shares redeemed 2,915,466 Accrued management fee 100,285 Other payables and accrued expenses 176,596 TOTAL LIABILITIES 14,319,916 NET ASSETS $ 217,401,769 Net Assets consist of: Paid in capital $ 186,545,714 Accumulated net investment (loss) (889,734 ) Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions 1,003,801 Net unrealized appreciation (depreciation) on investments 30,741,988 NET ASSETS, for 5,427,318 shares outstanding $ 217,401,769 NET ASSET VALUE and redemption price per share ($217,401,769 (divided by) shares) $40.06 Maximum offering price per share (100/97 of $40.06) $41.30
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 442,040 Dividends Interest 208,276 TOTAL INCOME 650,316 EXPENSES Management fee $ 596,856 Transfer agent 839,730 Fees Redemption fees (64,356 ) Accounting fees and expenses 96,339 Non-interested trustees' compensation 563 Custodian fees and expenses 13,593 Registration fees 25,140 Audit 16,839 Legal 1,951 Interest 8,263 Reports to shareholders 12,042 Miscellaneous 416 Total expenses before reductions 1,547,376 Expense reductions (7,326 1,540,050 ) NET INVESTMENT INCOME (LOSS) (889,734 ) REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities 1,025,035 Foreign currency transactions (13,497 1,011,538 ) Change in net unrealized appreciation (depreciation) on investment securities (4,317,292 ) NET GAIN (LOSS) (3,305,754 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (4,195,488 ) OTHER INFORMATION $656,294 Sales Charges Paid to FDC Deferred sales charges withheld $12,772 by FDC Exchange fees withheld by FSC $49,403
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ (889,734 $ (1,061,686 Net investment income (loss) ) ) Net realized gain (loss) 1,011,538 20,812,741 Change in net unrealized appreciation (depreciation) (4,317,292 26,720,283 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,195,488 46,471,338 ) Distributions to shareholders - (436,840 From net investment income ) From net realized gain (7,172,822 (13,053,941 ) ) TOTAL DISTRIBUTIONS (7,172,822 (13,490,781 ) ) Share transactions 162,566,837 372,847,019 Net proceeds from sales of shares Reinvestment of distributions 6,939,366 13,219,760 Cost of shares redeemed (143,735,805 (350,325,262 ) ) Paid in capital portion of redemption fees 525,022 1,063,853 Net increase (decrease) in net assets resulting from share transactions 26,295,420 36,805,370 TOTAL INCREASE (DECREASE) IN NET ASSETS 14,927,110 69,785,927 NET ASSETS Beginning of period 202,474,659 132,688,732 End of period (including accumulated net investment (loss) of $(889,734) and $0, respectively) $ 217,401,769 $ 202,474,659 OTHER INFORMATION Shares Sold 4,086,827 10,038,649 Issued in reinvestment of distributions 187,906 415,252 Redeemed (3,687,475 (9,446,149 ) ) Net increase (decrease) 587,258 1,007,752
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 41.83 $ 34.62 $ 32.44 $ 27.06 $ 20.08 $ 18.37 Income from Investment Operations Net investment income (loss) (.18) (.24)F .13G (.26) .14H (.15) Net realized and unrealized gain (loss) (.19) 11.04 4.68 5.56 6.46 1.75 Total from investment operations (.37) 10.80 4.81 5.30 6.60 1.60 Less Distributions From net investment income - (.13) - - - - In excess of net investment income - - - (.16) - - From net realized gain (1.50) (3.70) (2.75) - - - Total distributions (1.50) (3.83) (2.75) (.16) - - Redemption fees added to paid in capital .10 .24 .12 .24 .38 .11 Net asset value, end of period $ 40.06 $ 41.83 $ 34.62 $ 32.44 $ 27.06 $ 20.08 TOTAL RETURND, E (.34)% 35.62% 16.48% 20.57% 34.76% 9.31% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 217,402 $ 202,475 $ 132,689 $ 105,954 $ 117,055 $ 78,535 Ratio of expenses to average net assetsB 1.57%A 1.54% 1.64%A 1.72% 1.83% 2.09% Ratio of expenses to average net assets before 1.58%A 1.55% 1.64%A 1.72% 1.83% 2.09% expense reductionsB Ratio of net investment income (loss) to average net (.91)% (.65) .52%A (.84)% .61% (.76)% assets A % Portfolio turnover rate 125%A 213% 259%A 353% 442% 327%
1 ANNUALIZED 2 SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. 3 NET INVESTMENT INCOME (LOSS) PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING EACH PERIOD. 4 TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. 5 THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. 6 INVESTMENT INCOME (LOSS) PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS FROM UNISYS CORP. $3.75 SERIES A WHICH AMOUNTED TO $.03 PER SHARE. 7 INVESTMENT INCOME (LOSS) PER SHARE REFLECTS DIVIDENDS RECEIVED IN ARREARS WHICH AMOUNTED TO $.10 PER SHARE. 8 INVESTMENT INCOME PER SHARE REFLECTS A SPECIAL DIVIDEND WHICH AMOUNTED TO $.06 PER SHARE AND $.20 PER SHARE RELATING TO A NONRECURRING INITIATIVE TO INVEST IN DIVIDEND INCOME PRODUCING SECURITIES WHICH WAS IN EFFECT FOR A PORTION OF 1991. TELECOMMUNICATIONS PORTFOLIO PERFORMANCE AND INVESTMENT SUMMARY PERFORMANCE There are several ways to evaluate a fund's historical performance: total percentage change in value, the average annual percentage change, or the growth of a hypothetical $10,000 investment. Each performance figure includes changes in a fund's share price, plus reinvestment of any dividends (income) and capital gains (the profits the fund earns when it sells stocks that have grown in value). CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S TELECOMMUNICATIONS 6.38% 3.51% 85.10% 403.60% TELECOMMUNICATIONS (INCL. 3% SALES CHARGE) 3.19% 0.40% 79.54% 388.49% S&P 500 3.26% 5.47% 58.16% 233.54% CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms over a set period - in this case, six months, one year, five years, or since the fund started on July 29, 1985. You can compare these figures to the performance of the S&P 500 - a common proxy for the U.S. stock market. This benchmark includes reinvested dividends and capital gains, if any. AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND TELECOMMUNICATIONS 3.51% 13.10% 19.44% TELECOMMUNICATIONS (INCL. 3% SALES CHARGE) 0.40% 12.42% 19.04% S&P 500 5.47% 9.60% 14.16% AVERAGE ANNUAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had performed at a constant rate each year. UNDERSTANDING PERFORMANCE How a fund did yesterday is no guarantee of how it will do tomorrow. The stock market, for example, has a history of growth in the long run and volatility in the short run. Unlike the broader market, however, some sectors may not have a history of growth in the long run. And, as with all stock funds, the share price and return of a fund that invests in a sector will vary. That means if you sell your shares during a sector downturn, you might lose money. But if you can identify a sector that is about to experience rapid growth you may have the potential for above-average gains. (checkmark) $10,000 OVER LIFE OF FUND Select Telecomm.(096)Standard & Poor's 07/29/85 9700.00 10000.00 07/31/85 9612.70 9926.31 08/31/85 9641.80 9841.93 09/30/85 9263.50 9533.88 10/31/85 9612.70 9974.35 11/30/85 10020.10 10658.59 12/31/85 10670.00 11174.46 01/31/86 10893.10 11237.04 02/28/86 11649.70 12077.57 03/31/86 11892.20 12751.50 04/30/86 12348.10 12607.41 05/31/86 12658.50 13278.12 06/30/86 12716.70 13502.52 07/31/86 12095.90 12747.73 08/31/86 12920.40 13693.61 09/30/86 12125.00 12561.15 10/31/86 12745.80 13285.93 11/30/86 12968.90 13608.78 12/31/86 12784.60 13261.75 01/31/87 14394.80 15048.11 02/28/87 15607.30 15642.51 03/31/87 15413.30 16094.58 04/30/87 15180.50 15951.34 05/31/87 15762.50 16090.11 06/30/87 16363.90 16902.66 07/31/87 16878.00 17759.63 08/31/87 17673.40 18422.06 09/30/87 18032.30 18018.62 10/31/87 14860.40 14137.41 11/30/87 13841.90 12972.49 12/31/87 14729.67 13959.69 01/31/88 15417.32 14547.40 02/29/88 15875.76 15225.31 03/31/88 15945.52 14754.84 04/30/88 16463.75 14918.62 05/31/88 16673.03 15048.41 06/30/88 17540.07 15739.14 07/31/88 17290.92 15679.33 08/31/88 16653.10 15146.23 09/30/88 17679.60 15791.46 10/31/88 18038.37 16230.46 11/30/88 18197.82 15998.37 12/31/88 18818.97 16278.34 01/31/89 20346.19 17469.91 02/28/89 20426.57 17034.91 03/31/89 21260.51 17431.83 04/30/89 22868.11 18336.54 05/31/89 24556.09 19079.17 06/30/89 23956.18 18970.42 07/31/89 25774.87 20683.44 08/31/89 26391.20 21088.84 09/30/89 27361.17 21002.38 10/31/89 26391.20 20515.12 11/30/89 27058.06 20933.63 12/31/89 28394.36 21436.04 01/31/90 25315.08 19997.68 02/28/90 25220.81 20255.65 03/31/90 25807.34 20792.42 04/30/90 24288.65 20272.61 05/31/90 26844.25 22249.19 06/30/90 26310.09 22097.90 07/31/90 25105.60 22027.18 08/31/90 22183.42 20035.93 09/30/90 20748.52 19060.18 10/31/90 21471.21 18978.22 11/30/90 22696.64 20204.21 12/31/90 23738.66 20767.91 01/31/91 24582.28 21673.39 02/28/91 25404.53 23223.04 03/31/91 26120.00 23785.03 04/30/91 26675.29 23842.12 05/31/91 26952.94 24872.10 06/30/91 25831.68 23732.96 07/31/91 27294.65 24838.91 08/31/91 28106.23 25427.59 09/30/91 28469.31 25002.95 10/31/91 29590.57 25337.99 11/30/91 28458.63 24316.87 12/31/91 31062.45 27098.72 01/31/92 31105.61 26594.68 02/29/92 31494.03 26940.42 03/31/92 30382.73 26415.08 04/30/92 31526.39 27191.68 05/31/92 31159.56 27324.92 06/30/92 30435.91 26917.78 07/31/92 32069.11 28018.72 08/31/92 31690.56 27444.33 09/30/92 32307.06 27768.18 10/31/92 32631.54 27865.36 11/30/92 34329.63 28815.57 12/31/92 35820.62 29170.00 01/31/93 35710.44 29415.03 02/28/93 37671.70 29815.08 03/31/93 39214.27 30444.17 04/30/93 39297.02 29707.43 05/31/93 40878.84 30503.58 06/30/93 42641.44 30592.05 07/31/93 43884.31 30469.68 08/31/93 47194.84 31624.48 09/30/93 47872.76 31380.97 10/31/93 49251.21 32030.56 11/30/93 45217.56 31726.27 12/31/93 46464.95 32110.15 01/31/94 47405.63 33201.90 02/28/94 45920.34 32302.13 03/31/94 44484.56 30893.75 04/30/94 45278.56 31289.19 05/31/94 45012.66 31802.34 06/30/94 44974.68 31023.18 07/31/94 47469.05 32040.74 08/31/94 48849.19 33354.41 Let's say you invested $10,000 in Fidelity Select Telecommunications Portfolio on July 29, 1985, when the fund started, and paid a 3% sales charge. By August 31, 1994, your investment would have grown to $48,849 - a 388.49% increase. That compares to $10,000 invested in the S&P 500, which would have grown to $33,354 over the same period - a 233.54% increase. INVESTMENT SUMMARY TOP TEN STOCKS AS OF AUGUST 31, 1994 % OF FUND'S INVESTMENTS Ameritech Corp. 8.5 Ericsson (L.M.) Telephone Co. Class B ADR 6.8 Southwestern Bell Corp. 6.2 BellSouth Corp. 5.0 Nokia AB 3.7 Philips NV 3.5 Sprint Corporation 3.3 NYNEX Corp. 3.3 Rochester Telephone Corp. 3.2 ALC Communications Corp. 2.8 TOP INDUSTRIES AS OF AUGUST 31, 1994 Row: 1, Col: 1, Value: 20.3 Row: 1, Col: 2, Value: 4.3 Row: 1, Col: 3, Value: 6.6 Row: 1, Col: 4, Value: 8.699999999999999 Row: 1, Col: 5, Value: 9.199999999999999 Row: 1, Col: 6, Value: 50.9 Telephone Services 50.9% Cellular & Communication Services 9.2% Telephone Equipment 8.7% Special Industrial Machinery 6.6% Electrical Machinery 4.3% All Others 20.3%* * INCLUDES SHORT-TERM INVESTMENTS TELECOMMUNICATIONS PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW David Felman, Portfolio Manager of Select Telecommunications Portfolio Q. DAVID, HOW HAS THE FUND PERFORMED? A. Results have been mixed, but are improving. The fund is up 6.38% for the past six months ending August 31, 1994, and 3.51 % for the year. That compares to the S&P 500's gain of 3.26% and 5.47% for the same time periods, respectively. Q. HOW WOULD YOU DESCRIBE THE INVESTING ENVIRONMENT SINCE YOU TOOK OVER THE FUND IN APRIL? A. The biggest variables in the telecommunications industry today are the opening of currently protected markets and the creation of new markets. In the future, local phone companies, long distance companies, cable companies and wireless companies may all compete in each other's markets. For example, a local phone company may be able to provide its customers with wireless cable television and long distance service. At the same time, all these companies may compete in a new market such as video on-demand. How current markets open to competition and how new markets are created will depend on many factors, including legislation and technology. Q. WHAT SIGNIFICANT CHANGES HAVE YOU MADE TO THE FUND? A. The excitement surrounding the primary telecommunications companies peaked at the end of 1993 and the stocks headed into a decline throughout the first quarter of 1994. Cellular stocks, however, have continued to surprise everyone with their strength. I've increased my cellular exposure in both equipment and cellular operators. Cellular subscribers are growing 40% - 50% this year and revenues are up about 30% - 40%. That's very strong growth and I wouldn't be surprised if that pace continues. I've increased my holdings in Ericsson, a very strong player in the cellular market that makes equipment for wireless communications. I sold those regional Bell holdings and other stocks such as Motorola that did not offer as much wireless leverage as I would have liked. Q. DO YOU SEE ANY POTENTIAL IN FOREIGN MARKETS? A. Foreign markets could be very exciting in the next few years both from an equipment and phone service standpoint. I'm interested anytime I can find a company with exposure to a rapidly developing nation, as long as it's not too expensive. One of the most interesting foreign opportunities could be in Asia. Phone penetration - the number of phone lines and phone users - is very low there. If you consider the increasing penetration and the cellular opportunities, the growth potential could be enormous. Several of my holdings currently supply equipment to the Asian market. Q. CAN YOU THINK OF ANY STOCKS THAT DIDN'T WORK OUT AS YOU HAD HOPED? A. Sure. PacTel was recently a top 10 holding in anticipation of congressional legislation opening up the intrastate long distance market to the local phone companies. PacTel would have benefited greatly had it been allowed to carry all the long distance phone calls within California. As passage of congressional legislation began looking less and less likely in 1994, PacTel disappointed. Q. WHAT'S YOUR BUYING STRATEGY? A. I am looking for companies that exhibit strong balance sheets and growth potential, yet are still a value. I also have a mix right now of both established and high-growth companies. One example of the former is Philips. It's a British company that's been around a long time, yet has successfully restructured itself so it will be better leveraged for a cyclical upturn in Europe. An example of the latter is Nokia, a newer, high growth equipment supplier. I also think there are good opportunities in the more stable Bells such as Ameritech and Southwestern Bell which are growing and paying good dividends. Q. WHERE DO YOU SEE THE FUND HEADING? A. I think AT&T's acquisition of McCaw is emblematic of the direction of the industry. In that acquisition we see both an opening of markets and the possibility of completely new products and markets. If you think about this industry, the reshaping it is undergoing and where it could be 10 years from now, the prospects are very exciting. The fund will seek to own those stocks that benefit the most during this reshaping. FUND FACTS START DATE: July 29, 1985 SIZE: As of August 31, 1994, more than $395 million MANAGER: David Felman, since April 1994; also follows the specialty chemicals, construction and engineering industries; joined Fidelity in 1992 (checkmark) TELECOMMUNICATIONS PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities COMMON STOCKS - 87.5% SHARES VALUE (NOTE 1) ADVERTISING - 0.5% ADVERTISING AGENCIES - 0.5% ADVO-Systems, Inc. 79,500 $ 1,430,998 Foote Cone & Belding Communications, Inc. 12,500 537,500 1,968,498 BROADCASTING - 3.7% CABLE TV OPERATORS - 3.1% Gaylord Entertainment Co. Class A 57,400 1,305,850 International Family Entertainment Class B (a) 1,500 23,813 Tele Communications, Inc. Class A (a) 9,750 219,984 Time Warner, Inc. 199 7,587 Viacom, Inc. (a) 115,700 4,382,138 Viacom, Inc. (non-vtg.) (a) 195,100 6,438,300 12,377,672 TELEVISION BROADCASTING - 0.6% Grupo Televisa GDS (b) 5,000 293,125 Heritage Media Corp. Class A (a) 19,700 428,475 Multimedia, Inc. (a) 50,000 1,562,500 2,284,100 TOTAL BROADCASTING 14,661,772 CELLULAR - 9.2% CELLULAR & COMMUNICATION SERVICES - 9.2% Airtouch Communications (a) 165,900 4,686,675 Call-Net Enterprises Class B (a)(b) 20,000 142,643 Cellular Communications, Inc. (redeemable) (a): Series A 13,000 692,250 Class P 51,100 2,776,263 Century Telephone Enterprises, Inc. 200,887 6,051,721 IDB Communications Group, Inc. 214,400 2,063,600 McCaw Cellular Communications, Inc. Class A (a) 66,000 3,572,250 Nextel Communications, Inc. Class A (a) 5,000 130,625 Onecomm Corp. (a) 15,000 397,500 Rogers Cantel Mobile Communications, Inc. Class B (non-vtg.) (a) 100,600 2,952,763 Rogers Communications, Inc. Class B (a) 620,000 10,431,221 Vanguard Cellular Systems, Inc. Class A 9,300 260,400 Vodafone Group PLC sponsored ADR 69,600 2,227,200 36,385,111 COMMUNICATIONS EQUIPMENT - 8.5% TELEPHONE EQUIPMENT - 8.5% ADC Telecommunications, Inc. (a) 3,300 153,450 Boston Technology, Inc. (a) 20,000 242,500 DSC Communications Corp. (a) 196,200 5,616,225 Ericsson (L.M.) Telephone Co. Class B ADR 495,000 26,791,875 Inter-Tel, Inc. (a) 6,500 56,875 InterVoice, Inc. (a) 10,000 116,875 Newbridge Networks Corp. (a) 18,400 588,800 33,566,600 COMPUTER SERVICES & SOFTWARE - 1.8% CAD/CAM/CAE - 0.2% ECI Telecom Ltd. 10,000 180,625 EIS International, Inc. (a) 55,500 652,125 832,750 SHARES VALUE (NOTE 1) DATA PROCESSING - 1.6% Automatic Data Processing, Inc. 70,000 $ 3,788,750 Ceridian Corp. (a) 100,000 2,675,000 6,463,750 TOTAL COMPUTER SERVICES & SOFTWARE 7,296,500 COMPUTERS & OFFICE EQUIPMENT - 0.5% COMPUTER PERIPHERALS - 0.5% Norand Corp. (a) 65,000 2,161,250 ELECTRICAL EQUIPMENT - 4.4% ELECTRICAL EQUIPMENT - WHOLESALE - 0.1% Antec Corp. (a) 5,900 222,725 ELECTRICAL MACHINERY - 4.3% Philips Electronics 101,100 3,281,691 Philips NV 419,800 13,695,975 16,977,666 TOTAL ELECTRICAL EQUIPMENT 17,200,391 ELECTRONICS - 4.0% ELECTRONIC PARTS - WHOLESALE - 0.3% Marshall Industries (a) 40,600 1,020,075 SEMICONDUCTORS - 3.7% Intel Corp. 66,800 4,392,100 Motorola, Inc. 190,100 10,265,400 Texas Instruments, Inc. 100 7,788 14,665,288 TOTAL ELECTRONICS 15,685,363 ENGINEERING - 1.0% WATER & SEWER PIPES - 1.0% Glenayre Technologies, Inc. 69,300 3,932,775 INDUSTRIAL MACHINERY & EQUIPMENT - 2.9% SPECIAL INDUSTRIAL MACHINERY - 2.9% Nokia AB sponsored ADR (a) 64,500 3,531,375 Nokia AB Free shares 74,900 8,119,320 11,650,695 LEASING & RENTAL - 0.2% VIDEO TAPE RENTAL - 0.2% Blockbuster Entertainment Corp. 36,600 947,025 MEDICAL FACILITIES MANAGEMENT - 0.0% HEALTH SERVICES - 0.0% Lambert Communications (a) 190,000 5,938 PRINTING - 0.6% MANIFOLD BUSINESS FORMS - 0.6% Reynolds & Reynolds Co. Class A 94,400 2,489,800 TELEPHONE SERVICES - 50.2% ALC Communications Corp. (a) 312,100 11,157,575 ALLTEL Corp. 1,300 36,238 AT & T Corporation 95,000 5,201,250 Ameritech Corp. 819,300 33,898,538 Bell Atlantic Corp. 202,700 11,097,825 BellSouth Corp. 331,200 19,665,000 British Telecommunications PLC ADR 5,000 297,500 Cincinnati Bell, Inc. 30,000 566,250 Comsat Corp., Series 1 278,750 7,003,594 DDI Corp. Ord. 890 9,148,703 GTE Corp. 17,773 564,293 Koninklijke PPT Nederland 149,300 4,560,192 COMMON STOCKS - CONTINUED SHARES VALUE (NOTE 1) TELEPHONE SERVICES - CONTINUED Koninklijke PTT Nederland (b) 44,200 $ 1,350,037 Koninklijke PTT Nederland sponsored ADR (b) 20,000 610,000 LCI International, Inc. (a) 143,900 2,878,000 LDDS Communications, Inc. (a) 67,470 1,568,678 MCI Communications Corp. 20,000 486,250 MFS Communications, Inc. (a) 10,000 352,500 Nippon Telegraph & Telephone Ord. 442 4,022,994 NYNEX Corp. 338,700 13,082,288 Pacific Telesis Group 173,100 5,712,300 Rochester Telephone Corp. 572,900 12,890,250 Southern New England Telecommunications Corp. 58,400 1,919,900 Southwestern Bell Corp. 595,600 24,642,950 Sprint Corporation 332,900 13,191,163 Telebras PN (Pfd. Reg.) 9,700,000 570,651 Telebras (rights) (a) 221,130 1,055 Telecom Argentina Stet France 53,500 390,609 Tele Denmark Class B AS 10,000 537,014 Telefonica Argentina Class B 20,500 149,262 Telefonica de Espana SA sponsored ADR 20,000 827,500 Telephone & Data Systems, Inc. 199,712 8,687,472 U.S. West, Inc. 56,700 2,289,263 199,357,094 TOTAL COMMON STOCKS (Cost $334,034,218) 347,308,812 PREFERRED STOCKS - 4.4% CONVERTIBLE PREFERRED STOCKS - 0.1% TELEPHONE SERVICES - 0.1% LCI International (a) 10,000 275,000 NONCONVERTIBLE PREFERRED STOCKS - 4.3% INDUSTRIAL MACHINERY & EQUIPMENT - 3.7% SPECIAL INDUSTRIAL MACHINERY - 3.7% Nokia AB 136,100 14,780,163 TELEPHONE SERVICES - 0.6% Stet (Societa Finanziaria Telefonica) Spa (a) 945,200 2,462,813 TOTAL NONCONVERTIBLE PREFERRED STOCKS 17,242,976 TOTAL PREFERRED STOCKS (Cost $11,862,480) 17,517,976 CORPORATE BONDS - 0.2% PRINCIPAL AMOUNT CONVERTIBLE BONDS - 0.2% COMMUNICATIONS EQUIPMENT - 0.2% TELEPHONE EQUIPMENT - 0.2% Ericsson (L.M.) Telephone Co. 4 1/4%, 6/30/00 (Cost $480,442) $ 345,700 639,545 REPURCHASE AGREEMENTS - 7.9% MATURITY AMOUNT Investments in repurchase agreements (U.S. Treasury obligations), in a joint trading account, at 4.83% dated 8/31/94 due 9/1/94 $ 31,256,193 $ 31,252,000 TOTAL INVESTMENT IN SECURITIES - 100% (Cost $377,629,140) $ 396,718,333 LEGEND 1. Non-income producing 2. 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 $2,395,805 or 0.6% of net assets. OTHER INFORMATION Purchases and sales of securities, other than short-term securities, aggregated $261,453,599 and $252,402,675, respectively (see Note 4 of Notes to Financial Statements). The fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of Fidelity Management & Research Company. The commissions paid to these affiliated firms were $113,085 for the period (see Note 5 of Notes to Financial Statements). At the period end, the value of securities loaned and the value of collateral amounted to $1,344,563 and $1,384,500, respectively (see Note 7 of Notes to Financial Statements). The maximum loan and average daily loan balances during the periods for which loans were outstanding amounted to $6,463,000 and $5,133,250, respectively. The weighted average interest rate paid was 4.1% (see Note 8 of Notes to Financial Statements). Distribution of investments by country, as a percentage of total value of investment in securities, is as follows: United States 73.9% Sweden 6.9 Finland 6.7 Netherland 5.8 Canada 3.6 Japan 1.1 Others (individually less than 1%) 2.0 TOTAL 100.0% INCOME TAX INFORMATION At August 31, 1994, the aggregate cost of investment securities for income tax purposes was $378,146,030. Net unrealized appreciation aggregated $18,572,303, of which $32,148,206 related to appreciated investment securities and $13,575,903 related to depreciated investment securities. TELECOMMUNICATIONS PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $31,252,000) (cost $377,629,140) - See $ 396,718,333 accompanying schedule Cash 881 Receivable for investments sold 4,175,150 Receivable for fund shares sold 1,768,961 Dividends receivable 168,213 Interest receivable 7,958 Redemption fees receivable 1,299 Other receivables 67,214 Prepaid expenses 47,741 TOTAL ASSETS 402,955,750 LIABILITIES Payable for investments purchased $ 3,385,148 Payable for fund shares redeemed 2,429,323 Accrued management fee 200,294 Other payables and accrued expenses 359,576 Collateral on securities loaned, 1,384,500 at value TOTAL LIABILITIES 7,758,841 NET ASSETS $ 395,196,909 Net Assets consist of: Paid in capital $ 375,616,578 Undistributed net investment income 1,455,657 Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions (963,899 ) Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies 19,088,573 NET ASSETS, for 10,243,612 shares outstanding $ 395,196,909 NET ASSET VALUE and redemption price per share ($395,196,909 (divided by) shares) $38.58 Maximum offering price per share (100/97 of $38.58) $39.77
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INVESTMENT INCOME $ 3,381,371 Dividends Interest (including security lending fees of $71,173) 1,016,295 TOTAL INCOME 4,397,666 EXPENSES Management fee $ 1,155,620 Transfer agent 1,536,524 Fees Redemption fees (109,347 ) Accounting and security lending fees 190,034 Non-interested trustees' compensation 1,076 Custodian fees and expenses 31,818 Registration fees 48,436 Audit 23,426 Legal 4,618 Interest 2,332 Reports to shareholders 20,847 Miscellaneous 693 Total expenses before reductions 2,906,077 Expense reductions (30,067 2,876,010 ) NET INVESTMENT INCOME 1,521,656 REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investment securities (37,987 ) Foreign currency transactions (18,754 (56,741 ) ) Change in net unrealized appreciation (depreciation) on: Investment securities 20,647,592 Assets and liabilities in foreign currencies (620 20,646,972 ) NET GAIN (LOSS) 20,590,231 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 22,111,887 OTHER INFORMATION $957,975 Sales Charges Paid to FDC Deferred sales charges withheld $10,731 by FDC Exchange fees withheld by FSC $86,408
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, AUGUST 31, 1994 1994 (UNAUDITED) Operations $ 1,521,656 $ 2,274,500 Net investment income Net realized gain (loss) (56,741 68,364,890 ) Change in net unrealized appreciation (depreciation) 20,646,972 (16,004,271 ) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 22,111,887 54,635,119 Distributions to shareholders (289,902 (1,564,699 From net investment income ) ) From net realized gain (7,575,678 (37,644,735 ) ) TOTAL DISTRIBUTIONS (7,865,580 (39,209,434 ) ) Share transactions 140,611,006 778,655,072 Net proceeds from sales of shares Reinvestment of distributions 7,698,934 38,499,190 Cost of shares redeemed (138,433,650 (596,254,864 ) ) Paid in capital portion of redemption fees 49,134 361,815 Net increase (decrease) in net assets resulting from share transactions 9,925,424 221,261,213 TOTAL INCREASE (DECREASE) IN NET ASSETS 24,171,731 236,686,898 NET ASSETS Beginning of period 371,025,178 134,338,280 End of period (including undistributed net investment income of $1,455,657 and $1,033,664, respectively) $ 395,196,909 $ 371,025,178 OTHER INFORMATION Shares Sold 3,871,578 19,999,193 Issued in reinvestment of distributions 218,348 1,056,452 Redeemed (3,845,905 (14,984,685 ) ) Net increase (decrease) 244,021 6,070,960
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATAC (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 37.10 $ 34.19 $ 29.22 $ 24.98 $ 23.19 $ 22.76 Income from Investment Operations Net investment income .15 .25 .29 .36 .31 .46 Net realized and unrealized gain (loss) 2.14 7.00 5.29 4.13 1.86 1.02 Total from investment operations 2.29 7.25 5.58 4.49 2.17 1.48 Less Distributions From net investment income (.03) (.20) (.18) (.28) (.43) (.12) From net realized gain (.78) (4.18) (.48) - - (.98) Total distributions (.81) (4.38) (.66) (.28) (.43) (1.10) Redemption fees added to paid in capital - .04 .05 .03 .05 .05 Net asset value, end of period $ 38.58 $ 37.10 $ 34.19 $ 29.22 $ 24.98 $ 23.19 TOTAL RETURND, E 6.38% 21.90% 19.49% 18.19% 9.83% 6.21% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 395,197 $ 371,025 $ 134,338 $ 78,533 $ 55,162 $ 77,019 Ratio of expenses to average net assetsB 1.52%A 1.53% 1.74%A 1.90% 1.97% 1.85% Ratio of expenses to average net assets before 1.54%A 1.54% 1.74%A 1.90% 1.97% 1.85% expense reductionsB Ratio of net investment income to average net .80%A .64% 1.16%A 1.32% 1.35% 1.83% assets Portfolio turnover rate 152%A 241% 115%A 20% 262% 341%
A ANNUALIZED B SEE NOTE 9 OF NOTES TO FINANCIAL STATEMENTS. C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD. D TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. E THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN REDUCED DURING THE PERIODS SHOWN. MONEY MARKET PORTFOLIO PERFORMANCE PERFORMANCE To measure a money market fund's performance, you can look at either total return or yield. Total return reflects both the change in a fund's share price over a given period, and reinvestment of its dividends (or income). Yield measures the income paid by a fund. Since a money market fund tries to maintain a $1 share price, yield is an important measure of performance. CUMULATIVE TOTAL RETURNS PERIODS ENDED PAST 6 PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 MONTH YEAR YEARS FUND S MONEY MARKET 1.78% 3.03% 27.29% 67.45% MONEY MARKET (INCL. 3% SALES CHARGE) -1.28% -0.06% 23.47% 62.42% Average All Taxable Money Market Fund 1.75% 3.11% 27.06% 66.55% Consumer Price Index 1.57% 2.90% 19.58% 37.96% CUMULATIVE TOTAL RETURNS reflect actual performance over a specific period. In this case, past six months, one year, five years, or since the fund started on August 30, 1985. For example, if you invested $1,000 in a fund that had a 5% return over the past year, you would end up with $1,050. Comparing the fund's performance to the consumer price index (CPI) helps show how your investment did compared to inflation. To measure how the fund stacked up against its peers, you can compare its return to the average taxable money market fund's total return. This average currently reflects the performance of 696 money market funds tracked by IBC/Donoghue's MONEY FUND REPORT.(registered trademark) (The periods covered by the CPI numbers are the closest available match to those covered by the fund.) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED PAST 1 PAST 5 LIFE OF AUGUST 31, 1994 YEAR YEARS FUND MONEY MARKET 3.03% 4.94% 5.89% MONEY MARKET (INCL. 3% SALES CHARGE) -0.06% 4.31% 5.53% Average All Taxable Money Market Fund 3.11% 4.91% 5.83% Consumer Price Index 2.90% 3.64% 3.64% AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return and show you what would have happened if the fund had achieved that return by performing at a constant rate each year. YIELD Row: 1, Col: 1, Value: 2.53 Row: 1, Col: 2, Value: 2.64 Row: 1, Col: 3, Value: 2.42 Row: 2, Col: 1, Value: 2.37 Row: 2, Col: 2, Value: 2.69 Row: 2, Col: 3, Value: 2.35 Row: 3, Col: 1, Value: 2.45 Row: 3, Col: 2, Value: 2.79 Row: 3, Col: 3, Value: 2.3 Row: 4, Col: 1, Value: 3.64 Row: 4, Col: 2, Value: 3.51 Row: 4, Col: 3, Value: 2.34 Row: 5, Col: 1, Value: 4.29 Row: 5, Col: 2, Value: 4.08 Row: 5, Col: 3, Value: 2.42 4% - 3% - 2% - 1% - 0% Money Market Average All Taxable Money Market Fund MMDA 8/31/93 11/30/93 2/28/94 5/31/94 8/31/94 Money Market 2.53% 2.37% 2.45% 3.64% 4.29% Average All Taxable Money Market Fund 2.64% 2.69% 2.79% 3.51% 4.08% MMDA 2.42% 2.35% 2.30% 2.34% 2.42% YIELD refers to the income paid by the fund over a given period. Yields for money market funds are usually for seven-day periods, expressed as annual percentage rates. A yield that assumes income earned is reinvested or compounded is called an effective yield. The chart above shows the fund's current seven-day yield at quarterly intervals over the past year. This is compared to similar yields for the average all taxable money market fund and the average bank money market deposit account (MMDA). Figures for the average taxable money market fund are from the IBC/Donoghue's MONEY FUND REPORT.(registered trademark) The MMDA average is supplied by BANK RATE MONITOR.(Trademark) COMPARING PERFORMANCE There are some important differences between a bank money market deposit account (MMDA) and a money market fund. First, the U.S. government neither insures nor guarantees a money market fund. In fact, there is no assurance that a money fund will maintain a $1 share price. Second, a money market fund returns to its shareholders income earned by the fund's investments after expenses. This is in contrast to banks, which set their MMDA rates periodically based on current interest rates, competitors' rates, and internal criteria. (checkmark) MONEY MARKET PORTFOLIO FUND TALK: THE MANAGER'S OVERVIEW John Todd, Portfolio Manager of Fidelity Select Money Market Portfolio Q. JOHN, SHORT-TERM INTEREST RATES HAD BEGUN HEADING UP AT THE TIME OF THE LAST REPORT. WHAT HAS HAPPENED SINCE? A. More of the same. The first increase in short-term interest rates occurred on February 4, 1994, before the start of the current period. I mention it again only because it was such an important turning point in Federal Reserve policy. February 4 marked the end of a more accommodative stance designed to promote economic growth. This was the first tightening of monetary policy in nearly five years and signaled the beginning of a new, more restrictive stance aimed at choking off inflation before it becomes a problem. Since February, the Fed has raised rates again on four separate occasions. Q. WHAT ARE THE NUMBERS? A. We started 1994 with a stable federal funds rate of 3.00%. That's the rate banks charge each other for overnight loans, and it influences other short-term rates. The first increase in February brought us up to 3.25%. Three more increases followed in March, April and May, totaling a full percentage point. The final increase was half a point in August. So by the end of the period, the federal funds rate stood at 4.75%. Q. HOW DID RISING RATES AFFECT YOUR STRATEGY? A. The fund's average maturity was 64 days at the end of February. That's longer than I would normally want it to be during periods when I'm expecting rates to go up. However, after the initial rate increase in February the market sold off sharply, and there were bargains to be had at the longer end of the maturity scale. Later, as the market recovered, I positioned the fund for a rising-rate environment by scaling back the average maturity. From March through the end of summer, the fund's average maturity hovered between 35 and 45 days, reaching 48 days at the end of August. Q. ARE VARIABLE RATE INSTRUMENTS PART OF YOUR STRATEGY? A. Definitely. Variable rate instruments are valuable tools in a rising-rate environment because they offer rates that reset in line with prevailing rates on a monthly, weekly or even daily basis. Variable rate instruments totaled about 18% of the fund's investments at the end of February. That number has been climbing steadily ever since, to 33% at the end of August. Q. HOW DID THE FUND PERFORM? A. The fund's seven-day yield on August 31, 1994, was 4.29%, compared to 2.45% six months ago. That reflects the impact of the Fed's rate increases. The fund's total return for the latest six-month period was 1.78%, compared to 1.75% for the average all taxable money market fund, according to IBC/Donoghue. Q. ARE RATES LIKELY TO CONTINUE RISING? A. Yes, I think there's a good chance they will. The latest increase in August suggests that the Fed is determined to raise rates to whatever level is needed to slow the pace of economic growth to a sustainable, non-inflationary rate. Warning signs have appeared lately that suggest price pressures are building. Capacity utilization has been edging toward 84%, and labor shortages are developing in some parts of the country. Accordingly, I wouldn't be surprised to see the federal funds rate trading at 5% or perhaps higher by the end of the year. But no matter how high rates go from here, one thing seems clear: future increases will be less predictable, both in timing and in magnitude. Q. WHAT DOES THAT MEAN FOR YOUR STRATEGY GOING FORWARD? A. It puts a premium on being nimble. As long as rates are rising, I'll generally want to keep the fund's average maturity at the short end of the scale. So I'll likely continue to rely heavily on variable rate instruments, particularly those with rates that reset at shorter intervals. But I'll also want to stay alert to opportunities to selectively lock in higher rates at longer maturities. What does that mean in terms of the fund's average maturity? Probably that it will vary between 35 and 50 days in the months ahead; longer when buying opportunities arise and shorter when a more defensive posture is required. FUND FACTS START DATE: August 30, 1985 SIZE: as of August 31, 1994, more than $574 million MANAGER: John Todd, since January 1991; manager, Spartan Money Market Fund, since 1989; Daily Money Fund and Fidelity Institutional Cash Portfolios: Money Market, since 1992; joined Fidelity in 1981 (checkmark) MONEY MARKET PORTFOLIO INVESTMENTS AUGUST 31, 1994 (UNAUDITED) Showing Percentage of Total Value of Investment in Securities BANKERS' ACCEPTANCES - 1.8% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) DOMESTIC BANKERS ACCEPTANCE - 0.5% CHEMICAL BANK 9/1/94 4.08% $ 2,830,430 $ 2,830,430 NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 1.3% DAI-ICHI KANGYO BANK, LTD. 9/6/94 4.76 8,000,000 7,994,755 Total Bankers' Acceptance 10,825,185 CERTIFICATES OF DEPOSIT - 10.9% NEW YORK BRANCH, YANKEE DOLLAR, FOREIGN BANKS - 10.9% CREDIT LYONNAIS (A) 9/1/94 4.92 15,000,000 15,000,000 MITSUBISHI BANK, LTD. 10/31/94 4.94 10,000,000 10,000,164 12/19/94 4.95 11,000,000 11,000,000 ROYAL BANK OF CANADA 11/30/94 5.00 11,000,000 10,996,606 SOCIETE GENERALE 1/17/95 5.18 10,000,000 10,000,000 SUMITOMO BANK, LTD. 10/3/94 4.83 10,000,000 10,000,000 Total Certificates of Deposit 66,996,770 COMMERCIAL PAPER - 28.9% BHF FINANCE (DELAWARE), INC. 9/22/94 4.80 15,000,000 14,958,175 CANADIAN WHEAT BOARD 11/18/94 4.91 11,000,000 10,884,408 DEAN WITTER, DISCOVER & CO. 11/15/94 4.91 15,000,000 14,848,437 EXXON ASSET MANAGEMENT CO. 10/13/94 4.80 15,000,000 14,916,525 FORD MOTOR CREDIT CORP. 10/12/94 4.80 15,000,000 14,918,512 11/16/94 4.88 10,000,000 9,898,667 GENERAL ELECTRIC CAPITAL CORP. 9/19/94 4.09 9,000,000 8,982,000 12/12/94 5.02 15,000,000 14,790,900 GENERAL MOTORS ACCEPTANCE CORP. 10/24/94 4.89 15,000,000 14,892,896 10/31/94 4.81 10,000,000 9,920,833 GRAND METROPOLITAN FINANCE 10/24/94 5.12 20,000,000 19,852,778 ITT CORP. 10/24/94 4.87 10,000,000 9,928,892 NEW CENTER ASSET TRUST 11/21/94 4.94 17,000,000 16,813,340 UNOCAL CORP. 9/15/94 4.89 2,000,000 1,996,208 Total Commercial Paper 177,602,571 FEDERAL AGENCIES - 13.0% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) FEDERAL FARM CREDIT BANK - DISCOUNT NOTES - 1.6% 11/14/94 4.81% $ 10,000,000 $ 9,902,361 FEDERAL HOME LOAN MORTGAGE CORP. - DISCOUNT NOTES - 0.5% 9/29/94 3.33 2,900,000 2,892,669 FEDERAL NATIONAL MORTGAGE ASSOC. - DISCOUNT NOTES - 10.9% 10/5/94 4.29 7,805,000 7,774,040 10/26/94 4.45 20,000,000 19,867,084 10/27/94 4.50 25,000,000 24,828,889 1/19/95 5.10 15,000,000 14,709,500 67,179,513 Total Federal Agencies 79,974,543 U.S. TREASURY OBLIGATIONS - 2.4% U.S. TREASURY BILLS 3/2/95 5.08 15,000,000 14,624,625 BANK NOTES - 9.0% COMERICA BANK-DETROIT (A) 9/1/94 5.46 10,000,000 10,000,000 HUNTINGTON NATIONAL BANK (A) 9/1/94 4.85 12,000,000 11,989,841 9/1/94 5.72 3,000,000 2,997,002 PNC BANK, N.A. 9/6/94 4.86 (a) 15,000,000 14,983,825 9/7/94 4.90 (a) 10,000,000 9,986,290 11/3/94 4.74 5,000,000 4,988,939 Total Bank Notes 54,945,897 FOREIGN GOVERNMENT OBLIGATIONS (U.S. DOLLARS) - 3.2% GOVERNMENT OF CANADA 10/17/94 4.50 20,000,000 19,887,556 MASTER NOTES (A) - 4.2% J.P. MORGAN SECURITIES 9/1/94 5.11 12,000,000 12,000,000 9/1/94 5.13 9,000,000 9,000,000 MORGAN STANLEY GROUP, INC. 9/1/94 5.08 5,000,000 5,000,000 Total Master Notes 26,000,000 MEDIUM-TERM NOTES (A) - 12.3% ANNUALIZED YIELD DUE AT TIME OF PRINCIPAL VALUE DATE PURCHASE AMOUNT (NOTE 1) ABBEY NATIONAL TREASURY SERVICE 9/30/94 4.77% $ 15,000,000 $ 15,000,000 ABBEY NATIONAL (UK), PLC 9/1/94 5.48 15,000,000 14,998,060 GENERAL MOTORS ACCEPTANCE CORP. 11/7/94 4.86 5,000,000 5,000,000 GOLDMAN SACHS GROUP, L.P. (THE) (B) 9/1/94 4.48 4,000,000 4,000,000 12/16/94 4.91 4,000,000 4,000,000 NORWEST CORPORATION 9/15/94 4.54 8,000,000 8,000,000 KINGDOM OF SWEDEN - A 10/23/94 4.81 3,500,000 3,500,000 KINGDOM OF SWEDEN - B 11/23/94 5.00 3,500,000 3,500,000 KINGDOM OF SWEDEN - C 9/23/94 4.63 3,500,000 3,500,000 SWEDISH NATIONAL HOUSING FINANCE CORP. A 9/20/94 4.59 2,000,000 2,000,000 SWEDISH NATIONAL HOUSING FINANCE CORP. B 10/5/94 4.97 1,000,000 1,000,000 SWEDISH NATIONAL HOUSING FINANCE CORP. C 11/23/94 5.03 1,000,000 1,000,000 U.S. LEASING INTERNATIONAL, INC. 9/16/94 4.86 10,000,000 10,013,303 Total Medium-Term Notes 75,511,363 SHORT-TERM NOTES (A) (C) - 5.5% SMM TRUST COMPANY (1993-F) 11/15/94 4.91 20,000,000 20,000,000 SMM TRUST COMPANY (1994-E) 10/13/94 4.64 12,000,000 12,000,000 10/13/94 4.73 2,000,000 1,998,990 Total Short-Term Notes 33,998,990 TIME DEPOSITS - 3.3% DAI-ICHI KANGYO BANK, LTD. 9/6/94 4.50 10,000,000 10,000,000 SUMITOMO BANK, LTD. 9/1/94 4.75 10,000,000 10,000,000 Total time deposits 20,000,000 MUNICIPAL BONDS - 0.8% LOUISIANA PUBLIC FACILITIES AUTHORITY (A) 9/7/94 4.71 4,600,000 4,600,000 REPURCHASE AGREEMENTS - 4.7% MATURITY AMOUNT Investments in repurchase agreements, (U.S. Treasury Obligations), in a joint trading account, at 4.89% dated 8/31/94 due 9/1/94 $ 28,966,934 $ 28,963,000 TOTAL INVESTMENTS - 100% $ 613,930,500 TOTAL COST FOR INCOME TAX PURPOSES - $613,930,500 LEGEND 1. The coupon rate shown on floating or adjustable rate securities represents the rate at period end. 2. 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 $8,000,000 or 1.4% of net assets. 3. Restricted securities - Investment in securities not registered under the Securities Act of 1933 (see Note 2 of Notes to Financial Statements). Additional information on each holding is as follows: ACQUISITION ACQUISITION SECURITY DATE COST SMM Trust Company: (1993-F) 11/12/93 $20,000,000 (1994-E) 4/13/94 $12,000,000 (1994-E) 5/23/94 $1,998,534 INCOME TAX INFORMATION At February 28, 1994, the fund had a capital loss carryforward of approximately $65,000 of which $2,000, $31,000, $5,000, $21,000 and $6,000 will expire on February 28, 1996, 1997, 1998, 2000, and 2002, respectively. MONEY MARKET PORTFOLIO FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994 (UNAUDITED) ASSETS Investment in securities, at value (including repurchase agreements of $28,963,000) - See accompanying $ 613,930,500 schedule Receivable for investments sold 41,242,376 Receivable for fund shares sold 67,796,461 Interest receivable 1,601,480 TOTAL ASSETS 724,570,817 LIABILITIES Payable for investments purchased $ 56,114,097 Payable for fund shares redeemed 93,347,320 Dividends payable 69,958 Accrued management fee 109,821 Other payables and accrued expenses 427,089 TOTAL LIABILITIES 150,068,285 NET ASSETS $ 574,502,532 Net Assets consist of: Paid in capital $ 574,548,212 Accumulated net realized gain (loss) on investments (45,680 ) NET ASSETS, for 574,542,954 shares outstanding $ 574,502,532 NET ASSET VALUE, offering price and redemption price per share ($574,502,532 (divided by) shares) $1.00 Maximum offering price per share $1.03 (100/97 of $1.00)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1994 (UNAUDITED) INTEREST INCOME $ 15,299,024 EXPENSES Management fee $ 687,679 Transfer agent fees 1,367,344 Accounting fees and expenses 51,815 Non-interested trustees' compensation 1,953 Custodian fees and expenses 19,177 Registration fees 340,273 Audit 42,600 Legal 10,784 Reports to shareholders 12,488 Miscellaneous 739 TOTAL EXPENSES 2,534,852 NET INTEREST INCOME 12,764,172 NET REALIZED GAIN (LOSS) ON 18,989 INVESTMENTS NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 12,783,161 OTHER INFORMATION Sales charges paid to FDC $1,879,602 Deferred sales charges withheld $92,060 by FDC
STATEMENT OF CHANGES IN NET ASSETS
INCREASE (DECREASE) IN NET ASSETS SIX MONTHS ENDED YEAR ENDED AUGUST 31, 1994 FEBRUARY 28, (UNAUDITED) 1994 Operations $ 12,764,172 $ 11,974,045 Net interest income Net realized gain (loss) 18,989 (5,966) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 12,783,161 11,968,079 Dividends to shareholders from net interest income (12,764,172) (11,974,045) Share transactions at net asset value of $1.00 per share 2,687,092,699 4,535,732,020 Proceeds from sales of shares Reinvestment of dividends from net interest income 11,807,813 10,826,362 Cost of shares redeemed (2,643,073,837) (4,459,028,175) Net increase (decrease) in net assets resulting from 55,826,675 87,530,207 share transactions TOTAL INCREASE (DECREASE) IN NET ASSETS 55,845,664 87,524,241 NET ASSETS Beginning of period 518,656,868 431,132,627 End of period $ 574,502,532 $ 518,656,868
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED TEN MONTHS YEARS ENDED APRIL 30, ENDED FEBRUARY 28, ENDED AUGUST 31, 1994 FEBRUARY 28, SELECTED PER-SHARE DATA (UNAUDITED) 1994 1993 1992 1991 1990
Net asset value, beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 Income from Investment Operations .018 .026 .026 .048 .073 .081 Net interest income Less Distributions (.018) (.026) (.026) (.048) (.073) (.081) From net interest income Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 TOTAL RETURN B 1.78% 2.62% 2.63% 4.93% 7.50% 8.45% RATIOS AND SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $ 574,503 $ 518,657 $ 431,133 $ 542,620 $ 608,394 $ 643,272 Ratio of expenses to average net assets .70%A .72% .56%A .64% .73% .83% Ratio of net interest income to average net assets 3.53%A 2.59% 3.09%A 4.84% 7.20% 8.13%
A ANNUALIZED B TOTAL RETURNS DO NOT INCLUDE THE ONE TIME SALES CHARGE AND FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED. NOTES TO FINANCIAL STATEMENTS For the period ended August 31, 1994 (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES. Fidelity Select Portfolios (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 trust has thirty-five equity funds (the fund or the funds) which invest primarily in securities of companies whose principal business activities fall within specific industries, and a money market fund which invests in high quality money market instruments. Each fund is authorized to issue an unlimited number of shares. The American Gold Portfolio and the Precious Metals and Minerals Portfolio may also invest in certain precious metals. The following summarizes the significant accounting policies of the funds: SECURITY VALUATION: EQUITY FUNDS. Securities for which exchange quotations are readily available are valued at the last sale price, or if no sale price, at the closing bid price. Securities (including restricted securities) for which exchange quotations are not readily available (and in certain cases debt securities which trade on an exchange), are valued primarily using dealer-supplied valuations or at their fair value as determined in good faith following consistently applied procedures under the general supervision of the Board of Trustees. Short-term securities maturing within sixty days are valued at amortized cost or original cost plus accrued interest, both of which approximate current value. Direct investments in precious metals in the form of bullion are valued at the most recent bid price quoted by a major bank on the New York Commodities Exchange. MONEY MARKET FUND. As permitted under Rule 2a-7 of the 1940 Act, and certain conditions therein, securities are valued initially at cost and thereafter assume a constant amortization to maturity of any discount or premium. FOREIGN CURRENCY TRANSLATION. The accounting records of each 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. Effective March 1, 1994, each fund adopted Statement of Position (SOP) 93-4: Foreign Currency Accounting and Financial Statement Presentation for Investment Companies. In accordance with this SOP, reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of forward currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. Further, as permitted under the SOP, the effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment in securities. INCOME TAXES. As a qualified regulated investment company under Subchapter M of the Internal Revenue Code, each fund is not subject to income taxes to the extent that it distributes all of its taxable income for the fiscal year. The schedules of investments include information regarding income taxes under the caption "Income Tax Information." INVESTMENT INCOME: EQUITY FUNDS. 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 funds are informed of the ex-dividend date. Interest income, which includes accretion of original issue discount, is accrued as earned. Dividend and interest income is recorded net of foreign taxes where recovery of such taxes is uncertain. MONEY MARKET FUND. Interest income, which includes amortization of premium and accretion of discount, is accrued as earned. EXPENSES. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned between the funds in the trust. PREPAID EXPENSES. FMR will bear all organizational expenses except for registering and qualifying the fund and shares of the fund for distribution under federal and state securities law, which will be borne by the fund and amortized over one year. DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid monthly from net interest income for the money market fund. Distributions are recorded on the ex-dividend date, for all other funds. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for partnerships, non-taxable dividends, net operating losses, expiring capital loss carryforwards and losses deferred due to wash sales and excise tax regulations. The funds 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. REDEMPTION FEES. Shares redeemed (including exchanges) from an equity fund are subject to redemption fees. Shares held less than 30 days are subject to a short-term redemption fee equal to .75% of the net asset value of shares redeemed. Shares held 30 days or more are subject to a long-term redemption fee equal to the lesser of $7.50 or .75% of the net asset value of shares redeemed. The long-term redemption fee and the first $7.50 of the short-term redemption fee are accounted for as a reduction of transfer agent expenses. This portion of the redemption fee is 1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED REDEMPTION FEES - CONTINUED used to offset the transaction costs and other expenses that short-term trading imposes on each fund and its shareholders. The remainder of the short-term redemption fee is accounted for as an addition to paid in capital. 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. FORWARD FOREIGN CURRENCY CONTRACTS. The equity funds may enter into forward foreign currency contracts. These contracts involve market risk in excess of the amount reflected in each fund's Statement of Assets and Liabilities. The face or contract amount in U.S. dollars reflects the total exposure each fund has in that particular currency contract. The U.S. dollar value of forward foreign currency contracts is determined using forward currency exchange rates supplied by a quotation service. Losses may arise due to changes in the value of the foreign currency or if the counterparty does not perform under the contract. Purchases and sales of forward foreign currency contracts having the same settlement date and broker are offset and presented net on the Statement of Assets and Liabilities. Gain (loss) on the purchase or sale of forward foreign currency contracts having the same settlement date and broker is recognized on the date of offset, otherwise gain (loss) is recognized on settlement date. REPURCHASE AGREEMENTS. The funds, through their custodian, receive delivery of the underlying securities, whose market value is required to be at least 102% of the resale price at the time of purchase. The funds' investment adviser, Fidelity Management & Research Company (FMR), is responsible for determining that the value of these underlying securities remains at least equal to the resale price. JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the funds, along with other registered investment companies having management contracts with FMR, may transfer uninvested cash balances into a joint trading account. These balances are invested in one or more repurchase agreements that are collateralized by U.S. Treasury or Federal Agency obligations. INTERFUND LENDING PROGRAM. Pursuant to an Exemptive Order issued by the SEC, the funds, along with other registered investment companies having management contracts with FMR, may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from, or lend money to, other participating funds. INDEXED SECURITIES. The funds may invest in indexed securities whose value is linked either directly or inversely to changes in foreign currencies, interest rates, commodities, indices, or other reference instruments. Indexed securities may be more volatile than the reference instrument itself, but any loss is limited to the amount of the original investment. RESTRICTED SECURITIES. The funds are permitted to invest in privately placed restricted securities. These securities may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. At the end of the period, restricted securities (excluding 144A issues) amounted to $853,125, $400,000, $354,002 and $33,998,990 or 0.2%, 0.8%, 0.4% and 5.9% of the net assets of the Biotechnology Portfolio, Construction and Housing Portfolio, Energy Portfolio and Money Market Portfolio, respectively. 3. JOINT TRADING ACCOUNT. At the end of the period, the following funds had 20% or more of their total investments in repurchase agreements through a joint trading account. These repurchase agreements were with entities whose creditworthiness has been reviewed and found satisfactory by FMR. The repurchase agreements were dated August 31, 1994 and due September 1, 1994. The maturity values of the joint trading account investments were $133,428,899 for Biotechnology Portfolio, and $89,531,010 for Home Finance Portfolio, both at 4.83%. The investments in repurchase agreements through the joint trading account are summarized as follows: SUMMARY OF JOINT TRADING Number of dealers or banks 23 Maximum amount with one dealer or bank 12.4% Aggregate principal amount of agreements $17,522,348,000 Aggregate maturity amount of agreements $17,524,700,201 Aggregate market value of collateral $17,897,775,355 Coupon rates of collateral 3.875% to 15.75% Maturity dates of collateral 9/1/94 to 11/15/24 4. PURCHASES AND SALES OF INVESTMENTS. Information regarding purchases and sales of securities (other than short-term securities)is included under the caption "Other Information" at the end of each applicable fund's schedule of investments. 5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES. MANAGEMENT FEE. As each fund's investment adviser, FMR receives a monthly fee. For each equity fund, the monthly fee is calculated on the basis of a group fee rate plus a fixed individual fund fee rate applied to the average net assets of each 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 .2850% to .5200% for the period March 1, 1994 to July 31, 1994, and .2700% to .5200% for the period August 1, 1994 to August 31, 1994. In the event that these rates were lower than 5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED MANAGEMENT FEE - CONTINUED the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .30%. For the period, the management fee was equivalent to an annualized rate of .62% of average net assets for each equity fund. For the money market fund, 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 and an income-based fee. 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 .12% to .37% for the period. In the event that these rates were lower than the contractual rates in effect during those periods, FMR voluntarily implemented the above rates, as they resulted in the same or a lower management fee. The annual individual fund fee rate is .03%. The income based fee is added only when the fund's yield exceeds 5%. At the time the fee would equal 6% of that portion of the fund's gross income that represents a gross yield of more than 5% per year. The maximum income-based component is .24% (annualized)of average net assets. For the period, the management fee was equivalent to an annualized rate of .19% of average net assets. SUB-ADVISER FEE. As the money market fund's investment sub- adviser, FMR Texas Inc., a wholly owned subsidiary of FMR, receives a fee from FMR of 50% of the management fee payable to FMR. The fee is paid prior to any voluntary expense reimbursements which may be in effect, and after reducing the fee for any payments by FMR pursuant to the fund's Distribution and Service Plan. SALES LOAD. Fidelity Distributors Corporation (FDC), an affiliate of FMR, is the general distributor of each fund. FDC is paid a 3% sales charge on sales of shares of each fund. Prior to October 12, 1990, FDC was paid a 2% sales charge and a 1% deferred sales charge. Shares purchased before October 12, 1990 are subject to the deferred sales charge upon redemption or exchange to any other Fidelity fund (other than Select funds). The amounts received by FDC for sales charges and deferred sales charges are shown under the caption "Other Information" on each fund's Statement of Operations. TRANSFER AGENT FEE. Fidelity Service Co. (FSC), an affiliate of FMR, is the funds' transfer, dividend disbursing and shareholder servicing agent. FSC receives fees based on the type, size, and number of accounts and the number of transactions made by shareholders. FSC pays for typesetting, printing and mailing of all shareholder reports, except proxy statements. ACCOUNTING AND SECURITY LENDING FEES. FSC maintains the funds' accounting records and administers their security lending program. The security lending fee is based on the number and duration of lending transactions. The accounting fee is based on the level of average net assets for the month plus out-of-pocket expenses. EXCHANGE FEES. FSC charges an exchange fee of $7.50 to cover administrative costs associated with exchanges out of an equity fund to any other Fidelity Select fund or to any other Fidelity fund. The exchange fees retained by FSC are shown under the caption "Other Information" on each fund's Statement of Operations. BROKERAGE COMMISSIONS. Each equity fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of FMR. The commissions paid to these affiliated firms are shown under the caption "Other Information" on each fund's schedule of investments. 6. INTERFUND LENDING PROGRAM. Certain funds participated in the interfund lending program as a borrower. The maximum loan, average daily loan balances and the weighted average interest rates, during the periods for which loans were outstanding are as follows: AVERAGE WEIGHTED MAXIMUM DAILY AVERAGE LOAN LOAN BALANCE INTEREST RATE Electronics Portfolio $28,856,000 $19,714,500 4.0% Retailing Portfolio $17,178,000 $17,178,000 4.5% Interest expense includes $8,656, and $2,161 paid under the interfund lending program for Electronics Portfolio, and Retailing Portfolio, respectively. Certain funds participated in the interfund lending program as a lender. The maximum loan, the average daily loan balances and the weighted average interest rates, during the periods for which loans were outstanding are as follows: AVERAGE WEIGHTED MAXIMUM DAILY AVERAGE LOAN LOAN BALANCE INTEREST RATE American Gold Portfolio $21,109,000 $19,072,286 4.0% Healthcare Portfolio $12,452,000 $4,786,500 4.0% Precious Metals and Minerals Portfolio $15,357,000 $7,849,667 3.9% Interest income includes $14,727, $4,190, $5,087, earned from the interfund lending program for American Gold Portfolio, Healthcare Portfolio, and Precious Metals and Minerals Portfolio. 7. SECURITY LENDING. Certain equity funds loaned securities to certain brokers who paid the fund negotiated lenders' fees during the period. These fees are included in interest income. Each fund receives U.S. Treasury obligations and/or cash as collateral against the loaned securities, in an amount at least equal to 102% of the market value of the loaned securities at the inception of each loan. This collateral must be maintained at not less than 100% of the market value of the loaned securities during the period of the loan. For funds with loans outstanding at the period end, the value of the securities loaned and the value of collateral held are shown under the caption "Other Information" on each fund's schedule of investments. 8. BANK BORROWINGS. Each fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The fund has established borrowing arrangements with certain banks. Under the most restrictive arrangement, each fund must pledge to the bank securities having a market value in excess of 220% of the total bank borrowings. The interest rate on the borrowings is the bank's base rate, as revised from time to time. At the period end, the maximum loan and average daily loan balances during the periods for which loans were outstanding are shown under the caption "Other Information" on each fund's schedule of investments. 9. EXPENSE REDUCTIONS. FMR voluntarily limits expenses, excluding interest, taxes, brokerage commissions and extraordinary expenses of each fund to 2.5% of average net assets. In addition, FMR has agreed to reimburse each fund in accordance with a state expense limitation if, and to the extent that the total operating expenses of each fund, excluding interest, taxes, brokerage commissions and extraordinary expenses, are in excess of specified percentages of the average net assets of the fund for its fiscal year. Therefore, the lowest limitation applicable to the fund is either the lesser of 2.5% of average net assets; or 2.5% of the first $30 million of average net assets, 2% of the next $70 million and 1.5% of the excess. FMR retains the ability to be repaid by a fund for these expense reimbursements in the amount that the expenses fall below the limit prior to the end of the fiscal year. The reimbursement amounted to $15,354, $69,208, $13,891 and $29,154 for Air Transportation Portfolio, Brokerage and Investment Management Portfolio, Consumer Products Portfolio, and Defense and Aerospace Portfolio, respectively. FMR directed certain portfolio trades to brokers who paid a portion of the funds' expenses. The amount of reduction of expenses for each fund (excluding Air Transportation Portfolio, Brokerage and Investment Management Portfolio, Consumer Products Portfolio, and Defense and Aerospace Portfolio) is shown on each fund's Statement of Operations. For the period, the aggregate reductions totalled $460,621. 10. MERGERS. Pursuant to an Agreement and Plan of Reorganization approved by the shareholders of Electric Utilities Portfolio at a meeting held on February 16, 1994, Utilities Growth Portfolio (formerly Utilities Portfolio) acquired substantially all of the assets of the Electric Utilities Portfolio on February 25, 1994. The acquisition was accomplished by a tax-free exchange of assets of Electric Utilities Portfolio in exchange for 458,728 shares of Utilities Growth Portfolio (valued at $36.36 per share). Electric Utilities Portfolio's net assets at that date (valued at $16,679,364), including $1,838,111 of unrealized appreciation were combined with those of Utilities Growth Portfolio. The aggregate net assets of Utilities Growth Portfolio and Electric Utilities Portfolio immediately before the acquisition were $233,107,469 and $16,679,364, respectively. 11. CREDIT RISK. The Computer Portfolio's relatively large investment in countries with limited or developing capital markets may involve greater risks than investments in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of the fund's investments and the income they generate, as well as the fund's ability to repatriate such amounts. STATISTICAL ROUNDUP: FIDELITY SELECT PORTFOLIOS(REGISTERED TRADEMARK) LEGEND TOTAL RETURNS include change in share price and reinvestment of dividends and capital gains. CUMULATIVE TOTAL RETURNS do not reflect Select's 3% sales charge. However, each Fund Update includes load-adjusted cumulative total returns. AVERAGE ANNUAL RETURNS are load-adjusted. Average Annual Returns assume a steady compounded rate of return and are not year-by-year results, which fluctuated over the periods shown. LIFE OF FUND figures are from commencement of operations to August 31, 1994. Figures for the S&P 500(registered trademark), an unmanaged index of common stock prices, include reinvestment of dividends. S&P 500 is registered trademark of Standard & Poor's Corporation. If the advisor had not reimbursed certain expenses for some of the funds during the periods shown, those funds' returns would have been lower. Air Transportation, Brokerage and Investment Management, Consumer Products and Defense and Aerospace received reimbursement for the six-month period ended August 31, 1994. Expense reimbursements may be revised at any time, at which time the fund's return will decline. All performance numbers are historical; each equity fund's share price and return will vary and shareholders may have a gain or loss when they sell their shares. VOLATILITY Volatility measures the variability of a return from its mean, in terms of STANDARD DEVIATIONS. (Standard deviation measures the variation from the mean for a series of numbers.) Measures of volatility are based on historical performance and seek to compare each fund's relative share price fluctuations or total returns compared to the S&P 500. (Volatility measures are not calculated for funds which are less than three years old.) Volatility measures are given to investors to assist in determining the historical risk versus return relationship between the fund and a benchmark index. THE CALCULATIONS ARE NOT MEANT TO PREDICT PERFORMANCE and may change quickly as fund composition and company fundamentals change. A fund's RELATIVE VOLATILITY is a ratio that compares the fund's volatility to the volatility of a benchmark index, such as the S&P 500. By definition, the S&P 500 has a relative volatility of 1.0. A fund with a relative volatility greater than 1.0 has had returns that have been more variable than those returns of the benchmark index, while a fund with a relative volatility less than 1.0 would have had less volatility than the benchmark index. MEDIAN PRICE/SALES This figure represents the median price-to-sales ratio for all the stocks in a fund on a given date. A stock's price-to-sales ratio compares the company's market value with its total revenue. The ratio is calculated by dividing the stock price by the most recent 12 months' revenues per share. All price-to-sales ratios are from company 10Q filings. Excluded from the median price/sales calculations are foreign companies without ADRs (American Depository Receipts), IPOs (Initial Public Offerings) and certain financial companies. As a result, figures are not available for Precious Metals and Minerals. MEDIAN PRICE/BOOK This figure represents the median price-to-book ratio of all the stocks in a fund on a given date. A stock's price-to-book ratio compares the company's market value with its book value or net asset value. The ratio is calculated by dividing the stock price by the book value per share. All price-to-book ratios are from company 10Q filings. Excluded from the median price/book calculations are foreign companies without ADRs and certain financial companies. STATISTICAL ROUNDUP(DAGGER) (UNAUDITED) CUMULATIVE TOTAL RETURNS AVERAGE ANNUAL RETURNS OPENING CLOSING FOR PERIODS ENDED 8/31/94 FOR PERIODS ENDED 8/31/94 NAV NAV YTD 1 YEAR LIFE OF FUND 1 YEAR 5 YEARS LIFE OF FUND 3/1/94 8/31/94 Air Transportation (12/16/85) -4.87% 0.91% 108.10% -2.12% 5.00% 8.39% $ 17.12 $ 15.29 American Gold (12/16/85) -7.64 1.97 120.71 -1.09 6.33 9.13 22.66 21.75 Automotive (6/30/86) -8.21 -1.10 189.07 -4.07 14.67 13.44 25.48 22.61 Biotechnology (12/16/85) -11.81 -0.24 242.88 -3.23 18.61 14.79 27.61 25.23 Brokerage and Investment Mgmt. (7/29/85) -10.66 -3.60 122.34 -6.49 12.31 8.81 17.75 16.35 Chemicals (7/29/85) 22.37 27.91 411.68 24.07 13.03 19.25 31.66 35.76 Computers (7/29/85) 15.61 28.87 227.44 25.00 21.70 13.54 27.02 28.15 Construction and Housing (9/29/86) -6.25 7.26 169.55 4.04 11.93 12.89 19.82 18.27 Consumer Products (6/29/90) -5.23 0.77 75.73 -2.25 - 13.62 15.24 14.52 Defense and Aerospace* (5/8/84) 4.81 12.05 115.56 8.68 7.51 7.41 19.14 18.87 Developing Communications (6/29/90) 3.78 6.26 133.59 3.07 - 21.62 19.65 18.60 Electronics (7/29/85) 16.79 19.90 118.08 16.30 22.85 8.58 17.67 18.43 Energy* (7/14/81) 4.67 -5.86 134.52 -8.69 4.83 7.91 16.73 17.07 Energy Service (12/16/85) 2.95 -12.19 20.25 -14.83 2.22 1.78 11.66 11.58 Environmental Services (6/29/89) -2.41 -1.09 17.71 -4.05 0.84 2.59 11.93 10.93 Financial Services* (12/10/81) 11.17 8.77 732.33 5.51 14.49 17.82 51.24 54.93 Food and Agriculture (7/29/85) 6.12 10.96 379.17 7.63 12.95 18.39 31.49 31.78 Health Care* (7/14/81) 16.08 31.86 1059.39 27.90 18.03 20.22 63.31 73.71 Home Finance (12/16/85) 18.88 25.60 412.87 21.83 20.96 20.21 25.03 27.70 Industrial Equipment (9/29/86) 4.81 11.13 113.93 7.80 10.85 9.64 20.61 19.89 Industrial Materials (9/29/86) 16.63 26.26 152.77 22.47 9.31 11.98 21.67 23.82 Insurance (12/16/85) 1.60 -5.93 158.78 -8.75 11.04 11.14 19.41 20.35 Leisure* (5/8/84) -3.48 6.39 481.94 3.20 8.52 18.25 45.30 39.65 Medical Delivery (6/30/86) 16.18 42.88 189.87 38.60 17.28 13.47 20.28 22.19 Multimedia (6/30/86) 3.52 11.04 248.21 7.71 9.61 16.05 23.87 21.85 Natural Gas (dagger)(dagger) (4/21/93) 0.85 -13.73 -4.24 -16.32 - -5.27 9.48 9.44 Paper and Forest Products (6/30/86) 20.33 29.96 153.89 26.06 10.17 11.65 19.61 21.32 Precious Metals and Minerals* (7/14/81) 3.10 24.29 124.91 20.56 9.65 6.17 16.62 18.68 Regional Banks (6/30/86) 14.83 13.06 228.72 9.67 16.68 15.23 17.99 19.85 Retailing (12/16/85) 1.91 8.20 318.19 4.95 15.65 17.43 24.91 25.62 Software and Computer Services (7/29/85) -10.17 -6.20 302.11 -9.02 19.95 16.14 28.89 24.42 Technology* (7/14/81) 7.64 13.00 463.34 9.61 21.48 13.79 41.83 40.06 Telecommunications (7/29/85) 5.13 3.51 403.60 0.40 12.42 19.04 37.10 38.58 Transportation (9/29/86) 8.28 17.26 218.31 13.75 13.81 15.28 21.67 22.13 Utilities Growth*(diamond) (12/10/81) -3.28 -9.25 519.29 -11.97 9.31 15.12 36.61 35.60 S&P 500 3.88 5.47 - 5.47 9.60 - 467.14 475.98 * Ten-year Average Annual Total Returns for the period ended 8/31/94 for these funds were as follows: Defense = 5.88%; Energy = 7.91%; Financial Services = 16.51%; Health Care = 20.28%; Leisure = 17.83%; Precious Metals and Minerals = 5.70%; Technology = 9.03%; Utilities Growth = 14.49%. (dagger) See "Legend" on page for explanation of information on this table. (dagger)(dagger) Natural Gas data is from 4/21/93 (commencement of operations). (diamond) Formerly Utilities ** High/Low NAVs are based on 4:00 p.m. prices for the period 3/1/94 - 8/31/94. HIGH LOW TOTAL NET ASSETS DISTRIBUTIONS MEDIAN MEDIAN NAV** NAV** $MM 1/1/94-8/31/94 PRICE/SALES PRICE/BOOK FOR 6 MONTHS ENDED 8/31/94 2/28/94 8/31/94 CAP GAINS DIVS RELATIVE VOLATILITY AS OF 8/31/94 $17.25 $13.59 $ 11.0 12.3 $3.94 $ - 1.60 $ 0.5 $1.7 23.66 20.21 347.4 366.3 - - 2.21 3.9 2.1 26.01 22.06 228.7 90.1 .27 - 1.43 0.5 2.1 27.41 22.70 481.1 462.9 - - 2.31 10.0 2.9 17.62 15.25 59.8 28.4 - - 1.96 0.6 1.3 35.76 30.29 62.2 205.1 .20 .01 1.16 1.0 2.8 29.31 23.79 120.4 110.9 - - 2.08 1.4 2.7 20.17 16.97 81.0 48.6 .10 - 1.41 0.7 2.1 15.38 13.28 8.4 7.9 .08 - 1.30 0.8 2.9 19.58 17.49 11.1 4.0 .27 - 1.12 0.5 2.1 20.22 15.25 222.1 201.6 1.29 - 1.72 2.0 3.2 19.14 15.86 111.0 148.7 - - 1.81 1.8 2.5 17.78 15.64 145.5 100.5 .11 .01 1.50 1.8 1.9 12.20 10.61 40.9 46.7 .32 .01 1.87 1.2 1.3 11.85 10.20 66.0 52.8 - -. 1.58 1.1 2.0 54.93 48.24 116.2 121.0 .37 .02 1.53 1.3 1.4 31.78 28.20 95.0 101.1 .79 - 1.04 0.9 3.0 74.03 58.13 522.9 655.1 - .11 1.96 1.9 3.3 27.70 23.69 155.6 312.9 1.17 - 1.65 1.2 1.1 20.92 17.73 206.0 89.8 .17 - 1.36 0.8 2.5 23.82 20.73 155.7 212.9 - .05 1.30 0.8 2.3 20.35 18.17 18.4 6.5 - - 1.14 1.1 1.3 45.73 36.29 105.8 70.3 3.93 - 1.23 2.0 3.3 22.19 19.22 188.6 211.2 - - 2.11 1.3 3.6 24.27 19.00 49.2 28.9 2.51 - 1.42 2.0 3.0 10.05 8.98 63.1 76.6 - - - 1.5 2.0 21.32 16.42 66.9 66.4 .35 - 1.69 0.9 2.1 18.68 15.14 409.2 467.1 - .01 2.45 -- -- 19.85 17.40 97.4 163.2 .21 .01 1.45 1.8 1.7 25.82 22.85 52.8 58.3 - - 1.44 0.6 2.1 29.31 19.81 178.0 180.1 .33 - 2.34 2.8 3.2 44.41 34.13 202.5 217.4 1.50 - 1.72 1.4 2.7 38.58 34.86 371.0 395.2 .78 .03 1.20 1.7 3.6 22.23 20.31 13.1 13.4 .33 - 1.28 0.6 2.5 36.88 33.67 250.5 233.2 .60 .12 .87 0.9 1.4 476.07 438.92 - - - - N/A 1.0 3.1 TO CALL FIDELITY FOR PORTFOLIO INFORMATION AND QUOTES The Fidelity Telephone Connection offers you special automated telephone services for quotes and balances. The services are easy to use, confidential and quick. All you need is a Touch Tone telephone. YOUR PERSONAL IDENTIFICATION NUMBER (PIN) The first time you call one of our automated telephone services, we'll ask you to set up your Personal Identification Number (PIN). The PIN assures that only you have automated telephone access to your account information. Please have your Customer Number (T-account #) handy when you call -- you'll need it to establish your PIN. If you would ever like to change your PIN, just choose the "Change your Personal Identification Number" option when you call. If you forget your PIN, please call a Fidelity representative at 1-800-544-6666 for assistance. (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND QUOTES* 1-800-544-8544 Just make a selection from this record-ed menu: PRESS For quotes on funds you own. 1 For an individual fund quote. 2 For the ten most frequently requested Fidelity fund quotes. 3 For quotes on Fidelity Select Portfolios(registered trademark). 4 To change your Personal Identification Number (PIN). 5 To speak with a Fidelity representative. 6 (PHONE_GRAPHIC)(PHONE_GRAPHIC)MUTUAL FUND ACCOUNT BALANCES 1-800-544-7544 Just make a selection from this record- ed menu: PRESS For balances on funds you own. 1 For your most recent fund activity (purchases, redemptions, and dividends). 2 To change your Personal Identification Number (PIN). 3 To speak with a Fidelity representative. 4 * WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE, REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY SALES CHARGES. FOR MORE INFORMATION ON ANY FIDELITY FUND INCLUDING MANAGEMENT FEES AND CHARGES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. INVESTMENT ADVISER Fidelity Management & Research Company Boston, MA INVESTMENT SUB-ADVISERS Fidelity Management & Research FMR Texas Inc., Irving, TX Fidelity Management & Research (U.K.) Inc., London, England Fidelity Management & Research (Far East) Inc., Tokyo, Japan OFFICERS Edward C. Johnson 3d, PRESIDENT J. Gary Burkhead, SENIOR VICE PRESIDENT William J. Hayes, VICE PRESIDENT Thomas D. Maher, ASSISTANT VICE PRESIDENT, MONEY MARKET FUND Gary L. French, TREASURER John H. Costello, ASSISTANT TREASURER Leonard M. Rush, ASSISTANT TREASURER Arthur S. Loring, SECRETARY Robert H. Morrison, MANAGER, SECURITY TRANSACTIONS BOARD OF TRUSTEES J. Gary Burkhead Ralph F. Cox * Phyllis Burke Davis * Richard J. Flynn * Edward C. Johnson 3d E. Bradley Jones * Donald J. Kirk Peter S. Lynch Edward H. Malone * Marvin L. Mann * Gerald C. McDonough * Thomas R. Williams * GENERAL DISTRIBUTOR Fidelity Distributors Corporation Boston, MA TRANSFER AND SHAREHOLDER SERVICING AGENT Fidelity Service Co. Boston, MA CUSTODIANS Brown Brothers Harriman & Co. Boston, MA and The Bank of New York New York, NY CORPORATE HEADQUARTERS 82 Devonshire Street Boston, MA 02109 1-800-544-8888 * INDEPENDENT TRUSTEES FIDELITY SELECT PORTFOLIOS CONSUMER SECTOR Consumer Products Food and Agriculture Leisure Multimedia Retailing CYCLICALS SECTOR Air Transportation Automotive Chemicals Construction and Housing Environmental Services Industrial Equipment Industrial Materials Paper and Forest Products Transportation ENERGY, UTILITIES & NATURAL RESOURCES SECTOR American Gold Energy Energy Service Natural Gas Precious Metals and Minerals Utilities Growth FINANCIAL SERVICES SECTOR Brokerage and Investment Management Financial Services Home Finance Insurance Regional Banks HEALTH CARE SECTOR Biotechnology Health Care Medical Delivery TECHNOLOGY SECTOR Computers Defense and Aerospace Developing Communications Electronics Software and Computer Services Technology Telecommunications Money Market THE FIDELITY TELEPHONE CONNECTION MUTUAL FUND 24-HOUR SERVICE Account Balances 1-800-544-7544 Exchanges/Redemptions 1-800-544-7777 Mutual Fund Quotes 1-800-544-8544 Account Assistance 1-800-544-6666 Product Information 1-800-544-8888 Retirement Accounts 1-800-544-4774 (8 a.m. - 9 p.m.) TDD Service 1-800-544-0111 for the deaf and hearing impaired (9 a.m. - 9 p.m. Eastern time) AUTOMATED LINES FOR QUICKEST SERVICE FIDELITY INVESTMENTS P.O. Box 193 BOSTON, MA 02101 BULK RATE U.S. Postage PAID Fidelity Investments -----END PRIVACY-ENHANCED MESSAGE-----